I don't get it. Why can't content owners just raise their prices for streaming?
"Netflix pays about 15 cents a month for each subscriber, much less than the $4 to $5 a month that cable and satellite owners pay for access to Starz."
1) Satellite/cable providers receive most of their content via satellite feeds. The programmer covers the cost of the satellite uplink / leasing space on multiple satellites. This is very expensive. Netflix handles the distribution costs over IP.
2) Programmers have cable/satellite providers backed into a corner. They have total control of the content that people want. The providers are at a huge competitive disadvantage if they can't make a deal so the programmers end up getting very favorable terms.
3) Consumers keep paying higher prices for cable/satellite. This whole concept of 'cutting the cord' has only arisen in the last year or two and it's still a small movement. If people are willing to pay the programmers will naturally test the limits. Contrary to popular belief this has not benefited the carriers. Some cable companies actually lose money on their video offerings these days. (that's why they're pushing triple-play so hard)
4) The programmers are hedging their bets. Prices will go up for Netflix in the long run. For now the programmers are smart enough to see the trend moving away from linear video via cable/satellite to IP and they don't want to miss the train. My guess is they want to "educate" customers on how to pay for video online by making deals at sweetheart prices. This won't last. Especially when the competition presented by piracy is massively reduced via ACTA. We already have the domain name seizure legislation. In a few years they'll be free to jack prices up.
The picture I have is Starz did deals with Disney and other content providers allowing Starz to offer unlimited movies on demand through cable companies.
But the deal language was general enough that they were able to fit Netflix in as a distribution partner - http://bit.ly/Tnbpb .
When the Starz deals are up, for instance the Disney deal is up in 2012, it seems likely that the studios will up the ante.
For instance, Netflix's deal with a group of studios including MGM was reportedly worth $1b over 5 years - if you divided that by 16 million subscribers it would be something like $12.50 a year per subscriber (ballpark, you would have to know the details, make assumptions on growth, discount rates etc.)
For now, it's a great deal for consumers, bring your high-speed Internet plus $8 and get unlimited streaming movies. But it seems likely that the $8 might go up to get better content, or get tiered for earlier access to more and better films. And ISPs might cry that it crushes their bandwidth and raise prices (especially the cable ISPs whose $100/month cable TV bills are getting canceled in favor of Internet and over-the-top video).
I suspect cable companies will not suffer too much, unless cutthroat competition unexpectedly breaks out for high-speed Internet subscribers. The big losers will be cable networks that depend on being bundled in basic cable. Why should I pay $30/month for 150 channels I don't watch? (see for instance http://bit.ly/9LTiYk )
The Golf Network and Food Channel can stick it as far as my own bill is concerned, and unless networks can find people to pay a la carte they will have a hard time staying in business.
The interesting thing about your link is how Netflix has been able to mine more value from their data than Hollywood. The thing is that Hollywood is not standing still, they have very smart companies like Rentrak working constantly to analyze up-to-the minute trends.
It seems this is an area where algorithm-fu really shines.
I'd guess that Starz was looking to put their toes in the digital streaming water, rather than that they necessarily expect this to be the price for perpetuity. I've dropped my core cable and love me my Netflix, but I have to admit that $8.99 (1 DVD at a time, unlimited streaming) is probably not sustainable, if you want to see new content that isn't being subsidized anywhere else, which is the hypothetical end-game here. Frankly I'd pay triple that if they forced the issue as long as they stay ad-free.
Also Starz is, well, nice and all, but at any given time there's only a few really A-list movies on there under a year old, and a motley collection of relatively recent B-list movies. It's not necessarily quite as big a name as they might like to present themselves.
"Netflix pays about 15 cents a month for each subscriber, much less than the $4 to $5 a month that cable and satellite owners pay for access to Starz."
Why give Netflix such a sweet deal?