Netflix is taking a beating on the stock market today, losing almost 10 percent of its value this morning following Thursday’s late announcement from Starz that it wouldn’t be renewing its contract to provide Netflix with the rights to stream movies online, including valuable Disney and Sony pictures.
“Starz Entertainment has ended contract renewal negotiations with Netflix. When the agreement expires on February 28, 2012, Starz will cease to distribute its content on the Netflix streaming platform,” Starz CEO Chris Albrecht said in a statement Thursday.
Netflix, which analysts argue needs Starz content to keep its 25 million-or-more customers happy, especially following a 60 percent price hike that went into effect Thursday, responded to the news with a not-so-subtle “good riddance,” saying it had already made enough arrangements with other distributors to weather the Starz walk out.
“Starz has been a great content partner since 2008 and we are thankful for their support,” Netflix spokesman Steve Swasey told The Los Angeles Times late Thursday.
He continued:
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.
In the original deal, circa 2008, Netflix reportedly agreed to pay Starz $1 billion for the right to stream its content, including movies from Disney and Sony.
But now that the online video market has exploded, with the time users spent watching video online up 45 percent over last year, Starz wants Netflix to pay more money for its lucrative content. A lot more. Like 10 or 15 times more.
Still, some analysts, such as Michael Pachter of Wedbush Securities, think that Netflix and Starz will come to a deal before the current contract runs out.
“All fours sides — Starz, Netflix, Disney, Sony — need a deal to happen and all four are counting on a deal to happen,” he told Idea Lab yesterday. “Starz needs money. Disney and Sony want money. And Netflix is willing to pay a lot more,” just not as much as Starz wants.
Pachter predicts Netflix will try and push for a better deal, since it can’t afford to set a bad precedent for its deals with other providers.
It’s worth noting that Starz and Sony have had contract disputes as well, leading Sony movies to be temporarily removed from Netflix in June.
All of this high-stakes brinksmanship, combined with the online video market competition concerns expressed Thursday by the judge who approved the Comcast takeover of NBC Universal, suggest that the online video turf wars have just begun in earnest.
