Monday, February 11, 2013 4:02 pm
Starz renews deal to get Sony movies through 2021
By RYAN NAKASHIMAAP Business Writer
The deal will extend Sony's relationship with Starz by five years, giving the channel access to major Hollywood releases into the future. Disney movies released in 2016 and beyond will play on Netflix's streaming service instead of Starz.
Analysts speculated that Starz is paying anywhere from $250 million to $400 million per year, an increase from the estimated $200 million it is paying Sony currently.
Starz CEO Chris Albrecht said in a securities filing, "we believe the terms are consistent with other recent agreements between traditional premium TV networks and major Hollywood studios," without elaborating.
The wording suggested Starz was paying more than $200 million annually, but less than $350 million a year, which is what Netflix is estimated to pay Disney.
Netflix isn't considered a "traditional" pay TV network, but its service, at $8 a month, is seen as increasingly competing with premium pay TV channels such as HBO, Showtime and Starz, which cost $15 a month.
Starz had 21 million subscribers as of the end of September. Netflix has 27 million subscribers at the end of 2012.
Both Netflix and Showtime were bidders, according to a person familiar with the matter. Showtime only bid for films made by Screen Gems, the Sony label behind niche fare such as its "Resident Evil" franchise, according to a second person. Both people weren't authorized to comment publicly and spoke on condition of anonymity.
A Netflix representative declined to comment.
Last month, Netflix Inc. CEO Reed Hastings told analysts on a conference call he was interested in going after Sony movies. "Our appetite is just like it was for Disney, it's strong," he said. However, he added that "there is no specific piece of content that we must have."
Disney content was seen as more important for Netflix, which is raising the profile of its children's programming and is popular with kids.
In comparison, Sony has put big-budget, popular movies in theaters including "The Amazing Spider Man," "Zero Dark Thirty" and "Men in Black 3," and has a stronger focus on movies rated PG-13.
The possibility of losing Sony movies was a major risk and would have jeopardized Starz' carriage deals with cable and satellite TV distributors, said Barclays analyst Chris Merwin.
"Had the deal gone to another pay TV network or subscription video on demand provider, it would have put Starz in a very difficult place strategically," he said. Merwin added that it was "very unlikely" that Starz would renew a deal to put its content on Netflix, which expired last year.
He raised his target price on Starz shares to $16 from $15 but kept an "Equal weight" rating.
Janney analyst Tony Wible upgraded Starz to "Neutral" from "Sell" and bumped his estimate on the shares to $16 from $10.50. It remains to be seen how much Starz can offset the higher costs of the deal by raising prices on TV distributors, he noted.
Starz shares rose $1.24, or 7.4 percent, to close at $17.91. Netflix shares fell $3.08, or 1.7 percent, to $177.89. U.S.-traded shares of Sony Corp. shares rose 7 cents to $14.99.