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STAR FLEXES MUSCLE AMID A RED TIDE

Although stock market analysts estimate Star lost $80 million this year and will finish the next fiscal year $100 million in the red, Rupert Murdoch’s Star TV is prepping launches and other projects throughout the Asian region.

“The whole company and (Murdoch) personally are giving me and my team tremendous support to see this project through,” says Star CEO Gary Davey, interviewed in Star’s opulent marble offices with panoramic harbor views.

Davey is busy finalizing the menu of channels that will be carried on the recently launched digital bird AsiaSat 2, and plotting Star’s entry into new markets including Japan, the Philippines and Indonesia.

Star Plus, a hybrid of movies, sports, entertainment and music, will launch in Japan next April as a precursor to a cluster of thematic channels, says Davey, noting, “We want to first establish the Star brand.

“We see enormous potential in a market where more than 10 million homes are hooked up to cable or satellite.”

He suggested Star eventually would get involved in Japanese production, as it has in other territories such as Hong Kong, India and the Philippines.

He identified India, China, Taiwan and Indonesia as the markets where he expects the most rapid growth, adding to the 220 million people Star already claims to reach in 53 countries. In India alone, Star is carried on 12,000 cable systems.

Murdoch suffered a setback in China last year when Beijing objected to the BBC World Service news, which subsequently was dropped from Star’s northern footprint covering China. However, Star’s Mandarin movie channel is still seen in an estimated 30 million cable households on the mainland, and Davey describes the task of negotiating to charge for Star’s channels as a “work in progress.”

After pay TV’s stuttering start in Indonesia a year ago, Star has signed a contract with Indovision, the exclusive direct-to-home licensee, to take over the distribution and marketing of dishes and decoders.

David Dennis, Star TV’s regional director for Southeast Asia, is taking on the additional chore of CEO of Indovision’s distrib subsid PT Matahari Lintas Cakrawala. “Star has a lot more expertise than we do” in those areas, says Indovision consultant Steve Mathias.

Subscription rates already are picking up, with an average 80-100 households signing up per day, compared to the previous rate of 100 a week, Mathias added. Indovision’s channels, including HBO Asia, CNN Intl., ESPN and Discovery, currently are beamed into 12,000 homes, plus 30,000 hotel rooms.

Star is due to launch as many as 16 channels there in April. Indovision and Star have said they will form a movie co-production venture, but have not fleshed out that plan yet. Mathias says he’s aiming to boost the number of household subscribers to 30,000 to 35,000 next year.

Davey repeated his boss’s assertion that the red ink should be regarded as an investment as Star launches new channels and penetrates fresh markets.

“Anyone who thought this was going to be a cash cow overnight does not understand the business,” said the Aussie exec who began his career as an office boy at a Murdoch paper in Adelaide, South Australia.

Davey would not specify when he expects the satcaster to break even, declaring, “It’s a constant balancing act between developing a healthy profit and loss (ledger) vs. not wanting to miss out on opportunities that will have tremendous value in the future.”

He pointed out Star is laying out hefty coin for the rights to major sports events like the Indian soccer and hockey leagues, and the Chinese basketball league, that in some cases are for 10 years.

One encouraging trend is an upward spiral in the satcaster’s ad revenues, believed to have shot up by 50% in the past year, admittedly off a low base. Davey won’t quantify the increase but says Star has attracted 800 advertisers, of whom 500 are local – vindicating Star’s strategy of customizing channels for each market.

Davey hinted a deal is pending for Star to beam into Malaysia next year via Measat.

Analysts who view Star’s sizable investment in local production as a lossmaker perhaps should think again. Once the company’s creative people come up with a program idea, the concept is hawked to advertisers by Star’s sales team.

“If the numbers make sense, we go for it. We no longer speculate blindly on (the returns on) production investment,” says Davey. “We can predict with a high degree of accuracy what the returns on that investment will be.”

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