Showtime, Starz Tie SVOD Bundles

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As Home Box Office pursues à la carte pricing for its HBO On Demand subscription VOD service, its rivals in the premium category are taking a bundled approach.

Showtime Networks Inc. and Starz Encore Group LLC have both launched in roughly a half-dozen markets. And Showtime, a Viacom Inc. unit, expects to have more than 35 launches in the next two quarters.

Both networks said satisfaction levels have increased among on-demand subscribers. It's important to educate consumers, they added — particularly with respect to the fact that they're not spending money each time they click the remote.

"There is an extremely high value on those who understand how to use it," said Showtime Event Television executive vice president of corporate strategy Mark Greenberg. "The research has really been positive."

Showtime On Demand will launch in several Cox Communications Inc., Charter Communications Inc. and Insight Communications Co. markets throughout 2002, according to Greenberg. Time Warner Cable has launched the service alongside HBO and Cinemax On Demand in Green Bay, Wisc., and plans to add a Los Angeles launch soon.

Cablevision Systems Corp., Adelphia Communications Corp. and Comcast Corp. also have rolled out Showtime On Demand in selected markets.

"This is accelerating," Greenberg said. "People are seeing the value."

NO GLITCHES

Over the past few months, Starz Encore has launched its SVOD product with Los Angeles overbuilder Altrio Communications Inc., and with AT&T Broadband in West Chester and Culver City, Calif.

The ability to deliver VOD services to subscribers without technical problems is a critical factor, said Starz vice president of SVOD Greg DePrez.

"You don't create value for this if you create a problem," he said. "Any problem, and they lose faith and they don't value it as highly. Operations have to run a tight ship. It needs a heightened sense of attention."

Showtime On Demand users are accessing fare from all facets of the network's lineup, including original series, movies, and adult- and family-targeted programs, said Greenberg.

"This is working as we want," Greenberg said. "There is a significant increase, 55 percent, who say that premium TV has a greater value."

And the money is starting to flow, he said. "We're seeing positive revenue from the business."

But there are plenty of challenges, Greenberg noted.

"A lot of people who have downgraded didn't understand it," he said.

Many thought that each time they accessed a program, they would be charged for it, he said.

"That barrier is an opportunity to drive the value equation," said Greenberg.

In most markets, Showtime On Demand launches at a $6.95 or $7.95 bundled price, according to Greenberg. "As a starting point, that is OK," he said.

PRICE ELASTICITY?

But there may be room for slightly higher prices over time. It's better to start with prices that are too low and raise them later than to start with high prices, Greenberg said.

It's too early to determine the eventual penetration level for Showtime's SVOD service, said Greenberg. He noted the company's success with a mid-1990's on-demand experiment through the then-Viacom Cable system in Castro Valley, Calif.

"In Castro Valley, we had enormous demand from premium households," he said. "We think we can do very, very well against that number."

In SVOD markets, "so far, single pays have dwindled and multipay [or the number of customers who take one premium channel or more] has increased," said Greenberg. "The biggest phobia is that we don't blow this opportunity from the marketing side."

Showtime On Demand carries about 120 hours of programming per month. Of that, 45 percent consists of series, 20 percent movies, 20 percent family and 15 percent adult.

The Movie Channel's service carries 50 hours of movies on demand.

For Starz, launches have been a mixed bag. In some markets, they're sold as an add-on, bundled with linear Starz Super Pak service. Comcast and Adelphia have sold Starz's SVOD offerings as part of the digital tier.

AT&T Broadband launched Starz On Demand May 1 in West Chester and Culver City, Calif. It will institute a $7.99 per month price tag on August 1.

DePrez said it's important to have a no-charge initial offer to raise awareness. Fees can be added later, he said.

"We're working on the long-term pricing structure," he said. "People who use it do value it."

Starz hopes over time that Starz on Demand will effectively replace the current Starz Super Pak, in that any subscriber to Starz Super Pak automatically receives the on-demand feature.

"That's how we're operating in the trials," DePrez said. "Our preference is to have Starz On Demand transformed into the Super Pak brand."

"The next issue is, we haven't reached a point where we can do mass-media marketing," he said. "We can't do market-wide awareness [marketing]. It's word of mouth."

But once launches are more widespread, market-wide activities can kick in, he said.

DAYTIME HIGHS

DePrez said early trial research shows "nearly as much usage during daytime as prime time." There is an afternoon peak, which DePrez attributed to kids getting home from school, and another bump after 8 p.m.

There is more activity on weekends than on weekdays, he said. There's also significant activity during the day on weekends, which is not traditionally a strong TV-viewing period.

It's too early to say anything about churn reduction or premium sell-in, DePrez added. But early sampling activity continues to hold.

After seven months, over half the sessions are or 30 minutes or less.

"There is a lot of sampling going on here," said DePrez. "The initial month usage of any customer is high, then it falls off to various levels."

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