Starz Readies OTT Launch

Add Starz to the list of premium channels going over-the-top, as the home of original series like Outlander and Da Vinci’s Demons says it could have deals with new distribution partners in the “coming weeks.”

Starz would join Home Box Office, which launched HBO Now in April, and Showtime, which began offering its own OTT streaming product in July.  The news comes as Starz said it shed about 200,000 subscribers in the third quarter (its more widely available Encore channels lost 800,000 subscribers in the same period) mainly due to what it called “merger-related distractions” at some of its distribution partners.

Those subscriber decines helped send Starz stock down 10% ($3.69 per share) to $33.51 each on Friday.

In a conference call with analysts to discuss third quarter results, Starz CEO Chris Albrecht said that the OTT moves are being made to unlock “opportunities to distribute our content beyond the traditional cable bundle, tapping into the unmet demand we are seeing for our content, while at the same time still cultivating our core business with MVPDs.”

He added that in the coming weeks Starz plans to complete deals with “several new distribution partners.” He declined to name them.

Starz has been the source of intense merger speculation itself over the past few years, and has been rumored to be in talks with AMC Networks,21st Century Fox, and Lionsgate but has been unable to secure a deal. The entrance into the OTT arena comes as a bit of a surprise as the channel had earlier tried to positon itself as the “house brand” for its MVPD partners, serving as the exclusive MVPD premium service while its peers pursued digital distribution.    

Albrecht said the OTT service would expand the universe for both Starz and its MVPD partners.

But not everyone was convinced.

In a note to clients, Morgan Stanley media analyst Ben Swinburne wrote that like its larger premium counterparts Home Box Office and Showtime, Starz believes it can take advantage of the 10 million households that don’t subscribe to pay TV. But Swinburne noted that Starz doesn’t have the scale of HBO and Showtime. And the premium channel could face some backlash from distributors.

“Recall that in late 2012, Starz was forced (by our estimates) to accept ~10% rate step-downs from two large MVPDs – we believe in part a backlash from Starz' prior decision to distribute via Netflix in 2009-2011,” Swinburne wrote. “Therefore, while new distribution partners have the potential to drive revenue upside (particularly as new entrants traditionally pay high-end rates) we see significant offsetting downside risk to Starz' traditional revenue streams.”

Albrecht added that the decision to offer an OTT product is in line with Starz’ overall strategy to maximize the value of its content and isn’t merely following HBO and Showtime.

“We've decided that the time to move into that arena is now. We're actively talking with several companies,” Albrecht said.