Looks like Netflix is in for some hard times, folks. Having followed through with their 60 percent hike in prices, Starz Entertainment, one of their earliest and largest content providers, took advantage of the moment, choosing the first day of the price increase to make a big announcement.
From Market Watch:
Shares of Netflix Inc. fell sharply Friday on the news that Starz Entertainment has ended negotiations to keep its content on the company’s streaming service into next year.
The stock has slumped nearly 30% since peaking atop the $300 mark in mid-July — when it announced new pricing plans that resulted in a significant fee hike for subscribers to both its DVD rental and streaming plans and takes effect this week.
Late Thursday, Starz announced that it has ceased negotiations to renew its contract for streaming content with Netflix. The current agreement is set to end on Feb. 28 of next year. Starz is owned by Liberty Media Corp.
In a statement, Starz said the move was designed “to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content.”
Netflix stock had recovered slightly by the end of the day with a net loss of 8.64 percent. Of course, Netflix wasn’t going to let the Starz announcement go unanswered and shot back with this:
Netflix responded by noting that, while Starz “was a huge part” of the company’s streaming service when it first launched its streaming service in 2008, it has since fallen to about 8% of domestic viewing and is expected to slip to 5%-6% by the end of the year, as more content is added to the service.
“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,” the company’s statement read.
Starz’s move is a negotiating tactic, nothing more. Remember, the Netflix/Starz contract doesn’t end until February 28, 2012, six months after Thursday’s announcement. That leaves them considerable time come back to the table and reach an agreement.
If the companies can’t reach an agreement by March of next year, Starz would be walking away from a considerable sum. The most recent offer by Netflix was reported to be worth over $300 million per year. That’s roughly 1,000 percent (not a typo) more than the current contract’s worth of $30 million.
Though I understand that streaming content is much more valuable now than it was when the current contract was signed in 2008, 1,000 percent is an awfully big leap in revenue to walk away from, even if they reach some sort of deal (undoubtedly a less profitable deal) with a Netflix competitor. Netflix has more eyes on more media options on more streaming devices than all their competitors put together, and they aren’t about to let Starz forget that.
Netflix customers would be wise to sit tight during these negotiations. Expect to see Starz content continuing to stream from Netflix next March, and until then, just sit back and watch the fireworks.
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