The Next Big Move for Paramount+ with Showtime? Maybe Starz

2023-02-15

Remember the end of summer 2022, when Lionsgate was absolutely, undoubtedly going to sell Starz? Lionsgate CEO Jon Feltheimer declared that a Starz sale would close by the end of March 2023, but there has been no visible interest in the streaming home of “P-Valley” and “Gaslit” since.

So, change of plans: Lionsgate the holding company has pivoted to separate its businesses and sell… Lionsgate the studio, producer of franchises like “John Wick” and “Hunger Games” and TV shows like “Acapulco” and “Ghosts.” And Starz is still movable (more on that below).

“Our plan to separate Lionsgate and Starz by the end of September remains on track,” Feltheimer said on last week’s earnings call. “Separation will give our two core businesses the opportunity to pursue strategic and financial paths that make sense for each of them, and unlock greater value by operating as pure-play entities. We are exploring a number of financial strategies to leave both companies with strong balance sheets at the time of separation.”

A recent analyst’s report shows the financial community agrees: Lionsgate contains more value in its parts.

The studio’s library drives most of the holding company’s enterprise value (market cap, debt, and cash). Lionsgate currently assesses it at $4.1 billion; analysts at Wells Fargo believe it should be more like $4.5 billion. In fact, they believe that the studio alone should be valued at $3.7 billion.

“It’s a gold rush for content,” Wells Fargo equity analysts wrote February 14, and Lionsgate “can be a supplier of pickaxes.” The miners in the Wells Fargo analogy, as you may have guessed, are streamers.

That poetic license has recent history to back it up. Less than a year ago, Amazon paid $8.45 billion for MGM. Lionsgate may be no MGM, but banks are ambitious real-estate agents and with that lone (high) comp staring them in the face, they will use it.

“P-Valley” on Starz

Mark Hill/Starz

No one seems eager to unearth Starz. Wells Fargo assesses its target enterprise value at $864 million; last spring, back when profit still took a back seat to subscriber value, the same analysts at the same bank valued Starz at twice as much.

Starz’s lack of an “ability to compete” has been “holding [Lionsgate] back,” Wells Fargo wrote on Valentine’s Day. But in the spirit of the holiday, there is a lid for every pot. The analysts believe Starz would be “a particularly good fit” for Paramount Global.

The home to “Outlander” and the “Power” franchise plays well with women and Black viewers — just like several of Paramount’s cable channels. It could be a complementary premium addition to the rebranded Paramount+ with Showtime, the bank pointed out. “Billions: BMF,” anyone?

Paramount ended the fall quarter with 67 million global streaming subscribers; Paramount+ made up 46 million of those. The company, which will report updated numbers through the end of 2022 on Thursday, no longer breaks out Showtime subs.

Last week, Lionsgate said Starz ended calendar 2022 (as opposed to fiscal) with 35.1 million subscribers; nearly 25 million of those from streaming. StarzPlay Arabia chipped in an additional 2.1 million subs.

A spokesperson for Paramount Global declined to comment on this story. A source close to the company told us Starz is not on its M&A radar.

“The Expendables 3”

Lionsgate, meanwhile, has been “quietly” preparing to separate Starz and its studio — by separating employees from their jobs.

“We have quietly reduced our workforce by approximately 150 full time employees, or approximately 10 percent of our workforce,” Lionsgate CFO Jimmy Barge said on the company’s conference call last week.

Earnings-wise, Lionsgate had a strong Q3, smashing Wall Street expectations and posting revenue of $1 billion; the company reported earnings of 26 cents per share. Part of the surge came from licensing Lionsgate’s film and TV library, specifically “Schitt’s Creek,” as well as older films and shows to AVOD streamers.

For its part, Starz lost some subscribers.

Lionsgate’s studio should be poised for a big year, with the upcoming releases of “John Wick Chapter 4,” a new “Hunger Games” prequel, “Are You There God? It’s Me, Margaret,” and an “Expendables” film all on the horizon. (“The biggest theatrical slate it has had in years,” bullish RBC analysts raved in their own post-earnings memo.)

Yeah, that’s the one we’d buy, too.

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