Netflix customers have gotten a bit of a one-two punch recently. The company’s pricing increased dramatically on September first for customers who want to stream and receive DVDs by mail. Starz also announced that it had broken off talks with Netflix to renew licensing rights to Disney and Sony Pictures content.
GigaOM has gathered commentary from several Wall Street analysts discussing the potential impact (or lack thereof) of Starz content disappearing from Netflix when the two companies’ deal expires in February.
Here are some snippets:
Doug Anmuth, JP Morgan:
“Despite Starz content from Disney and Sony representing some of the highest quality film content on Netflix’s streaming service, we believe Netflix has seen little overall pushback from subscribers since Sony content was pulled from the service more than 2 months ago in the related, but separate dispute between Sony and Starz . . . In the event that Netflix cannot acquire a similar amount of content from alternative content providers, we could see a gross profit increase, though revenue and subscriber growth could be dampened by lower overall content appeal.
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Ingrid Chung, Goldman Sachs:
“We would view any weakness in Netflix as a buying opportunity for the following reasons: (1) Starz content accounted for a small and declining percentage of viewership (8% of US streaming hours currently going to 5%-6% in 1Q2012); (2) Netflix’s subscriber growth has not been negatively impacted by losing Sony content 2 months ago… (4) Netflix now has 6 months to find content to fill the potential void; and (5) We view the lowered valuation as very compelling compared to other fast growing, disruptive Internet companies and its addressable market.”
Scott Devitt, Morgan Stanley:
“We believe Netflix is now going through a new phase in which the company is 1) seeing rising content costs, 2) increasing spend on international expansion, 3) approaching law of large numbers in US, and 4) the effects of a price increase. While Netflix is showing financial discipline and it should be able to acquire other content with the money it would have paid to Starz, Netflix is also becoming more of a TV distributor than a movie distributor. Is this bad? We don’t know, but it is different. While Netflix stated that Starz accounted for 8% of streaming hours, we believe the number is closer to 15%, including Sony content.”
Brian Fitzgerald, UBS:
“The real impact… is very likely materially higher because Starz offers lots of new and original programming content that Netflix members like. Our analysis showed that 22 of the 100 currently most popular streaming titles on Netflix were from the Starz catalog. Given the still earlier state of its streaming library, we think the loss of this content will surely affect the quality of Netflix’s streaming service – potentially pushing NFLX deeper into the long tail and /or requiring them to bid for replacement content in a market with rising prices.”
Richard Greenfield, BTIG:
“The overall Netflix film void would be hard to fill – Epix’s content (Paramount, Lionsgate and MGM) is nowhere near as exciting as Sony/Disney (remember several of the biggest Paramount movies do not go to Epix, such as the Transformer franchise) and while Relativity is adding some good content, ‘fresh’ movies will certainly decrease on Netflix next year without a Starz renewal… To the extent Netflix is morphing into a TV rerun service, movies are becoming less and less important and this frees up capital to spend even more aggressively on TV content which is easier to license than movies and distinguishes it from traditional pay TV services such as HBO, Showtime and Starz.”
So there you have it: some analysts are concerned, some are cavalier. But what do you think, Insiders?
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Is the removal of Starz content going to sting Netflix (and its customers) more than some of these analysts think?
(via GigaOM)
I don’t think Netflix will be around much longer. Between the increase in price and loss of better movies. Not many people, in my opinion, are going to be willing to pay that much money, for older movies and TV re-runs, I know I’m not going to.
For now, I will continue with one DVD at the time, unlimited and drop the streaming. I’m already paying for cable TV, I can find old movies & re-runs on there!!!
Really? Why not cut your cable and get the old movies and reruns on Netflix? Where you can watch them on demand without commercials?
Plus free up $40 a month.
My 2 cents if sports becomes available via the Internet the cable companies are done for. Netflix+over the air HDTV+on demand video like amazon/redbox already beats them in my house.
With all due respect I think you’ll find that backwards. More people will cut cable and pay less to Netflix for the same content with a better delivery method. Netflix has it’s issues but they aren’t going anywhere anytime soon.
Netflix got very lucky with the first contract with Starz — quite a bit of content at an excellent price, and that helped to fuel them through an extraordinary period of growth. The loss of the Starz contract will be a challenge. However, at this point they have a significant subscriber base, and if they are able to use their funds wisely, they’ll do well. I don’t think they’ll see the kind of growth that they’ve had over the past few years, but they may be at the phase in their operation where their main challenge will be to largely maintain their customer base, at least in the U.S. market. Recognizing that and doing that will be significant things. After all, one of the problems with the Hollywood studios is they just don’t seem to recognize that the market for physical DVDs will not start growing again, and that the challenge is to find ways to maintain a stable market (which they seem to be doing very badly).
Netflix talks with Starz broke down because Starz demanded that Netflix turn their content into a “premium” tier, charging subscribers an additional fee for access to those films. Coming on the heels of their unpopular (but not unreasonable) price increase, Netflix did the only thing they could do and walked away. Starz executives have cast their lot with the traditional movie industry. They’ll be the ultimate losers in this decision. Netflix will weather this storm and continue to provide its customers with a great service.
Looking at Hulu and looking forward to Blockbuster going streaming.
I think if they funnel the funds freed up from the Stars content into good TV shows they won’t hurt too much. I prefer netflix over hulu becuase of the viewing options on the Wii. My kids watch tons of kids tv shows on netflix to the point that we could give up cable and not hurt too much! I’m sticking with Netflix unless something else wonderful comes along. I can always get my recent release movies on DVD.
If Netflix is seeing growth in streaming TV shows then maybe this is why they didn’t push harder to sign new Starz contract. I myself would rather watch tv episodes then movies. I watch about one movie per week the rest of time is TV episodes.
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I think Netflix should stand their ground and their customers should suppor them. Would they rather see even larger increases in montly fees? I don’t get it. We can’t just keep jumping ships and running to someone else. I don’t think there is enough competition that offers fair prices for the variety of content Netflix offers. I now have started a policy with cable where I only subscribe to premium channels for the months I want to see new shows then take them back off since there is very low selection of movies. I even pay $2 when I add and take off, that’s cheaper than cables expensive rates. I also now refuse to pay more than $1.50 for a new release Blu-ray I get from Redbox. If the studios work hard to take content away from me or delay it, I will either go without or wait. I have a large library now.
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