Content + distribution = money.
That’s the basic equation behind Thursday’s news that movie and TV studio Lions Gate acquired subscription channel Starz for $4.4 billion.
The deal, a combination of stock and cash, merges the company that made “The Hunger Games” series with one of the biggest pay-for cable channels.
In Starz, Lions Gate now has a way to directly make money from its hits as opposed to going to other distributors, as it does now with Orange is the New Black.
In Lions Gate, Starz gains access to a pipeline of high-quality shows and an existing library that will make its subscription services more enticing.
Jon Feltheimer, CEO of Lions Gate, said on a call with analysts that the combined company would be able to compete better. He didn’t call out Netflix and HBO, but he might as well have.
“This acquisition unites Lions Gate and Starz in a global content power house that invests nearly $2 billion a year in new content with the increased scale to compete even more effectively and capitalize on growth opportunities in a fast changing marketplace,” Feltheimer said.
The combination might seem like a no-brainer as direct-to-consumer streaming platforms have become the hot new thing among consumers and investors, but the combination is far from a sure thing.
Both companies have struggled in the past year, with their respective share prices reflecting such. The combined Lions Gate/Starz also faces stiff and diverse competition from some of the biggest tech and media companies in the world that have a distinct head start.
“As a content ‘arms merchant’ we are unconvinced that Lions Gate will be better owning a lower-tier SVOD network. We think this is a deal that happened because management needed a deal to happen given poor recent financial performance and a declining share price,”Doug Creutz, a media industry analyst for Cowen & Co., said in a note.
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