(For other news from the Reuters Global Media Summit, click here)
* 3 of 6 Hollywood studios aim to blunt Netflix growth
* Studios considering longer delays of product to Netflix
* Pay TV exerts pressure on future Netflix deals
By Sue Zeidler
NEW YORK, Dec. 1 Hollywood, which embraced
Netflix Inc (NFLX.O) just a few years ago as a savior, is
moving quickly to stanch the growth of one of the media's
newest, biggest stars.
Senior executives at three of the big six television and
movie studios said they were seeking ways to contain Netflix --
from delaying when Netflix can make new DVDs available to rent
to raising the prices for digital programs.
"The problem is that Netflix is not the company we thought
it was when we started doing these deals a few years ago. It
has changed," said a studio executive who requested anonymity
because the studio's discussions were confidential.
Netflix, whose stock has jumped nine-fold over the past two
years, is a leader in U.S. DVD rentals with its service that
sends movies and TV shows through the mail. Its streaming
service is also growing quickly, and accounts for one-fifth of
U.S. Web traffic in peak hours.
Studio executives have expressed disbelief over some of
Netflix's Hollywood content coups, like its 2008 deal with
Liberty Media Corp-owned Starz LINTA.O to offer films from
Sony Corp (6758.T)(SNE.N) and Walt Disney Co (DIS.N) for $20
million to $30 million. That deal put Netflix's streaming
service on the map for a fraction of what cable operators had
"The deal Starz did to give those movies away for $30
million obviously makes no sense. There's a day coming shortly
when that deal expires. How do Starz and Netflix address the
next deal?" News Corp (NWSA.O) Chief Operating Officer Chase
Carey said this week at the Reuters Global Media Summit.
NOT A VIABLE WINDOW
Media executives also worry Netflix could bring on a re-run
of what happened in the music business when Apple Inc (AAPL.O),
maker of the iPod, wound up dictating prices.
"Timing really matters," said Strauss Zelnick, chairman
Take-Two Interactive at the Reuters Media Summit. Zelnick said
studios, to protect profits, must be careful to maintain
control over when movies and TV shows are released on DVD or to
cable. This is commonly referred to as windowing.
"Windowing is just a fancy word for price discrimination,"
Netflix, with deep pockets and a willingness to pay heavily
for content, is succeeding where Google Inc (GOOG.O), Apple and
studios have so far failed -- developing a viable business for
digital movies and films.
Scenarios under review, according to executives, include
curtailing Netflix's influence by delaying further the 28 days
Netflix now waits to get newly released DVDs from some studios.
Another is raising prices Netflix pays for digital rights.
"I don't think long-term the 28-day window is viable for
the industry," said another senior studio executive who was
also involved in confidential talks with Netflix and asked not
to be named.
"Either push it out further or don't concede as much on
price. We're looking at a better way to slice it."
Time Warner Inc (TWX.N) Chief Executive Officer Jeffery
Bewkes recently said extending the delay to Netflix was under
consideration. "The question of whether we ought to go longer
is very much under scrutiny. It may well be a good idea," he
said on a recent call with analysts.
And a source familiar with Fox said that studio is also
evaluating the 28-day window.
Pay TV operators, which spend heavily on studio fees, are
also pressuring studios that offer cut rates for distribution
"Their deal with Netflix absolutely does affect our
relationship," said an executive of one of Starz's largest pay
TV partners, who asked not to be named because the source was
not authorized to speak on behalf of the company.
"You can't sell your product to one distributor for pennies
on the dollar and then expect other distributors to pay you
dollars for your product."
The fear is that audiences will eventually dump cable or
satellite service and simply stream TV shows and movies
through Netflix -- if Netflix can offer enough content.
In today's terms, Netflix pays Starz less than 15 cents
per month for each of its roughly 17 million subscribers, while
TV operators pay Starz $2 per subscriber per month, or about
$1.2 billion as of 2009.
Speaking at a recent conference, Netflix Chief Content
Officer Ted Sarandos dismissed the idea that his company is a
threat to pay TV operators. "I think we're an absolutely
complementary product to cable."
When it is time to renegotiate, Starz will likely need to
extract "many multiples" of what Netflix paid for the 2008
deal or "risk making a pretty significant hit to their
traditional business," the cable operator executive said.
Analysts said cable operators could either drop Starz
entirely or pull back from promoting it to viewers in response
to the Netflix threat.
Meanwhile, Netflix's streaming software is on more devices
than that of any other company in digital media. And in August
it paid $1 billion to license films from Epix, a movie channel
formed by Viacom Inc VIAb.N, Lions Gate Entertainment Corp
LGF.N and Metro Goldwyn Mayer.
(Additional reporting by Yinka Adegoke in New York and Alex
Dobuzinskis in Los Angeles; Editing by Kenneth Li, Paul
Thomasch and Richard Chang)