Starz Entertainment Corp /CN/ (STRZ)

Starz is a company that makes and sells television shows and movies. It produces original series — dramas, crime stories, science fiction — and buys rights to movies and past television shows. Then it sells all of that content to people via a subscription streaming service. That business model is straightforward: produce or acquire content, put it on a platform, charge a monthly subscription fee, and repeat.

What Starz actually does

Starz makes money in two ways. The first is a direct subscription: viewers pay a monthly fee to stream the Starz app and watch the company’s content on their phone, tablet, or television. This is the familiar model Netflix popularized. The second is licensing. Starz produces shows that are valuable to other platforms — to big streamers like Netflix or Amazon Prime, to international broadcasters, to cable networks. When another company wants to air a Starz show, they pay a licensing fee. Both streams create revenue; both require that Starz keep making content that people actually want to watch.

The core tension in streaming is simple. Starz needs to spend money to produce original shows — money spent before a single viewer pays a penny. If a show fails (few people watch it or cancel their subscription because they don’t like it), that production cost is sunk. If it succeeds, subscribers stick around longer and the company keeps the monthly fees. But investing in hit shows is not a science; the business is littered with expensive failures. Every dollar Starz spends on production is a gamble on whether an audience will materialize.

The ecosystem Starz inherited

Starz did not start from nothing. The company evolved from Starz Media, which operated as a cable television channel owned by a larger media conglomerate. When Starz was spun off as an independent public company, it inherited a library of content and years of production experience. This library is an asset — people subscribe because there are things worth watching — but it is also constantly depreciating because people have seen much of it already. A streaming service cannot survive on old shows alone; it must keep making new ones.

The Starz brand carries some legacy value. People in the television industry know the company has produced serious drama. But in the crowded world of streaming, that brand recognition matters far less than Netflix’s dominance or the resource advantage of Amazon and Apple. Starz is smaller than all of them, which means less capital to spend on shows and less bargaining power when buying rights or paying actors.

Money in and money out

Starz generates revenue from subscribers who pay monthly for the service. The company also earns from licensing content to other streaming services or international broadcasters. Some money comes from advertising — the company offers a cheaper subscription tier that includes ads. But the single biggest expense is content: the cost of producing original series and acquiring distribution rights to other shows and movies.

Running a streaming service also means paying for servers, customer service, technology development, and marketing to acquire new subscribers. These costs are real and continuous. Streaming is not capital-intensive the way a physical business like mining or manufacturing is, but it does require steady spending on technology and an enormous ongoing spend on content simply to stay relevant.

The path to profitability in streaming is narrow. A company needs either a massive subscriber base (which costs billions to build) or premium pricing (which requires that the content be genuinely exceptional). Starz is neither Netflix nor Amazon Prime. It has fewer subscribers than either, and its original content, though well-regarded in the industry, does not command the cultural dominance of the biggest streamers’ hits.

Competition that is not going away

Starz competes directly against Netflix, Amazon Prime Video, Disney Plus, Apple TV Plus, HBO Max, and newer entrants who are spending aggressively on content. These competitors have much larger budgets. Netflix and Amazon have the advantage of subscriptions and commerce platforms that cross-subsidize their streaming. Disney has a library of beloved intellectual property. Apple and Amazon can afford to run streaming at a loss to strengthen their broader ecosystems. Starz cannot.

The economics have also changed. When streaming was new, subscribers were hungry for content and did not mind paying five or six dollars a month. Now that landscape is fragmented. Subscribers face a choice between many services and increasingly tend to subscribe to one or two at a time and rotate. Gaining a subscriber is expensive — it requires marketing spend — and keeping one requires constantly producing new hits. The cost of content has risen because actors, writers, and producers now understand they have multiple platforms bidding for their work.

The question of survival and scale

Starz must either grow its subscriber base significantly, find profitable niches where it can command premium pricing, or settle into a much smaller, niche position in the market. Some combination of original hits, exclusive content partnerships, and licensing revenue might sustain the company. But competing on the same field as Netflix and Amazon with a fraction of the capital is structurally difficult.

How to research Starz

Anyone evaluating Starz should look at the company’s earnings reports and the metrics disclosed in them: subscriber count, average revenue per subscriber, and content spending. These reveal whether the company is attracting and retaining viewers and whether it can produce content profitably. Compare Starz’s subscriber growth and spending efficiency to Netflix and Amazon Prime Video; relative size and growth rates matter enormously in streaming. The company’s 10-K filing with the SEC will detail the licensing deals Starz has made and the strength of its content pipeline.