What Next for Netflix after Starz Severs Streaming Deal?

It’s a bad day for Netflix, following an announcement from Starz that it had ended contract-renewal negotiations that would allow the Starz library to be offered for streaming after the current agreement expires in February. The Netflix “Watch Instantly” streaming library has been touted by film fans and industry pundits alike as the future of movie-viewing, and it has provided an embarrassment of riches for movie buffs, collecting an assortment of indie films, older movies and TV shows, obscurities, and oddities. But the perception of value in the Netflix streaming library has been bolstered by the presence of films from Starz Entertainment, which has a deal giving it rights to Disney and Sony movies. (However, Sony movies dropped off the Netflix service in June, reportedly after hitting a subscriber cap for on-demand viewing.) Without the presence of marquee titles like Tangled and Toy Story 3, the Netflix selection looks a little more anemic to mainstream audiences. (The Starz movies also tended to be transferred at incorrect aspect ratios that angered cinephiles, but that’s a subject for another blog post.) Some analysts shrugged at the news, suggesting that Netflix would simply steer the money it saves on the pricey Starz deal toward other content providers. And that’s what Netflix CEO Reed Hastings said late yesterday: the company plans to license replacement content before Starz goes away. That might sound like good news for indie filmmakers and others catering toward niche audiences, as long as they’re willing to settle for the money Netflix is offering. But, despite the deal it signed last year for movies from the EPIX library (comprising Paramount, MGM, and Lionsgate titles), Netflix is still short on Hollywood studio content, with no indication that studios are keen to provide content at a price that makes financial sense. And without any movies from Disney, Fox, Sony, Universal, and Warner Bros., the current value proposition for Netflix streaming is heading downhill. The market seems to agree — shares in Netflix were trading at $211 by mid-day Friday, down nearly 10 percent from where they were before the news broke Thursday evening. (As recently as July, those shares were at $298.73.) Streaming obviously isn’t going to go away, and there are plenty of ways for studios to get into the game without relying on a third-party like Netflix to get them there. How exactly that happens, and to what degree it will be segregated along major-studio lines, is very much up in the air.