Starz, the premium movie channel that owns the Internet rights to movies from Disney and Sony Pictures, has stopped talking with Netflix about renewing their streaming-licensing agreement and announced it will pull its content off Netflix when the deal expires in February.
Here's what Starz said in a statement this afternoon.
"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. 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."
It's too early to panic. This may just be a negotiating strategy by Starz. It wouldn't be the first time that Netflix saw a content supplier threaten to yank content. Starz needs Netflix maybe as much as Netflix needs Starz, according to some analysts. But it is the latest signal that licensing high-quality movies and TV shows for Netflix's streaming service is increasingly getting more expensive and difficult.
In response to a request for comment, a Netflix spokesman 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's shares were at $213, down $20.28, or nearly 9 percent, in after-hours trading.
Starz, which offers 17 premium channels, acquired pay-TV licensing rights from Sony and Walt Disney Studios as well as the right to distribute their titles over the Web. In 2008, Netflix entered into a four-year streaming deal with Starz estimated to be worth as much as $30 million a year.
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The amount some analysts say Starz will require to renew the agreement could be in the $300 million range. Michael Pachter, a financial analyst with Wedbush Morgan Securities, told me this week that he doesn't expect Netflix to pay that much and he doubts Starz can afford to walk away from Netflix's money. But he does think it's possible that a final deal could mean less Starz content on Netflix or maybe more restrictive terms than in the past.
"They can't afford to lose each other," Pachter said this week in a discussion about Netflix's future. "Everybody is counting on Starz to get somewhere between $200 million and $300 million. I think those guys will take less but maybe they won't offer Sony films...Netflix can't afford to play hardball with Starz. If they don't have the content people want, they're going to quit."
The first signs of trouble between the companies came in June when Starz pulled films from Sony Pictures, makers of such movies as "The Social Network" and "Salt." It was supposed to be temporary. Netflix, which at the time had more than 23 million users, had reportedly topped the maximum number of viewers that were able to watch Sony's films online.
Update 4:10 p.m. PT: Added response from Netflix.