Analysts Opine on Possible Netflix-Starz Deal Renewal

5:27 PM PST 05/10/2011 by Georg Szalai
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While Netflix CEO Reed Hastings on "Charlie Rose" last week signaled he expects a potential new streaming deal in the $200 million-per-year range and some analysts have talked of up to $300 million, Starz executives have said they will focus on pricing and packaging issues.



Collins Stewart analyst Tom Eagan said Monday that "in our Liberty Starz valuation, we effectively assume a $205 million annual license fee."

But any renewal "will entail a sensitive negotiation with lots of moving parts," he said. For example, Eagan said he expects Starz to look for "a higher Netflix retail sales price (higher than the $8 per month, closer to the cable subscriber Starz fee)."

BTIG analyst Richard Greenfield, meanwhile, argued that the $200 million range is conservative. "With Comcast paying an estimated $220 million-plus per year to Starz with Netflix now larger than Comcast, we believe annual fees must be at least $250 million, if not $300 million, to warrant Starz agreeing to a new Netflix deal in early 2012," he said.

Stifel, Nicolaus analyst Benjamin Mogil in a Monday report highlighted that Starz on its latest earnings call "continued to caution expectations on Netflix (or other streaming) renewal deals but did note that it does not expect bonus payments to Disney/Sony, which are based on the number of Netflix streaming subscribers this year to be material."

Last month, Mogil had lowered his rating on Liberty Starz though from "buy" to "hold," arguing that "expectations concerning the Netflix streaming deal renewal are too optimistic."

Suggesting a $175 million-$200 million renewal, he said: "With renewal expectations in the $250 million-$300 million range, investors may be set up for a disappointment."

Mogil said that Starz's contracts with its studio partners Disney and Sony may call for product from output deals to be priced on a premium streaming tier around $12-13 per month rather than Netflix's current one-size-fits-all $8 per month service.

That and the 90-day delay could reduce the price Netflix is willing to pay, according to some analysts.

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