Lionsgate-Starz Deal Shows How Digital Has Upended TV Business (Analysis)

Companies yielded to pressures created by Netflix and Amazon

Lionsgate’s $4.4 billion purchase of Starz may remind some TV veterans of the prophecy of John Sie.

Sie is the brilliant Chinese-born engineer who founded Starz Entertainment (then Encore Media Group) in 1991, as a subsidiary of cable pioneer John Malone‘s Liberty Media. In 1989, when nearly half of U.S. households still used rabbit-ear antennas, Sie wrote a paper essentially predicting the rise of digital television. Because of this, Sie is sometimes called the Father of Digital TV.

Like Moses, Sie would not sit in the Promised Land — he retired from Starz in 2005. But as the Starz-Lionsgate merger makes clear, the digital-TV Promised Land has a lot of tricky terrain. What Sie did not predict was the rise of Netflix and Amazon, streaming platforms that have used a flood of original programming to completely upend the television business.

Malone (pictured) carefully worked the levers to make Thursday’s purchase happen. Last year he traded part of his Starz ownership for a stake in Lionsgate. The current CEO of Starz, Chris Albrecht, is expected to remain at the combined company, according to longtime Lionsgate chief Jon Feltheimer — or at least through the end of the year, as specified by SEC paperwork filed with the agreement.

Both companies needed the deal. Lionsgate has stumbled badly at the box office with bombs like “Allegiant” and “Gods of Egypt.” With no new “Hunger Games” or “Twilight” franchise on the horizon, Lionsgate has been getting better results from TV shows such as “Orange Is the New Black,” the acclaimed prison comedy that’s been a hit for, um, Netflix. Starz’s slots on cable tiers, piped into nearly 24 million customers’ homes, give Lionsgate a huge instant outlet for its content.

Starz, meanwhile, has been a perennial also-ran in the premium cable race, although it’s made inroads under Albrecht, who guided HBO’s renaissance 15 years ago with “The Sopranos” and “Sex and the City.” Insiders say Albrecht has chafed under the much-tighter budget reins at Starz. Shows such as the fantasy “Outlander” and the pirate drama “Black Sails” have their partisans, but they aren’t “Game of Thrones.”

“The content is certainly, I don’t think, on the level that Chris was famous for years ago at HBO, in terms of prestige,” said Tom Nunan, a longtime producer and former network exec who now teaches at UCLA School of Theater, Film and Television.

Starz’s various channels could be worth a lot more than $4.4 billion when combined with a studio that churns out high-quality films and TV shows — the kind that make viewers want to pay for subscriptions.

But this combination won’t shake the earth in 2016. “There are so many different platforms right now available to producers and consumers,” Nunan said. “What would have been something huge even five years ago, now in the age of Netflix and Amazon and Hulu and YouTube Red, I don’t think that it’s really going to move the needle much in terms of people fretting about the future.”

Indeed, Starz-Lionsgate probably won’t signal a wave of similar mergers for TV companies in the coming months, said analyst Tom Eagan of Tesley Group.

“We don’t necessarily expect a slew of content deals,” he said. “The cable network model is a bit up in the air right now.”

It sure is, and it may remain that way for quite awhile, as the full import of consumers’ shift to streaming takes hold.

As a great seer like Sie knows, even those who can see into the future can only see small parts of it.