The premium cable net is available in nearly 50 million homes but lacks distribution with the biggest pay-TV provider in the U.S., as well as with the biggest satcaster, DirecTV. But what may have kept Comcast disinclined to do a deal with Epix was that its previous partner since 2010, Netflix, was large enough to represent a competitive threat.
“It seems very plausible that moving away from Netflix will better enable Epix to secure new traditional premium cable distribution, especially with Comcast,” wrote Matthew Harrigan of Wunderlich Securities. “Moving away from Netflix makes Epix more appealing to larger traditional distributors who are not carrying it.”
Benjamin Mogil of Stifel Research sounded a similar sentiment. “While the Hulu and Amazon licenses do theoretically present the same philosophical obstacle for Comcast, the much smaller scale/scope of both of those services, coupled with the fact that Hulu is inside the Comcast camp/tent, lead to a greater possibility that Comcast will add the service,” he wrote.
Epix’s deal with Hulu became non-exclusive in 2012, when Amazon came on as an additional licensing partner. That reduced an annual license fee estimated to be worth $200 million a year down to $120 million once Amazon shared exclusivity. But Mogil estimates this new deal isn’t as expensive to Hulu. “We do not believe that the Hulu license fee is anywhere near the $120 million per year mark,” he wrote.
But what may seem a shortfall may be a calculated decision to open Epix to new, more lucrative opportunities, according to FBR & Co. analyst Barton Crockett. “While the Hulu deal may not match what Netflix was spending, we believe that Epix expects more deals soon that could ultimately make the SVOD window more valuable than what Epix was earning under Netflix,” he wrote. ” The transition from Netflix to Hulu could help Epix gain carriage by Comcast and DirecTV.”
Without the first and second biggest distributors in the country, Epix could get a big shot in the arm by landing a deal with Comcast and/or DirecTV; the reason the company turned to an SVOD option like Netflix in the first place was its inability to secure its biggest carriage opportunities. Its last major deals came last year with Time Warner Cable and AT&T U-Verse.
Epix is a joint venture of Viacom, Lionsgate and MGM.