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Starz Pulls Plug on Netflix Deal

9/05/2011 12:01 AM Eastern

Starz Entertainment said 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.”

SHARES FALL ON NEWS

Netflix’s stock fell 8.6% last Friday, the day after the announcement,
closing at $213.11 per share.

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 persub
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 pointed out that it has licensed an array
of TV shows and movies from studios including Relativity
Media, Metro-Goldwyn-Mayer, 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.

In October 2008, Starz announced the three-year streaming
deal with Netflix, worth $20 million to $30 million annually,
which gave Netflix the ability to stream movies from The
Walt Disney Co. and Sony, 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.


PRICE CHANGE KICKS IN

Separately, Netfl ix’s pricing change
for new customers went into effect last
Thursday, which eliminated 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 a one-DVD-outat-
a-time plan 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-thetop
service.

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.

September