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Analysts Opine on Possible Netflix-Starz Deal Renewal

NEW YORK -- A current content deal between Starz and Netflix's streaming video service doesn't expire until early 2012, but Wall Street analysts in recent days once again shared latest predictions on possible outcomes.

Many comments came after Netflix CEO Reed Hastings on Charlie Rose last week signaled that he expects a new deal to cost his company in the $200 million-a-year range, up from around $30 million so far. Asked if $200 million is in the ballpark, Hastings told Rose: "Yes, that's in the ballpark."

He also said: "We'll try to renew with them, and, of course, that renewal if it happens will be for a lot more money."

Starz management hasn't been specific on pricing but has made clear it is not only focused on price but also packaging, that is also exploring various other digital distribution options and that it feels no rush to strike a new deal.

"We continue to look at the online video distribution market for opportunities to distribute our programming, while remaining mindful of historical relationships with our traditional distribution affiliates," Starz chairman and CEO Chris Albrecht said in an earnings conference call for Starz owner Liberty Media in late February. "We will approach new opportunities creatively yet prudently -- with an eye towards seeking agreements that specifically price and package our content in ways on par with that of our traditional distributors."

On Liberty's latest earnings call on Friday, Liberty CEO Greg Maffei didn't say much on the topic beyond talking about a recent decision to introduce a 90-day delay for original series for some distribution partners, emphasizing it does not apply only for Netflix, but also telecom firms that are affiliates of the so-called Starz Play service.

Asked about the $200 million price tag during a panel at the Streaming Media East conference here Tuesday, Marc DeBevoise, Starz Media's senior vp digital media, business development and strategy, reiterated management's previous comments.

"It's a value issue for us," he said when pressed on the issue. "There are various ways that different numbers could work. There [are] packaging issues and pricing issues."

Will Starz content be on Netflix in a year? "It's very tough to say," DeBevoise said.

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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.