Starz Third-Quarter Earnings Rise, Total Subscriptions Drop

Starz CEO Chris Albrecht

The company confirms plans for an international streaming product as its Starz services hit another all-time subscriber high, while Encore subs decline

Premium TV company Starz on Thursday reported improved third-quarter earnings.

It also reported that as of the end of the third quarter, its Starz services had 22.5 million subscription units, the latest all-time high for Starz, compared with 22.0 million as of the end of June and the same 22.0 million as of Sept. 30, 2013. Subscriptions for the firm's Encore services amounted to 33.7 million, compared with 33.9 million as of the end of June and 35.0 million as of the end of Sept. 2013.

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Total subscriptions amounted to 56.2 million as of the end of September, up from 55.9 million as of the end of June, but down from 57.0 million as of the year-ago period. "Subscriptions were negatively impacted at certain distributors by reduced promotional activity and/or programming package changes," the company said.

Morgan Stanley analyst Benjamin Swinburne said the subscriber growth at the Starz service was "a very strong result for a single quarter and an indication that original content is gaining traction, most likely driven by [epic] Outlander."

Starz also confirmed that it plans to launch an online streaming service in select international markets. "As demand for our content increases worldwide, we are providing subscribers multiple options," said CEO Chris Albrecht. He confirmed a new partnership "to offer Starz Play as a direct-to-consumer streaming SVOD service in select international markets and featuring Starz original series."As reported, the service could look at select markets in Asia, the Middle East, Latin America and Africa.

On Thursday's earnings conference call, Albrecht signaled that a launch could come some time next year. Management said that there would be less than a $20 million in investment in this.

Read more Starz's 'Black Sails' Renewed for Third Season

Albrecht was also asked for his take on the upcoming HBO stand-alone online service. "What I heard them say is they want to work with [pay TV] partners and new distributors," he said. "In that strategy, we think we are as well positioned as anybody is." He added: "If HBO makes a decision to go direct-to-consumer, I would think at that point, we might look at what opportunity might lie for us."

He signaled that Starz was interested in working with pay TV firms in marketing alternatives to traditional service bundles to possibly reach households without premium channels and broadband-only homes.

Quarterly earnings at Starz came in at $56.3 million, or 51 cents per share, compared with $52.2 million in the year-ago period. Wall Street had on average projected earnings of $59 million, or 51 cents per share. The firm's results met the latter expectation.

The company also posted adjusted operating income before depreciation and amortization -- another metric of profitability that analysts focus on -- of $109.8 million, compared with $113.6 million in the year-ago period. Revenue of $408.2 million compared with $446.0 million in the year-ago period and the average Wall Street forecast of $436 million.

Revenue at the Starz Networks business increased 2 percent as a result of an $11.7 million increase due to higher effective rates, partially offset by a $4.3 million decrease due to lower average subscriptions, Starz said. The unit's adjusted OIBDA rose 3 percent to $109.9 million. "Revenue increased primarily as a result of rate increases from various distributors," the company said. "Adjusted OIBDA increased due to the increase in revenue and lower programming costs partially offset by higher original series-related advertising costs."

The Starz Distribution unit reported lower financials "as a result of no significant new releases from The Weinstein Company or of any Starz original series," the company said.

Read more Starz Reportedly Meets With 21st Century Fox About Potential Acquisition

"Our business continued to perform nicely in the third quarter as Starz Networks reported solid revenue, earnings growth and we reached a new high in Starz subscriptions of 22.5 million," said Albrecht. "We are pleased with the traction of our original programs. Outlander had a strong debut, viewership for Power finished up with great momentum and grew its viewership throughout the first season, and Survivor's Remorse continues to receive significant critical acclaim."

Added the Starz CEO: "We are very enthusiastic about our 2015 slate of original programming, which is the deepest to date and launches with the second season of Black Sails in January."

Oct. 30, 11:30 a.m. Updated with earnings conference call commentary.

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

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