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Netflix loses Starz Play deal on the eve of controversial price hike

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Today, Netflix's new prices take effect, adding a hefty premium if you want both streaming movies and physical DVDs delivered to your door. Starting today -- or at the beginning of your next billing cycle if you're already a customer -- you'll pay $7.99 for streaming, $7.99 for one DVD, and $15.98 for both. Here's more bad news: Netflix just lost Starz, arguably its most important streaming video partner. If you've watched a recent motion picture on Netflix Watch Instantly anytime in the past three years, it was likely via Starz, but Starz says the deal is over: "When the agreement expires on February 28, 2012, Starz will cease to distribute its content on the Netflix streaming platform." Subscribers will still have Paramount, MGM and Lionsgate movies, as Netflix hammered out partnerships with their joint venture Epix last year. Netflix and Starz had actually been working toward a new deal for months, but apparently it was all for naught, as Starz says it took this action to ensure its content wasn't undervalued. Netflix stock is already taking a hit of eight percent on the news, at least in after-hours trading, and from what we can tell, Netflix hasn't yet commented publicly on the failed negotiations.

Update: Netflix CEO Reed Hastings gave a statement to Business Insider, All Things D and others with additional context; according to Hastings, Starz content accounted for only eight percent of the time U.S. viewers spent on Netflix, and the company will be able to re-use the money it was planning to spend on Starz in procuring alternate sources of content. Find the full statement below.

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.

While Starz was a huge part of viewing on Netflix several years ago because it was some of the only mainstream content Netflix offered, over the years Netflix has spent more and more licensing great TV shows from all four broadcast networks and many cable networks, and we have licensed 1st run movies from Relativity, MGM, Paramount, Lionsgate and others. Because we’ve licensed so much other great content, Starz content is now down to about 8% of domestic Netflix subscribers’ viewing. As we add even more content in Q4, we expect Starz content to naturally drift down to 5-6% of domestic viewing in Q1. 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.

We have tremendous respect for the Starz creative team, and we look forward to someday licensing some of their original or licensed content.

Source: Starz Entertainment press release, via Los Angeles Times