Starz Quarterly Earnings Miss Estimates, Subs Rise Over Year-Ago Period

Chris Albrecht - PR portrait - 2011

The premium TV company, led by Chris Albrecht, posted higher operating profit and growth in subscribers compared with the the year-ago period.

Starz on Wednesday reported lower second-quarter earnings that fell below Wall Street estimates, but subscriber figures that rose compared with the year-ago period.

The premium TV company, led by CEO Chris Albrecht, reported earnings of $63 million, down 9 percent from $69 million in the year-ago period. Earnings per share reached 59 cents, compared with 62 cents last year. Wall Street had, on average, forecast earnings of $70.2 million, or 66 cents per share.

The company's figures for the latest period included a loss of $2.1 million, compared to a year-ago profit of $11.0 million, "primarily comprised of our share of losses from our investment in Playco Holdings Limited," the firm said. Starz last year had said its second-quarter results were boosted by a $10.7 million one-time payment from Revolution Studios, in which Starz held a 15 percent ownership stake. The payment was "related to the sale of all of its assets." 

Second-quarter operating profit rose, though, from $104.8 million to $110.5 million, and adjusted operating income before depreciation and amortization, a key financial metric for the company, also increased. Quarterly revenue hit $417.7 million, up 2 percent from $410.1 million in the year-ago period.

As of the end of the second quarter, total company subscriptions stood at 56.8 million, compared with 57.5 million as of the end of the first quarter, but up from 55.9 million as of the end of the second quarter of 2014.

The company said it ended June with 23.5 million Starz subscribers, down from 23.7 million as of the first quarter, but up from the second quarter of 2014 when it had recorded 22.0 million Starz-branded subscribers.

The company lost Encore subscribers to end March with a total of 33.3 million, compared with 33.8 million in the first quarter of 2015 and 33.9 million at the end of the second quarter of 2014.

"Consignment subscriptions were negatively impacted at certain distributors by reduced promotional activity," Starz said in a regulatory filing. FBR analyst Barton Crockett argued that AT&T, which recently unveiled a new carriage deal with Starz, was likely part of that equation. "We believe this is a stark illustration of how distributors can pressure premium networks going into a renewal, by holding back promotion of the premium service," he said.

"We had a very successful quarter in terms of original programming and remain on track this year to achieve our goal of 75-80 episodes of new Starz Original series," Albrecht said. "Both the second season of Power and the first season of Outlander delivered strong viewership, as well as industry and fan accolades. Looking ahead, the balance of the 2015 originals slate is strong with Blunt Talk, Survivor's Remorse, Da Vinci's Demons, Ash vs. Evil Dead and Flesh and Bone."

He added: "Our original programming pipeline was also fortified with a great, new addition thanks to our green light of Neil Gaiman's American Gods. We are confident that robust original programming, in combination with our quality movie offerings, will further strengthen our distribution and subscriber relationships."

Morgan Stanley analyst Benjamin Swinburne said in a report: "Though subs were lighter than expected, 7 percent year-over-year sub growth at the flagship network continues to stand out in [the] difficult pay TV landscape, and we continue to believe year-over-year sub growth provides evidence that Starz's original programming strategy has traction with consumers."

He added: "However, since affiliate fee/distribution negotiations are also driven by scale, Starz's small size likely limits the financial gains that it can extract from its original content. Ultimately this underscores how Starz could benefit from industry consolidation."

Twitter: @georgszalai