Comcast Eyes Netflix Territory; Cable Provider Seeks Rights to ‘Despicable Me 2,’ to Show Free to Subscribers

Comcast Eyes Netflix Territory

Cable Provider Seeks Rights to ‘Despicable Me 2,’ to Show Free to Subscribers

BEN FRITZ

Updated Feb. 12, 2014 6:26 p.m. ET

Comcast Corp. CMCSA +0.44% is looking to edge in on Netflix Inc. NFLX -1.17% ‘s territory—with the help of its own movie studio.

The cable giant is in talks to acquire the pay-television rights to “Despicable Me 2,” a film produced by Comcast’s Universal Pictures, in a deal that appears to mark the first entrance of a cable provider into that business.

The talks between Universal Pictures and a corporate sibling are highly unusual, because Universal grants most of its films’ pay-TV rights to Time Warner Inc. TWX +0.34% ‘s HBO, under a long-term deal.

HBO exercised an option to pass on the animated sequel, which was one of last year’s biggest box-office hits but isn’t a natural fit for the grown-up audience the premium-cable channel normally courts with original shows like “Boardwalk Empire” and “Game of Thrones.”

HBO has previously passed on animated Universal releases, including “The Lorax” and “ParaNorman.” In those cases, Netflix acquired rights to stream the films during the “pay window,” which typically starts about six months after a DVD release.

All six major film studios have deals with HBO, Starz, Epix or Netflix that tie up the pay-TV rights to their releases for many years to come. That means companies like Comcast can pursue such rights only on a one-off basis.

Netflix also had been interested in “Despicable Me 2,” which grossed $368 million in the U.S. and Canada last year. But the online-video company is no longer in discussions with Universal about it, a person close to Netflix said.

Should Universal and Comcast make a deal, it would be the first time that a cable television provider has acquired the exclusive pay-TV rights to a movie, making it free to subscribers, said several people familiar with the talks.

Comcast would likely use its on-demand video technology, which works on television and online, to present the film to subscribers, although the precise mechanics haven’t yet been determined, according to people familiar with the talks. The difference is that the movie would be free with a monthly subscription price, unlike Comcast’s normal on-demand pay-per-film service, where movies cost $5 to watch or $15 to download and own.

The pay-TV rights to a blockbuster movie like “Despicable Me 2” would likely cost a distributor a little more than $20 million, according to people with experience in that business.

Comcast’s cable service has recently been moving more aggressively into offering movies. While it has been renting films via video-on-demand for many years, it began selling them via digital download late last year. Its best-selling title has been “Despicable Me 2.”

The premium-cable landscape has already seen new entrants like Netflix andAmazon.com Inc. AMZN -3.47% bid aggressively for the rights to movies at the same time that traditional players like HBO, CBS Corp.’s Showtime, and Starz are shifting focus to original programming.

On-demand services like Netflix, meanwhile, have found that children’s content is among their most popular.

Comcast has 21.7 million video customers, while HBO has about 29 million and Netflix has 31.7 million paying subscribers.

The majority of America’s roughly 100 million pay-TV households live in areas not served by Comcast, meaning they wouldn’t have access to the popular movie through a subscription service during the period the cable company has the film rights. It would still be available during that period on DVD or as a download from Apple Inc.’s iTunes Store.

Comcast also has a small service called Streampix that offers subscribers older movies and television shows for $4.99 a month. That offering, too, could be part of a “Despicable Me 2” deal.

In addition, it is unclear whether the movie would be available to Comcast’s Internet-only customers.

The agreement would be a rare and significant example of synergy beyond marketing for Comcast and Universal. Nonetheless, Comcast would have to pay a competitive rate, since key creative personnel in a movie like “Despicable Me 2” often receive a portion of pay-television revenue.