On Thursday, Lionsgate announced that it plans to buy premium cable outlet Starz for $4.4 billion in cash and stock, in a deal that will unite two companies with ties to media mogul John Malone. Lionsgate will pay a premium for Starz, nearly 16 percent over the company’s closing stock price on Wednesday, or $32.70 per share.
Starz, which is one of the chief competitors to premium cable outlets HBO and Showtime, is the network behind the original series Outlander, Black Sails, and Spartacus, as well as the upcoming American Gods. Lionsgate is the studio behind the blockbuster franchise The Hunger Games. The disappointing returns on the final Hunger Games installment, however, as well as a series of box office under-performers like Divergent: Allegiant, Gods of Egypt, and Now You See Me 2, exposed the vulnerability of being reliant on big budget movies and franchises. The Starz deal is expected to mitigate some of that volatility, providing a more stable revenue stream thanks to its 24 million subscribers. As part of the deal, Starz CEO Chris Albrecht, who recently extended his contract through 2020, will join Lionsgate’s executive committee.
Malone owns Liberty Media, from which Starz spun off into a separate entity in 2013. Malone maintained his status as the company’s largest while also joining the board at Lionsgate in 2015. Malone has for some time expressed a desire to consolidate the media companies, while Lionsgate Television – which currently produces the hit Netflix series Orange Is The New Black – has been seeking to grow its television business.
“The combination of Lionsgate and Starz brings significant scale to our portfolio of content and distribution assets and will enable us to compete successfully in today’s rapidly evolving global entertainment marketplace,” said Lionsgate chairman Mark Rachesky. “By bringing together complementary resources, premium quality intellectual property and exceptional management, this strategic transaction positions us extremely well to unlock the underlying value of our content to create substantial lasting value for our shareholders.”
The deal is expected to have mutual benefits for both Lionsgate and Starz, as both companies will now have access to a total of over 16,000 titles in its film and TV library, a bullet point that the network can now use to its advantage when courting new subscribers. The merger also better positions Starz to compete with the network Albrecht helped transform in the late 90s, HBO, still widely regarded as the premium cable network with the highest quality shows and most widely viewed programming.
Game of Thrones, HBO’s Emmy-award winning flagship drama, just closed its sixth season with a record number of viewers, however recent shake-ups in the executive ranks and a series of flops – including the recently cancelled Martin Scorsese produced series Vinyl – have led many to wonder if the premium cabler is hitting a rough patch. It remains to be seen whether newly installed head of programming Casey Bloys can turn things around, but there’s no question that Thursday’s deal gives Starz a significant opportunity as its chief rival struggles to find its footing.
The deal also means that Lionsgate will likely try to sell off its 31% stake in the 4th largest pay cable network, Epix (MGM and still under-siege Viacom own the remainder of the shares), which could trigger further changes in the premium cable space going forward.
While the initial reaction from Wall Street has been positive, the deal doesn’t come without significant risk for both entities. An effective application of the potential benefits will require steadfast leadership from Malone, Albrecht, and of course, Lionsgate CEO Jon Feltheimer, among others. If Lionsgate continues its cool streak at the box office, or if Starz fails to build on the original series viewership earned with Outlander, the ripple effect will now be felt across both companies. But the rewards are potentially even greater, and could help both become more competitive, influential, and profitable within the broader media landscape.
Josh Lyons | Managing Editor