Market Insight

Starz to launch international subscription VoD service

October 13, 2014  | Subscribers Only

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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US pay TV broadcaster Starz is to launch a subscription video-on-demand service featuring its own and third party content outside the US. The venture, branded Starz Play International, will be a partnership with Parsifal Entertainment Group (the Sweden-based company which was invloved in the launch of HBO Nordic) and other financial institutions. Target date for the launch, and markets in which the service will be available, are still to be confirmed.

Our analysis

Starz’s move to enter the international streaming subscription market is motivated by the success of other premium content services such as Netflix, and the launch of direct-to-consumer propositions by premium channel groups such as HBO. Netflix has witnessed significant growth in its international business, even across markets in which it faces significant competition from pay TV companies (e.g. the UK and Scandinavia).

Parsifal Entertainment brings important experience of launching a SVoD service internationally and can use lessons learned from HBO Nordics technical challenges. At launch HBO Nordics supported a limited number of connected device types and user reviews indicate that the service suffered from poor video quality issues. Although Starz has launched Starz Play in the United States, it is structured as a TV Everywhere service requiring pay TV authentication – a contrast to the pure OTT service which will launch internationally. Internationally, direct management of billing and customer relationships will be required, a new challenge for Starz.

IHS expects that Starz Play will only launch in international markets in which Starz’s presence is currently limited. In major international markets such as Western Europe Starz TV shows reach consumers primarily via third parties with which Starz has deals. In the UK, for instance, the Starz production Spartacus is made available on pay TV operator BSkyB’s flagship broadcast channel Sky 1. In Poland and Hungary it was broadcast by the local HBO channels and in Italy by Sky Television In such markets, launching a direct-to-consumer proposition programmed with Starz original content would likely mean forgoing the revenues brought in via these broadcaster deals – a risky move for the group.

With Starz producing its own content and owning these rights (predominantly, with the additional exception of co-productions), IHS expects that Starz will promote its own content heavily on Starz Play. Netflix, which increasingly pushes its own-brand productions (Orange is the New Black and House of Cards) to the front of its service, has become increasingly adept at using its home-grown exclusives to drive interest. As SVoD services’ catalogues are often being dominated by non-exclusive library movies and TV, having new and exclusive content is a key differentiator. Another advantage of Starz producing its own content is due to the scalability of costs. With a single production budget split across multiple territories, Starz Play could benefit from additional economies of scale if it does launch pan-regionally in markets across which its existing scale is limited.

Aside from the benefits of controlling the consumer relationship, for Starz the launch of an online service also offers a potentially advantageous scalability of costs when compared to a traditional linear channel.   An on demand service pays only to deliver content to consumers when they watch content – a contrast to broadcast mechanisms which require ongoing fees regardless of viewership. In launching a linear channel, Starz would also face extensive carriage negotiations across multiple territories. Given these considerations, a branded OTT service offers a strong alternative to a broadcast channel in markets with low consumer demand for traditional premium channels.

Geography
International
Organization
HBO Netflix Starz
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