Peter Einstein was appointed president and chief executive of Gulf DTH/Showtime, the fastest growing direct-to-home digital satellite pay-TV service for the Middle East, in January 1997. Showtime provides eleven channels of Western programming throughout the region, from the Gulf to North Africa. As president and chief executive, Einstein has overall responsibility for programming, marketing, sales and distribution, advertising, sales, finance, technical operations, human resources, and development of business strategies. Prior to Showtime, he spent 15 years with MTV Networks, most recently as president and business director of MTV Networks Europe. TBS Senior Editor Abdallah Schliefer and Managing Editor Sarah Sullivan spoke to Einstein about Showtime's development in the region and strategies for the future.
TBS: What made Showtime decide to go into this Middle East market, which doesn't generate a tremendous amount of advertising revenue, in which there can be a number of good arguments against encrypted pay TV based on the regional culture, and which has become a very competitive market?
Peter Einstein: The company was initiated by decision of our shareholders, most notably KIPCO (Kuwaiti Investment Projects Company), who felt there was a very wide open market to provide satellite entertainment to the region. At that time, around 1993-4, they felt they had good market knowledge but needed a strong entertainment partner. They actively sought out finding one, and landed with Viacom, which took a particularly keen interest in the project and in the region. Viacom is an equity partner, and saw the opportunity to provide a wide variety of programming.
It was a good marriage right from the beginning. The project was in development for about two years and was launched in spring 1996 with a clear feed, with actual encrypted subscribers being turned on in the summer of 1996. The premise was to provide a good Western alternative, a Western bouquet of services to the region where they felt the market was wide open. At the same time, there were discussions with Multichoice and [ART Chairman of the Board] Sheikh Saleh Kamel, which ultimately developed into a cooperation whereby both ART and Showtime with ART's Arabic offerings and Showtime's Western offerings' share the platform, share the technology through the concept of "one box, one card, one platform."
TBS: But that got a bit rocky for a while.
Einstein: I think the timing of certain satellites launching was a crucial issue at that time. I think the project, certainly from Showtime's point of view, was already almost two and a half years in development, with no real Ku digital satellite serving the marketplace at that time. There was Arabsat, certainly, which had C-band analog, and was going to be launching digital satellites but hadn't yet, and Nilesat of course--their plans were on the drawing board but no launch. All of a sudden PanAmSat becomes available, which was really the first Ku digital satellite to be servicing the region, and I think both at that time Showtime as well as ART thought, at least we can begin with PanAmSat and immediately sign on subscribers and see where we go from there. There were some differences in terms of what platform would end up being the ultimate provider for the Middle East, etc.; in 1997 ART decided they wanted to continue their growth from the new Arabsat Ku satellite, and had indeed committed to Nilesat, and Showtime was also considering what would be the next step as well and whether it would continue on PanAmSat. I think there were a lot of questions at the time about where the real home would be. We committed ourselves to Nilesat for several reasons--one of which was because we would be back together again with ART, which was always the intention.
TBS: Even before you got back on the same platform, you did something very subtle in terms of your decoder, so that you didn't lose the edge of offering people an option. Could you explain how you did that?
Einstein: What we decided is that regardless of where we were on the satellite, [Showtime and ART] wanted to continue to operate as one platform, one box, one card, one technology. Given the fact that we're using the same technology, really all one needed was two dishes, which is the least expensive of all the equipment. So we did begin, at least for a time, selling and marketing together, but from two different satellite positions. And that continued for probably the first half of 1998 until we were again reunited back on Nilesat. Our intention has always been to operate together--this is obviously a bit more difficult from two different satellite postions, but that resolution came with Nilesat.
TBS: Now that you're back together on Nilesat, on the same platform, has that been reflected in sales and marketing?
Einstein: Definitely. Certainly in the last year to 16 months, both of us have seen probably the greatest growth in both of our histories. We've also developed quite extensive sales and marketing programs in cooperation; we've even gone further and bought programming together; we bought the Premier League together, for example. So, aside from my personal relationship [with Sheikh Saleh Kamel] being very good, our relationship with ART as an organization has been very, very good, and we're happy with that cooperation. In fact, we're looking to do more things right now, whether it be buy more sports, or more sales and marketing campaigns together, etc. Sheikh Saleh and I are both firmly committed to that notion of cooperation, and that will continue.
TBS: It would seem that your sports programming, to which you made an allusion, could be a major programming strength. Are you thinking of a major expansion in sports coverage, especially given the success of the Premier League [British professional football] coverage? And given that ART has a major stable of sports programming.
Einstein: Which is exactly my point our expansion into sports is an expansion together. Again, we've had extensive conversations about how we together can continue our foray into sports. Part of our cooperation together as a platform is that we will be working together and not competing with each other. The understanding has always been that ART will provide the majority of the sports, we will provide the Western movies, and everything in between we would both provide from both the Arabic and English language point of view. With the Premier League, ART presents it in Arabic and we present it in English; in addition, it presents a huge economic benefit by basically splitting the cost--especially since sports rights are continuing to escalate at unbelievable rates. We felt that cooperation would continue to benefit us both, not only economically but also from a marketing and positioning point of view.
TBS: You're serving what is basically two very different markets within a common Arab market "not even considering peripheral markets such as North Africa, Syria, and Lebanon" and those are Egypt and the Gulf. It's the same programming going to both regions, but how would you compare the two in terms of the progress you're making.
Einstein: The Gulf is where we began. We got off to a much quicker start than we did here in Egypt. Today, most of our subscribers are in the Gulf. But certainly, again, in the last year to 18 months our progress in Egypt has been coming along quite strong. Egypt is such a huge market, and we suspect that it will be one of our top two contributors to our overall growth in the region. Probably in the next three years Egypt and Saudi Arabia will be representing most of our customers.
TBS: There are certain advantages you have in moving into places like North Africa, among which is that for people interested in Western, English-language programming, regional Arabic dialect differences aren't really a hinderance.
Einstein: That's true. The positioning of Showtime has always been as a Western bouquet, but we wanted to position it as Western programming made for the Middle East, and I think that's where we set ourselves apart. Right from the beginning, we've always wanted our primary market "which still today is about 85 percent Arab nationals" who are interested in Western programming to be comfortable with it. We never wanted them to feel we were just beaming it in from somewhere else. It's scheduled for the region, it's promoted for the region, and of course the subtitling we do also makes it comfortable from a language point of view. And regarding promotion, there was a large debate in our company, some saying that since we're a Western company we should promote ourselves only in English. I said even though our Arab-national customers might not understand everything, at least they should know what the show is about. That's why many times you'll see promos where the voiceover is in Arabic even though the soundbites are in English.
TBS: There's concern from some people, from the Gulf and Saudi Arabia more so than Egypt, over some of the programming on Showtime. Even Sheikh Saleh has been quoted as having been a bit disturbed, specifically over late-night movies which are labelled as adult. To what degree have you suffered because of that, and how do you handle that?
Einstein: I think the best way to answer that is to go back to the beginning of Showtime. The people who were running the network at the time were taking a very, very conservative point of view on the presentation of Western programming to the extent that most everything on the network, including things like MTV videos, were censored or edited. In fact, I was running MTV Europe at the time, and part of the contract agreement was that they needed the right to edit and indeed replace videos if they felt they weren't appropriate for the region. The movies, everything, were heavily edited; there was a tremendous effort in that area. However, the complaints in the initial months of Showtime were felt right away. Customers, particularly those from Saudi, would say, if I want this kind of censored programming I can watch Saudi television. They would also say, that's as long as the service is encrypted, I can control it, and you don't embarrass me in front of my family by showing movies with nudity at eight or nine in the evening when I'm sitting with my family.
TBS: So you were getting a lot of feedback.
Einstein: Lots of feedback. We did a lot of testing in the initial period. They said, if it's appropriately scheduled, if I can control it, if it's tastefully done, and its not too much, then I would like to see it. The major complaint was, please give it to me the way it was meant to be seen, because I'm paying for it. We've pushed that concept along in terms of scheuling appropriately, what [the viewer] might be thinking in terms of what's appropriate. We still do some censoring and editing, but more in the area of things like religion, like if there's a particular scene in a movie that would be considered offensive religiously or culturally, or anti-Arab etc. Pretty much everything else is left as it was meant to be seen. However, it's appropriately scheduled, and we're sensitive about it. We've actually tested the real value of that by removing it for a while. Certainly, during times like Ramadan, we take [sensitive material] out completely, and that's a principle I think is important. This is the region we serve, and we're respectful of that. And literally hours or days after Ramadan is finished, the phone begins ringing right away from a very large part of our customer base saying, where is it now? Having said all this, the sensitive programming wouldn't earn anything more than an R rating [in the United States]. Anything even remotely going toward X we don't show, ever.
TBS: Everyone's talking about negotiations that have been going on for a few months now between Orbit and ART. If that culminates in a merger , or an Orbit buyout of ART, how will that affect Showtime and your relationship with ART?
Einstein: There would be issues we'd have to discuss in terms of our cooperation, because we're pretty tightly woven, especially in terms of our technology. But whatever happens, the market is still in its infancy, not only in Egypt but across the region. So the business ramifications for us would not be that extraneous, because for us to be successful in this business, our break-even point is really quite modest.
TBS: Can you give us figures on your subscriber growth in the last few years?
Einstein: We have today about 125,000 subscribers, and a year ago it was probably in the area of 50,000. We've only been in business in earnest since the beginning of 1997, so about two and a half years, and I'd say the most substantial part of our growth has come in the last year or a little more.
TBS: What's your break-even point, in terms of subscriptions?
Einstein: About 200,000. Given that it's a marketplace, covering everything from the Gulf to Morocco, of about 27 million TV households, having less than one percent is pretty good.
TBS: If your growth increment continues, you'll hit break-even point in about a year.
Einstein: I'd rather be a little more conservative. Our projected break-even will be sometime toward the end of next year. And that's very realistic. We don't grow that way every month. TBS: You're operating from a solid financial base. Given that these ART/Orbit negotiations are taking place because ART is going through a liquidity crisis, have you considered entering negotiations?
Einstein: That is not my decision. I'm only interested in providing a return for my shareholders. And obviously that means making this business successful. What we're doing now is completely focusing on increasing our subscriber base and increasing revenue and getting to profitability. If along the way there's an opportunity that would enhance our business, whatever that might be, we would obviously consider it. We've made some strategic moves over the last year like our move to Nilesat, which in addition to working with ART, nestles us very nicely with thirty free-to-air Arabic channels and gives us additional coverage straight across to Morocco. With the alliances and the strategic decisions we've made, our course is set.