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Altice drops Starz, directs customers to its online service

Jan 2 (Reuters) - Cable company Altice USA Inc is employing a new negotiating tactic when it comes to reaching agreements with content providers on prices: pointing customers to programmers' own streaming services.

The New York-based cable company announced on Monday it would no longer carry Starz' channels to its 3.4 million Optimum and SuddenLink TV customers, after the two failed to reach an agreement on pricing. It advised customers to sign up for the premium cable network's $8.99 online video service if they want to continue getting its programming.

It is unusual for a cable company to direct customers to a network's online streaming service. But it could help cable and satellite companies during carriage disputes because it is easier to weather a blackout when subscribers can get the content directly online, Craig Moffett, analyst at MoffettNathanson said in an email.

The move by a cable company to direct customers toward a streaming service demonstrates how negotiations between programmers and distributors are getting more contentious as the number of pay TV subscribers continues to drop.

Six U.S. cable providers, including Altice, said they lost more than 1.6 million subscribers through the third quarter of 2017.

"This is highly unusual," said John Janedis, an analyst with Jefferies. "We could be embarking on a new path for distributors."

Altice is replacing Starz with channels such as Hallmark Drama, Cowboy Channel, Sony Movies and MGM HD.

Starz, which is owned by Lionsgate and has popular shows including "Outlander" and "Power," in a statement urged customers to demand refunds from Altice.

Altice sells HBO and CBS' All Access streaming services with its broadband Internet service without requiring the purchase of a bundle of cable channels, but it does not sell the Starz service broadband-only homes.

Jefferies noted that the financial impact of Altice's move on Lionsgate was modest. Lionsgate shares closed at $33.01 on Tuesday, down 2.36 percent.

If Starz loses all one million of Altice's subscribers, it would need to bring in 700,000 online streaming customers to its service, which currently has about 2 million subscribers, to break even, according to Jefferies.

Dish Network Corp in November used a similar tactic when it pointed customers to CBS's All Access online streaming service, as part of a carriage dispute that was resolved within days.

The tactics demonstrate the pressure that distributors are under, Janedis said.

"They are all spending significantly more on programming to drive subscribers so they need to find the best way to maximize their programming spend," he said. (Reporting by Jessica Toonkel; Editing by Anna Driver, Lisa Richwine and Sandra Maler)