What AT&T's Spat With Starz Says About Today's Media Industry

NEW YORK (TheStreet) -- Content vs. distribution. Which has the upper hand?

Starz (STRZA), maker of the hit series Power, and AT&T (T), the country's second-largest wireless provider, are at an impasse over a distribution deal that pits a maker of original television content angling for higher fees against a pay-TV provider eager to cut costs.

The showdown illustrates how the media industry is being reshaped as more consumers get their entertainment from digital platforms, which in turn are jostling for supremacy.

Long an also-ran to Time Warner's (TWX) HBO, Englewood, Col.-based Starz is eager to capitalize on some of its highest ratings ever, helping to fuel a stock price that has surged 52% in 2015 to $45.30 at Tuesday's close. Starz has even surpassed CBS's (CBS) Showtime among premium-channel subscribers, taking second place behind HBO in the third quarter of 2014, according to data compiled by SNL Kagan.

Dallas-based AT&T, meanwhile, is pushing federal regulators to sign off on its $49 billion deal to acquire DirecTV (DTV), a transaction that speaks to ongoing consolidation among distributors keen on gaining more leverage with content creators. On Tuesday, AT&T appeared all but assured of winning approval for the deal when Federal Communications Commissioner Tom Wheeler said he would ask the full commission to approve the transaction with conditions. 

"Starz is saying, 'Everybody wants our content, so we're willing to go through many different distributors,'" said Roger Kay, president and technology analyst at Endpoint Technologies Associates, in a phone interview. "The distributors feel like they have all the eyeballs, they have all the customer relationships."

Starz depends in large part on subscription fees from pay-TV distributors like AT&T for revenue.

Tensions between the two companies spiked this past weekend, the The Los Angeles Times reported, saying that key deal terms hadn't been reached after several months of talks. The tiff speaks to a tug of war over whether a growing audience or a growing cable and satellite network should have more clout.

The current deadline for talks, which have already been pushed back at least once, comes at the end of July. Starz, which counts media mogul John Malone as a shareholder, has 23.7 million U.S. subscribers, according to SNL Kagan. AT&T's U-verse TV, Internet and phone customers can opt to add Starz and Encore to their television service for an added fee.

This is not the first set of distribution talks to come to loggerheads.

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