The next big step for Paramount+ with Showtime? Maybe Starz

Remember late summer 2022 when Lionsgate was undoubtedly looking to sell Starz? Lionsgate CEO Jon Feltheimer said the Starz sale would close at the end of March 2023, but since then there has been no interest in the streaming home of “P-Valley” and “Gaslit.”

So, a change of plans: The Lionsgate holding company has decided to spin off its businesses and sell… Lionsgate studio, producer of franchises like “John Wick” and “Hunger Games” as well as “Acapulco” and “Ghosts ” TV shows. And Starz is still portable (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. “The separation gives our two core businesses the opportunity to pursue strategic and financial paths that make sense for each and unlock greater value by operating as pure-play entities. We are looking at a number of financial strategies to ensure that both companies have strong balance sheets at the time of the separation.”

Connected

Connected

A recent analyst report shows that the financial community agrees: Lionsgate has more value.

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

“There’s a gold rush for content,” Wells Fargo stock analysts wrote on Feb. 14, and Lionsgate “could be a pickaxe supplier.” The miners in the Wells Fargo analogy are, as you might have guessed, ribbons.

The recent history of this poetic license supports it. Less than a year ago, Amazon paid $8.45 billion for MGM. Lionsgate may not be MGM, but the banks are ambitious real estate agents, and with the lone (high) comp who faces them, they’ll use it.

Mark Hill/Starz

No one seems eager to explore Starz. Wells Fargo estimates its enterprise value at $864 million; Last spring, when profits paled in comparison to subscriber value, analysts at the same bank valued Starz at double that.

Starz’s lack of “competitiveness” is “holding (Lionsgate) back,” Wells Fargo wrote on Valentine’s Day. But in the spirit of the holiday, every dish has a lid. Analysts believe Starz would be “an especially good fit” for Paramount Global.

The home of the “Outlander” and “Power” franchises plays well with women and black viewers — as do many of Paramount’s cable channels. It can be an additional premium add-on for Paramount+, renamed Showtime, the bank pointed out. “Billions: BMF”, anyone?

Paramount ended the fall quarter with 67 million global streaming subscribers; Paramount+ accounted for 46 million of that. The company, which will announce updated numbers Thursday through the end of 2022, is no longer breaking out Showtime subscriptions.

Last week, Lionsgate said Starz ended the 2022 calendar with 35.1 million subscribers (against budget); nearly 25 million of these are from streaming. StarzPlay Arabia gained another 2.1 million subscribers.

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

©Courtesy of Lions Gate/Everett Collection

Meanwhile, Lionsgate is “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 about 10 percent of our workforce,” Lionsgate CFO Jimmy Barge said on the company’s conference call last week.

In terms of revenue, Lionsgate had a strong third quarter, beating Wall Street expectations with $1 billion in revenue; the company reported earnings of 26 cents per share. Part of the growth came from licensing Lionsgate’s movie and TV library, particularly “Schitt’s Creek,” and older movies and shows to AVOD streamers.

Starz, for its part, lost some subscribers.

Lionsgate is gearing up for a big year with the upcoming “John Wick Chapter 4,” the new “Hunger Games” prequel, “Are You There God? It’s Me, Margaret,” and an “Expendables” movie on the horizon. (“The biggest movie of recent years,” raved RBC analysts in their own post-earnings note.)

Yes, we would buy that too.

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