Epix-Verizon Deal Signals Fast-Expanding SP Base for New Player

August 5, 2009 – On the heels of its first distribution deal, the new premium movie channel Epix expects to ink at least four to five additional carriage pacts and reach several million homes by its October launch.

In addition, Epix executives say they’ll be adding more content to their multiplatform lineup via agreements with a handful of independent film studios in the coming weeks.

In late July, Epix landed its first distribution partner in Verizon. The deal with Verizon calls for the telco to offer Epix via TV, VOD, online and all mobile phones that can access Verizon’s mobile video service called VCast. This platform-agnostic strategy is one of the key selling points of Epix and is made possible by its studio ownership, said Mark Greenberg, president and CEO of Epix.

The network is owned by Viacom (which owns movie studio Paramount), Lionsgate and MGM, representing 25 percent of Hollywood’s output, Greenberg said. That will bring hit films like “IronMan,” “Indiana Jones and the Crystal Skull” and “Cloverfield” to Epix. The channel is also developing original series and will carry live events.

Verizon’s FiOS TV service reaches 2.5 million subscribers, placing the carrier in the top ten among TV service providers in the United States. Some observers have said the carriage deal with Verizon will likely spur other distributors to sew up deals with Epix. However, other analysts want to see Epix land a big service provider like Comcast or Time Warner before they predict its future success.

According to SNL Kagan estimates cited by Bloomberg, Epix will be paid less than $1.50 per subscriber by Verizon, below the $1.66 Showtime commands per subscriber and well below HBO’s $6.16 subscriber fee. But for a new service the deal and the subscriber fee represent a solid starting point. Epix contends its ownership structure will help in deal-making. With the network’s official rollout now just two months, deal-making has begun to heat up, Greenberg said.

“We are having negotiations with four to five other service providers – cable, satellite and telco – which will be announced in the next few weeks. We will be in several million homes at launch,” he said. “Because the studios are rights holders we can provide this [multiplatform approach] in working with our distributors.”

Being owned by the studios affords more flexibility in granting rights across multiple platforms, Greenberg said. Similarly, distribution partners can pick and choose whether to offer Epix across all platforms or just some, though Greenberg expects most service providers will aim to offer as many hooks into the movie service as possible to stay competitive with other providers.

That ownership structure lured Greenberg, a former executive vice president at Showtime, to Epix. The kind of long-term output deals he crafted while at Showtime proved to be frustrating given the fast-moving changes in how media is consumed. Most pay-TV deals with movie studios stretch from five to seven years, and there’s not much wiggle room to incorporate new platforms and viewing venues as they emerge.

“If you have a five- to seven-year deal for studio output and then broadband video comes along I can put the movie on the computer in the house, but what if the rights don’t permit you to do that?” he said.

Epix has more control over rights because it owns the content, he explained. That’s made it possible for the network to move up the windows and run some movies about nine months after their theatrical release, instead of the more standard 12-month window.

“If a new technology comes along in the next few years we can work with distributors to work that into the rights instead of trying to modify existing deals,” he said. “When I was at Showtime and a distributor said I didn’t have that in my grant of rights I would have to go back to the studios and change the deal. Maybe there needed to be five, six, seven deals redone then.”

With new platforms and modes of distribution such as TV Everywhere cropping up left and right, it helps to be nimble enough to tweak deals and deliver content quickly to new venues.

“On my board are the presidents of MGM, Lionsgate and Paramount and any decision we make, the studios can react and respond at that moment. We have made adjustments already,” he said. As an example, Epix signed off on the mobile distribution component of the Verizon deal in just a few weeks after the telco demonstrated to the Epix board that it could secure the mobile distribution of the films.

With Verizon, Epix will offer 300 hours on demand, a linear channel and a handful of movies for online and cell phone access, as well as social interaction tools.

“We want to create a value proposition with cable and satellite and telco providers where they can avoid being Napsterized like the record industry and instead embrace and find a way for customers to use the technology,” Greenberg said.