Kozmo had already paid Starbucks $15 million in the first year of the deal but was expected to pay $150 million over five years.
"Our expansion plans changed in the course of the past year," said Kozmo spokeswoman Stephanie Cohen Glass. "The original commercial agreement was no longer financially viable."
Kozmo had roughly 500 video drop boxes in Starbucks in Boston, New York City, Washington, D.C., Atlanta, Chicago, Los Angeles, San Francisco, Portland, Ore., and Seattle. Kozmo's drop boxes in other locations will remain.
Kozmo is in belt-tightening mode, cutting costs in almost every area. Besides several rounds of layoffs, the company has closed two operations and cut back on the number of items it sells in the past year. Some of Starbucks' products will be among those cut, Cohen Glass said.
"We will continue to carry the most popular Starbucks items," she said.
Best known for dispatching bicycle riders to deliver convenience items such as CDs, videos, and snack food, Kozmo said that the company is notifying customers that the removal of the drop boxes will be completed by March 31. Kozmo will also provide directions to other drop boxes.
Earlier this week, sources said that Kozmo had begun talks to acquire online grocer PDQuick.com. Cohen Glass declined to comment about the Los Angeles-based PDQuick.