NEW YORK — Sony Pictures Entertainment has signed an exclusive pay TV contract with John Malone’s Starz! for as many as 200 theatrical movies in a six-year deal that won’t actually kick off until January 2006.
What’s surprising in the deal is that the Sony movies, which cover the production slates of Columbia Pictures, Screen Gems and Sony Pictures Classics, will be leaving HBO, which had maintained a long-term exclusive relationship with Sony for the pay TV rights. HBO will continue to run the Sony movies through 2005.
Under the contract, Starz! could end up paying Sony $2 billion as there’s an option for an additional three years at Sony’s discretion, which would stretch the deal through movies released in 2014.
The Sony deal with Starz! comes on top of two long-term renewals completed in the last few months: HBO extended its exclusive contract with 20th Century Fox well into the next decade, and Starz! agreed to renew its existing 10-year agreement with Walt Disney for the rights to Touchstone, Hollywood and Miramax pics.
HBO treads Fine Line
Universal, whose deal with Starz! expires at the end of 2003, has also begun discussions with Starz!, HBO and Showtime for a long-term renewal. And although HBO will lose the Sony output at the end of 2005, insiders said no one should be surprised if it helps fill the gap with a deal for New Line/Fine Line output. New Line is in the middle of an agreement with Starz!, which comes to an end — maybe not coincidentally — in December 2005. Although Starz! will be in the bidding, HBO is confident that it will be able to cut a deal with New Line because the two are sister companies, both owned by Time Warner.
Sony engaged in marathon negotiations with HBO to renew the movie output pact before engineering the Starz! deal. Showtime also discussed an output deal with Sony before backing off.
What clinched the deal for Starz! was the willingness of John Sie, founder, chairman and CEO of the Starz Encore Media Group, to let Columbia explore all of the gestating technologies for electronic delivery of movies to the home on pay-per-view.
Both HBO and Showtime became fearful that if PPV starts growing dramatically by the middle of the decade, viewers may cancel their pay TV subscriptions and satisfy their movie appetite by purchasing theatricals one by one through digital TV or the Internet.
But Sie said he’s placing his bets on “the fact that the consumer is smart and will realize that a monthly subscription fee of $10 for an unlimited amount of movie viewing” — the Starz! model — “is better than paying $3.95” for one showing of a pay-per-view movie.
Sie acknowledged that on PPV a particular movie may be available up to six months prior to its first Starz! showing. To counter that advantage, Sie said that digital technology will allow Starz! to offer its monthly subscribers about two-thirds of its movies — at the convenience of the viewer — at no additional cost or for a slight additional fee.
This subscriber would have to be hooked up to a two-way digital-cable box. But Sie is convinced that, in order to stay competitive with satellite distributors and phone companies, cable operators will be installing these boxes at an accelerated clip.