Liberty Media CEO: Netflix No Threat With Original Programming

20 Sep, 2012 By: Erik Gruenwedel

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CEO Greg Maffei tells investor group renewal the Starz Entertainment-Netflix license agreement was a nonstarter

Netflix’s ramp up of original programming, including serials "House of Cards," "Lilyhammer" and "Arrested Development," among others, isn’t ruffling the feathers of Liberty Media CEO Greg Maffei.

When asked Sept. 20 at the Goldman Sachs Communacopia Conference in New York whether Netflix’s burgeoning original content slate posed a threat to Liberty Media subsidiary Starz Entertainment and HBO, Maffei’s response was a blunt “no.”

“Potentially they could ramp their original content, and they certainly had some initial efforts with 'Lilyhammer,' and the like,” Maffei said. “But they’re relatively nascent. They don’t have the history. They don’t have the relation and they don’t have the scale in that space.”

He said that even if Netflix proves successful with original programming there is room in the market so that they would not be displacing HBO (or Starz Originals). Starz original programming includes "Boss," "Magic City" and the "Spartacus" franchise, among others.

“This is really the highest-quality content on cable and it’s reflected in the consumer demand [for it],” Maffei said. “They are pretty bullish on this space.”

The CEO said he doesn’t expect any margin erosion with the ramp up of original programming at Starz. He said that investment is offset in part by the savings from lower licenses of third-party movies into original content, which Maffei believes is ultimately more important to Starz and Liberty.
Starz Entertainment, through its Encore and Starz channels, repurposes studio movies to third-party cable, satellite and telecommunication licensees. Starz’ agreement with Netflix, which expired in February, helped the rental service bow its pioneering subscription video-on-demand platform.

That $30 million annual deal was later criticized by media companies as too generous to Netflix as its SVOD service and subscriber base mushroomed. A renewal of the four-year agreement — which never materialized — was expected to fetch nearly $300 million annually. Maffei said the nature of Starz’ contracts with major studios precluded the aggregator from renewing the Netflix agreement.

“This was actually a case where the big, high-margin deal was more illusory and our business was better served, both financially and strategically by not renewing by the terms offered,” he said.

Maffei said the fiscal return on a renewal with Netflix would have been less than expected and, more importantly, undermined by an ongoing conflict with Starz’ channel partners given the fact that the SVOD service wanted to position a low-cost, non-premium service with commoditized offering.

The CEO said renewing the contract would have involved paying content partners Walt Disney Studios and Sony Pictures overages and related costs.
“We would have had both a distraction of top-line from channel conflict and some incremental payments on the backend,” Maffei said. “And that was not attractive to the long term brand.”

He said Starz is pursuing an authenticated business model and TV Everywhere platform in the near future.

“There will be down the road online offerings that are more compatible with our long term strategy, included tiered [pricing]” Maffei said. “They don’t exist today, but I think it will come to pass.”

 

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