What the Disney streaming deal means for Netflix’s future

With the newly signed exclusive streaming deal with Disney, people are once again singing the praises of Netflix. But it might be too early to determine whether or not the video service will come out ahead as a result of the deal.

The reaction by shareholders has been mostly positive, with Netflix’s stock seeing a healthy increase of 15 percent yesterday. The stock price is only slightly down today, and Sterne Agee analysts Arvind Bhatia and Brett Strauser believe the market is showing too much enthusiasm for the move.

“From a content perspective, this appears to be a major coup for Netflix. However, without knowledge of the financial terms, we think it would be premature to assume this is a net positive for Netflix,” the analysts wrote in a note yesterday.

As VentureBeat previously reported, Netflix signed two different agreements with Disney. The first of these deals brings lots of recognizable Disney flicks (Dumbo, Alice In Wonderland, and more) to the streaming service effective immediately. We don’t know how much Netflix paid for access to these classics, but my guess is that the price was not cheap.

It’s possible that Netflix will slowly roll out access to classic Disney films over time, with only a large handful of films available on the streaming service at any one time rather than providing access to the entire streaming library. This would be one way to keep its content costs down while still providing value to its streaming subscribers. Of course, we won’t know exactly how Netflix will play it until we’re well into 2013.

We should know more about how much Netflix spent on the old Disney movies in its next quarterly earnings report, but Sterne Agee points out that the company is projected to spend $5 billion in the next five years on content costs ($4.5 billion of that occurring in the next three years.) If the new Disney content fails to have a positive impact on its domestic streaming subscriber growth, traders will likely punishe its stock.

The second deal is an exclusive streaming agreement that gives Netflix the right to play all animated and live-action films with a theatrical release of 2016 and on. That’s a pretty big win for Netflix in the short-term; it has something its competitors won’t have, and it probably doesn’t have to start paying content licensing fees immediately.

At the same time, if those licensing fees are extremely high, it could cause concern among shareholders. Netflix is currently spending its money to aggressively expand into international markets and create its own exclusive content. And until we find out if either of those two strategies ultimately prove successful, it’s hard to determine if the exclusive deal with Disney was an extremely good move for the company.