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Summary:

America’s No. 3 pay network faces a tough future alone, with studio deals that will require renewing, expensive original series production needs, and a challenging pay TV market that necessitates leverage in order to get carried. But Starz could be a jewel for the right buyer.

Starz-Channel-Logo

With Liberty Media’s announcement Wednesday that it’s spinning off Starz into a separately traded public company, the speculation is on as to who might buy America’s No. 3 pay cable service.

As a standalone premium network with licensing agreements in place to run Disney and Sony theatrical films, Starz could present an attractive acquisition target for traditional media conglomerates and large digital media companies alike.

Also read: Why HBO is once again TV’s most relevant network

Meanwhile, operating on its own might be untenable over the long term.

Starz closed the second quarter with about 20.7 million subscribers, up 9 percent. Its sibling Encore movie channels brand ended the quarter with 34.2 million customers, up 4 percent. But finding a way to get more subscribers on pay TV services at a time when these operators are looking for content they can do without will be challenging. And Starz’s life blood — content — might be tough to secure on its own, too.

Starz’s movie output deals with Disney and Sony both expire over the next four years. And given the recent increase in the number of bidders for films in the pay cable window — Netflix and rival premium channel Epix are among the new entries — Starz will be challenged to renew those licensing agreements, at least at their current level.

Also read: Starz to supply movies and series to DirecTV Everywhere

Starz also faces the expensive challenge of having to develop attention-grabbing original series to keep up in the premium subscription video market, as HBO and Showtime have done, and Netflix is trying to do.

So far, efforts including Spartacus, Boss and Magic City have not become the kind of subscriber-drawing assets on par with, say, HBO’s Game of Thrones.

“Starz simply cannot fund the level of original programming it would like to compete with HBO and Showtime, not to mention the ramping original spend of new entrants like Netflix ,” Richard Greenfield, an analyst for BTIG trading, said in his blog.

Greenfield went on to list nine potential buyers for Starz. Here are the five possibilities we think are most intriguing:

>> Comcast/NBCUniversal – Having a premium cable network inhouse might be seen as a better alternative to bolstering rival Time Warner Inc.’s market-leading HBO service with Universal Pictures output. (Universal’s deal with HBO expires in 2015.) Subscription-based businesses would diversify NBCU’s substantial number of ad-supported broadcast and cable operations. And as Greenfield also notes, HBO provides Time Warner with an asset valued at around $15 billion to $20 billion, proving the value of a successful premium channel.

>> News Corp./Fox — News Corp.’s rationale, on a basic level, would be similar to that of Comcast, with Twentieth Century Fox movies also licensed to HBO.

>> Disney — As Greenfield notes, “Buying Starz would enable Disney to convert Starz to a Disney branded pay TV outlet and create more robust original programming.”

>> Netflix — Given Netflix’s stated desire to keep its content acquisition budget proportional to revenue growth, would it make sense to pay hundreds of millions of dollars for what amounts to studio contracts that will run out around 2015-16? And as Greenfield noted, due to digital contraints in the Sony/Starz agreement, it wouldn’t be able to stream Sony films during the remainder of the existing contract.

>> Google  — Of course, this would be a relatively inexpensive purchase to Google. But video-wise, the company seems to be moving more to an ad-supported model.

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  1. Edmund Singleton Thursday, August 9, 2012

    The first thing Sony/Starz should do to make its product wanting, kill its on-screen logo…

  2. I would like to see Time Warner acquire it.

    1. May be a possibility. Starz has the Disney, Sony exclusive rights in USA, but overseas is HBO. And it’s a good chance to get them for USA market too.

  3. I do not think that NBCUniversal will but Starz for two reasons. First, NBCUniversal has a partnership with Time Warner regarding Harry Potter license and they do not want to risk it. Second, Comcast is raising cash to buy the 49% that GE own of NBCUniversal.

  4. My bet is on Google. Google has the technology, infrastructure, authentication model, Google Play, Google TV and most importantly the CA$H!… but what it does not have is content… buying Starz would enable Google to flow content through their system and build it from there…

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