Netflix Stock Drops 8% After Starz Renewal Talks End

8:21 AM PDT 9/2/2011 by Georg Szalai

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Ryan Anson/AFP/Getty Images

Analysts chime in on what the end of the streaming content deal means for the streaming video provider and Starz.

NEW YORK - Netflix's stock fell sharply in early Friday trading after late Thursday's news that Starz would not renew a streaming content deal with the company.

Starz Won't Renew Netflix Streaming Deal

Netflix Price Increases Take Effect Thursday

As of 11:15am ET, the stock was down 8.4 percent at $213.74. It has traded between $132.61 and $304.79 over the past year.

STORY: Netflix Reacts: Starz Content Is 'Down to About 8% of Domestic Netflix Subscribers' Viewing'

"We believe the loss of Starz content could be disastrous for Netflix and has the potential to start the downward spiral, said Janney Montgomery Scott analyst Tony Wible expressed concern about Netflix's outlook. "A loss of subs could leave Netflix struggling to pay the over $2.4 billion in off balance sheet content obligations, especially when one considers that it is losing money on an adjusted free cash flow basis."

STORY: Starz Won't Renew Netflix Streaming Deal

Barclays Capital analyst Anthony DiClemente is more bullish on the company. "We believe Netflix has a clear indication of what content is worth and the fact that it is willing to let Starz Play expire suggests to us the company is staying disciplined," he wrote in a report. "Netflix now has six months to redeploy its Starz…budget for incremental content and based on our discussions with studios, we do not believe that will be an issue." He maintained his "overweight" rating on Netflix's stock and his $285 target price.

STORY: Netflix Price Increases Take Effect Thursday

Lazard Capital Markets Barton Crockett commented on Netflix's statement that Starz accounts for only about 8 percent of viewing, down from a peak near 20 percent. But Starz's Disney and Sony movies "are a cut above the standard Netflix streaming fare in quality, recency and recognizability, and so probably confer brand advantages beyond hours viewed," the analyst said. "As other studios delay content access, Netflix appears to be moving toward lesser known, older content, while raising prices for the formerly core combo DVD/streaming plans."

Overall, he concluded that the split is "riskier for Netflix than Starz." He rates Netflix stock at a "neutral."

Email: Georg.Szalai@thr.com

Twitter: @georgszalai