Studios and TV networks that license their content to Netflix Inc. are streaming themselves in the foot. That’s according to Chris Albrecht, chief executive of Starz Inc., who on Tuesday called the popular on-demand service a myopic business strategy for media companies.
“I think it’s really shortsighted for all these networks to be selling their shows to Netflix,” Albrecht told attendees at the UBS Global Media and Communications Conference in New York, according to Variety. “If they didn’t, what would be on Netflix?”
Coming from the CEO of a company emerging as a Netflix competitor, the comment may sound like rhetorical posturing. But according to Amy Yong, an analyst with Macquarie Securities who covers the pay-TV industry, Albrecht has a point.
“There’s a lot of fragmentation going on,” Yong told International Business Times. “If you’re a media company and you own a lot of good content, you have to be careful how you distribute it. Ultimately you don’t want to undermonetize or overmonetize anything.”
As for Albrecht, he speaks from experience. In 2012, he ended Starz’s longtime distribution agreement with Netflix, saying Tuesday that the deal earned only “pennies” for Starz programing.
“[Starz] learned their lesson hard, because they ultimately disrupted the pay-TV ecosystem,” Yong said. “They caused a lot of friction with their pay-TV partners, which is ultimately how they make money.”
That friction gets to the heart of the tightrope that content companies are walking in the face of rapid technological disruption. Media titans like Time Warner Inc. and the Walt Disney Company understand that an increasing number of consumers will demand over-the-top offerings as download speeds increase, but they’ve also been hesitant to undermine what have been lucrative deals with cable and satellite companies.
“There are a lot of business opportunities out there that may or may not make money at the end of the day,” Yong said. “If your focus is on profitability, those things within the traditional pay-TV ecosystem might be your best way. At the same time, you have to be cognizant of all the technological disruptions that are out there. It’s a fine balance.”
Disney CEO Bob Iger crystallized this quandary in an earnings call last month, saying he will not launch an à la carte version of ESPN until the market “demands it.”
Netflix, for its part, is acutely aware that an exodus of content would pose major risks to its future viability. “If studios, content providers or other rights holders refuse to license streaming content or other rights upon terms acceptable to us, our business could be adversely affected,” the company conceded in its annual SEC filing earlier this year.
Like HBO before it, Netflix has been investing heavily in its own shows, starting with the acclaimed “House of Cards,” which premiered early last year. But original content is expensive, and churning out must-have hits is not easy. Starz has not had nearly as much luck with its own original content. “Boss,” which starred Kelsey Grammer, was canceled after only two seasons, and the period drama “Spartacus” after only three.
A newer Starz effort, “Outlander,” is faring better, or at least buzzier. A second season of the time-travel drama is slated to premiere in April 2015.