After extended negotiations, Starz Entertainment announced today it will not renew or extend its multi-year deal with Netflix (NSDQ: NFLX). Starz has been one of the key providers of premium streaming content for Netflix and the decision, while by no means a death blow, will hurt its ability to offer first-run movies. The timing is particularly interesting: the news comes the same day that a new pricing scheme goes into effect for Netflix subscribers, who have to choose between DVD or streaming — or pay considerably higher for both.
Starz CEO Chris Albrecht issued this statement:
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.
Translation: We want a lot more money and now that there’s competition in the form of Amazon (NSDQ: AMZN), Hulu Plus and YouTube (NSDQ: GOOG), we want to see who will ante up.
Update: The LAT reports Netflix offered at least $300 million a year but Starz wanted something more — a tiered rate for consumers that would mimic the current cable-satellite environment where subscribers pay extra for “premium” content. You can’t access the Starz channels unless you pay extra. Under this scenario, the movies (and TV shows) Starz brings to Netflix no longer would be available to every subscriber but only to those willing to pay more for it and other premium content.
That could help resolve a different problem for Starz. The content it provides to Netflix under its current four-year deal is based on rights it has through licensing deals with studios. Some of those streaming rights come with caps — only X amount of streams allowed per year or for the life of the deal. Additional streams could trigger a price hike or not be allowed at all. In June, Starz had to pull Sony movies from its Netflix bundle because it misjudged the service’s growth potential when the current Netflix deal was signed and was running into the cap, triggering negotiations with Sony (NYSE: SNE). Limiting the number of Netflix subs with access would stretch out the caps.
A Starz or “premium” tier for Netflix isn’t a new idea. It didn’t seem like a good fit for Netflix when it first came arose — and it’s less of one now, given the way Netflix has streamlined its pricing to emphasize all-you-can-eat streaming.