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Netflix can’t seem to get anything right these days, first the company raises the price of their streaming and DVD services, losing a decent part of their user base and now the company’s stock has fallen 9% on news that TV subscription network Starz will not renew their rights contract when it ends in February.
According to unnamed sources, the two company’s couldn’t agree on the value of the networks offerings and how Starz movies and TV shows would be delivered to Netflix customers.
The news couldn’t come at a worst time for Netflix who’s customers already complain on a regular basis that their streaming service lacks the type and amount of content the network should be delivering. Starz controls contracts with both Disney and Sony Corp, two of the countries largest movie houses.
Since announcing their Starz partnership in 2008 the company has gained 17 million streaming subscribers, a number that will likely fall when the company’s streaming service looks more like an ancient vault of $.99 bin movies instead of a revolving service full of new weekly movies from the Starz partnership.
Janney Montgomery Scott analyst Tony Wible says of Starz value:
“What created (Netflix’s success in streaming) is frankly, initially getting Starz, getting that content, which got you more subscribers, which allowed you to buy more content,” Wible said. “The virtuous cycle that has made Netflix what it is could work against it. If you lose content, you lose subscribers; … it could be a downward spiral from here.”
Netflix was paying Starz $30 million a year and Netflix CEO Reed Hastings said earlier this year that the $30 million figure could balloon to upwards of $250 million a year to retain Starz on the company’s books.
While Netflix seemed prepared to take the $250 million deal, that number with stipulations looked to climb above $300 million when Starz asked that their content be added to a higher tiered streaming and DVD combination plan of at least $16 per month.
The plan from Starz point of view makes sense as they continue to build their relationships with cable and satellite TV providers.
In my area Starz comes at the low price of $6.95 per month, the $8 addition to the Netflix platform seems a bit steep and is likely a tactical way for the TV network to gain the trust of their longer term TV partners.
In the meantime Netflix says they will use the $250 million they had earmarked for the contract to buy content that will make customers happy.
Starz currently constitutes 8% of the company’s streaming business according to Netflix’s own internal numbers.
Will you be leaving Netflix once Starz disappears?
