Don’t get too attached to Epix, Netflix warns subscribers

The addition of movies from pay TV service Epix was supposed to fill the hole rival premium channel Starz left at Netflix (s NFLX) earlier this year. But judging from Netflix’s second quarter earnings report Tuesday, Epix might not be long for the streaming service, either.
Also read: Netflix meets revenue target, misses on subscribers
In a memo to investors, Netflix CEO Reed Hastings and CFO David Wells said the company’s exclusive content licensing deal with Epix will run out shortly. They also said their agreement to carry Epix content non-exclusively runs out in the middle of 2013.
This is a bit of a surprise — when the licensing deal was signed in 2010, it was widely reported to be a five-year pact worth nearly $1 billion.
UPDATE: Epix’s parent companies can re-up its deal in yearly increments starting next year, but Netflix will have to come up with more money if it wants to keep streaming Epix exclusively.
Also read: Netflix to investors – “We’re taking our profits to Europe!”
Epix is a premium channel jointly owned by Viacom/Paramount Pictures (s VIAB), Lionsgate and Metro-Goldwyn Mayer. It currently has pay-TV distribution through a limited number of major providers, Dish Network (s DISH) among them, covering around 30 million cable/satellite/telco homes.
But as evidenced by the recent Viacom/DirecTV renewal negotiations — during which Viacom pushed DirecTV (s DTV) hard to pick the service up — Epix’s pay-TV distribution outlook could soon change.
Meanwhile, with Viacom and Redbox finally releasing more details about their joint streaming venture Tuesday, several analysts wondered if an Epix deal similar to what Netflix has structured would be part of the content mix.
As the channel becomes less “exclusive” to Netflix, Hastings said it has less value — the streaming service’s biggest drivers, he told investors, are programs that are hard to find in the aftermarket outside of Netflix, such as re-runs of AMC series Mad Men and Breaking Bad.
“Epix is not a particularly large source of our viewing,” Hastings said.
What, really? It’s not important?
Certainly, with Starz taking Disney and Sony Pictures movies in the pay TV window with it when it vacated Netflix in February, the Epix deal brought the streaming service some big-name motion pictures it has been lacking. For example, this summer, Netflix subscribers have been able to stream the Paramount-distributed 2011 summer blockbuster Thor, and Lionsgate’s spring mega-hit Hunger Games is coming up.
Hastings did note, however, that any cost savings from not having Epix content on the service exclusively — or at all — would be re-invested into other programming.