It’s Not TV: HBO, The Company That Changed Television: Expanding The Brand (Part 1)

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If you aren’t making any mistakes,

it’s a sure sign you’re playing it too safe.

John Maxwell

By the end of the 1980s, HBO’s nightmarish headlong collision with The Wall in 1984 was just that; a bad dream fading over time. Even during the tough days, the company had remained a money-maker, and although it was taking more effort and cash to bag subscribers, the service was growing again, HBO original programming was racking up awards and acclaim, and in subscriber homes, the channel was kicking broadcast network ass. During the 1990-91 television season, the service beat all three major networks during Saturday and Sunday prime time hours. The good times were back.

Which did not change the underlying, immutable fact, and the greatest lesson to come out of that horrifying 1984 flatline: that the domestic cable universe was finite. Sooner or later, HBO was bound to hit another wall. In fact, the better it was at growing in this tougher, new environment, the more likely it was to hit that wall sooner. HBO was a door insecurely hanging by the single hinge of domestic cable subscribership, and what 1984 had illustrated was the eventual inevitability of a saturation point beyond which the company could grow no more.

The company also had its status within the greater corporate hierarchy to worry about as well by this time. In 1989, HBO’s parent, Time Inc., merged with Warner Communications. Under the old print-dominant Time Inc. organization, HBO had been a blazing crown gem, a TV star among drab, wrinkled, slope-shouldered journalists. But within the new Time Warner, HBO hardly stood alone. Warner Bros. movie production, Warner Bros. TV production, Warner Music…by any measure – dollars earned, market share, even by the glitz factor – HBO was now arguably a junior member in the new organization’s expanded family of entertainment properties.

HBO’s pile driver of a CEO, Michael Fuchs, had understood the lesson of 1984, and clearly grasped the company’s strategic position within Time Warner. His propelling concept through the remainder of the 1980s and into the 1990s was to review HBO’s strengths and look for opportunities to parlay those assets into new avenues of business. In a 1992 story for a Time Warner newsletter celebrating the channel’s 20th Anniversary, Fuchs declared a vision of the reconfigured HBO of the future: “Four or five years out, 30% of our revenues will come from non-pay cable operations.”

That strategy was what business guys like to refer to as “expanding the brand.”

*****

 

The best description of Hollywood’s reaction to the VCR explosion in the early 1980s was something along the lines of, Death knell! The apocalypse! A dagger held to Hollywood’s throat! The end of the movie business as we know it!

Movie studios took legal action to keep VCRs off the consumer market citing violations of copyright. Jack Valente, then head of the Motion Picture Association of America – a trade organization representing the major studios — likened the VCR’s predations on poor, defenseless Hollywood to those of the Boston Strangler.

But when all the breast-beating and Boston Strangler overkill died down, there came the slow recognition that maybe what this new technology was offering was another wonderfully lucrative ancillary market. By the end of the decade, all those movie studios that had been crying “Rape!” over the VCR had their own home video arm.

HBO, in contrast, had been a lot faster on the uptake of the if-you-can’t-beat-‘em-join-‘em concept than big studio Hollywood, and had been quick to take up an invitation to partner with Thorn EMI Video.

Thorn EMI was an independent film producer as well as an indie video distributor, meaning it wasn’t affiliated with any major studio. As an indie, Thorn EMI fed its distribution pipeline by cobbling together a network of deals with less-than-major production companies who didn’t have their own home video arm, such as – in Thorn EMI’s case – Orion and New Line Cinema. Thorn EMI had been a participant in one of HBO’s Silver Screen limited partnerships which had been used to finance a slate of theatrical features. Out of that connection, the video company, thinking indie survival might be more workable with a partner, approached HBO about taking the relationship a step further, and Thorn EMI/HBO Video was the result in 1985.

The following year, Cannon Pictures bought out Thorn EMI’s interest in what then became HBO/Cannon Video. Cannon was an aggressive indie studio which had mastered the new ancillary terrain in a way that put the major studios to shame.

Cannon lived on an endless, incessant parade of low-budget schlock, typically actioners featuring the likes of Chuck Norris and Charles Bronson (during Cannon’s most prolific year – 1986 — the company pumped out no less than 43 of these junkfests). Cannon’s real artistry came into play not in moviemaking (obviously), but in deal-making. Through the company’s pushy wheeling and dealing, it was able to milk advances from home video, pay and basic cable and broadcast TV, and overseas markets – enough cash to put its shabby releases into profit even before they had been released!

Then Cannon got ambitious and tried producing more expensive upscale product: bigger budgets, bigger stars. Problem was Cannon didn’t make them any better than their low-budget crap. The company took a financial pounding and by 1987, HBO/Cannon was simply HBO Video (later to be renamed HBO Home Entertainment). “At one point,” long-serving HBO Home Entertainment president Henry McGee told me in a 2010 interview, “it seemed like we were trashing our stationary once a year to change the letterhead.”

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Under whatever label, through the late 1980s and into the early 1990s, HBO’s video venture was in the same boat as any other indie home video label; having to scuffle around for deals with less-than-major film companies for product. The company had had some big sellers: its relationship with Orion had brought it the Madonna-starrer Desperately Seeking Susan (1985), and its relationship with Hemdale produced two home video hits with Oliver Stone’s Oscar-winning Vietnam War flick Platoon (1986), and the inspiring true story of an underdog high school basketball team in Hoosiers (1986).

The problem with being dependent on small movie companies for product to fill HBO’s video distribution pipeline is the problem with small movie companies: they tend to come and go. Orion, for example, filed for bankruptcy in 1991 and finally collapsed a few years later. Hemdale shut its doors in 1995.

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But by the end of the 1990s and the fading of VHS and the primacy of the video rental market, HBO Home Entertainment was shifting focus. By then, the company had finally built up a strong catalogue of HBO original programs (which we’ll talk about in a later chapter), and in the early 2000s, full season DVD sets of series like The Sopranos and Sex and the City, as well as “special event” programming like the WW II miniseries Band of Brothers were bestsellers on the home entertainment market. By the mid-2000s, HBO Home Entertainment was expanding into overseas markets, and was ranked as one of the strongest non-studio-affiliated home video brands in the business. HBO Home Entertainment was finally affiliated with a major studio of sorts which pumped out a steady stream of product attractive to the purchase-driven DVD market. That “studio” was HBO.

*****

In 1989, HBO introduced HBO Selecciones en Espanol (renamed HBO Espanol in 1993, and re-renamed HBO Latino in 2000) on 20 cable systems in domestic markets with significant Spanish-speaking populations. The aim was not specifically to expand the brand in Spanish-speaking households (although that was a hoped-for side benefit), but was actually more of a retention tool. HBO research had shown that a good number of Latino households were, in fact, dual language homes, with older immigrant family members primarily speaking Spanish, while younger folk were raised speaking both English and Spanish. Selecciones gave those older Spanish-speakers a stake in HBO; at the time, the only one of the major pay-TV services offering Spanish language programming

Although Selecciones was a separate channel, it was offered in tandem with HBO. Its programming was the same as HBO but, taking advantage of the Secondary Audio Program (SAP – an auxiliary audio channel), with the English-speaking soundtrack replaced by a Spanish one (many popular movies are routinely dubbed into Spanish for overseas release). Selecciones proved so popular from the outset that within just a few weeks of its debut, 35 more cable systems added it to their service and its reach would continue to expand thereafter.

Eventually the channel expanded its offerings, offering Spanish-language commentary during HBO’s live boxing coverage, replacing some programs in the HBO channel’s line-up with features more popular with Latino audiences, and eventually introducing its own full slate of brand-specific original programming, such as the Mexico-set prison drama Capadocia, in its third season as of this writing, and soccer comedy HDP.

Back during the first months of the channel, there had been a bit of pushback in Selecciones markets from certain elements of the Anglo community. In those years when cable channel space was limited, some whites resented giving over a channel slot to a mirror image HBO tailored for a minority demographic. “What’s next? Ya gonna give the Chinese their own channel too?” and other similarly snide comments were routine complaints from Selecciones markets. “What’s ‘SAP’ stand for?” they cracked, “Spanish Audio Programming?”

As the evolving cable technology allowed the channel spectrum to expand enormously (we’ll get into this a bit later) and Selecciones established itself as something that wasn’t going away, the complaints dwindled away, but it does highlight the problems HBO – or any programmer – has dealing with a fragmented national market, some of those fragments not always ruled by the, ahem, better angels of their nature.

HBO Latino may have only incrementally boosted subscribership for the company, if that, but even if it only made the service more popular and valued in Latino homes – which it evidently has – then it can only be labeled a success.

*****

Even in its best performing days, HBO’s penetration rate never broke 50%, meaning for every cable sub that added HBO to their service, another one said no. Much of HBO’s growth in its go-go early years had been driven by the expanding cable universe, but now that that universe had hit its own wall, HBO began to look at ways to grow within that universe. Casting a hungry eye at those millions of homes which had taken a pass on HBO, company research characterized two families of HBO resistors:

 

  1. There were those for whom it was simply a matter of money. Adding HBO was just too damned pricey for them.
  2. And then there were content objectors.

Content objectors also broke down into two groups:

  1. Older TV viewers with conservative tastes who had no stomach for the sex, violence, and nasty language they felt characterized so many of the movies offered on pay TV.
  2. Young couples starting families. The new moms and dads didn’t have a problem with boobs and guns, but they didn’t like the idea of their kids been exposed to that kind of stuff.

HBO thought it had the answer in a new service called Festival which launched in 1987.

Festival would take on the cost issue by being designed as a mini-pay service, meaning it would cost substantially less than HBO (retail rates are set by the cable operators, but their highest mark-ups are on premium services like HBO and Showtime), maybe by as much as half.

As for the content issue, the programming model called for kid-friendly programming at the times of day when kids were most likely to have access to the family TV: early morning, then late afternoon into the evening. During the middle of the day there’d be movies for at-home parents. Evening into night, programming would graduate from stuff for young kids, to teens, to movies for mom and dad. The movies would all be G- and PG-rated, with a few select PG-13 features thrown in during the late night hours. Also during late night, Festival might schedule some “airline versions” of R-rated flicks (these were R-rated movies with the R-rated parts trimmed out for use on passenger jets, bringing the movie down to something like a strong PG-13).

Even before Festival hit the air, HBO found itself in a head-to-head pissing match with The Disney Channel. Then four-year-old Disney was a subscription service at the time, and viewed Festival as a direct competitor. Disney sent out the message to cable ops that they didn’t need two family channels when Disney was the family brand that practically sold itself. “Disney” you never had to explain to the consumer; but think how much work it was going to take when the consumer asked, “What the hell is Festival?”

Festival came back saying they weren’t trying to take on Disney (even though they were obviously after a hunk of the same market), but that they were a whole other kind of animal.

The yes-you-are/no-we’re-not name-calling between Disney and Festival was the least of the new service’s problems. Its biggest problem was, on paper, Festival sounded like it should make everybody happy; in practice, it didn’t make anybody happy.

Those older, conservative viewers, many of whom were retirees with a lot of TV-watching time on their hands especially during the day, didn’t appreciate their paying for a 24-hour service that spent a good portion of daylight hours running “kiddy crap.” And while young parents appreciated the kiddy crap, they didn’t like that their the non-kiddy crap hours were filled with milquetoast mush.

Cable operators, by and large a conservative lot which likes to sit back and see what’ll work before committing themselves, did what cable ops usually do which is sit back and wait and watch…but while they were waiting and watching to see if Festival would fly, they weren’t picking up the service.

By 1988, suffering from limited distribution and subscriber dissatisfaction, Festival was buried next to Take 2, HBO’s previous failed effort at another service.

*****

Somewhere out beyond the realm of pay-TV subs was a larger, still underexploited market consisting of millions and millions of basic cable viewers. Channel capacity on cable systems of the era might have been limited, but the growth potential of basic channels was not. The potential always existed to increase viewership, and with it, the ad rates a channel could charge.

HBO and Time Inc. had long had an eye on that fat pot of untapped basic cable revenue. It had led Time to buy into the then 11-year-old USA Network in 1982, filling out a triumvirate of big player owners, the other two being MCA and Paramount (HBO represented Time at USA). At the time, USA was a profitable but undistinguished hodgepodge of movies, sports, old network TV series. But with three hands on the helm, it was difficult to agree on which way to steer the channel.

Well, “difficult” might be an understatement. One of my bosses told me, “They (the three partners) hate each other so much they can’t even agree on what to have for lunch!” With an attitude of if-we-can’t-run-it-let’s-get-out, Time Inc. would eventually sell its stake in 1987 (HBO would similarly invest — and divest — from Black Entertainment Television, and Movietime! which eventually morphed into E! Entertainment Television).

In 1989, still with an eye on those fifty-odd million non-HBO homes, the company rolled out its own basic cable channel, The Comedy Channel.

HBO had looked at the basic cable spectrum to see what wasn’t being done. There were movies everywhere, channels dedicated to sports and music…but comedy?

It was a vein which seemed to make infinite sense for HBO to mine. Comedy was a cornerstone of the service, and HBO held bragging rights on elevating the careers of high-powered laugh-getters like Robin Williams and Steve Martin. In fact, one of the company’s promotional brags was, “We know comedy.”

For a programming model, HBO looked to MTV. In those days, MTV was still primarily a showcase for music videos. MTV paid nothing for the videos; record companies supplied them gratis to promote their stables of talent and their talent’s new releases.

The HBO plan was to play snippets of comedy movies, TV shows, and stand-up concerts – comedy videos – throughout the day also as free promotional material.

Beyond the programming model, the people tasked with running TCC also wanted to give the operation an entirely different mindset from its HBO parent. They remembered the open, all-for-one, creative chaos of HBO’s early years back in the Time Inc. building, and were acutely aware of how much of that had been lost in the company’s move to its 42nd Street home. When TCC set up its own physical operations on 23rd Street (though they were installed in HBO’s studio facility, in essence the channel was still as geographically removed from HBO corporate as HBO was removed from Time Inc.), the very design of the offices reflected the hoped-for mindset.

Because of the location of the building, there were no windows to the outside, but each office had windows facing inward to keep managers connected to their staff. To the same end, the company’s conference room had transparent walls.

A noble conception, and – like Festival – a workable concept on paper. And also, like Festival, it didn’t work.

For a channel that bragged “We know comedy,” the comedy video concept was one built on a monumental lack of understanding as to how film and TV comedy worked. Removed from the context of a movie or TV episode, the videos were often little more than mildly amusing.

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Example: a clip from the 1968 film adaptation of Neil Simon’s The Odd Couple. Inveterate slob Oscar (Walter Matthau) is on a New York street with his despairing friend Felix (Jack Lemmon) trying to buck him up after his wife has thrown him out. Oscar gesticulates a little too wildly with his ice cream cone and his scoop of ice cream flies off and splats on Felix’s lapel. Without knowing what a pathological neat freak – and luckless wonder – Felix is, the moment changes from a big it-figures ha-ha moment to a mild chuckle.

Or an excerpt from The Jack Benny Show. A stick-up man confronts Benny one night and demands, “Your money or your life!” Benny hesitates, and when the impatient stick-up man noodges, Benny responds: “I’m thinking it over!” On its own, another tee-hee moment, but watch the excerpt from Benny’s series and the audience laughter his hysterical. Benny had spent his career cultivating a radio/TV/film persona as the ultimate cheapskate. The joke wasn’t the punchline; the joke was in the Benny’s audience already anticipating Benny’s response.

Putting it bluntly, The Comedy Channel wasn’t very funny. It turned out HBO might have known comedians, but it didn’t know comedy.

Worse, just five months after the channel hit the air, Viacom launched its competing Ha! The TV Comedy Network. Ha!’s concept was even more misguided than HBO’s, and involved nothing more than rerunning old comedy TV series from the Viacom library. Worse, Viacom wouldn’t air strong-drawing shows still generating good money in the syndication market, but, instead, fed Ha! with titles which had long exhausted their ancillary value. That’s why Ha! featured the kajillionth rerunning of such stale titles as McHale’s Navy.

Remember those conservative cable ops? Well, they were at it again, sitting back waiting to see which unfunny channel would knock the other on its ass. To their credit, both HBO and Viacom realized that kicking each other in the crotch for the amusement of cable ops wasn’t doing either company much good. Eventually, they merged the two channels in 1991, relaunching as The Comedy Network (eventually renamed Comedy Central).

Both programming concepts were dumped and the new channel began offering an expanding slate of edgy original programs including Mystery Science Theater 3000, the no-holds-barred animated series South Park, the sharp skit comedy of Chappelle’s Show, documentary parody Reno 911, and what might be the channel’s most acclaimed offering, The Daily Show with Jon Stewart and his cadre of bogus reporters throwing verbal hand grenades at newsmakers.

But, again, HBO’s philosophy was either own it or sell it, and, in 2003, Time Warner sold its stake to Viacom for $1.23 billion.

 

To be continued…

****
Click here to read every article in this series!

Preface

Introduction 

Towards Felix The Cat

Baby Steps

In The Beginning Was The Word: Radio

The Numbers Racket

Wasteland 

Greener Grass

Walson’s Mountain

The Green Channel 

Into The Skies, Junior Birdmen!

 Title Fights: The King of Pay-TV

The Movie Duels

The Wall

An Original Voice





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