Why Netflix Won’t Do A Tiered Deal With Starz

There’s plenty of time before Starz’s controversial streaming deal with Netflix (NSDQ: NFLX) runs out, but that hasn’t stopped analysts from endlessly speculating as to how such a pact could be structured. Today it was Collins Stewart analyst Tom Eagan’s turn, but his idea just isn’t realistic.

As THR.com reported, Eagan envisions Netflix taking the unprecedented step of creating a separate tier just for Starz original programming that subscribers could pony up an additional $2 per month to access. That sum could go a long way toward defraying a cost to Netflix that could be as much as 10 times the $120 million four-year deal it’s been estimated Starz was paid for its rights to Sony (NYSE: SNE) and Disney (NYSE: DIS) movies.

Sounds peachy, but there’s just one problem: This is never, ever going to happen.

There’s several flags on the field here, but let’s start with the biggest problem: Cable and satellite distributors are not going to let Starz license a crucial component of its programming mix to a rival service like Netflix. As Lauren Zalaznick, chairman, NBCUniversal Entertainment & Digital Networks & Integrated Media, alluded to in her session at the paidContent2011 conference today, cable programming is under lock and key by the operators, who pay a heavy price to play keep-away from the likes of Hulu or Netflix.

What’s more, Netflix doesn’t seem likely to embrace this kind of tiered structure; the simplicity of a one-price service is part of its appeal. And the notion that Starz original programming is worth $2 per month is ridiculous anyway; the Liberty-owned pay-TV service has barely begun establishing itself in original programming with series like Spartacus: Blood And Sand. That price isn’t remotely justifiable.

Maybe a more established original programmer like HBO could merit such a price but, putting aside the fact that sworn enemies like HBO and Netflix will never do a deal, even that mighty Time Warner (NYSE: TWX) division has its hands tied by operators as to how much it can offer outside the premium package. Just look at the dramatic increase of programming HBO did on its HBO Go service yesterday; it’s still not going to be first-run episodes of current shows.

Netflix doesn’t want first-run episodes of anything, anyway; it’s always positioned itself as a deep dive of library content. Could Starz give Netflix rights to library content? Sure, but such a puddle-deep selection isn’t going to be broken out in a separate tier.

Don’t forget that Netflix has repeatedly downplayed the importance of this Starz deal. Founder Reed Hastings notes time and again that no one source of programming predominates on the service. That may be just posturing in a very public negotiation, but don’t overestimate the lengths Netflix is going to go to keep Starz in its camp.