CEO loads up on original series as he charts new course for premium cable group
Chris Albrecht worked the crowd with confidence at Starz’s first-ever investor day presentation in November. The CEO summoned his roots as a standup comic with a breezy anecdote about his previous job at HBO, recounting how Steven Spielberg and Tom Hanks gave him and his then-boss Jeff Bewkes the hard sell on greenlighting the megabucks WWII miniseries “Band of Brothers.” As Albrecht and Bewkes drove to Spielberg’s house for the pitch, the two vowed they would agree to produce it for $90 million — not a penny more.
After an hour of Spielberg and Hanks regaling the execs with inspirational tales of the men of Easy Company, they cut to the chase. The whole thing, Spielberg promised, could be done for $110 million. Albrecht and Bewkes looked at each other. Bewkes gave a shrug that said, ‘What the hell — go for it.’”
Albrecht waited a beat before telling the crowd of analysts, investment advisers and money managers: “I’m here to promise you — there is no Starz shrug.”
Indeed, for the next two hours, Albrecht and other Starz execs outlined the strategy for the network’s collection of 17 premium channels, and none of it involved nine-figure production pacts with A-listers. Rather, Albrecht preached the gospel of managing profit margins and cash flow, reining in development costs and taking a portfolio approach to original programming. All of which is a 180-degree change of course from the mantra during Albrecht’s “It’s Not TV — It’s HBO” heyday.
Meet Chris Albrecht, 2.0, a humbler, more pragmatic and more buttoned-down leader than the exec who was an integral part of one of TV’s great runs with “The Sopranos,” “Six Feet Under,” “Sex and the City,” “Deadwood,” “The Wire,” “Curb Your Enthusiasm” and “Entourage.”
Instead of the lavish resources to which he was accustomed at HBO, one of the most profitable units of what was then the world’s largest media conglomerate, Albrecht now leads a cost-conscious public company that is a unique animal in the entertainment landscape: a standalone group of premium cable channels. A year after the company was spun off from parent Liberty Media, Albrecht has been tasked with reinventing Starz just as much as he has re-engineered himself over the past few years.
“I came into Starz with a reputation as someone who had succeeded on the programming side. I thought I was a pretty good CEO when I was at HBO,” Albrecht says. “One goal for me coming to Starz (in 2010) was to establish myself with real bona fides as a CEO. The path (Liberty) decided to take has given me the opportunity to do that.”
The curtain rises on the new-model Starz this year, as the cabler unveils its largest slate of original series to date, starting with the Jan. 25 debut of swashbuckling pirate drama “Black Sails,” produced by blockbuster king Michael Bay. Four more series will roll out through year’s end. Long-term, Albrecht aims to ramp up 75 hours of original series, up from 50 this year.
Starz has been the subject of mergers-and-acquisitions chatter for the past few years, even before the spinoff plan was put in place. AMC Networks, Sony Pictures Entertainment, CBS Corp., NBCUniversal, 21st Century Fox and even Netflix have been mentioned as possible contenders for the company. After Starz went solo on Jan. 11, 2013, its shares saw a steady rise on the expectation that the spinoff was Liberty’s way of making it easier for a suitor to swoop in and buy all or part of the company. (Liberty Media chief John Malone still owns a large stake in Starz that translates to 42.8% of voting power in the company; Liberty CEO Greg Maffei remains Starz chairman.)
But nothing happened, at least not publicly. In the meantime, Starz faced scrutiny of its fundamentals. Questions were raised about its long-term prospects in a fast-changing environment for its primary areas of focus: programming original series and acquired theatrical films. Both are crowded markets, and Starz got off to a very late start, compared with rivals HBO and Showtime, in the game of defining a premium TV brand with distinctive original programming.
Moreover, the Starz spinoff came just weeks after Disney announced a mammoth theatrical pay TV deal with Netflix that meant Starz would lose its supply of Mouse titles, starting with its 2016 release slate. But Albrecht stresses Starz made the decision to let the Disney deal go in order to redeploy that money into originals — the kind of edgier pay TV fare that isn’t a good fit with most Disney-branded pics.
Shares of Starz fell back a bit in June and July, but by October they were trading at double the $14 debut price. Certainly the rising tide of equity markets gave it some lift — 2013 was a boffo year for stocks in general — but Albrecht and his team have delivered on their numbers for three consecutive quarters, creating subscriber gains and demonstrating nose-to-grindstone discipline on managing costs. Starz also has climbed on the stock buyback bandwagon, spending $219.1 million to date on share repurchases, a bet that this will be money well spent as the stock price grows.
“If you were a shareholder a year ago, you are more than happy,” maintains Vasily Karasyov, an analyst with Sterne Agee. “No one is disappointed by what they’re doing.”
There’s renewed speculation that acquisition moves around Starz will pick up now that the one-year anniversary of the spinoff has passed, a milestone that eases any tax consequences for prospective buyers.
But Karasyov is skeptical as to whether Starz is a logical fit for any of the usual suspects that buy up cable channels. Fox and NBCU signaled their lack of interest in absorbing the pay cabler when both renewed long-term movie output deals for their respective studios with HBO in 2012. Sony Pictures Entertainment is seen as too preoccupied by the larger corporate drama unfolding in Tokyo and Culver City to take on a multibillion-dollar acquisition any time soon. If Netflix were to buy Starz — and so far the company hasn’t shown any interest in the linear channels biz — the multichannel video program distributors that Starz relies on to pitch the service to subscribers would likely revolt.
Starz is already coming off a period of fence-mending with key distributors, as Albrecht describes it, after the previous management regime struck a deal to sublicense its Sony and Disney movie rights to Netflix. That made the company a pariah among many cable operators. Some ops punished Starz with less advantageous distribution deals that the cabler is only now starting to recover from.
Albrecht’s task for the foreseeable future will focus on the hard work of growing Starz as it is, without the cushion of being part of a larger entity or the benefit of having sibling studio suppliers. Maffei acknowledges the possibility that “the highest value is going to be in the hands of someone with more channels than we have,” but he also emphasizes that Starz as it stands today “has a great track record and a great future on its own.”
With channels spread among the Starz, Encore and Movieplex imprimaturs, plus digital offshoots, Starz is endowed with the kind of tonnage that would be impossible to replicate today.
“Starz is an under-recognized asset that has an enormous amount of real estate in linear television,” Maffei explains. “It has a big audience. That gives it lots of potential as it demonstrates its success in original programming to strengthen its hand with distributors and consumers.”
What Albrecht needs most of all right now is a noisy hit show to help define the Starz brand, which has remained nebulous despite several years of efforts to field distinctive original series. The net has experienced some success in impressing critics with the Kelsey Grammer drama “Boss,” and it’s had some ratings traction with genre fare such as “Spartacus” and the current “Da Vinci’s Demons.”
But Albrecht’s legacy of big swings and successes at HBO casts its longest shadow when the pursuit of elusive pop-culture mindshare is considered. Can he pull it off again, at a different shop? Industry insiders have been asking this question since he arrived at Starz four years ago, following his abrupt fall from grace at HBO in 2007 after he had a physical altercation in public with his then-girlfriend.
Friends and associates say Albrecht has become healthier and happier in recent years, and he’s been invigorated by the increased control he has over Starz’s destiny since the spinoff.
“It’s self-evident at this point that Chris has developed into a savvy (CEO). The company has a strategy that is doing well, if the stock price is any indication,” says “Sopranos” producer Brad Grey, a longtime friend of Albrecht’s who is now Paramount Pictures chairman.
“There is no greater original programmer in my opinion than Chris,” Grey adds. “Without a doubt, he will come up with significant shows. I would bet on it.”
But the programming landscape has changed since “The Sopranos” days. And so has Albrecht’s charter.
“We are not looking to defeat everyone else (in TV),” Albrecht says. “We’re looking to grow our financial results and return cash and value to shareholders. That’s how we define success here. I never had the opportunity before, because I was always part of a large company where we were insulated from that. Now it’s exciting, and sometimes scary, but rewarding to be able to really say, ‘Forget my ego, forget what table I get (at restaurants) — how am I going to define success?’ ”
Genre fare such as “Black Sails” and “Da Vinci’s Demons” may not set the creative community in Hollywood on fire, but Albrecht needs to think tentpoles rather than arthouse as he bulks up the schedule. It’s also important to Starz that programs have global appeal. The company does not operate any international channels; it relies on sales of its original series for most of its international revenue.
“ ‘Black Sails’ looks tremendous,” Albrecht says. “It’s not a precious show. A genre show doesn’t always get the attention from critics that other shows might. It’s very in your face and bold. It’s supposed to be entertaining, and we need that kind of big splashy entertainment.”
Albrecht freely admits that Starz can’t match the spending HBO can pour into a show like “Game of Thrones.” Adhering to budgets is part of a new era of fiscal discipline that is a given at Starz. In addition to four series already slated for premieres this year, Starz is closing in on greenlights for a drama set in the dance world, “Flesh and Bone,” from “Breaking Bad” scribe Moira Walley-Beckett, and comedy “Survivor’s Remorse.”
Maffei and others give Albrecht credit for adapting to the demands of being CEO of a public company, even though his background is rooted in the creative side of the biz. The Starz topper and Liberty have assembled a media savvy board of directors for the cabler that includes producer and former CBS president Jeff Sagansky; former ABC entertainment prez Susan Lyne; music mogul Irving Azoff; and Warner Music Group chief operating officer Rob Wiesenthal, who was formerly chief financial officer of Sony Pictures Entertainment.
Sterne Agee’s Karasyov sees Starz as a business that has solid cash flow and reasonable, if not extensive, potential for growth in the near term. “It’s a mature industry in a mature economy,” he says. “It’s not a Google.”
Albrecht says he sees plenty of opportunity to reach audiences under-served by pay cable fare, particularly urban auds. Before the spinoff, he explains, “the fruits of Starz’s business went to Liberty for Liberty to decide how to best benefit Liberty shareholders. Now the fruits of Starz’s business go to the benefit of Starz as determined by the management and the board. That is a seismic shift in terms of what our priorities are.”
As Albrecht emphasized at the November investor meeting, he and his lean exec team are focused on executing the strategic plan being implemented in earnest for the first time this year.
At the cocktail party that night, Albrecht and his lieutenants made the rounds with the bankers and Wall
Streeters. As he chatted with a small group, he suddenly put a theatrical palm up to his forehead.
“I was so focused on my presentation I forgot the punchline,” he said. “When all was said and done, the final cost of ‘Band of Brothers’ was $123 million.”