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Netflix Shares Take Hit After Starz Breaks Off Negotiations

Netflix
Jin Lee/Bloomberg/Getty Images

One of the entertainment industry's most durable stocks is dropping 9 percent in after-hours trading.

A press release issued by Starz to inform journalists that it has ended negotiations with Netflix has caused the high-flying stock to slide as much as 9 percent in after-hours trading.

Shares of Netflix, which have advanced 435 percent in the past two years, were down just fractionally during the regular session to $233.27 Thursday, but sunk $21 after the closing bell when the Starz news hit.

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Starz has been selling the rights to stream about 1,250 movies and 1,250 TV episodes to Netflix for some $30 million a year since 2008. Those rights, though, are more valuable now than they were three years ago and analysts have been speculating that a renewal could run as high as $300 million a year.

Starz and Netflix, though, apparently are on different pages as to the value of those rights, and Starz said Thursday it “has ended contract renewal negotiations with Netflix.”

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It also said it is “in an excellent position to evaluate new opportunities and expand its overall business,” which led to speculation it might strike a deal with Amazon.com or another of Netflix’s streaming adversaries.

That Netflix shares fell dramatically after the closing bell could be vindication – in the short term, at least – for some of Netflix’s more vocal bears who have been arguing that it can’t keep striking expensive streaming deals. Netflix, for example, is paying an estimated $200 million a year to Epix for rights to 1,000 titles.

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“It’s all over,” wrote SeekingAlpha’s Rocco Pendola on Thursday. “If you’re a bear this is what you’ve been waiting for. Cue up all of the Johnny-come-lately analysts who will now riff about Netflix’s demise. The writing’s been on the wall for months.”

Pendola also wrote that Starz may have timed its press release for Thursday to coincide with a well-publicized price hike at Netflix.

“I can’t help but think that Starz waited until today to make the announcement out of some sort of bad blood, not necessarily directly spewed towad Netflix, but toward the whole notion of a middle man – a mere glorified bootlegger – diluting content that it can host on its own,” he wrote.

Netflix confirmed that talks with Starz collapsed and issued a statement that seemed to close the door on their relationship. Others, though, are already viewing the dueling press releases as mere negotiating tactics and are predicting a deal is not yet out of reach.

"While we regret their decision to let our agreement lapse next February, we are grateful for the early notice of their decision, which will give us time to license other content before Starz expires," the Netflix statement read.