Netflix has an ongoing contract with Relativity Media, which has gone bankrupt. Having a deal with Netflix is a good cushion for the media firm — if it can fulfill the terms of the contract — but for the streaming firm, it’s just plain bad news.
Netflix doubts Relativity’s ability to deliver content
Citing a confidential document, a report from Variety claims the value of the deal between the two companies is $56 million or more. The contract requires Relativity Media to deliver a certain minimum number of films a year to Netflix. Relativity Media filed for bankruptcy on July 30. In the filing, it claimed that its assets are worth $560 million while its liabilities amount to $1.2 billion. Netflix’s deal with Relativity runs through 2018.
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On Wednesday, the streaming firm filed papers against Relativity in a U.S. bankruptcy court in Manhattan, raising concerns about Relativity Media’s ability to fulfill the contract as per their agreement. The minimum number of films was not specified in the filing, but Netflix mentioned that it has received only two films from Relativity Media so far this year.
Netflix asks for more time to evaluate partner
Some financial analysts and hedge fund operators estimate Relativity’s worth to be even lower than the company claims. A quick auction is desired by most senior lenders as the maximum value of the company for all the creditors will be preserved only if an early sale takes place.
Netflix said in the court filing that if Relativity is planning a quick sale, it won’t raise any immediate objections. All it wants is for the sales procedure to have built-in measures assuring that the new owner will have the potential to deliver to Netflix the minimum number of films as per the contract. The auction of Relativity Media is scheduled for Sept. 16, and according to the company’s legal motion, the current deadline is very close. Netflix will probably not be able to make a proper decision regarding the ability of the future partner in such a short time span.
Netflix’s motion has requested that the court grant more time to assert any objections, if any, on the new potential partners. The company has also asked the court for the right to find out if the potential partner is aware of the contract with it and agrees to deliver content to the online subscription service.