Studios Eye Shared Web Windows

Cable World, Feb 7, 2000 by Mike Reynolds

With its $1.6 billion output deal with Sony Pictures Entertainment, Starz Encore Media Group is betting big on its subscription video-on-demand strategy. And unlike premium rivals Showtime and HBO, Starz isn't putting a high premium on the Web's potential to deliver video.

Under terms of the six-year contract, SPE retains the tights to deliver some 200 films on pay-per-view or via the Internet, even as they are available to Starz Encore's premium window. Likewise, the deal, which starts in 2005, gives Starz Encore simultaneous subscription video-on-demand and Internet rights to those SPE movies.

And that's a bit too much sharing, according to some industry players. Indeed, both HBO and Showtime executives said they scratched negotiations with Sony because of SPE's dogged determination to maintain that Internet window.

"Five years from now, millions and millions of more people will have access to seeing theatricals on PPV through different platforms before they reach pay TV," said Matt Duda, EVP-programming, acquisitions and planning at Showtime, who noted that the service would continue to invest in its original films, series and boxing. "We don't know how high those numbers will go, but we do know they are going to go up and that serves to devalue theatricals for pay TV services."

Similarly, HBO officials talked about "exclusivity being important" in the context of the growing Web world, and that it would continue to focus on expanding its array of original product as a complement to its theatrical roster. "Our commitment is to having the best movies, the best entertainment programming available, regardless of distribution platform," said Steve Scheffer, president of film, programming, video and enterprises at HBO.

Starz Encore which paid some $200 million to extend its nonexclusive second-run premium channel rights for such SPE fare as Jerry Maguire, Sleepless in Seattle and As Good As It Gets, plus a five-year license deal for 1,000 Sony titles such as Taxi Driver, now believes it has more than enough product to begin implementing its SVOD strategy in both the short and long term.

Relying on server-based systems, the premium service plans to offer a library of 100 films or more per month on top of its regular Starz Encore lineup for an additional fee. Starz chairman John Sie says that consumers will opt for SVOD packages, which uses pause, rewind and other VCR functions, rather than a host of single movies at $3 or $4 per pop. And Sie believes that is so even if new generations of technological advances put computers on an even playing field with traditional TVs.

"Regardless of platform, whether it's the TV or the PC, we think viewers will pay for SVOD," said Sie. "It's a much better price/value relationship than single PPV movie purchases."

Furthermore, Sie said that the contract with SPE affords Starz Encore with "antidumping protection. We thought that (the Internet rights) through very carefully. Under the contract, the studio can't drop its price precipitously, say to a dollar, early in the PPV window." Sie said similar provisions are a deal Starz Encore cut last year with Disney.

Encore hopes to begin testing SVOD with MediaOne in the Atlanta market as early as this summer. Sie said the appropriate software is being developed and he had hoped to begin testing in the second quarter, but plans have been delayed in the wake of MediaOne's acquisition by AT&T Broadband & Internet Services. Sie added that he is also contemplating tests with other MSOs, which he declined to identify.

The SVOD tests will hit various price points above the Starz/Encore combination of some $10-$12 per month. "We want to see what the market will bear," he said, citing incremental fees of $4, $6 and $10 for SVOD.

While HBO will lose the SPE rights come 2005, the premium service kingpin is expected to fill in part of that gap with an output deal with New Line/Fine Line, which are owned by parent Time Warner. That contract with Starz Encore also expires in December 2005.

Next up among the major studios: Universal, whose deal with Starz concludes at the end of 2003. Starz, HBO and Showtime have all expressed interest in a long-term pact.

Premium Net Output Deals

Studio                     Contract Expiration

HBO
DreamWorks SKG                  2006
Warner Bros.                    2006
20th Century Fox                2009

Showtime
Polygram Filmed Ent.            2002
MGM                             2003
Paramount                       20005

Starz!
Universal                       2003
New Line Cinema                 2005
Miramax                         2006
Hollywood/Touchstone            2006(*)
Sony Pictures Entertainment     2011

(*) Current contract to HBO runs through 2004. The new contract runs from 2005 - 2011.

SOURCE: Paul Kagan Associates Inc. and Cable World research