Starz (STRZ) Q3 2025: Owned Originals to Cut Content Spend Below $700M, Unlocking Margin Expansion

2025-11-13 | By EarningsIQ Research

Starz’s pivot to owning half its content slate is set to drive content spend below $700 million in 2026, accelerating margin expansion and free cash flow improvement. The company’s transition from joint ventures to licensing in Canada, increased focus on original IP, and bundling strategy underpin its operational and financial resilience. Management’s confidence in achieving $200 million adjusted OIBDA and a 20% margin by 2028 positions Starz as a disciplined consolidator in a volatile media landscape.

Summary

• Content Ownership Shift: Starz’s move to own half its slate is designed to structurally lower costs and boost international licensing revenue.
• Stable Cash Flow Trajectory: Transition to licensing in Canada and tighter production timing are set to stabilize and improve free cash flow.
• M&A Optionality: Management is positioning Starz for targeted acquisitions without over-leveraging, aiming to diversify revenue and reduce churn.

Performance Analysis

Starz delivered sequential revenue and U.S. OTT subscriber growth, fueled by strong engagement from key franchises like Outlander and John Wick’s Ballerina. U.S. OTT subscribers increased by 110,000, ending at 12.3 million, while total North American subscribers reached 19.2 million, up 120,000 sequentially. The company resolved its Canadian carriage dispute, reinstating 250,000 Canadian linear subscribers, but will no longer report Canadian subscribers going forward due to its new licensing model.

Adjusted OIBDA of $22 million declined sequentially, reflecting elevated advertising and marketing spend tied to major premieres. Management reaffirmed its $200 million adjusted OIBDA target for the year, with Q4 expected to be the strongest quarter due to content amortization timing. Net debt stood at $588 million, with leverage improving to 3.4x and on track to reach 3.1x by year-end. Content spend remains a key focus, with management guiding for a reduction below $700 million in 2026 and further declines as more owned originals come online.

• Subscriber Mix Dynamics: OTT growth outpaced linear, reflecting the digital pivot and successful franchise engagement.
• Content-Driven Engagement: Monthly active viewers hit a 12-month high, up 7% QoQ, driven by originals and strategic movie releases.
• Cash Flow Normalization: Cash burn remains choppy post-separation, but management expects stabilization and improved alignment between spend and amortization in 2026.

Starz’s ability to deliver subscriber growth and manage leverage in a challenging media environment demonstrates operational discipline, with a clear path to margin expansion as the owned content strategy matures.

Executive Commentary

Strategic Positioning

1. Content Ownership and De-Aging the Slate

Starz is aggressively shifting toward owning half its original content slate by 2027, which enables lower per-episode costs and higher international licensing revenue. De-aging the content slate—moving from late-stage, expensive shows to newer, cost-controlled originals—frees up capital and supports margin expansion. This approach also allows for tighter budget control and creative flexibility, as Starz now sets financial envelopes from the outset of production.

2. International Licensing Model and Canadian Shift

The transition from a joint venture to a licensing model in Canada is a template for future international expansion. This structure provides stable, recurring revenue without the operational complexity of direct international service management. Management expects the licensing fee to more than offset former subscriber revenue and to deliver higher predictability and incremental profit.

3. Bundling and Churn Management

Bundling with major platforms like Amazon and Hulu remains central, with Starz positioned as a complementary add-on in over two-thirds of Amazon bundles. This strategy leverages broader partner reach while Starz’s own app achieves record-low churn, especially as back-to-back show launches and longer series (such as the extended Power Origins season) are used to bridge subscribers and reduce attrition.

4. M&A and Ad-Supported Expansion

Starz is eyeing targeted M&A to diversify into ad-supported video on demand (AVOD), seeking to acquire “marooned” linear brands that can be migrated to digital using Starz’s tech stack. Management is adamant about not over-leveraging for deals, focusing on opportunities that fit core demos and digital transition expertise.

5. Content Spend and Cash Flow Discipline

Content spend is projected to fall below $700 million in 2026, with further declines as more owned originals come online. Management expects cash content spend and amortization to align closely over time, reducing volatility and supporting free cash flow growth.

Key Considerations

Starz’s quarter underscores a disciplined, multi-lever strategy to margin recovery and long-term growth, balancing content innovation, operational streamlining, and measured risk-taking.

Key Considerations:

• IP Ownership Drives Value: Owning originals cuts costs and unlocks international licensing, strengthening both profit and strategic flexibility.
• Licensing Model Reduces Complexity: Shifting international operations to licensing stabilizes revenue and lowers execution risk.
• Bundling Expands Reach: Starz’s role as a complementary service in major bundles supports subscriber growth and price flexibility.
• Churn Management Through Slate Strategy: Back-to-back show launches and longer seasons are directly reducing churn and increasing customer lifetime value.
• Disciplined M&A Stance: Management’s reluctance to over-leverage preserves balance sheet health and positions Starz as a prudent consolidator.

Risks

Starz faces persistent industry headwinds, including streaming market saturation, content cost inflation, and bundling dependence on larger platforms. Execution risk around the transition to owned originals and the timing of international licensing deals could impact margin progress. Additionally, macroeconomic volatility and competitive pressure from larger, vertically integrated media conglomerates may challenge subscriber and revenue growth trajectories.

Forward Outlook

For Q4 2025, Starz guided to:

• Continued sequential revenue and U.S. OTT subscriber growth
• Adjusted OIBDA of approximately $52 million, to achieve $200 million for the year

For full-year 2025, management reaffirmed guidance:

• $200 million in adjusted OIBDA
• Leverage reduction to approximately 3.1x by year-end

Management highlighted several factors that will drive results:

• Content slate strength in Q4 and 2026, with major tentpoles and new originals
• Content spend set to decrease, supporting free cash flow and margin expansion

Takeaways

Starz’s Q3 results reinforce its disciplined approach to content, cost, and capital allocation, with a clear roadmap to margin expansion and sustainable free cash flow.

• Operational Flexibility: The shift to owned content and licensing models is already delivering improved economics and will accelerate in 2026 and beyond.
• Strategic Resilience: Starz’s complementary bundling strategy and prudent M&A stance allow it to adapt to industry volatility without overextending balance sheet risk.
• Future Watchpoint: Investors should monitor the pace of owned original rollouts, further international licensing deals, and the impact of any targeted acquisitions on churn and revenue mix.

Conclusion

Starz is executing a multi-pronged strategy to exit legacy cost structures, deepen content ownership, and stabilize cash flow. With a clear path to 20% margins and strengthened free cash flow, the company is positioned to benefit from industry consolidation and evolving consumer content preferences.

Industry Read-Through

The Starz quarter highlights a broader industry pivot toward owned IP, cost discipline, and international licensing as antidotes to streaming margin compression. As major platforms integrate and raise prices, smaller and mid-tier players like Starz are finding success through complementary bundling and smart, targeted M&A. Expect continued industry focus on content ownership, churn management, and the migration of legacy linear brands to digital-first models, as media companies seek to unlock margin and stabilize cash flows in a maturing streaming landscape.

STRZ Communication Services Media Streaming Content Ownership Licensing Bundling AVOD