HBO eclipses Starz in 8-year U pact

$10 mil deal gives net access to half of majors' output, sez chair

NEW YORK — The pay TV marketplace got a surprise jolt Wednesday when HBO outbid Starz for an eight-year lock on the rights to theatrical movies distributed by Universal Pictures, starting with pictures released to multiplexes in 2003.

Industry observers said the deal makes up somewhat for the equally stunning pickup more than a year ago of the Sony-Columbia theatrical output by John Malone’s Starz, beating out the incumbent HBO (although the movies won’t gravitate from HBO to Starz until 2006).

In a presentation to security analysts, HBO chairman Jeff Bewkes said the Universal deal, added to existing output contracts with studios such as Warner Bros., 20th Century Fox and DreamWorks, gives the network access to half of all output by the majors. HBO’s pay TV rivals, Starz and Showtime, have to share pay TV rights to the other half of Hollywood’s movie inventory.

The spin by Starz executives on the Universal deal is that the network is so well-stocked with movies that it could bypass Universal. But insiders said Starz will continue buying large volumes of movies from Universal’s library of theatricals from the 1960s through the mid-’90s.

One source said HBO was forced to pay through both nostrils to get the Universal movies away from Starz, with the average price per pic surging up toward $10 million a title, compared with the $8.5-million-a-title industry average.

Some analysts said that what stands out in the Universal deal is that — with HBO now a part of AOL Time Warner — the network was willing to forgo the kind of theatrical exclusivity it has insisted on in the past. One of the reasons HBO walked away from the Sony-Columbia renewal is that Sony insisted on breaching pay TV exclusivity by selling the movies simultaneously through the Internet and other new-media outlets in pay-per-view.

“In a digital world, exclusivity will be a thing of the past,” says Michael Wolf, a top media analyst with Booz-Allen & Hamilton. “People will be able to get movies anywhere, anytime, through non-linear pay-per-view. and AOL wants to be a player in these new applications.”

Vivendi, Universal’s new owner, has made no bones about its desire to harvest fresh revenues by getting pay-per-view theatricals to people via streaming video on everything from desktop computers to Palm Pilots.

The Starz deal with Sony-Columbia permits such PPV experiments during the license term of the pay TV window. But sources said that in exchange for a bump up in license fees, HBO was able to protect its pay TV window from any such tests by Universal.

In addition to its loss of Universal titles, Starz will also lose its output deal with New Line in 2005 to HBO, Bewkes said. HBO and New Line are sister companies. So Starz is left with Touchstone, Miramax, Joe Roth’s Revolution Studios, Samuel Goldwyn, Destination Films and Shooting Gallery. Starz gets Dimension Pictures in 2003, Screen Gems in 2004 and Sony-Columbia in 2006.