Netflix: Is Video Content Fungible?

Can streaming-video service Netflix survive recent losses by substituting new content? According to the Associated Press, major movie studios are refusing to license Netflix the rights to most of their latest movies. They studios also are withholding their most popular series, including “Game of Thrones” and “Dexter.”

Associated Press writer Michael Liedtke said Netflix may lose subscribers as a result of the termination of Starz contract beginning in March 2012. Starz library included recent movies from Walt Disney Co. Netflix has been paying an estimated $30 million annually, and Starz is believed to have demanded as much as $300 million a year to renew.

Competitors have larger libraries, and Walmart is charging customers $2 to access their DVDs via permanent online-viewing.

Streaming subscribers watch an average of 30 hours of online-video monthly, which is about 27 cents per hour. Netflix has already agreed to pay about $4 billion in licensing fees during the next few years, however after recent price-hike backlash, it may be reluctant to increase its $8 monthly subscription for its approximately 25 million members.

Netflix is downplaying the loss of Starz, but Wedbush Securities analyst Michael Pachter believes there is only so much that Netflix will be able to do to conceal the weaknesses in its Internet library.

“I think Netflix has underestimated the intelligence of consumers,” Pachter says. “They seem to think all content is fungible, but I don’t think consumers will see it that way.”