Stock sees biggest jump since January separation from Liberty Media
Snow turned rainy on a gray Gotham Monday but Wall Street shone its love on Starz Entertainment as the newly standalone group locked up movies from Sony Pictures through 2012, resolving the single biggest immediate question about its short-term future.
Shares surged 11% to $18.52 at their high in early trading, a major standout in a down market and the biggest jump since an IPO in mid-January, when Starz was separated from former parent Liberty Media and started trading on their own.
They ended the day up 7.44% at $17.91. The video market is crowded and getting more so. Starz currently has two long-term output deals — with Sony and Walt Disney — but Netflix lured the Mouse away, signing a deal in December that will bring Mouse pics to the streaming service starting in 2017.
That put lots of pressure and press attention on the Sony pact, even though both deals still have years to go.
The two partners, as is usual, didn’t reveal terms of their deal. Benjamin Mogil, an analyst with Stifel Nicolaus, figures it would be about $300 million a year for the non-library portion of the new deal. The current deal expires in 2016.
“The renewal with Sony eliminates a major risk in the Starz story as it helps assure the network’s long-term viability after it will lose Disney content in 2016,” said Tony Wible of Jenney Capital Markets. He noted that “Sony had tremendous leverage in a renewal given that they would make or break Starz and was the only remaining major studio pay-TV deal available this decade.”
Assuming a $2 billion pricetag, Wible estimates a $180 million-$220 million annual cost increase over the current deal depending on how Sony pics perform at the box office.
Starz would no doubt argue with the notion that the Sony deal is a “make or break” proposition. At an event for the third and last season of “Spartacus” last month in Gotham, CEO Chris Albrecht noted that 2016 was still a long way away. With or without Sony, the longer-term future of Starz likely includes a merger with another media player, although it’s still not clear who that would be. Potential suitor Comcast is out of the running after its Universal Studios inked a new long-term output deal with HBO — a pact that also removed HBO parent Time Warner as a takeover candidate.
Mogil and others continue to consider Epix a likely partner. Other sees buyers appearing from overseas.
Starz wasn’t able to talk to possible partners about deals while the split process from John Malone’s Liberty was under way, but now it can. The company will report earnings on Feb. 27. It said last month when its announced the date that CEO Chris Albrecht will host a call to talk about financials and “may discuss future opportunities.” He’ll certainly be asked about them.