8:20 p.m. | Updated The premium cable channel Starz said Thursday that it would not renew its closely watched distribution deal with Netflix, delivering the online streaming service a major, although not entirely unexpected, blow.
The deal is set to expire on Feb. 28, 2012. The Starz chief executive, Chris Albrecht, said in a statement Thursday afternoon that negotiations had ended.
The distribution deal is significant because Starz supplies a bounty of hit movies and several TV series to Netflix, helping retain some of the 25 million subscribers to the monthly streaming service. Starz controls the online distribution of Sony and Walt Disney films, so films from those studios would no longer be on Netflix after Feb. 28.
Without a steady supply of popular films and shows, Netflix risks the ire of subscribers. The company angered some customers this summer by separating its DVD-by-mail and online streaming services, effectively raising the price for subscribers using both services.
Netflix’s stock dropped about 8 percent in after-hours trading Thursday. It said in a statement that while the company regretted the decision by Starz, “we are grateful for the early notice” because it will “give us time to license other content before Starz expires.”
Netflix also asserted that Starz’s content had become less vital to its service over time. “We’ve licensed so much other great content,” including first-run films from Relativity, MGM, Paramount and Lionsgate. Starz content, it said, “is now down to about 8 percent of domestic Netflix subscribers’ viewing.
The statement continued, “We are 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 started to distance itself from Netflix in March when it instituted a three-month delay between the time that it premieres TV episodes on its channel and when those episodes are available on Netflix.
Mr. Albrecht said in his statement Thursday, “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.” Starz declined to comment beyond the statement.
The original deal was worth about $30 million a year to Starz. Analysts thought a new deal could be 10 times as valuable.
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