Disney makes Netflix as its exclusive distributor starting in 2016

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Deal includes new Disney films, Lucasfilm content, and lots of back catalog.

Netflix stock rose 14 percent on the news of its new deal with Disney.

If you’re a Netflix subscriber and you have kids, you’re about to make those kids happier. Netflix and Disney just inked a new deal, making the former the exclusive American subscription TV service for “first-run live-action and animated feature films from The Walt Disney Studios.”

This marks the first time that a major Hollywood studio decided to side with a digital distribution rather than a traditional TV provider. The deal is also a high-water mark for a company that some were speculating was ripe for takeover as recently as last month.

In a press release, Netflix said that beginning in 2016, theatrically-released films from Disney, Pixar, Marvel, and all other Disney subsidiaries (presumably including newly-acquired Lucasfilm) will be available to subscribers on all of its platforms. The deal's value was not disclosed but it will include direct-to-video new releases and some of Disney’s back catalog (that will be available as soon as early 2013).

“These movies, if you’ve got young kids—[now] you’ve got to have Netflix,” Colin Dixon, an analyst with TDG Research, told Ars. “I think it’s a really important deal. I’m surprised. I did not think that Disney was ready to do this yet. It’s a pretty big surprise. I think it really legitimizes Netflix as a provider of premier content now.”

The slow decline of pay TV

Analysts pointed out that historically, Disney has tightly-managed the video (and later, DVD) release of its back catalog. The Mouse would make movies available for a short period of time, then withdrawing them for a number of years only to re-release them later amidst great fanfare.

“Disney is really careful, really disciplined about the value of those deals,” Dan Cryan, an analyst with IHS, told Ars. “The fact that they have chosen to go with Netflix is interesting both in terms of how much money Netflix is prepared [to put] on the table and how much money Starz is not prepared to put on the table.”

Starz currently has a deal to distribute Disney films on TV until 2016. After that, it will only have access to Sony Pictures content. (The company also famously split from Netflix earlier this year.) In the wake of the deal Starz’ parent company, Liberty Media, dropped five percent on Wall Street. Netflix rallied 14 percent, its largest single-day gain.

While on its face, this may seem like the latest step in the march towards the death of pay TV, analysts say: not so fast.

“The pay TV business as we know it is on really safe grounds until sports distribution changes,” Cryan added. “It’s technically difficult to distribute that stuff online at scale. In addition to that, the business is stacked up so you pay a lot for ESPN and other sports channels not available elsewhere. Until that changes, the core of the pay TV business is on relatively safe ground.”

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