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Epix and Netflix digital partnership to make new pay channel profitable [updated]

Epix and Netflix on Tuesday morning confirmed their partnership for digital distribution of movies from Paramount Pictures, Lions Gate, and Metro-Goldwyn-Mayer, a deal that will make the start-up pay channel immediately profitable.

As reported yesterday by the Times, Epix will provide movies from its three studio equity partners for Netflix to offer its 15 million subscribers via its Internet streaming service. The deal significantly expands the content available from Netflix on Web-connected devices, including a growing number of televisions, and makes the company best known for its DVD-by-mail delivery a more formidable competitor to pay TV channel HBO.

[Update, 9:45 a.m.: Epix content will begin appearing on Netflix's streaming service on Sept.1]

The two companies said Paramount, Lions Gate and MGM movies will become available for Netflix streaming 90 days after Epix gains the rights, typically a few months after a film debuts on DVD. On a conference call with Wall Street analysts to discuss his company's financial performance, Lions Gate Chief Executive Jon Feltheimer said that space of time was critical to keep Epix appealing to cable and satellite partners that currently or may in the future carry the channel. 

"Any deals we made so far ... were made contemplating this 90-day window," he said. "We see this as a win-win for everybody. It creates a new revenue stream but continues to protect a 90-day window" for cable and satellite companies.

Epix is currently offered by only a few television carriers and by this summer was expected to have between 3 million and 4 million subscribers, the channel's president, Mark Greenberg, previously told the Times. It is still looking to get picked up by the largest cable and satellite carriers, such as Comcast and DirecTV.

Epix and Netflix didn't discuss specific terms of their partnership, but people familiar with the deal told the Times on Monday that it will last five years and could be worth as much as $1 billion over that time span.

Licensing payments from Netflix to Epix will make the pay channel immediately profitable, Feltheimer told analysts, and cash flow positive by next year. It launched in 2009 with the backing of Lions Gate, Paramount parent company Viacom Inc. and MGM.

-- Ben Fritz

Related:

Netflix and Epix working on major digital partnership to shake up pay TV landscape

 
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