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Netflix Losing Flicks: Why It’s Actually Smart to Shed ‘Hunger Games,’ Other Epix Movies

The “flix” part of Netflix is about to get less precise: Thousands of movies through its deal with Epix, the JV of Paramount, Lionsgate and MGM, are set to roll off the streaming service when the pact expires next month.

It’s sure to cause the subscription VOD leader some short-term pain with customer irritation and confusion. And Reed Hastings can’t be pleased that Hulu is opportunistically stepping into the breach with Netflix’s pass (though Amazon, it’s important to note, has had a pact with Epix since 2012 for exactly the same stuff).

But for Netflix, letting this deal go by the wayside is ultimately a savvy move.

The loss of the Epix catalog is real. Of the top 10 box-office grossing movies in each the last three years, Netflix currently offers just two on streaming — both via Epix: “The Hunger Games: Catching Fire” and “Transformers: Age of Extinction.” In the most recent quarter, Netflix subs have streamed an average of 75 million Epix movies per month, according to a source familiar with the pact, which would represent about 1.8 movies per U.S. sub monthly.

It’s not that Netflix doesn’t want movies. It’s that it wants exclusive rights, with titles you can’t watch on any other subscription service. That’s why Netflix is spending more on original film acquisitions, and why it’s paying Disney top dollar for pay-TV window rights for Mouse House pics starting with 2016 releases.

Given Netflix’s trajectory, its pact with Epix was doomed. Netflix calls itself an Internet TV subscription service and compares itself to HBO… and so, by extension, it’s also really a competitor to Epix.

In a certain light, then, Netflix carrying the movies from Epix is like McDonald’s cutting a deal to sell Whoppers.

Make no mistake: Epix wanted Netflix to renew, though Hulu presumably will help make up the difference. For Epix, which employs the traditional cable-distribution model, the more distributors it has on board the better. It sells through cable, satellite and telco TV providers and carved out an additional SVOD window, with titles coming to Netflix (soon to be Hulu instead) and Amazon 90 days after they hit TV distribs.

That’s fine. But Netflix decided a while ago it doesn’t want sloppy seconds to pay TV. Yes, non-exclusive library content is important to buttress the proposition that there will always be something to watch in your Netflix queue, including TV and movie favorites. The company’s infamously inexpensive output deal with Starz in 2008 (which ended in 2012) certainly helped jump-start Netflix’s meteoric rise.

Now Netflix is about quality — or, more accurately, exclusivity — not quantity. Last year, for example, it didn’t bid for SVOD rights to HBO’s library (for series three or more years after their network airdates) which remain available on HBO Go and HBO Now; instead, Amazon acquired that basket.

See More: Netflix to Focus on Adding Higher-Rated and Exclusive Titles, CFO Says

Netflix has eschewed the notion of being a comprehensive on-demand entertainment source, because it’s just too expensive. Live TV sports? Forget it, Ted Sarandos says; leave that to overpriced pay-TV bundles. And if you want movies or TV shows not available via streaming, Netflix will happily sell you a DVD-by-mail subscription.

“Netflix is a focused passion brand, not a do-everything brand: Starbucks, not 7-Eleven; Southwest, not United; HBO, not Dish,” the company says in its long-term view manifesto.

That’s a smart, sustainable strategy for standing out in the market. True, Netflix at some point soon will have to decide which content it must own itself instead of rent (originals including “House of Cards” and “Orange Is the New Black” are licensed from other studios, not produced by Netflix). And nobody can possibly argue that Netflix original films like indie drama “Beasts of No Nation” or Adam Sandler’s “Ridiculous Six” are going to outperform top Epix-supplied fare like “Hunger Games: Catching Fire,” “The Wolf of Wall Street” or “Star Trek Into Darkness.”

In Epix’s case, Netflix decided its money would be better spent elsewhere rather than paying up to $200 million per annum (though its fees to Epix went down after the rights became non-exclusive). Because if you’re Starbucks, it makes more sense to place your bets on creating the next Frappucino, not on moving Big Gulps.

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