“It’s not a divorce, it’s more than a separation,” says one analyst of the possibility that the studio’s assets could be closed to Starz instead.
It’s spinning a lot, but analysts who spoke to TheWrap think Lionsgate is scrambling to avoid a “fire sale” in a down financial market. The new approach allows Wall Street to value both Studio and Starz on separate terms, and better position the company to sell a minority stake in Studio and still maintain some much-needed control.
“It is not divorce, more than separation. It is ensuring that the market is able to value that material separately from the means of production and distribution of that and other material. Content remains king.” Ian Greenblatt, managing director of technology/media/telecommunications intelligence at J.D. Power, told TheWrap. “Being one of the few independent studios, and with consolidation continuing, the value of a library like Lionsgate, more than 17,000 titles, that’s a lot. Attractive.”
Lionsgate acquired Starz five years ago for $4.4 billion, and while the service has managed to grow subscribers steadily, it now grows to 26.3 million streaming users and 37.3 million global subscribers (which includes streaming, linear TV and Starzplay Billion). is reaching, this service is nowhere near. The scale or reach of your biggest rivals. Worse, the acquisition has left the company nearly $2 billion in debt.
“We believe Starz is a mature acquisition candidate,” said Mark Boedman, head of media and entertainment at NYC-based investment bank Solomon Partners. “Whatever happens, we think that isolating these businesses is the right way to go, so from a valuation perspective, it will be easier to value them and maximize their valuations.”
Even as Lionsgate points to plans to spin off the studio, an industry source familiar with the situation said the company is still in productive discussions on both sides of the business with several strategic partners.
A Lionsgate representative did not comment for this article.
Greenblatt points to a recent template for Lionsgate’s approach: AT&T’s 2021 sale of a minority stake in DirecTV, which allowed the telecom giant to wind down the satellite TV unit and create value the company didn’t already have. . For Lionsgate, a similar move would not only generate interest in the public market and deliver debt, but also provide an appraisal for its content and studio production operations. What’s more, if the company could only retain control of the studio and library by selling a minority stake, that ensured a pipeline of content for Starz without having to sell against itself.
“If you can value it separately while still maintaining control of it, it’s the grill,” Greenblatt said.
It’s not sad that Lionsgate is coming off an impressive year at its TV unit, with 14 new shows that have been renewed like CBS’s “Ghosts” and Fox’s “Welcome to Fletch.” And the studio certainly isn’t hungry for IP, with new projects based on established franchises coming next year, including “John Wick: Chapter 4” and its own Starz prequel series “The Continental,” “The Hunger Games” prequel “A” Ballad of Songbirds and Snakes, the fourth “Expendables” film, a “Borderlands” film based on the video game franchise, a “Dirty Dancing” sequel, and the show’s “Power” universe on Starz.
“It should be a platform just like Netflix and HBO and Paramount+. Lionsgate has a library to do this. They just need to create more original content,” said a person familiar with Lionsgate’s operations. “If they continue to stay on track and grow that customer base, it’s not insignificant, and especially if they can expand internationally, they can really increase their number of customers.” ”
Despite steady growth for Starz, it lags well behind other streamers in the better-funded group — and efforts have been made to overcome it. As a result, Lionsgate execution may simply be “acknowledging the reality” that Starz may not have many buyers on “what leadership sees as acceptable value,” according to analyst Steve Birenberg, principal, Northlake Capital Management.
Because Lionsgate’s studio assets are still of incredible value, Birenfeld suggested that the calculus may have turned to top brass in the wake of MGM’s recent sale to Amazon for $8.5 billion. After all, the company still has the largest library of filmed material on the market.
But many on Wall Street are skeptical that Lionsgate’s leadership will actually pull the trigger on a meaningful sale, noting several relocation target dates and modest growth in earnings.
“They are not willing sellers. Management has an exaggerated opinion about the value they can create in the company themselves. So they have neglected to do that,” Birenberg said. “The advance investment for their growth plan, Investment in more production of movies and TV and more new programming in Starz is needed. What they think is that they are sacrificing near-term profits to build a large company long-term. But they have not consistently achieved their financial goals. So there is little confidence on the part of Wall Street that they will ever do so or realize the value in a well-structured M&A transaction. ,
Greenblatt and Birenberg also expressed uncertainty about what buyers might emerge for Lionsgate, particularly for only a minority stake. Analysts said potential buyers could include private equity firm Apollo or an international company like Canal Plus. Meanwhile, big companies like Apple, Amazon and Netflix may be less interested in acquiring production capabilities or the streaming service they already have.
Despite Lionsgate’s desire to retain some control, many believe the company would be best served by selling directly. “What Lionsgate really needs to do is sell 100%,” Birenberg said. “What it really needs to do is just quit trying to be a major player and accept the highest bid for the whole company or just the studio and then move on from there.”
There’s little sign that Lionsgate executives are interested in that course yet — especially since the company has hired Adam Fogelson of STX and CEO John Feltheimer, TV Group Chairman Kevin Beggs and Motion Picture Group’s CEO John Feltheimer. President Joe has extended Drake’s contracts.
That team will be charged with operating “business as usual,” Greenblatt said, in hopes of some sort of sale down the line. “It’s still an attractive asset. They don’t have to do anything stupid,” Greenblatt said. “It’s better to ditch it quickly, and they don’t need to rush it.”
Still, many believe the Lionsgate acquisition is the best shot for the long term. “The strategy for them will be to get the hang of it,” said a person familiar with Lionsgate. “The way to do this successfully is to develop exceptionally original content, grow your customer base, and make sure you have a good international component. You do all three of those things, this business will be in high demand.”
