Cable Operators

Starz Shows There’s Life in Premium Category

3/07/2011 12:01 AM Eastern

Stronger-than-expected subscriber gains
at Starz Entertainment helped drive fourth-quarter results at
Liberty Media, and renewed some analysts’ faith in the return
of the premium pay TV category.

Starz added 800,000 customers in the quarter, its biggest
increase since 2007, and ended the period with 18.2 million
subscribers. Its Encore service also added 800,000 customers
in the period, ending the year with 32.8 million subscribers.

Starz CEO Chris Albrecht said the growth wasn’t due to
any single factor, but a combination of a strong originals lineup
and efforts by its own and its distributors’ sales teams.

“This growth demonstrates what we’ve been talking
about — there is, for Starz, a real opportunity in the existing
premium-television universe,” Albrecht said.

In a research note, Collins Stewart media analyst Tom Eagan
said the surprisingly strong customer growth “refutes
much of the concern that [over-the-top video] would cannibalize
pay TV subscriber growth.”


Pivotal Research Group principal and media and communications
analyst Jeff Wlodarczak was equally impressed, adding
that he now expects both the Starz and Encore channels
to add 1 million new subscribers in 2011.

“This marked the highest subscriber level in the history
of Starz and bolsters our thesis that the primary reason for
the 2009 decline in the business was the weak economy,” Wlodarczak
wrote. “Looking forward, with Albrecht ramping
original content plus renewed focus by multichannel operators,
we expect sub growth to continue.”

The premium category has been under pressure in the
sluggish economy. Even industry stalwart Home Box Office
has experienced some subscriber losses as consumers search
for ways to cut their bills.

Albrecht, who joined Starz in January 2010, has significantly
beefed up the premium channel’s original programming
lineup. In addition to proven hits like Spartacus:
Blood and Sand
and its prequel, Spartacus: Gods of the Arena,
Starz has such originals as Camelot (April), Torchwood:
Miracle Day
(Summer 2011), Chicago political drama Boss
(fourth-quarter 2011) and ’60s-era mobster series Magic City
(2012), in the hopper for future release.

Albrecht said Starz will continue to invest in original
series, with a goal to airing 50 to 60 hours of new original
content each year.

Albrecht seemed keen to smooth over any bad feelings
with distributors who had chafed at the premium channel’s
2008 deal with online movie distributor Netflix,
which bundles access to about 2,500 Starz movie titles
into its $8 monthly unlimited video-streaming subscription
for no additional charge. Cable, satellite and telco distributors
can charge between $11.95 and $14.95 a month
for a Starz multiplex.

With about a year left on the Netflix deal (it expires in the
first quarter of 2012), Albrecht said any renewal would have
to include pricing parity with more traditional distributors.

Liberty also said its plans to spin off the Liberty Starz and
Liberty Capital tracking stocks is moving forward. On a conference
call with analysts to discuss results, Liberty Media
CEO Greg Maffei said a Delaware lawsuit that was holding
up the spin is winding down. He estimated a decision would
be made in about six weeks, in time for an April shareholders
meeting to vote on the spinoffs.


The spins would essentially make a third tracker — Liberty
Interactive — an asset-backed security. Liberty Interactive’s
primary asset, the QVC shopping channel, showed
improvement in the quarter, with revenue up 5% to $2.5
billion and 10% for the year, to $7.8 billion. Domestically,
revenue rose 3% to $1.7 billion in the quarter and 5% to
$5.2 billion for the year. Operating income before depreciation
and amortization declined 1% in the U.S. for the period,
but was up 8% for the year.