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Netflix, Starz on the Outs

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
9/1/2011
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Starting March 1, 2012, Netflix Inc. (Nasdaq: NFLX) subs will no longer be seeing Starz.

The premium programmer announced Thursday that it has scuttled renewal negotiations with the Internet streaming giant when their current deal expires on Feb. 28, 2012.

"This decision is a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content," Starz Entertainment LLC President and CEO (and former HBO chief) Chris Albrecht said, in a release. "With our current studio rights and growing original programming presence, the network is in an excellent position to evaluate new opportunities and expand its overall business."

Netflix has been paying $30 million per year for Starz fare and had even conceded to conditions that keep new Starz titles out of Netflix's hands until 90 days after they appeared on the premium programmer's linear service. It's been rumored that Starz could have commanded more than $200 million per year under a new deal. (See Netflix to Wait 90 Days for New Starz Fare .)

Netflix did not have an immediate comment.

Why this matters
Cable operators and other pay-TV providers are likely cheering this on. Many MSOs were upset with Starz when it struck the Netflix deal in 2008, arguing that the deal diluted their product and would cause subscribers to drop Starz because they could get the same content from Netflix for less. The 90-day delay helped, but MSOs still felt stung.

Netflix, which jacked up prices on its subscription plans Thursday, will end up losing an anchor tenant in Starz next year (it'll still have Epix's content), but investors might be pleased that the video streamer won't pay -- or perhaps overpay -- just to get a new deal. Netflix can now apply more of those funds to expanding its library of older fare or pumping more cash into exclusive, original programming that could help it stave off the risk of increased churn it will face when the Starz deal dies out. (See Netflix Shopping for Original TV Series.)

For more
Read more about Netflix.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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Jeff Baumgartner
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Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 4:54:52 PM
re: Netflix, Starz on the Outs


Netflix stock got creamed in after hours because of this. Churn there is expected to rise because of the new rate hikes, but some see the coming loss of Starz content as a double-whammy.  How important do you think Starz content is for Netflix subs?  I'd have to guess that most will still see lots of value in the service, and those who don't leave due to the new pricing will likely stay on despite the loss of Starz. But Starz sure picked a hell of a time to drop this news. Kick 'em while they're down, why don't you? JB

shygye75
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shygye75,
User Rank: Light Sabre
12/5/2012 | 4:54:52 PM
re: Netflix, Starz on the Outs


To steal a line from Rene Magritte: This is not an Apple. Netflix needs content more than content providers need Netflix.

Jeff Baumgartner
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Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 4:54:51 PM
re: Netflix, Starz on the Outs


Right, content is king... unless you are the overlord who can do anything. Netflix will have some gaps to fill here. I just wonder if subs will care more about this news about Starz or the price hikes... i'd guess it's the latter. I'm not going to churn out yet; i'll give them a chance. JB

rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/5/2012 | 4:54:50 PM
re: Netflix, Starz on the Outs


For Netflix to be an Apple it would need to:

<ul>
<li>Sell an overpriced consumer gadget that plays pirated works taken from the internet (such as from bit torrent) which is also a a status symbol</li>
<li>Share revenues from that gadget with the entertainment industry</li>
<li>Have a place on the board of a major media company and convince them either distribute their content using a Netflix proprietary DRM system or else they will be pirated out of existence</li>
</ul>

Netflix can't do the first step without being sued into bankruptcy so I wouldn't hold my breath.

shygye75
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shygye75,
User Rank: Light Sabre
12/5/2012 | 4:54:50 PM
re: Netflix, Starz on the Outs


Netflix is not an Apple, said Magritte. It's not even a Comcast or a Cablevision. There's absolutely no pain involved in churning out of Netflix, and there are any number of options to that service. I don't think we've reached the point that anyone fears Netflix, and without that fear factor Netflix is in for a difficult transition.

digits
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digits,
User Rank: Light Beer
12/5/2012 | 4:54:49 PM
re: Netflix, Starz on the Outs


Wasn't it Magritte who wrote "Ceci n'est pas une bit pipe?"

shygye75
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shygye75,
User Rank: Light Sabre
12/5/2012 | 4:54:48 PM
re: Netflix, Starz on the Outs


That may have been Rene's brother, Ivan.

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