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Summary:

There’s been a rash of speculation about which of Netflix’s competitors will bid for the streaming rights of TVs and movies from Starz. The most likely outcome, however, probably has the network keeping those rights to itself and making them part of its TV Everywhere play.

starz play

Starz dropped a bomb on Netflix Thursday, announcing to the world that it was ending negotiations for a renewal of their deal and pulling its content from the streaming service next March. That’s led many to speculate about who might pick up those rights when they lapse. The most likely outcome isn’t that Starz’s streaming content goes to one of Netflix’s competitors, but that the network keeps the digital rights to itself and makes them part of its TV Everywhere services with cable companies, who can offer the programming online for their paying customers.

The Netflix deal was never exclusive

In the scramble to determine who will get the Starz streaming rights once they lapse from Netflix, most have forgotten that those rights were already available to other bidders. Netflix never had exclusive rights to the Starz library of streaming movies and TV shows — in fact, the same year that Netflix struck its deal, Verizon licensed the Starz Play library as well. (This was a very forward-thinking thing to do, in light of today’s TV Everywhere environment.)

All of which means that if Google or Amazon had wanted Starz content, they could have already bid for it. But over the last several years, neither was willing to pony up the cash necessary to do so, and I think they seem unlikely to do so now. Netflix, for the most part, has been leading the way in licensing streaming content and writing big checks, with Amazon just recently negotiating subscription VOD rights for much of the same content. But it seems unlikely that either would outbid Netflix, given their histories.

Rebuilding Starz won’t be about streaming

The Netflix agreement did serious damage to Starz’s ability to negotiate deals with its distribution and studio partners. The money it made from streaming to Netflix subscribers was inconsequential in light of the amount that it makes from cable and satellite operators. And frankly, Starz probably lost money on the deal, since being on Netflix — and being paid so little — devalued the network’s brand when it tried to negotiate per-subscriber fees with incumbents.

Starz CEO Chris Albrecht was at HBO during the start of its golden era, building the network up with great original programming like The Sopranos, Six Feet Under and Sex and the City. He’s part of the reason that HBO is a billion-dollar business today. And by all accounts, he’s trying to do the same at Starz, creating new original programming, growing the network’s subscriber base and attempting to increase the amount it gets from operators for each person that pays to watch its programming.

With all that in mind, it’s clear that Starz has weighed the benefits of a Netflix deal and decided that alienating its traditional partners wasn’t worth making potentially hundreds of millions of dollars a year. Why? Because Albrecht knows he can’t build the network he wants to with a streaming deal from Netflix — or anyone else — hanging around his neck like an albatross.

Starz knows that pay TV is where the real money is

Starz already gets a substantial amount of money from its cable partners, and it hopes to get more by rolling out TV Everywhere-type services. The problem is that its cable partners won’t want to pay more to compete with Netflix, which would offer the same content on the same devices at a heavily discounted rate.

Starz currently makes about $7 per subscriber from its existing partners. But a Netflix renewal, even one valued at $300 million a year, would pay substantially less than that: With about 22 million streaming subscribers forecast for the third quarter, that comes out to just a little more than $1 per user, and Netflix’s subscriber base continues to grow.

Since Netflix charges $7.99 per subscriber, it simply can’t compete with the amount that Starz makes from the cable guys. And if the financials don’t work for Netflix — which has been leading the way in terms of writing big checks — they seem even less favorable for everyone else.

That’s not to say that there isn’t a dollar amount which could make Starz reconsider. But it would likely have to be a significant amount to bring Starz back to the table after the way it blew up its negotiations with Netflix.

  1. Everyone knows that the neflix model doesn’t work. At the end of the day, it will be like a cable channel instead of being a the go to place for all you want to watch.

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  2. The other question is how long did Starz streaming rights run? Starz deal with Sony ran out last year and Sony Pictures disappeared from Starz. Starz probably negotiated for online streaming rights back when there was little market for streaming. They probably got them thrown in with the broadcast rights.

    Starz won’t get that deal again.

    Netflix will never see a streaming library of the size of Starz again for $25M over 4 years. Netflix is going to have to start writing some really big checks.

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  3. One problem: viewers are increasingly fed up with cable TV. We don’t like to pay a monthly bill that gives us a feeling paying for channels we never ever watch, we don’t like advertisement, we don’t like fixed schedules.

    I don’t have cable, TV, that is. I get my stuff from iTunes or Netflix. If the content I want is not there, don’t ever believe I would sign up for cable TV. There are cheaper ways to get it, which is even less cumbersome than cable TV.

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  4. I really don’t get the possible benefit for starz. By doing this they’ve effectively lost $300 million and pissed off a lot of customers.
    Netflix did all they could, and I think they seem like they’re looking out for the best for the customer.
    Businesses can sometimes be total ****s (guess what that means)!

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  5. Ryan, maybe the people who are making the most fuss about this news aren’t Netflix subscribers, or they simply don’t understand the business model. Frankly, I don’t see this parting as a big deal — either for Starz or Netflix.

    Regardless, traditional media execs can learn something important from this scenario. Netflix subscribers have no affinity to “channels” per se — it’s a platform that enables people to feed their eclectic interests in video content (regardless of source).

    Perhaps this is why on-demand movie offerings at cable MSOs has had such low adoption — the all-inclusive subscription model of content consumption changes consumer perception of value (what they like to view, and what they’re prepared to pay for). The loss of one source is therefore a non-event.

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    1. David, totally agree with you. I predicted the other day on twitter that the vast majority of Netflix users probably won’t notice when the Starz content disappears, and I stand by that. They’ll just be recommended something else instead.

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  6. With all the stuff Echostar/DISH is buying that would suit Starz, I wouldn’t be surprised if the two of them didn’t get in bed. Since live practically next door to each other. I think we’re in for some surprises.

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