End of Starz deal still leaves subscription service on top

The impending expiration of Netflix’s movie deal with Starz at the end of the month will cut into its market share of top movies available among subscription VOD services, according to new data compiled by investment firm Piper Jaffray.

Netflix still has 17% of the highest grossing movies in the U.S. of the past two years, the most of any service. But at the end of February that 17% figure drops to 11% when Netflix’s distribution deal with Starz expires.

That’s still a big number compared with zero at Netflix rivals Amazon Prime Instant Videos and Hulu Plus, which has always positioned itself as more of a hub for catch-up viewing of TV series than films.

While only one of the top 50 movies of 2011, Disney’s “Gnomeo and Juliet,” was derived from the pact, the loss of that agreement could be more keenly felt among the 2010 entries, where three of the top 12 box-office draws of that year all came from Disney including No. 1 “Toy Story 3,” as well as “Tangled” and “Tron Legacy.” Two more Disney films, “Prince of Persia: The Sands of Time” and “The Sorcerer’s Apprentice,” are in the top 50 as well.

The other studio covered in the Starz deal, Sony Pictures, has no entries in the top 50 from either year because high-grossing titles like “The Karate Kid” were already removed from Netflix due to a separate contractual dispute between Starz and Sony.

The Starz films — licensed for as little as $20-30 million in 2008 — were seen as instrumental to Netflix’ rapid growth over the years. But founder Reed Hastings indicated in his letter to investors last month accompanying fourth-quarter earnings that the 15 Disney movies included in the deal only constituted 2% of total viewing.

Netflix previously estimated that all of the content covered in the Starz deal represented 8% of total viewing, but the streaming service has since re-licensed some of the content as well.

While total top titles may not be the most important indicator of a subscription VOD service’s value, given they typically tout the strength of their long-tail catalog, Netflix has put increasing emphasis on its ability to obtain programming in the pay-TV window through deals with Relativity, EPIX and Open Road.

The new data gives a glimpse into the comparative strengths of the rival subscription VOD services. While both companies get attention for each deal they make with studios and their total volume of titles, gauging the number of most popular titles provides a clear method of comparison. However, box-office receipts and TV ratings doesn’t necessarily mean these titles retain their relative popularity online.

But the research also found Netflix is finding more momentum on the TV side, where it is closing the gap on Hulu Plus in the availability of top TV shows. Hulu Plus currently provides 49% of the highest rated TV series over the past two years compared to 44% for Netflix on the same measure. When Piper Jaffray analysts checked in on both companies last August, Netflix was at 32% while Hulu Plus was at 53%.

While Netflix has been known as a film-centric service, chief content officer Ted Sarandos indicated late last year that 50-60% of its total viewing comes from TV programming.

Amazon accounted for only 6% of top TV shows, up from 1% last August. Amazon announced earlier this week that its Prime library had reached 15,000 titles after one year in business.

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