Image source: Starz.
One month after it announced its plan to merge with Lionsgate (NYSE: LGF), subscription TV specialist Starz (NASDAQ: STRZA) (NASDAQ: STRZB) posted second-quarter results that were marked by lower revenue and profits despite rising subscriber numbers at Starz Networks.
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Here's how the headline results released this week stacked up against the prior-year period:
YOY = year over year. Data source: Starz's financial filings.
What happened this quarter?
The popularity of several hit shows helped the company generate a solid uptick in subscribers for its Starz Networks. The gains were more than offset by weaker results in its distribution business, though. Still, an overall 14% decline in net income marked an improvement over the prior quarter's 22% drop.
Here are a few key highlights of the quarter that just closed:
- Starz Networks subscriptions rose by 700,000 year over year and by 200,000 sequentially to reach 24.2 million users.
- Encore subscriptions fell by 1.5 million compared to last year and by 600,000 sequentially, leaving the company with 31.8 million paying members.
- Overall subscriptions ticked down by 800,000, or about 1%.
- Despite the lower base, Starz generated 3% more revenue from its subscribers thanks to higher average prices. Profitability also rose in the TV division, thanks in part to lower programming costs.
- The distribution side of the operations swung to a loss due to a dearth of hit titles from its licensing deal with The Weinstein Company.
What management had to say
"We performed very well in the second quarter," CEO Chris Albrecht said in a press release, "delivering strong financial results at Starz Networks and establishing a new record high of 24.2 million subscribers for STARZ." Executives credited popular original and exclusive content for the growth as shows like Outlander, The Girlfriend Experience, and Power generated strong buzz around its service.
These hits demonstrate that "our original programming continues to make Starz a 'must-have' service for consumers," Albrecht said. Management also highlighted the positive impact of the company's push into new distribution platforms, like Roku and Android TV, following its recent deal to become an add-on option for Amazon'sstreaming service. "The new STARZ app is proving to be an enormous value proposition for consumers," said Albrecht in the press release.
Executives had more good things to say about the $4.4 billion merger deal with Lionsgate that will produce a huge TV and feature film content producer and distributor that boasts a portfolio of over 16,000 films and television shows. With the added scale, Starz believes it will be better able to capitalize on its intellectual property across a wide range of media channels.
In the meantime, Starz's stock performance is likely to closely track that of Lionsgate's as we get closer to the closing of the deal. After all, the acquisition is being funded mainly through stock in the combined company -- with only a small portion of the proceeds heading to shareholders in the form of cash.
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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Lionsgate Entertainment. The Motley Fool recommends Starz. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.