Analysts: Netflix likely to see more churn unless new deal for Sony films comes soon

Netflix subscribers lost "watch-instantly" access to films from Sony Pictures on Friday and, four days later, the contract dispute that caused the disruption in service has yet to be resolved.

While Netflix said the problem between Starz and Sony is a temporary one that's being addressed, analysts say that should it stretch much longer the service might begin to see more churn among its generally loyal subscribers. It also could push Netflix to work with Starz on renewing the content contract they have, which is set to expire in the beginning of 2012.

Reports say Netflix lost the content because it hit a subscriber cap, likely 24 million, and that it probably could try and get a license fee reduction since the content isn't available to its subscribers.

What's more likely, however, is that it will kick start negotiations with Starz early.

"It is clear that in order to resume service, which is in Netflix's interest, Netflix will likely have to renew with Starz under much higher terms sooner than the first quarter 2012 contract expiration," Stifel Nicolaus analyst Drew Crum said.

Netflix first mentioned the disappearance of the Sony movies in a blog post Friday.

The loss of Sony films is significant.

"This a significant blow to Netflix as Sony accounts for 12 percent of industry U.S. Box office and is one of its single largest sources of major films," Janney Montgomery Scott analyst Tony Wible said. "In essence, the quality of Netflix's film library has materially eroded until a new deal between Starz and Sony is established. This dynamic will not immediately hurt Netflix's earnings but could trigger an increase in churn if the films do not soon return."

For more:
- see this article
- read the Netflix blog post

Related articles:
Netflix content licensing strategy puts it in a class by itself
Netflix's Hastings unfazed by potential $200M Starz price tag
Report: Netflix's Starz renewal will cost it 'north of $350M' a year
Netflix sets revenue, subscriber records in Q1, and it looks to calm Hollywood's fears

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