Liberty spin-off Starz Entertainment seen as acquisition target


Starz EntertainmentStarz Entertainment started trading as its own publicly-traded stock on Monday after Liberty Media completed the spin-off of the company known for its premium movie channels. Analysts view Starz, which competes with HBO and Showtime, as a potential acquisition target. Shares rose $1.03 or 7.3 percent to $15.23 on Monday.

Liberty announced in August that Starz, which runs eponymous movie and TV channels as well as Encore-branded movie channels, will become a separate listed company with about $1.5 billion of debt. Starz now has a $450 million bank credit facility, the company said in a statement late Friday.

Analysts view Starz, which competes with HBO and Showtime, as a potential acquisition target, according to a Reuters report. The Starz channel has 21 million subscribers, while Encore has 34 million subscribers. Macquarie analyst Amy Yong estimates that HBO, has 39.5 million subscribers and Showtime has 21.3 million subscribers.

Macquarie’s Yong said in a research note that a large media company could help improve Starz’ margins by “more extensive distribution, producing more content hours” and by commanding “higher rates in affiliate negotiations.”

Janney analyst Tony Wible called movie channel Epix “an ideal buyer” for Starz, also in a research note. Epix is a pay-TV movie channel jointly owned by Viacom’s Paramount Pictures, Metro-Goldwyn-Mayer Pictures and Lions Gate Entertainment.

ISI analyst Vijay Jayant estimates Starz will generate revenue of $1.62 billion in 2012 and in 2013. Starz receives about 80% of its revenue from affiliate fees from cable companies, Jayant said.

In December, Starz did not renew an exclusive agreement to carry Disney’s movies and Netflix quickly signed its own contract with Disney. Netflix customers will be able to stream a wide assortment of movies from Disney and its studios—but it won’t be for years. Starz will no longer carry those films. Starting with Disney’s 2016 feature films, Netflix customers will be able to stream a catalog of titles from Disney and four of its subsidiaries: Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios and Disneynature.

Netflix will become the exclusive U.S. subscription television service for Disney’s new releases in the deal as well.

Netflix’s contract with Starz expired in February after deal-renewal negotiations fell apart. Starz currently licenses many Disney films, in addition to titles from several other studios. Starz has been focusing on developing original programming such as “Spartacus,” a drama set in ancient Rome, and mob drama “Magic City,” set in Miami in 1959.

See the Reuters story here