Starz Is Finally Shining as the Pay-TV Network Gathers Hits

NEW YORK (TheStreet) -- More in keeping with its name, Starz  (STRZA) may be ready to sparkle and shine and step out from behind the long shadows cast of rival premium cable-TV networks Time Warner's (TWX) HBO and CBS'  (CBS) Showtime.

With a growing stable of popular, original scripted shows spearheaded by CEO Chris Albrecht, ­Starz -- which was spun off from Liberty Media (LMCA) in January 2013 -- has seen its stock price gaining steadily. On Tuesday, the share price of Englewood, Colo.-based Starz fell 1.4%, however, to $41.10, trimming its advance to 38% for the year thus far.

Following Charter Communications' (CHTR) announcement of plans to acquire Time Warner Cable (TWC) in a deal valued at $55 billion, Starz may even be even better positioned given that its controlling shareholder, the billionaire John Malone, is also a major stakeholder at Charter.

But Starz's improved position compared to HBO and Showtime is not simply a matter of financial engineering. Under Albrecht, Starz is producing hits. 

The network reported $334 million in revenue in the first quarter, a growth of 3% as subscriptions grew by 1.8 million to a record high of 23.7 million. As of late March, Starz ranked No. 2 in premium pay-TV subscribers, leaping ahead of Showtime's 22.8 million subscribers though trailing HBO's 31.4 million, according to media research firm SNL Kagan.

The last time Starz finished ahead of Showtime was in 2008.

"Starz is in the early stages of an evolution, from being a third brand in the category to a full-fledged entry in what I believe is an exciting space in television," said Albrecht in a phone interview. "We will for sure have even more originals. As a public company, with a stock that, for now, seems to be healthy, that gives us currency to do things on our own in ways that weren't available before," added Albrecht, a former HBO CEO who joined Starz in 2010.

And Starz has had recent success with the time-travel saga Outlander, a hit with female viewers, as well as the pirate series Black SailsLater this month, it plans to air the second season of Power, a crime drama produced by rapper 50 Cent. In August, the second season of the LeBron James-produced basketball series Survivor's Remorse will air.

The bloody horror sitcom Ash vs. Evil Dead from The Evil Dead filmmaker Sam Raimi has sparked a fan frenzy online and is set to air in the fall. Seth MacFarlane-produced sitcom Blunt Talk, starring Patrick Stewart as a newscaster, premieres in August.

Then there's the straight-to-series production of Oscar-winning director Alejandro González Iñárritu's The One Percent, starring Hilary Swank, and a deal with Oscar-winning Whiplash actor J.K. Simmons for a sci-fi series. An adaptation of Neil Gaiman's fantasy novel American Gods created by Bryan Fuller (Hannibal) and Michael Green (Heroes) is in development, Albrecht said.

"In this world, we don't have to please everybody with everything. There are important constituents who make up the subscriber base," Albrecht said. "We want to get them very attached to one or two pieces of programming. Black Sails and Outlander are different, but there's definitely a crossover."

Social-media involvement and word-of-mouth has helped build fan bases for shows such as Power, Black Sails and Outlander, Albrecht said. Set in the 1740s and World War II days, Outlander snagged more than more than 1 million viewers for the first airing of its April midseason finale, according to Nielsen, and its fans have pushed for its Emmy recognition. Starz viewers include men and women, skew a bit older and are established in their households, said Albrecht.

"The way to a consumer's heart is through high-quality content," said Brian Hughes, a senior vice president of audience analysis at Magna Global, a strategic media investment unit of IPG Mediabrands. 

"It certainly seems Starz is catching up in terms of the recognition of their content, and there's also a huge social element to it," he said. "If all of your friends are talking about it, you'll check it out." 

Also, unlike what's the case for HBO and Showtime, Starz content is unlikely to leave the traditional cable bundle for an over-the-top streaming option. "We've come out and said that we're going take our time for Starz," Albrecht said. "HBO is going through Apple and other portals to get to viewers in other ways. Showtime has announced they're going to do it. We like the business we have."

Albrecht doesn't seem that concerned about reaching out to younger, tech-savvy viewers who increasingly access video content online.

"The question of whether new customers are millennials isn't really the case for us," he said. "Adults are the long-running customers of premium television. We've been in an à la carte world and need to sell our product separately. I think we're in a pretty good position."

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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