Logo

JOHN SIE ON ‘ELECTRONIC MOLTING’

Dec 8, 2003  •  Post A Comment

Only minutes after his company announced the launch of new cutting-edge channels offering movies on demand and in high definition, John Sie was musing about competing media. As founder and chairman of the Starz Encore Group, much of his focus lately has been on how consumers will access entertainment products in the future. Last week at the final Western Show, he was chuckling about reports that Viacom is selling Blockbuster video.
“In the case of Blockbuster, you have DVD sales at a low price,” said Mr. Sie. “Because they don’t cost much, the rental model has become obsolete.”
That led him to discuss the problems facing broadcasters, which he declared to be “in trouble.”
“Broadcasters have this question of commercials,” he explained. “They have to figure out a new way of solving that, maybe through some interactive platform. I don’t know the answer, except customization probably doesn’t cut it.”
He was referring to the growing interest in cable to deliver advertising messages to groups of customers or individual homes. He said cable has the technology to send these very specific messages, but he believes “that would not work for [ad-supported broadcasters] because the CPM [cost per thousand customers reached] will rise so high that it will be more than the cost of the product you are trying to sell.”
Throughout a long career that has made him immensely wealthy, Mr. Sie has shown a knack for anticipating the next big thing in mass communications. He was 13 when his family left Shanghai, China, during the Communist revolution. They emigrated to the United States, where he earned bachelor’s and master’s degrees in electrical engineering and electrophysics. His first job was at RCA’s Defense Electronics division. He then founded a company, which was acquired by Raytheon, where in the 1960s he got involved with a fledgling new industry-cable TV.
In the mid-1970s he was recruited to join General Instrument’s Jerrold Electronics by the man who would become his mentor and boss-John Malone. Mr. Sie worked on a pioneering project to develop two-way interactive TV.
In the 1980s Mr. Sie helped found Showtime and The Movie Channel before rejoining Mr. Malone at Tele-Communications Inc., then the largest U.S. cable operator. During that period Mr. Sie made an appearance before Congress, which was considering an analog high-definition system developed in Japan as the new U.S. standard. Mr. Sie argued that the next U.S. system should be digital, not analog. As a result, the United States reversed course and adopted the digital mandate that led to today’s modern system. After that, Mr. Malone dubbed Mr. Sie the father of digital TV in the United States.
By the time TCI was sold, at a handsome profit, Mr. Malone and Mr. Sie had spun off Liberty Media, which holds stakes in numerous programming services, from Discovery Networks to Court TV to QVC.
Beginning in 1991 Mr. Sie put his focus on pay TV with the creation of Starz! and Encore. He negotiated some of the first studio output deals that laid the groundwork for broadband.
The 1990s were a time of transition. HBO and Showtime were moving from theatrical movies to promoting original content. Mr. Sie had a different vision. “I’m glad that HBO and Showtime have left the [all-movie] brand to ourselves,” he said. “Over time we are becoming the movie guide, and that will be wonderful.”
Now Mr. Sie believes we are entering the third great media age. The first age was when cable arrived and gave consumers more choice. The second came with the arrival of digital. The third is offering customers much greater control.
Unlike many competitors, Mr. Sie doesn’t believe video-on-demand alone is an answer. He says VOD, like pay-per-view before it, is a “failed business model.” He said doing transactions one at a time will never work. That is why his company is pushing SVOD-subscription video-on-demand.
The customer pays a monthly fee that includes pay channels and a VOD option. “It’s like a buffet. You can eat all you want,” he said. “That’s where the value proposition comes in for the customer, and that is what we are championing.”
His company sells to both cable and satellite. It actually gets better penetration on satellite, but Mr. Sie said his heart is still with cable. “Cable has been very entrepreneurial,” he said. “People figure out the way. I use a term that doesn’t sound too appealing; but I call it `electronic molting.’ That means cable every seven or eight years changes its infrastructure while still moving ahead, and then comes out a different animal. … Cable adapts to the [market] changes.”
It will take five to 10 more years for this latest evolution to be fully realized, he believes.
In a fragmented media world, what is the ultimate answer? “I think it’s going to evolve into an advertising and commerce model together,” Mr. Sie said. “That means no longer is it simply about promotion and advertising branding. It’s going to merge. You are going to have to tie in the [sales] transaction. That’s my thought.”
Based on his history, it does not pay to bet against him.