For Netflix, Everything Changes on Thursday

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NetflixDon't be surprised if Netflix (NFLX) subscribers are on a streaming binge right now.

Many of the most popular movies available through the digital video service will be going away on Thursday. The four-year deal that Netflix inked with Liberty Media's (LMCA) Starz runs out this month, and that will call for some serious pruning of the virtual queues.

The Starz brand may be a second-tier premium movie channel, but the cable network holds the streaming rights to the fresh and popular releases of a few major Hollywood studios. We're talking about roughly 1,000 movies that are about to go offline.

Disney's (DIS) newest retail releases -- from Tangled to Tron -- will be gone. Sony (SNE) was also part of the deal, but it was able to pull The Social Network, Salt, and other of its streaming titles this summer after Netflix members maxed out on the studio's bandwidth caps.

Buh-bye Buzz, Beetlejuice, Carrie, and Pacino

Netflix's deal with Starz in 2008 put the fledgling streaming service on the map. Video game console makers and Blu-ray players began offering access to the videos through connected TVs, bridging the gap between PC viewing and the more natural home-theater setting.

A new breed of Web-savvy set-top boxes was born -- a cottage industry that would've probably never taken off it Netflix hadn't inked the deal with Starz to make sure that folks just weren't watching old television shows and obscure indie releases.

A whopping 21.7 million of Netflix's 24.4 million domestic subscribers will be affected by the move -- that's the number of stateside members paying $7.99 a month to access the company's massive streaming catalog.

How big will this move be? Let's go over just a few of the titles that will be streaming for the last time through Netflix on Wednesday.
  • Scarface -- Say hello to your little friend: unavailability.
  • Beetlejuice -- Even if you say its name three times, Beetlejuice isn't coming anymore.
  • Let Me In -- The chilling remake of Sweden's even creepier Let the Right One In won't come in.
  • Carrie -- "They're all going to laugh at you," Carrie's mother teased. Well, they'll be laughing at you if you try to stream one of the few Stephen King books that translated well onto the big screen.
  • Eight Men Out -- The well-made retelling of the "Black Sox" baseball scandal will ground out.
  • Toy Story 3 -- You've got a friend in Woody or Buzz, but only for a couple more days.
Starz Collides

This wasn't really Netflix's decision. It was Starz that publicly broke off negotiations late last year, even though Netflix was reportedly willing to shell out a good chunk of change to keep the relationship going.

When Starz signed its original deal with Netflix, streaming was a novelty. No one knew that it would become the phenomenon that it has grown to be today. Why would it pass up the mother of all licensing deals? Well, streaming's success is also its downfall.

Studios are threatened by the popularity of Netflix. There are now more than 23.5 million Netflix streaming customers (including nearly 1.9 million overseas accounts). Hollywood has been reluctant to hand over its newest releases. There is more money to be made through DVD sales and full-priced "on demand" rentals. So Starz is merely looking out for its studio partners. It's also looking out for itself. Why would someone pay a cable provider or satellite television company a premium for Starz -- or its Encore and Movieplex channels -- if Netflix has so many of its titles?

A Rare Victory for the DVD

Wednesday won't really be the last time that Netflix subscribers have access to Gnomeo and Juliet or The English Patient. It will just be the final time -- for now -- that the Starz Play movies are available through the site's streaming service.
All of the Starz movies will continue to be widely available on DVD.

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Netflix seems to have abandoned marketing its disc-rental service. Optical discs are clunky. Footing round-trip postage isn't cheap. There's also no instant gratification when subscribers have to wait a day or two for a fresh rental to arrive.

Netflix had just 11.2 million DVD and Blu-ray subscribers when 2012 began, nearly 2.8 million fewer than were checking their mailboxes for Netflix's signature red mailers just three months earlier.

So if there's a silver lining to the end of the Starz deal, it's that Netflix may see its DVD business show signs of life. There will never be a streaming service that has everything, but nearly every major theatrical release is available on optical disc.

This doesn't mean that Starz will make more through the sale of retail DVDs to Netflix than it would have through the renewal of a streaming deal. However, this move should emphasize Netflix's still ridiculously profitable DVD rental service at a time when many streaming competitors are starting to crowd the space it pioneered.

Netflix is already hard at work signing new licensing deals to fill the void that Starz will leave behind later this week, but it would be more than ironic if it's the DVD business that turns around in time to give this story a happy Hollywood ending.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix, Disney, and Liberty Media. Motley Fool newsletter services have recommended buying shares of Netflix and Walt Disney.



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