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Netflix falls on Starz contract loss
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Netflix falls on Starz contract loss
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Netflix CEO Reed Hastings in San Francisco, June 7, 2010.
Credit: Reuters/Robert Galbraith
Fri Sep 2, 2011 9:56am EDT
(Reuters) - Shares of Netflix Inc fell 11 percent in early trade on Friday, a day after pay-TV operator Starz Entertainment decided not to renew its contract with the movie-rental company.
Starz, controlled by John Malone's Liberty Media, ended talks to renew a deal that expires February 28. After that date, Starz will stop providing its content, which includes exclusive rights to first-run Sony Corp and Walt Disney Co movies, for streaming on Netflix.
UBS analyst Brian Fitzgerald who has a "sell" rating on Netflix shares said Thursday's announcement underscores the long-term concern that rising content costs and increasing competition will continue to weigh on the company's stock.
Starz might now court another online streaming provider such as Amazon.com Inc or Google Inc's Youtube.
However, some analysts were unfazed by the move and were positive on Netflix's prospects to secure alternative deals.
Jefferies' Youssef Squali said while Starz will continue to hold the rights to Sony and Disney titles, Netflix could independently strike a deal with the production studios for streaming content.
Stifel Nicolaus analyst George Askew, who has a "hold" rating on the company's stock, said the loss of contract could help Netflix in the long term as it could deploy the estimated $300 million fee for future, replacement content.
Netflix was offering to pay somewhere in the $200-$300 million range annually for rights to stream Starz content, while the original online streaming rights are believed to have been agreed for around $30 million a year four years ago.
"We believe Netflix has seen little overall pushback from subscribers since Sony content was pulled from the service more than two months ago in the related, but separate dispute between Sony and Starz," Squali said.
Piper Jaffrey analyst Michael Olson said although Starz provided a "larger" portion of new releases on the Netflix service, its share of overall streaming content declined in the last two years.
Shares of the company fell to a two-week low of $207.62 on Nasdaq. They trade at a 12-month forward price-to-earnings multiple of 37.5, according to Starmine data. Competitors Dish Networks, Time Warner Inc and Best Buy trade at multiples of 8.4, 10.4 and 6.9 respectively.
(Reporting by Himank Sharma in Bangalore; Editing by Gopakumar Warrier and Maju Samuel)
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We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (5)
buzzards wrote:
As a current Netflix customer, I can ASSURE you this will be the end of Netflix as we know it. I am fed up with price increases and limited content. Now that Starz has pulled out, there is really no point in keeping the service.
I would imagine that the majority of Netflix customers feel this way too. I don’t suspect any amount of spin is going to help them at this point!
Sep 02, 2011 9:16am EDT -- Report as abuse
kathyweig wrote:
Well, now I’m really glad I canceled my Netflix service. I still have the TVDevo website’s service and get movies and TV for cheaper than what Netflix offers.
Sep 02, 2011 9:46am EDT -- Report as abuse
Peartex wrote:
The only thing they are losing now are Disney movies, nothing to keep them from negotiating with Disney directly. I think this is a good thing – no middleman.
Sep 02, 2011 10:10am EDT -- Report as abuse
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