Epix’s Epic Struggle

Officially announced in March of 2009 on the heels of a dispute with Viacom sibling’s CBS owned Showtime, Epix boasted $150 million in studio backing. The service initially made its content available online and officially launched its linear HD feed this past October. Take-up by cable operators has been slow, even if the service changed its business model from wanting to be part of a basic or digital tier at a cost of about $1.50 per subscriber the operator to being a premium service, with a premium online component only available to customers of its affiliates – making for a service with the potential to be a new revenue generator for cable operators. Until this week, the only provider that has signed on to carry the service is Verizon. This week, two more operators (Cox Communications, and Mediacomm) signed on the dotted line – both committing to an April 2010 launch.

One would think that a premium service model would be attractive to the operator, but the difficulty comes in selling a new service to subscribers on top of their existing bundle and the risk of the new service cannibalizing other premium services like HBO (owned by Time-Warner Inc.), Starz and the aforementioned Showtime. In part the need for an additional premium service in the market is why many cable and satellite operators like DirecTV and Cablevision indicated no interest in carrying the service when it was announced last spring. This is compounded by the fact that the service is made up of movies that have already been shown in their theatrical, hospitality, home video and VOD windows. Even so, revenue is revenue, and the lack of interest by major MSOs may have been more of a starting point in the negotiations than a definitive statement.

At the end of the day, unless EPIX can sign four of the top five 5 MSOs, they will struggle to become profitable and the three partner studios will be pressured to pull the plug on the service. Even though Comcast is focused on getting the NBC deal done and launching their Xfinity (TV Everywhere) service, and Time-Warner making rumblings that they are considering a rebranding, the multiplatform nature of Epix fits into Comcast’s strategic emphasis on on-demand and online video. Frankly, It’s surprising that they did not move quicker. Could it be that the Epix partners are unwilling to offer equity for carriage or is Comcast pushing for earlier VOD windows from the three partner studios as part of the deal?

On the flip side of the multiplatform aspect of the service, the online portion leaves the satellite providers out in the cold. Even if they could come up with the bandwidth to offer the linear service, DirecTV and Dish Network don’t have any local servers on the ground to cache the online HD service. Particularly telling is that, aside from Verizon, the wireline competitors like AT&T and RCN Corp. have yet to sign on. Ten months after an announcement, Epix has only announced three deals. Without the big guys in the tent, unless a whole lot more come soon, Epix could be history by the end of this year.