Netflix has had a rough few days with a Web site outage and a contract dispute that led it to pull Sony movies from its streaming service. These two issues independently aren't a big deal, but they do highlight how Netflix is under more scrutiny as it grows.
On Friday, Netflix noted in a blog that it had to pull Sony movies through its Starz streaming service. Starz reportedly can't stream Sony films beyond a certain subscriber mark. Netflix's big coup as a young company was landing Starz as a partner because the move bolstered its streaming library. Starz will be a primary focus going forward since Netflix will have to renegotiate the contract.
Netflix CEO Reed Hastings recently said that a $200 million price tag for a new Starz deal wouldn't be surprising. Wedbush Securities analyst Michael Pachter said Starz may seek more than that sum and the New York Post reported that the cable network wants $350 million. Pachter estimates that Netflix currently pays $30 million a year.
Why make a fuss over Sony disappearing from Netflix? It's a sign of things to come. Netflix has become a massive distribution channel. In many respects, Netflix is a cable network. Cable networks sometimes pull content over disputes. With the Netflix-Starz deal expiring in October there will likely be some threats ahead that could damage the $7.99 a month streaming content service.
Pachter said in a recent research note:
We believe that the Starz deal is the most high-profile of the five deals that provide Netflix with new movie streaming content. If Netflix were to lose Starz, the quality of its streaming content would suffer, and a loss of this content would potentially cause existing Netflix customers to defect. At the same time, several Netflix competitors are beginning to offer unlimited viewing for a monthly subscription fee, such as Hulu Plus (which costs $7.99/month, and focuses on new TV shows, but also has some catalog movies) or Amazon (which is free for Amazon Prime customers and focuses on catalog items). We fully expect a subscription offering from Amazon later this year.
The upshot: Netflix is now in Google territory. If Google's site hiccups the world notices. If Gmail burps it's a lead Techmeme story. Welcome to the land of intense scrutiny Netflix. Things are likely to get worse right through that October Starz contract expiration.This story was originally posted at ZDNet's Between the Lines as "Netflix's rough weekend: Sign of things to come through October."