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Analysis for 'Starz'

  • Disney Blew A Big Strategic Opportunity By Licensing to Netflix in 2012

    By now we’re all familiar with the 3 big announcements Disney made yesterday: 1) a plan to launch its own entertainment-focused SVOD service, in turn sunsetting in 2019 its Netflix licensing deal for Disney/Pixar content, 2) a plan to launch an ESPN OTT service and 3) spending $1.58 billion to buy another 42% of BAMTech and take control of that business.

    Focusing on Disney’s entertainment SVOD service it looks pretty clear now that by signing the original December, 2012 licensing deal with Netflix, Disney blew a big strategic opportunity to get in front of the trend toward direct-to-consumer online distribution.

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  • Never Mind Apple Bundling Premium TV Networks, Amazon is Really the One to Watch

    Recode reported a couple days ago that Apple is potentially looking to sell online subscriptions to HBO, Showtime and Starz in a single bundle to subscribers. Since Apple has made so little progress in video compared to its peers, a bundling move like this could give it a boost. But if I were handicapping which company is much more likely to sell HBO, Showtime and Starz in a discounted bundle - and succeed with it - I’d put my money on Amazon far sooner than Apple.

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  • John Malone Praises Netflix’s "Nirvana Business Model," Chides Traditional Pay-TV Distributors

    In an interview at Lionsgate’s first investor day, Liberty Media chairman John Malone praised Netflix as having a “nirvana business model” while calling out traditional pay-TV distributors for being “asleep at the switch” as their legacy “toll gate” video business models were disrupted. Malone highlighted Netflix’s direct-to-consumer, global scale and complete control as key benefits.

    However, Malone wasn’t all doom and gloom about traditional pay-TV distributors, which he sees as morphing from being “video delivery businesses” to “connectivity businesses.” Malone thinks this change in mindset will lead to distributors breaking with tradition and offering premium networks such as Starz in combination with broadband, as opposed to being available only on top of multichannel bundles. But he would not provide any timetable for when this shift might occur.

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  • thePlatform to Manage Video for STARZ PLAY Arabia

    thePlatform’s mpx system has been chosen by Parsifal Entertainment Group for backend video management and publishing for STARZ PLAY Arabia, a new SVOD service in Middle East and North Africa markets. Parsifal is a Swedish media company that STARZ tapped a year ago to assist with its international rollout.

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  • VideoNuze Report Podcast #123 - Aereo, Starz-Netflix, UltraViolet

    I'm pleased to be joined once again by Colin Dixon, senior partner at The Diffusion Group, for the 123rd edition of the VideoNuze Report podcast, for Mar. 2, 2012. This week's podcast has a different format; instead of discussing one topic in depth, we touch on three areas - the new lawsuit against Aereo, Netflix's deal with Starz ending (and whether the "flix" is coming out of Netflix) and UltraViolet's strategy of using discs to drive adoption.

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  • Verizon Needs to Bring More than a Knife to the OTT Gunfight

    Late yesterday Reuters reported that Verizon is looking at launching an online-only subscription service for streaming movies and TV shows outside its geographical footprint. While such a move initially seems disruptive to incumbents like Netflix and others, the folks at Verizon better remember the old adage about not bringing a knife to a gunfight; if they really want to compete, significant investments in content and promotions are going to be required. Even then, it's not yet clear to me how Verizon succeeds in this highly competitive space.

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  • Inside Starz's Netflix Quandary

    Here's a thought experiment: Imagine you're running a major cable TV network and your fastest-growing distributor (and largest, by number of subscribers) offers to license your content for approximately $300 million each year, a sum that is about 10 times the amount it has been paying under the current deal struck less than 3 years ago. The new deal would have a very material impact on your P&L as your company's operating income last year was about $400 million. Seems like a pretty tough offer to turn down, right?

    However, there are certain catches. First, this distributor is considered a disruptive competitor by all of your other long-time distributors (who collectively paid you about $1.3 billion last year). If you proceed with this new deal, you're concerned that these other distributors may retaliate by paying you less when they renew their deals in the future. Second, this distributor wants a degree of exclusivity that limits your ability to make incremental deals with companies it deems as competitive. Third, key suppliers of your content have escalation clauses that entitle them to incremental payments if you proceed with this new deal, which would in turn erode your margins. And last, but not least, the manner in which this distributor wants to compensate you would alter the way you are positioned in the market - from a "premium" to a "basic" channel - consequently risking a perception that your content will be irreparably devalued by consumers and other distributors.

    Got all that? If so, then you grasp the quandary that Starz's executive team found itself in as it evaluated a huge license renewal offer from Netflix. Last Thursday Starz announced its decision, choosing to rebuff Netflix's rich offer, at least for now. But as the math below shows, combined with what I've learned from individuals familiar with Starz's economics, Netflix's putative $300 million/year offer was far more than Starz could generate otherwise, making its decision to walk away all the more difficult.

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  • Happy Labor Day and End of Summer

    Happy Labor Day to VideoNuze readers here in the U.S. and to all, a happy end of summer. Many of us are getting in some time off before back-to-school and back-to-work realities kick in next week, and so no there's no new VideoNuze content today. However, I'll be back on Tuesday, with regular VideoNuze coverage.

    Kicking off next week, I'll provide analysis of the Starz-Netflix non-renewal, and what the implications are for each party. As VideoNuze readers know, I've been a keen Netflix observer and this latest turn of events is part of the larger story of Netflix reckoning with its own massive success, as TDG's Colin Dixon and I forecast would happen this year. The Starz situation is illustrative of Hollywood's wariness in dealing with a far bigger and more influential Netflix.

    See you on Tuesday, and enjoy your holiday weekends!
     
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  • Amazon Prime Instant Streaming Launches; Not a Netflix-Killer (Yet Anyway)

    Amazon is announcing this morning that it has added streaming access to 5,000 movies and TV shows to the package of benefits its "Prime" members get, for no extra charge as part of their $79/year subscription. Amazon is offering a one month free trial to Prime to let new users test it out. The move had been widely rumored and of course the first company that comes to mind as being in the cross-hairs of Prime's streaming is Netflix. Those competitive concerns are legitimate, but for now, Prime isn't close to being a Netflix-killer.

    The big Achilles heel of Prime is content selection. Though 5,000 titles sounds like a lot, it won't take long for experienced Netflix users tempted by a switch to Prime to recognize that most of these titles are already available on Netflix streaming as well. I did a quick comparison of 20 randomly-selected titles on Prime and found that with the exception of a few BBC Shakespeare titles and certain episodes of the PBS series "American Experience," everything on Prime is already available on Netflix streaming. In fact, for now Prime relies heavily on British programming and PBS. Though both provide quality productions, they are far from mainstream popularity in the U.S.



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  • Starz's 2-Year Results Defy Warnings of "Cord-Shaving"

    If you're looking for evidence that the pay-TV industry is imperiled by the rise of over-the-top services that are going to cause subscribers to cut the cord, a good early indicator of such behavior would be whether "cord-shaving," i.e. the reduction of services like premium channels, additional outlets and DVR services, is happening already. But a look at the premium channels Starz and Encore - whose content is fully available for streaming on Netflix - suggests no evidence of cord-shaving is yet occurring.

    As the graph below shows, since October, 2008, when Starz announced that Netflix had signed a distribution deal for "Starz Play," total U.S. subscribers to the Starz and Encore channels have actually increased slightly from 49 million to 49.4 million. During this time period there's been relatively little fluctuation, with only a temporary dip in the 2nd half of last year that was probably more related to the channels being temporarily out of their Comcast deal, and therefore losing some of their promotional backing. Further, for the first 9 months of 2010, Starz's revenue was $929 million and cash flow was $305 million, up from the same period in 2008, when revenue was $826 million and cash flow was $220 million.

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  • As DVD Sales Wane, Experiments With Movies' Digital Delivery Windows Rise

    Yesterday brought more evidence of how digital distribution release windows and promotions are rising as DVD sales wane. First there was news that Disney had teamed up with Wal-mart to allow buyers of the Toy Story 3 DVD to get a bonus digital version of the film playable through the company's recently acquired Vudu digital outlet. That offer was quickly one-upped by Amazon which announced an increase from 300 to 10,000 movies in its "Disc+" program, which provides a digital copy to the user's Amazon VOD account when they purchase a qualifying DVD.    

    Meanwhile at the Blu-con conference in Beverly Hills, studio executives debated how to best calibrate digital, VOD and DVD distribution. Even emerging practices come with exceptions and debates about results. For example, while VOD has largely gained day-and-date release with DVD, exceptions are still made on a case-by-case basis, such as with Universal's "Despicable Me" which will have its DVD go on sale on Dec 14, but its VOD release not until after Christmas.

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  • For Pay-TV Operators, Will TV Everywhere Be TV Nowhere?

    I continue to be confounded by the fact that the pay-TV industry - both operators and cable TV networks - have not made more progress on TV Everywhere, their most important competitive initiative in the online era. Yesterday I got yet another dose of this sobering reality watching a panel discussion at ScreenPlays magazine's Media Innovations Summit in LA. The panel included Synacor's Ted May, Starz's John Penney, EPIX's Emil Rensing, thePlatform's Marty Roberts and AT&T's Dan York and was moderated by Marketing/PR executive Bob Gold.

    It's not that industry executives can't articulate the value to both operators and networks. For pay-TV operators, it's providing increased value to paying subscribers, which helps both acquisition and retention efforts. For cable networks, its expanded audience reach and advertising, while maintaining their hybrid model of paid distribution and advertising. For both it's staying competitive by providing access to premium content for consumers when, how and where they want it.

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  • Cox Embraces Over-the-Top Video In Unique Deal With TiVo

    Another day, another head-turning example of how the boundaries between traditional and over-the-top (OTT) online video distribution are blurring. This morning Cox Communications, the 3rd-largest U.S. cable operator, is announcing that it will integrate its entire VOD library into TiVo's Premiere multi-purpose box, the first time a major cable operator has done so with a retail-only product. Cox will promote and offer free installation for Premiere which, when coupled with a CableCARD, will support Premiere as a full set-top box solution in its markets (Premiere boxes cost $300 or $500). The deal is a significant win for TiVo, which has continued to rollout clever products, but has been challenged to go beyond its traditional retail proposition.

    As important, TiVo will continue to make available all of its integrated online video offerings (e.g. Netflix, Amazon, YouTube, Break, Howcast, CNET, etc.), which means that Cox is enabling online video options to be exposed and promoted side-by-side with its own video offerings. As Jeff Klugman, TiVo's SVP/GM of Products and Revenue explained to me yesterday, TiVo's search function would allow, for example, a user searching for "30 Rock" to see results including Cox VOD listings for the current season and upcoming on-air episodes blended with prior seasons available from Netflix, Amazon or Blockbuster.

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  • Starz Pursues Digital Sampling for "Pillars" Series

    You may have noticed a lot of recent promotion for Starz's current mini-series, "The Pillars of the Earth," based on the book by Ken Follett. A key part of Starz's promotional efforts for this $40 million production is "digital sampling."

    Starz has made the first 2 episodes of the 8-part series available on multiple outlets including free on demand for digital subscribers of major cable operators like Comcast, Time Warner Cable, Cox and others, totaling 61 million subscribers. They are also available on DirecTV's in-house channel 101. And they are available online for Comcast's Fancast users and also on Netflix (where I happened to notice them).

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  • Why Netflix's Long-Term Focus in New Warner Bros. Deal is a Win for Everyone

    Netflix's new deal with Warner Bros., in which it agreed to a 28 day "DVD window" for new releases, in exchange for greater access to WB's films for its Watch Instantly streaming feature and reduced pricing on its own DVD purchases, is further proof that Netflix is squarely focused on the long-term. That's not only smart for Netflix, it's also a win for Hollywood studios and also for consumers.

    With 11 million subscribers and growing, Netflix has emerged as one of Hollywood's most important home video customers. This dynamic has only increased recently due to slowing sales of DVDs (down another 13% in 2009) and Netflix's dominance in DVD rentals. Yet Netflix is viewed warily by Hollywood, primarily due to concerns that in the digital age, Netflix could gain too much power over Hollywood's fate. This concern was reinforced by Netflix's deal with premium cable channel Starz, a de facto end-run around Hollywood in which Netflix got streaming access to certain Disney, Sony and Lionsgate films.

    As I've pointed out many times (as recently as this past Monday, in item #6), despite the Starz deal and the impressive adoption of Watch Instantly to date, Netflix faces a major challenge in building out its catalog of recent films for streaming use. Part of the challenge is Hollywood's "windowing" approach; in particular, other premium channels like HBO, Showtime and Epix have made significant financial commitments for electronic distribution during certain time periods that effectively preclude Netflix gaining streaming rights. Because much of Netflix's value proposition relies on its vast DVD selection (100K+ titles currently), if its streaming catalog continues to look meager by comparison, then Netflix's goal of migrating its users to streaming delivery over time will be seriously undermined.

    That's where the new WB deal comes in. While the companies didn't disclose which titles or how many would be available, my guess is that the benefits of the deal, when it's fully implemented, will be noticeable to Netflix's subscribers or Netflix wouldn't have signed on. While WB is just one studio, if the new deal can be used as a template, Netflix could have a solid plan for gaining more films without paying big bucks. And the studios would get greater leverage against Redbox, which is viewed with even greater alarm by much of Hollywood.

    Netflix's focus on the long term is smart strategy, and complements well the company's near-term emphasis on riding the convergence wave by embedding its Watch Instantly software in every conceivable living room device (e.g. PS3, Xbox, Roku, Bravia, Blu-ray players, etc.). It's also a strategy that benefits Hollywood. By creating a situation where studios preserve as much of their DVD sales as possible (allegedly 75% of a film's total DVD sales occur in the first 4 weeks following release), Netflix is helping Hollywood gracefully wind down and milk the DVD business.

    Not surprisingly, consumers' first reaction to the deal was sour. Yesterday the Twittersphere was alight with grousing about the 28 day DVD window and how Netflix was "selling out its customers." Some even talked about canceling their Netflix service. I think most of this is idle chatter. Netflix has publicly said that just 30% of its DVD rentals come from recent releases (though it is likely that for Netflix's heaviest DVD renters, recent releases are far more important). In the end, Netflix is making a calculated bet that it can manage the potential subscriber consequences of creating the DVD window in order to benefit its larger goal of migrating its business to online delivery.

    If Netflix is right, and it can sign on additional studios to similar deals, then ultimately consumers will win. That's because, as Netflix proves in the value of streaming, it will be able to offer improved terms to studios, resulting in Netflix getting better and better access to films. But this will be a gradual process that unfolds over time. Whereas consumers always "want everything yesterday," the reality is that if Hollywood and Netflix can avoid disruption and instead preserve most of their economics by gracefully transitioning their businesses to digital delivery, consumers stand a better chance of continuing to receive the kind of premium-quality (i.e. expensive to produce) films they value. The demise of the newspaper industry is a cautionary example of what happens when disruption instead prevails and an industry's traditional economics are destroyed.

    We are still on the front end of seismic shifts that will alter how Hollywood's films are distributed to consumers. By focusing on the long-term, as evidenced by its WB deal, Netflix is playing an important role in increasing the odds of a successful transition.

    What do you think? Post a comment now.

     
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  • HBO and Cinemax Join Comcast's On Demand Online Technical Trial

    The list of cable networks participating in Comcast's upcoming technical trial of On Demand Online continues to grow. This afternoon HBO and Cinemax announced that initially they will provide 750 hours a month of programming, which will expand over time.

    Full length episodes of True Blood, Hung, Entourage, etc, along with recent movies such as Transformers, The Dark Knight, Atonement and classics like Jurassic Park, Speed and Rosemary's Baby will all be available. Some programs will be available in HD and immediately after they're shown on the linear networks.

    HBO/Cinemax follows last week's announcement that Starz is on board with the trial, which itself followed the launch announcement that Time Warner networks TNT and TBS were participating. The list will no doubt grow further in the coming weeks.

    I've been bullish on Comcast's On Demand Online initiative from the outset, and HBO/Cinemax's perfectly illustrates the power of the model. As the most popular premium TV network, HBO would confer a lot of additional value to its subscribers by making its programs conveniently available online. But to date the only real option for doing so has been to sell them on a per program download basis through outlets like iTunes. The problem is that HBO subscribers end up paying twice for the same content.

    On Demand Online gives HBO a mechanism, finally, to give its subscribers online access without additional fees. This is accomplished through Comcast's "authentication," which queries its database to enable online viewing privileges. The upcoming technical trial is intended to prove that the authentication process actually works. It must, as the stakes are quite high when premium networks like HBO are in the mix. The last thing they want is to have unauthorized broadband users watching their coveted shows instead of subscribing to the monthly service.

    All of the details of On Demand Online are not yet understood, but I continue to believe that if it's executed properly, it will be a game-changer for the cable and broadband industries.

     
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  • New Research from Starz on Media Consumption Behaviors

    Continuing VideoNuze's pattern of highlighting relevant third-party research, today I'm pleased to make available for complimentary download a dozen research slides from Starz Entertainment. Many of you are likely familiar with Starz, which owns a leading collection of premium cable networks which have been in the forefront of pursuing broadband distribution opportunities.

    Starz participated in an omnibus research study of 5,500 U.S. Internet users (4,000 18+ years-old and 1,500 12-17 years-old) in September-October '08. The survey was administered by market research firm Synovate and the goals were to measure 17 different media consumption activities on 9 different platforms.

    Starz research head David Charmatz and members of his team walked me through key findings I think it will be beneficial for VideoNuze readers trying to make sense of the shifting video landscape. I have no financial stake in this research.

    Consistent with other numbers I've seen recently, 62% of respondents now watch some online video each week. That compares with 87% for live TV, 46% for DVD and just 38% for Time-shifted TV (DVR/VOD). There's little gender difference among those watching online video; 66% of males watch, 58% of females watch.

    "Televidualists" as Starz calls them are a key group representing 18% of respondents who watch long-form media at least once per week either online, on a mobile device or through a media extender like Apple TV or Xbox. This group watched more video on all platforms and down the road I see them as the early adopters who are going to be most open to exploring online/on-demand-only solutions. To keep things in perspective, note that just 1% said that they only watch long-form content on new platforms and not on TV (and some of these may have never watched TV at all).

    Importantly 60% of Televidualists are 12-34 years-old, compared to 39% overall. That's of course no surprise to anyone, and it continues to underscore how important it is for all incumbents in the existing video distribution value chain to pay close attention to serving their younger customers flexibly and cost-effectively. All of this and more data is contained in the slides.

    Click here for complimentary download

     
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  • Netflix Should be Aggressively Pursuing Broadcast Networks for Watch Instantly Service

    Over the past several months Netflix has made a series of announcements related to its "Watch Instantly" feature. On the device side, there are new partnerships with TiVo (for Series 3, HD and HD XL models), Microsoft Silverlight (for Mac viewing), Samsung (for Blu-ray players), LG (for Blu-ray players), Xbox 360 and of course Roku. All allow Netflix Watch Instantly content to be delivered directly to users' TVs. Meanwhile on the content side, there have been deals with Starz, CBS and Disney Channel, with more no doubt yet to come.

    Our household has been an enthusiastic subscriber to Netflix for years and I welcome the commitment that Netflix appears to be making to Watch Instantly. However, as I pointed out in May, in "Online Movie Delivery Advances, Big Hurdles Still Loom," Watch Instantly is hobbled by its limited catalog, now totaling around 12,000 titles, just 10% of Netflix's total catalog, even after including the recently added Starz titles.

    The fundamental problem Netflix is bumping up against in building out Watch Instantly's film catalog is Hollywood's well-established windowing process. Studios have wisely and methodically maximized their films' lifetime financial value by doling out the rights to air them to a series of distribution outlets. These rights unfold in a carefully calibrated timeline and have become wrapped up in a thick layer of contractual agreements extending to all parties in the value chain. It is a system that has served all constituencies well, generating billions of dollars of value. It is also unlikely to change in any material way any time soon.

    As such, Netflix, the "world's largest online movie rental service," as it calls itself, is increasingly discordant. On the one hand, growing the Watch Instantly service is crucial to Netflix's long term success in the digital/broadband era but on the other, it doesn't have the ability to offer a competitive catalog that meets consumers' online delivery expectations. So what to do?

    My recommendation is for Netflix to incorporate the delivery of TV programming, via Watch Instantly, into its core value proposition. Specifically, Netflix should be making an all-out effort (if it is not already doing so) to secure next-day rights to deliver all prime-time broadcast network programs to its subscribers.

    This strategy provides Netflix with many clear benefits and positions it well for long-term success. First, in these tight economic times, it dramatically expands the value of the Watch Instantly feature, turning it into both a bona fide subscriber retention tool to battle churn as well as a high-profile subscriber acquisition lever (not to mention an exciting pull-through offer big box retailers could use in their Sunday circulars to generate traffic).

    Second, it is a clever competitive strike against four primary alternative ways whereby consumers can watch network programs on demand: cable-based VOD, a la carte paid downloads at iTunes/Amazon/others, free online aggregators like Hulu/Fancast/others and DVRs (though note the TiVo deal addresses this last option).

    A comprehensive Netflix prime-time catalog compares well with each alternative. Against cable VOD it offers familiar, superior navigation plus a viable revenue stream for broadcasters while cable tries to get Canoe ready; against paid downloads, the obvious advantage of being a value-add service; against online aggregators, commercial free delivery; and against DVRs, the lack of consumer hardware purchases and persistent recording space limitations.

    All of this should make Netflix a very appealing partner for the broadcast networks. They are getting hammered by ad-skipping, audience fragmentation, quality programming migrating to cable and an inferior single revenue source business model. The prospect of Netflix offering payments for their programs should be well-received. There may be concerns about programs' long term syndication value and also the potential enablement of a new gatekeeper. In better times these might be deal-killers; in this climate they shouldn't be.

    Finally, there's the big potential long-term Netflix prize: if it can stitch together a large-scale network of compatible devices for Watch Instantly distribution, it could create a viable "over-the-top" alternative to today's multichannel subscription services (cable/telco/satellite). As I described in my recent "Cord Cutters" post, to really succeed, Netflix would have to eventually incorporate cable network programming. But if its reach is wide and its economics sound, that's within the realm of possibility as well.

    But those are long-term issues. For now, while the recent CBS deal is a great start, Netflix should be working double-time to build out a full library of broadcast programs. It would dramatically improve Watch Instantly's appeal and value, while positioning Netflix well for the broadband era.

    What do you think? Post a comment now.

     
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  • Digital Media and Broadband Video Executives Play Musical Chairs

    It's been hard not to notice the recently growing roster of digital media/broadband video executives who are either leaving their jobs or jumping to other companies.

    Among the many recent changes:

    • Bill Day (moved to CEO, ScanScout from Chief Media Officer, Marchex)
    • Ned Desmond (leaving as President, Time, Inc Interactive)
    • Tony Fadell (leaving as SVP, iPod Division, Apple)
    • Karin Gilford (moved to SVP, Fancast/Comcast from VP/GM, Yahoo Entertainment)
    • Bob Greene (left as EVP, Advanced Services, Starz)
    • Kevin Johnson (moved to CEO, Juniper Networks from President, Platforms & Services Division, Microsoft)
    • George Kliavkoff (leaving as Chief Digital Officer, NBCU)
    • Michael Mathieu (moved to CEO, YuMe from President, Freedom Communications Internet Division)
    • Scott Moore (leaving as SVP, Media Group, Yahoo)
    • Herb Scannell (moved from CEO to Executive Chairman, Next New Networks)
    • David Verklin (moved to CEO, Canoe Ventures from CEO, Aegis Media Americas)

    Of course there are many more as well.

    There's no blanket explanation for all of this movement. Senior executives - particularly those with strong track records in unchartered territory like digital media and broadband video - are always in demand by competitors. And established companies who can't execute or who are losing altitude in their core businesses become fertile ground for executive recruiters. Then there are always personal reasons for causing executive change (family matters, geographic restrictions, etc.).

    The whole digital media and broadband space is extremely dynamic. Major incumbents continue to struggle with defining their strategies and how to organize themselves properly to execute. The financial meltdown has caused huge profit pressure, prompting operational streamlining.

    Still, I'm hoping that all this executive movement doesn't slow broadband's growth. In particular, prematurely folding a digital operation into an incumbent product area can limit innovation as executives who are primarily focused on the core business and who lack detailed domain knowledge will inevitably shy away from riskier or more complex digital initiatives. I've seen this myself first hand. Broadband is still early in its evolution; hopefully executive change will foster, not hinder, its continued progress.

    What do you think? Post a comment now.

     
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  • Inside the Netflix-Starz Play Licensing Deal

    This past Wednesday, Starz, the Liberty Media-owned premium cable network, licensed its "Starz Play" broadband service to Netflix. The three year deal makes all of Starz's 2,500 movies, TV shows and concerts available to Netflix subscribers using its Watch Instantly streaming video feature. Very coincidentally I happened to be at Starz yesterday for an unrelated Liberty meeting, and had a chance to speak to Starz CEO Bob Clasen, who I've known for a while, to learn more.

    On the surface the deal is an eye-opener as it gives a non-cable/telco/satellite operator access to Starz's trove of prime content. As I've written in the past, cable channels, which rely on their traditional distributors for monthly service fees, have been super-sensitive to not antagonizing their best customers when trying to take advantage of new distribution platforms. This deal, which uses broadband-only distribution to reach into the home, no doubt triggers "over-the-top" or "cable bypass" alarm bells with incumbent distributors.

    Then there is the value-add/no extra cost nature of Netflix's Watch Instantly feature. That there is no extra charge to subscribers for Starz's premium content (as there typically is when subscribing to Starz through cable for example) raises the question of whether Starz might have given better pricing to Netflix to get this deal done than it has to its other distributors.

    But Bob is quick to point out that in reality, the Netflix deal is a continuation of Starz's ongoing push into broadband delivery begun several years ago with its original RealNetworks deal and continued recently with Vongo. To Starz, Netflix is another "affiliate" or distributor, which, given its tiny current online footprint does not pose meaningful competition to incumbent distributors. With only about 17 million out of a total 100 million+ U.S. homes subscribing to Starz, broadband partnerships are seen as a sizable growth opportunity by the company.

    Further, Starz has been aggressively pitching online deals to cable operators and telcos for a while now, though only the latter has bit so far (Verizon's FiOS is an announced customer). Cable operators seem interested in the online rights, but have been reluctant to pay extra for them as Starz requires.

    Bob also noted that Starz's wholesale pricing was protected in its Netflix deal, and that for obvious reasons of not hurting its own profitability, Starz has strong incentives to preserve incumbent deal terms in all of its new platform deals.

    To me, all of this adds up to at least a few things. First is that Netflix must be paying up in a big way to license Starz Play. I assume this is an obvious recognition by Netflix that it needed more content to make Watch Instantly more compelling (see also Netflix's recent Disney Channel and CBS deals). Since it's not charging subscribers extra, Netflix is making a bet that over time - and aided by its Roku and other broadband-to-the-TV devices - Watch Instantly will succeed and as a result, will drive down its costs by reducing the number of DVDs the company needs to buy and ship. That seems like a smart long-term bet as the broadband era unfolds.

    And while I agree that Starz Play on Netflix doesn't represent real competition to cable, telco and satellite outlets today, it's hard not to see it as a signal that traditional distributors are losing their hegemony in premium video distribution. (for another example of this, see Comedy Central's licensing of Daily Show and Colbert to Hulu). As I've said for a while, over the long term, the inevitability of broadband all the way to the TV portends significant disruption to current distribution models. I see Netflix at the forefront of this disruptive process.

    What do you think? Post a comment now.

     
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