In the war between subscription video on-demand (SVOD) services like Netflix and Amazon Prime Video, Starz has been growing on the sidelines and fighting to be the preferred add-on for consumers on top of their primary subscription. That journey has required the longtime premium cable TV network to rethink its target audience, content strategy and pricing.
It now has more than two million subscribers on its direct-to-consumer video platform and roughly seven million subscribers when including all the users of other SVOD services in the U.S. who pay for Starz as an add-on. I recently spoke to Jeffrey Hirsch, the company’s CEO since last September (and COO before that), about how he defines Starz’ overall strategy now and the process through which his team determined new pricing, new content strategy and international expansion.
Below is our conversation, edited for length and clarity:
TechCrunch: Who do you think of as Starz’ core audience?
Jeffrey Hirsch: What we found from the data was women were driving our transition from the old world to the new world. We did a bunch of research and realized that women are twice as likely to buy apps under $10, their lifetime value is higher, they are more loyal and they become a guerilla marketing engine for the company.
We refined our programming strategy domestically to focus premium content on the female audience. There’s three kinds of demos underneath that: There is a general female point of view, there is an African American female point of view and there is a Latina point of view. If you look at our programming, we got there based on the strength of our show “Power,” which is our biggest show and is 65% African American female, and then “Outlander,” which is over 80% female.
We’ve tried to build a programming slate around those shows because in the digital world, unlike in a cable world, it’s very easy to click into a show and click out after eight or 10 weeks. The name of the game isn’t as much acquisition as retention and so if we play something on the air every week for these demos, and we move the customer from show to show, churn comes down and ultimately the business becomes much more successful.
Domestically, we’re honed in on these core demos, putting great adult premium drama on the air that serves a female audience. Now, unlike others such as Lifetime, which does that at the exclusion of men, we want men to come along and watch as well. And you see that with all of our shows.
How is your target demo different outside the U.S.?
Internationally, we’re still trying to define what it is because we’re so early into the global market. Other than Netflix and Amazon, there’s not another SVOD service that is as broad and scaled as we are in the 50 countries that we’re in. A lot of our strategy internationally comes from the Starz strategy, so most of the shows that we develop domestically now have to serve the global footprint.
“[The] Girlfriend Experience” is one of our shows. The upcoming third installment was originally going to be shot in Seattle with a very domestic point of view. We asked [executive producer, Steven] Soderbergh to move the setting to London and build it as an international storyline that could work in the 50 countries outside the U.S.
Outside the U.S., because we’re so early and we’re learning, the programming strategy is “the best of global SVOD.” Not only do you have all the great Starz shows plus the Lionsgate library, but there’s also some of the best third-party content on there. We’ve got six of Hulu’s domestic shows on our footprint. We’ve picked up shows like “Killing Eve” and “The Capture.” We’ve got what I like to call the best of global adult SVOD, and that’s very unique.
Before this whole thing hit, we bought a great piece of content from Spain and I asked the producers, “Why Starz?” They said Disney is looking for family fare. Amazon is looking for family fare, Netflix is looking for family fare, and you’re the only one in Spain looking for adult scripted drama.
How much content, in terms of the number and pace of new releases, do you feel Starz needs for its position in the ecosystem? What are consumers’ expectations for paying $8.99 per month?
We need to have something on every week, 52 weeks per year, at 8 o’clock and 9 o’clock to serve these core demos. So we need somewhere between 12 and 15 shows and right now we have around 11. We built that growth into our long-range plan. We don’t need to spend $13 billion on content like Netflix because (1) we’re not bingeing shows, so we don’t have to feed the monster every week or two, and (2) we’re trying to serve a very specific core demo so we don’t need that scale.
If you took those originals plus the Sony deal (where we’re getting fresh box office movies like “Once Upon a Time in Hollywood,” “[Zombieland: Double Tap]”, “[Jumanji: The Next Level],” and “[Spider-Man: Far from Home]”), then the 4,000 exclusive library titles that we bought from all the different studios, priced at $8.99. Other than Disney, we’re really the only ones under $10. It’s a good value proposition for our core demo.
You have said Starz has enough content that it can avoid its release schedule being impacted by COVID-19 production delays through March 2021. What is your backup plan if it extends longer?
What we did early on is make sure we had fresh content on the shelf, so we went out and bought some shows internationally that didn’t have a premiere in the U.S. People will start to go back to production by probably August domestically [ … ] U.K. and Europe probably a little earlier. But if there is a second occurrence and things get shut down again, we do have three or four shows on the shelf that we can plug in.
You have a multipronged distribution strategy where Starz is available both through other SVOD services like Amazon Prime Video and on its own first-party app. What’s the rationale for that?
We looked at three levels of distribution strategy for our international business. One is “global partners” where we’re riding on the backs of the Amazons and the Apples and the Googles. Then there’s these great local partners all over the place: We’ve done 58 local deals and launches in the last 14 or 18 months with Totalplay, Orange, Telefónica, etc. That’s the second distribution layer. The last layer is our own app, where we retrofitted the Starz domestic app and dropped it into eight countries where we saw opportunities to harvest more with our app.
If a consumer is used to watching Telefónica in Spain, we want to be right there so they can access the service. If they’re using Orange on a mobile phone, we want to be there as well. So we want to have full distribution by country, however the consumer wants to access Starz.
How localized does the library need to be to compete in each foreign market?
In the territories we’re in — LatAm, Europe, MENA — this “best of Western SVOD” works as a unique proposition. But we do think we need to augment our Originals library with some local production. We bought two shows coming out of Spain that we think can play in the U.S. and in Spain. Netflix did a nice job of proving that “Narcos” could play well in the U.S. We think we have a show in Spain that could be as big if not bigger than “Narcos” in the U.S. In the MENA markets, we’re testing a couple originals. In India, we’re going to try two originals. Some of them will be Lionsgate IP remade for that territory. Obviously we pick up a ton of U.K. shows already.
You had exclusive rights to some Disney content, like some “Star Wars“ movies, but returned them earlier than your contract required so Disney could include them in the launch of Disney+. Explain that calculation. It seems like that undermines you competitively in a market that’s all about who has exclusive, sought-after content.
We were in the second window, after a Disney show had its time on Netflix, so we had a lot of the titles between seven to 10 years old. We have a lot of first-party data on usage and acquisition and retention. We said, these are great titles for usage, but they’re not driving exclusive acquisition anymore because of their age. As part of the larger conversation, we were able to negotiate a global deal where Disney+ is selling Starz on top of their platform. When you buy Disney+ domestically in the U.K. right now, you’re prompted with the opportunity to also buy Starz. That’s been a great zero-cost acquisition engine for us. The combination of still having the opportunity to have movies nonexclusively plus working with Disney on a quasi-bundle plus a couple of other things that we were able to get in the deal, we thought it was the right decision for the business.
How did you determine Starz current pricing and promotion strategy?
We’ve done a lot of price testing, including 30-day versus 7-day free trial. You can eat up a lot of free content in 30 days before you have to pay for anything. You can watch an entire piece of content for free and then disconnect, never become a customer. We saw a lot of acquisition on 30-day free trials but the conversion to paid was low and the lifetime value of those users was even lower. Compare that to a 7-day where you may not get as many people coming in, but the conversion rate to paid is a lot higher and the lifetime value is a lot longer. We’ve done a 3-day sale for $1, we’ve done $5 for three months, we’ve done $25 up front for six months.
We were very worried that when the pandemic hit that if we did 30 days free, like everybody else did, that people would watch a bunch of content then disconnect when asked to pay the full rate. We thought the market may turn into a recession and $14 per month or $10 per month is a lot of money for a family with kids. So we lowered the entry price point over a longer period of time to allow people to access the content, but understand the value of it so that they would stick longer.
How do you look at where you guys sit within the competitive pricing landscape, and the psychology of why you’re at $9 not $15 or $5?
One of the things that pricing studies show is that anything over $10 to a consumer is a decision. Anything between $7-$10 is a lot less of a decision but they still think about it. Anything $5 and under isn’t much of a decision at all. That’s why you saw Apple come out at $4.95 because they knew they didn’t have a lot of content.
If we are going to be a complementary add-on, we can’t be at the same price as HBO or Netflix. If you pick Netflix at $13, and Starz is at $9, subconsciously, the consumer thinks you’re supposed to add that on top.
How did the pricing change your subscriber base, in particular with respect to your existing linear TV subscribers?
We pivoted from a heavily packaged deal that we had with Comcast — where last year we had something like 6 million subscribers in packages that were shrinking over 4% year-over-year — to an a la carte revenue-share model that we launched on February 11. In the first six weeks, we saw over a million subscribers grow onto the service. It’s partly because we were coming into “Outlander,” but also partly because that $8.99 is a great price-to-value relationship for the service.
Talk to me more about the bundling-unbundling cycle and what you’re predicting the next few years. We’ve been going through this unbundling of channels from cable bundles like you just discussed, but you’ve said you see the future of TV as bundling again.
The more things change, the more they stay the same, right? At the end of the day, the consumer is still for the most part, the same consumer. A lot of people confuse the distribution technology with something new, right? Now, digital and SVOD allows you to do a lot of great, different things as a consumer, but at the end of the day, a show on Starz linear is the same as the show on Starz over-the-top. It’s just a little more easily accessible and more mobile than it was before. And cheaper.
I do think as people settle in and pick who their primary SVOD services are, they will then look to add other services on there, whether it’s YES for the New York Yankees, ESPN+ for general sports, plus Hulu and then Starz. We’ll start to see these organic bundles happen. People will say, “If we did that together at a discount, we could drive more volume.” You’ll start to see a lot of that traditional bundling happen that you saw in the cable business as it grew. As much as people hate the cable companies for bad service, the one thing that they did, and they continue to do very well, is ease and simplify the aggregation of a lot of content from a lot of different companies.
Do you see any interactive content in Starz’ future? We’ve seen some of the “Choose Your Own Adventure”-style format on other services, particularly at Netflix, and interactive media in general is booming.
For right now, we’re all about putting great content on the air that can entertain and let people get lost in escape, which means it’s going to be a very sit-back point of view versus asking them to choose an ending or interact with the content on a regular basis.