Two interesting things just happened in the world of Netflix. First, those much-talked-about and generally despised price changes went into effect. Second, Netflix lost all of its Starz content.
Starz called off talks in the contract renewal process, leaving Netflix without one of its largest providers of newer content. This collapse in negotiations takes away Netflix's ability to offer newer movies from Walt Disney Co. and Sony, both of which have their distribution controlled by Starz.
According to the Wall Street Journal, an inside source claims that Starz wanted Netflix to pay them 10 times the licensing fee that Netflix paid them in 2008. Netflix offered the premium TV network $300 million plus a year to renew the agreement, but Starz declined.
What do you plan to do to meet your streaming video needs, now that Netflix has changed their prices and lost Starz? Let us know in the comments.
Apparently, what Starz wanted was a tiered pricing system which would have Netflix customers pay more than the baseline $7.99 streaming price in order to access additional content from Starz. No dice, said Netflix.
Here's what Starz said about the failed negotiations in a release -
Starz Entertainment has ended contract renewal negotiations with Netflix. When the agreement expires on February 28, 2012, Starz will cease to distribute its content on the Netflix streaming platform. 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. 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.
Netflix CEO Reed Hastings talked to Business Insider about the deal, saying that he "regrets their decision to let out agreement lapse."
He went on to say that Starz doesn't account for that much of Netflix's content anymore -
Because we’ve licensed so much other great content, Starz content is now down to about 8% of domestic Netflix subscribers’ viewing. As we add a huge more content in Q4, we expect Starz content to naturally drift down to 5-6% of domestic viewing in Q1. 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.
Shares of Netflix fell 10% Thursday night before closing.
The price change that went into effect on Sept. 1st, the same day of the collapse of the Starz deal, splits up the streaming service and DVD-delivery service into two different plans, both costing $7.99. That's a total of $15.98 if you want to keep both plans. Before, streaming was $7.99 but the 1-DVD-at-a-time service was only a $2 add-on to that package, making it $9.99 total.
So, the most basic description of the day's events is as follows: Netflix upped their prices and lost content at the same time. That's a bummer, right?
The Reed Hastings argument, basically, is that the loss of Starz isn't going to hurt Netflix at all. If Starz only accounts for 8% of the content that subscribers are watching on a regular basis, it's true that Netflix isn't going to be absolutely crippled by this loss. That statement becomes even more compelling if his projections are correct and Starz ends up accounting for only 5-6% of viewed content in Q1 2012.
But you have to consider what Netflix loses when it loses Starz: newer releases - Disney and Sony stuff. This is not the kind of stuff that resides in the outer regions of the library or stuff that will collect dust in a queue for months - this is popular stuff that people want to watch.
And even if Starz didn't provide the most premium content, subscribers may have a legitimate reason to be perturbed. Isn't any loss of content, especially 8% of the content watched, unacceptable?
Hastings said that they will take the $300 that they were going to give to Starz and use it to snatch up different content. But do subscribers want new content to replace lost content? Or do they want new content to add the all the existing content. I think I'll bank on the latter.
It is important to remember through all of this, that the price you pay for your Netflix subscription doesn't have to increase. If you choose to go streaming only, your monthly fee will actually go down. It's only if you really want the physical DVDs that you'll see a real price hike.
But on a day where many existing Netflix users feel forced into a streaming-only decision, Netflix announces that a lot of important streaming content (all the Starz play stuff) will be going away.
How do you feel about Netflix losing it's deal with Starz? Do you think that it will have a significant negative effect on the company? Let us know in the comments.