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Berkshire Hathaway Inc. (BRK.B) Has An Eye For Starz (STRZA)

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Starz (NASDAQ:STRZA) is getting a boost after Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B) disclosed that it now owns about 5.62 million shares, or a 5% stake in the company. This is up from 5.5 million shares in the last filing period. It seems that Buffett’s deputy Ted Weschler really likes the company and owns a stake of 0.3% in Starz (NASDAQ:STRZA) as well. When you see managers personally buying stock with their own money, it gives you an idea that the folks over at Berkshire Hathaway Inc. (NYSE:BRK.B) have an eye for Starz.

StarzStarz (NASDAQ:STRZA) was spun off from Liberty Media Corp (NASDAQ:LMCA) in January to Liberty shareholders. Since that time, the stock has been a great performer and is trading just below its 52-week high of $24.58. Starz is a premium cable channel along with its Encore and MoviePlex brands. The original business model was focused on broadcasting feature films and limited original programming. Under CEO Chris Albrecht, that is changing as the company develops more original content. The company has achieved critical success with its series “Spartacus,” “Da Vinci’s Demons,” “Magic City” and “Boss.” But it still lags in overall viewership compared to the original content produced by Time Warner Cable Inc (NYSE:TWC)’s HBO and Showtime.

Starz in a great position

The market for entertainment is rapidly growing. Starz (NASDAQ:STRZA) is growing its pay TV business and offering digital content to its subscribers. No longer attached to Liberty Media Corp (NASDAQ:LMCA), Starz is able to control its own destiny. Many analysts had speculated that Starz (NASDAQ:STRZA) would be acquired after the spin-off, but that hasn’t been the case just yet. Management seems to determined to go it alone and focus on developing quality programming for its subscribers.

For Starz shareholders, it helps having Chris Albrecht at the helm. He was chairman and CEO of HBO from 2002 to 2007, and before that he was President of HBO Original Programming for seven years. He helped develop some of HBO’s biggest successes such as “Sex and the City,” “The Sopranos,” “Six Feet Under,” “Deadwood,” “Band of Brothers,” and “Entourage.” If anyone in the business knows how to develop original content, it’s Chris Albrecht.

Online moves

Starz just announced that its programming will be available on Kindle Fire and Kindle Fire HD. This continues the company’s focus on delivering its TV Everywhere services with Starz PLAY, Encore PLAY, and MoviePlex PLAY. This service is also available on the iPhone, iPad, Android, NOOK, and select Google Nexus devices. Distributors such as AT&T, COX, DIRECTV and Verizon offer PLAY services to subscribers that have Starz premium channels. Subscribers are able to view online over 1,500 movies and original programs from the Starz library.

Competitors

In looking at the market for premium content, Starz is competing with Netflix, Inc. (NASDAQ:NFLX) and Time Warner Cable Inc (NYSE:TWC)’s HBO and Showtime. All three have been locked in a competitive battle as more subscribers go digital. Netflix just outbid Starz for the rights to The Walt Disney Company (NYSE:DIS) content. Starz has said that will not engage in a bidding war over content. This explains why Starz is choosing to develop more of its own original programming. Starz realizes that owning the content is key. Netflix, Inc. (NASDAQ:NFLX) is also realizing the same by producing its own original content as well with the return of Arrested Development and Kevin Spacey’s House of Cards.

Starz Netflix Time Warner
Market Cap $2.75B $12.84B $55.26B
Revenues $1.63B $3.76B $28.69B
EBITDA $427.03M $129.94M $7.43B
Net Income $234.57M $24.42M $3.14B
P/E 11.82 560.64 18.22
Subscribers 56m 33m 114m (HBO)

As you can see from this table, Starz remains undervalued. It has the lowest P/E multiple and has more subscribers than Netflix. Starz is one of the few pure-play television channels that is publicly traded.

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