Tapping SVOD’s Market Potential

Dec 20, 2004  •  Post A Comment

With subscription video-on-demand quickly proving to be the killer app for VOD, Starz Entertainment Group contends there is much room for growth. Expect 2005 to be the year of demystification for SVOD and many of the advanced services Starz! has been promoting.

“We’re going to take a leadership position not only on technology but on how it’s being marketed. We are going to work with all cable operators across all their customer interaction points to improve the messaging,” said Bob Greene, senior VP of advanced services at Starz!

Mr. Greene was referring to Starz on Demand, the company’s SVOD product that will be the crux of the entertainment company’s marketing focus for its new technology platforms in the coming year. Since its launch 10 years ago, Starz! has been a proponent of new technology, and SVOD is the latest manifestation of the company’s push to be on the cutting edge.

New technology and services are critical for a pay provider because they can engender both retention and acquisition of customers. At Starz!, where third-quarter revenue was up 13 percent but operating expenses grew 26 percent because of higher programming costs, holding onto and getting new customers takes on even greater importance.

While SVOD constitutes about two-thirds of all VOD usage industry-wide, according to Leichtman Research Group, Mr. Greene said nearly 50 percent of Starz! customers don’t use Starz on Demand, now in 170 markets. They either don’t know it’s available, are confused by the service or think they will be charged for it, he said. That’s why Starz! is planning a marketing campaign for 2005 to communicate to consumers exactly how SVOD works-and that subscribers can use it repeatedly to order any of the service’s current programming, at no additional cost.

The company planned to announce new positioning and messaging for the on-demand platform in mid-December, including navigational improvements and additional programming. One of the reasons Starz! is so keen on on-demand programming is that it has reduced churn at Starz! by 14 to 20 percent, said Bob Clasen, president and recently named CEO of Starz Entertainment Group.

While Starz! is not the first premium provider to launch SVOD, it rapidly became a champion of the category, just as it served as an advocate for revamping the user interface for VOD this year. In addition, Starz! took a bold leap as the first pay or basic network to offer an Internet-based SVOD product when it launched Starz! Ticket on Real Movies in June.

The philosophy at Starz! to embrace advanced services was infused by its founder John Sie, a proponent of new technology, said Larry Gerbrandt, head of the media and entertainment practice at AlixPartners, a financial consulting firm in Los Angeles. As a movie provider, Starz! needs to find ways to differentiate itself from HBO and Showtime, Mr. Gerbrandt said. “There is less buzz around Starz! than around Showtime and HBO,” he said. “That just makes them explore some of the new technology areas a little more, because it’s another way to generate some buzz.”

Starz! was at the forefront of technology’s push into pay cable back when digital carriage began to emerge 10 years ago, around the same time the channel launched. While HBO was the first to introduce multiplexed services when it added HBO2 and HBO3 in 1991, Starz Entertainment Group was the first to introduce the notion of thematic channels.

In late 1994, the company began adding thematic channels for its Encore service, such as Westerns and mysteries. Starz! thematic channels followed in 1996. “I think pay TV continues to be the innovators because we have always had to be the innovators,” Mr. Greene said.

Creating a Category

In fact, the SVOD category was created by the providers-HBO, Showtime and Starz!-rather than the cablers. “SVOD is a good example of the content companies saying, Here is a way to enhance the value using technology that can be implemented over your current infrastructure,” Mr. Greene said. “We will continue to look at technology as a way to increase our business and how it increases the business of our distributors.”

Mr. Greene said he also plans to put some marketing oomph next year behind Starz! Ticket, the Internet on-demand movie service it launched this summer. While widespread convergence between the TV and PC is still in the future, Starz plans to work with technology companies such as Intel to explain how consumers can connect the two devices. “We want to talk to [Starz! Ticket] consumers we have about how to do that,” Mr. Greene said.

In addition, the new year should bring co-marketing agreements between Starz! Ticket and cable operators to use the online movie service to promote their high-speed services, Mr. Clasen said.

In the short term, Starz! Ticket isn’t a huge moneymaker, but being a pioneer helps Starz! understand how consumer behavior will change, said Bruce Leichtman, president of Leichtman Research Group.

“If you look at where they are with premium on-demand and now with Starz! Ticket, they have been leaders in this category. They have been out front promoting this,” he said.