Liberty Media's Starz Posts Better Second-Quarter Sub, Financial Results

5:44 AM PST 08/09/2011 by Georg Szalai

UPDATED: Starz subs grew to an all-time high of 19 million, and home shopping network QVC reported improved results, including growth in Japan despite the earthquake, but management had no news on a streaming video deal with Netflix.

NEW YORK - John Malone's Liberty Media on Tuesday reported improved second-quarter financials for premium TV service provider Starz LLC and home shopping cable network QVC as Starz subscribers hit a record high.

Chris Albrecht, Starz president and CEO, on a conference call didn't provide much new insight into the possible future of a current streaming video content deal with Netflix, which expires early next year. Saying that digital deals are complicated and that the company wants to keep its long-term relationships with traditional TV distributors strong, he said Starz will take its time and ensure that any agreements provide a net benefit to the firm. Albrecht summarized that he was "confident" that Starz can enter deals that make sense.

He also acknowledged that Amazon.com is among new digital content players, but didn't discuss how far potential talks with the company have gone.

Albrecht was also asked about the recent announcement that Starz has temporarily taken Sony movies off of Netflix. Albrecht confirmed that the move became necessary as Netflix exceeded an unspecified subscriber milestone that was mentioned in Starz's output deal with Sony. He told analysts that this is "not a dispute as such," but a situation that has to be resolved as the subscriber trigger was pulled. He called Netflix streaming service users' loss of Sony movies a "temporary" occurrence. "We continue to talk to Sony and Netflix on this matter and on matters that extend far beyond this," Albrecht said, adding that his team is looking forward to a resolution.

He did not comment on whether a studio output deal with Disney has similar subscriber milestones, but said his team was "very comfortable" with the flexibility of that agreement.

Starz grew its adjusted operating income before depreciation and amortization 146 percent to $118 million as revenue edged up 5 percent to $403 million.



Starz and Encore subscriptions grew by 10 percent and 3 percent, respectively, over the year-ago period. Compared with the end of the first quarter they were up 200,000 and down 200,000, respectively. Total subscribers matched a previous all-time high of 51.9 million as Starz hit an all-time high of 19 million subscribers and Encore ended June at 32.9 million subs. "Starz subs were above [our] forecast, showing resiliency, even in a weak pay TV quarter, while Encore was slightly below," said Barclays Capital analyst James Ratcliffe.

The increase in adjusted OIBDA came thanks to the improved premium TV business and a restructuring of Starz Media, which was previously attributed to Liberty Capital. For example, reduced theatrical releases resulted in lower revenue, but it also meant no spending on marketing and advertising, lower production and acquisition costs and lower home video costs. Ratcliffe said that the OIBDA results were slightly below his estimate - "likely due to higher programming spend."

"The business of Starz Entertainment continued its solid performance in the second quarter with Starz hitting an all-time high of 19 million subscribers thanks in part to our investments in a strong programming lineup of exclusive first-run movies and quality original programming," said Albrecht. "We are very proud of the agreement announced yesterday with BBC Worldwide Productions - a deal that will accelerate prudently our growth into Starz originals in the years ahead."
QVC, Liberty's biggest business and part of the Liberty Interactive Group, adjusted operating income before depreciation and amortization of $281 million was up 4 percent on an 8 percent revenue gain to $1.9 billion.

"QVC had a solid quarter, with revenue growth in all markets," said Liberty Media president and CEO Greg Maffei. "We were impressed that Japan was back to growth so quickly after the tragedies of the spring."

Liberty Capital Group's revenue fell 33 percent to $135 million, but adjusted OIBDA rose to $7 million. The driver of the results was the impact of the change in attribution of Starz Media from Liberty Capital to Liberty Starz late last year. Liberty Capital includes the company's stakes in Sirius XM Radio, Live Nation and small investments in Time Warner and Viacom.

Liberty Media also said it still expects to complete its split-off of Liberty Starz and Liberty Capital in the current third quarter after a mid-September appeals hearing brought by Bank of New York against Liberty's win in a Delaware court in a protracted legal battle. The bank raised issues about the split-off, arguing that it would constitute a disposition of all or substantially all the assets of Liberty.

Albrecht on Tuesday also called Encore a "hidden gem" and reiterated its plan to buy select original content with recognizable stars, hinting that there could also be ways to add cost-effective originals in other ways down the line.

He also touted upcoming Starz original series, such as Boss, which debuts Oct. 21, and Magic City, scheduled for April. He also confirmed that Noir, which is based on a Japanese anime series and is in pre-production, will start airing in summer 2012. He also mentioned the return of Spartacus in 2012.

Discussing a BBC original content development deal announced on Monday, Albrecht said it will help mitigate risk and reduce expense and is an "endorsement of our creative and business visions." He said Starz remains on track for 50-60 hours of new original programming hours a year.

Liberty Media on Tuesday also reiterated its plan to structure a deal to take a significant stake in book retailer Barnes & Noble.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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