Film rental chain closes in on deal

When Paramount, Lionsgate and MGM paired up to launch Epix, the studios touted that the pay cabler would make its movies available on pay TV and Internet platforms.

Either way, Netflix sees digital as the future of its business, with the company aggressively seeking distribution deals with film rights holders.

Netflix may soon take over much of the digital portion of that business plan, with the film rental chain closing in on a deal to exclusively distribute Epix’s slate of movies online during the pay-TV window, which follows the DVD release window.

Should the talks, which have been taking place over the last several months, conclude in a five-year deal, the pact would significantly bolster the number of films Netflix can stream to its subscribers on a variety of devices, including websites, videogame consoles and mobile devices like Apple’s iPad. Titles available for HD streaming are expected to include last year’s “Star Trek” reboot, “Shutter Island” and vintage pics such as “The Godfather” and “Raiders of the Lost Ark.”

The company has been eager to broker deals with studios and other distributors in Hollywood to build a digital library of films as it looks to rely less on its movie-by-mail rental business as profits continue to take a hit each time postage rates rise.

The deal wouldn’t come cheap, however.

Netflix is expected to pay out as much as $1 billion in licensing fees throughout the term of the deal, sources close to the situation said. Reps for Epix and Netflix declined comment Monday on the talks.

And that’s great news for Epix, which has been struggling to generate considerable revenue as its tries to gain traction as a new pay cable movie option alongside HBO, Showtime and Starz. It has faced an uphill climb in gaining carriage deals with larger operators, though in recent months it has done deals with satcaster Dish Network, as well as cablers Cox, Charter and Mediacom.

Netflix would instantly put the Epix moniker in front of millions of consumers that may not yet be familiar with the brand. The Epix logo would play in front of films the same way that the Starz brand unspools in front of movies from Disney and Sony that Netflix streams.

Netflix currently has more than 15 million subscribers, compared to a much smaller base for Epix, which has yet to disclose subscription figures. The company has said that with its recent deals, its service is available for purchase in about 30 million homes. The Viacom-Lionsgate-MGM pay TV partnership was formed in 2008; the linear channel bowed last October.

Paramount has been forced to do much of the heavy lifting to grow the channel since MGM is struggling to stay afloat financially and Lionsgate has been distracted by a power struggle with Carl Icahn.

A deal with Epix also woudn’t ruffle feathers with the other major studios, considering films that would be part of the pact wouldn’t be made available until after the traditional DVD sales window.

Netflix has already agreed not to distrib movies from Warner Bros., Universal and Fox until 28 days after the films bow on homevideo. Not that Paramount, Lionsgate or MGM would mind, however.

Paramount, in particular, said in June that making movies available to rent on services like Netflix and Redbox the same day that a DVD hits store shelves doesn’t make much of an impact on overall sales. Sony also digitally distribs movies day and date through various services.

“Day-and-date rental activity has had a minimal impact on our DVD sales,” said Dennis Maguire, worldwide president of Paramount Home Entertainment, after a 10-month analysis of DVD sell-through and rental performance was concluded.

In fact, the studio found that offering movies as rentals and purchases at the same time gave consumers “a choice” of how to consume movies while “maximizing the profitability of releases in the home entertainment window.”

Paramount, Lionsgate and MGM would continue to operate Epix’s existing video streaming service and sell its movies independently through services like Apple’s iTunes and Amazon as Netflix rolls out the same films digitally.

Paramount has stressed that restricting an individual from renting a movie wouldn’t necessarily encourage them to buy the same title on DVD or Blu-ray.

That includes a recent deal with Relativity Media for the exclusive pay-TV rights to its library, which includes the drama “The Fighter,” which Paramount will distribute theatrically. Netflix also cut a deal last month with Warner Bros. Domestic TV Distribution for the syndie window of FX drama “Nip/Tuck,” among other shows.

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