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It’s official: Lionsgate is holding talks with multiple bidders on a potential spin-off of its Starz premium pay TV and streaming platform from its studio operations.
Lionsgate CEO Jon Feltheimer gave analysts an update on the studio’s plans to create two stand-alone companies so investors can value the Starz and studio assets separately.
“We are engaged in a robust and productive process with our bankers and a number of potential strategic and financial partners. We are targeting an announcement of our plan by the end of the summer and expect a transaction could close as early as our fiscal fourth quarter,” Feltheimer said as he kicked off the analyst call.
The Lionsgate head was hesitant to give analysts too many details on a potential spin-off of Starz as the entertainment industry is impacted by falling share prices on Wall Street. “This is the plan we have now. Our sense now is we’re not selling all of it. But anything can happen, that’s why we’re not giving you more details now,” Feltheimer said.
He added the current stock market slump wasn’t expected to greatly impact the timing of any potential Starz spin-off. “Obviously, anything can change. We’re in an incredibly disruptive environment right now. But based on the conversations we’re having, we think that’s the appropriate time frame,” Feltheimer said on when a potential transaction might be announced and completed.
Lionsgate execs insisted that the studio and Starz were expected to become stand-alone companies as the pay TV platform is to be separated from the studio business. CFO Jimmy Barge told analysts that “under a separate company structure, each company will be focused on their respective core business.”
Stock in Lionsgate rose 43 cents, or just over 4 percent, to $11.00 in after-market trading on news of the potential Starz spin-off. News of Starz spin-off talks came as the studio unveiled its fourth quarter financial results, including its latest Starz subscriber counts as it mulls options for the pay TV brand.
The studio saw its global streaming subscriber base for Starz grow 47 percent year-over-year to 24.5 million, while the worldwide subscriber base for the pay TV brand reached 35.8 million, which includes StarzPlay Arabia.
The continuing rise in digital subscribers at Starz follows Roku, Vivendi’s Canal+ and Apollo Global Management reportedly being among multiple bidders for a minority stake in the Lionsgate-owned cable and streaming service as it eyes growth capital for its global expansion.
Lionsgate has long been expected to explore a sale or spinoff of Starz, which it acquired for $4.4 billion in 2016, which could lead to creating two stand-alone businesses. In November 2021, the board authorized Lionsgate management to consider a “full or partial spin-off” of Starz, among other options, according to a regulatory filing from the time.
Starz is known for shows such as Outlander and the Power franchise. The global streaming subscriber base for Starz and Starzplay Arabia has been growing in a time when other platforms have been concerned about stalling numbers and market leader Netflix recently reported a sudden loss in its customer base.
Investors will be looking to Lionsgate’s fourth quarter results and a late afternoon analyst call to see whether Starz is seeing a slowdown in adding linear TV subscribers amid a domestic recessionary threat, just as it adds to its global Starz additions.
“Our increased content investment at Starz is working. During the year we grew global subscribers by 21 percent and reduced domestic churn by nearly 20 percent. In fact, with big series on the air for both of our core demos, March was our fourth best streaming subscriber growth month ever and subscriber acquisition costs declined significantly,” Feltheimer told analysts.
Starz CEO Jeffrey Hirsch added the pay TV brand had no plans to introduce an ad-supported video-on-demand offer for Starz as the platform focused on a subscription model.
Lionsgate reported a widening net loss of $107.9 million, compared to a year-earlier loss of $41.8 million. The diluted loss per share was 46 cents, against a 17 cents per share for the three months to March 31 last year.
Overall fourth-quarter revenue came to $929.9 million, up from a year-earlier $876.4 million. That fell short of a Wall Street analyst forecast of $961 million in revenue for the most recent fourth quarter.
Media network revenue, which mostly comprises Starz, came to $380.2 million, down 5.2 percent from a year-earlier $401 million, which included revenue from the sold-off Pantaya streaming service. In addition, falling domestic linear revenue was offset by higher domestic streaming revenue and StarzPlay international revenue.
The Motion Picture segment revenue was $288.1 million, down 1.5 percent from a year-ago $292.4 million. And television production revenue rose 75 percent to $370.2 million, against a year-earlier $210.7 million.
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