Liberty Media Reports Better-Than-Expected Starz Results

Subscriber growth provides an upside surprise and "Spartacus" DVD sales do well, but the company is exploring new sales options for "Simpsons" animation studio Film Roman after a planned deal with an investor group failed.

NEW YORK - John Malone's Liberty Media on Monday reported improved fourth-quarter financials for Starz, which posted better-than-expected results amid subscriber gains that provided an upside surprise and solid DVD business for original series Spartacus: Blood and Sand. Home shopping channel QVC also posted slightly better results.

Chris Albrecht, Starz president and CEO, during a conference call said Starz original Boss, a political drama set in Chicago and featuring Kelsey Grammer, will debut in the fourth quarter.

Meanwhile, the planned sale of animation firm Film Roman, the studio behind The Simpsons, to an investor group led by former studio president Scott Greenberg did not close as planned, and Starz will look at alternative bids for Film Roman, Albrecht said, promising an update during the next quarterly earnings call. He didn't detail what caused the planned sale to fail. The company is expected to look at both previous and potential new bidders for Film Roman. Sources said a separate sales process for Starz's Toronto animation studio is also progressing.

However, Starz and Liberty executives didn't provide much new color about the possible future of Starz's streaming content relationship with Netflix, which expires early next year. Albrecht said the two parties remain in constant contact and emphasized that Starz is "seeking agreements [with online distributors] that specifically price and package our content in ways on par with that of our traditional distributors."

At Liberty Starz Group, fourth-quarter revenue rose 33 percent to $405 million. Adjusted operating income before depreciation and amortization at Liberty Starz jumped 43 percent to $106 million, and operating profit increased 27 percent to $62 million.

The better results were driven in part  by the addition of the Starz Media business, which was previously part of the firm's Liberty Capital tracking stock. But even adjusting for that, subscriber gains, higher subscription rates and ancillary revenue from the company's original programming, particularly DVD sales of the first season of Spartacus: Blood and Sand, boosted results. These benefits were partially offset by higher programming expenses for original content.

On a conference call, management said Spartacus sold better early on since hitting the DVD market in September than most series in recent years, except for Glee and True Blood.

Starz's fourth-quarter subscription units increased 8 percent, while Encore units rose 7 percent over the year-ago period to end the year at record levels and driving the pay TV service to record revenue.

Lazard Capital Markets analyst Barton Crockett said the Starz results were better than expected. "Starz exited with 18.2 million subscribers, up 800,000 quarter-over-quarter, versus our 17.5 million, up 100,000 estimate," he said in a report. "Encore subs rose 800,000 to 32.8 million, versus our up 100,000 estimate to 32.1 million."

Collins Stewart analyst Thomas Eagan even argued that this "represents surprisingly strong subscriber growth and refutes much of the concern that over-the-top [video services] would cannibalize pay TV subscriber growth."

Asked why subscriber growth was so strong, Albrecht pointed to his team's original programming efforts, the structure of certain contracts and a more efficient marketing of Starz in partnership with TV distribution partners. Management said it was too early to tell whether first-quarter trends would continue the fourth-quarter subscriber momentum.

Liberty president and CEO Greg Maffei also touted the performance. "Starz results exceeded revenue and met adjusted OIBDA guidance and we are thrilled that our first movie as part of our home video distribution agreement with The Weinstein Company, The King's Speech, won best picture last night at the Oscars," he said.

"We are excited for 2011, our first year with a full slate of original programming," Albrecht said. "The Spartacus: Gods of the Arena prequel showed the continued vitality of the franchise, with even stronger viewership than Spartacus: Blood and Sand achieved last year."

Albrecht also reiterated on Monday that Starz is continuing to look at alternative financing models for its original content plans, which call for 50-60 hours of original content a year, and is in talks with possible partners, but it could be months until any agreement is reached.

Asked about a potential Netflix streaming deal renewal, Albrecht and Maffei said the company is continuing to look at options with various online video service firms, but looking for deals that value Starz's content fairly without upsetting relationships with existing cable and satellite TV distributors. Albrecht called the Netflix partnership "important," but "complex."

Asked what the strong fourth-quarter pay TV subscriber growth says about Netflix, Maffei said "our belief is that the vast majority [of Starz and Netflix subscribers] are not in competition."

At the Liberty Interactive Group, QVC, Liberty's biggest business, saw revenue rise 4 percent to $2.5 billion, as operating profit edged up 1 percent. However, some analysts said they had expected slightly higher financials for the unit.