Netflix Adds to Online Movies with Relativity Deal

Associated Press

 

Netflix Inc. is snatching away several movies a year that would have gone to pay TV outlets such as HBO or Showtime, under a deal with film financier Relativity Media LLC announced Tuesday.

The deal, worth more than $100 million per year, highlights Netflix' strategy to migrate customers from ordering DVDs by mail to accessing them online over personal computers, game consoles, Blu-ray players, mobile devices and TVs.

Relativity plans to supply 12 to 15 films per year starting in early 2011, although the deal accommodates up to 30, with Netflix paying per movie. The initial movies include "The Fighter," starring Christian Bale, Mark Wahlberg and Amy Adams, and "Season of the Witch," starring Nicolas Cage. Both movies are set to hit theaters later this year.

Netflix's online streaming service already offers newer movies from The Walt Disney Co. and Sony Corp. through a 2-year-old deal with Starz Entertainment LLC, a cable channel that has sublicensed some of its movie rights to Netflix.

Netflix's popularity has grown while DVD sales have fallen, so it has had to adjust its relations with Hollywood studios. It recently agreed to delay renting movies from 20th Century Fox, Warner Bros. and Universal Pictures until 28 days after their release on DVD to help the studios protect those DVD sales.

While Relativity's movies do not include major studio blockbusters, streaming newer movies during periods usually reserved for pay TV could put new pressure on premium cable channels such as HBO, whose parent, Time Warner Inc., also owns movie studio Warner Bros.

However, the premium channels have shifted some of their focus away from movies and to original content such as HBO's "True Blood" or Showtime's "Dexter."

HBO, Epix and Starz also have online streaming versions of their product, which they offer to subscribers for free.

In HBO's case, losing one or two Relativity-produced movies a year will put only a small dent in its business, as HBO receives about half of Hollywood's output every year.

Although DVDs by mail remain the largest part of Netflix's business, the company aims to expand its online service to save on postage costs and gain new customers.

The company has 13 million members paying at least $8.99 a month to get DVDs by mail and unlimited access to the streaming catalog. It aims to have 15 million subscribers by the end of the year. Netflix says that 60 million U.S. homes have Netflix-ready devices and a broadband Internet connection needed to stream video to TVs.

"Now we've just got to give them a reason to connect all the wires," said Ted Sarandos, Netflix' chief content officer.

Although Relativity co-finances a wide range of pictures from Universal Pictures and Sony Pictures, only movies that it has financed fully on its own or made through its subsidiary Rogue Pictures are included in the deal.

That would include the romantic drama "Dear John," but exclude some studio-backed films such as "Robin Hood" and "Get Him to the Greek."

Relativity's movies will be made available for streaming on Netflix during the traditional "pay TV" window - starting about a year after a title opens in theaters. That's a few months later than the movies' availability on DVDs and in rental outlets.

Netflix is paying more than pay TV outlets generally do for movies, according to a person familiar with the deal, who was not authorized to speak publicly and did so on condition of anonymity. The person said Relativity also is allowed to sell digital copies of movies through outlets such as Apple Inc.'s iTunes store and Amazon.com Inc. while they are being streamed, activity that is normally prohibited in pay TV deals.

About one-fifth of Netflix's 100,000 movie and TV show titles can now be streamed online.

Supported devices include Microsoft Corp.'s Xbox 360, Sony's PlayStation 3, Nintendo Co.'s Wii, Roku Inc.'s digital player, Apple's iPad, and a range of Blu-ray players and TVs.

Shares of Netflix, based in Los Gatos, rose 19 cents to close Tuesday at $107.27.

Movie Tickets Reach the $20 Mark

The Wall Street Journal

 

For the first time, a major Hollywood film will hit the $20 threshold at the box office, as movie-theater owners test the public's ability to absorb ever higher ticket prices.

Several theaters will charge $20 per adult ticket to IMAX showings of the animated 3-D family film "Shrek Forever After," the fourth "Shrek" installment from DreamWorks Animation. The theaters include the AMC theater in Manhattan's Kips Bay neighborhood, AMC Loews 34, AMC Loews Lincoln Square and AMC Empire 42nd Street.

The increases weren't officially announced, but were reflected in prices posted Wednesday on movie-ticketing Web sites such as Fandango.com and tracked by BTIG LLC media analyst Richard Greenfield.

"With the state of the economy remaining questionable, we worry pricing is simply moving up too quickly," cautioned Mr. Greenfield in a research blog post, adding that he was especially concerned about how quickly children's ticket prices are increasing. "The danger is scaring consumers away from the movie theaters."

This weekend's price increase come less than eight weeks after theater operators instituted some of the steepest hikes in a decade. Those increases in late March—in some cases of as much as 26%—varied theater to theater and focused on 3-D and IMAX showings of another DreamWorks Animation title, "How to Train Your Dragon." The same AMC theater in Manhattan charged $19.50 for an IMAX showing of "Dragon."

The $20 ticket may prove to be a psychological barrier too steep for some moviegoers to overcome, but the industry appears ready to take the risk, especially in the wake of a string of 3-D blockbusters, from "Avatar" to "Alice in Wonderland." 3-D movies accounted for the vast majority of last year's 10% jump in domestic box-office sales. That figure is likely to climb even higher for 2010.

While box-office revenues are up about 6% this year compared to the same period last year, attendance is slightly down—a reversal from several months of rapid expansion at the box office and a record-breaking year in 2009, when attendance was up more than 5% and revenues broke the $10 billion barrier.

Short Films can be a Shortcut to Hollywood

LA Times

When Barbara and Andres Muschietti, two television-commercial veterans with little movie-making experience, decided on a lark to make a short horror film last year, they didn't exactly have a larger plan in mind. "We didn't even have an outline," says Barbara Muschietti. "We just wanted to do something scary."

But a few months later, the Muschiettis, who work mainly in their native Spain, had done a lot more than that. With their short film "Mama," a sparkplug of a tale about two children in a Gothic haunted house, the Muschiettis secured a deal from Universal Pictures to turn their short into a feature. And they won the admiration of a Hollywood A-lister who has just a bit of name-recognition: Guillermo del Toro, the director of "Hellboy" and upcoming epic " The Hobbit," who liked "Mama" so much he decided to join the project as a producer and even write a draft of the script.

To many movie fans, the mention of short films conjures some dusty notions. If the form registers at all, it's as a film-festival afterthought or a quaint anachronism, a reminder of the moviegoing era of a half-century ago when the main theatrical event was sandwiched between cartoons, newsreels and other filler.

But to contemporary Hollywood, shorts are serious business — or at least a serious fad. The massive success last year of the shorts-derived "District 9" — and the power of YouTube to spread word quickly — has transformed how Hollywood views these mini-movies. "Studios and financiers have always said they'd like to see as much of the movie as they can, figuratively, before they develop it," says the veteran Hollywood producer Douglas Wick, who has been behind mega-hits such as "Gladiator." "With shorts, they literally can."


In recent months, shorts from filmmaking neophytes have seized the imagination of some of the town's biggest names, who see them not just a calling card for new talent, as they previously did, but the basis for hot, multiplex-worthy material.

Sam Raimi's production company was the envy of many in Hollywood last year when it outmaneuvered several players to acquire the feature rights to "Panic Attack," an apocalyptic tale evoking "The War of the Worlds" from a Uruguayan unknown named Fede Alvarez. Leonardo DiCaprio's production company optioned a science-fiction short from a Dutch physics student named Tim Smit called "What's in the Box?"

Top producers have expressed interest in turning "Alma" — a dark, impeccably executed short with Tim Burton overtones from an in-the-trenches Pixar employee named Rodrigo Blaas — into a big-budget animated feature. Patrick Jean's "Pixels," a playful ode to classic video games, is also attracting attention from industry players who want to turn it into a theatrical film.

And over the last few weeks, heat has swirled around Ricardo de Montreuil's "The Raven," a story about a man pursued across a dystopian downtown Los Angeles, where the film was shot over one weekend. "The Raven" is the most current example of a short gaining buzz in real time, as stars, producers and agents send links to one another with an air of conspiracy and discovery. It's basically Hollywood's version of pursuing unassuming bar bands in the hope of turning one of them into the Rolling Stones.

"It was a little insane. I don't know how it became viral so fast," says "Raven" director de Montreuil, who previously directed dramas that played the likes of Sundance but never before gotten a fraction of the attention. "I'm still trying to figure out what happened."

The profit motive and creative template for nearly all these efforts stems from the short "Alive in Joburg." Several years ago, no one had heard of the modest nine-minute science-fiction film or its rookie director, Neill Blomkamp. But under the tutelage of "Lord of the Rings" director Peter Jackson, the short was honed and chiseled into "District 9." The rest is film lore. Backed by the muscle of a studio marketing campaign, the film became one of the biggest hits of last summer, an Oscar nominee for best picture and one of the best-received films of 2009.

"A good short tells you that a filmmaker can handle a story, that he has vision and that he has the ability to convey emotion, which are all things we saw with Neill," says Sony president of worldwide affairs Peter Schlessel, who helped spearhead "District 9." "You can never take something like that and build a business plan around it. But if it worked once, it could work again."

Yet it's more than just a lone hit that has so many Hollywood power players going shorts-mad. If graphic novels became the rage a few years ago because they offered nervous studio executives a tangible representation of a story idea, shorts do graphic novels one better: They show how a finished film might actually look. And with traffic so easily measured, it can reassure focus group-minded studio executive of an audience for a filmmaker's work (at least a nonpaying one).

Meanwhile, for the creators, the low barrier to making a short has democratized the medium of cinema. "Animation is a producers' medium. This is a way to take the reins back," says Blaas, who should know about the difficulties of imprinting one's vision on a film – he holds a day job at Pixar, where hundreds of animators sometimes work just to create a single frame. (Blaas took a five-month leave from the Disney-owned company to work on "Alma," which he financed himself.)

Or, put another way, it means everyday Joes, with little more than a handheld camera and software they picked up at Best Buy, can win the lottery, landing six-figure development deals and going almost overnight from their basements to the corridors of Hollywood power in the manner of an "American Idol" winner. "Panic Attack," for instance, generated more than 6 million YouTube hits and secured Alvarez representation at CAA and Anonymous Content, in addition to the Raimi deal.

Packed with homemade videos showing teenage karaoke and silly pet tricks, Web video has long had little relevance to serious filmmaking. But these days, it's being seen as a shortcut through the Hollywood system; where outsiders to the movie business would once have to work their way through the torturous world of music videos or commercials, inexpensive cameras and Web exposure now drastically cut down on the time it takes for newcomers to get noticed.

It's also no accident that many of the hot shorts directors come from outside the U.S. as filmmakers use the Web to shorten the distance between themselves, fans and executives. (Plus, insiders say, foreign sensibilities often seem fresh to jaded Hollywood eyes.)

But as the trend has caught fire, some point out there are limits to what even a good short can prove. A five-minute movie, after all, is shorthand. It's a far cry from a well-paced, three-act story that even the most rudimentary screenwriters turn out. And even when it's done well, only certain film categories lend themselves to shorts. One could hardly begin to lay out the building blocks of an emotional drama in a few minutes. "With a genre movie, it's about feeling and sensation," admits Andres Muschietti. "I don't know if a short works well for other types of movies."

The shorts wave has also grown intense enough that it has provoked a backlash — in many ways before it even has had time to prove itself. The Hollywood Reporter ran a story last week proclaiming that the trend had already passed. "Hollywood feeling shorts fatigue," the headline announced, even though no film from this new crop of shorts has gotten close to becoming a finished feature.

Like other Hollywood trends, this one will probably mint a few more overnight stars before it's all over, as well as churn out a number of cut-rate copycats. "Shorts remind me of how Esquire used to put the image of a monkey typing on its cover to show how easy everyone thought it was to write a screenplay," Wick says. "But it of course wasn't that easy." He pauses. "The idea of creating a good short is much easier than the actuality."

Lawsuit Targets Online Movie-Swapping

PC World

A new lawsuit filed in federal court accuses 20,000 people of illegally downloading and sharing movie content over the Internet. The court action, filed by the U.S. Copyright Group on behalf of the copyright holders, is part of a strategy to monetize file sharing "through the United States Federal Courts...demand letters and subpoena process," according to a video on savecinema.org, the company's Web site. The USCG is also planning to bring a second lawsuit against another 30,000 defendants accused of illegal movie file sharing, according to The Hollywood Reporter.

The First Case

For its first attempt to win financial compensation from file sharers, the USCG is working with small, independent film producers to sue individuals over the illegal downloading of five movies: "Steam Experiment," "Far Cry," "Uncross the Stars," "Gray Man," and "Call of the Wild 3D." A second case against a further 30,000 file sharers will include another five films whose titles have not been disclosed, according to THR.

So far, major Hollywood studios and trade associations like the Motion Picture Association of America have not signed up with the USCG's plans. Instead, the major industry players are waiting to see what happens with the USCG's initial cases before considering action to bring in the attorneys and recoup costs from illegally traded major motion pictures, according to THR.

If Hollywood does go after file sharers, this wouldn't be the first time. In 2004, the MPAA sued some traders of copyrighted content to try and deter unauthorized movie sharing, and the MPAA has been a party to actions against file-sharing sites and services like KaZaA (2001), Grokster (2005), The Pirate Bay (2008), and Torrent Spy (2008).

The US Copyright Group

The USCG describes itself as a "collection of lawyers and IT consultants that work together to monetize distribution channels." Those "distribution channels" include file-sharing technologies like BitTorrent and sites like The Pirate Bay and IsoHunt.

What's interesting about the USCG is that this company is trying to create a business model around pursuing file sharers. Instead of rights holders and professional organizations initiating a campaign against users--as the Recording Industry Association of America famously did--the USCG approaches distributors and rights holders to empower the USCG to go after file sharers on the rights holder's behalf. In a way, the USCG is acting kind of like a private copyright police force that profits off the misdeeds of Internet users.

To find users, the USCG is employing a technology successfully used in Europe; it identifies file sharers by their Internet Protocol (IP) addresses, when the illegal downloading took place, and whether the downloaded content was copyrighted material. An IP address is a unique identifier that is specific to a single Internet connection behind which can be one computer, such as a home connection, or many devices, such as an office or other place of business.

Will the Real John Doe Please Stand Up?

The problem with bringing legal action against users is that ultimately you have to identify who the miscreant file sharers are.

To obtain a user's actual identity, the USCG is filing what are called John Doe lawsuits against people identified solely by their IP addresses. After the suit is filed, the USCG can then issue subpoenas to Internet Service Providers to obtain the identity of the customer behind a particular IP address. The problem is ISPs are often reluctant to reveal customer information, and have been known to fight these subpoenas in court.

However, ISPs have also been known to work with rights holders in the past. In 2009, several providers agreed to help the Recording Industry Association of America, by serving warning notices to users who were downloading copyrighted music. But deliver warning notices based on an IP address is a far cry from revealing a customer's identity.

The other problem is that an IP address can be easily masked or hidden by using a proxy server, which makes discovering the identity of a file sharer more difficult.

Deja Vu All Over Again

The actions by the USCG are reminiscent of many past attempts to obtain compensation for rights holders through litigation. In 2009, the RIAA abandoned this strategy after several court setbacks, Congressional scrutiny, and a negative public reaction to its actions.

Whether the USCG will fare better remains unclear. The USCG's plan is incredibly ambitious in that it hopes to be a significant deterrent against the practice of illegal file sharing, according to the company's About page. "Research suggests that once a copyright infringer is forced to pay settlement damages far in excess of the actual cost of the stolen content," the USCG writes. "He will never steal copyrighted material again. Through these methods, the US Copyright Group has the ability to recover losses for our clients and stop film piracy on a massive scale."

The Electronic Frontier Foundation, a consumer advocacy group, isn't buying the USCG's argument. In a recent blog post, the EFF said the USCG's cases show that "copyright law has become unmoored from its foundations." The EFF also says that "copyright should not line the pockets of copyright trolls intent on shaking down individuals for fast settlements a thousand at a time."

Blockbuster Searching for Ways to Claw Back

Reuters

Blockbuster Inc has hired a law firm and an investment bank to explore how the video rental firm can cut its $1 billion debt load, the Wall Street Journal reported on Wednesday.

Law firm Weil, Gotshal & Manges and the bank, Rothschild Inc, will also look at other strategies, such as acquisitions or partnerships, the newspaper said, citing people familiar with the matter.

Bondholders have also begun talking with potential advisers to move towards reworking Blockbuster's capital structure, such as converting debt to equity, the WSJ said.

"We don't contemplate filing for bankruptcy," it quoted Chief Executive Jim Keynes as saying.

Blockbuster is struggling to pare huge debt it inherited a decade ago when it was spun off from Viacom Inc, while trying to handle the increasing challenge from Netflix Inc and Redbox as well as Apple, Amazon.com, Google, Hulu and cable companies that have expanded video-on-demand offerings.

Blockbuster has also been in talks with Hollywood Video rental chain Movie Gallery Inc MVGR.PK, which filed for bankruptcy the second time in three years earlier this month, about acquiring assets, the business daily said.

Last month, the once mighty U.S. video chain, said it had a weaker-than-expected holiday season, fueling concerns about its viability.

The company, which already has sold off most of its international operations and may shut as many as 20 percent of its U.S. stores this year, said it plans to further reduce costs in 2010 and to remain "conservative" in its spending.

However, the restructuring discussions are in early stages and no major actions appear imminent, the paper said.

Blockbuster could not be immediately reached for comment by Reuters outside of regular U.S. business hours.

Netflix Adds 1.1 Million Customers

USA Today

Netflix's fourth-quarter performance sparkled as its DVD-by-mail service surpassed 12 million subscribers, and management promised an even shinier sequel to kick off this year. Investors applauded, lifting the company's shares by more than 14% in after-hours trading Wednesday.

The results reflect the growing popularity of Netflix plans that bundle DVD rentals with unlimited video streaming over the Internet for as little as $9 per month.

Netflix (NFLX) added more than 1.1 million customers during the quarter — the most in any three-month period in its history. It took Netflix four years to attract its first 1 million subscribers after launching its rental service in 1999.

Management is expecting an even bigger first quarter. The company projects an additional 1.2 million to 1.5 million customers by the end of March. What's more, Netflix forecast financial results for the first quarter and the full year that exceeded analysts' current estimates.

Netflix shares soared $7.33 in extended trading after finishing Wednesday's regular session at $50.07, up $1.02.

The company earned $30.9 million, or 56 cents per share, in its latest quarter, a 36% increase from $22.7 million, or 38 cents per share, a year earlier. The performance topped the average estimate of 45 cents per share among analysts surveyed by Thomson Reuters.

Fourth-quarter revenue climbed 24% to $444.5 million, falling about $1 million below analyst forecasts.

That minor shortfall in revenue was overshadowed by Netflix's pledge to boost its profit margins to 11% from management's previous target of 10%. The adjustment will translate into additional earnings of 22 cents a share this year, estimated Wedbush Morgan Securities analyst Michael Pachter.

Netflix made the change because it feels more confident after its subscriber count rose 31%, or nearly 3 million customers, in 2009, said Barry McCarthy, the company's chief financial officer. Management expects to add another 3.2 million to 4 million subscribers this year.

The company, based in Los Gatos, Calif., got a big boost in the fourth quarter from Sony's PlayStation 3 video game console, which became an outlet for showing the company's roughly 17,000 streaming titles. The company already had a similar deal with Microsoft's Xbox 360 and in the spring will begin to link up with Nintendo's Wii console.

The streaming technology is being embraced by more Netflix subscribers as they wait for their DVDs to be delivered through the mail. About 48% of the customers streamed at least 15 minutes of Internet video in the fourth quarter, up from 28% in the prior year.

The widening appeal of Netflix's streaming option appears to be causing more people to sign up for rental plans that dole out one or two DVDs at a time. Those packages cost less than those that allow subscribers to rent three or more DVDs at a time.

The trend has lowered Netflix's average revenue per user to $13.04 in the fourth quarter, down 4% from an average of $13.58 per user in the same 2008 period.

Netflix nevertheless wants video streaming to become more prevalent because the company's postal expenses will fall as it mails out fewer DVDs to subscribers. Netflix estimates it will spend about $600 million on postage this year, with the annual cost rising to $800 million within the next few years.

By holding down its mailing expenses, Netflix hopes to be able to spend more money expanding its streaming library.