Starz Shares On Watch With New Vietnam War Drama

| About: Starz (STRZA)

In January, Liberty Media (NASDAQ:LMCA) completed the spin-off of Starz (NASDAQ:STRZA). The newly separated company has key premium channel assets in the Starz and Encore brands. Starz also has developed a plan of creating original shows to coincide with its strong release of new movies. One new drama in development could turn out to be a sleeper hit for the network.

It was announced this week that MTV personality Gideon Yago, who co-wrote for "Newsroom", will script a show called "Airborne". The show will be a coming of age drama centered around the Vietnam War. Rob Tapert, who served as a producer on Starz's own "Spartacus", will be the executive producer of the show.

I see this show being a huge hit for Starz and think it could really help the new public company increase its likelihood of being acquired or push global expansion. A similar show called "Tour of Duty" ran from 1987 to 1990. That show saw three seasons and 58 one hour episodes aired before ratings couldn't keep up with competing shows.

The Vietnam War is still on the minds of many Americans. The show will air at a time when Vietnam War veterans are in their 60s and 70s and a new generation of grandchildren hears stories of the war. The show will be similar to "Platoon", in which it focuses more on characters and their struggles than the actual war itself. A show like "Airborne" will do well because everyone knows someone who was affected by the Vietnam War.

If the show can get high ratings numbers, it will help boost subscriber fees for Starz in an increasing competitive market. Starz loses "Spartacus", which has been one of the brightest launches in Starz's history. "Airborne" will have high expectations and should meet them and continue to pick up press and demand as the show approaches its undetermined air date.

After being used as a showcase for recently released movies, Starz has shifted into original content. This gives the company a better chance of competing with rivals and helps to negotiate higher subscription fees from the cable networks. Starz has aired original shows including "Spartacus", "DaVinci's Demons", "Magic City", "The White Queen", and "Boss".

Starz is the leading premium movie company with over 56 million subscribers. The company's Starz brand increased its subscribers 8% in 2012 to 21.2 million. Encore, Starz's other corporate brand, increased subscribers 5% to 34.8 million. In comparison, HBO owned by Time Warner (NYSE:TWX) has 39.5 million subscribers, and Showtime, owned by CBS (NYSE:CBS), has 21.3 million subscribers.

Since becoming a separate public company, Starz has been tossed around as an acquisition target. Media companies like Time Warner and CBS could benefit from the addition of Starz's subscriber base. Smaller companies like AMC (NASDAQ:AMCX) and Lions Gate (LGF) could also greatly expand their reach with Starz.

Shares trade at $21.77, just off their highest price of $22.30 since the spin-off. Analysts on Yahoo Finance are calling for earnings per share of $1.73 in fiscal 2013. This marks a current price to earnings ratio of 12.6. Analysts expect to see earnings per share of $1.80 in fiscal 2014, representing 12.1 times next year's earnings.

Back in January, shares of Starz began trading at $14.20. Shareholders have seen a 50% gain since that time, but are not done. This is a great company that has room to run and will most likely be acquired in the next two years. "Airborne" could be the last piece that Starz needs to get a bidder lined up for its 56 million subscribers.

Disclosure: I am long LGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.