Altice USA’s Cablevision and Suddenlink are starting off the new year by removing Starz and Starz Encore from their systems after terms for a new deal couldn’t be met. But the impact could be minimal for Starz owner Lionsgate, one analyst said.
Jefferies analyst John Janedis said Lionsgate will likely still experience some investor fallout but the financial impact will be somewhat mitigated.
“While the market tends to react negatively when nets are dropped (and we expect a similar NT reaction), as a standalone, the financial impact on LGF is modest—~3% of total company contribution (annualized),” wrote Janedis in a research note.
As of 11:30 a.m. EST, Lionsgate’s stock had fully rebounded from the initial drop it experienced after trading resumed this morning and reaction to the news took its effect.
Jefferies said the blackout could generate a $22 million contribution hit on an annualized basis. The firm forecasted a total segment profit of $480 million for the full fiscal 2018. But Janedis said there’s a chance that Starz could make that up by growing the subscriber base for its standalone streaming products.
“The ramp of OTT subs has been healthy for Starz and other premium cable nets. If we assume that the 1M Altice subs go dark permanently (not our base case), Starz would need to add ~700K OTT subs to offset the linear loss (assumes 75/25 revenue split). Starz remains available on Amazon, Roku, etc.,” wrote Janedis.
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That growth target for Starz OTT could be helped along by the fact that Altice USA has been suggesting the Starz streaming service (which costs $8.99 per month) to its customers who still want Starz.
“Starz wanted an all or nothing-type deal and their insistence on terms would force us to charge customers more than what the Starz OTT product costs — that would not make sense for our customers. Given the limited viewership of Starz amongst our customer base and that consumers can get Starz directly, we believe this approach is in the best interest of all of our customers who otherwise would have seen an impact on prices due to Starz’ demands,” said Altice USA in a statement. “We have simply been seeking to do what Starz itself is doing: support a Starz a la carte product, whether through our sales channels or through their OTT service.”