Netflix enjoyed a wave of good press and a bump in its stock yesterday after announcing better than expected fourth quarter 2011 earnings, including $876 million in revenue for the quarter and an additional 220,000 U.S. subscribers to its streaming service.
But within the company’s statement were a number of caveats, arguably the biggest of which was how Netflix was about to lose a host of popular Disney movies from its library after failing to renew its contract with Starz, which owns the licenses to replay those movies, in September 2011.
As Netflix’s fourth quarter earnings statement noted: “The only significant loss is the current 15 Disney output titles, such as ‘Toy Story 3’ and ‘Tangled,’ which currently constitute about 2% of our domestic viewing.”
While 2 percent might not seem like that much, when one considers that Netflix subscribers streamed upwards of 2 billion hours worth of content in the fourth quarter, the loss of Disney could have a much more profound impact on the company’s overall business.
More to the point, Netflix may have actually underreported the amount of some Starz content watched its 21.67 million U.S. streaming customers.
That’s at least the thought of one leading analyst, Michael Pachter of Wedbush Securities, who told TPM via email that: “I think that it’s likely that 90% of domestic streaming customers watch some Starz content.”
“Netflix makes light of the loss of Starz content,” Pachter added, “I disagree.”
Pachter said that Netflix is likely “underestimating the future escalation of content costs,” by companies such as Starz and Time Warner, the latter of which recently increased the delay on providing its content to Netflix following the official DVD release in stores by two-fold, up to 56 days.
Pachter also said he thought that Netflix’s recent attempts to expand its library with new content deals, such as those with AMC, Dreamworks and the CW, would not, in the end, make-up for the loss of Starz’s Disney and Sony content. Starz also provided Netflix with Sony Pictures movies, but the loss of those was tabulated in the second quarter of 2011, according to Netflix.
“That’s a mistake that will lead to slower subscriber growth than they expect,” Pachter concluded.