Oxford, MS 9/2/2011 (PennyPayDay) – Netflix's negotiations to keep a key piece of its Internet video library have collapsed, dealing a major blow to the largest U.S. video subscription service as it raises the prices for most of its 25 million customers. The setback triggered a nearly 9 percent drop in Netflix Inc.'s stock price.Starz Entertainment delivered the bad news Thursday in a terse statement announcing that it won't renew a contract that allows Netflix to show a lineup of recently released movies and TV shows over high-speed Internet connections.
That means Starz content will be removed from Netflix's streaming service starting in March. Starz' library includes movies from Walt Disney Co.'s assorted studios and, until recently, Sony Corp.
The talks fell apart after the two sides disagreed over the value of the Starz content and how it should be sold to Netflix subscribers, according to people familiar with the negotiations. The people asked not to be identified because they weren't authorized to speak publicly.
The content from Starz' cable TV channel played an instrumental role in increasing usage of Netflix's Internet service and helped Netflix add nearly 17 million subscribers since the deal was signed in October 2008.
That growth probably wouldn't have happened without the boost that the Starz deal gave to Netflix streaming, said Janney Montgomery Scott analyst Tony Wible.
"What created (Netflix's success in streaming) is frankly, initially getting Starz, getting that content, which got you more subscribers, which allowed you to buy more content," Wible said. "The virtuous cycle that has made Netflix what it is could work against it. If you lose content, you lose subscribers; ... it could be a downward spiral from here."
Netflix had been expected to work out a new contract with Starz, although at a much higher price than the estimated $30 million a year that it had been paying under the current agreement. Netflix CEO Reed Hastings acknowledged earlier this year that the company might have to pay as much as $250 million a year to retain the Starz rights when the current contract expires in February.
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