Kagan’s Column: Starz! Ticket—Put That in Your Pipe and Promote It

By Paul Kagan

I traveled to the Cable Hall of Fame in Denver last month to pay homage to cable's past. But before I left, I got a look at the future. I visited Starz in Englewood and bathed my digital psyche in their Trekkie-like master control, where 37 networks are beamed up to satellites around the clock. The heart of the enterprise is a large box the size of a dumpster that holds 5,000 movies, updated monthly with 25% new pixels from Hollywood. But the view of the future was not through this inbound stream. It was through something called Starz! Ticket, a computer owner's personal video server, which launched June 27. It recently upped its offering 50% to 150 films for the same price: $12.95/month.

Adding a program "tier" to your PC may sound expensive, but if you're a college kid in a dorm with a wide-screen laptop, attend few classes, have no friends and you watch five movies a day for a month, each one would cost less than 9 cents each. If you have five friends chipping in, your mom gets all her money back! In fact, there is a burgeoning business in subscription Internet services, facilitated by high-speed broadband connections.

There are more than 16 million collegians in the U.S. Most are not slackers and many live at home, with access to all the goodies the multichannel universe provides. But if Starz! Ticket can gain cult status with just 3% of them, that's a half-million subs. It may find another half-million subs making business and consumer travel more interesting. Watching The Lord of the Rings at 35,000 feet has replaced playing solitaire for those renting portable DVDs at the airport, and that business could become endangered. P.S.: A million subs at $12.95/month is a $155 million annual business. For starters. It's no longer necessary to pick out a DVD from your home archive so the kids can watch a movie in the car en route to grandma's. Just bring along the laptop with the month's new downloads.

(Have you noticed how the interests of movie studios, CE manufacturers and Internet providers converge or collide? With Starz! Ticket movies in your hard drive, you don't need a portable DVD player. But then, you should probably buy a laptop just for trucking around films.)

This newest Ticket (it's cheaper than the NFL's) is enabled by RealNetworks, the Seattle-based thorn in Microsoft's side, which is led by ex-Redmond exec Rob Glaser. It delivers a film to the computer in 10-12 minutes (at 3 megabits/second) and 1-2 minutes (at the 30 mbps that comes with fiber to the home). Broadband viewers can start watching as little as two seconds after the download begins.

There has been concern in some quarters that the Starz! Ticket service will be blunted by a newly proposed plan from Netflix, which hopes to add an Internet download option to its DVD mail-in program. But the postal packager based in Los Gatos, Calif., may have a problem with Web inventory: When Starz founder John Sie invented subscription video on demand five years ago, he landed exclusive broadband movie rights for the "first pay-SVOD window," which runs for 18 months starting a year after theatrical release. That makes Starz! Ticket the HBO of the Internet.

I used to worry that consumers couldn't afford too many new services, but they're signing on avidly as each product is introduced. Marketing is more than ever all about a percent of a percent of the population.

Industry pals gave Denver-based Sie a fitting send-off into retirement the night before the Hall of Fame banquet, but my guess is he hasn't run out of ideas. For all of Hollywood's zeal to eliminate the middleman (matched by concern over digital piracy), Starz quietly has launched a major digital distribution network. Due to the willingness of Starz owner Liberty Media to pay in advance for exclusivity, studios have been banking broadband cash for years.

Although cable operators have not welcomed external VoIP companies piggybacking on their broadband, the new movie service has a cable pedigree. With former Comcast cable exec Bob Clasen at the helm, and former Showtime marketing VP Bob Greene back in the business after a stint in streaming technology, MSOs are starting to promote Starz! Ticket as a new reason to sign up for the modem. Fiber optics or not, the future isn't just the pipe; it's what comes through it.

Analyst/investor Paul Kagan is chairman/CEO of Kagan Capital Management, Inc. in Carmel, Calif. He owns shares of Liberty Media. Information in his columns is not intended to be a recommendation to buy or sell securities.