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Should Time Warner Buy Starz?

8 Sep, 2011 By: Erik Gruenwedel

With Time Warner the largest producer of original TV programming, acquiring Starz would put the media giant in two-thirds control of all pay-TV movies, according to an analyst

Time Warner, which owns Warner Bros. and HBO, should consider acquiring Starz LLC — a strategic move that could be the cornerstone to a proprietary over-the-top, or OTT, video subscription service, BTIG Research analyst Richard Greenfield said.

Starz — which includes Starz Entertainment, the unit that just broke off negotiations with Netflix — controls cable distribution of movies through license agreements from Sony Pictures and Walt Disney Studios, and, to a lesser extent, Universal Studios and 20th Century Fox. Those agreements are set to expire during the next four to six years, according to Greenfield.

The analyst said Time Warner could absorb the probable $3.2 billion acquisition price, which he said is based on a 30% premium on Liberty Starz’s current stock price.

“We believe a Time Warner takeover would be value creative for [its] shareholders, not simply a reward to current [Liberty Starz] shareholders,” Greenfield wrote in a Sept. 8 blog .

While Bewkes has championed the TV Everywhere concept as a means to maintain long-term value to Time Warner’s content vis-a-vis third-party multichannel video distributors, the platform has been slow to take off with consumers, compared with subscription VOD.

Greenfield said Time Warner’s new OTT video service could, if necessary, start cutting deals for catalog content from others producers to round out their offering and take advantage of most content owners salivating for “incremental digital dollars.”

The analyst added that potential antitrust issues could be mitigated by the reality of increased third-party competition for digital distribution and the fact that Netflix itself has publicly stated an indifference to licensing content from Starz going forward.

“Netflix poses a threat to not just HBO (subscriber-wise, increased the risk of rising movie content costs and Netflix entering original programming), but also to Turner, as Netflix is increasingly becoming ‘re-run TV,’ in addition to being a destination for deep catalog movies (similar to much of what can be found on TBS and TNT in a less appealing user interface and with commercial interruptions),” Greenfield wrote.

About the Author: Erik Gruenwedel

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