Netflix Effect? Starz Fails to Find Buyer

Content Is King, but Not at Just Any Price

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Starz, the pay-TV channel with more than 50 million subscribers, is considering alternatives to a sale after reaching out to potential bidders who passed on making an offer, according to people familiar with the matter.

CBS Corp., Lions Gate Entertainment, AMC Networks and 21st Century Fox were among the companies that considered buying Starz and didn't make bids because they thought it was overvalued, said the people, who asked not to be named because they weren't authorized to speak publicly. Offers for the network, controlled by billionaire John Malone, were due last month, the people said.

Starz, which has an enterprise value of about $4.5 billion, is now considering investments and partnerships with U.S.-based or European-based media companies in lieu of selling itself, although nothing will be determined this year, one of the people said. Any deal would need to have beneficial tax implications for Mr. Malone, the person said. Mr. Malone wants to maintain control of the company, another person said.

Netflix effect
Potential buyers considered Starz's current valuation too high because of uncertainty around the company's future programming, two of the people said. Netflix acquired exclusive U.S. rights to Walt Disney Co. movies beginning in 2016 -- films that currently air first on Starz as soon as seven months after being in theaters.

Without Disney films and amid potential consolidation among pay-TV providers, buyers feared declining affiliate fee revenue for Starz, the people said. Starz will earn about $1.90 per subscriber per month from pay-TV providers in 2015, according to research firm SNL Kagan, unchanged from this year.

Starz, which owns the Starz and Encore premium channels, has about 56 million subscribers. Encore customers have declined for five consecutive quarters, to 33.7 million as of Sept. 30 from 35.1 million.

Starz hired LionTree Advisors earlier this year to seek potential buyers, people with knowledge of the matter said in September.

Representatives for Starz, CBS, Lions Gate and AMC and Fox declined to comment.

Malone's Liberty Media Corp. spun off Starz in January 2013. Malone continues to hold a 46% voting stake, according to an April regulatory filing.

Liberty Media Chief Executive Officer Greg Maffei, who serves as chairman of Starz, said in September 2012 the network would be more valuable combined with a media company that operates other cable channels. More than two years later, no deal has been struck.

Starz offers a mix of films and original programming. Its original shows include "Outlander," a drama based on a series of novels by Diana Gabaldon, and "The Chair," a documentary series about a competition between directors attempting to make their first feature film.

~ Bloomberg News ~

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