Guest: Bob Clasen - Starz Entertainment
Host: Matt Kelly - PodTech News
Matt Kelly - PodTech News
This is PodTech News for Monday, November 13. I'm Matt Kelly. Over the past 15 years Starz Entertainment has established itself as a premium provider of movies on cable. The company has recently begun to deliver movies over the Internet and now with this summer's acquisition of IDT Entertainment, Starz has entered the content creation arena and will produce live action and animated programming; including feature films, series, specials and shorts. It will distribute that programming to consumers however and wherever they want to watch it; in theaters, on DVDs, via cable or satellite on broadcast stations and over the Internet in both the domestic and international market. I spoke with Bob Clasen, Starz CEO and President about why the company opened this new distribution avenue and the challenges it will face at last week's Dow Jones VentureWire Consumer Technologies Conference in San Jose.
Bob Clasen - Starz Entertainment
Well, Starz is reinventing itself. Starz is known as a premium pay television company. Movies make us and our Starz non-core brands are in millions of homes. We have just about 15 million Starz customers, 27 million on core customers. We deliver the product to cable and satellite and Telco companies and then they retail it. But in the last few months, we've put together through an acquisition of another entertainment company, a variety of other media assets and now we're in the production business and we're in the audience aggregation business. Audience aggregation is an interesting way to look at how you might take content in this world that is so dramatically changed because of technology. Okay, there is not just television, there is the PC, there is portable devices, there is the Internet, there are close networks, there is mobile devices, how do you go run around and find all these places and what are the venues that people want to go and watch movies? So, what we've been doing with and this is where it ties to IDT and some of the other projects that we're working on, we've tried to put together a whole slate of distribution. And that distribution includes selling content to broadcast networks, selling them to other satellite and cable programming networks, taking content, finding places that can be licensed on the Internet, looking at the content, looking at opportunities and saying, "Gee! We could create this series for the Sci Fi channel" and they wouldn't by themselves pay enough to really do a very high quality 15 or 13 episode series. But if we take what they are able to do, maybe produce it in Canada and get a tax credit but also sell it in Canada, pre sell it in the UK and Australia, look at some other foreign markets, talk to our video distribution company Anchor Bay, what would they be able to do with the product, look and see if it makes any sense in a premium world. It certainly is going to make sense on the Internet as we are able through our digital company to start putting content around AOL, to Yahoo!, licensing and developing content that can go there and then we have AvantGo, which is our subscription product. So, what we've been trying to morph into is a company that really has a full slate of distribution. So from "soup to nuts" we can distribute content, now what should we do? Should we produce it ourselves, should we license it and of course we've got our anchor through Starz Entertainment, anchor arrangements with Sony and Disney where we get all of their films that would go to our premium channels.
Matt Kelly - PodTech News
And the Starz of today seems much different than the Starz of say maybe even just two years ago.
Bob Clasen - Starz Entertainment
Yeah, I've been with the company three years and became the CEO just two years ago and let's be frank that the multi-channel business is a mature business, 90 million homes out of a 110 million television households have some form of cable satellite, Telco multi-channel device. And in that world you see the cable guys working to package that with telephone and with high speed, satellite people looking for their niche in those products, the Telco is coming down and saying well I am going to have wireless as well. So, that's a pretty mature business so a lot of what we were looking to do was to go to the Internet with AvantGo, was to develop a way that we could produce and acquire and license content and put it on multiple platforms including foreign platforms. And you know be in the audience aggregation business, let's take content and see how many places we can put it and be able to finance very high quality content some of which would come to the Starz Channels but a lot of it wouldn't. We're selling content to show time, to ABC, to NickJunior, to the Sci-Fi channels, to Oxygen, so we think that there is a business to work with those program services and create content for them and put them across a very broad spectrum of distribution platforms.
Matt Kelly - PodTech News
In addition to selling content and providing content, are you looking at an advertiser revenue generation model that runs in co-relation to all this.
Bob Clasen - Starz Entertainment
Well, it's kind of three ways that we are doing that, first is a lot of what we could be looking to do in digital, not on AvantGo because that is no commercial content in AvantGo, this is where you're just seeing the content, it's a subscription model. But we think that we can license him and also produce content that can work in an ad supported environment on the Internet. As we produce things for broadcast and cable and satellite networks they are going to put ads in it, it's going to be an ad supported product that will drive their ability to help in covering the production cost and I think the third answer is, its hard to know what the right business models will be in five years. We think, we feel very strongly that the subscription model where you pay X-AvantGo you pay 999 and you get a thousand movies and a thousand other titles a month. That's a very straightforward and frankly very compelling consumer preposition, the way HBO and Showtime on ourselves did very well with movies where paper view, well do I want to pay $9 for that or $4 for that, how many do I buy, you know if my kids buy and all of a sudden I am paying $15 maybe I should have subscribed. So, I think there is probably an evolution going on in the digital world at the cable and satellite companies but also on the Internet and you've got to ask yourself what's happening when you take Desperate Housewives and you let people buy a copy of that through electronic cell through or paper view, what do they do with the commercials, do you put new commercials in, there is new technologies that are letting people take content and actually push it just laptops where its cashed and by pushing it rather than streaming it you can do it very efficiently and deliver high quality but do people want things pushed to them or do they want to choose things. How does that relate to linear channels? So I think the broad answer is, we are going to be experimenting in lot of places because I think the business models aren't quite set yet.
Matt Kelly - PodTech News
So, you've just entered the video download business and I've got to figure that you have got some high bandwidth costs that are associated with it. Can you talk about then the promise that peer-to-peer might play in the future for your company as a legitimate tool for the distribution of the large files and content to multiple users?
Bob Clasen - Starz Entertainment
Yeah, there is this fear factor that with peer-to-peer what's going to happen? Do you know Warner Brothers is using a peer-to-peer technology in Germany so the horse left the barn. We are working with a lot of peer-to-peer providers and believe that the strength of the DRM that we're using is what dominates and if you have a DRM that the algorithm is specific to the incident and we've been using both the real networks with our Starz ticket product and then with AvantGo, the Microsoft, nobody has called us up and said "Hey, we've made a copy" and we've had AvantGo 2.5 million downloads this year.
Matt Kelly - PodTech News
Two-and-a-half million, so it's a pretty robust security system.
Bob Clasen - Starz Entertainment
Our largest cost besides the content itself is the transport cost and we're working with Akamai, as we get bigger we're able to scale a little bit better and it does scale, but if you're using peer-to-peer that would take a nice chunk out of the cost that we're spending to transport a high-quality signal and get it to someone's home cross country.
Matt Kelly - PodTech News
You are part of the Liberty Media Group and along with QVC, Starz media has been attributed to helping lift Liberty in it's recent third quarter financials can you talk about that and the success of your group?
Bob Clasen - Starz Entertainment
Well, I remember that Liberty is really created two tracking stocks, the Interactive stock anchored by QVC and then two very large positions in Expedia and in InterActive Corp. Liberty is actually the largest share holder although Barry Diller runs those businesses. QVC had a phenomenal quarter and I go back to when QVC was founded I was at Comcast then when Ralph Robertson, Joe Siegel and the fellows got together and founded QVC, it's a tremendous success story. Its 20 years-old, it's just done a remarkable job and under its new leadership, Michael George who's come in from Dell is a marketing guy and he is really going to help re-invent that category. On our side, I think there were couple of things that happened that helped Liberty Capital where we are the largest operating company. First of all, we had a very good quarter, our revenues are up, we've been telling people publicly that our programming costs which were growing at double digits were finally flattening out and in fact that's happening to us so we had a very nice quarter but also the acquisition of IDT has let us start to talk to people about the New Starz that is integrated media company and has an opportunity too because we have the premium piece also take a look at the movie business which is what we are doing as well. We're considering what our role should be in the actual creation of theatrical movies because you're sitting today with Picture House, Think Yarry (ph) some of the Vines Team Dimension (ph) product, the Warner Independent Pictures without Pay T Videos (ph) and that's an important piece in generating enough revenue, theatrically, to make these things work when as least with the Temple Films are spending 40 and 50 million in advertising. So we think that it's worth investigating, we're taking a look at that as well.
Matt Kelly - PodTech News
And your final thoughts on movies over the Internet, the digital landscape and the position that Starz has as it looks towards the future?
Bob Clasen - Starz Entertainment
Well, the funny thing is when we sit down with people and talk about Windows, the good news I guess -- Matt you said the good news about the studios is that they have not done much to really change the Windows, and the reason that's so important to us is that when a movie; I'll use an example of The Da Vinci Code, which is just come to us in May I think we get it. For the next seven years, if it ever appears on the Internet in a subscription model, it's on AvantGo and if you go back, or go forward, the Windows for the premium category are so long and we don't have it that whole seven-year period, it goes into syndication but its not going to come in a subscription model on the Internet, so we feel very strongly that subscription will be a successful model on the Internet and we feel that our long-term rights from Disney and from Sony and the other ala carte titles that we buy, we always have several thousand library titles under license as well. We think that we'll figure out the right way to make that successful. I think that the studios have a challenge in that nobody really wants to go to the MGM website and download a movie, people frankly don't even remember too much which studio it comes from. The role of aggregators in the movie business, whether it's the channel, or the site, I think will become very important and there we sit with typically 35-45% of Hollywood's output that will always be available on our product.
Matt Kelly - PodTech News
My thanks to Starz CEO and President Bob Clasen for joining me on the Podcast. I am Matt Kelly for PodTech News.