Analyst: Starz-Netflix Deal Could Include a Tier for Starz's Original Content

Tom Eagan says a separate tier would help "[bridge] the gap between the $8 per month Netflix subscribers pay and the higher premium pricing by cable and satellite operators."


NEW YORK -- A potential renewal of a streaming content deal between Netflix and premium TV firm Starz and how it could be structured continues to be a topic of hot debate on Wall Street.

The two parties' current arrangement expires early next year, and Starz has bee widely seen as having been underpaid. Starz corporate parent Liberty Media has also said that the online offer via Netflix caused some concerns from cable and satellite TV operators.

Collins Stewart analyst Tom Eagan in a report is now suggesting that tiering Starz content on Netflix would be one way to address all those concerns.

"We believe that the creation of a second Starz tier, comprised solely of Starz original programming, is one mechanism to renewing the Netflix deal," he said. "A separate, incrementally priced tier, could start to bring price parity to Starz content bridging the gap between the $8 per month Netflix subscriber pay and the higher premium pricing by cable and satellite operators."

That sounds like it is in line with Starz management's goals. CEO Chris Albrecht in a recent conference call emphasized that Starz is "seeking agreements [with online distributors] that specifically price and package our content in ways on par with that of our traditional distributors."

Eagan suggests that Netflix could pay Starz one figure for all its programming, but that consumers would be offered two tiers. They could get Starz movies as part of Netflix's $8 per month online subscription fee, but would have to pay an additional price to view Starz's expanding slate of original shows, such as Spartacus: Blood and Sand and upcoming Torchwood. How much? "Say, an incremental $2 per month," Eagan suggested.

It wasn't immediately clear if Netflix would be open to starting a tiering approach. 

Asked on a recent earnings call about the potential of charging different prices for different content, Greg Maffei, CEO of Starz parent Liberty Media, said: "At this point. the only thing I can say is that we are looking at all of the potential scenarios with Netflix and with any of the new entrants in the over-the-top space. We believe it is extremely important for us to maintain the integrity of our brands across the different distribution platforms. I think one of the things that Starz has been successful at is creating different brands. Obviously, we mentioned Starz, Encore, and MoviePlex. Is it possible that there are other brands that could be added to that suite of products? I guess, it's certainly possible, although at this time there are no specific plans that we can talk to you about."

Eagan argued that pushing for a tiering approach would put at ease traditional distributors and get them to focus more attention on marketing Starz. "Pricing parity could also incent pay TV operators to push Starz more aggressively," Eagan said. "Should Starz be successful in creating a separate originals tier for Netflix subscribers, we expect Starz subscribers could grow by 1 million in 2011."

An additional benefit to Starz would be that "a slowing of the Netflix subscriber growth could delay a trigger to remit incremental payment to Disney," with which Starz has a movie deal, Eagan added.