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PREMIUM DEAL

Lionsgate’s $4.4 billion acquisition of Starz could make it a real competitor to HBO and Showtime

AP/Richard Shotwell/Invision
More content could prop up Starz.
By Ashley Rodriguez
Published Last updated This article is more than 2 years old.

As a cable network with little original content, Starz, a competitor to HBO and Showtime, trailed its rivals for much of its 25-year existence. But under former HBO boss Chris Albrecht, who joined Starz in 2010 and recently renewed his contract, the network expanded into original programming with a focus on audiences seen as being “underserved” by premium channels, like African-Americans and women. 

Scripted shows targeting these groups, like the time-travel fantasy Outlander, which has a strong female lead, and hip-hop drama Power, have helped boost the network’s subscribers and are among its most-popular shows.

In 2014, Starz leap-frogged Showtime to become the second-largest premium US cable network in terms of cable subscribers. (In 2016, they’ve been running neck and neck.) And now it’s getting access to deeper pockets that could make the network even more of a player in the premium-TV space.

Lionsgate is buying Starz in a $4.4 billion cash-and-stock deal, paying nearly a 16% premium to Starz’s June 29 closing share price. The price tag is ”ample,” but comes with opportunities for both companies, said Tuna Amobi, senior media analyst at S&P Global Market Intelligence. Starz will have “a very formidable pipeline to feed their content,” Amobi said, while the studio company gains an outlet to distribute its portfolio of TV shows and films.

Lionsgate also can take advantage of Starz’s inroads into the growing streaming-video space. Earlier this year, the network began offering an $8.99-a-month standalone subscription that’s cheaper than both HBO and Showtime.

The market for original content has gotten markedly more competitive in recent years. Online-video services like Netflix and Hulu have steady streams of content, and networks like HBO and Showtime are stepping up their own production to compete. Starz’s new studio backing could give it better access to talent so it can create more originals, and allow them to develop its content over longer periods of time.

Before, ”Starz might have been a distant third or even fifth” choice for those pitching new shows, said Greg Portell, partner in the communications, media, and technology group at A.T. Kearney. “Now they’re almost guaranteed a seat at the table,” when it comes to content and distribution.

Shares of both Starz and Lionsgate soared after the markets closed Wednesday on news that the companies were nearing a deal. Lionsgate opened at $22.91 on Thursday, 9% above the prior day’s close, according to FactSet. And Starz shares rose nearly 13% to $31.85.

To be sure, Starz still has a long-road ahead of it if it wants to take on premium-TV juggernaut HBO, which has an estimated 32 million US cable subscribers, versus Starz’s 24.0 million and Showtime’s 23.8 million, as estimated by SNL Kagan. (A spokeswoman for Showtime said those numbers don’t include streaming figures, which she said would put Showtime’s subscriber base ahead of Starz’s. She declined to provide the numbers because they are not public.)

When it comes to brand recognition and critically acclaimed content, “Starz is certainly not in the same level as HBO or Showtime,” Amobi said.

But the Lionsgate acquisition is a testament to how far the network has come, and could still go.

Update (Jul. 1 at 6pm EST)This story was updated to include more recent subscriber figures for Showtime as well as a comment from a company spokesperson.

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