Netflix takes Liberty with Disney deal

It isn’t often that Liberty Media chairman John Malone gets outplayed in a deal, but Liberty is clearly the loser in the many machinations involving its Starz pay-TV channel and Netflix. Fourteen months ago, talks between Starz and Netflix to renew their deal giving Netflix early streaming access to the Disney and Sony films Starz controlled fell apart without an agreement. Each side claimed to be the one to walk away but the bottom line was a $300 million-ish revenue hit for Starz from the forgone Netflix payments.

Despite that, Starz was still seen by investors as a valuable asset to Liberty. The Disney and Sony streaming rights were still Starz’ to sell and they ran through 2016. Liberty, in fact, has been planning to cash in that value by the end of this year or early 2013, through a spin-off of Starz to shareholders or an outright sale. In both scenarios, Starz was seen as having long-term upside for whoever ended up owning it.

That assumption has now taken a hit, however, with today’s news that Netflix has secured exclusive subscription TV rights to Disney’s entire slate of films beginning in 2016 when its current deal with Starz expires. That takes much of the long-term upside away from Starz, and makes it far-less likely that the pay-TV channel will be able to cash in the streaming rights to Disney and Sony films in the meantime (who would buy them now, knowing there was no hope of renewing beyond 2016?).

Shares of Netflix soared more than 14 percent on the news, adding more than $518 million in market value to the streaming service. Shares of Liberty dropped nearly 5 percent, knocking $598 million off its market cap, marking for a nearly symmetrical transfer of value from Liberty to Netflix. Not a good day for John Malone.

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Paul Sweeting

Principal Concurrent Media Strategies

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