Shares of Netflix, Inc. (NASDAQ:NFLX) fell as much as 1.4% this morning.
The stock was punished as cable aggregator Starz (NASDAQ:STRZA) extended its exclusive relationship with Sony Corporation (ADR) (NYSE:SNE) for another five years. Netflix had been expected to bid aggressively on that contract to follow up on the recent win with The Walt Disney Company (NYSE:DIS). Starz owners, on the other hand, were treated to an 8% jump as the cable channel secured its future.
Now, I’m not exactly shocked to see Starz holding on to Sony’s library with all its might. Losing exclusive rights to Disney content in 2017 hurts bad enough. Handing Sony over to Netflix at the same time would have destroyed Starz in the long run. This was a battle for survival.
The new Sony deal extends a relationship with Starz that began in 2005, and keeps it alive until 2021. Sony Pictures, with its sub-brands TriStar, Columbia, and Screen Gems, counts as one of the “big five” Hollywood studios alongside Disney, Viacom, Inc. (NASDAQ:VIAB)‘s Paramount, Time Warner Inc. (NYSE:TWX)’s Warner Bros., and News Corp (NASDAQ:NWSA).‘s 20th Century Fox.
For Netflix investors, it’s disheartening to see a major studio cozy up tighter to a traditional cable-channel partner. On the bright side, I do appreciate the fact that CEO Reed Hastings didn’t overpay for this potential deal, as he surely would have been forced to. As I said, Starz simply cannot afford to lose this contract and would certainly have spent its very last dime to keep Netflix out, if necessary.
But Netflix isn’t out to kill the cable guys, and also not married to any particular content provider (though Disney may come close when that deal finally kicks in). So Sony walks away with another partner, but Netflix shouldn’t be too heartbroken. The company is still too young and too small to afford locking down all of Hollywood in exclusive streaming deals. Try again in 2021.
The article Why Did Netflix Fall This Morning? originally appeared on Fool.com and is written by Anders Bylund.
Fool contributor Anders Bylund owns shares of Netflix, but he holds no other position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+.The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney.
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