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Netflix: Riding a Death Spiral to Insolvency

But it was not forthright about the real reason for Sony's choice. Simply put, Netflix's subscriber base grew too large; as such, Sony did not want to continue providing all-you-can-eat content for $8 a month. That aligns pretty much perfectly with Starz's rationale to later cut ties completely with Netflix:
This decision is a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content. With our current studio rights and growing original programming presence, the network is in an excellent position to evaluate new opportunities and expand its overall business.

In sentence one, Starz illustrates a major Netflix conundrum -- it cannot attract premium content with its current pricing scheme in place. Thus it's desperate and unsustainably expensive move into original programming. In sentence two, Starz reaffirms the reality that content owners hold the cards in relationships with glorified bootleggers such as Netflix.

Fast forward to April 2013. Something I experienced over the weekend proves that nothing has changed.

I discovered and watched the first two seasons of comedian Louie C. K.'s excellent FX show Louie on Netflix. The other night I wondered about the availability of season three so I searched for it via the excellent Roku 3's upgraded interface. (Check out my article on the new Roku 3).

Come to find out you cannot get season three on Netflix streaming (it's available on DVD); however, for $19.99 in standard definition and $29.99 in high-definition, you can secure it through's (AMZN - Get Report) Prime Instant Video or Wal-Mart's (WMT - Get Report) streaming service Vudu.

I bet Netflix's crunching of its numbers shows viewers lapped up the first two seasons of Louie. Excellent! So, if you're News Corp's (NWSA - Get Report) Fox Entertainment Group, owner of FX, you take that same data and make your decisions on how to license to season three.

It should come as no surprise that the content owner went with Amazon and Wal-Mart's on-demand options over the Netflix $7.99/month, unlimited viewing option. Sony and Starz made this dynamic clear in 2011.

Netflix has been able to survive since then thanks largely to a mix of cash bailouts and that way Hastings has about him. But part of Hastings' aura contains a stubbornness of epic proportion. And his refusal to include tiered pricing and/or on-demand options, amidst massive spending on originals and international expansion, will doom Netflix to insolvency.

-- Written by Rocco Pendola in Santa Monica, Calif.
Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.
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