Breakfast with Starz’s Bill Myers

By Dom Serafini

To understand the complex world of Starz Entertainment, one needs to start with a good breakfast, preferably with its president. Starz is a large and multifaceted entertainment group that is part of a larger conglomerate headed by Liberty Media: e.g., John Malone who, last February, swapped his 16 percent stake in Rupert Murdoch’s News Corp. for Murdoch’s 41 percent of DirecTV, the world’s largest satellite platform, plus $625 million in cash.

Bill Myers
Starz's Bill Myers

William (Bill) D. Myers is the 50-year old president of Starz Entertainment, which is based in Englewood, a suburb of Denver, Colorado. Myers’ title, which in 2006 added the COO responsibility to his previous CFO moniker, reflects his 20 years of experience in the financial world, where he worked before joining Starz in 2002 from another Liberty subsidiary. Myers has been working with various Liberty entities since 1989. Previously, he worked at accounting firm KPMG’s Denver office.

VideoAge journalists met Myers first in New York City and, later, in Cannes during his first foray at MIPCOM.

Between a glass of orange juice, a cup of coffee and an English muffin with marmalade, Myers explained that his two divisions (Starz Entertainment and, since last July, Starz Media) operate 16 TV channels, several production units, worldwide program sales and home video distribution divisions. The production division includes Overture Films, Film Roman, Manga Entertainment and Anchor Bay. The international distribution arm of Starz Media is based in Burbank, California, and is headed by evp Worldwide Distribution, Gene George.

While a few years back Starz’s strategy was to try to reach consumers directly –– without the middleman –– via broadband, today the company is back with its traditional model as a content aggregator for various distribution platforms (cable, satellite, broadband and home video).

“Five years ago our main challenge was our linear channels, then we tried to go into retail with [IP-delivered] Vongo, but now we’re back to being an aggregator, a wholesaler of content. The battlefield right now is with HD,” said Myers. Similarly, up until a few years ago, the U.S. studios’ mantra was also to eliminate the middleman. Today, according to Myers “it doesn’t make sense for the studios to reach consumers directly.”
In terms of innovation, Starz’s sequence has been: first the development of linear channels, then on-demand channels and, most recently, HD channels –– all with a subscription base.

The combination of a major content producer and content buyer make Starz one of the world’s major suppliers to content distributors. “Our strength as an aggregator comes from the fact that we produce and are able to offer volume to our distributors. The strength of an aggregator is in the volume of content that it is able to offer to various platforms,” explained Myers, “and we have long-term relationships and agreements with many production companies until 2013-14.”

Then, where would Myers place IPTV? “That technology is still a mystery,” he replied. “IPTV technology is not yet clear. I’m not aware of a study that offers a good picture. Possibly satellite services are investigating it, but I don’t have any information.”

How does he see the future? “For the next five years, the distribution business is going to be the same as today’s. After that no one knows yet how this will change. The only thing we know is that it will not be a business model like the one we have today. But no one has thus far figured out what the next business model will be.”

Starz’s current business model is just a one-tier model. “Our business model is a per-sub fee from our distributors. We don’t run ads.” Its 16 channels are offered to distributors (cable and satellite and broadband operators), which in turn package (bundle) them for consumers who have to first pay a basic fee to get the cable or satellite service, and then pay for the Starz “premium” channels. The agreements with the distributors can be in revenue split or simply a fixed rate. Even though VoD is often equated with pay-per-view, for Starz it is just subscription VoD, meaning that customers pay a flat fee and can view content at will when it is most convenient. Conversely, linear TV services are called “appointment television.”

Under the single-tier business model, profits for Starz are the difference between what it invests annually in content and what it receives from distribution partners. “We buy subscription rights, which includes on-demand,” said Myers, “The way for us to grow is to [increase the number of subscribers].”

An overview of Starz’s suite of 16 video subscription services shows, for example, that the on-demand channels average 450 titles per month, while HD on demand averages 100 titles per month. The IP-delivered “Starz Play” stream has 2,500 video selections and 1,000 movies.

On the content side, Starz has two forms of acquisition: 1) New release films under output deals (for 18 months). These include a second pay-TV window (for 12-18 months) after the five-year broadcast window. 2) Library content, nine-to-10 years after theatrical (with each movie licensed from single or multiple airings to many months or years).

The window Starz falls under is the pay-TV window, which is 10 months after the theatrical release. The window lasts for 18 months (and includes IPTV and downloads). The fee paid for new release movies is tied in with the theatrical box office success of the movies.

Navigating through various distribution rights could be a complex endeavor, but they can be simplified as:
1) Electronic subscription rights (Starz gets them exclusively). These can be:
            a) VoD
            b) Linear
2) Transactionally-based rights. These can be:
            a) Retail business (purchase of DVDs)
            b) Rental (electronic and DVDs, i.e., hard goods)
3) Retail (hard goods or electronic, like VoD a la carte).

In addition, in order to clear up possible confusion with various windows, it is to be assumed that each movie is subject to these release windows:
            a) Theatrical
            b) DVD (four-to-five months after theatrical)
            c) PPV (one month after DVD)
            d) Pay-TV window (three-to-four months after PPV)
            e) TV broadcast (five years after theatrical)
            f) Pay-TV second window (five years after broadcast)
            g) Library rights (10 years after theatrical).

In other news, the John Malone-controlled Liberty Media Corp. recently reported that because of timing and market conditions, it may not go ahead with its previously announced spin-off of Liberty Entertainment, which includes Starz Entertainment and a stake in DirecTV Group.

Meanwhile, revenue from Liberty Interactive, which includes TV’s home shopping network QVC, rose two percent in the quarter due to last December’s acquisition of Revenue from Liberty Entertainment surged 21 percent following last February’s acquisition of Liberty Sports Group. The planned spin-off of the Liberty Entertainment tracking stock into an asset-backed stock was viewed as a possible precursor to a merger, acquisition or sale of Liberty’s 49 percent stake in DirecTV. Revenue from Liberty Capital, which includes the Atlanta Braves baseball franchise and interests in Time Warner and Sprint Nextel Corp., climbed 16 percent to $221 million on a strong performance from Starz Media’s 2008 film slate, including Space Chimps, Righteous Kill and Traitor.