Starz to pull content from Netflix as talks fail

LOS ANGELES/NEW YORK Thu Sep 1, 2011 7:20pm EDT

LOS ANGELES/NEW YORK (Reuters) - Starz Entertainment will pull its movies and television shows from Netflix Inc's streaming service early next year, depriving Netflix customers of online access to new releases from two major Hollywood studios.

Pay-TV operator Starz, controlled by John Malone's Liberty Media, said on Thursday it had ended negotiations aimed at renewing a deal that expires February 28. After that date, Starz will stop providing its content, which includes exclusive rights to first-run Sony Corp and Walt Disney Co movies, for streaming on Netflix.

Netflix shares were down 8.7 percent at $213 in after-hours trade, from a close on the Nasdaq of $233.27.

The original online streaming rights are believed to have been agreed for around $30 million a year four years ago, people familiar with the deal have said. Many Wall Street analysts expected a new deal for around 10 times the cost of the original.

Starz, in a statement, called its decision "a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging" of its content.

The news came the same day that an unpopular Netflix price hike of as much as $6 per month took effect. The breakdown with Starz was a surprise because investors had expected the parties to reach a deal, said Brett Harriss, an analyst with Gabelli & Co.

"Netflix just effectively raised prices by 60 percent, and a big chunk of their content walked away," Harriss said.

Netflix spokesman Steve Swasey said the company was "confident we can take the money we had earmarked for Starz renewal next year, and spend it with other content providers to maintain or even improve the Netflix experience."

Starz is the exclusive distributor of first-run Sony and Disney movies on pay-TV in the United States under an agreement that allows it to distribute the programming wholesale on multiple platforms, including online streaming.

But Netflix -- which has grown faster than partners expected -- triggered a deal clause in the first quarter when it announced it now has more than 22.8 million subscribers in the United States, of which nearly two-thirds were streaming videos, sources told Reuters in June.

Under terms of the original contract, the trigger allowed Sony to ask Starz for better financial terms, the sources had said.

(Reporting by Lisa Richwine, editing by Matthew Lewis and Carol Bishopric)

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