With Lionsgate Studios and Starz set to complete their separation by mid-January, the CEO of the latter made the case for why investors should buy a new Nasdaq-listed STRZ stock, calling it “a misunderstood asset.”
“You’ve got a very good, investable business,” he told a UBS media conference, “one that has “actually made the transition from linear to digital faster than any other linear network and more successfully.”
Starz’ $1.4 billion in revenue is mostly digital. Its position with its core demos of women and African American viewers is quite strong. As a standalone, it will grow by acquiring similarly positioned networks that take advertising, which Starz doesn’t.
“If you look at the disruption going on in the business today, there are a lot of linear networks or ad-supported networks that serve the demos that we serve today that are part of larger companies, that aren’t getting the focus that they deserve … that we could provide them.
“I think there’s an opportunity once we separate, once we have our own balance sheet and a currency, to go out and acquire some of those linear assets … to expand the revenue base away from SVOD to having an AVOD that focuses in demos that we have through a little bit of M&A.”
Wall Street and industry players haven’t been particularly sanguine about a standalone Starz, generally feeling it’s too small alone and more likely a seller than a buyer. Hirsch says they don’t know it well enough since executives have yet not been out telling its story.
It has 20 million subscribers with room to grow in a potential audience of 80 to 90 million. It is complementary, not competing with broad-based streamers. It is looking to bundle and has news on that coming soon. It’s working with Walmart’s Vizio platform, YouTube, Hulu + Live TV. Roku is a big opportunity. Starz keeps its subscription price below the big streamers but still has room to raise prices when they do “as long as we keep that gap.”
Mainly, Hirsch said, its content resonates with key demos. “I think we’ve done a really good job of serving the African American and female audience” led by the Power franchise and Outlander, which has a prequel coming out next summer.
Programming strategy is eight to ten originals, “four of them for each of the demos we have today. You line them up so you can extend lifeline value from a 10-week show to 40 weeks by lining up those shows. Ultimately, that should keep churn down and not have you [going] back to the marketplace to try to acquire … So we put on a show that works and we’ll put three more behind that and then continue to layer up. We stay focused on our demos and we just layer up into that.”
Original content is supplemented with a Lionsgate pay-one window, a Universal pay-two window and library content from everywhere else. “And so there’s a a cadence of content that’s always on, that’s driving engagement. When our big originals come off … then we package movies together” to drive engagement.
He’s spoken before and did today about running Starz’ content portfolio “like an assembly line,” moving to spinoffs when later seasons get too expensive. “You know what the cost is on season one, two, three, and four, and what that arc looks like, and you actually have a plan in development when you have something that comes to season four [depending on] cost … something that you can pop in to replace it.” Every hit show “has two or three shows in development that are mapped to it, we watch the cost and the viewership. And if viewership doesn’t grow at the same amount of the cost, then we have something that we can pop on.”
“What allows us to manufacture hits, I think, better than most is that we’re only focusing on these two demos. We know what works. The Power franchise for is a great example … We spun off three different shows out of that” led by popular characters. “Those were season-one shows with season-one economics. They had cast from the original, until we knew that we could pull the fan base over, and then we strung them together so that we could move the fan base for one show to the next to the next.”
DMF, was a non-Power show, but “Power adjacent’. Another 50 Cent show had the same feeling and propensity of those shows … Season One was probably our cheapest season in terms of cost, but it actually scaled ninety percent of the audience of our biggest, most expensive show.”
Curtis ’50 Cent’ Jackson co-created Power with Courtney Kemp.
Hirsch said the saving from an early to late season is anywhere from 20% to 70%.
That said, “the shows have to work for the audience. And if we ran the business just on cost, probably people wouldn’t watch the shows. And so it’s ‘what’s the story’ first”
Projects in development include British boxing drama Fightland with 50 Cent, that “has the same feel of the Power universe … We probably will take some characters from the original Power and put them in it so that we know we can bring the fan base over.”
Lionsgate is in the final stages of SEC approval for its split, having filed formal documents and waiting for any last queries from the commission. Then there’s a 30-day period before shareholders meet to vote on the separation, which Hirsch said will likely be formalized in mid-January.
