”This isn’t a divorce, more of a separation,“ one analyst says of the possibility that the studio assets could be spun off rather than Starz
That’s a lot of spinning, but analysts who spoke to feel that Lionsgate is scrambling to avoid a “fire sale”In a down market. Wall Street can now value Starz and the studio separately. This allows the company to better position itself to sell a minor stake in the studio, while still maintaining control.
“This isn’t a divorce, more of a separation. This is making sure that the market is able to separately value the content from the means of that content production, and separately from the distribution of that and other content. Content continues to be king,” Ian Greenblatt, managing director of Technology/Media/Telecom Intelligence at JD Power, told . “Being one of the few independent studios left, and with consolidation continuing, the value of a library like Lionsgate, 17,000-plus titles, it’s very attractive.”
Five years ago, Lionsgate bought Starz for $4.4 billion. While the service has grown steadily in subscribers to reach 26.3 million users and 37.3 millions global subscribers (which includes linear TV and Starzplay Arabia), it is still not as large or as accessible as its largest rivals. Worse, the company has $2 billion of debt from the acquisition.
“We believe Starz is a ripe acquisition candidate,” said Mark Boidman, head of media & entertainment at the NYC-based investment bank Solomon Partners. “Regardless of the form of what’s being spun out, we think that separating these businesses is the right path, so from a valuation perspective, it will be easier to value them and would maximize their valuation.”
A source close to the situation stated that Lionsgate is considering a spin-off of the studio. However, he added that the company was still engaging in productive discussions with strategic partners.
Reps from Lionsgate did not comment on this article.
Greenblatt points to a recent template for Lionsgate’s approach: AT&T’s 2021 sale of a minority stake in DirecTV, which allowed the telecom giant to spin off the satellite TV unit and create value the company didn’t have previously. A similar move by Lionsgate would generate interest in the public markets and help to retire debt. It also provides a valuation for its content production and studio operations. What’s more, if the company can maintain control of the studio and library by only selling a minority stake, that ensures a pipeline of content for Starz without having to sell against themselves.
“If you can separately value it while continuing to maintain control of it, that’s the Grail,” Greenblatt said.
It doesn’t hurt that Lionsgate is coming off an impressive year in its TV unit, notching 14 new shows that have been renewed such as CBS’ “Ghosts” and Fox’s “Welcome to Flatch.”The studio is not in desperate need of IP. New projects are expected to be developed within the next year, based on existing franchises. “John Wick: Chapter 4”Starz prequel series, and its own Starz series “The Continental,” “The Hunger Games”Prequel “A Ballad of Songbirds and Snakes,”The fourth “Expendables”Film, “Borderlands”Film based on the videogame franchise. “Dirty Dancing”The sequel “Power”Starz offers a vast array of shows
“This should be a platform just like Netflix and HBO and Paramount+. Lionsgate has the library to do it. They just need to create more original content,” an individual familiar with Lionsgate’s operations said. “If they continue to stay on track and grow that subscriber base, it’s not insignificant, and especially if they can expand internationally, they can really ramp up their subscriber count.”
Despite the steady growth for Starz, it trails well behind other streamers from better-financed conglomerates — and efforts to spin it off have foundered. Lionsgate executives might be at risk. “accepting reality”Starz may not be in demand. “at what leadership sees as acceptable value,”According to Steve Birenberg, Northlake Capital Management principal.
Because Lionsgate’s studio assets still have incredible value, Birenfeld suggested the calculus for top brass may have changed in the wake of MGM’s recent sale to Amazon for $8.5 billion. The company has perhaps the most extensive library of film content on the market.
Wall Street is still skeptical that Lionsgate will make a sale because of the many shifting targets and small growth in earnings.
“They haven’t been willing sellers. Management has an exaggerated opinion of the value that they can create in the company by themselves. So they’ve neglected doing that,” Birenberg said. “Their growth plan requires upfront investments, more productions of films and TV and investment in more new programming at Starz. They’re sacrificing near-term profits to build what they think is a bigger company long term. But they’ve never consistently hit their financial goals. So there’s little trust on the part of Wall Street that they’ll ever do that or realize value in a well-structured M&A transaction.”
Birenberg and Greenblatt also expressed doubt about the prospects of buyers for Lionsgate. This is especially true for a minor stake. Analysts suggested that potential buyers could include Apollo, a private equity firm, or an international player such as Canal+. In contrast, companies larger than Apple, Amazon, or Netflix may not be interested in acquiring production capabilities, or a streaming service.
Despite Lionsgate’s desire to retain some control, many feel the company would be best served by selling outright. “What Lionsgate really needs to do is sell 100%,” Birenberg said. “What it really needs to do is just give up trying to become a major player and accept the highest bid for either the whole company or for just the studio and then move forward from there.”
There’s little sign that Lionsgate execs are interested in that course just yet — especially since the company just hired STX’s Adam Fogelson and extended the contracts of CEO Jon Feltheimer, TV group chair Kevin Beggs and motion picture group chair Joe Drake.
The team will be charged with operating “business as usual,”Greenblatt stated that he hoped for a sale some day. “It’s still an attractive property. They don’t have to do something stupid,” Greenblatt said. “Better to crush it than rush it, and they don’t need to rush it.”
Many feel that an acquisition is the best option for Lionsgate’s long-term success. “The strategy for them will be to get acquired,”The person familiar with Lionsgate spoke. “The way to successfully do that is develop phenomenal original content, grow your subscriber base and make sure you’ve got a nice international component. You do all those three things, there will be a lot of demand for this business.”