The Los Angeles Times, which first reported the pending deal on Monday, said Netflix was expected to pay “close to $1 billion in licensing fees over the life of the deal.”
The deal is with Epix, a fledgling pay-television service that was founded two years ago as a prospective competitor to HBO and Showtime. These pay TV services are normally important contributors to the bottom lines of studios, since they provide a reliable revenue stream for years after a film is released in theaters.
Epix has the rights to films from Paramount, Lions Gate and MGM. But in a crowded marketplace, the service has gained very little distribution on cable and satellite systems, making it invisible to most consumers. Viacom, one of the owners of Epix, disclosed last week that the joint venture continues to lose money, though it said that the service is moving closer to the break-even point.
The Netflix deal is a way to partly circumvent the cable and satellite carriers — and stem the financial losses.
Mark Greenberg, the president of Epix, said in a statement: “We are pleased to be able to continue our mission of bringing consumers the movies where they want to watch them, while satisfying the differing needs of cable, telco and satellite operators.”
In a compromise of sorts for the cable and satellite carriers that Epix is still trying to win business from, the service will carve out a three-month TV window for films before they are available to Netflix subscribers. Those participating cable and satellite carriers can also provide online access to the films three months before Netflix can.
With its three-year-old “Watch Instantly” service and with Tuesday’s deal with Epix, Netflix is trying to answer a hugely important question in the media industry: How will people watch movies in the future?
Netflix first targeted the likes of Blockbuster with DVDs by mail. Then it set its sights on online streaming, but existing deals with pay TV operators like HBO make it hard to show new releases. Netflix and Epix noted in a news release Tuesday that “historically,” the rights to hit films “are pre-sold to pay TV for as long as nine years after their theatrical release.”
Accordingly, most of the movies on the “Watch Instantly” service are older films and TV series.
Netflix has moved aggressively to secure newer films, betting that a better selection will attract new subscribers. “We are definitely interested in licensing from HBO, from Epix, from Showtime,” the Netflix chief executive, Reed Hastings, said on a conference call with analysts last month.
On Viacom’s conference call with analysts last week, a Morgan Stanley analyst, Benjamin Swinburne, asked Viacom’s chief executive, Philippe Dauman, whether Epix had considered a streaming arrangement with Netflix.
“We are looking at all forms of distribution going forward, and Epix will be announcing new distribution agreements pretty shortly,” Mr. Dauman answered.
The deal will commence Sept. 1. Netflix would not confirm a report in The Los Angeles Times that the deal will last for five years. A news release Tuesday called it a “multiyear deal,” and did not disclose the financial terms.