Netflix in big trouble?

Yesterday, Starz Entertainment announced they would not renew a digital distribution deal with Netflix when the present contract runs out in February, 2012. Is Netflix in big trouble?

Anyone who looks closely at Netflix’s Instant Watch library knows a good majority of the more popular/blockbuster titles come from Starz Play. The titles from Starz have given Netflix credibility in terms of what movies they are licensed to stream, even though it has always been a disappointment seeing those more popular titles only offered in SD quality. Last June, subscribers were given a taste of what could happen when Sony dealt a blow to both Starz and Netflix by pulling a bunch of movies citing contract issues.

Netflix CEO Reed Hastings doesn’t seem to be too worried about the loss of content, at least in public. In a company statement Netflix appeared almost grateful for the early notice which Netflix said would “give us time to license other content before Starz expires.”

But the upcoming loss of popular and recent titles from Starz will sting, unless quickly replaced by another distributor. The announcement yesterday prompted a 8.6% drop in pre-market trading. Netflix’s recent price increase isn’t helping either, as many current subscribers are choosing between a streaming-only service and DVD-by-Mail plan starting this month.

On the positive side, Netflix just added several new popular titles to their Instant Watch library in HD. And, coincidence or not, many of the “New Arrivals” are not from the Starz lineup. Netflix also launched a “Just for Kids” section of the website, making it easier to find children’s titles.

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