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This Small Media Company Is Doing Big Things

By Philip Saglimbeni – Mar 15, 2014 at 11:45AM

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As one of the smallest public content-creators, Starz remains a unique way for investors to capitalize on the growing demand for popular programming.

As technology advances and the ways in which viewers can consume content on a daily basis multiply, so too does the demand for original and compelling content. The media companies that engage directly in the creation of content remain interesting investments for the long term since they have a product that will remain in high demand long into the future.

These companies are few in number, and investors interested in gaining exposure to the industry have limited options. One of the smallest public companies in the space, Starz (STRZA), is an interesting alternative to larger and more popular companies like AMC Networks (AMCX 3.07%).

Source: Company Facebook 

Small company, big subscriber base
Starz may be a smaller company with a market capitalization of only $3.6 billion, but the company has a massive reach. While growth in the company's subscribers was not all that impressive for the quarter, Starz grew its base 5% while its Encore channel didn't grow at all; the company's viewer base is impressive. At the end of the fourth quarter, the company's namesake channel Starz had 22.2 million subscribers while the Encore channel had a staggering 34.9 million.  

When compared to the main channels of AMC Networks, Starz's channels are not as widely watched. AMC Networks' namesake channel AMC had 97.4 million subscribers at the end of the company's fourth quarter while WEtv had 84 million subscribers, approximately.

However, AMC and WEtv are considered basic cable while Starz and Encore are considered premium cable. A better comparison for Starz and Encore would be to CBS's popular Showtime channel, which had approximately 23 million subscribers at the start of 2014. 

Exciting new content
No matter how large a media company's subscriber base is, it means very little if the content can't capture and retain viewers on a regular basis. To this end, management at Starz has been aggressive in developing new programming.

The company's new pirate-based drama Black Sails, executively produced by Michael Bay, opened extremely well. The series became the company's most watched series debut so far, drawing in 3.5 million total viewers. In a smart and rather aggressive marketing campaign, Starz allowed viewers to watch the series' first episode for free on popular digital platforms like Apples' iTunes and Google's YouTube. 

Hot on the heels of Black Sails' early success is the second season of the company's DaVinci's Demons, created and produced by David Goyer. The show's second season is scheduled for a March 22 premiere. This should be another big event for Starz as the show premiered last year to 2.14 million viewers in multiple airings, which was an all-time high at the time for Starz. 

Similar to AMC Networks' recent struggles to replace its popular aging shows like Mad Men and The Waking Dead, Starz has struggled to find new shows to replace its popular Spartacus series, which came to a close last year. 

However, the aforementioned results from management indicate that the company is off to a fantastic start. Starz also has another high profile but non-drama related show in its pipeline as well. The series is a LeBron James-produced comedy entitled Survivor's Remorse, which should appeal to a whole new type of viewer. 

Bottom line
While the constant demand to create new and compelling content is a tough challenge to meet, it also means that the few companies that are capable of doing it consistently remain very unique in the investing landscape.

AMC Networks and Starz are both excellent creators of original content. As a premium cable service, Starz has an impressive subscriber base despite the company's small size. With an influx of new and exciting shows, demand for the company's networks is sure to only grow in the future.

Philip Saglimbeni has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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