Are Netflix's Best Days Behind It?
Are Netflix's Best Days Behind It?

NEW YORK - Netflix Inc's online video subscribers have not had access to movies distributed by Sony Corp Pictures Entertainment for four days, due to a dispute between the studio and its pay-TV partner Starz Entertainment.

Starz is the exclusive distributor of first-run Sony and Walt Disney Co movies on pay-TV in the United States under and an agreement which allowed it to distribute the programing wholesale on multiple platforms including online streaming.

But Netflix, which has grown faster than partners expected in the last 18 months triggered a deal clause last quarter when it announced that it now has more than 22.8 million subscribers in the U.S. of which nearly two-thirds were streaming videos, according to one source familiar the situation.

The source said under terms of the original contract the trigger allows Sony to ask Starz for better financial terms.

Another source familiar with the situation said Starz had allowed the Netflix streaming service to hit a licensing usage cap which had been agreed with Sony. This means Starz now needs to work out a new streaming agreement with the Hollywood studio before the programing can be returned to Netflix, the person said.

Starz is owned by media mogul John Malone's Liberty Media.

Starz asked Netflix to take the Sony movies down temporarily while it works out a new deal, one of the sources said.

Netflix complied on Friday saying in a blog post that Sony movies through StarzPlay were not currently available to watch instantly because of "a temporary contract issue between Sony and Starz."

Netflix declined to comment beyond what it said in its blog.

A Starz spokesman said in a statement on Monday: "Sony movies have been taken down temporarily from the StarzPlay service on Netflix. All parties are working diligently to resolve the issue and return these films to Netflix members."

The current deal between Starz and Netflix was reached in October 2008 and expires in the first quarter of 2012.

Industry analysts have said the original deal underestimated the rapid growth of online video viewing by Netflix subscribers. For its part Netflix has changed its focus from DVD rentals to online video, to help shrink its overall costs by reducing postal fees.

The original Starz-Netflix deal is set to expire in the middle of the first quarter next year and Wall Street estimates expect any new deal to be several times more expensive for Netflix.

Netflix has caused much debate among cable programmers and Hollywood, as executives admire its rapid growth and the opportunity to sell older TV shows and movies away from the traditional cable structure.

But cable executives are concerned that Netflix's success could lead to cable subscribers dropping their more expensive cable packages, a phenomenon known as 'cord-cutting'.

(Reporting by Yinka Adegoke; editing by Carol Bishopric)

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