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Starz CEO: Netflix Became an ‘Albatross’

15 Nov, 2011 By: Erik Gruenwedel

Pay-TV channel executive says Netflix’s unwillingness to a tiered pricing structure for its streaming content killed renewal of its licensing agreement

As Netflix’s fortunes and stock valuation skyrocketed in recent years, it became increasingly clear to Starz Entertainment that its content had become — by comparison — devalued in the process, according to Chris Albrecht, CEO of Starz LLC — Liberty Media Corp.'s pay cable and movie unit.

Starz Entertainment licenses movies from Walt Disney Studios and Sony Pictures, among other studios, via 16 channels to cable and satellite operators in the pay-TV window.

Speaking last week at the Monaco Media Forum 2011 in Monte Carlo, Albrecht said Starz originally signed the (five-year, $30-million-a-year) license agreement with Netflix in 2008, in part because it believed there existed a growing number of consumers bypassed by cable and satellite TV operators.

“The [original] Netflix deal was based in part based on the frustration of not feeling that the traditional distributors were offering enough focus and getting the products to enough customers in enough innovative ways,” Albrecht said.

Indeed, Netflix had just launched its streaming service through a proprietary player manufactured and marketed by Roku. The subscription video-on-demand business model was in its infancy. That would all change shortly as streaming became a buzz term that drove millions to subscribe to Netflix, which in turn created the lucrative SVOD window for repurposed content.

Netflix’s subscriber base blossomed to rival cable and satellite, thereby affording it the fiscal means to spend incrementally more for content license rights — to the chagrin of Starz.

“It became a deal that was an albatross for Starz but … I think you can say to a great extent that the success of Netflix was based in part on the back of Starz programming,” Albrecht said.

The CEO said renegotiations with Netflix (the current deal ends next February) hinged on the ability to extract higher value for Starz proprietary and subcontract content. In other words, Starz wanted Netflix to charge subscribers more than an all-you-can-eat fee of $7.99 a month.

“We had realized that premium — premium TV, premium packaging, premium pricing, premium tiering — is the bed that we are in … [and] is something that the Netflix model was going to undermine [and] not enhance,” Albrecht said.

Richard Greenfield, analyst with BTIG Research in New York, who posted Albrecht’s video comments from Monte Carlo on his blog, believes Starz will license content with another SVOD service more amenable to tiered pricing.

He said the success of Starz Originals programming (“Spartacus: Blood and Sand,” “Spartacus: Gods of the Arena," “Boss,” and forthcoming “Magic City” and “Da Vinci’s Demons,” among others) is driving Starz to de-emphasize third-party feature films.

Starz going forward is bowing upwards of 50 hours of original content – a reality Greenfield believes will result in the company not renewing content deals with Disney and Sony Pictures.

Albrecht appeared to say as much.

“Theatrical movies will always be a part of what we do, but they get less valuable as the studios find a way to monetize them either before or after our window. … So the thing you can really control in your destiny are the things you make for yourself,” he said.

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