NEW YORK ( TheStreet) -- Starz (STRZA) , the perennial third-place premium channel controlled by billionaire John Malone, may finally get bought as Greg Maffei, chairman and CEO of Liberty Media (LMCA) , intimated last week and another news report speculated over the weekend.
A sale of Starz has been a source of chatter among the media press ever since Liberty Media said it would spin off the company in August 2012. The New York Postreported on Friday that both CBS (CBS) - Get Report and the film studio Lions Gate Entertainment (LGF) may be involved in talks to acquire Starz, using a value of about $5 billion for the Englewood, Colo.-based television network. Starz was gaining 3% to $33.18 on Monday for a market capitalization of $3.4 billion.
If a deal for Starz is finally in the offing, Malone's decision to spin off the premium channel would have proven to be a huge success. Shares of the company have soared 223% since it began trading as a separate entity in January 2013, making it the top-performing stock among 45 recent spinoffs tracked by Bloomberg News.
Interest in Starz has been bolstered in recent weeks by the announcement that Time Warner's (TWX) HBO and CBS' Showtime plan to offer so-called Over-the-Top or standalone Internet-based services sometime next year. Starz has historically trailed both HBO and Showtime for premium payTV subscribers.
Interest in standalone options comes amid rising acceptance that consumers increasingly prefer to choose their own menu of viewing options rather than be forced to accept the 100-plus channel pay-TV bundles that cable and satellite operators have been pushing for more than two decades. The popularity of Netflix (NFLX) - Get Report , which accounts for more than one-third of all Internet traffic during peak evening hours, serves as definitive proof.
"The whole business model that Starz has, suddenly has a lot more legs than ever before," Shahid Khan, co-founder of Mediamorph, the New York-based media industry software and data provider, in a phone interview. "By making Starz an over-the-top service, it effectively will compete less with HBO's broadband player than with Netflix, and that's not even baked into the stock's current valuation."
Malone has long used holding companies and spinoffs to maximize the value of his media properties, eschewing conglomerates that tie together disparate assets. Under CEO Chris Albrecht, the former HBO chairman who took over day-to-day operations in February 2012, Starz has invested heavily in original programming, developing such well-performing shows as Outlander, Black Sails and Survivor's Remorse, something it had done only fleetingly in years past.
Simultaneously, Starz has been cutting back on its acquisition of movie titles, said Vasily Karasyov, media analyst at Sterne Agee. For a channel that historically has been overmatched by HBO and Showtime, its value arguably has never been higher.
"For Starz, it's not a question of survival," said Karasyov, who rates the shares a buy with a 12-month price target of $36, in a phone interview in New York. "During the past 12 months, they've done a very good job building up those originals, carefully grinding down the cost of films so as not to ruin the margins."
And rather than viewing Disney's decision to terminate its contract with Starz after 2015 as a negative, Karasyov argues that Albrecht can use the roughly $110 million to $130 million spent annually for Marvel and Pixar films on more original programming, thereby making the company a more attractive acquisition target.
That Starz may be for sale was confirmed last week by Maffei, in an interview with CNBC at the company's annual investor conference. Maffei said that the network would likely benefit from being owned by a larger media company that can grow its presence in cable-TV packages and through a digital standalone offering.
"Starz is in an enviable position," Maffei said in a Nov. 19 interview with CNBC's David Faber. "More and more of its value is coming from original programming ... and that creates a lot of opportunity as well by increasing amounts of channels that they can distribute that content through."
Speculation that Starz could be sold was heightened in September when Bloomberg reported that the network had hired the investment bank LionTree Advisors to engage prospective buyers. A day earlier, the Los Angeles Times reported that Starz had met with21st Century Fox (FOXA) - Get Report officials. Fox, unlike Time Warner and CBS doesn't have a U.S.-based premium channel offering, the main reason Khan said Fox is Starz's most logical acquirer. Additionally, he added that Comcast (CMCSA) - Get Report is unlikely to attempt a deal while regulators remain fixated on its $35 billion deal to acquirer Time Warner Cable (TWC) .
CBS could be a buyer of Starz to package its content along with Showtime, while Lions Gate could do the same with Epix, which it jointly owns with Viacom's (VIAB) - Get Report Paramount and MGM. CBS spokesman Dana McClintock and Lions Gate spokesman Peter Wilkes said by e-mail that their respective companies don't comment on merger and acquisition speculation.
-- Written by Leon Lazaroff in New York
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Leon Lazaroff is TheStreet's deputy managing editor.