Aligning Starz

Starz CEO Chris Albrecht’s recent schedule in New York City reflects a busy time for his premium network. There were premieres for the new Steven Soderbergh-produced series The Girlfriend Experience and for returning romance hit Outlander and, related to the Scottish kilt drama, the Tartan Day Parade to attend. (Outlander star Sam Heughan was grand marshal .) That’s not counting the phone calls he planned to make to key distributors, letting them know Starz was about to announce a new direct-to-consumer (but not cannibalistic) online service on April 5.

“It has been said to me by the people that run these companies that of the many things that have been done by our fellow premium services, one of the things that pissed off people the most was that they didn’t get a heads up. And we’re not that kind of partner,” Albrecht told Multichannel News editors during a March 30 visit to the magazine’s offices. With him were communications executive vice president Theano Apostolou and global marketing and product planning president Jeffrey Hirsch, the former Time Warner Cable executive who’s also been busy communicating with affiliates about Encore channels rebranding into Starz Encore.

When Albrecht, a former HBO chief, joined Starz in January 2010, it was a movie service experimenting with some original shows, like Party Down. Now it’s tracking to a goal of 85 to 90 new original series episodes per year. Owned by John Malone’s Liberty Media when Albrecht joined, Starz was spun off in 2013 and has been a takeover rumor on a continuous basis. It also has started to produce real hits with passionate viewer bases, including Outlander, pirate drama Black Sails and the top-rated, New York City-based Power, from executive producer Curtis “50 Cent” Jackson.

Albrecht and company spoke with MCN and B&C editorial director Mark Robichaux, editor Kent Gibbons, programming editor R. Thomas Umstead and senior finance editor Mike Farrell about the state of Starz and the pay TV business. Edited highlights follow.

MCN:Let’s get this out of the way: What can you tell us now about a sales process? Is anything imminent?

Chris Albrecht: I can tell you very directly there’s never been a formal sales process. If there had been a formal sales process, we wouldn’t be here talking about this stuff because someone else would own Starz. You don’t put together a formal sales process and then end up not selling the company to somebody. There have always been lots of strategic discussions.

The interesting thing, if you look at the media business — with all this talk of consolidation and everything and all the sense that putting parts of these companies together, whether it be people looking at what’s going to happen with Sumner [Redstone at Viacom] or the changing of the guard at Fox or now that [Time Warner Inc. CEO Jeff Bewkes] has reduced Time Warner to a digestible piece. So many questions for so many companies, including the free radicals that Malone talks about.

What you realize is that the media business is not a business run by people who are dealmakers. They may be show-makers, they may be schedule-makers, they are terrific executives, but they’re not deal guys. Bewkes has done a great job spinning off stuff , Sumner has split up stuff , Rupert [Murdoch of Fox] does some giant things, [Disney CEO Bob] Iger’s got his four, five, six billion dollar price range that he’s done a wonderful job at. But this is not a business where M&A is …

MCN:Driving everything.

CA: If you’re a Liberty [Media] company, which I had the opportunity and the good fortune to be a part of, you’re working with guys who live for this, right? These are deal guys. All the value they’ve created, everything that’s happened in John’s career has been deals. It’s not like John decided he wanted to be a cable operator. John Malone is, you know, a visionary in this space. So of course there are always conversations going on. And unfortunately everyone has big mouths. People see you walking out of a meeting, and they assume that there is a transaction that’s imminent and then, sort of irresponsibly — no offense to the press, you guys not being one of those transgressors — put out information that is completely unfounded, denied, and then it just becomes almost laughable, if it wasn’t for the fact that it affected so many people’s lives in such a kind of stressful way, the employees of Starz and stuff like that.

But it’s my job, it’s our job, to continue to find ways to build the business. And I firmly believe, John Malone firmly believes, [Liberty CEO] Greg Maffei firmly believes, I think the board of Starz firmly believes that aligning ourselves in some way with other people who can create better opportunities in a combined structure just makes sense. We could be the people that are the leaders. We don’t have to be bought in order to have that happen, and we haven’t been sitting back, waiting for someone to come put us out of our misery. What we have been doing is taking care of our knitting.

MCN:It sounds as if you don’t feel the need to merge or do a deal with anyone right away.

CA: I don’t. I do believe that eventually we will see those kinds of deals being made in the space that Starz lives in. I do believe that Starz is a logical, valuable and potentially powerful addition in a partnership or in a combination structure. We’re unique in our business model. And we’re just getting started on what I think is the new era for Starz. And it’s a direction that people are trying to go in. We’re a small company, relatively speaking. But we still make a lot of money at really high margins. And inside most companies, that ain’t chopped liver. We’re large enough to make a difference, we’re small enough to be nimble on our own and we’re small enough to fi t into a lot of different kinds of structures.

Look, do I think something is going to happen eventually? I think a lot is going to happen eventually. Do I think Starz is going to be a part of that? I think it would be foolish for us to not try and sail in those waters if there is value to be created because our job is to increase value for the shareholders.

From my point of view, Starz is an undervalued asset right now because the opportunity far outweighs the risk. We’re stabilized. We’ve got our product in order. We’ve got a new technology that we think is going to offer us a great opportunity. Now let’s go grow the top line. Now let’s go show people that Starz is an active company with a long and healthy future. And if people want to come in and out of the stock, great. If people are coming in for M&A, maybe there will be a deal tomorrow, maybe there will be a deal three or four years from now. In that period of time, however, we believe in the value of our stock, in the value and strength of our company.

MCN:Isn’t there a fairly high amount of risk now, though, to be a premium channel that’s either number two, number three, in that category in a world where people are paying $9 for Netflix or they’re adding on Amazon Prime, where they have so many different options?

CA: There is always more competition, and I think some of the decisions we’ve made show that we can play in that space. We also have the opportunity of still having a pretty good business with guys that aren’t going away any time soon.

We know we’re not going to be Netflix but we can be somewhere in between a true premium channel and an SVOD service. And if we can grow our business effectively, then we are just a good stock to have in your portfolio. If we can put on really compelling programming that fits in some of the cracks that we see and appeal to audiences that respond to our brands and give them not just the products but the features that they can access that stuff , then I think … Look, any business that continues to grow is a good business.

MCN:Stepping back, then, where is Starz at this moment in its evolution, based on your strategic vision?

CA: This is an important time for Starz. For the last six years or so, we’ve been kind of cleaning up some business decisions that had been made by Starz to go into the movie business; to make a Netflix deal; as a part of Liberty to have tracker stocks, two tracker stocks, one tracker stock; to be reattributed to Liberty; to be spun out by Liberty; the decision to go into original programming; the decision and the announcement for Liberty to spin away from Starz. You know, along with just doing your job of selling subscriptions and working with [multichannel video program distributors] and growing an original programming lineup, that’s been more than a full-time job.

We’ve been looking at an evolving landscape in the media business, and I think all of those things, for us, have pointed to a lot of opportunity for the subscription television business, premium channels, of which we consider there to be basically three — us, Showtime and HBO. The SVOD services aside — Netflix is a true SVOD service; Hulu, kind of a hybrid; and Amazon, a great retailer that has decided to give video away for free until recently they made a deal with us and Showtime and a few others.

In looking at that evolving landscape, we thought that it was important that we preserve the very important historical relationships with the largest video suppliers in the world, which are the MVPDs, and yet take advantage of what seems to be now an inexorable pull towards alternative choices, be it alternative choices in the packaging offered by the traditional distributors or be it alternative choices offered by new entrants who are looking to create an architecture of virtual MVPDs or wholesalers.

And then to look at this opportunity to say, OK, the biggest obstacle to the expansion of premium subscribers over the decades that there have been premium channels has been two things. One is content objectors, who don’t want uncut, uncensored movies in their homes. The other is just price. As basic-tier channels and sports rights and everything just pushed the price of entry up, with the premium being the cherry on top, that became more out of reach of even more people.

And yet, when you look at the content that people want to see and the features that they want to use and the way they want to watch it — commercial free, at their leisure — you think, OK, well the premiums, we’ve got [multiplex channels], we’ve got choices, we’re ad-free, we’ve got the kind of originals they want, we’ve got the technology features, on-demand, authenticated apps. We’re what they want — they just can’t get to us.

And how do we get it to them and how do we not have it cannibalize our current business? How are we more distributor-friendly while we’re trying to do this, and how can we maybe even have the two of them work together and show ourselves as a more forward-thinking, more technologically-based company?

MCN:Is it harder to get the distributor’s attention, to get them to prioritize marketing your service?

Jeffrey Hirsch: I think first and foremost, gaining and keeping subscribers is the biggest priority for them. And I think figuring out how to grow revenue on top of that, obviously, is the second priority, and that’s where we come in. So if we can help in any way — whether it’s putting this app on top of the broadband-onlys to drive more upside there — then we are willing.

CA: We make money for them. We are not in there jamming them with big price increases. We just want to grow our business consistently in their lane.

MCN:Do you see more companies like Netflix or Amazon emerging?

CA: It’s hard to make shows. I know everybody thinks it’s so easy. [Laughter.] Let me tell you something. It’s only television, as I like to say, but on the other hand this isn’t so easy. So you’ve got YouTube out there; you’ve got Google. I mean there are big companies that could decide to do anything, but big companies can trip over themselves. Just because somebody does one thing well doesn’t mean they’re going to be able to do everything well. There is obviously some synergy in how a lot of companies can make money together, to the question you had before: “I did this well, you guys did this well, let’s do both things even better together.”

MCN:Do you think we are hitting a ceiling with regards to the amount of content that’s coming into the marketplace?

CA: I sure hope so. [Laughter.] I think what you’ll see is — I think you’ll see people kind of going to the sidelines. Not everybody is going to be able to do this, particularly ad-supported [networks]. Again, I like the subscription model, I like the premium, non-advertiser supported model.

The big broadcast networks, some of the big channels, right now they’re doing great, they’ve been well-funded for a while. But I think there’s risk. Less eyeballs don’t hurt us. Less subscribers hurt us. Less eyeballs hurt advertiser guys, and if they can’t charge enough money for their commercials, then they’re going to have a hard time getting enough money to make shows.

That to me is a world that I think has got a different trajectory, different challenges than where we are, which is a model that kind of is what everybody else is trying to get into. You know? Not a lot of people are trying to build ad-supported stuff right now. Everybody’s trying to build subscription, non-ad-supported stuff. So, hello, we’ve got that. Now let’s figure out how we can do more of it better.

MCN:You’ve taken a different tack than most networks in that you’re reaching out to different target audiences with your content, be it African American, urban, Hispanic. Will that continue?

CA: Yes. We’re going to expand on that. And it’s even the millennials with [Ash vs. Evil Dead], Blunt Talk, some of the other things that we’re doing. We’ve got American Gods coming up. Targeting a specific audience makes a lot of sense. It helps you focus your marketing, helps you focus your PR, helps you know what you’re doing. Through social media, through all of these opportunities, put something on that appeals to a demographic group, especially if they are avid users of social media, especially if they’re vocal.

And although we may not have the biggest audiences on television, we do absolutely, by major social media platform metrics, have some of the most engaged. That’s good, because they’re going to talk about the show and other people have a chance to find out about it and that’s the best recommendation engine you can find. Other people talking about the programs and then ultimately talking about your brand.

MCN:What about bingeing? Are you going to extend the practice now of launching some series in advance, all the episodes, much like Netflix does or is that something that you …

CA: We’ve got two shows launching the same weekend: Outlander [April 9], which is going to be one episode at a time, and The Girlfriend Experience [April 10], which is dropping them all. Different audiences, different shows.

And just because we drop all the episodes doesn’t mean that people are obligated to watch them. Look, Outlander is a big-tent show. If you want to watch a season of Outlander, for me, however long, I binge it — as a grownup, I don’t really have that much time. But when we got all the rough cuts delivered to us over the summer from [Steven] Soderbergh on Girlfriend Experience. I got them on a Friday night. I woke up Saturday morning, I had a beach house for the summer and I thought, ‘All right, I’ll watch a couple episodes.’ I downloaded them all. I’ll watch a couple episodes, I’ll go and take my bike, go to lunch, come back, I’ll watch a few more, I’ll go to dinner, I’ll watch the rest tomorrow. I started watching them, 13 half-hour episodes. Six and a half hours later, I was starving, but I was like, ‘Holy shit, what was that?’ I could not stop watching it. It was fantastic. And the research showed that young women — maybe even counterintuitively, until you see this amazing performance by [series star] Riley [Keough] — are actually drawn to this show and they’ll enjoy being able to make that choice to watch multiple episodes in a row if they want to.

MCN:We’ve talked about everything that’s coming in on Starz. Disney movies are going away in another year. How do you fill that void? You get oneStar Warsmovie [the 2015 box-office powerhouseStar Wars: The Force Awakens] and you’re out.

CA: I like to say we have the only Star Wars movie. [Laughter.] But I mean, look, if you’re looking at the launch of this thing that we’re talking about, so you’ve got Outlander and Girlfriend Experience into Power and Survivor’s Remorse, into Ash and Blunt Talk and over that the only Star Wars movie. You know, Disney is a great partner. Sure, it would have been great to have them. We love the Sony guys and the future that Rothman has there. We need good movies, we’ve got library deals with everybody. I’m telling you, if you’re looking for a movie to watch, you’ve got a better shot at finding something you want to watch in a library deal than hoping that the studio output deal that you have is getting lucky. And by the time it flows through the theaters, flows through pay per view, flows through home entertainment, flows through whatever, [electronic sell-through], not that many people still are waiting for it in the pay window. But something they haven’t seen for a few years, you go, yeah.