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Big red mistake: Starz CEO calls 2008 deal with Netflix ‘terrible’

Today, Netflix’s streaming video service is recognized as a force to be reckoned with, but just seven years ago, many looked at Netflix’s fledgling online movie and TV delivery as something of a novelty. Perhaps that’s why Starz, a well-established premium movie channel at the time, may have seen a partnership with Netflix as little more than an innocuous experiment. But as the saying goes, hindsight is 20/20, and if you ask Starz CEO Chris Albrecht what he thinks of the agreement that was inked before he arrived, he’ll tell you it was a “terrible” idea. At least, that’s what he said during his appearance at the UBS Global Media and Communications conference, according to Variety.

In October 2008, Netflix scored rights to stream 2,500 Starz movies and TV shows as part of a 4-year agreement, more than tripling its previous count of streaming titles in the process. The deal made Netflix’s streaming service look a lot more attractive, and earned the company some much needed attention from new subscribers. A year later, Bob Clasen, Starz’s CEO at the time, explained to Multichannel News that the deal was a result of Starz’s concerted effort to monetize its online streaming rights after being “late to the table with HD and On Demand.” The deal is estimated to have been worth $20-$30 million.

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At the time, Starz saw Netflix as a cool new pet that could fetch its content some extra viewers, at least until Netflix grew so large that it would cannibalize viewers of Starz’s own pay-TV service. According to an anonymous source speaking with The Los Angeles Times, the deal’s terms put into place an “undisclosed cap” on the number of viewers able to watch Starz content online. But Netflix grew faster than expected. In three years, Netflix’s subscriber base increased from 9.4 million to 23.2 millionRenegotiations with Starz failed in September 2011, and all Starz content was pulled from Netflix the following February. It was later reported that Starz declined a$300 million renegotiation offer from Netflix, and just two months later announced its own online streaming service for pay-TV subscribers.

The move, described by Albrecht as a “big boy choice” may have helped Starz’s growth. According to data from financial information firm SNL Financial, in the 18 months following its deal with Netflix, Starz’s penetration of pay-TV households increased from 19.9 to 22 percent.