Mixed Q4 for Starz

Revenue Declines 2% But Subs Up in the Period
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The decision not to renew its Netflix distribution deal dinged revenue growth at Starz in the fourth quarter, but subscribers to its flagship premium channel rose by 400,000 to 21.2 million.

Starz reported revenue of $422.2 million in the quarter, down 2% from the prior year due mainly to fewer theatrical releases from The Weinstein Co. and its decision not to renew its Netflix deal, which expired last February. Adjusted operating income before depreciation and amortization increased 8% in the period to $101 million, fueled mainly by fewer first run films, better utilization of its second run movies from Walt Disney Co. and Sony Pictures, and decreased marketing costs for original shows.

On a conference call with analysts, CEO Chris Albrecht said Starz plans to fuel its future growth through more original programming, airing about 36 hours of original shows in 2013, rising to 50 hours in the next couple of years.

“We’re clearly looking to increase our investment in original programming in a prudent manner,” Albrecht told analysts on the call. “We have to ramp up to be in the place we want to be.”

Originals have become increasingly important to the premium channel, which after backing out of the bidding for studio output from the Walt Disney Co. in December, counts Sony Pictures as its main source of movies. Albrecht said Starz decided to back out of the Dinsey bildding -- its output deal expires in 2016 -- for a simple reason: the price was too high.

“We were in active negotiations for an extension," Albrecht said. "There was a bidder in the process that significantly with a capital ‘S’ increased the price that was being offered. We looked at the likely supply of those movies, our long term goals for growth, [and] had made a decision that original programming was clearly the way to go. The premium we would have to pay was counter to what our growth strategy was.”

Netflix paid a reported $350 million for the Disney output, more than the $200 million Starz is estimated to have paid.