Starz could benefit from skipping Disney deal: analysts
(Reuters) - Passing on a pricy Disney distribution deal could help premium movie channel Starz become a more attractive acquisition target for media companies when Liberty Media spins it off in late December or January, analysts say.
Netflix said on Tuesday it signed a deal with Disney that gives it exclusive rights to stream Disney movies beginning in 2016, a pact analysts estimated to be worth more than $350 million.
Starz currently has an agreement with Disney for the rights to stream movies 7 to 9 months after they come out in theaters. That deal expires in 2016.
Shares in Starz' owner, Liberty Media, fell about 5 percent on Tuesday, on concerns it will have a programming shortage. On Wednesday, the shares were up 98 cents, by 0.92 percent at $106.51.
Liberty announced in August that Starz, which runs eponymous movie and TV channels as well as Encore-branded movie channels, will become a separate listed company with about $1.5 billion of debt. The spinoff is expected in late December or early January, according to Macquarie analyst Amy Yong.
"By not entering into another partnership, we believe this increases Starz' flexibility in the event of M&A," she said in a research note.
Starz ended the third quarter with 20.8 million Starz subscribers and 34.3 Encore subscribers.
Starz becomes more attractive to a potential buyers such as Comcast and News Corp, neither of which has a premium movie cable channel, Yong said. She added that these media companies could potentially negotiate better movie deals for Starz or have their own movies to feature on Starz.
The Wall Street Journal, citing an unidentified source, reported on Wednesday that Starz will begin discussions with potential buyers once it is spun off in early January.
Liberty did not respond immediately to a request for comment on a Starz sale.
In September, Liberty Chief Executive Greg Maffei said the company was "a long way down the road from somebody approaching us" to buy Starz. In October, Liberty Chairman John Malone said that once it is spun out, Starz could have synergies with media companies and said that "everybody could use a big brother."
ISI analyst Vijay Jayant said in a research note on Tuesday that Malone's "big brother" comments imply that a potential sale may "be sooner rather than later." He said skipping a new deal with Disney could have saved Starz up to $400 million.
To be sure, Starz could face a programming dearth starting in 2016 when it does not have Disney content, which makes up half of its schedule, according to Janney analyst Tony Wible.
"The deal leaves Starz with very few options," he said.
Starz has been airing original programming such as "Spartacus," a drama set in ancient Rome, and mob drama "Magic City" set in Miami in 1959. Wible said these original shows will not be able to make up for the loss of Disney movies, which could "impact the spin-off value" of Starz.
(Reporting by Liana B. Baker; Editing by Dan Grebler)