It couldnt have happened at a worse time. On the same day that the company
instituted new subscription pricing to its streaming video service, Netflix
(NASDAQ: NFLX ) lost its contract with Starz. The Liberty Media -owned (NASDAQ:
LSTZA ) premium movie channel has been one of Netflixs most vital partners
during the past three years as it has transformed from a by-mail DVD rental
company into the face of digital movie and television distribution. It was
through its partnership with Starz that Netflix gained access to big-name movies
from Sony (NYSE: SNE ), Disney (NYSE: DIS ) and others within the HBO Window a
period of time after a films home release when digital outlets are barred from
distributing movies playing on premium cable channels. It was Starz that
reportedly walked out of new contract negotiations with Netflix. The company
released a statement Thursday saying that once its current contract runs out
Feb. 28, it will pull its content from Netflix to protect the premium nature of
our brand by preserving the appropriate pricing and packaging of our exclusive
and highly valuable content. Netflix in turn commented to All Things Digital
that it isnt worried too much about the loss since Starz programming represents
just 8% of what U.S. Netflix subscribers watch . It cited partnerships with film
distributors like Lions Gate (NYSE: LGF ) and Viacom s (NYSE: VIA ) Paramount
Pictures as picking up the slack and boasted that it will take the money it had
set aside from Starzs licensing fees and use it to secure contracts with other
content providers. While Netflix doesnt seem perturbed, its shareholders were
clearly shaken by the announcement. The stock was down almost 10% by mid-morning
Friday. Is there really that much cause for alarm? Investors looking to
capitalize on the streaming video boom need to brace themselves for turbulence
over the next two years. Netflixs power in the space still is largely
uncontested, but new competitors are popping up all the time. Amazon (NASDAQ:
AMZN ) slowly is building up a strong library of streaming titles for its Amazon
Prime premium subscription service . What started as a stable of 5,000 titles in
January grew to 9,000 by August thanks to new deals with CBS (NYSE: CBS ) and
Comcast s (NASDAQ: CMCSA ) NBC Universal. Apple (NASDAQ: AAPL ) is said to be
working fast to transform iTunes into a streaming video business as well. Cable
providers like Time Warner (NYSE: TWX ) are aggressively expanding into
streaming video . Not only did the company release apps for Apples iPhone and
iPad that offer access to certain cable channels, it expanded the HBO Go service
to mobile devices as well. (HBO Go is a streaming-only subscription to HBO that
can be accessed on Internet-connected devices.) Thats just a handful of the
players that are all vying for rights to the most profitable content. On the one
hand, this means content partners like Starz are seeing the value of their goods
increase in the digital space rather than dwindling because of piracy. Viacom is
a solid example of how lucrative digital licensing can be , and its no wonder
Starz is holding out for more from Netflix. On the other hand, the space still
is very much in its Wild West phase, with the overall value of streaming
services changing quickly. Netflixs new subscription model is just the first of
many upheavals coming to the entire space during the next 12 months as streaming
businesses and content providers iron out just how theyre going to make the most
money. In the meantime, though, investors shouldnt worry too much about Netflix.
The company has had dust-ups with its content partners before. Just a few months
ago it appeared that contract renegotiations with CBS (NYSE: CBS ) had broken
down completely, but by the summer, the two companies came to an agreement that
not only reinstated a good deal of Showtime programming to Netflix, but it
expanded its library in international markets. Netflix might lose Starz, but
plenty of other networks and movie studios want access to an audience thats 25
million strong. As of this writing, Anthony John Agnello did not own a position
in any of the stocks named here. Follow him on Twitter at
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