THe New York Times did an interview with several movie content executives about Netflix. One of the reasons why Netflix, Inc. (NASDAQ:NFLX) was able to grow fast is because they bought content on-the-cheap. Next year it will be different because their contract for movie deals will be expiring.
Netflix paid Starz $25 million annually to stream movies from Sony and Disney. Satellite and cable companies spend hundreds of millions of dollars for the same movies. This was called one of the dumbest deals ever, but it worked out heavily in Netflix’s favor.
When Netflix entered the industry, they weren’t seen as much of a problem because DVD rentals seemed normal. Now people are starting to prefer streaming content instead of waiting for movies to come in the mail. If Netflix decides to renew their deal with Starz, then it is likely that the new deal could cost them $250 million per year according to BTIG research. However this would severely affect Netflix’s low-cost business model.