Starz Entertainment announced Thursday that it will end its distribution deal with Netflix for streaming video over the Internet, effective February 2012.
In a statement, Starz president and CEO Chris Albrecht said, "Starz Entertainment has ended contract renewal negotiations with Netflix. When the agreement expires on February 28, 2012, Starz will cease to distribute its content on the Netflix streaming platform."
Albrecht continued: "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."
Netflix in a statement said, "Starz has been a great content partner since 2008 and we are thankful for their support. While we regret their decision to let our agreement lapse next February, we are grateful for the early notice of their decision, which will give us time to license other content before Starz expires."
Netflix acknowledged that Starz content was "a huge part of viewing on Netflix several years ago because it was some of the only mainstream content Netflix offered," but said Starz content now accounts for only 8% of U.S. viewing and that Netflix expects that to decline to 5% to 6% by the first quarter of 2012.
In June, Netflix removed Sony Pictures Entertainment movies provided through Starz from its streaming service, citing a "temporary contract issue" between Sony and Starz. According to a source familiar with the terms of the Netflix-Starz deal, the number of Netflix U.S. streaming subscribers in the first quarter of 2011 triggered a clause in Starz's deal with Sony that would escalate per-sub payments for Sony movies. (Netflix had 22.8 million customers in the U.S. at the end of March, versus 19.5 million at the end of 2010.)
Meanwhile, Netflix maintained that it has licensed an array of TV shows and movies from studios including Relativity Media, MGM, Paramount Pictures and Lionsgate and programmers including MTV Networks, Fox, NBC, ABC, ABC Family and Disney Channel.
"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," Netflix said.
Netflix's stock fell nearly 10% in after-hours trading Thursday, declining $22.43 to $210.84 per share.
In October 2008, Starz announced a three-year streaming deal with Netflix, worth $20 million to $30 million annually, which gave Netflix the ability to stream movies from Walt Disney Co. and Sony Pictures Entertainment, among other content.
Pay-TV affiliates were unhappy with the deal, which gave Netflix subscribers access to the same video-on-demand content cable and satellite customers are entitled to as well as the Starz East linear feed on the Web.
Separately, Netflix's pricing change for new customers went into effect on Thursday, which eliminates the unlimited DVD-plus-streaming plans in the U.S.
Under the new Netflix pricing plan, the company offers unlimited streaming for $7.99 per month. Apart from that, Netflix now offers DVD-only plans for $7.99 a month for one DVD out at a time and $11.99 a month for two DVDs out at once.
In March, Starz announced that episodes of its original series would not be available on Netflix streaming until 90 days after they debut on the Starz network, and that first-run movies would subsequently not be available through the over-the-top service for the same period.
At an investment conference in December 2010, Netflix CEO Reed Hastings claimed that "we can live without [a Starz deal] if we have to."
"[T]here's no one piece of content that is essential for us," Hastings said, speaking at the Barclays Capital 2010 Global Technology Conference in San Francisco.