Starz: The New Studio With Aggregation Power

The master plan is clear. “The goal of Starz,” said chairman and CEO of Starz LLC Robert B. Clasen, “will be to aggregate audiences by distributing programming across multiple platforms.” But like every master plan, the devil is in the details, and VideoAge went looking for those evil things that make matters more complicated.

To outline his strategy for the new Starz, the Denver, Colorado-based Clasen flew to New York University in November to deliver a speech at the Stern School of Business’ Future of Television Conference.

Starz chairman and CEO Robert Clasen

In order to better understand the “new” Starz, VideoAge visited the Burbank, California base of Starz LLC’s content powerhouse Starz Media, for an interview with its president and COO, John W. Hyde and an opportunity to review the history of the whole group.

Starz Entertainment Group (SEG) was launched in 2004 by John Malone’s Liberty Media as a cable and satellite channel follow-up to the Encore channel, which had launched in 1991, and the Starz channel, which began in 1994. In 2005, SEG generated over $1 billion in revenue. It became “new” last August with Liberty Media’s acquisition of IDT Corp.’s IDT Entertainment (IDTE) for $186 million in cash, plus 17 million shares of telephone company IDT Corp. and a five percent interest in IDT Corp.’s IDT Telecom which Liberty owned. 

Under the new structure, IDTE was renamed Starz Media, and Starz LLC became the umbrella company overseeing three operating units: Starz Media, Starz Entertainment and the recently formed Overture Films.

The structure of the new film company is fairly straightforward. Headed by CEO Chris McGurk and COO Danny Rosett, it’s billed as a production and distribution studio, funded with what news accounts have estimated at an initial $500 million for producing and acquiring up to 12 feature films per year. (Liberty did not confirm dollar figure, but did state that “the investment is flexible, depending on how well the films do. Liberty is fully behind Overture.”) “We don’t need money. We need great movies,” McGurk has been quoted as saying. Indeed, Liberty is fully funding Overture’s overhead as well as all negative costs (the cost of making feature films) and print and advertising on their movies.

The signal distribution division of the Starz system is now headed by William D. Myers and is grouped under Starz Entertainment (SE), which encompasses TV channels and IPTV service Vongo.

On the cable-satellite-Telco channels side, SE offers 13 major premium movie channels, including the flagship Starz and Encore brands — which serve 15 million and 27 million subscribers respectively — and three channels available through select cable affiliates. The channels operate under the tutelage of Edward L. Huguez (heading Sales and Marketing) and Stephan Shelanski (who heads Programming). Reportedly, even though feature films are SE’s primary product, the premium service will soon be adding original content to its offerings. In addition to its linear channels, SE operates on-demand services and a high-definition channel (Starz HD). Overall, SE “airs” more than 1,000 movies per month across its pay-TV channels.

Run by Robert Greene, and launched in 2006, Vongo is SE’s IPTV subscription movie download service, providing a menu of close to 2,000 movies and other programming as well as a stream of Starz channels to subscribers and pay-per-view customers via broadband Internet connections.

Reportedly, to these signal distribution services, Liberty is now adding a transport system in the form of satellite company DirecTV, after acquiring control from Rupert Murdoch’s News Corp. The deal, which adds DirecTV’s 15.6 million U.S. subscribers to Liberty Media’s SE, is an $11 billion swap of assets (thus, little taxation is incurred). In exchange for News Corp.’s 39 percent of DirecTV, three sports channels and $550 million cash, Murdoch received the 19 percent of News Corp. that was owned by Liberty Media.

According to Tom Southwick, the Englewood, Colorado-based senior vp of  Starz’s Corporate Communications, the DirecTV deal and the IDTE acquisition have a lot in common. “[They are] part of the long term strategy of Liberty to exchange its passive holdings in many media companies for operating companies. This is what is going on with News Corp. The objective is to trade the shares of News Corp. that Liberty owns for some operating business that News Corp. holds, such as DirecTV.”  

In order to program all those channels and services, Starz LLC has created a content powerhouse under Starz Media, which boasts five divisions: Starz Home Entertainment, Starz Productions, Starz Worldwide Distribution, Starz Animation and Film Roman. All these divisions are now housed under one large roof in a complex overlooking Burbank Airport. In addition, there are major offices in Newark, N.J. (Animation and Worldwide Distribution, soon to move to New York City), Troy, MI (Anchor Bay), Toronto, Canada (Animation and Anchor Bay Canada), plus satellite offices in the U.K. and Australia.

The Home Entertainment division manages the sales and marketing of content directly to the consumer through traditional retail and non-traditional channels. It is run by Bill Clark and encompasses two additional brands: Anchor Bay Entertainment U.K. (under Colin Lomax), Anchor Bay Canada and Australia and Manga.

Starz Productions is headed by Stacey Smart, and produces non-theatrical action programming for DVD release and sale to networks. The unit already produces such shows as Masters of Horror (for Showtime) and Masters of Science Fiction (for the ABC network).

The Worldwide Distribution division, led by Neil Braun, is split in two sections: Domestic (U.S.) Distribution and International Distribution, both headed by David Ozer.
Film Roman, best known as the contracted animation production company responsible for The Simpsons and King of the Hill (both for Fox), is headed by Scott Greenberg. This unit is also the production company for The Simpsons Movie that is slated for release this year, and the TV series Eloise, which is distributed by Starz.

Starz Animation develops and produces animated feature-length movies. Headed by CEO Kent Rice and president Janet Healy, the unit produces such movies as last year’s baseball themed Everyone’s Hero.

The future of Starz Media is promising. “Liberty wants to grow this company,” stated Starz Media president John W. Hyde, “and we’re looking at a number of opportunities.” He then continued: “We have assembled major production and distribution assets and merged them into Starz, giving us the ability to finance, produce and distribute worldwide in all media. We can further accelerate our growth by leveraging off of our diversity of assets and Starz’s strength in the entertainment business.”

Now that Starz Media’s Hyde has explained the operation of such a vast entity, we must return to Starz LLC CEO Robert Clasen’s presentation at New York University to understand its “aggregator” business model. Because, as Clasen explained: “We at Starz are not in the theatrical movie business or the DVD business or the cable and satellite business. We see ourselves as being in the business of audience aggregation.”
He continued: “The turmoil in the media world is [a result of] the rise of new digital distribution technologies. But with such splintered audiences how is it possible to gather the viewers one needs to generate the revenue — either through advertising or direct sales — to create quality programming? That’s the role of the audience aggregator. And that is what we do at the new Starz.”

“Here is how we do it: We go to the network first and ask them what kind of show they need to generate ratings and to sell advertising. Then we ask them what their budget is. Let’s say a network tells us [they] can afford only 60 percent of the cost of a production. We might then go to a broadcaster in Europe or Australia and ask them if they are interested in a similar show. One of them might come back to us and say that they would be, but only if a specific actor was available to play the lead. So we sign up that actor.  Then we might go to our home video division and ask how many DVDs they think they might sell and we check with our Internet distribution unit and see if it could work on the Web as subscription, pay-per-view, electronic sell-through or burn-to-own.”

He continued: “Then we put all that together, and by aggregating the audiences on different platforms we can ensure we have a reasonable chance to generate sufficient revenue to fund production of the [show]. And, because we control so many outlets we can experiment with a program on one platform. If it works we can then migrate it to other outlets, reducing our financial risk.”