Huntsville, Alabama, in a city that was as American as Apple Strudal From Any Time Studios comes paper Clip, a podcast sponsored by Amazon Studios and inspired by its EMI eligible dramatic series Hunters, starring Al Pacino and Logan Lerman joint host Michael ian Black as he teams up with a Cold War scholar to explore Operation paper Clip, a real life top secret program that brought Nazi scientists to the American heartland to work on government aerospace and medical
research projects. Available now on Apple Podcasts and all other platforms. Welcome to another episode of Strictly Business, the podcast in which we talked with some of the brightest minds working in media today. I'm Andrew Wallenstein with Variety Intelligence platform. New Firepower has come to the streaming wars with the launch of HBO Max last week. It joins a crowded field, including another holdover from the world of premium cable television. Stars.
This lions Gate owned brand has graduated to the streaming game as well. With me today to talk about the road ahead for Stars is It's CEO Jeff Hirsch. Welcome Jeff, thanks for having me on. Before we get started, we must acknowledge. Jeff is making strictly business podcast history today on this the one thirteen episode, You, sir, have the distinction of being the first rish Turn guest we've ever brought back for a second episode. Well, I guess that
means maybe I did something right the first time. Who know something I put on the top of the resume. It's it's will be under my skills, hobbies and instrance for sure. So before we get to talking about the state of Stars, I do want to point to a statement your company, like many different companies across America, released over this tragic weekend in the United States. It reads, we cannot stand silent while our Black communities are under
the way to violence, discrimination, and injustice. You go on to support organizations like Color of Change in the inn double a cp uh. Look, Jeff, I commend you and your company for taking the stand. I also want to understand what kind of questions a company has to ask itself at a time like this about what its responsibilities are. That's a great question, you know. I think for Stars, there really wasn't that many questions about what our responsibilities
are in terms of our our communities. We have served, underserved audiences. You know, as part of our programming mandate for years, UM we have put underserved voices and unheard voices and fresh faces on the air, not only on the air, but behind the screen and and in the writer's rooms and directors, you know, for the last ten years and so this has been core to what Stars
does as a company. And so you know, when this unfortunate incident had broke across America, it was very clear to us that we needed to act and we needed to speak out. Well, if that wasn't disruptive enough, you know, we're also smack in the middle of a pandemic here, which you know, I have to ask what has the
impact been for your business? The pandemic has been. You know, it's been very trying, I think of all businesses, including ours, UM, but it's been you know, with people staying at home and sheltered in place, people are looking for a fresh content and as a non ad supported you know, premium content layer that has fresh content coming on almost every week, it's been a place where people have found content and
continue to see and watch the service. We've seen viewership domestically on linear up thirty on our app and our digital sides up, and we've seen those same kind of viewership numbers increase in the fifty countries we are in outside of the US as well, so there's been some benefit there, but my guess is there's probably been some
production disruption. So the We've been fortunate that we really produce a year in advance, and so everything that's coming onto our Fisical twenty one or twenty slate has been pretty much in post production when the pandemic hit, and so we've been able to be very creative using virtual editing rooms and sound rooms and kind of finished most of the content that we have coming on the Earth through at least March, and so we're in really good
shape with fresh content. We were when it hit. We were in the middle of Outlander season five, which was I think the best season to date and the viewership reflects that, and so we had fresh content there. We launched the third and final season of Vita in the middle of the pandemic and ended just last night and
do a great, great uh ending of the story. And then we launched a new show called high Town Uh three weeks ago, which is with Buckheimer Television, which I think is gonna be one of the best new shows on television year. A couple that with all the Sony Pay one movies that we've been getting Once a Time, Find a Hollywood, Zombie Land, and the four thousand library titles that we have, it's a it's a pretty compelling service when you're stick at homeworking for something to watch.
So um, and then you go overseas to the fifty countries we have outside the US. Not only do we have the Star shows, but we have shows like The Great and The Act of Castle Rock and Killing Even so, we've got the best of Little Spot outside the US. And so it's been Um, we've been okay in terms of production. You know, we are in a good position where I think if we're back in production by the mid to late summer, that will be in good shape for the following year as well. Okay, we'll see what
happens there. I mean, it's got to be hard to sort of it's the moving target of this pandemic. We don't know when society comes back to normal, how long it stays back to normal. Um. Has that been a challenge in terms of long term planning? I think all you know, the moving and moving that listen moving the football. You know, it's kind of hard to kind of pick a spot, as you said, but I think it's an organization. You have to pick a date and go for it.
And so we picked a very early date on return to production and return to the office, and so that our protocols are ready to go. We're prepared. We have a great plan and then as soon as the governments allow us to start going back to work, hopefully we'll be one of the first out of the gate back to production. So you mentioned, I mean, you know, the pandemic has created some circumstances that have helped drive subscriber
growth here and abroad. I have to ask, though, is any of that done by It seems like there's a lot of players out there in the streaming space that are doing a lot of free and and you know Quimby, Grow coup all these different brands. Does that sort of juice the numbers of it? It made for them, But we we took a much different strategy one when we sat down. You know, we've we've built a direct the
consumer product of scale. We've got over two million subscribers on our own app where we built the data engine behind it and so we've been looking at the data for years in terms of offers, free offers, seven day free, thirty day free, what the conversion is to paid with the lifetime value is of those customers. And we've never been big friends of thirty days free. It's just isn't It doesn't use both for the business long term, and when the pandemic hit it we actually took a much
longer view of what was going to go on. We thought this would last much longer than thirty days, and so we actually put longer term offers in the marketplace that reduced rates so the consumer economically challenged consumers could actually get the service and afford the service, but would
have it for a longer period of time. So we were in the market with a five dollars for three months offer and twenty five dollars up front for six months offer um that we ran through the pandemic, and we've seen great, you know, retention on the back end of those from our using it historically, and so we feel really good that not only did we seeing a spike in consumers because they're home looking for content, but
we'll be able to keep them long term. On the other side, well, You're also coming off a quarter though, where you've had some issues, most specifically with the losing linear placement for Stars on Comcast, which I think was a loss of about over six million linear subscribers. So this also, I think hurt your revenues, your profit for the quarter. It raises a lot of questions about Stars. I mean, was comcast decision is surprise to you? Do we need to be worried about the rest of your
linear subscribers elsewhere? It's a great question. Uh, you know, Comcast was a very unique situation for us for the most part, and the rest of all of our operators were all the cart so we were already in a red share deal where we make a lot of money together and the incentives are aligned together. So in direct TV, you know, the better we do, the better they do. So those incentives are aligned. On Amazon the same thing.
Comcast that had had a bunch of different strategy packaging, strategy and the others long term and so we were, you know, always part of this big kind of health health heavy healthy bundle that um, you know that they like. But as the business has changed and pivoted away and consumers have more options now, um, those you know, and you see what's happening with the traditional business drinking three to four percent year, those bundles are starting to shrink
pretty significantly. And so when we looked at the business during the renewal, you know, we said, Okay, long term, it's healthier for us to pivot from these bundle deals that are a quick race to the bottom to an all the cart business that we can both make money of our together. And so we've gone now from being a cost center from Comcast to being a revenue center, and I think long term that makes us just a
healthier business with two of us. So, you know, we worked out a couple of year transition plan that would allow us to transition from bundles to all the cart um. We started it on February eleven with the premiere of Outlander. In the first six weeks, we've grown to over a
million subscribers on the footprint. And as you think about that and we start to come into The Power Universe, which is our largest show and our biggest acquisition show, we we fully believe that we'll be able to get north of two to three million subs on that platform pretty quickly. But doesn't that still leave about three million
left behind because you had six point two on linear Comcast. Yeah, but the average revenue per customer on Comcast on the six point two was so low because of the bundling. That was a deal that was done in two thousand and five, and so we only need a third of the customers on Comcast to actually replace the revenue that we had in an old money deal. So, so will you be able to grow your O T T subscribers at a rate fast enough to make up for any
further linear losses? So the million over million subs that I talked about was actually linear. Those are ala carte subs on Comcast platform the first six weeks, so we were able pretty quickly to replace you know, almost half of what we need to break even um from where we were before. And so we feel very good about that platform. UH. Their flex product, I think is a is a great competitor Roku, and we're really excited about
working with them on that uh. And we think that we can quickly make up, you know, and break even and make more money long term between the two of us. Based on the program that we put in place. We continue to see great growth in the quarter on a cut um. We we grew almost a million one subs in the quarter. Uh, A lot of that was coming in pre COVID, but then post COVID we saw that accelerate.
It continues to accelerate into this quarter as well, and so we're you know, we're seeing great, great growth in terms of transitioning from a traditional linear world to this new digital or I like to call it revenue share world, because we can't forget that the linear side. There's a lot of opportunity for premium. Uh. You know, we at most HBO and the heyday of HBO is thirty three
or penetrated on the traditional business. And so it's not like we were an a m C or a Discovery where there's no room to go and it's just shrinking. We'll be right back after this short break. Huntsville, Alabama, in a city that was as American as Apple Strudal from any Time Studios comes paper Clip, a podcast sponsored by Amazon Studios and inspired by it's Amy eligible dramatic series Hunters, starring Al Pacino and Logan Lerman joint host Michael ian Black as he teams up with a Cold
War scholar to explore Operation paper Clip. A real life, top secret program that brought Nazi scientists to the American heartland to work on government aerospace and medical research projects. Available now on Apple Podcasts and all other platforms. Welcome back to strictly Business. Here's more of my conversation with Stars CEO jeff ersh. But I'm wondering how you feel about these, uh, the new distribution partners that you're dealing with.
Looking at what happened to HBO Max, which recently launched and you saw had some pretty significant, uh problems in terms of getting some pretty key distribution in place at launch? Should that be giving programmers a pause in terms of the the power dynamic between these distributors and say what it was like with the distributors of old. You know, I think the HBO Max conversation is so unique because they're actually kind of putting more content around an existing
product at the same price. And so it's a really unique conversation with the traditional distributors and some of the new ones they already have existing deals. Um and as you know, you know from your years in the business in my fifteen years and that side, you know, anything that you can do to open up a deal and try to save money and you're going to use it
to your advantage. And so you know, and a few of our renewals that we've done, there was language that was put in to just trying to make sure that that the operator, the distributor was protected against us doing that similar thing. And so I think it's a very unique kind of point of view. Um, you know, the new operators, the Amazons, the Hulus, the you know, Um, Disney Plus is all this because I think ultimately there's the world change is. The more changes, the more it's
gonna look at the same game. Um, I think you're gonna see people start to bundle up together to compete that you haven't seen before. As you can see now, Disney Plus is selling stars on Disney plus dot Com after you sign up, because it's I think a really good, uh kind of kind of quasi bundle where the mother and the home find stars for Outlander and they get Disney Plus for kids, so they can start to see
a bunch of strange bedfellows. To a certain extent, as the world becomes more competitive, and we feel we're really well positioned to be that complementary partner to everybody. Um, but all these deals, you know, unlike I think traditional Hollywood deals. One side wants to save money and when once side wants to make money, and so that, oh, you always start off on that foot, um, and you just have to be creative together to figure out how
you can make money together. But explain that complementary part, because I think a lot of people might assume this is sort of a zero sum game. You're against Disney Plus, which is against Netflix. But I think there's something and how you've structured stars the price point where you see this as sort of tucking in behind, uh, some of
the other bigger players in the streaming space. Yeah, I think the world's gonna fold into three tiers of spot services, you know, and I'll look a lot like the traditional business did years ago, where you have these very large, very broad programming based services like the Netflix is, like the Amazon's, like the Hulus, like the HBO Max is all trying to kind of be that kind of first one in the home we you know, kids, content, ad
supported content, news, sports, the docuseries, documents, you know, just a very broad, uh you know view of content, much like Charter was is today and Direct TV and Comcast is and trying to you know, replace those guys in the home is the first one in the home. UM Stars has never played that role. We've always been this premium, bespoke tier of adult content, very authentic, no ads, UM you know, very deep storylines. When the storyline gets to go very R rated, it goes very rrated, and we
don't have any and we're proud of that. And so we've always been that kind of second tier in the home. When you've got by Charter or direct TV, you can always add Stars on top of UM and so that's the role will continue to play. And so as people start to pick Hulu for their first you know, you know, broad based service in the home, you can buy Stars on top. Same thing with Amazon, where one of Amazon's
best partners globally right now. Because of that, I think you'll see a day where Netflix will a Netflix Stars bundle will show up as well at some point, UM, because I think as everybody starts to figure out how to compete, these complementary services sitting on top of them are things that you're gonna need to add not only revenue to your company, but more content. And so we see ourselves as that complementary tier behind all these big
broad services. And as I like to say, if we're the number three spot in the home and in the fifty countries outside the US and the US, that's a great place for stars to live. Well. But then I wonder if the world is heading to you know, a recession type uh economics that you nation people's disposable income, they're gonna be a little STINGI or maybe the number
three isn't a great place to be. Well, look, you know I've spent I've been through two recessions on the cable side, and you know, when things get tough in people's homes, they tend to stay home, you know. They unfortunately, they don't tend to go to the movies and buy a bunch of popcorn and hot thoughts for the family. They will kind of revert back to home for their content. And that's a great place for us as well, just
like you're seeing in the current pandemic. But again, with our price point at eight nine, I think we're very nicely priced based on the fact that we've got almost ninety hours of fresh original content, we've got four thousand library titles, and we've got the Sony Pay one. I think it's a really good value proposition, Uh, to sit behind one of these other services. Don't forget we have
a very very unique programming strategy. We are focused, hyper focused on prodding you know, premium content for women and underserved audiences, and nobody else is really doing that today. And so you know, we we've got this core demo of women and African American women that nobody really has to the extent that we do, will continue to program for them in a big way. And so again, if if you're in that demos, it Stars is you know,
is the service that you want. So again, we think we play a nice role in the home for that as well. And so when you look at the larger streaming war, you know, since we last talked last July, Disney Plus is here, HBO Max is here, Peacock is coming, CBS, Viacom is gonna come. You know how you know you're you're talking about strange bed fellows. You're talking about talking in behind some of these other choices. But to this broader marketplace, can this number of players coexist? It's gonna
be hard. I think you're gonna see four to six kind of the four to six broad based services that are going to be you know, that will survive a long term, and then you'll see two or three or four of these premium talkins behind and then I think you'll five or six or which is the tier three that we never got to, which is like the acorns and the chillers, and then and there really you know, I f c s and sun Dances that are really niche audiences that have a love for it but that
and are very loyal um. But I think you'll see for the six kind of big broad based players laft Um. From what I can see from HBO Max today, it looks like it's more of a Disney Plus competitor than it is a Netflix competitor. Um. But again, you know, with the new leadership, they're coming in two days or whatever before the launch. I'm sure there's gonna be some
changes coming to the service as well. But again, the better they all do in getting consumers too to adopt Spot, the better it is for US tucking in behind them. And we're seeing that outside the US right as you know, we're the third biggest US spot outside the US. And as Netflix and the Amazons and US kind of get into markets to start to educate people. We're starting to see that behavior follow like us. Okay, um, you know we should also talk about your parent company in lions Gate.
You know, you both uh separately together have been subject to reports of potential deals M and A you know, maybe not in the pandemic climate, but in the longer term could start to pick up again. So it stars truly plug in play. Where should it end up within a different company or lions Gate ends up within a different company? You're well situated, do you think that far ahead?
You know, we don't speculate on M and A A activity, Uh Lake grun But used to say to me that if M and A was your strategy, you have no strategies. So you know, I think we are really you know,
three great businesses. Uh. You know, the home entertainment business in the library right now is probably doing as well as any other part of the business in this pandemic because people are looking for content for their services, and so like I think John and Michael built a really great you know company with Motion Picture you know, and you know some of the franchises and tv UM in a seventeen thousand title library, which has given us the
ability to go global very quickly with broad based content and content available which not a lot of other people have. And so you know, you look at Stars coupled with that, which is our fastest growing domestic app, which I think is still one of the best rated apps in the US. We're now in fifty countries outside the US with a branded channel with a lot of great content, and we
have our app and eight countries as well. Um I think it's a very valuable asset for somebody that is looking if you're looking to go international, you know, we've done i think almost for fifty eight deals and launches in thirty countries in eighteen months. That's very hard to replicate. And so if you're looking to expand your brand or
build something, it's it's quicker to buy to build. So UM, I feel really good about the components of the company and how we're working together, feel great about the growth on Stars globally, and uh, you know, we'll just continue
to head down and drive the business as planned. But do you need the lions Gate Library at your side in your pocket to to be what Stars is and what happened if you are split apart from lions Gates, you know, as in any you know in our company, you know, because that sits on the other side of
the business. There's there's in our company deals that we have in place, uh that you know, we're paying lions Gate you know, TV for the library and so if if in fact speculator, we're just put out, those deals are in place because we have participants in third parties that we all have to be able to account for stuff back and forth. And so those are already in place when we launched international and we are domestic programming as well. So, uh, those are in place. I'm not
that's I'm not concerned about that. But you know, remember that library, you know, of seventeen thousand titles plus the Stars originals plus the third party we're buying. It gave us the ability to go into you know, thirty markets, thirty one markets plus the Stars play maybe nineteen you know, in under two years, um. And so there's not a lot of content that that you can get that available that why that quickly, and so it was a real asset for us to kind of get into that strategy.
Well speaking, library, Stars recently filed suit against MGM for alleging alleging that they've been licensing content that you under the understanding was stars exclusively. How how damaging was that to your business? Look, you know, I'm not gonna talk about pending you know, litigation, you know, as we're in this right now, but I will say, you know, we did you know we we haven't always had exclusive content
on the service. I think it's been a hallmark of premium. Um. And you know we generally go out and buy only exclusively because of that. And so we'll see, you know, when we get into it what this looks like. But exclusivity is a very important thing to us, I would imagine. Um. Finally, you know, as you look ahead to one, even though we're barely through, you know, what do you see as some of the challenges or opportunities facing your business that
people may not even necessarily be talking about right now? Well, the production obviously is the one that everybody's talking about right now. Um, you know, I look, I think it just depends on you know, the production and we get back. That's a big one. The recession is a big one. Whether you know, we've got forty million people unemployed right now, and what does that mean for our business is long term? Um,
you know, when the movie theaters open. If they open, what does that mean for slates that are coming up? And and so there's a lot of moving parts in terms of content and consumer, which I think is really you know, the you know, the piece that actually keeps
us up at night. Um. But ultimately, you know, we're very focused on these two key demos and our content strategies really kind of in our development strateg just really leaning into that this will be the first year that we'll have something on the air almost every week for both of those two core demos, which should ultimately mean long term revenue growth accelerates, turn comes down to a
much lower number, and the business is actually healthier long term. UM. And I know, I don't think we've continued to see struggling and getting content because we are so unique in that sense, you know. I think the story that you know that we have, we're putting people on the screen and behind the screen, I mean our showrunners, writers and directors or women of them for women of color, and so we reflect what we do on the screen behind
the screen. And I think when you tell that story to talent, they want to be a part of it. And so we haven't seen escalations and costs that I think others have talked about um, but it's ultimately getting that on air and and really seeing how we can drive the business globally in a good way. Well, we'll shill luck with that during these tough times. Thanks for taking some time out, Jeff, Thanks for having me appreciate it.
This has been another episode of Strictly Business. Tune in next week for another helping of scintillating conversation with media movers and shakers, and please make sure you subscribe to the podcast to hear future episodes. Also leave a review in Apple podcast let us know how we're doing Huntsville, Alabama, in a city that was as American as Apple Strudel.
From any Time Studios comes paper Clip, a podcast sponsored by Amazon Studios and inspired by its EMI eligible dramatic series Hunters, starring Al Pacino and Logan Lerman joint host Michael Ian Black as he teams up with a Cold War scholar to explore Operation paper Clip, a real life, top secret program that brought Nazi scientists to the American heartland to work on government aerospace and medical research projects. Available now on Apple Podcasts and all other platforms.