THE PURCHASE TWO WEEKS ago of Anchor Bay Canada is just one small new piece of the strategic puzzle for Starz Media.
Best known for its U.S. pay services Starz and Encore, Starz Media has its fingers in many pies at the moment. And just like Canadian media companies, it too is struggling with the opportunities and challenges presented by the ever-shifting media landscape.
Being a pay TV service is a lucrative business of course, but with viewers wanting to pull in content off the web to their TVs or iPods – or the other way ’round, Starz – like most other media companies – is experimenting and expanding its focus, said chairman CEO Bob Clasen. It wants to own content and to be able to distribute it in as many ways as possible.
Clasen was in Ottawa to close the deal on acquiring IDT Entertainment’s Canadian assets two weeks ago (as reported by Cartt.ca) and Canada is someplace he’s familiar with, having spent some years in the 1980s with Rogers Cable, overseeing the company’s U.S. cable assets.
While here, Clasen talked with Cartt.ca editor and publisher Greg O’Brien on the company’s Canadian strategy and his thoughts on our ever-changing media landscape.
Greg O’Brien: Let’s start with the acquisition. What does the Anchor Bay move mean to Starz in Canada and to Anchor Bay for that matter?
Bob Clasen: Well that’s really the better way to look at it. Starz of course is anchored by a very large premium pay TV business in the U.S. Sixteen channels and 28 million Encore customers and 15 million Starz customers. But (we) aren’t licensed in Canada.
The U.S. the marketplace is pretty mature now – if you wanted to have cable or satellite service, by now you have it. So part of our growth strategy was to look for diversification, but I think it’s anchored by our background in film and television. So, in acquiring a group of companies that include Anchor Bay, what we’re headed toward is an integrated distribution network that we would then feed with either things we’ve produced, or things we acquired.
So how it affects Canada is that while we don’t have a pay TV business to distribute, we certainly, in Anchor Bay, have a great video business. And the opportunity for Anchor Bay in Canada is being affiliated with a larger media company (Starz is owned by John Malone’s giant TV and distribution company Liberty Media) as opposed to being controlled by a telephone company.
GOB: Anchor Bay was owned by whom?
BC: By IDT, which is a phone company that — my words not theirs — kind of backed into the media business in a subsidiary, looking for ways to potentially use telephone lines to do things and ended up acquiring a group of assets that included Anchor Bay and some others.
GOB: All right. With the home video business in Canada, what are your plans?
BC: Well we would expect to be doing much more in the way of putting more content into the Anchor Bay network. Anchor Bay, behind the major studios, is the largest home video distributor in North America, and by working with our access to content – we buy from Hollywood US$600 million worth of movies for pay TV – it does give us leverage then to take a look at what other films can we acquire. They could be made available in the U.S. on our pay business, but then around the world in our home video business.
GOB: Now, you don’t mean you’ll be adding a retail web site or anything like that.
Jerry Woodburn (GM, Anchor Bay Canada): We’ve been in business here at Anchor Bay since 1989 and we certainly have the network set up. We deal with all of the major retailers across Canada on a regular basis and all of our film that’s done out of Canada. We’ve just come off a record year for sales here in Canada with a pretty broad spectrum of product… We’ve really covered a really broad base of programming that’s positioned us extremely well in Canada.
GOB: What are some of your more popular titles?
JW: Well if you look at TV on DVD we have things like Rosanne, Three’s Company, 21 Jump Street. If you look in the horror categories, notable titles would be Halloween, The Evil Dead, the Dawn of the Dead… and just recently the Masters of Horror series which was produced here in Canada. There is certainly more planned in that area.
And then in the children’s you know Thomas the Tank Engine and Friends. If you have any youngsters you might be familiar with that one.
GOB: I’ve got a two year old and eight year old, so sure.
JW: Then into the fitness category – and this is another significant area for us to penetrate that special interest category with quite a few different brand names – everything from Crunch to the "For Dummies" line, 10-Minute Solution. So, a real broad base of programming that’s positioned us extremely well with our retail base and certainly a strong consumer loyalty to the brand as well.
BC: So from a consumer-facing perspective Anchor Bay Canada will continue to be our primary distribution platform.
But I think the other side to some of our acquisitions also allow us, from a secondary perspective, to be in the production business. As Gerry said, we’ve just done Masters of Horror, Masters of Sci-Fi, we’re kicking off a Painkiller Jane series for Sci-Fi Channel (produced by Insight Films Studio with Starz as an investor and distributor) by . And then of course in Toronto, we have the studio that just did Everyone’s Hero that Gene Shalit raved about this morning on his program and is still in wide release both in the U.S. and in Canada. In fact it only had a 50% percent fall off from the first week to next, which hardly ever happens.
And in Burnaby we have a studio that’s producing what will be our next movie, which is called Space Chimps, and we’re doing that with a joint venture with Vanguard that’s controlled by John Williams – who is the guy behind Shrek. We’re doing that in a facility we have in Burnaby. And we’re already in production, and back in Toronto now with our third film, which is Sheepish. So we’re doing a lot of live-action and animation production in Canada, but I think from a consumer perspective, it’s all about Anchor Bay.
GOB: There’s some kind of movie shoot going on around the corner from my house today, actually. Something called Lies and Crimes. I’ve no idea who’s producing it or anything. When you look at the overall media market in general, where do you see it going? Where’s the multi-platform universe headed?
BC: I think we’re right in the middle of that. Although we’re not yet licensed in Canada, Vongo (Liberty Media’s film download site) is the premier online subscription movie service. US$9.99 a month and you can download for windows of time up to a thousand movie titles from the Starz new titles and library. It’s been very well received by the critics and by the PC industry and we’re now starting to make an effort in the consumer market. We’ve partnered with HP. We’ve partnered with Toshiba with their new gigabit product. So from our perspective it’s all about the new platforms. In the US we’re working closely with Verizon and FIOS system.
We’re working with AT&T and what they’re doing with their Home Zone product. So if you step back and look at us in the U.S., where there’s 90 million television households, our Starz product, which is a premium movie product, is only in 14 million because you’ve got to buy up to $40 or $50 or $60 before you can buy some of the premiums some places.
And yet we can just go on the Internet and just sell it for $10.
GOB: Vongo wasn’t available to Canadians last time I looked.
BC: No it isn’t. We’d love it to be. We think we will end up with a Canadian version that will have a different array of products. That probably is part of why we want to be in the production business. From our standpoint… we have all this English-language content that we’re either producing or can acquire and while we’re never going to be able to take the big Sony and Disney titles that are part of our television service, I think that we can acquire other product, and we are going to be producing our own movies by this time next year.
GOB: And that’s a problem with a lot of this online or direct-to-consumer stuff is that so many of the existing content contracts are tied to geographic copyrights where certain companies have the rights in the States and other companies have the rights for you know all across Canada. So it’s hard to do it on a North American basis.
BC: I just got an idea that we should be looking at pay-per-view at EST (electronic sell-though) rights because, for example, our big studio partnerships, Disney and Sony… they’re not going to give us rights for Canada because there’s another licensee up here for their business.
But we are going now to Fox and to Warner and the others and getting either pay-per-view or EST rights on the Internet. And it just occurred to me there’s no reason why they might not give us Canadian rights because there giving those rights pretty much to folks on a non-exclusive basis.
GOB: What’s EST stand for again?
BC: Electronic sell through. That’s the step before you get to burn to own… In electronic sell through you are able to download the movie and keep it on your laptop or on your server forever, but you can’t replicate it. That is a little inconvenient because we throw away our laptops every few months.
But that sophistication will change over time. So I don’t think it’s a home-run business. But as you do get the next wave, which will be burn to own, where people can burn their own DVDs, which will have a separate inscription, or be able, as inscription gets better to move them from one server or laptop to another – I think people will start to create their own libraries.
GOB: Well that’s just it. People want to be able to take this content and put it on whatever device they may feel is appropriate, whether that’s their laptop, their PC, their TV or their iPod.
BC: Well then you see what DVRs are doing to television viewing. We certainly see it. We have Starz On Demand. We have Encore On Demand and because we’re movies, our two products have the longest curve use of any product, which is good glue for the cable operators.
GOB: I’ve got two PVRs — we call them PVRs up here for some reason instead of DVRs. How far away do you think are we from all content on demand on any device?
BC: That’s a good question. I think we’re a long way away, frankly. I think it’s five to seven or ten years. I think the man in the street doesn’t mind flipping channels still.
They’ll start flipping high def before standard def pretty soon as that proliferates, so a lot of what we’re doing as we look for content on the Internet or we think to create content is to kind of create the new-wave content that young people are looking at and also figure out ways to put it on more traditional, linear channels and let it get to a broader audience. We’re fond of saying the Simpsons started as a piece of interstitial content (on the old Tracey Ullman show) and grew into a 20-year run. And that’s the kind of thing we’re looking for.
At Starz we’re trialing 10- and 15-minute series just that we can put between the movies. And if something really takes off then we’re in position to do it as a half-hour show or try it as a long-form theatrical.
GOB: I was about to ask you sort of how the new media world was affecting Starz’s business model. But I guess that’s one of the ways you’re addressing it.
BC: Yes. And also, in the U.S. anyway, HBO and Showtime have left the all movie category. So, you live and die by the strength of your originals, and we’re happy to be there right now as all movies with 16 channels – and they’re good genre channels or they’re demographically targeted. You wouldn’t let your young kids watch Starz Edge. You’d send them to Kids and Family. But if you’re an 18-year old male you’d go to Starz Edge and watch the stuff that we’ve got there.
GOB: Is it tougher dealing with cable in the U.S. and what they’re demanding from you now as to what they have asked for in the past?
BC: Absolutely, with consolidation… And even on the studio side, they have gone through a consolidation. Two-thirds of our revenue comes from four customers, the two big satellite guys and Comcast and Time-Warner.
And on the studio side, you know, MGM has really gone away. There’s been a real consolidation, so we’re getting squeezed at both ends. Hence what’s our reaction? Well we’re going to the Internet. We’re going to telephone distribution to expand our market share on the distribution side.
We’re going to home video with Anchor Bay and on the production side we’re going to produce our own stuff.
GOB: Do you think animation will have a central focus?
BC: Animation’s kind of a funny character. All of a sudden a couple big $100 million animation films hit, and everybody says, “I can do that.” We look at it much differently. We look at what can we do with either 2D or 3D animation? And if we have enough distribution and are in a position to do the financing of it the right way, we can take it directly to Anchor Bay, or we can take it in the U.S. to our pay TV business, or we could take it theatrically. So we’re going to be coming out in the spring with a 2D movie by Rob Zombie – and we’ll distribute that in Canada I’m sure. There’ll be a cult following: It’s a low-budget, high concept, wild movie.
GOB: Oh, I’ve got a little bit of Rob Zombie on my iPod, so I know the music and I’d imagine it would be.
BC: From Starz parent perspective, we think that we need to be in a lot of different places. We need to be in home video, we need to be in electronic download. We need to be with all of the traditional broadcast distribution methods and we need to be producing some of our own stuff, and we need to produce things that we can sell into as we’re doing with Painkiller Jane into the television network for it’s first window.
Then it might go to the foreign market. Then it goes to DVD. It might even come back and play on one of our channels or something.
GOB: How much of the stuff made in Canada qualifies as Canadian content? As you know our rules require certain qualifications to be met.
BC: Painkiller Jane, even Everyone’s Hero, these were all done under those rules and the licenses and the copyrights stay in Canada. That’s why we needed to be up here and close the deal, to be sure that we had all the i’s dotted and t’s crossed.
Pictured are Jerry Woodburn, left, and Bob Clasen. Photo by Fred Cattroll.
