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Netflix and Relativity Settle Contract Dispute, Clearing Obstacle to Sale

Netflix and Relativity Media have settled their protracted legal dispute in New York Bankruptcy Court, clearing an obstacle to a court-supervised sale of Relativity to UltraV Holdings.

Relativity declared bankruptcy in May, after failing to raise fresh capital upon emerging from its first bankruptcy in 2016. The Netflix contract is one of its primary remaining assets. Netflix had accused Relativity of breaching the agreement by failing to maintain exclusivity on five titles, and by failing to deliver the promised number of films to the streaming platform.

Netflix withheld about $3.9 million in payments to Relativity after declaring the breach in April. Under the settlement agreement, Netflix will pay those funds and an additional $3.25 million in fees. UltraV will also be able to stream up to 30 titles on Netflix once it takes control of the company.

“Today’s settlement with Netflix resolves nearly four years of litigation and other disputes that threatened the value of the Relativity estate,” said Colin Adams, Relativity’s chief restructuring officer. “The settlement helps preserve the value of the Relativity estate for creditors, paving the way for the asset sale to UltraV Group, and granting UltraV the unquestionable right to stream up to 30 films on Netflix. We look forward to closing the sale to UltraV and winding down the Relativity estate.”

Netflix had sought to block UltraV from taking over Relativity’s contract, arguing that UltraV had no relevant entertainment industry experience and had not demonstrated the financial capacity to deliver on its obligations. Netflix signed the contract in 2010, when Relativity was still a productive enterprise. The contract is set to expire at the end of this year.

In a pre-trial brief, Netflix argued that UltraV saw the contract as “an arbitrage play” — “an opportunity to exploit an above-market rate card by pushing through any third-party-produced title that can be begged, borrowed, or bought in the marketplace between now and the end of the calendar year.”

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