updated 05:40 pm EDT, Thu September 1, 2011
Starz claims 'appropriate' pricing need
(Update: Netflix responds) Netflix took a large hit on Thursday after Starz said it had broken off talks to renew a content deal. Under current conditions, the TV channel provider would pull the movies and other pay TV content it licenses out to Netflix on February 28, 2012. Its statement tried to portray Netflix as cheapening its service and that it was purportedly doing its content a service by shopping for deals elsewhere.
"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," it claimed. "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 runs 17 channels that include Encore, often shows video from Disney and Sony and might have been used as a proxy for the studios themselves. It had reportedly been pressing most for a $200 million payout for Netflix to keep its rights, but it might also have been under pressure from studios to withhold content in the hopes that it might turn back the clock and protect DVD, Blu-ray, and pay-per-show downloads. At $8 per month, Netflix has been considered a strong influence in keeping video piracy down, but this may not have been enough to sway Starz and its partners.
The decision to very publicly cut off ties so early could equally be a negotiation tactic meant to intimidate Netflix and hope it agrees to pay more without as much resistance.
While a ripple effect with other content providers hasn't yet manifested itself, a full cutoff next year would be a boon for digital rivals. Apple is bouncing back with iTunes, but Netflix is believed to have as much as 64 percent of the Internet video market, according to NPD data. As such, any losses on its part could be vital to getting customers who now might have to buy or rent movies and TV to fill in gaps.
Update: Netflix CEO Reed Hastings In a statement said he regretted losing Starz but minimized the loss. Deals with major studios had lessened Starz's content to a lower eight percent of the total catalog, he said. More content deals would be coming in the fall that would lower Starz's influence to five or six percent, and the money saved could be spent on other deals.
Being careful not to burn ties between the two, Hastings was hopeful a license could come back in the future.