Key Takeaways
Starz Entertainment (STRZ) reported a 7.2% year-over-year revenue decline to $307 million for the first quarter of 2026, posting a wider-than-expected loss as it pivots its content strategy.
"Over the last 12 months, we've made significant strides in setting the business up for long-term value creation," President and CEO Jeffrey Hirsch said, highlighting the decision to exit a film output deal with Universal.
The company's adjusted OIBDA was $58 million, while it generated $81 million in unlevered free cash flow. A major strategic shift came via the exit of its Pay-Two agreement with Universal, which management said was underperforming due to high subscriber overlap with Amazon Prime, where films were "heavily watched before they come to us."
The move accelerates Starz's timeline for reaching a 20% adjusted OIBDA margin by a full year to the back half of 2027. The company recorded a $139 million restructuring charge in the quarter, mostly for content write-offs, with another charge related to the Universal deal expected in Q2.
For the quarter, Starz's OTT revenue was $211 million, comprising the bulk of its $307 million total revenue. The company is moving to de-emphasize subscriber counts as a primary metric, a decision management said is being "validated" by internal data. President of Domestic Networks Alison Hoffman noted that churn reached an "all-time low" in the quarter, while year-over-year user engagement was up about 8 percent.
Instead of paying "Pay-Two prices for library performance" under the Universal deal, Hirsch said the company will now "reinvest and acquire high-performing titles at superior economics," likening the data-driven approach to "money ball."
Starz reaffirmed its full-year 2026 guidance, which includes achieving low single-digit adjusted OIBDA growth versus 2025 and between $80 million and $120 million of unlevered free cash flow. Management also expects to end the year with a leverage ratio of approximately 2.7x. A recently announced subscription price increase to $11.99 is expected to begin flowing through the subscriber base in the second quarter.
The Q1 results show Starz is aggressively trading short-term revenue for a clearer path to profitability, a move that hinges on its ability to successfully acquire and monetize lower-cost content. Investors will watch the upcoming Q2 results for the initial impact of the new subscription price and the full accounting of costs associated with exiting the Universal deal.
This article is for informational purposes only and does not constitute investment advice.
