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Lionsgate considers splitting studio business instead of Starz

Michael Burns

Michael Newberg | CNBC

Lionsgate is looking to spin off its studio division rather than its Starz cable and streaming unit, according to people familiar with the matter.

It would be a shift in strategy for the media and entertainment company, which said in May that it expected to finalize a spin-off or sale of Starz by the end of the summer. In recent months, Lionsgate has held talks to sell a 20% stake in Starz to a number of potential buyers, including the newest Vivendi-owned Canal+, said the sources, who asked not to be named because discussions are private. Those talks are not over, but no deal is imminent, the people said.

Lionsgate is in talks with several potential partners about selling a stake in the studio, the people said. Those talks will likely result in a deal that Lionsgate is comfortable with more quickly than Starz because interest is stronger, the people said. The studio business produces films and television series and includes a library of more than 17,000 titles, such as “The Hunger Games”, “The Expendables” and “Mad Men”.

In a securities filing Wednesday morning, the company confirmed that it “stays on track” to separate the two businesses and shifted its thinking to a studio rotation.

“As negotiations progress, we are increasingly focused on the ability to spin up our studio business, creating a number of financial and strategic advantages,” Lionsgate said in the filing. “In this regard, we are continuing productive negotiations with potential strategic and financial partners on both sides of our business,” the filing said.

Shares of the company rose about 1% on Wednesday morning.

Selling a stake in the studio to a private equity firm or a strategic company will establish a valuation floor for the company to negotiate on its own. It would also provide an immediate jolt of capital to Lionsgate, whose shares have fallen in recent years. Lionsgate’s market valuation is around $1.8 billion, up from nearly $7 billion at the start of 2018.

Longer term, Lionsgate wants to sell both the studio and Starz, the people said. The company competes with much larger entities – including Netflix, Disney, Amazon, Apple and Comcast’s NBCUniversal – in television and film production. Lionsgate executives hope a spin-off of the studio and separation from Starz would be the first steps toward facilitating the sale of the two units to maximize shareholder value, the people said.

“We’re not going to make a dumb deal on one side or both sides of the business,” Lionsgate Vice Chairman Michael Burns told a Bank of America media and entertainment conference. America last month. “I think our shareholders will be very happy with the result.”

Starzplay rebranding

Lionsgate also plans to rebrand its international streaming service, Starzplay, to Lionsgate+, the people have said. The rebranding will take place in 35 countries across Europe, Latin America and Asia-Pacific, including the UK, France, Germany, Australia and Japan, said one of the people. The company confirmed the change later Wednesday morning.

Starz’s streaming service will retain the Starz brand in the United States and Canada, the person said. Starz is present in 63 countries and ended the last quarter with 26.3 million global streaming subscribers.

Starz’s rebranding to Lionsgate+ also maintains a bond between Lionsgate and Starz even as the companies go their separate ways.

Disclosure: Comcast’s NBCUniversal is CNBC’s parent company.


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