Executive Summary / Key Takeaways

• Starz Entertainment Corp. (STRZ), recently separated from Lionsgate (LGF.A), is a focused premium streaming and linear service targeting women and underrepresented audiences in the U.S. and Canada.
• The company is strategically shifting towards owning 50% of its content slate by 2027, aiming for significant content cost savings and greater control over its intellectual property.
• Recent financial results for the fiscal year ended March 31, 2025, show a net loss of $211.2 million, impacted by substantial content and intangible asset impairment charges ($156.4 million and $663.9 million respectively in FY2025/FY2024), but Adjusted OIBDA improved to $201.5 million.
• STRZ's digital platform, particularly the Starz App, is a key technological asset enabling direct-to-consumer reach and supporting its bundling strategy, which has demonstrated a 20% higher customer retention rate for bundled subscribers.
• Key risks include intense competition from larger, more diversified players, dependence on major distributors (with Amazon (AMZN) accounting for 29.7% of FY2025 revenue), potential further restructuring costs, and the outcome of the purported noteholder lawsuit.

The Niche Play in a Streaming Giant's World

Starz Entertainment Corp. (STRZ) has embarked on a new chapter as a standalone public entity, having completed its separation from Lionsgate on May 6, 2025. This strategic unbundling positions Starz as a focused player in the premium subscription video market, primarily serving the United States and Canada. At its core, Starz operates through a dual distribution model: direct-to-consumer via its Starz App and website, and wholesale through traditional multichannel video programming distributors (MVPDs) and over-the-top (OTT) partners like Amazon and Hulu.

The company's strategic narrative is centered on a deliberate focus on women and underrepresented audiences, a demographic it believes is underserved by broader streaming platforms. This is reflected in its content mandate, which guides the development and acquisition of original programming. Flagship series such as Outlander and the Power universe have cultivated dedicated fan bases, serving as tent-poles for subscriber acquisition and retention. While the majority of its content (approximately 80%) consists of licensed theatrical movies through output deals with major studios like Universal (CMCSA) and its former parent, New Lionsgate, the emphasis on distinctive original series is a key differentiator.

In a market dominated by giants like Netflix (NFLX), Warner Bros. Discovery (WBD), Disney (DIS) (Hulu, Disney+), and Amazon (Prime Video), Starz operates as a niche provider. These larger competitors boast significantly greater scale, vast content libraries, and substantial financial resources. Netflix, for instance, holds a dominant U.S. market share and benefits from economies of scale in content distribution, potentially achieving lower operating costs per subscriber. Warner Bros. Discovery leverages high-profile franchises, while Disney benefits from cross-business synergies and a strong family content portfolio. Amazon integrates Prime Video into its massive e-commerce ecosystem, offering bundled value and leveraging advanced AI for recommendations.

Starz's technological foundation, centered around the Starz App, is crucial to its strategy. The app provides a single destination for both direct and authenticated subscribers, offering on-demand streaming and downloads across a wide array of devices. While information doesn't detail proprietary, groundbreaking streaming technology beyond standard industry practices, the app's user experience has received high ratings and editorial awards, suggesting effective execution on its digital platform. The company relies on third-party sales platforms and cloud computing services for distribution and infrastructure. The strategic intent behind its technology appears focused on efficient content delivery and enhancing the user experience within its targeted niche, rather than developing fundamentally new streaming technology. The company acknowledges the rapid evolution of technologies like AI as an industry trend and a potential competitive factor, noting efforts to respond but not detailing specific internal R&D initiatives or quantifiable targets for technological advancements beyond the app's current capabilities.

The competitive landscape is further complicated by the rise of ad-supported video on demand (AVOD) and free, ad-supported streaming linear channels (FAST channels), which offer consumers lower-cost alternatives and could draw away price-sensitive viewers. Piracy also remains a persistent threat across the industry. Starz's dependence on third-party distributors, particularly Amazon which accounted for a significant portion of its fiscal 2025 revenue, also presents a concentration risk. While its bundling strategy with partners has shown promise in improving subscriber retention, the terms of these affiliation agreements are subject to negotiation and potential unfavorable changes, especially as traditional linear subscriber bases decline industry-wide.

Performance and Strategic Realignment

Starz's financial performance in the fiscal year ended March 31, 2025, reflects a business in transition, focusing on strategic realignment and cost management following the separation. Total combined revenue decreased slightly to $1,369.6 million from $1,392.4 million in the prior fiscal year. This was primarily driven by a $26.4 million decrease in the Starz Networks segment revenue, where declines in traditional linear services revenue ($58.7 million) more than offset growth in OTT revenue ($32.1 million) spurred by price increases implemented in June 2023 and August 2024. The smaller International segment saw revenue increase by $3.6 million to $13.3 million, primarily driven by operations in India.

Operating expenses totaled $1,540.0 million in fiscal 2025, down significantly from $2,295.9 million in fiscal 2024. This change was heavily influenced by large non-cash impairment charges. In fiscal 2024, the company recorded $663.9 million in goodwill and intangible asset impairment, following a massive $1,261.7 million charge in fiscal 2023, reflecting adverse market conditions and revised outlooks that reduced the estimated fair value of its reporting units, particularly Starz Networks goodwill which was fully impaired. Fiscal 2024 also included a $170.0 million impairment related to the reassessment of the Starz trade names' useful life, leading to their reclassification as finite-lived assets and subsequent amortization.

Excluding these non-cash impairments and other unusual items, the company's Adjusted OIBDA, a key measure of segment performance, improved to $201.5 million in fiscal 2025 from $170.2 million in fiscal 2024. This improvement occurred despite a $156.4 million content impairment charge in fiscal 2025 (following $213.0 million in fiscal 2024) as part of the ongoing strategic review and restructuring that involved removing and abandoning certain programming. Direct operating expenses saw a modest increase of $9.4 million in fiscal 2025, mainly due to higher costs from programming output agreements, partially offset by lower amortization for Starz Originals. Distribution and marketing expenses decreased by $41.8 million, primarily due to reduced advertising and marketing spend on original series compared to the prior year, which featured fewer tent-pole premieres. General and administrative expenses also decreased by $27.4 million, benefiting from lower corporate allocations post-separation.

Subscriber trends showed some positive signs in the most recent quarter (Q4 FY2025), with U.S. OTT subscribers increasing by 530,000 and total U.S. subscribers growing by 320,000 (almost 2%), attributed in part to the premiere of Power Book III: Raising Kanan Season 4. However, total North American subscribers (U.S. and Canada) declined to 19.60 million as of March 31, 2025, from 21.80 million a year prior, reflecting the ongoing shift away from linear and a carriage dispute in Canada.

The company's liquidity is supported by cash flow from operations, cash on hand ($17.8 million at March 31, 2025), and access to new financing arrangements post-separation, including a $300 million term loan and a $150 million revolving credit facility. Management believes these sources, along with programming notes and accounts receivable monetization, will be sufficient to meet operational and debt service requirements for the foreseeable future. As of March 31, 2025, the company had $715.0 million in 5.50% Senior Notes outstanding (of which $389.9 million transferred to New Lionsgate post-separation), $90.7 million in programming notes, and significant contractual commitments for programming content ($333.1 million off-balance sheet commitments as of March 31, 2025).

Outlook and Risks Ahead

Starz has changed its fiscal year end to December 31, 2025, and targets approximately $200 million in Adjusted OIBDA for the calendar year 2025. Management's forward-looking strategy centers on increasing ownership of its content, aiming for 50% of its slate by 2027. This is expected to drive content spending down from around $700 million in 2026 to $650 million by 2028, leveraging international sales and focusing on less expensive early seasons of shows. The company plans to produce 8 to 10 original series annually, balancing owned content with acquisitions. This strategic shift is intended to yield significant content savings and enhance control over valuable intellectual property.

The company also sees opportunities for partnerships with linear networks looking to transition into the digital space, potentially through commercial deals or other arrangements that align with Starz's focus on women and underrepresented audiences. This bundling strategy is a key component of its plan to grow the business and improve subscriber retention.

However, significant risks remain. The intense competition from larger, better-resourced players could limit subscriber growth and pricing power. Dependence on a few major distributors, particularly Amazon, makes the company vulnerable to unfavorable terms or loss of carriage. The ongoing restructuring could result in additional content impairment and other charges if the plan is expanded. Predicting viewer preferences remains challenging, and a failure to produce popular original content could negatively impact subscriber numbers. The evolving technological landscape, including the increasing sophistication of AI and the growth of free content options, poses a continuous threat.

Furthermore, the purported noteholder lawsuit, claiming a breach of indenture related to the May 2024 exchange transaction, represents a material legal risk. If the plaintiffs are successful, it could potentially lead to an acceleration of payments due under the remaining 5.50% Senior Notes, which could have a material adverse impact on Starz's financial condition and liquidity. Inflation and economic instability could also increase operating costs and reduce consumer demand for premium services.

Conclusion

Starz Entertainment Corp. is navigating the complex streaming landscape by focusing on a distinct niche and leveraging its digital platform and content strategy. The separation from Lionsgate provides a clearer focus, and management's plan to increase owned content and reduce spending offers a potential path to improved profitability and cash flow generation, as suggested by the calendar 2025 Adjusted OIBDA target. The recent U.S. OTT subscriber growth is a positive sign, indicating the potential for its targeted content strategy to resonate with audiences.

However, the company operates in a highly competitive environment against significantly larger players with greater resources and scale. The success of its strategy hinges on its ability to consistently deliver compelling original programming, effectively manage its distribution relationships, and execute on its cost-saving initiatives while fending off competitive pressures and adapting to technological shifts. The outcome of the noteholder lawsuit also represents a material uncertainty. For investors, the thesis centers on Starz's ability to carve out and profitably serve its niche, leveraging its content focus and digital capabilities to generate value despite the inherent challenges of competing with streaming behemoths.