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Netflix Concerned Whether Relativity, Or Potential Buyers, Can Deliver Promised Content

For bankrupt Relativity Media, one silver lining appeared to come in the form of its ongoing contract to provide content for Netflix. One confidential document from a Relativity lender put the value of the deal at $56 million or more.

But Netflix filed papers in U.S. Bankruptcy Court in Manhattan Wednesday afternoon suggesting that it has concerns about Relativity being able to deliver the minimum number of films a year called for in its contract. Though that number is not specified, the streaming service’s filing says that Relativity has “to date, provided only two films to Netflix in 2015,” and adds: “This gives rise to substantial concerns regarding whether [Relativity] will be able to meet their yearly minimum for the 2015 calendar year.”

The Netflix court filing says the company has no immediate objection to Relativity’s plan for a quick sale but that the company wants more controls built into the sales procedure to make sure that any new owner is in a position to deliver the contracted minimum number of films. The current quick deadlines, with an auction scheduled for Sept. 16, would not give Netflix enough time to judge a potential future partner, the company’s legal motion says.

Netflix’s deal with Relativity runs through 2018.

“Netflix is confident,” the motion states, “that the bidding procedures can be modified so as to allow [parties to the sale] to appropriately evaluate and respond to the proposed assumption and assignment of their contracts without unduly interfering with the Debtors’ overall sale process.”

Netflix’s motion asks the court to allow it to have time to assert any objections to any potential new partner. It also asks for the right to conduct discovery to discern whether the potential new partner is up to the task of providing the online subscription service with the content it needs.

The motion was filed just before a Wednesday afternoon deadline for objections to the bankruptcy auction. A hearing is set for Friday morning.

Relativity filed for bankruptcy July 30, citing nearly $1.2 billion in liabilities and assets it claimed are worth $560 million. Some financial analysts and hedge fund operators looking at the TV- and film-maker believe that the company is worth considerably less.

The senior lenders are attempting a quick auction. Lawyers from the firm of Jones Day, representing  Anchorage Capital Group, Luxor Capital Group and Falcon Investment Advisors, say the early sale will help preserve the maximum value of the company for all of the creditors.

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