The change will turn Starz into a separate, publicly traded company. That should “provide better transparency on the Starz operating business” and “optimize the Starz capital structure,” Liberty Media CEO Greg Maffei says this morning. In addition, it could become easier for Liberty and Starz to use their shares for acquisitions — even as it preserves for Liberty “all our options with respect to Sirius XM and Live Nation,” companies in which it has substantial investments. Liberty investors will receive shares of Starz as a dividend. The new company will include all of Starz’ assets as well as $1.5B in debt and “an undetermined amount of cash.” The transaction, expected to close late this year, is designed to be tax free — a key consideration in deals by Liberty Chairman John Malone — but is contingent on a letter from the IRS verifying that fact. Although it will need the usual approval by anti-trust officials, it will not require a stock holder vote.

“I believe this stand-alone structure is the first step to unlocking the real potential growth opportunities for our business,” Starz CEO Chris Albrecht says. Starz had 20.7M subscribers at the end of June, up from 20.1M in March, while companion channel Encore had 34.2M, up from 33.6M. But investors are sure to have lots of questions about Starz’ financial prospects based on the results Liberty reported today in its quarterly earnings. Starz generated $100M in operating income in Q2, -10.7% vs the same period last year, on revenues of $403M, unchanged. The company says that while revenue increased at the Starz channels, it dropped in its distribution and animation businesses — and profits were hurt by rising programming costs. Like its premium channel competitors HBO and Showtime, Starz is beefing up its collection of original productions as TV audiences lose interest in seeing theatrical movies that have already been available on home video. The company’s original productions include Boss and Spartacus; it’s also working on a new series, Da Vinci’s Demons, and the second season of Magic City.