Netflix, Inc. (NASDAQ:NFLX) and other video streaming services are a myopic business strategy for media companies, according to Chris Albrecht, chief executive of Starz Inc. According to Albrecht, studios and TV networks that are licensing their content to Netflix have a very short-term approach.
Is Albrecht right?
Albrecht told attendees at the UBS Global Media and Communications Conference in New York, “I think it’s really shortsighted for all these networks to be selling their shows to Netflix.” Albrecht said if these television companies did not license their content, then there would be far less content on Netflix.
Although many would see the comment made by Albrecht as merely threatening Netflix, Amy Young, an analyst with Macquarie Securities, said Albrecht has a point, according to a report from IBTimes. According to Yong, there is a lot of “fragmentation” going on, and a media company with good content should always be careful how it distributes that content. The analyst said no company would want to under-monetize or over-monetize anything.
In 2012, Albrecht’s company Starz called off a distribution agreement with Netflix, saying the deal offered minimal benefits for Starz programming. Yong said the lesson was expensive for Starz because they ultimately upset the pay-TV ecosystem, adding, “They caused a lot of friction with their pay-TV partners, which is ultimately how they make money.”
Netflix knows the risk
Top-line media companies such as Time Warner Inc (NYSE:TWX) and The Walt Disney Company (NYSE:DIS) acknowledge the fact that with expansion in viewers, there will be surging demand for over-the-top offerings as download speed increases, but they could not decide on an attractive deal with cable and satellite companies.
According to Yong, there is no limit of such businesses that may or may not earn a profit, and for those that want to earn a profit, the traditional pay-TV ecosystem might be the best way. However, one must be aware of the technological disruptions ahead.
For its part, Netflix is aware that if it loses content, then it would be a major risk for the future. The company in its annual report notes that if studios, content providers or other rights-holders decline to license their content for streaming or other rights as per the terms and conditions of the company, then the business would suffer headwinds. To lower the impact, Netflix has been investing heavily on original content, but it’s expensive and involves greater risk.