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Sony, Starz Deal May Keep Netflix Down, But Not Out

 February 11, 2013 05:01 PM
 


(By Mani) Shares of Netflix, Inc. (NASDAQ: NFLX) fell more than 2 percent after rival Starz Entertainment (NASDAQ: STRZA) (NASDAQ: STRZB) struck an exclusive movie deal with Sony Pictures Entertainment (NYSE: SNE).

The deal is a clear negative for Netflix, which is making all ends meet to gain subscribers amid stiff competition from Dish Network (NASDAQ: DISH) Blockbuster, Comcast Corp. (NASDAQ: CMCSA). Google's Youtube and Amazon Prime.

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

Under the latest deal, Starz will have the exclusive pay television rights to Sony Pictures' theatrical releases through 2021. The previous agreement between the two companies had covered motion pictures released theatrically through 2016.

Though the financial terms of the agreement were not disclosed, analysts estimate the deal value at about $2 billion.

[Related -Netflix, Inc. (NFLX) Q4 Earnings Preview: What To Watch?]

"While we cannot comment on the specifics of the new Sony agreement, we believe the terms are consistent with other recent agreements between traditional premium TV networks and major Hollywood studios," Starz CEO, Chris Albrecht, said in a filing with the Securities and Exchange Commission.

The Sony-Starz deal stalled the rally for Netflix shares, which was up more than 120 percent since Dec. 4, 2012, when it captured the exclusive rights for Walt Disney Co. (NYSE: DIS) movies in the pay window starting for films released in 2016. Netflix said to have paid more than $350 million a year for Disney's movies.

The recent deal covers Sony's hit titles including The Amazing Spider-Man, 21 Jump Street, Zero Dark Thirty, The Vow, Men In Black 3, and Resident Evil: Retribution.

Despite losing the Sony deal, Netflix is still in a good shape as Disney's output holds a slight edge over Sony's and Netflix is increasingly focusing on original content. It premiered the original drama "House of Cards" on Feb. 1, and made all 13 episodes of the show's first season available for instant streaming at the same time.

Like its original content ambitions, Netflix wants to have enough big moves to drive awareness and perception of value, and the Disney deal does that in a style.

Further, Disney has big brands and invests in them heavily, and films from Pixar, Marvel and Star Wars can drive marketing and market share for Netflix. Also, it is healthy for SVOD services to have a balanced mix of movies and TV, and this will round out Netflix's content.

Moreover, Netflix remains the dominant streaming video service provider, now accounting for 33 percent of downstream traffic on fixed networks in North America during peak hours (9pm-12am), according to Sandvine. At the end of its fourth quarter, Netflix had more than 33 million total streaming subscribers, with 27.15 million in the U.S.

Meanwhile, Netflix would go social in 2013. Congress passed a new bill amending the Video Privacy Protection Act, which would be signed into law shortly. The bill allows companies such as Netflix to share video preferences of consenting customers unless they opt out.

Netflix has confirmed the company will introduce social features for US members in 2013 that might be integrated with Facebook, Inc. (NASDAQ: FB) and could boost the domestic subscriber base as it may become easier to share what you're watching.

Starz, which was spun off by Liberty Media Corp. (NASDAQ: LMCA) last month, was pushed to a corner as Netflix-Disney deal meant that Starz would lose two-thirds of its fresh movie content. So, Starz had to put all its efforts together to get this deal done as there were speculations that Netflix would go after Sony pictures after its deal with Disney. However, Starz won the battle this time.

Netflix had a deal with Starz providing both Disney and Sony movies until early 2012, when they failed to arrive at a pricing system that required Netflix customers to pay more for some Starz content.

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