The effort will “allow us to look at various constructs, whether it’s a strategic [investment] or a spin,” he said in an online appearance at the annual UBS Technology, Media and Telecom conference.
Starz has already stepped up its programming from seven original shows in 2020 to 12 this year, all with a focus on Black and female viewers. “I do believe that having the ability to spend more and more on content to super-serve these two core demos will accelerate the business,” Hirsch said. “It will also help us internationally. … As a stand-alone, there are opportunities to accelerate growth.”
Lionsgate formally revealed it is exploring alternatives for Starz in November, putting the news in an SEC filing along with its most recent quarterly earnings. Hirsch’s comments are the first extensive ones by management since the announcement.
Noting the recent uptick in Lionsgate’s stock price, Hirsch said, “Our board and shareholders are aligned in doing something structural to the business. That’s exciting for everybody at the company because obviously if you look at the stock price and the valuation, we weren’t getting credit for the tremendous work we’re doing at Starz but also what we’re doing on the studio side.”
Lionsgate reported having 18 million streaming subscribers as of September 30, with the total including linear TV at 30 million. The company’s own direct-to-consumer app is now its third-largest distribution hub, Hirsch said. While Starz is a “big buyer of content,” Hirsch said, its strategy is not to compete with the broadest of the broad services like Netflix or Disney+. Instead, the company is shooting for 60 million subscribers by 2025.
The prospect of Starz either as a stand-alone entity or one with a new backer is the latest tantalizing scenario to energize the surging M&A marketplace. Amazon swooped in to buy MGM for $8.45 billion and private equity has fueled a number of investments at lofty valuations as the streaming boom puts a premium on content. Along with deals involving content-focused companies like CoComelon producer Moonbug Entertainment, Reese Witherspoon’s Hello Sunshine and LeBron James’ SpringHill, numerous others are running the numbers.
Lionsgate and CBS Corp. discussed a potential deal for Starz in the range of $5 billion to $5.5 billion in 2019, but those talks were superseded by the effort to merge CBS with Viacom.
Hirsch predicted Starz will adapt well to its new surroundings, whatever they may be. “We’ve been operating with a stand-alone structure since we closed the deal in December of 2017,” he said. “We have a CFO, we have a head of HR, we have a separate marketing group. So, all of the personnel stuff that would have to happen to actually break the company apart is already in place. So I think that’s something pretty easy to do.”
The exec also noted a recent pay-1 movie output deal with Lionsgate and Summit, which replaced one with Sony, and other “intra-company arrangements” that would continue even if Starz leaves the fold. Hirsch said he is “very confident” that the synergies that have been achieved in the four years since Starz came under the Lionsgate roof would accrue to future benefits. Ten of this year’s 12 original series, he noted, are Lionsgate productions.
Because Starz is aiming for more of a middle ground between niche streaming players like AMC Networks and mass media rivals, Hirsch said it has positive relations with Amazon. The major tech hub has battled with WarnerMedia, NBCUniversal over their new streaming entrants. WarnerMedia recently shifted HBO Max away from Amazon Prime, losing millions of subscribers in the process, in order to have better access to consumers via its app as an offering on Amazon Fire TV.
Hirsch said the fact that Starz is ad-free means it will not try to fight tooth and nail to control all streaming data. “It’s a great relationship, both domestically and internationally,” Hirsch said. “We’re their fastest-growing premium service in every country they’re in around the world, including in the U.S. We talk to them almost daily about all aspects of the business. We’ve done a couple of early renewals. And we really are tied-at-the-hip partners.”
The Starz strategy is primarily a wholesale one, replicating in streaming the kind of playbook that existed in pay-TV, with operators taking a large cut of the proceeds. The tradeoff for that is scale, and Hirsch said. A helpful flow of viewership data comes Starz’s way and that enables it to refine the app’s offering and slate of programming. “You won’t see us fighting with the Rokus or the Amazons because we’re not trying to control the consumer to ultimately control the data to control the ad load and be an AVOD service, long-term,” Hirsch said.
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