Netflix, Inc. (NASDAQ:NFLX) has entered into a deal with Sony Pictures for streaming animated films including Cloudy with a Chance of Meatballs 2 and The Smurfs. Netflix struck the deal with Sony after pay channel Starz ended its multiyear agreement with Sony for kids movies, citing that kids fare has limited significance for its service.

Netflix ISPs

“Netflix and Sony Pictures Television have reached a multi-year agreement to bring Sony Pictures Animation feature films in the first pay TV window to Netflix members in the US…,” the companies said in a joint statement Tuesday.

Original programming for Kids

Netflix, Inc. (NASDAQ:NFLX) has made it clear for some time that it wants to enter the children’s  entertainment business and has acquired programming for children such as movies from Dreamwork Animation. Netflix is also working with DreamWorks on original programming for kids.

Netflix, Inc. (NASDAQ:NFLX) continues its service expansion spree by making another high-profile deal to attract new subscribers. Back in 2012, the company acquired exclusive right to stream Walt Disney Co. movies starting in 2016. At present, Starz holds these rights and will continue to play Disney movies till the end of 2015.

Netflix, Inc. (NASDAQ:NFLX) and Starz entered into a deal previously covering films from Walt Disney and Sony. After the expiry of the deal, experts were concerned that Netflix will have to compromise with key content, but Netflix entered into a deal directly with Disney. Last year, Starz and Sony extended their film output deal, but excluded the animation movies, which have now been picked up by Netflix. However, Starz will continue to have rights to all other Sony features through 2021.

Netflix content cost to rise

Media Analyst Tony Wibble of Janney Capital Markets said, “We believe the younger demographic is an important element of [Netflix’s] long-term strategy as they condition future generations to use the platform as they mature.”

Under the Netflix, Inc. (NASDAQ:NFLX)-Sony content deal, two films will be shown per year which adds massively to the company’s content cost. At present, Netflix has $7.1 billion in streaming content obligations, but does not generate any free cash flow. However, Netflix is upbeat because the company can replace some of the content it compromised after the deal ended with Starz.

Although the Sony deal will buff up its content by a couple of titles per year, it will also eventually help the streaming company to focus on the younger/animated content as they now have exclusive access to Pixar, Disney Animation, DreamWorks Animation and Sony Animation.