Starz Entertainment has ended contract negotiations with Netflix and will pull its content from the Watch Instantly platform effective February 28, the company announced Thursday.
"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. "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."
In a statement, Netflix downplayed the current impact of the Starz partnership and said its content accounts for 8 percent of domestic viewing. As Netflix adds more movies and TV shows in the first quarter, it expects Starz viewing to drop to about 5-6 percent next year before the content is pulled.
"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," the company said.
Netflix pledged to use the money it set aside for Starz content on other licensing deals. The company said it was "grateful for the early notice of their decision, which will give us time to license other content before Starz expires."
"We have tremendous respect for the Starz creative team, and we look forward to someday licensing some of their original or licensed content," Netflix concluded.
Given the growing popularity of Netflix and its streaming service, Starz likely wanted a lot more money for the rights to show its content, and Netflix balked. Netflix has built up the content on its streaming service in recent years via a number of licensing deals, but those deals aren't cheap. Michael Pachter, an analyst at Wedbush Securities, told CNNMoney in July that Netflix's licensing costs could jump from $180 million in 2010 to $1.98 billion next year.
The news comes several months after Sony movies like The Social Network and Salt were pulled from Netflix due to contract issue between Sony and Starz. Netflix did not offer any additional details about the dispute at the time, but there were reports that the contract between Sony and Starz put a cap on how many times a StarzPlay movie could be watched online every month and that Sony wanted more money for Starz films to stream on Netflix.
In its second quarter letter to shareholders, Netflix said it was "not a party" to the Sony dispute, but it continued "to be in discussions with Starz to renew our agreement beyond the first quarter of 2012."
Earlier this year, Starz announced that it would delay the Watch Instantly debut of its series Camelot for 90 days instead of allowing it to stream the day after it aired on TV.
Today, meanwhile, is the day that Netflix's new pricing structure goes into effect in the United States. The company announced in July that it would separate pricing for its DVD and streaming plans. Streaming will run you $7.99 per month as will the one DVD rental plan, or $15.98 for both, up from $9.99 per month.
Editor's Note: This story was updated at 9pm Eastern with comment from Netflix.