msnbc.com staff and news service reports
updated 9/1/2011 7:06:30 PM ET 2011-09-01T23:06:30

Starz Entertainment said it had ended talks with Netflix over renewing an agreement to stream Starz content, after the two failed to reach a deal.

In a statement released late Thursday, Starz said its agreement with Netflix to stream Starz content would end on Feb. 28, 2012.

The news comes on the same day Netflix began raising prices for its customer who use its streaming service and get DVDs by mail.

The Wall Street Journal reported that the deal broke down as media companies fear that Netflix’s growing clout will eat into their customers and advertising dollars.

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“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,” Starz said in a statement.

It could be a major blow for Netflix. Under the Starz deal, Netflix gets about 1,000 movies including some from big-name partners such as Disney and Sony. In addition, the company provides about 1,500 TV episodes and other types of content.

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 contract. Netflix CEO Reed Hastings acknowledged earlier this year that he wouldn't be surprised if the company paid as much as $250 million a year to retain the Starz rights when the current contract expired.

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Netflix said it would spend the $250 million Hastings had earmarked for the Starz renewal to buy audience-pleasing content from other distributors. Hastings has left no doubt that he intends to invest heavily in Netflix's Internet video library because he wants more subscribers to use that option. That would allow Netflix to cut postage and other costs to mail DVD rentals to its customers.

Starz's decision to end the talks with Netflix underscores the escalating tensions with pay-TV services that view Netflix's popularity as a competitive threat. Time Warner Inc.'s HBO has consistently refused to license its shows for Netflix streaming, and Showtime recently has declined to make some of its top series, including "Dexter" and "Californication" available to the service.

Associated Press contributed to this report.

Video: CNBC: Starz abandons Netflix

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