“It’s a little bit like, is the Albanian army going to take over the world?” said Jeffrey L. Bewkes, the chief executive of Time Warner, in an interview last week. “I don’t think so.”
Netflix has been a business partner to the movie and television studios through licensing deals, but increasingly it is seen as a partner with its hands far deeper in the pockets of the media companies than anyone thought. Through its success, the company has positioned itself at the center of the media universe — at the nexus of technology and content — and is now finding it a place increasingly under attack.
The relationship between Netflix and the media companies will most likely change drastically, beginning next year when a deal between the company and Starz, the pay-TV channel, to stream movies from Sony and Disney expires.
The original deal from 2008, in which Netflix paid an estimated $25 million annually — a paltry sum, executives say, compared with the hundreds of millions of dollars cable and satellite companies pay Starz for the same movies — is now seen as a major coup for Netflix, and a major mistake by Starz.
Michael Nathanson, a media analyst at Nomura, called it “probably one of the dumbest deals ever. Starz gave up valuable content for tens of millions of dollars.”
Mr. Bewkes said that deal, which gave Netflix significant momentum into the new world of online video, potentially undermined the business model of cable television, based on the subscription fees that have steadily flowed even as other media businesses have suffered in the digital age. “Why should anyone subscribe to Starz when they can basically get the whole thing for about nothing?” he said. “That doesn’t make much sense.”
Mr. Bewkes explained that in the late 1990s the media industry embraced Netflix as a new distribution outlet for renting DVDs — without foreseeing that the company would eventually accelerate the decline in the sales of DVDs, which for years had been the lifeblood of the film industry. Now, with its success online, Netflix has raised fears that consumers may stop paying for cable television — the much-debated phenomenon of cord-cutting.
Mr. Nathanson agreed, saying, “The first engagement the industry had with Netflix was innocent. DVDs were selling, and it didn’t seem like much of a problem.”
Now, however, Netflix is increasingly seen as potentially a very big problem.
“In the past six months, and because of concerns of Wall Street and concerns of cord-cutting, it’s influencing the investor conversations about the future of media,” Mr. Nathanson said. “Now, the industry is very focused on Netflix, and what they can do.”
A media conference last week in New York held by the investment bank UBS became a platform for executives to express their grievances and emphasize that they will now aggressively try to tilt the economic balance between Netflix and content creators back toward the media conglomerates.
“When Netflix first came around, the dog was the discs and the baggie,” said Robert S. Wiesenthal, executive vice president and chief financial officer at the Sony Corporation of America, referring to the envelopes the discs are mailed in, “and the streaming was the tail.” But very quickly, he added, that situation was reversed. “And now the economics for the content companies are going to reflect that.”