Loss of Starz Puts Netflix in a Bind

Online video king faces down streaming content critics as competition grows

Netflix has a content problem. Last week, just as the company’s widely panned subscription price hike went into effect, Starz Entertainment announced that it would not renew its Netflix distribution contract come February. The move strips the online video site and its 25 million members of streaming access to 2,500 new and old TV and movie titles for which Starz owns the rights, including dozens of blockbusters from Sony Pictures and Disney like The Social Network and Alice in Wonderland.

The news couldn’t have come at a worse time for Netflix—critics had already been suggesting its instant viewing choices have gotten too thin. As tech blog Gizmodo put it in June, “Right now, the Netflix streaming library sucks.”

There’s also increased competition among streaming services. This spring, for example, YouTube opened a streaming rental business with 3,000 premium movies. And in July, Amazon signed a deal with NBCUniversal that adds 1,000 new titles to its library.

“More competition is good for content [distributors],” said the head of the digital division at one major Hollywood studio. But it’s not so great for Netflix, which for the first time in its history finds itself having to compete with other deep-pocketed outlets for the most attractive streaming movie and television titles.

With so many new players in the market, studios can get picky about who they license content to, and under what circumstances. “When Netflix first started in this space, there was a lot less scrutiny on the deals that were done with them,” said the digital chief at another studio that’s a Netflix partner. “Given how big Netflix has become, those arrangements are discussed regularly. We’re looking at pricing and windowing. . . . They need to be competitive in terms of buying content.”

On Friday, the Los Angeles Times reported that Starz turned down the renewal offer from Netflix worth as much as $300 million because it wanted Netflix to bring its prices in line with what cable and satellite providers charge.

Netflix, for its part, says there’s no change in its content relationships. “If there’s any reevaluation by the studios, it’s ‘How much more money are we going to be able to generate in revenue from Netflix because Netflix is willing to write big checks for content,’” said spokesperson Steve Swasey. “We’ll take the money that we were going to spend on Starz and spend it on other content.”

And if there’s streaming content missing, Swasey says the answer is in the disks. “At $7.99 a month, we can’t be expected to have everything, and we provide an amazing DVD service,” he said. “If you want to see everything, you can subscribe to the DVD service, and you don’t have to subscribe to the streaming service.”