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Starz Ends License Renewal Talks With Netflix

1 Sep, 2011 By: Erik Gruenwedel

Decision, which coincides with Netflix's price increase, means service will be without major studio movies, including Disney and Sony, after Feb. 28, 2012

Starz Entertainment Sept. 1 said it has ended content license negotiations with Netflix.

As a result, Los Gatos, Calif.-based Netflix will lose access to movies from Sony Pictures and Walt Disney Studios, among others, when the current agreement expires Feb. 28, 2012.

The current $30 million annual license deal with Starz — brokered before Netflix launched its streaming service in 2008 — has been widely considered one of the most lopsided in history.

A renewal was expeced to set Netflix back about $300 million a year going forward.

“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 said in a statement. “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.”

Michael Pachter, analyst with Wedbush Securities in Los Angeles, called Starz's decision "shocking," and bad for both parties.

"They all need each other, and it doesn't make sense that Starz would walk," Pachter said.

Though Netflix CEO Reed Hastings has downplayed a renewal with Starz in previous presentations, the loss of movies via the Liberty Media unit represents a blow to the streaming pioneer’s content portfolio, which continues to focus on original and catalog TV programming.

Indeed, Netflix’s burgeoning success as a subscription video-on-demand provider has prompted content owners and studios distributing fare through Starz to re-evaluate exactly what they were getting in license fees.

Last month Disney CEO Bob Iger foreshadowed today’s announcement when he said the studio was in talks with Netflix and other SVOD players about licensing largely library catalog compared to new-release movies or current-season TV programming.

“Our overall approach of late has been to make deals that increase [incremental] revenue while at the same time protect and respect the multi-channel [cable] or channel distribution value that we see today,” Iger said, adding that some of agreements would include some form of user-authentication now being rolled out on TV Everywhere platforms.

In June, Starz quietly pulled Sony's movies from Netflix’s streaming queue after claiming it had reached an IP distribution cap. At the time, Pauline Fischer, VP of content acquisition with Netflix, would only confirm the existence of a situation between two “valued” content providers without elaboration.

While the new development was announced the same day Netflix’s subscribers were hit with a 60% price increase for combined streaming and disc rentals, Netflix spokesperson Steve Swasey told CNET Starz had been a great content partner since 2008.

"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," Swasey said.

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