Starz (NASDAQ:STRZA) has come a long way from being a movie channel to an emerging original content premium cable channel. This was the biggest reason why the company made my annual top ten stock picks list for the year 2014. A recent adaptation notice and several strong-rated original shows provide further bullishness for this great media play.
Starz announced it is adapting "American Gods", a 2001 book by Neil Gaiman, into an original television show. The book won the Hugo and Nebula Awards, and has been widely praised. The plot centers around old mythological gods and new gods that represent items like television, internet, and the stock market.
Bryan Fuller, the man who has helped create television shows like "Hannibal", "Pushing Daisies", and "Heroes", has been given the task of showrunner, along with Michael Green ("The River", "Heroes"). Gaiman was responsible for writing Stardust and Coraline, which were both turned into movies. He also wrote the popular graphic novel "The Sandman".
Back in 2011, HBO was set to turn the book into a television show, but dropped out due to scripting issues. This is a show that has the potential to be a favorite among viewers, with its modern-day take on gods. I believe this is a show that could go on for a couple seasons and post strong viewership numbers.
The addition of American Gods joins a strong list of original content that is beefing up Starz' lineup. Here is a look at the current and future shows for Starz:
- "Da Vinci's Demons": Show was renewed for a third season, and will be one of Starz longest running current original shows. The season two premiere saw 2.6 million viewers, and is up sharply compared to the first season episodes.
- "Power": First episode of "Power" had 2.6 million total viewers, split evenly between men and women. Show was also renewed for a second season that will be 10 episodes (season 1 is eight). Starz produces show in partnership with CBS, but maintains global distribution rights.
- "Outlander": Will debut August 9th. The show is based on the bestselling book series, with the upcoming ninth book released this week. The show is expected to have strong appeal to women.
- "The Chair": a 10-part unscripted look at documentary filmmaking.
- "The Girlfriend Experience", a 13-episode series with half-hour episodes from movie writer Steven Soderbergh.
- "Blunt Talk": Show starring Patrick Stewart has been given straight to series two season order for 20 episodes. Show created by Seth MacFarlane (Family Guy).
- "Flesh and Bone": Show started production with an expected 2015 air date.
Here were the original content highlights from the first quarter:
- "Black Sails" averaged 5.2 million viewers across all platforms for season 1.
- "Power" sold to 75 countries and territories.
As you can see, the company is making a big bet on original programming with this 2014 and future lineup of shows. The company's CEO Chris Albrecht has made vocal his intent to get to 75 to 85 original programming hours a year. That number will hit over 50 this year with the growing lineup of shows.
International sales continue to pick up for Starz, which could be one of the most underfollowed catalysts for the stock. In my top ten stocks article, I highlighted the fact that "Black Sails" had already been picked up for distribution in 115 countries before a single episode aired. In January, Starz signed a multi-year deal with Russia's Amedia, a leading Pay TV and SVOD company. The deal gives Amedia the rights to current and future Starz original shows in more than 20 countries, including Russia, Latvia, Lithuania, and Ukraine.
Another catalyst is the show's shifting focus on women. Once known as the network with "Spartacus", Starz is creating shows that appeal to women, or at least both sexes. "The White Queen" had 60% women viewership in its first season. "Outlander", which will premiere in August, is based on a book series popular with women. "Flesh and Bone", a 2015 scheduled show on ballet, will likely see higher female viewership. This focus continues to increase overall viewership of the channel.
Starz made my top ten list with the top three reasons of: Black Sails, Low Expectations, and Original Programming. All three themes continue to thrive for the company as it saw strong ratings from "Black Sails", and is beating expectations with its original programming.
Starz reported strong first-quarter earnings recently. Total revenue increased 5%, while operating income came in 8% higher than the previous year. Total subscribers for Starz and Encore were 56.3 million, leading the U.S. premium category.
Total revenue hit $420.0 million. Network revenue increased 3% to $324.0 million. Distribution revenue increased 15% to $87.3 million. The animation segment increased 19% to $8.9 million. Starz subscribers increased 1% to 21.9 million. Encore subscribers were lower by 2% to 34.4 million.
During the first quarter, Starz repurchased 1.4 million shares, as it continues to aggressively buyback shares. In fact, since its 2013 spin-off from Cablevision, Starz has now bought 11.6% of outstanding shares.
Shares of Starz have traded between $21.20 and $34.20 over the last fifty-two weeks. Shares of Starz were up 113% in 2013. I called for shares to rise 25 to 30% in 2014, on the heels of a strong 2014 lineup and increasing expectations. Since that time, shares have increased only 2%. With the addition of "American Gods" and the recent renewals and deals, I continue to stand behind this pick and think it is one of the strongest media plays for the second half of 2014.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.