14) The Movie Duels
Hell, there are no rules here – we’re trying to accomplish something.
There’s a story that on the November night in 1972 when HBO went on the air for the very first time to a few hundred subscribers in Wilkes-Barre, Pennsylvania, Gerald Levin – then HBO’s top programmer and soon-to-be chief exec – ordered living room furniture installed in his office so he could watch that premiere night of HBO the way the channel’s first subscribers would see it. He wanted to see HBO through their eyes.
Today, in an era of Netflix, Hulu, on-demand, downloadable content available on almost everything but the kitchen toaster, it’s hard to appreciate how novel the concept of HBO was over 40 years ago. Except for a few small pockets of the country which had experienced the come-and-go efforts of earlier subscription TV services, nobody – including the people running the service – had any idea how HBO was going to be perceived on the viewer’s end. Thus, Gerry Levin and the Barcalounger in his office.
Since nothing like HBO had ever succeeded before, and all previous subscription TV experiments had died early – and sometimes startlingly quick — deaths, there existed no pool of experience or data the company could look to on what would work for the service and what wouldn’t. Looking at those early years of HBO, it’s not a hard conclusion to make that the service was more sure of what it didn’t want to be rather than what it did.
My family began subscribing sometime around 1976, and the HBO we received would be nearly unrecognizable to the HBO subscriber of today. The word that comes to mind in describing its overall flavor is…serene.
HBO was on the air from late afternoon up until maybe midnight during the week, or, on weekends, as late as two or three the following morning, depending on when the last feature ended. Instead of the non-stop bombastic promotional barrage which fills the space between features today, HBO stuck a video camera on a bicycle and sent it cruising through the tree-lined paths of Manhattan’s Central Park accompanied by New Agey piano music. At the end of the programming day came a rather charming animated sign-off somewhat reminiscent of Goodnight Moon. Long before HBO coined the slogan, it was clear in its format and tenor that HBO was, indeed, striving to be not TV, at least the way three preceding decades of commercial broadcasting had defined it.
But even in that rather sedate, restrained format, once HBO became available nationally by satellite, the public’s appetite for this commercial-free alternative to broadcast TV expanded in rapid, geometric fashion. So bottomless was the hunger for this new kind of in-home entertainment, that many HBO subscribers also subscribed to Showtime, even though both services shared many of the same movie titles (in fact, both channels often ran the same movie at the same time, and their program guides were nearly identical in design!). It didn’t matter; having gotten a taste of something different, subscribers now wanted more.
HBO looked at the way Showtime was riding its coattails and came to the tactical decision that if people wanted a second service, why not offer one of its own? Instead of a service that nearly duplicated HBO while competing against it, by offering their own second service, HBO could design a second channel schedule that complemented HBO’s rather than copied it (in the process channeling second-service money into HBO’s bank account instead of Showtime’s).
HBO’s first attempt at a sister service was Take 2 in April of 1979. Take 2 was built on the idea that some potential/disconnected subs were turned off by both by the price and content of HBO. Take 2 was sort of a PG-rated, lower-priced version of HBO. It was an idea that sounded logical enough; it just didn’t work. Take 2 was dead by summer (by the time I left HBO in 2009, I didn’t know anybody at the company who remembered Take 2; turnover and a natural desire not to want to remember failures had erased the effort from the corporate memory – it doesn’t even come up on web searches).
An incisive analysis of what had gone wrong with Take 2 laid the groundwork for a better-designed, more effectively complementary service: Cinemax, which launched in 1980.
One of Take 2’s biggest tactical mistakes was to be formatted as an alternative to HBO. Cinemax, on the other hand, was designed going-in to work with it. Although the formats of both HBO and Cinemax (MAX) would be tweaked – and sometimes changed in major ways – over the years, the basic concepts behind them have remained constant. HBO was (and still is) a mainstream entertainment service: material and talent generally familiar to most subscribers, appealing to more-or-less middle-of-the-road tastes.
But Cinemax launched as a movie junkie’s service intended to push Showtime aside by offering something more comparable to The Movie Channel and thus more complementary to HBO. Stuff that generally didn’t fly on HBO – cult flicks, oldies, grindhouse flicks, foreign films – filled out the Cinemax schedule behind the top end major titles. Cinemax wasn’t about better, it wasn’t an “or”; it was about more.
Typically offered to cable operators bundled with HBO at a discounted price, Cinemax became a resounding success and, in time, was often the second largest service in many markets.
(Not that Cinemax didn’t have its growing pains. My favorite story about Cinemax’s early years concerned the channel’s first logo: the name Cinemax inside an oblong. It was referred to in-house as the Cinemax flying dildo.)
Although HBO controlled Cinemax’s schedule to avoid the kind of head-to-head duplication it faced with Showtime, all three services – as well as The Movie Channel – were drawing their waters from the same Hollywood well. When it came to the big movies of the month (and even quite a few of the second tier titles), all four channels looked pretty much the same. No surprise, then, that viewers with more than one pay service often didn’t know which one they were watching.
Which worked out fine for HBO since, when in doubt, subs tended to think were watching HBO.
Which wasn’t exactly a smile-generator over at SHO and TMC
There was a point where Showtime seemed to realize it could never compete head-to-head with HBO which led it to a “second service” strategy. You don’t get HBO or SHO, the second service strategy said; you need to have HBO and SHO. It was, as you might expect, hard to make that argument when all the channels were running the same big movies at the same time. That being the case, the competing services fell to horsing around with a number of strategies, and counter-strategies, and counter-counter-… — well, you get the idea. These were all moves intended to gain the players at least a tiny bit of a promotion-worthy edge. In retrospect, none of these strategies seems particularly bright, and when you look hard at them, they even seem like petty, mine’s-bigger-than-yours squabbling in the school yard.
Take the move to 24-hour-a-day programming. Since HBO first went on the air with just a few hours of programming, it had been slowly expanding its programming day, and Showtime followed much the same evolutionary arc. In 1981, Showtime decided to shoot the moon and announced it was now a 24-hour service.
There were those who responded with a mighty, “So what?” All that Showtime’s announcement meant was that it had finally filled in the remaining hole in its schedule that ran through the late night/early morning hours when viewership was limited to a handful of third-shift workers, insomniacs and owls.
HBO brass turned to their schedulers and said, “That’s it! Now we have to go 24 hours!” which brought no great huzzah from the scheduling gang. A 24-hour schedule meant a lot more work and for no appreciative gain for the service. Did anybody really think people forked out money for SHO or HBO so they’d have something to watch at four in the morning? Never the less, HBO wouldn’t concede the promotional ground to SHO, and, later that year HBO also went to a 24-hour schedule.
In another instance, what with all the services getting the same movie at the same time, it started becoming a bigger and bigger deal about who was going to show a big picture first, even if only by a few sweeps of the clock hands. That particular kind of pettiness reached a peak of silliness with Star Wars (1977).
At this point, I have to remind you to keep in mind that it was not an automatic thing that all major movie releases came to pay-TV in those days. The all-time box office champs were often held back from pay-TV release, even those that might be decades old. In those pre-home video days, the biggest of these earning kings/classics could still earn money in re-releases. (Example: MGM kept re-releasing Gone with the Wind  regularly for decades, even after it was released to HBO and then NBC in 1976; IMDB lists seven official U.S. re-releases between GWTW’s 1939 release and 1998). It was often said that, because of their re-release value, some movies were too big to ever come to pay-TV, like E.T.: The Extra-Terrestrial (1982; in its day, the top-grossing movie of all time, and it did, eventually, come to TV in 1989).
So, with that in mind, maybe you can understand that when the news broke that the 1977 chart-topping all-time box office champ (at the time) Star Wars was coming to pay-TV, it was taken as a Very Big Deal (Star Wars had been such a box office phenomenon, that even within the space of those few years, Twentieth Century Fox had already successfully re-released the movie once).
Star Wars was scheduled for its pay-TV debut in February 1983 and, per the usual licensing routine, everybody was getting it: HBO, SHO, MAX, TMC. If you had all four, you’d be hearing John William’s DA-DAAA, DA-DA-DA-DAAAAA-DAAA score in your sleep. Normally, for a film that big, a premium service would typically debut it in prime time (optimally at 8:00 PM Eastern and Pacific) on the first of the month. Trying to beat each other to the punch, HBO and SHO had both scheduled the movie for six a.m. on the morning of Feb. 1st — the earliest their respective licenses with Fox would allow — even though it would be a weekday and viewership at that hour would probably be low. But then HBO slipped Fox a few extra bucks which bought them the right to slip in an unscheduled, unannounced airing one minute after midnight on February 1st. Almost no one saw it but HBO had the somewhat dubious privilege of bragging about how they were the first pay-TV guys to show Star Wars.
(I may be being too dismissive about this. As morning broke on February 1st and subscribers heard Star Wars had already aired while they’d been snug in their beds asleep, dozens called furious there’d been no alerting announcement. On the one hand, maybe it was ridiculous for HBO to fork out extra money just to say it had gotten Star Wars first, if only by a lousy six hours. But when you consider that Star Wars’ army of fan geeks seemed to have been quite prepared to miss work, school, whatever by staying up half the night to watch the movie, well, maybe it wasn’t such a ridiculous ploy.)
While such moves may have been gratifying to the point where HBOers and SHOers could pass each other on the street and go, “Nyah, nyah, nyah-nyah nyah! Our service is better than your service!”, and saying “We were the first to (fill in blank with meaningless accomplishment)” made for good promotional copy, they produced no great changes in the marketplace. Exclusivity was a shot at breaking the status quo.
In pay-TV terms, exclusivity is simple; one service gets a movie and the competitors don’t.
Credit — or blame, depending on your view — for firing the first round in the exclusivity wars usually goes to HBO. The company began by dabbling in pre-buys in the late 1970s.
Let’s say you’re Joe Producer and you have this great movie you want to make but you don’t quite have enough money on-hand to make it. So, you go to a pay-TV company and say, “Look, for a couple of million bucks you can have the exclusive rights to my movie.” The pay-TV company says fine, you get the money to finish your movie, and they get the movie exclusively. The trick here is that everybody’s gambling. Since the pay-TV company is buying a picture that isn’t been made yet, they’re gambling that the picture is going to be worth something — anything. But whatever it turns out to be, they’re stuck with it. On the other hand, if the movie turns out to be a mega-hit, the company has picked up the pay-TV rights to a movie people want to see and that makes subscribers feel they’re putting their money in the right place at a bargain price.
A couple of HBO’s early pre-buys illustrate how chancy this move is.
One pre-buy HBO liked to brag about was the critically-acclaimed 1981 hit, On Golden Pond. Besides earning a monster $120 million domestic (which made it the second highest-grossing release of the year behind Raiders of the Lost Ark), Pond was nominated for 10 Academy Awards, including Best Picture, and walked away with three including Best Actor for Henry Fonda and Best Actress for Katharine Hepburn. “Hey, subs! You know who doesn’t have On Golden Pond? Showtime, that’s who! You know who does? You’re lookin’ at ‘im, pal!”
The pre-buy HBO rarely mentioned, released the same year, was horror flick Dead and Buried, whose title pretty much sums up its performance and HBO’s institutional memory of it.
Thereafter, HBO escalated into exclusive output deals. Under an output deal, a pay-TV service agrees to take every movie a particular studio makes over a period of time.
(Rarely are films picked up by pay-TV services on a single-title basis. The bulk of their films come from either output deals, or other multi-year agreements in which they agree to pick a certain number of films from a studio over a given period of time.)
The problem with exclusivity is that it pushes up the price of films enormously. Look, let’s say you’re Joe’s Studio. You’ve been selling movies to Pay-TV Company #1 and Pay-TV Company #2 for years. Pay-TV Company #1 comes to you and says they want exclusive rights to your movies. Well, the only way this is worth your while is if you make Pay-TV Company #1 pay you enough money to make up for what you lose by not selling the pictures to Pay-TV Company #2. In fact, depending on how badly Pay-TV Company #1 wants your movies exclusively, you may even bump your price to even more than what you’d make selling to both services. Pay-TV Company #1 either sells a kidney to come up with the cash or loses the exclusive rights.
HBO’s first major exclusive output deal was with Columbia Pictures in the early 1980s. Exclusivity was still something of a new game and, looking back, you can see it wasn’t being played as well as it might have been if the players had had a bit more experience. Today, when negotiating such a deal, a pay-TV service is obligated to pay a “floor” — a minimum price for each title — but will also negotiate a “cap” — a limit on the maximum price. But back in the 1980s, there was no set price for films under these kinds of multi-year deals.
The price of any given picture was pegged to the size of the buying pay-TV service (so that in the days when Showtime and HBO bought the same pictures, Showtime paid less than HBO for the same titles) and the box office performance of the film. Under these deals, if a picture completely bombed, then the pay-TV company only had to pay the floor. But, the better the picture did, the more the pay-TV company paid. Without a cap, the sky was the limit. In that first big exclusive deal, HBO neglected to give enough attention to the idea of a cap.
One of the pictures the service received under the Columbia deal was Ghostbusters (1984). Because of the humongous success Ghostbusters had enjoyed at the box office (almost $239 million domestic), it was estimated that a capless HBO had gotten stung for somewhere around $40 million for that one picture, a price tag that sopped up some of the money HBO would’ve liked to put into other programming.
Following the Ghostbusters mess, HBO understandably expressed the opinion that maybe exclusivity wasn’t such a hot idea. It’s too expensive, the service claimed, and it meant spending more money for fewer pictures.
Showtime, however, had a different opinion; they had their “second service” strategy. They fired back with a five-year exclusive output deal with Paramount Pictures. It didn’t leave Showtime with a lot of money to spend on other programming, but for the first time the service figured it had a strong card to play in the pay-TV marketplace. Paramount was on a hot streak just then, coming out with a string of moneymakers like Flashdance (1983), Beverly Hills Cop (1984), Footloose (1984), and Top Gun (1986). Now, only Showtime would have them. No matter what pictures HBO had, the only way an HBO subscriber was going to see these top-flight Paramount pictures was to get both services.
The deal didn’t quite work out as well as Showtime had hoped and that was because of something else that had entered the home entertainment picture in the mid-1980s: the videocassette recorder. The VCR made the notion of exclusivity, well, a obsolete. Between theatrical release, pay-per-view and now video release, there was a better than even chance that most people interested in a particular movie had already seen it by the time it came to pay-TV. Whatever long-term boost Showtime had hoped for from the Paramount deal in terms of increased market share and in raising brand consciousness, they didn’t get it.
Further undercutting the value of exclusivity was that exclusive pictures didn’t stay exclusive forever. As soon as Columbia’s exclusive license with HBO was over, the studio turned around and offered all the pictures that HBO had aired under that license to Showtime. The same thing happened with Paramount exclusives that had gone to Showtime eventually showing up on HBO. Granted, the pictures were a couple of years old by then, but this constant recirculation of supposedly exclusive titles to everybody and his brother made that short window of exclusivity look awfully fleeting, and not so special.
By the late 1980s, it was doubtful exclusive licensing of theatrical films offered any service a major competitive edge. Still, no one was willing to go back to the days of rampant duplication. The status quo became spending more money for fewer movies, with HBO/Cinemax and Showtime/The Movie Channel carving up the studio pie (since then you can also count Starz/Encore as pie-eaters, Encore launching in 1991, Starz three years later). HBO, as the larger service with deeper pockets, was consistently able to lock up more major studio deals than SHO.
Still, for many subscribers, it wasn’t enough.
When HBO first went on the air in 1972, it was with a handful of movies which rotated with a number of sports events over a period of several months. By the time I joined the company in the non-exclusive early 1980s, our brag was we were offering subs between 15-20 new releases each month, sometimes more. But when I left in 2009 when our top-end movie line-up was completely exclusive, it was a good month if we had ten recent releases…and it wasn’t always a good month.
Even before the exclusivity wars went nuclear, the demands of going to 24-hour schedules already meant pay-TV services couldn’t solely rely on recent theatrical releases to fill out their schedules. This was particularly true of movie services like MAX and TMC which were premised on offering more in terms of tonnage and variety than mainstream services like HBO and SHO.
To help fill out their schedules, each pay service acquired a number of older titles (cable TV has thrown out Webster’s definition of “classic” and routinely throws this word around as a generic description of any movie that’s not new). These may come to them in packages (a studio offers a bundled group of titles; not being altruists and seeing a way to generate some income on movies people wouldn’t go to see at gunpoint, studios typically include a couple of top end titles, a couple of not-bad flicks, and a fair number of dogs), or through library deals wherein the programmer is given access to a studio’s library of older titles to pick a specified number of movies over a given period of time. This doesn’t mean the programmer can get any movie the studio ever made; the service can only pick from those movies not currently under license.
In the early 1980s, these kinds of older films made for a smoother fit with a movie junkies’ service like MAX than they did with HBO. When HBO tried running a single black-and-white oldie in prime time per month — something classy, like its first such effort, A Streetcar Named Desire (1951) — subs howled.
The gist of the complaints went along the lines of, “I ain’t payin’ this kinda money to see the same old movies I already seen on regular TV a hunnerd times!” Or other angry words to that effect.
Over time, subs got used to the idea of a certain number of older titles in non-prime time hours, although the service remained careful about presenting anything too old on HBO.
Out of the need to bulk up offerings, some in-house policies began to erode. When the home video industry spawned direct-to-video titles, HBO at first drew a line in the sand: “No video titles!” Which eventually morphed to, “Well, maybe just a couple, but only really good ones!” Which continued to evolve into, “Well, this one’s not too crappy.”
Over the years, HBO would explore a number of tactics that took pre-buying to a steroidal level with the aim of not only locking up exclusive titles, but providing a reasonably steady flow of big name movies on a — hopefully — cost-efficient basis. Having a bit more money to throw at the problem then Showtime, one of the tactics HBO tried was by sinking money directly into theatrical movie production through an investment thingie called a “limited partnership.”
LPs were not new. It was an established part of business dealings as a way to bankroll new ventures. HBO was the first to try the concept with film financing, and wound up with a tidy pool of money to make big screen movies with. Soon, LPs were quite the rage in the movie industry.
LPs, however, turned out to be a fad more than a revolution in film financing. While LPs could get movies made, they couldn’t guarantee they’d be successful…or even any good. People who invested in Silver Screen Partners in 1983, the first HBO LP, were guaranteed an eventual profit on their investment, but by the time it finally paid off investors saw that they could’ve done better by just leaving their money in the bank. The seven Silver Screen titles released over a three-year period didn’t amount to much commercially or critically, with the Tom Hanks starrer Volunteers (1985) the best of the lot (which, if you’ve ever seen Volunteers, tells you what a weak lot it was). As an investment possibility, LPs had lost a lot of their luster by the 1990s.
HBO tried another tack by partnering up with Columbia Pictures and CBS to create a new major motion picture studio — Tri-Star Pictures — in 1982. It was an ambitious venture, being touted as the first major studio launch since the Golden Age of Hollywood a half-century before. The idea was Columbia would handle the theatrical distribution, HBO would get exclusive pay-TV rights, and CBS would get broadcast network rights.
But by the mid-1980s, home video was killing the value of movies to broadcast TV, and CBS dropped out in 1985. HBO would pull out the following year.
Still, getting into the production end of the movie business remained a siren song HBO could never quite shake. In 1993, the company invested in a new production company, Savoy Pictures. After a string of box office clunkers, Savoy folded in 1997. In 2005, the company’s HBO Films division (which primarily produced feature-length originals for the channel) went in on a joint venture with New Line Cinema (also owned by HBO’s parent, Time Warner) in Picturehouse, with the goal of producing indie-caliber theatricals. Despite a few notable releases (Pan’s Labyrinth, 2006, for one), Picturehouse’s overall track record was decidedly unimpressive, and Time Warner shut the company down in 2008 (Picturehouse chief exec Bob Berney would later resurrect the company outside the Time Warner fold).
By the 1980s, as subscriber growth for all pay-TV channels began to stall in the face of the home video explosion, it was clear to all players that HBO, SHO, et al couldn’t live by movies alone.
One tactic seemed to address all the concerns: it boosted the number of offerings HBO could present in a month; it offered a distinctive, exclusive flavor to the brand; it gave HBO some measure of control over the variety it could offer subscribers at a time when major theatrical releases were increasingly targeting an extremely narrow demographic.
And, perhaps most importantly, it made HBO slightly less dependent on theatrical fare.
We’re talking original programming here. While it had been a part of the service since its first night, it tended to be looked at — by both the company itself and its subscribers — as an adjunct, an extra. Filler. Now, the company was seeing it as something more strategically important than that.
The trick to original programming was getting good at it, and that would take quite some time.
– Bill Mesce
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