Peter Kafka

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Is Netflix Ready to Announce a Big Money Deal With Epix?

Last month, Netflix CEO Reed Hastings told investors he’d be willing to pay real money to beef up his collection of online video offerings. Now it looks as if he’s ready to make good on his pledge: The Los Angeles Times says Netflix is in talks with Epix, the new pay cable competitor owned by Viacom (VIA) and two other studios, for exclusive online rights to its movies.

The LAT says Netflix (NFLX) and Epix are talking about a five-year-deal that would pay Epix “close to” $1 billion over the course of the contract.

Epix declined to comment, and Netflix spokesman Steve Swasey offered this extended no comment (or, in other words, a non-denial): “Netflix has about 80 people in its Beverly Hills office who show up to work every day to acquire content for the Netflix service. We regularly meet with studios, networks, filmmakers and others for this purpose. However, we do not comment on any specific negotiations that may or may not be under way.”

But industry sources I’ve talked to this afternoon say the report sounds plausible. They tell me that the two companies have been rumored to have been chatting for close to a year, and that some thought a deal was supposed to have been announced last week. And they tell me that Netflix has been approaching other big rights holders, including CBS’ (CBS) Showtime, with similar big-money offers.

On the face of it, this seems like a ground-shifting deal that signals Netflix’s arrival as a true cable competitor. Why sign up for HBO or Showtime–why sign up for Comcast (CMCSA) or Time Warner Cable (TWC), for that matter–when Netflix will stream you a lifetime of movies and TV shows for $9 a month?

That’s the course Netflix has been on for some time, and the company’s deal with Relativity Media last month hinted at the direction it was headed. And unlike Relativity, Epix has movies lots of people want to see, from Paramount, Lionsgate (LGF) and MGM. Stuff like “Iron Man 2” and the “Saw” films, etc.

So if it goes through, it will be significant for Netflix, which currently has a catalog of more than 100,000 movies and TV shows on DVD, but only about 17,000 titles in its streaming catalog. And it would be nice for Epix, which has struggled to get traditional cable operators to pick up the pay channel (which makes it more likely to do a deal like this).

But let’s see some of the details before we reach any truly grand conclusions.

As the LAT notes, the deal is unlikely to bust open Hollywood’s “windowing” system, where consumers aren’t allowed to watch movies online until they been on DVD for a certain amount of time. Epix’s studio owners may be happy to get money for their online rights, but they want to keep wringing dollars from discs as long as they can.

Meanwhile, pay channel competitors Showtime and Time Warner’s HBO have been busy for some time explaining to competitors why this kind of deal doesn’t threaten them–they’re in the original programming business, not the movie business.

You don’t subscribe to HBO because it’s airing “Public Enemies,” the argument goes–you get it because it will have “Boardwalk Empire” this fall. Showtime says the same thing about “Dexter” and “Weeds,” etc. True? Or wishful thinking? We may find out soon.