Netflix Shares Plunged: What You Need to Know

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What: Shares of Netflix (Nasdaq: NFLX  ) fell more than 10% in early trading and should close down about the same. Starz announced yesterday that it wouldn’t re-up the company’s streaming deal when it expires next February.

So what: Starz’s statement was anything but encouraging. CEO Chris Albrecht spoke of preserving “appropriate pricing” for his company’s “valuable” content. The implication? Netflix low-balled in its negotiations with the Liberty Global (Nasdaq: LBTYA  ) subsidiary.

Now what: Netflix CEO Reed Hastings was more gracious in explaining his company’s decision to walk away, calling Starz a “great content partner” in comments published by Business Insider. He also pointed out the studio now accounts for just 8% of domestic traffic. This is what traders are selling into? A botched deal that spares Netflix from spending $300 million to preserve 8% of U.S. traffic? Hastings made the right call. Do you agree? Disagree? Please weigh in using the comments box below.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn’t own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by@milehighfool. You can also get his insights delivered directly to your RSS reader.

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Read/Post Comments (9) | Recommend This Article (9)

Comments from our Foolish Readers

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  • Report this Comment On September 02, 2011, at 4:42 PM, jabroniman wrote:

    Wow - What a great time to raise prices for your streaming videos Netflix. The movies on Netflix streaming already are D list movies anway, Starz involvment or not. Unless Netflix makes some real justifications for their price hike their stock is going to continue to tumble, not only are they NOT adding any movies currently, but they are losing some. This brand got way to cocky and now it's going to catch-up.

  • Report this Comment On September 02, 2011, at 8:38 PM, JoseBJ wrote:

    The original Starz contract was a bargain and Starz learned they could get more. 10x higher cost is a big jump and I think Netflix did well to halt the negotiation. Time will tell what the going rate will be. Starz may be back and settle for a more reasonable rate with Netflix.

  • Report this Comment On September 02, 2011, at 10:38 PM, nick1200 wrote:

    Like many others, I no longer have cable or satellite TV. I use Netflix, Hulu, Amazon, and Youtube. Mostly I use Netflix, as I have for years. That's because they are the best at streaming content entertainment content. Period. The loss of the Starz contract won't change my viewing habits. I haven't used their DVD service in 2 years. DVD's will be obsolete in a few years. Reed Hastings is a visionary. He made streaming movies easy for the masses WAY before any other company. I'll be watching Netflix continue to grow.

  • Report this Comment On September 03, 2011, at 5:56 AM, The1MAGE wrote:

    Netflix is still in it's infancy. I see great potential in their future offerings. And yes a slow upgrade in prices, but nothing that would cause a big defection in subscribers.

    The current buzz is just a short term issue, and something they were going to have to do eventually anyway, so they are getting the pain out now, and in about 6 months nobody is going to remember this event.

    And with Starz, maybe they will come back, but I think it will hurt them more if they don't.

    I am just waiting for the day they beat out HBO and Showtime to be the first run for a big movie.

  • Report this Comment On September 03, 2011, at 2:31 PM, Risky88 wrote:

    I would rather have HBO than starz on netflix, way better programming and movies, especially if they could get HBO live or something to that extent and actually more directly compete with cable companies that charge their customers additionally for that content

  • Report this Comment On September 05, 2011, at 12:29 PM, KeysBum wrote:

    I just cancelled my netflix subscription. Redbox is convenient and less expensive. Sold the stock 2.

  • Report this Comment On September 05, 2011, at 5:21 PM, InvestWhatWorks wrote:

    Starz might be only 8% of Netflix's streaming content, but what percentage of Starz makes up Nexflix's GOOD streaming content? Not all content is made equal. You can't just have content. You need to have GOOD content. Starz is who provided Netflix with their Disney and Sony titles.

  • Report this Comment On September 05, 2011, at 11:39 PM, arefool2b wrote:

    Netflix has the best online streaming interface out there thanks to the Netflix Prize algorithm that has a pretty uncanny sense of knowing what you want. The more popular Netflix becomes, the more the content providers are going to hold out for a higher cut. It's a Catch-22 that could slow earnings or even make them a candidate for a buy-out. The niche they can still dominate is the mailer DVD - they aren't going anywhere soon (even though Hastings wants to go streaming) simply because it allows them more content at a date slightly after the theatrical, cable releases. If you want an inside sense of the company, check out the PowerPoints they have all prospective employees read via the "Careers" link. So, for now, I'm hanging on.

  • Report this Comment On September 06, 2011, at 7:52 PM, mountain8 wrote:

    Lethal weapon

    Burn's Civil War

    Naked Gun

    The sting

    Daddy longlegs

    REservoir dogs

    Blade

    Highlander

    Lonesome dove

    A definate "D" list. Get real.

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