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Liberty CEO: Netflix Should Have Acquired Starz

9 Jan, 2013 By: Erik Gruenwedel

Executive says Starz buy would have been more cost-effective than Netflix's content license deal with Disney

When Netflix and Walt Disney Studios’ landmark subscription video-on-demand deal begins in 2017, expect to see Disney’s current pay-TV distributor, Starz Entertainment, up significantly original programming offered to cable, satellite and telecommunication operators, Liberty Media CEO George Maffei told an investor group.

Speaking Jan. 8 at Citi Global Internet, Media & Telecommunications Conference in Las Vegas, Maffei denied suggestions the Netflix-Disney announcement was timed to undermine the value of Starz LLC as it is spun off by parent Libery Media.

“That would suggest [Netflix CEO Reed Hastings] is more evil than some people think,” Maffei joked. “No, I think he did it for his own set of reasons and less about us.”

Starz Entertainment last February ended a four-year digital distribution deal with Netflix — an agreement that helped Netflix launch the subscription video-on-demand market.

Maffei believed the announcement was more of PR effort by Netflix to lure subscribers, despite the fact it won’t have access to Disney movies until 2017.

“That is a virtual lifetime in terms of [the] premium television [market],” Maffei said.

Indeed, the CEO said there could be a credible argument that Netflix should acquire Starz Entertainment, which is a principle source of content distribution to multichannel video distributors via 17 premium channels, including the flagship Starz and Encore brands with approximately 20.8 million and 34.3 million subscribers, respectively.

“You could make a case Netflix needs Starz’ cash flow,” Maffei said. “And Netflix would benefit from being able to distribute Starz Originals programming more broadly.”

He added that Netflix could have fared better economically during the next four years had it acquired Starz, which included rights to Disney and Sony Pictures movies, in addition to Starz Originals programming such as “Game of Thrones,” “Magic City” and “Spartacus,” among others.

Netflix’s deal with Disney reportedly is worth about $300 million annually in license fees.

“But that’s obviously not a calculus Reed made,” Maffei said. “He decided to pay a price that, while we love Disney films, we did not find that price attractive under any scenario. And so we took a pass.”

With HBO renewing pay-TV license agreements with Universal and Fox, the deal with Universal effectively removed parent Comcast from acquiring Starz. It also brought into focus the possibility Starz won’t be sold, despite being spun off by Liberty. Starz LLC is headed by Chris Albrecht.

Maffei said that as Starz’ output deal with Disney winds down, it frees up operating cash flow, which he said Starz intends to use for ramping up original programming from its current 50 hours weekly.

“I think you’ll see us have an increased focus on originals,” he said.

When asked if Starz would partner with Netflix producing original programming, Maffei said the scenario is appealing, in terms of mitigating costs associated with the production of exclusive content.

Netflix in April  is launching original horror series "Hemlock Grove," while bowing the second season of "Lilyhammer" and the premier of "House of Cards" in February.

“We would certainly look at that,” Maffei said.

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