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Starz Second-Quarter Earnings Drop, But Beat Estimates as Subscribers Rise

DEAL OF THE WEEK: Chris Albrecht
David Livingston/Getty Images
Starz CEO Chris Albrecht

UPDATED: CEO Chris Albrecht announces the extension of a library agreement with MGM that will bring the "James Bond" and "Rocky" franchises to the premium TV channel.

Premium TV company Starz on Thursday reported mostly higher second-quarter financials as it continued to grow its subscribers and beat Wall Street expectations.

Starz's stock was up 7 percent as of 10:50 a.m. ET.

The firm, led by CEO Chris Albrecht, posted earnings of $66.0 million, compared with $69.6 million in the year-ago period. Revenue jumped 29 percent to $517.4 million. Operating profit rose 16 percent to $116.1 million. And adjusted operating income before depreciation and amortization, another metric of profitability, rose 19 percent to $129.5 million.

On a conference call with analysts, Albrecht said he was "pleased to share" an extended agreement with MGM for its library content, including films in the James Bond and Rocky franchises.

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Starz subscriptions increased 5 percent, and Encore subscriptions rose 3 percent to 21.8 million and 35.1 million, respectively, between June 30 of 2012 and the same date this year. In the second quarter, Starz subscriptions increased 1 percent, while Encore subscriptions were "essentially flat." That left total subscriptions at 56.9 million as of the end of June, compared with 56.7 million at the end of the first quarter.

Albrecht also talked up a multiyear agreement with 20th Century Fox Television that was announced Tuesday, and he boasted of the response from fans at the recent Comic-Con to Black Sails, which was so positive it led to an early second-season renewal of Michael Bay's pirate drama.

Other shows getting a shout-out from the CEO during an earnings call with analysts included Da Vinci's Demons as well as the upcoming Power, from Curtis "50 Cent" Jackson, and Outlander, both of which should premiere in 2014.

John Malone's Liberty Media spun off Starz in January, making the latest financials the first for a full quarter during which it was a standalone company.

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"Starz delivered solid operational and financial performance in the second quarter," said Albrecht in the company's earnings release. "We achieved a new all-time subscriber high at Starz with nearly 22 million subscribers."

He added: "With The White Queen debuting this month and drawing strong buzz domestically and abroad, we are well positioned to continue momentum with our original programming heading into 2014 where five series are now scheduled to air on our flagship network."

Helping quarterly results were "certain contractual terms under affiliation agreements with two distributors [that] resulted in a one-time recognition of $18.6 million of previously deferred revenue," Starz said. And revenue at Starz Distribution increased as a result of an increase in the number and performance of titles distributed for The Weinstein Company. Lower revenue at Starz Animation partially offset these increases due to fewer projects in production at the company's Film Roman studio.

Morgan Stanley analyst Benjamin Swinburne, who has an "equal weight" rating on Starz's stock, lauded the "strong revenue beat at [Starz] Distribution," but said "low margins limit impact to the bottom line."

ISI Media analyst Vijay Jayant wrote: "Starz's second-quarter results beat our estimates due to $19 million of one-time deferred revenue recognition related to two affiliate contracts, and to about $100 million more revenue than expected from distributing more titles from The Weinstein Company." He added: "The core Starz Networks business remains stable, with original programming supporting another tick up in subscribers."

He reiterated his "neutral" rating on the stock, but increased his price target by $2 to $24.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai