Late last year, Lions Gate Entertainment Corp. , which reports earnings this week, was said to be hunting for acquisitions. The movie studio was also rumored to be a takeover target. Over at Starz LLC , which releases earnings on Feb. 25, CEO Chris Albrecht adamantly insisted that the movie channel was not on the block and decried suggestions to contrary. But those suggestions — involving multiple potential suitors — still managed to surface in news reports. Until newer stories suggested that no buyers were interested. While the media coverage may have gotten ahead of the stories, the reports underscore the importance of scale, original programming and distribution among cable systems operators. Moody's Investors Service analyst Neil Begley Starz suggests that a matchup of Starz and Lions Gate-backed joint venture Epix would address issues both groups face. Starz would gain access to content and Epix could leverage greater distribution on cable systems. It would also play to John Malone's predilection for tax-free mergers. Malone's Liberty Media Corp. spun out premium cable network Starz in 2013, and the cable tycoon maintains a substantial personal stake in the company. "When you are one step removed from a studio, it is a very competitive landscape." Begley said regarding Starz. The company lost a distribution deal with Walt Disney & Co. , though the company will still receive content for now. It also has a long-standing pact with Sony Corp. . "They are very dependent on original programming and don't have a studio," he added. "What they do have is terrific distribution." Epix, founded in 2008, has three studios for parents: Lions Gate, which holds 31%; Viacom Inc.(VIA)'s Paramount Pictures, with a roughly 50% position, and MGM Holdings Inc., with a 19% stake. Epix's parents have vast stores of content and pipelines of new features. Lions Gate, for instance, produces Orange is the New Black for Netflix Inc. . "They are fairly new and as a result have had difficulty getting fully distributed," Begley said of Epix. "It's almost like hand in glove." Starz CEO Albrecht has said that the company will invest the money it would have paid Disney in its own productions. The company's shows include Outlander, a romance-sci-fi hybrid; Survivor's Remorse, about a young NBA star; historical pirate drama Black Sails and Ash vs. Evil Dead, a zombie series directed by Sam Raimi. But competition among new cable series is fierce. "When you look at how many other companies are trying an original content strategy — HBO, Showtime, Netflix, Amazon, AMC — they are a bit challenged to stand out." said Moody's analyst Karen Berckmann said regarding Starz and its originals. "When the [multichannel video programming distributor] are looking at these incredibly expensive bills, and consumers saying I don't want all of this stuff, they may be less bullish on premium channels unless there is tremendous demand," she added. "I don't see Starz as having that yet." While the company fights for an audience in a challenging market, it has the resources to continue developing shows. "When I think about it as a credit story, the are still throwing off a lot of cash," Berckmann said. "They have the flexibility to go it on their own at least for a while and to pick and choose whether they make some sort of a strategic transaction." John Malone has a 45.5% voting position in Starz, and a predilection for swapping shares in companies for other assets and cash without incurring taxes. Rather than an outright sale to another studio or an investor, a merger could fit better with Malone's M.O. A combination of Starz and Epix would make operating sense, and play to Malone's dealmaking style. Malone could swap his shares in Starz position for shares in a new joint venture or in Epix's parent companies. "I don't think they would want him to be a major stakeholder with majority control," Begley said. "A small position in each of the other three, without necessarily having any voting power, would probably be more attractive." Epix declined to comment for this story. Starz and Liberty did not immediately respond to a query. Read more from:
Click to view a price quote on LGF. Click to research the Media industry.
from Latest TSC Headlines http://ift.tt/1CWL7Cm
No comments:
Post a Comment