Starz Entertainment Experiences Post-Spinoff Decline Amid Subscriber Losses and Rising Debt

Market Performance and Operational Challenges

Starz Entertainment Corp. (NASDAQ:STRZ) has experienced a significant downturn in its market performance since its spinoff from Lionsgate, with shares declining nearly 30% from June highs above $20. This decline reflects growing investor apprehension regarding the company's operational and financial health. For the quarter ended June 30, 2025, Starz reported a consolidated revenue of $319.7 million, marking a 7.4% year-over-year decrease and a 2% sequential decline. The company also registered a net loss of $(42.5) million and an operating loss of $(26.9) million.

A primary driver of this underperformance is the persistent decline in subscriber numbers. U.S. Over-The-Top (OTT) subscribers sequentially decreased by 120,000 to 12.2 million, while total U.S. subscribers fell by 410,000 to 17.6 million from the prior quarter. Including Canada, total North American subscribers saw a sequential decline of 520,000 to 19.1 million. These reductions are attributed to continued pressure on linear subscribers and lower OTT subscriber additions, partly due to a carriage dispute in Canada.

Financial Strain and Leverage Concerns

The financial position of Starz Entertainment is further complicated by a substantial debt burden. As of June 30, 2025, the company had $300 million outstanding on its Term Loan A credit facility and $325.1 million in senior unsecured notes, resulting in a total net debt of $573.5 million. On a trailing twelve-month basis, the Adjusted OIBDA Leverage Ratio stood at 3.2x. Analysts anticipate this leverage ratio to increase to approximately 3.5x in September due to content payment timings, although management expects it to stabilize around 3.1x by year-end. The company's credit profile was recently downgraded to 'junk-rated' by Moody's, highlighting the elevated risk associated with its debt levels.

Adjusted OIBDA for the quarter was $33.4 million, a notable decrease from $92 million in the previous quarter, indicating shrinking profitability. This declining profitability, coupled with heavy debt, raises significant concerns about the company's financial flexibility and its ability to invest in content necessary for subscriber growth.

Competitive Positioning and Strategic Challenges

Starz faces an uphill battle in a highly saturated and competitive streaming market. Its strategy, focused on niche programming and pricing, has largely failed to stabilize its subscriber base. Post-spinoff, Lionsgate (LION) is widely regarded as the stronger entity, benefiting from a more diversified revenue stream and a larger back library. In contrast, Starz must rely heavily on its future content slate to re-energize a declining subscriber base while managing its considerable debt.

The company has initiated a $177.4 million restructuring charge, primarily to reassess its content portfolio, with an aim to reduce annual content costs from $800 million to a target range of $600-650 million. Despite these efforts and CEO Jeffrey Hirsch's emphasis on cost management and content strategy, the market remains skeptical.

"We are laser-focused on trying to grow the top line but also get the cost structure content into that $600 to $650 million range," stated CEO Jeffrey Hirsch.

Analyst Outlook and Future Implications

Following the release of its quarterly results and ongoing challenges, analysts have initiated a 'Sell' rating on standalone STRZ. The weak competitive positioning, persistent subscriber declines, and heavy debt load are critical factors contributing to this bearish outlook. The stock's performance since June underscores the market's lack of confidence in Starz's ability to navigate its current difficulties effectively.

The media landscape is currently ripe for mergers and acquisitions. Given its modest scale and limited global reach, Starz is frequently mentioned as a potential acquisition target rather than an acquirer. Potential suitors could include major players looking to consolidate content libraries or expand their streaming presence. However, CEO Hirsch has also expressed interest in acquiring other linear networks, hinting at a potential future role in industry consolidation. Without significant strategic intervention or a material improvement in its financial and operational metrics, Starz Entertainment faces continued pressure, with some analysts even suggesting the possibility of bankruptcy. Investors will be closely monitoring subscriber trends, debt management, and any strategic partnership or acquisition developments in the coming quarters.