Peter Kafka

Recent Posts by Peter Kafka

Did Starz Turn Down $300 Million a Year From Netflix to Make the Cable Guys Happy?

It wasn’t the money. It was the price.

That’s the real story behind the Netflix/Starz breakup, says the Los Angeles Times. The paper says that Netflix was willing to pay some $300 million a year to renew the deal — more than 10 times what it’s paying now — but that Starz insisted that the video service change its pricing, too:

“Representatives for the cable network owned by John Malone’s Liberty Media were insistent that Netflix create a new “tier” for subscribers who wanted its movies at a higher price than the $7.99 it currently charges for online video. That would have put Netflix more in line with the pricing of cable and satellite companies, a step the video company apparently wasn’t willing to take.”

That is: Starz was willing to sell access to its stuff (and stuff it controls from Disney and Sony), but only if Netflix was willing to make its service less compelling to consumers, via a price hike.

Does this sound familiar? It should. It’s the same reason, more or less, that Hulu introduced a pay service last year.

And it’s why Fox (and soon, ABC and others) has started pulling back some of the free TV it puts on the Web: The people who make money from the traditional TV/video business don’t want that business to change. Or at least they want to slow change down as much as they can.

So they’re willing to make real sacrifices to make that happen. The TV networks, for instance, are willing to give up Web advertising dollars by walling off their stuff online. And Starz, theoretically, is willing to give up $300 million a year in order to placate its cable distributors like Time Warner Cable and Comcast.

If that’s really the case, I’m hedging because it’s possible there’s a different backstory at play here (but note the LAT has excellent entertainment-biz reporters, and the spin syncs up with the official commentary from both sides).

A more practical reason to hedge is that even though both sides have pushed back from the bargaining table, there’s still quite a bit of time left before the deal expires in February.

And both sides have very good reasons to come back: That $300 million could have been about a fifth of Starz’s 2012 revenue, says Citigroup analyst Mark Mahaney.

And while Netflix says it doesn’t really need Starz’ stuff, because it’s now so diversified, that’s a little hard to stomach — after all, it was willing to pay $300 million a year for it.


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