Netflix Gets Rights to Sony Animation Films

Cloudy with a chance of meatballs 2 Still - H 2013

Cloudy with a chance of meatballs 2 Still - H 2013

UPDATED: Janney analyst Tony Wible says the arrangement is "an incremental positive for Netflix," while Starz continues to have a deal with Sony for its live-action output and could reinvest savings into original shows.

Netflix has started offering Sony Animation content under a new licensing deal, with Starz continuing to offer its subscribers Sony live-action movies.

A Netflix spokesman confirmed Tuesday that the streaming video company has struck a deal for Sony Animation films after a Wall Street analyst had suggested such a deal in a report. Financial terms weren't immediately clear.

A Starz representative confirmed that the animation films were excluded from a licensing deal that the firm has with Sony.

PHOTOS: Inside THR's Animation Roundtable

"Netflix and Sony Pictures Television have reached  a multi-year agreement to bring Sony Pictures Animation feature films in the first pay TV window to Netflix members in the U.S., beginning with the hit movies Cloudy with a Chance of Meatballs 2 and The Smurfs 2 in 2014," the three companies said in a joint statement. "Sony and Starz continue their long-term partnership, and Starz remains the exclusive pay TV home of Sony Pictures Entertainment feature titles through 2021."

A Wall Street observer had first pointed out that the Cloudy sequel was already on Netflix.

"It appears that Sony Animation's content has prematurely left the Starz platform for Netflix," Janney Montgomery Scott analyst Tony Wible had said in a Tuesday morning report. "The studio's latest animated film, Cloudy With a Chance of Meatballs 2, just entered the pay TV window  and was recently made available on Netflix. We do not see any current listing dates for the title on Starz or the title listed on its web site."

Starz and Sony last year extended an existing film licensing deal. The new arrangement covers films that are released through 2021. "Our conversation with the head of Sony's studio last year revealed that Sony Animation content was not included as part of the recent Sony/Starz renewal, but we assumed that term would not commence until the start of its new contract in 2016," Wible wrote. "We believe this is an incremental positive for Netflix and incremental negative for Starz."

For Netflix, the news is positive, because the company can replace part of the content it lost from its discontinued licensing deal with Starz, the analyst said, adding: "The Sony deal would only add one or two titles per year to its lineup, but gradually increases the company's focus around younger/animated content as they have exclusive access to Pixar, Disney Animation, DreamWorks Animation, and Sony Animation."

PHOTOS: The Making of Disney's 'Frozen'

That means that Fox's Blue Sky Studios and Universal partner Illumination "are the only other major sources of animation, which are distributed through HBO," Wible said, adding: "We believe the younger demographic is an important element of Netflix's long-term strategy as they condition future generations to use the platform as they mature."

Netflix previously had a streaming content deal with Starz directly, which covered film output from Walt Disney and Sony. When it ended, Netflix observers were concerned that the company would lose key content, but Netflix ended up striking a licensing deal directly with Disney that kicks in down the line.

Late last year, Starz and Sony extended their film output deal, but with animation movies excluded from it, Netflix has now picked up that content.

Meanwhile, the Netflix deal for Sony Animation fare shows that Starz "is firmly committed to its new growth strategy around niche content and originals," Wible argued. "The loss of Sony Animation may provide up to about $35 million of content savings per year that could be reinvested into new originals, a key focus for Starz management.

Said Wible: "We estimate Starz is currently spending about $3 million per hour on new shows, so these savings could essentially finance a new original." But he suggested that overall, the Sony Animation-Netflix deal could be seen as an "incremental negative" for Starz.

Twitter: @georgszalai