Subscription VOD looms in Starz’s orbit

Jul 23, 2001  •  Post A Comment

One of the most profound advantages of digital cable, many say, is its ability to offer subscribers video on demand.
However, the problem is that currently VOD is scarcely available. iN Demand, which follows a pay-per-view model, has rolled out VOD in a number of markets, but Starz Encore, HBO and Showtime, which plan to follow a subscription-based VOD model, have yet to realize wide-scale deployments.
In 1999, John Sie, founder, chairman and CEO of Starz Encore Group, negotiated the first major studio contracts-with Disney and Sony-for broad subscription video-on-demand rights. It has long been Mr. Sie’s personal belief that subscription-based VOD will become a major revenue generator for the cable industry in the digital era.
While pay networks generally get rights for TV distribution during a 12- to 18-month window following a movie’s theatrical release for home video sales and pay-per-view, afterward the title moves on to a combination of broadcast networks, basic cable and broadcast syndication. That is when Mr. Sie believes there are major revenues to be made. Digital cable subscribers will pay more per month, he contended, to order all movies and series on SVOD providers’ schedules any time they want. Today, he said, the greatest challenge may be getting the multiple system operators to promote digital cable more rampantly while planning for technology and infrastructure necessary to support SVOD. So far Mr. Sie has signed one deployment deal-with Adelphia Communications-which he hopes will roll out in the fall.
Here’s what Mr. Sie told Electronic Media about his SVOD vision and why he thinks the rollout is taking its time.
EM: What’s the thinking behind your push for an SVOD model?
Mr. Sie: On the SVOD platform, the consumer has final control-control of `anything to the fourth power,’ as I call it, meaning the consumer can have anything sent from anywhere to anywhere at any time.
Evidence abounds that for on-demand services the future is going to be subscription. It’s not just Sie thinking-it’s an overwhelming thinking of that. If you look at the Internet, the only really successful company is AOL. That’s certainly an on-demand service, but the model is subscription-based, where users pay $23 a month. You can also look at TiVo, a personal video recorder service. You can use it anytime you want, but that too is a monthly service. Cellphones-even Blockbuster now has a subscription service. We believe thinking of VOD in terms of subscription is the correct way to think about it.
EM: Are you suggesting PPV will fade away?
Mr. Sie: No. There will always be a small portion of people who will be interested in buying earlier-window movies [which are generally available through PPV deals with studios but not through subscription-based on-demand agreements], but the amount PPV brings to the bottom line is smaller than it needs to be for VOD to be successful. With PPV, by the time they share the income they get from one consumer viewing a movie with Hollywood and everyone else it adds only $1 to the bottom line. If you think you can move that to $4 or $5, that’s what you want to do.
EM: Why do you think the rollout of digital cable has been so slow?
Mr. Sie: Digital rollout has been slow because it has been relegated to the PPV department rather than to the cable chieftains. But in fact the cable chieftains are the ones who need to ask, `What is the next plateau we have to climb for revenue?’ The majority of the cash needed to get digital off the ground has already been sunk to develop the necessary platforms. A core business for the cable industry has to be video-until they embrace that kind of thinking, I am afraid VOD deployment will not be robust. There is a downside risk here as well in that broadband will come through the Web whether cable deploys it or not. The DBS (direct broadcast satellite) industry is going to do SVOD too, and we are encouraging them to do that.
The studios are well under way. Now what’s important is getting our customers to embrace the overall feeling of SVOD and start to plan for it. There is a lot of software integration that is necessary on digital cable that’s not necessary on analog cable. If we sign a deal for SVOD today, it may take eight months to get it deployed because of all the integration.
EM: What is Starz Encore doing to help speed up the process?
Mr. Sie: You have to get people to understand what the vision for the future is, and we are doing that.