updated 06:15 am EDT, Fri September 2, 2011
Starz, Netflix deal collapsed due to cheap pricing
Following the announcement that Starz will pull its content from Netflix when its current contract expires on February 28, it has emerged that the reason the arrangement collapsed is because Starz wanted to force Netflix into a tiered pricing structure for its content. Starz, which distributes content from Sony Pictures and Disney among others, did not believe that the $300 million plus deal that Netflix was offering represented appropriate value for its content. However, any deal that pushed Netflix into charging higher prices for certain Starz content would have resulted in a higher monthly fee for its subscribers.
Starz management also reportedly felt that any further deal with Netflix could undermine the value of its premium content. For Starz, a wash on effect of this could affect its ongoing relationship with other partners that distribute its content at a premium including DirecTV and Time Warner Cable. A deal with Netflix that resulted in its content being distributed more cheaply online had the potential to negatively affect the subscriber base of its satellite and cable-based content distribution partners.
Stars is reported to make around $7 per subscriber through its partnership with DirectTV and Time Warner Cable. As Netflix currently only charges its subscribers $8 in total, it couldn’t compete with the value that Starz is generating from its other partners. At best, it would have generated around $1 per Netflix subscriber, an arrangement that it ultimately deemed untenable. [via LA Times]