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What are the implications of Netflix losing Starz?
Netflix just lost its contract with Starz, and I believe that this is only the beginning of a trend we will see as web-based standards (such as the widespread adoption of HTML5) make it easier for producers and consumers of content to connect and deal directly, and eliminate the need for 'middlemen' such as Netflix.
What does the Focus community think?
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2 Answers
Content is on its way back to being king.
When there is a period of intense technological change, "middlemen" who embrace the new technologies quickly have a period where they control distribution and can make a lot of money in charging for access. But in the long run, it is the owners of the assets, or of creative content libraries, who can wait for distribution mechanisms to become standardized and cheap. Also, they can let the new-age distributors spend a bunch of marketing dollars educating the public on how to use the new mechanisms.
Then they can reproduce the distribution mechanism at 110-20% of the cost that the middlemen incurred to build it, and serve their assets and content themselves. Which is exactly what Starz in particular and Hollywood in general did in this case.
Netflix is in serious trouble. I don't think they will survive the next 5 years.
The loss of Starz definitely hurts, but Netflix will survive. Some estimates suggest that Starz titles only made up 8% of total viewing hours and Netflix has until March of 2012 to figure out a solution. Also, Starz was apparently looking to increase its fees from $30 million to $350 million under the new contract. Walking away from that deal just looks like good business by Netflix. On the flipside, $30 million may represent up to 25% of Starz' revenue. I predict that Starz will be back and that these are just brinksmanship negotiating tactics by Liberty Media.
Will new technologies like HTML5 hurt Netflix? Possibly, but I don't expect that the company will be disintermediated that easily. Don't underestimate the power of a well-known brand with 25 million subscribers in this industry. They may see increased churn as a result. The bigger risk for Netflix is companies like Amazon making serious inroads into the market.
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