Starz Entertainment Ratings Downgraded by Moody’s: What It Means for Investors in 2025
In a recent announcement that has drawn significant attention from both Wall Street and the entertainment industry, Moody’s Ratings downgraded the corporate credit rating of Starz Entertainment Corp., formerly part of Lions Gate Entertainment Corp. This downgrade follows a strategic restructuring decision by Lions Gate to split into two independent public companies, with Starz now functioning as a standalone entity. The move was meant to unlock shareholder value and streamline operations, but the credit rating downgrade to B3 from B2, along with similar downgrades on related debt instruments, paints a cautionary picture for potential investors.
Let’s dive deeper into the reasons behind the downgrade, its implications for investors, and the future of Starz in an increasingly competitive streaming landscape.
The Downgrade Details: What Moody’s Said
Moody’s Ratings downgraded Starz’s Corporate Family Rating (CFR) from B2 to B3 and its Probability of Default Rating (PDR) from B2-PD to B3-PD. The senior unsecured notes issued by Starz Capital Holdings LLC, a wholly-owned subsidiary, were also downgraded to Caa1 from B3. This downgrade concludes a review process that began on March 14, 2023.
Importantly, while the downgrade is a red flag, Moody’s did shift the outlook from “under review” to “stable,” signaling that although the situation is challenging, no immediate further downgrades are expected.
Why Was Starz Downgraded?
1. Smaller Operating Scale
Post-spin-off, Starz now operates with a reduced scale, making it more vulnerable in a highly competitive media ecosystem. Unlike its larger rivals, such as Netflix, Disney+, and Amazon Prime Video, Starz lacks the financial firepower and global reach to compete aggressively in content acquisition and production.
2. Exposure to Pay-TV Decline
One of the biggest concerns is Starz's heavy reliance on linear TV revenue, partnerships with cable operators that are losing subscribers rapidly. Despite significant growth in digital revenues (from 5% in 2017 to 65% in 2024), this dependency on legacy distribution models weakens its financial outlook.
3. High Financial Leverage
Moody’s highlighted elevated leverage and uncertainties around earnings and cash flow as key factors in the downgrade. While Starz’s management has committed to reducing leverage to 2.5x over the coming years, execution risk remains high.
4. Short Track Record as an Independent Company
As a recently de-merged company, Starz lacks a proven track record as an independent entity. Moody’s views this as a risk, especially in a volatile industry where brand power and scale are crucial.
Positives Acknowledged by Moody’s
Despite the downgrade, Moody’s acknowledged some strengths in Starz’s profile:
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Digital Transformation: Starz’s ability to grow its OTT and DTC (direct-to-consumer) services to 65% of revenue is commendable.
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Liquidity Position: As of March 31, 2025, the company has $18 million in cash and a $150 million undrawn revolving credit facility, providing some cushion.
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Stable Outlook: The stable outlook suggests that Moody’s expects no further deterioration in the near term, provided management sticks to its deleveraging plan.
What Does This Mean for Investors?
1. Proceed With Caution
The downgrade places Starz in the high-yield or “junk” bond category, indicating higher risk for debt and equity investors. If you're considering investing in STRZ stock, it's crucial to understand that risk-adjusted returns might be limited unless Starz delivers strong digital subscriber growth and operational efficiency.
2. Business Model Under Transition
Starz is still transitioning from a linear to a digital model. While this move is in the right direction, profitability and scalability remain uncertain. Content costs are rising, customer acquisition is expensive, and subscriber churn is a common problem.
3. Moody’s Ratings Withdrawal
Interestingly, Moody’s also noted that it will withdraw Starz’s ratings at the issuer’s request, a rare move that could indicate strategic shifts or dissatisfaction with the rating itself. Investors should monitor whether other agencies like S&P or Fitch follow suit.
What Lies Ahead in 2025 and Beyond?
While 2025 is expected to bring limited top-line growth, the company has ambitions to restructure its revenue sources by increasing its digital footprint. The subscription-based video on demand (SVOD) market is maturing, and Starz will need to differentiate its content offerings to stay relevant.
However, competition is fierce. Netflix, Disney, Max, and Apple TV+ all continue to spend billions on content. Starz’s smaller budget means it must be more strategic and nimble, possibly focusing on niche audiences rather than mass-market appeal.
Valuation & Investment Perspective
According to insights from analysts and platforms such as InvestingPro, STRZ may currently be trading at an attractive valuation relative to larger streaming service providers. However, it's crucial to balance this perceived value against several underlying challenges:
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Limited growth momentum
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Smaller operational footprint compared to competitors
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Significant debt responsibilities
The future performance of Starz largely depends on its ability to cut down its debt load, enhance profitability, and expand its digital subscriber base — all while ensuring sufficient liquidity to support operations and strategic growth.
For investors with a higher risk appetite and a long-term view, Starz could offer potential upside if its transformation strategy gains traction. On the other hand, conservative or risk-averse investors might find the current volatility and financial uncertainties too steep for comfort.
Final Thoughts
The Moody’s downgrade of Starz Entertainment Corp. reflects both the challenges of operating in a legacy-dependent media environment and the pressures of competing with streaming giants. While the company's digital growth is encouraging, questions about scale, debt, and sustainability remain at the forefront.
Investors should track key metrics like digital subscriber additions, ARPU (Average Revenue Per User), operating cash flow, and debt reduction progress over the next few quarters before making a decision. Starz’s story is still unfolding, but the road ahead will be anything but easy.
Stay tuned to FinancialLiteracy65 for more in-depth stock insights, credit rating analysis, and investment strategy blogs.
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