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.