Netflix stock drops 9% on news that Starz deal will end

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Netflix stock dropped nearly 9% on Friday as investors sold shares after news that the online video company would lose content from its most prominent supplier of new movies, Starz Entertainment.

The breakdown in talks between the two companies announced Thursday means that films from Walt Disney Studios and Sony Pictures controlled by premium cable channel Starz will not be available when the two companies’ agreement expires at the end of February.

Many on Wall Street apparently concluded that the loss of premium content from the studios behind popular hits such as ‘Tangled’ and ‘The Karate Kid’ will be a blow to Netflix’s previously surging subscriber numbers.

However, analysts were mixed on what the news means for Netflix. Ingrid Chung of Goldman Sachs pointed out that the company’s subscriber growth wasn’t affected by the recent loss of Sony content due to a provision in its deal with Starz. ‘Netflix now has six months to find content to fill the potential void and we view the lowered valuation as very compelling,’ she wrote.

Anthony DiClemente of Barclays Capital said, ‘We believe Netflix has a clear indication for what content is worth and the fact that it is willing to let Starz expire suggests to us the company is staying disciplined.’

But others thought the Starz news would spell trouble for Netflix. Michael Pachter of Wedbush Morgan Securities predicted that Netflix would return to the negotiating table. If the two sides cannot reach an agreement, ‘We think that Netflix runs the risk of seeing its subscriber growth sharply reduced, if not stalled completely,’ Pachter said.

Barton Crockett of Lazard Capital Markets said, ‘Disney and Sony movies are a cut above the standard Netflix streaming.... Netflix appears to be moving toward lesser known, older content while raising prices... [which] risks dampening domestic subscriber growth.’

The bears won Friday as Netflix stock closed down $20.16, or 8.6%, at $213.11.

Shares in Starz parent Liberty Media Corp., meanwhile, were off only $1.15, or 1.7%, at $66.18.

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-- Ben Fritz