Netflix’s stock suffered a shellacking Friday after Starz revealed that it will cease distributing content through the streaming video provider at the end of February.
Shares were down more than 8 percent in afterhours trading, reflecting a reversal of fortune for a company whose stock price ascended to $305 earlier this summer.
The stock is currently valued at about $213.
In a statement Thursday, Starz CEO and President Chris Albrecht revealed that Starz Entertainment has ceased negotiations to renew a contract with Netflix. The current agreement expires on Feb. 28, 2012, at which time Liberty Media Corporation’s Starz will cease distributing content on Netflix.
Albrecht attributed Starz’s decision to “our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content."
It was widely reported that Starz could potentially demand hundreds of millions of dollars to renew the agreement with Netflix, which infuriated some of its customers earlier this summer after announcing a rate hike from $9.99 to $15.98 per month for unlimited streaming and an unrestricted number of DVDs. That rate increase went into effect Thursday.
Netflix CEO Reed Hastings told Business Insider that Starz’s early notice gives his company time to license other content before the Starz agreement ends. Hastings also said Starz only represents roughly 8 percent of viewing for Netflix’s domestic subscribers, and he expected that figure to drop to 5- to-6 percent in the first quarter.
“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," Hastings told Business Insider.
Although Netflix’s sinking stock price reflected concern, analysts had mixed reactions to the news.
“While shares of Netflix are certain to come under pressure as a result of what many will characterize as a ‘psychological blow,’ we believe investors should cheer Netflix for exercising what is clearly a great deal of financial discipline," MarketWatch quoted Caris & Company Managing Director David Miller as writing.
