THE ONLINE VIDEO GORILLA IN THE ROOM: EPIX

Epix, the new premium TV channel from Paramount, MGM, and Lionsgate, launched on TV and online at the end of October. The launch opened up movie catalogues from each of the three studios to be watched on three separate platforms; the content triple threat if you will. In a world of packed viewing options, how did we get to the point where three movie studios have launched a new pay TV channel?

Here’s the skinny. In 2008, Showtime’s contracts with Paramount, MGM, and Lionsgate expired. You see, in the premium pay TV world, channels like HBO and Showtime manage two streams of content: their original programming including both television series and films, and their movie studio content. These channels pay the studios premiums to air their movies on TV for a determined amount of time. When these contracts near expiration, negotiations settle in.

In this case, the negotiations between Showtime and these studios were fairly contentious. The studios wanted a higher fee than Showtime was willing to pay. So passionate were these negotiations, the studios basically declined revenues from Showtime entirely to instead walk away from the deal entirely. Showtime will now lose Paramount films released after Jan 1 2008 and MGM/Lionsgate films released after Jan 1 2009. That includes heavy box office winners like Iron Man ($318M US box office) and Indiana Jones and the Kingdom of the Crystal Skull ($317M bo).

Instead of negotiating with another pay TV channels, like HBO or Starz, the three studios instead pursued the completely unexpected option: form their own pay television network.

I worked at HBO for the past 4 years and hence was a little more eager than most to try out the product. When I initially heard about the new pay service, I was generally mystified. In a world of disaggregation,with content scattered on premium networks like HBO, online through services like Netflix and Hulu, download-to-own/rent on iTunes, and on demand, I hardly saw the need for additional options. That said, as audiences trend online to watch content, I was most interested in taking a look at the online product. Here’s a break down:

Availability

If you are a Verizon FIOS subscriber, you have access to the product. In addition, Epix is offering 50 thirty-day invitation codes to Marauder readers who are the first to Follow @epixHD on twitter AND tweet “@epixhd Experience Epix #DailyMarauder.”  If you miss your chance, you can also get a weekend invitation code if you visit the site during the month of November.

Content

Emil Rensing, Chief Digital Officer of Epix, tells me that as of today, there are 183 movies on the service. By the second quarter of next year, the goal is 3,000 movies. I asked Emil about Epix’s competition, eager to find out whether the channel views traditional pay networks like HBO and Showtime as competition vs. online movie providers like Netflix. “I’m personally a subscriber to both HBO and Netflix. I love the DVD service that Netflix provides but we’ll have more content online than Netflix. HBO doesn’t yet have the licenses to put all of their movie content online.“ Being that Netflix claims 12,000 streaming titles online, I pushed Emil on his answer. Within those 12,000 titles, Emil claims 2,000 are movies, “The preponderance of those titles is either public domain or bottom tier selections. They don’t have a lot of titles that will drive the subscription nut…We don’t buy content. We buy hits.”

User Experience

Hulu-Like Video Player

The online video itself looks and feels very similar to the Hulu experience. It rocks the same full screen, pop out, and light dimming options. Epix, however, features 720P HD quality for all of its movies, if you have a connection speed which can handle it of course. If not, it delivers the video to you in a quality compatible with your connection speed. Hulu also has films in 720P through their HD gallery although I only peeped 3 TV episodes in the library when I drove through this morning.

Finding What you Want

Either browse or search for content using predictive content options based on what you type in the search box. In this case, I was typing “Valenti” . I wasn’t looking for My Bloody Valentine but instead for the Valentino documentary.

Watching Movies Online with Friends

Here’s my favorite feature. Viewers can watch a movie with up to 4 of their friends, even if that friend is not an Epix subscriber. This is an acquisition and retention play of sorts but a very smart one at that. To make the analogy work a little harder for you, imagine if I could call you, the non-HBO subscriber, and invite you to instantly watch that next episode of True Blood with me from each of our respective houses. Yah, pretty neat. Here, fellow Marauder Martha and I, watch The Curious Case of Benjamin Button from each of our houses in NYC and LA.

Movie watchers can type messages to each other while watching allowing an almost couch-like experience. Martha and I tested this feature three times over the course of a week. Our results varied from seamless to all-out failure.

Portability

The content is currently only available in a streamed model meaning that the viewer can only watch when connected to the internet. Starz Play, the online offering from Starz also available from Verizon FIOS, is instead a download model offering the option to watch movies on a computer screen or portable device even when Google decides not to holiday gift free Wi-Fi to the masses.

Distribution

Currently, Epix only has one distributor with Verizon FIOS giving them access to a pool of only 2.5 million subscribers. The two most attractive cable operators in the US according to audience size are Comcast (25M subs) and Time Warner Cable (15M subs). In July, Comcast publically responded that they were not interested in the service and think that it is in fact, “a bad idea.” So that leaves, Time Warner Cable as the most attractive girl in the room. Rumors have been floating around about a DISH distribution deal, which would pick up just over 13M subscribers and give Epix a bit more to talk about. The other pay TV networks are watching, but not really paying attention until Epix finds someone to carry the channel to more people. And even then, it’s really Showtime which has the most to worry about. It seems as though CEO Matt Blank may agree on this one.

Price

$10 per month. The service was initially offered its first weekend as a free preview.

The Low Down

Epix most reminds me of Hulu at least in the reason for its creation. Hearken back to the days in which Hulu was “New Site” and everyone laughed at its imminent failure. Mr. Techcrunch himself, Michael Arrington, liked to call New Site Clown Co. before it was dubbed Hulu.

Hulu was created as a joint venture between two broadcast television networks (Fox and NBC) which wanted more control (and hence revenue potential) over the distribution of their content in an iTunes world. Let’s just remember how NBC felt about Apple during one painful period in which The Office wasn’t available on iTunes.

Similarly, Epix was built by three movie studios, who in a world of Hulu, Netflix, and Showtime, wanted more control over their content. Both decisions were risky for the companies in question. Just ask Jeff Zucker from NBC how those digital pennies, dimes, or whatever currency he’s using these days are doing.

Here’s the main difference between Epix and Hulu: Hulu acts as a central location for all content even if its not featured in its super slick video player. Epix only offers content from these three studios.

Epix isn’t interesting to me as another pay TV network. We have HBO, Cinemax, Showtime, Starz, and a few others you probably don’t even realize you have. In a world of Movies on Demand, pay TV networks, Hulu, Netflix, and those things we used to call DVD’s, do we really need one more TV channel? In short, no. No we don’t. The cable operators realize this. They have enough to sell you when you call to set up service. HBO and Showtime used to be the cash cow for the cable companies. With the advent of online and digital phone services, this is no longer the case. The revenue potential on these two services far outweighs the opportunity upside on a pay TV network. So, why would I, Mrs. Cable Company, choose to carry another pay TV network that I will have to relegate marketing budget to? Hmmm…

Back to the consumer perspective. To really dig in on this, it’s important to quickly reference the content windows.

Traditional Windows

Here’s an example of this structure using a recent box office hit: Paranormal Acitivity. The traditional window, previous to Epix, would look like this:

(Please note. Apart from the movie release, these are NOT announced dates, simply a look at traditional movie windows.)

Movie Release: October 2010

DVD Release/Rental (Netflix): February 2010

Cable Movies on Demand/PPV: March-April 2010

Premium TV Channel (Showtime): September 2010

Free TV: December 2011

So, let’s pretend you’re a Comcast subscriber for a moment. You would have been able to watch the movie on DVD first, then buy it through your Movies on Demand service, then watch it through your Showtime subscription, and finally some time close to never watch it on free TV. Head spinning yet?

Well, Epix is now on the scene and Paranormal Activity happens to be a Paramount film. So, now the film will no longer be available on Showtime.

So now, the story goes first on DVD, then Movies on Demand through the cable company, then Epix on TV and online, and finally when hell freezes over on free TV. Confused again? Yup. I haven’t even mentioned that Netflix is considering delaying their DVD rental offerings 30 days to pay the studios less. Oh, and of course, companies like Comcast are pushing day-and-date movies on demand offerings with the DVD window.

All I wanted to know was when and where I could watch the movie again. Crikey…

In short, Epix is interesting to me purely for its online subscription-model offering. They can’t compete with the movie quality of other pay TV networks like HBO. Yes, Netflix is doing online streaming but Epix claims that they will have more and better quality movies online soon. Epix is connected to a distributor whereas Netflix need not rely on one. Both subscriptions cost about the same but one gives you additional access to 100,000 DVD rentals and the other to a TV channel and on demand network. Epix has the closest relationship and pull with the movie studios except in this case, its just three of them.

Epix needs more distribution to make some noise but if they find some, things will start to get a bit more interesting. Game on.

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