Thursday, September 01, 2011

Starz Walks from Netflix Contract Talks -- Oldest Trick in the Book!

By now, all of you in the digital media world are well aware of the fact that Starz Entertainment just terminated contract renewal negotiations with Netflix. Starz supplied much of Netflix's premium motion picture content that was available online and on demand. Starz's move (or is it just z'?) represents a major shot across the bow by content owners to distributors in the brave new world of digital media. Bottom line -- "pay up big time or feel our wrath!" And, Netflix certainly is feeling that wrath. In after-hours trading today, the stock nearly dropped 10% (but now is at about 8.5% in the wrong direction).

What does this mean? Well, if you believe what Starz is proclaiming, as of February 28, 2012 -- i.e., about 6 months from now -- "Starz will cease to distribute its content on the Netflix streaming platform." And, that would be a body blow to Netflix ... and to Netflix customers like me who already find slim pickens.

To add insult to injury, Starz's announcement came on the same day -- yes, SAME DAY -- as Netflix's recently announced price hikes went into effect. Coincidence? I think not!

And, that's the point. Starz is playing Netflix big time. First, they shoot to thrill by issuing this press release concurrently with Netflix's hugely unpopular pricing move (which I actually applauded a few weeks back in this blog post). Next, they drop the "T" bomb -- as in contract termination. Doesn't get much scarier than that!

But, people, this is all just a big game -- the oldest negotiation game of them all. Throw up your hands. Storm out of the room. Walk away! But, are you really walking? Of course not! You simply want more more more! Starz's intentions here are incredibly obvious and transparent -- IT ISSUED A PANIC-INDUCING PRESS RELEASE AFTER ALL! Think about it. If Starz really were walking and not looking back, would it really feel the need to announce that to the world? Of course not! But, if you simply want more and more stacks of cash and want to induce panic in the boardroom of one of the most closely-watched publicly-traded companies, that's precisely what you do!

But, here's the trick to pull off this type of Starz negotiation move successfully ... listen very closely ... YOU MUST HOLD THE CARDS! You can only walk (or feign walking) from a negotiation if (a) you really are done (which is not the case here), or (b) you know that the other side absolutely needs to make a deal (which is absolutely the case here).

Bottom line -- Netflix needs premium content to bring value to its service. Without it, Netflix is nothing. Netflix knows it. Starz knows it. All of us know it. After all, content is still king ... and always will be.

So, what's a Netflix to do? It's really quite simple. Open up its wallet and say "ahhhhhhhh!" That "ahh" will represent a gag reflex for Netflix, and a deep sigh of satisfaction for Starz. Remember, it's not as if Netflix has other alternatives, because every single purveyor of premium motion picture and television content in this brave new world of digital distribution will demand the same. And, Netflix can't be all about old Scooby Doo cartoons (as much as I like Shaggy). Subscribers like you and I want some good old-fashioned movies from this century too.

Q.E.D.

BREAKING "BIG DEAL" NEWS! Starz Will End Netflix Content Deal in 2012

Yes, it's true -- TechCrunch reports that Starz is terminating its content renewal discussions with Netflix. That means many of Netflix's most important (most watched) video titles will be gone, gone, gone in 2012. Bad day for Netflix. Stock plummets near 10% in after-hour trading (as of 3 pm PT). Smart move by Starz? We will see.

But, of course, it likely is more like the oldest trick in the book -- i.e., call off the deal discussions, and watch time pass until the other guy comes back. In this case, Starz really does hold the cards.

After all, content is still king ... and always will be ....

MobiTV's IPO Dreams -- A Tough Sell

The tech IPO parade continues -- another video platform pioneer, MobiTV, just filed to go public (here's the link to its S-1). MobiTV follows OVP grand-daddy Brightcove's recent IPO filing (about which I wrote at that time). As with Brightcove's S-1 filing, MobiTV reveals -- for the first time -- a fascinating look under the covers of its overall financial numbers and key metrics. And, that look ain't necessarily pretty. Bottom line -- buyer beware ... very ....

Here are some key things to consider -- and which certainly give me pause:

(1) Roughly Only 10% Year-Over-Year Revenue Growth -- that certainly doesn't scream success, set the world on fire, or cause investors to jump and down, especially during a transformative period when mobile video usage via smart phones has exploded; specifically, MobiTV generated $55 million in 2008, $62 million in 2009, $66.8 million in 2010, and is on pace to generate $74 million in 2011;

(2) Losses Growing, Not Shrinking! -- caution Will Robinson, it's red flag time! MobiTV's losses are going in the wrong direction; the company is on a pace to lose $16 million in 2011, after losing $14.7 in 2010 and $14.6 million in 2009;

(3) Still Not Profitable -- see (2) above; to borrow a Latin term from my law school days, res ipsa loquitur;

(4) Extremely Vulnerable -- read my lips here, over 50% of the company's revenues are generated via one customer, Sprint! When you think about it, that is quite astonishing. That's a lot of eggs in one basket (especially when its contract with Sprint reverts to a month-to-month contract in one year); but wait, there's more -- MobiTV's next two largest customers, AT&T and T-Mobile, together account for an additional near 25% of its revenues; in other words, 1+1+1 = 75%+ of the company's annual revenues! Yikes, be afraid ... very afraid!

So, with these daunting numbers, why did MobiTV file to go public now? Listen, here's the deal. Much like Brightcove, MobiTV likely had no other choice in order to raise more capital to cover its continued bleeding. The company is reported to have raised $115 million to date, and it would be challenging -- to say the least -- to find a buyer willing to pay the premium likely necessary to satisfy investor expectations.

In other words, "if not now, when?" was the likely mantra being chanted within MobiTV's board room. Something had to be done.

But, that doesn't mean you need to be part of it.

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