Analyst: Comcast-NBCU Should Buy Starz to Hurt Netflix, Compete With HBO

BTIG’s Richard Greenfield suggests the purchase on the day the big entertainment deal is set to close and a day after the unveiling of the new NBC Universal logo.

NEW YORK – While most Wall Street people expect Comcast to stay away from major deals for a while after it closes its acquisition of a 51 percent stake in NBC Universal Friday, BTIG analyst Richard Greenfield on Friday suggested it should buy Starz from Liberty Media now to hurt Netflix and compete with HBO.

“While we felt a Comcast acquisition of Starz was impossible during the Comcast/NBC Universal approval process, with the transaction set to close today, we believe Comcast and NBC Universal can now begin to think about their next strategic moves,” the always-outspoken Greenfield said in a blog post. “While Comcast and NBC may not have the appetite to make an acquisition so soon after closing their transaction, time is of the essence as Starz is currently negotiating [a new streaming deal] with Netflix. Pay TV is a missing piece within the Comcast NBC “empire” and with HBO worth over $15 billion, there is real potential to build Starz’s asset value exponentially over the five years if owned by the “right” company.”

Liberty Starz’s market value is “only” $3.5 billion, so there should be a tax-efficient way for Comcast to “swallow” Starz and contribute it to NBC Universal and in the process raise its stake in the entertainment firm further, argued Greenfield who previously suggested that Netflix acquire Starz to get its hands on its content long-term.

The analyst cited several benefits, particularly a chance to compete with HBO and limit further upside for fast-growing Netflix, which is now the second-largest U.S. media subscription business.

Greenfield pointed out that Universal Studios’ output agreement with HBO expires in 2014/2015. “Why license content to HBO? Keep it for yourself,” he said in explaining one benefit of owning Starz. “Comcast could create more value for itself by shifting that content to Starz and dropping either Sony or Disney content after current [Starz] output deals expire (goal would likely be to retain Disney, given the importance of family content).”

Comcast-NBC Universal could also help accelerate original programming production, which Starz CEO Chris Albrecht has been focusing on.

Plus, Comcast could “weaken Netflix by refusing to sell digital rights to Starz content,” which would take 30 percent-40 percent of the fresher movies currently on Netflix’s streaming service off it, Greenfield argued.

“While we doubt that consumers are “cutting the cord” in meaningful numbers (subscribing to Netflix in lieu of multichannel television), given that Netflix now has over 20 million subscribers and there are only so many hours in a given day, it is hard not to be concerned that Netflix usage will begin to eat into existing, core media viewership levels.”  In turn Netflix losing what it describes (within its fourth-quarter 2010 press release) as one of its most important content relationships is hard to fathom,” Greenfield said. “Comcast and NBC could also create an effective multi-platform competitor to Netflix.”