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Blank: Don’t Write Premium TV’s Obituary

4/07/2006 8:01 PM Eastern

As Showtime Networks approaches its 30th anniversary later this year, its chairman and CEO, Matthew Blank, has also just clocked three decades in the pay television business. Blank, who joined the network in 1988 after 12 years at Home Box Office, recently sat down with Multichannel News editor in chief Tom Steinert-Threlkeld and George Vernadakis, senior editor of features and supplements, to talk about Showtime’s ramped-up roster of original programming, new opportunities and platforms for its content and the future of pay television.

MCN: In terms of the kind of programming you develop or pick up, how does a network like Showtime distinguish itself in an increasingly competitive market?

Matt Blank: I think Weeds is a good example. I think Sleeper Cell is a good example. These are shows that got probably more attention this past fall and summer than we’ve ever had for our shows, and they got viewers and they got award nominations in their first seasons and Huff got seven Emmy nominations in its first season. I don’t want to be flip and say what everybody else says, which is 'content is king.’ But yes, we need stronger content that is demanded by consumers.

We really think that in terms of consumer loyalty and people coming to the network every week that the ability to build a strong affinity for dramatic series, week in, week out, is what’s most important to us.

We have shows — The L Word is the best example; Queer As Folk used to be that way — that are real community builders. There are affinity groups out there that care a great deal about us.

MCN: You’ve begun testing alternative platforms for your content. Fat Actress actually premiered online before it was on TV, and shows like Weeds can be downloaded via iTunes. How important are these platforms to Showtime, and how might their value to you differ from what they do for, say, a broadcast network?

MB: Take CSI [Crime Scene Investigation] — most successful show on television right now. CBS does a deal with Google and puts CSI up there. Very nice, very smart plan to expand the audience, generate an additional source of revenue. But everyone of the 110 million television households has access to CSI, so when someone downloads it on Google, it’s because they want a different variation of utilization. Maybe they want to watch it in a mobile environment on their laptop. Maybe they just want to have it there on the desktop. Maybe they never got to see it on Tuesday night, you know. But, it’s there. It’s out there.

We’re in 14 million homes. When we put Weeds on that iTunes platform, a lot of different things can happen.

Yes, it’s an additional source of revenue; but two, people who can’t source it can get it. Three, it promotes the show to a much broader universe [and] it promotes the brand.

MCN: What are the key challenges for programmers like you in a thousand-channel world or, if you consider the Internet, a prospective infinite-channel universe?

MB: Well, obviously, there’s going to be more and different distribution vehicles out there. We see that as a huge opportunity in building our base business.

We see it as a huge opportunity in building a brand because it’s more places we can put the Showtime brand. Again, if you’re only in 14 million homes, that’s a challenge.

So, if we can reach several hundred thousand people on the iTunes platform at a time, if we can reach several hundred thousand or a million people in sampling Huff, hypothetically, we’re taking the brand, the programming, to places it’s not being seen right now, and we think that enhances our base business.

We think that there are alternate sources of revenue going forward. How big those revenue sources will be, we don’t know.

The lack of an advertising revenue stream, which has always been seen as a traditional disadvantage to our business, may mean that we can be more aggressive in looking for alternative ways to sample or distribute our programming.

I could suggest that a lot of this technology levels the playing field a bit for Showtime, which has been restricted by our distribution environment in terms of the number of homes that can get us and can access us at a reasonable price.

Which is one of the real challenges we have today. Can I tell you exactly how this is going to shake out? No. Are there threats? Absolutely. Do we see more opportunity than threats? Definitely.

MCN: Now cable operators, of course, naturally want content, programming that makes them distinctive from a satellite operator or a telco operator or an Internet operator. They look to you, to give them that distinction. Telco and the satellite guy want the same thing. How do you make each platform, each customer, happy?

MB: Well, that’s one way of asking the question. The other way of asking the question might be, or thinking about the question, is if you’ve got a Weeds that they all want, do we have to make them all happy independently, or is it sort of like your Coca-Cola? Every supermarket has to carry you and market you and price you aggressively because people come into that store and they want Coke and they want it cheap.

So, I suggest that it makes us — the day the telcos are in there, the day the [direct-broadcast satellite] guys are in there, the day a wireless provider or someone else is in there — I think it creates more demand for our products and hopefully creates a more aggressive marketing environment. Not that we don’t believe that our two primary distributors, the satellite business and the cable business, will be the dominant distributors for years to come, and are best-suited to serve households with our products.

MCN: How will pricing models change for pay TV going forward?

MB: I’m not sure we know how pricing models will change. I do think that over time, as there are more players in the marketplace, there will be more aggressive pricing of certain services from cable operators, from telephone companies, from DBS platforms.

MCN: Are we going to see more pricing per program? A more on-demand model?

MB: I actually think we like the subscription model going forward because we think it’s a cost-efficient model, easy to sell to people and it’s already out there. Yes, there’ll be more on-demand product in the marketplace. Yes, some of our product will be more video-on-demand-driven in some platforms. But we still think that the basic subscription model — if we’re talking five years from now — will be driving the lion’s share of our revenue.

MCN: Will there be different types of subscription packaging?

MB: There may be, depending on how distributors choose to price us in a more competitive market.

MCN: What makes the 14 million subscribers pay subscription service a good economic model? The number on its face doesn’t sound like much.

MB: Since we report as part of the CBS Television Group, it would be selective disclosure to tell you what those numbers look like. However, if you went to any of the analysts who know what they’re talking about, they would probably tell you that Showtime does about a billion dollars a year in revenue, and makes about $300 million a year in EBITDA [earnings before interest, taxes, depreciation and amortization]. So that’s around a 30% margin business. I wouldn’t know if that was true, of course.

It may not look as good as ESPN, but how’s it look compared to [the] Fox [broadcast] network? Or how does it look compared to a lot of movie studios from their filmed entertainment business?

I’m not trying to make comparisons, but I’m saying that this is a pretty nice business, and we plan to grow it. And we’ll be better when we grow it some more.

MCN: What will change about the programming business in general over the next three years, and how will you be responding to it?

MB: I think that our programming is going to be many more places. I think our response will be to evaluate those business opportunities, evaluate them first in terms of how they can build our base business. Second, in terms of how they can build revenue streams and help us promote our product and our brand. I think that’s the first thing.

Two, I think that everything that’s happened and happening suggests that you’ve really got to survive on the strength of your product, on the strength of your content.

So the Weeds, the Huffs, the L Words, the Sleeper Cells, the Brotherhoods, are even more important to us than they’ve ever been before.

We think that you don’t distinguish yourself with feature films which will be everywhere. They’re still an important part of the product mix, because we’ve got a lot of hours to program and people still watch them, but strong branded programming is the future of our business, and I think we’re in a better position than we’ve been at any time in our 30-year history.

MCN: Does that mean more pilots, to get where you want to be?

MB: I think we hope we’ll have more original programming on the air. We’ve edged it up a little bit over the past year or two. I think for us, the key thing is we want to have one important thing on the air running through the entire year, if we can.

MCN: What makes certain programming right for Showtime?

MB: I think it’s our objective with everything we do to say, does this feel real. Did Sleeper Cell feel real? People who saw Sleeper Cell said, 'Boy, this really is how this works. Yes, it’s television, but this is how this works.’

September