Starz aims to raise $1 bil for programming
THR EXCLUSIVE: Execs meet with Studio Canal, BBCIt is called Operation Turbo.
Starz Entertainment CEO Chris Albrecht and his associates have been meeting with potential partners throughout the world to raise $1 billion of off-balance-sheet financing for original programming, sources said.
Starz parent Liberty Media gave Albrecht the task of raising the money needed to greatly increase original programming on the Starz pay services, as competitors HBO and Showtime have done.
As part of Operation Turbo, there have been meetings with Studio Canal in France and the BBC in London, among others, but the economic climate is making everyone careful.
"This has been met with great enthusiasm from potential partners, but so far no deals have closed," a source close to Starz said. "Negotiations continue."
Under the deal being pitched, the partners would create a new company that would license to Starz all domestic and some international rights, with the investor taking all other international rights. The programs created would have global appeal like this year's well-received Starz series "Spartacus: Blood and Sand."
The maneuvers are the latest overseen by Liberty Media chairman John Malone and CEO Greg Maffei, who during the past year have rethought their corporate structure and especially their plans in the entertainment business.
Plans to plunge into the movie business, which seemed like a good idea in 2007, turned sour with the recession. Liberty since has mostly moved out of theatricals, and Malone has made comments indicating that his big push will be into global cable TV systems.
On Friday, Liberty/Starz unloaded Overture Films and its overhead -- employees, offices, etc. -- to Relativity, breaking up the bundle known as Starz Media that had been shopped this year. The bids apparently weren't what Liberty hoped, coming in at $150 million-$200 million. That not only was below the $225 million it was seeking but also far less than it had invested.
Liberty retains the 16 movies in the Overture library, which have contracts worth about $170 million in receivables. That will be used in part to cover nearly $80 million in leftover third-party and bank borrowing done by Overture.
With Overture gone, Starz Media consists of Anchor Bay, Film Roman and Starz Animation.
Anchor Bay is a home video distributor with a library of 3,500 titles, mostly exercise and self-help product along with some movies. Most of the films that have sold well during the past couple of years have come from Overture, which stopped making movies in January. Anchor Bay continues to do limited domestic releases for a handful of acquired theatricals each year, as it has done this year with "City Island."
Film Roman is a for-hire animation company that produces "The Simpsons" under contract for Fox along with some original programming, and Starz Animation has a sizable studio operating in Toronto, where it produced the CG movie "9" last year and most recently produced the upcoming toon feature "Gnomeo and Juliet" for Miramax and now Disney.
Liberty acquired Anchor Bay and the two animation companies from IDT in a 2006 transaction valued at $450 million, though that figure is deceptive because it included trading stock back to IDT and other tax considerations. The actual cash outlay was far less.
Liberty also invested about $75 million in Overture, which lost money last year, according to the 2009 Liberty annual report.
Liberty does not break out figures for each of its operations in the group, so analysts can't put a price on the pieces. Typically, such units go for two or three times their cash flow.
In the case of Film Roman and Starz Animation, that probably translates to less than $5 million for each. Both units are almost certain to be sold.
Anchor Bay, however, is a different story. Although Liberty Media reported that sales were off slightly last year, Anchor Bay has a strong niche business in those exercise, diet and other specialized products and uses alternative locations such as big-box stores and mass retailers.
If Liberty can't get its price for Anchor Bay, which is likely with DVD sales declining, then sources say it likely will be merged with Starz Entertainment. Thus, like HBO has HBO Video, it would become Starz Video and replace Overture movies with Starz original programming.
Such moves would strengthen Starz, which is profitable and doing well. However, a stronger Starz eventually could be packaged for a sale or spinoff (no doubt tax-free to shareholders, like most Malone-inspired deals).
Liberty in recent months has reorganized its structure and stock so that the Starz channels are well positioned for a sale or spinoff.
Liberty/Starz declined comment, but it has said that the Starz channels are doing well and there is no plan to sell them anytime soon.
Starz Entertainment, which operates about 16 pay channels, was shopped to Viacom and others last fall as a merger partner or for sale, several sources said. Liberty wanted $3 billion-$4 billion -- probably a third more than buyers wanted to pay.
Even then, Liberty wanted to do a deal involving stock to avoid taxes, which was another problem. In the past, Liberty's stock-based deals with News Corp., IAC, Time Warner and others have ended in drama and in some cases litigation as Liberty flexed its corporate muscle. So potential partners remain sensitive about giving Liberty a lot of their stock.