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Netflix, Starz License Renewal to Approach $350M Annually

1 Jun, 2011 By: Erik Gruenwedel

Netflix’s much-discussed content license talks with Starz Entertainment are reportedly expected to cost the Los Gatos, Calif.-based streaming aggregator about $350 million annually.

The price tag, if true, exceeds previous estimates from $250 million to $300 million, and places a more definitive cap on a content deal that gives Netflix access to movies from Disney and Sony Pictures, among other content providers.

The New York Post, citing comments from an executive involved in the negotiations, reported the $350 million fee would top Netflix’s recently signed $200 million annual tab for access to content from multiplatform, pay-TV channel Epix.

Netflix in 2008 inked an original content deal with Starz for $30 million annually that expires in first quarter of 2012. News Corp. president Chase Carey, whose media assets include 20th Century Fox Home Entertainment, has characterized that agreement as “beyond cheap.”

Eric Wold, research director with Merriman Capital in San Francisco, said the license fee is about what he has been expecting and reporting since last year.

“The $350 million price talk is actually below the midpoint of our expected renewal range,” Wold wrote in a June 1 note.

Wold hopes the deal is non-exclusive, thereby allowing Netflix to leverage a lower license rate (compared with an exclusive deal) and continue to shop for content from myriad sources.

Indeed, streaming costs amount to “pennies per movie,” compared with about $1 per DVD shipped, according to the analyst.

“With Netflix's formidable digital content lead and CE device penetration, locking up content exclusively is no longer necessary,” Wold wrote, adding the more definitive sign of a license renewal bodes well for its stock. “We believe the renewal would be taken as a bullish sign for Netflix's offering and future subscriber growth potential (both new subscribers and lower churn).”

Netflix’s stock reached record highs above $270 per share May 31.

Netflix CFO David Wells is expected to shed more light on the negotiations when he addresses an investor group later this morning.

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