ITV is understood to be in advanced discussions with Netflix about an output deal, as the US video streaming service's imminent UK and Ireland launch fuels bidding wars for the digital rights to films and TV shows.
Netflix is thought to be close to agreeing a deal that would allow it to exploit ITV's archive of shows. The US company is also understood to be in talks with Warner Bros in a bid to snatch subscription video-on-demand rights to the Hollywood studio's output from BSkyB, as it looks to beef up its UK film and TV offering.
The US company is said to have held talks with Channel 4 about an output agreement, although negotiations are not thought to be at such an advanced stage as with ITV. Netflix is also believed to be lining up deals with Lionsgate, which has rights to films including Kick Ass, Saw and Rambo, and Momentum Pictures, which has rights to films such as The King's Speech, the trilogy of releases based on Stieg Larsson's Millennium novels and Lost in Translation.
On Monday Netflix announced its first deal in the UK and Ireland market, securing the exclusive rights to films from MGM. This will give Netflix access to titles including Peter Jackson's two-film Hobbit series and the big-screen remake of 1980s police show 21 Jump Street.
The knowledge that Netflix is UK-bound has sparked a race for digital rights among rivals – which include Amazon-owned LoveFilm, BSkyB and Google's YouTube – that is fuelling spiralling deal costs and marks a boom period for movie rights holders.
"While TV shows get massive viewing [on demand] the real money lies in striking deals with rights holders to films," said one source.
Netflix executives are understood to be conducting a round of negotiations to seal UK deals as the clock ticks on what the company has already admitted will be a tough launch into the UK and Ireland in early 2012.
ITV and Netflix have agreed commercial terms and are down to the final stages of sorting out the legal details, according to one source. A second source said there have been "extensive talks" between the two parties, but warned that a deal has not yet been struck and could still fall apart.
"For Netflix a deal would mean a huge marketing partner to help its UK ambitions and for ITV it fits with their strategy of building pay revenue," said one observer.
The last US company in the digital streaming sector that tried to break the UK market – Hulu, the joint venture with partners including News Corp, Disney and NBC Universal – failed in large part due to being unable to strike a deal with the UK's largest commercial broadcaster.
ITV's proposed deal with Netflix is understood to focus on archive programming, not new output airing in the 30-day catchup window on the broadcaster's online ITV Player.
The broadcaster is set to announce some form of micropayment system for the ITV Player early in 2012. A deal with Netflix would help ITV to fulfil chief executive Adam Crozier's aim of reducing the broadcaster's dependence on TV advertising revenue.
An ITV spokesperson said: "Part of ITV's five-year transformation plan is to look at exploiting our content across multiple platforms, free and pay. As you'd expect we talk to a number of parties about the best ways to do this. There is nothing to announce at this time."
One source said Netflix has also held discussions with Channel 4, although they are not believed to be as advanced as those with ITV, although if a deal does emerge it is expected to be sewn up before Christmas. A second source characterised the Channel 4 talks as "a few weeks down the track from where ITV is at".
Netflix is also understood to be trying to secure the first-play rights for Warner Bros subscription video-on-demand films. The rights to films from Warner Bros, one of the six big Hollywood studios and home to the Harry Potter and Batman franchises, are currently held by BSkyB but come up for renegotiation next year.
One source said they believed that Netflix is bidding about £60m a year to secure the rights.
Netflix and Warner Bros had not responded to requests for comment at the time of publication.
LoveFilm recently reached a five-year agreement with Entertainment One, which has rights to films such as vampire franchise the Twilight Saga and Gnomeo & Juliet, in what the company described as a "transformative" deal to build its fledgling online service ahead of the arrival of Netflix.
The Amazon-owned video streaming company is believed to have paid as much as five times the amount forked out by BSkyB last time – about £25m. Initial bids for the Entertainment One output deal were thought to have been in the region of £8m, before a bidding war sent the price spiralling.
Entertainment One said it did not comment on the value of deals. LoveFilm had not responded to a request for comment at the time of publication.
LoveFilm also recently struck a deal with Studio Canal – formerly Optimum Releasing – the distribution company behind movies including Source Code, Attack the Block and Tinker Tailor Soldier Spy.
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