Company Town

The business behind the show

« Previous Post | Company Town Home | Next Post »

Netflix to lose Starz, its most valuable source of new movies

September 1, 2011 |  3:17 pm

Netflix
Premium cable network Starz Entertainment will end its deal to provide movies to Netflix, a surprise decision that will deprive the popular online video service of its most valuable source of recently released movies.

Analysts had said that if Starz were to renew its agreement, which expires in February 2012, it could have been worth as much as $300 million to John Malone's Liberty Media-owned network.

However, executives at Starz apparently concluded that they would lose even more money by giving consumers a reason to subscribe to Netflix instead of the cable channel.

"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 said in a statement Thursday. "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."

Starz, which controls pay-cable rights to movies from Walt Disney Studios and Sony Pictures, signed its current agreement with Netflix in 2008. At that time, online video was watched by only a small number of tech-savvy young people and the estimated $30 million per year the cable network received was seen as new revenue that would have little impact on its traditional television business.

But Netflix now has 25 million subscribers, the majority of whom watch video online through a variety of devices, including Internet-connected TVs, tablets and smartphones. By providing recently released hit movies from Disney and Sony such as "Alice in Wonderland" and "The Karate Kid," Starz has helped to fuel that growth.

The only other recently released movies Netflix gets for its streaming service come from Paramount Pictures, Lionsgate and Metro-Goldwyn-Mayer via cable channel Epix. HBO, which has offerings from 20th Century Fox, Universal Pictures and Warner Bros., has refused to partner with Netflix.

Starz typically costs about $15 a month for cable and satellite television subscribers, while Netflix streaming costs only $8 a month and doesn't require a pay television subscription.

The move comes two months after Sony movies disappeared from Netflix due to a provision in its deal with Starz. However, people close to the matter had said at the time that they expected Sony movies to return to Netflix soon. With Starz choosing not to renew with Netflix, that will now be a moot point.

The Starz development came on the same day that Netflix implemented a previously announced, controversial price increase that eliminates hybrid plans and charges a minimum of $8 a month to receive DVDs through the mail and $8 a month for online video.

The latter service is likely to become less valuable in the eyes of consumers with the disappearance of Starz's movies and original TV series such as "Camelot."

Starz earlier this year implemented a 90-day delay from the premiere of original series episodes until they became available on Netflix, the first sign that it was reconsidering the value of the partnership.

Netflix stock plunged 8% in after-hours trading Thursday on the news, while Liberty Media stock was flat.

[Updated at 4:57 p.m.: Netflix spokesman Steve Swasey provided the following statement in response to the news:

Starz has been a great content partner since 2008 and we are thankful for their support.

While we regret their decision to let our agreement lapse next February, we are grateful for the early notice of their decision, which will give us time to license other content before Starz expires.

While Starz was a huge part of viewing on Netflix several years ago because it was some of the only mainstream content Netflix offered, over the years Netflix has spent more and more licensing great TV shows from all four broadcast networks and many cable networks, and we have licensed 1st run movies from Relativity, MGM, Paramount, Lionsgate and others. Because we’ve licensed so much other great content,  Starz content is now down to about 8% of domestic Netflix subscribers’ viewing.   As we add even more content in Q4, we expect Starz content to naturally drift down to 5-6% of domestic viewing in Q1. We are confident we can take the money we had earmarked for Starz renewal next year, and spend it with other content providers to maintain or even improve the Netflix experience.

We have tremendous respect for the Starz creative team, and we look forward to someday licensing some of their original or licensed content.]

RELATED:

Netflix users see Starz over disappearance of Sony movies

Netflix hikes prices for many consumers with separate pricing for DVDs, streaming

Netflix revenue and guidance disappoints Wall Street

-- Ben Fritz

Photo: Netflix CEO Reed Hastings at the launch of the company's Canadian service last September. Credit: Mike Cassese / Reuters.

Comments 

Advertisement










Video