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Sticker Shock for Startup

A new, Viacom-led entertainment network, first announced as a premium service, is instead trying to get traction as a digital-basic channel, with a license fee of $1 to $1.50 per subscriber, according to cable-TV executives.

The monthly license fee floated by the unnamed service is raising eyebrows among cable operators, who are questioning the value — at that price tag — of yet another movie-based network.

In April, Viacom's Paramount Pictures, Metro-Goldwyn-Mayer Studios and Lionsgate unveiled plans to launch what they called a “next-generation” premium TV channel and on-demand service. The linear network is slated to debut in the fall next year, with a video on-demand or subscription VOD component rolling out sometime before then.

Mark Greenberg, president and CEO of the tri-studio joint venture, last week declined to discuss his rate card, or even whether his service is seeking carriage on digital basic, rather than as a subscription pay TV service.

Greenberg said that the startup will have an attractive lineup of new films, titles such as Iron Man and the popular Tyler Perry movies, as well as a host of HD content on the linear network and on-demand service that will make it a valuable service to distributors.

“We're exploring a lot of different options with our clients, and we're open and flexible to being responsive to where they want to go,” Greenberg said. “Today, everyone in the business has a lot of different ways of packaging and pricing and putting themselves out in the marketplace, and we're no different.”

Greenberg also said that a unique carrot the new service is offering to distributors is “market exclusivity,” or the ability to offer the new service for a temporary period — some say three years — exclusively to satellite or cable. He declined to offer many details.

“Having content that no one else has can be valuable,” Greenberg said.

The movie studios Paramount, MGM and Lionsgate decided to team up and create their own network, as an outlet for their new films and library movie and TV titles, after failing to reach new output deals for their theatricals with CBS-owned premium network Showtime.

Paramount's output deal with Showtime expired Jan. 1, and MGM and Lionsgate's output pacts expire the end of this year.

When the startup joint venture was announced this spring, many executives expressed skepticism whether it could make any headway in the mature pay TV business against the incumbents HBO, Showtime Networks and Starz Entertainment.

But in presentations to distributors this summer and later, the Viacom-led service changed its tack — or finally revealed its true intentions. “They're really not interested in being a premium service,” said one cable executive who saw the pitch. “They want to be more of a digital basic.”

For example, in its talks with operators the joint venture is describing itself as a first-run movie network “bringing box office hits to your digital basic subscribers earlier than before,” the official said.

The new Viacom-led service is proffering different deals and different license fees, to different cable companies. Some operators were quoted a $2 a month, per-subscriber license fee, but many others have been told the $1 to $1.50 range.

“Quite frankly, this is nothing more than a Hail Mary pass,” said Ed Huguez, executive vice president of sales and affiliate marketing for Starz Entertainment, referring to the new network's strategy.

One cable operator called the proposed $1.50 fee just the new service's “opening salvo” in negotiations. It appears that the most common deal being floated is one in which the Viacom-led service asks to be paid a license fee based on all of a cable operator's digital-basic subscribers. For example, if an operator had 500,000 digital subscribers, it would pay $1.50 a month for all 500,000, or $9 million a year, for the new joint-venture network.

Premium services such as HBO and Showtime offer a variety of deals to distributors, some based on splits of monthly subscription fees and some based on flat annual fees operators pay. One common HBO deal is for the premium service to get half, or $6, of the $12 a month subscription fee that operators charge subscribers for the service.

As part of its portfolio of networks, Starz already offers distributors digital-basic movie services with on-demand components, namely MoviePlex, IndiePlex and RetroPlex, with premium-network content at a fraction of the price that the new joint-venture service is asking, according to Huguez.

By launching as a digital-basic channel, rather than a subscription pay TV service, the Paramount/MGM/Lionsgate joint venture would be guaranteed a steady revenue stream immediately, rather than waiting for subscribers to sign up for a pay-TV service. While Greenberg won't discuss the specifics of his talks with distributors, the Viacom-led service is touting the fact that it has multi-platform rights that only a studio-owned entity can provide, and has the ability to be flexible about using film content on a variety of platforms.

In making the case for the new service, Greenberg not only cited the new titles that Paramount, MGM and Lionsgate have in the pipeline for the new network, but also the fact that such movies are the big drivers and most popular content on premium services.

In a recent interview, Lionsgate CEO Jon Feltheimer said that his studio, MGM and Paramount spend roughly $1.5 billion a year to promote their movies, which will make them popular content for the new joint-venture network.

“These three companies have huge marketing weight,” Feltheimer said. “We can cross-market … We're going to be able to window the content, price the content, package the content in unique ways, and not just on a linear basis, not just on a high-def basis, but in terms of subscription on demand, in terms of downloads, in terms of any way that the three of us choose with no middleman to tell us what we can and can't do.”

But not everyone believes the new network is compelling at a $1 to $1.50 license fee, especially since there is an abundance of reasonably priced movie services, such as AMC, TCM, Fox Movie Channel, as well as the premiums HBO, Showtime, Starz and Encore.

“There's not one channel anymore that's going to save me subs or lose me subs,” one cable operator said.

The joint venture's distribution is being handled by Viacom's MTV Networks unit.