Farmer Gray is tooling down the road one fine day in 1981, and there ahead of him he sees Sam’s Appliance Store. Farmer Gray has had a heck of a wheat crop this year and he’s got $40,000 burning a hole in his pocket. On a whim, he goes into Sam’s. He’s worked hard this year; he figures he owes himself a toy.
“Sam,” he says. “I’m all the way the heck out in the middle of nowhere. You got one of those forty, fifty foot TV antennas I could put up so I could get at least a little bit of TV? I hear this Happy Days thing is just terrific, but where I’m sitting, I can’t get anything on my set but the buzz from my wife’s Lady Schick.”
And old Sam, why he says, “I can do you one better, Farmer Gray. You heard about this cable TV thing?”
“Well, matter of fact I did,” says Farmer Gray. “But I figured since I’m so far out of town, it’s just not going to happen for me. Never ever. ”
“Don’t you worry about it, Farmer Gray,” says Sam. “You can get all that stuff the same way the cable companies get it.”
“How’s that?” asks Farmer Gray.
“They use a satellite dish. You can use a satellite dish, too.”
“How much would this dish gizmo be?”
“I can get you one for about forty thousand buckeroos.”
“Well, Sam, I just happen to have forty thousand buckeroos sitting in my hip pocket. Let’s do it.”
So, Farmer Gray goes home, gives Mrs. Gray the good news, and she plants him in one of his beloved wheat fields for blowing ten thousand buckeroos on an overblown birdbath instead of getting the roof fixed, buying seed for the coming year, socking some money away for their kids’ college education, and getting a new tractor. Thanks to Mrs. Gray, Farmer Gray doesn’t live to see that his little indulgence is the spearhead of a slowly building wave.
The wave the late, lamented Farmer Gray caught had only begun building out there in the rural deeps just a few years earlier. The year after Home Box Office had gone on the satellite, an ex-NASA scientist by the name of H. Taylor Howard had considered what HBO had wrought, looked up to that part of the sky where an invisible speck sat relaying uncut movies and boxing matches to people all across America, and thought, “Well, I can do that, too!” Mr. Howard put all that NASA-honed know-how to work and built himself the first privately-owned Television Receive Only (TVRO) earth station (“earth station” being a Star Warsy way of saying satellite dish).
But, bless him, Mr. Howard wasn’t out to pull a fast one. He knew he was getting something you were supposed to pay for, and duly and conscientiously sent a $100 check to HBO.
HBO sent it back.
HBO wasn’t a retailer, they explained to the well-intentioned Mr. Howard, and they only dealt with cable system operators.
What the hell, there was nothing in Mr. Howard’s do-it-yourself, one-man cable system to cause HBO to crack a sweat. There were a little over 71 million households in the country at the time, so what was the worry if one industrious tech geek put up a self-made dish in his backyard?
Thing was, by 1978, Mr. Howard wasn’t alone.
As expensive as a home TVRO was, people who had their own dish considered it a worthy investment in home entertainment, particularly those out in the boonies who were — as Farmer Gray so definitively put it — never ever going to be serviced by cable. For forty grand, they got whatever was on the satellite without dealing with cranky cable companies and their pesky monthly bills (or their pesky cable companies and cranky monthly bills). HBO as well as Showtime and all the basic cable channels, PPV events; they all came — literally — falling out of the skies into their backyards and into their oversized birdbaths and from there to their TV sets. What a lot of dish owners and dish retailers and dish manufacturers were unaware of, or didn’t particularly care about, was that not a penny of those forty thousand dollar pay-outs went to any of the programmers.
Broadcast stations on the satellite didn’t care. If you were NBC, it didn’t bother you that some guy out in the middle of the Wyoming badlands was pulling in your programming. It was no money out of their pockets.
(A little aside. Broadcasters might not have cared, but the situation didn’t necessarily make national advertisers or local affiliates very happy because it having your own dish also meant having commercial-free TV. Satellite dish owners were pulling in the raw network signal, what’s called the backhaul feed. It doesn’t have commercials, national or otherwise, on it. For that reason, while cable subs and viewers still getting their TV over the air suffered through watching Mr. Whipple squeeze the Charmin or loud, obnoxious local car lot commercials, dish owners were treated to seeing some of their favorite news anchors picking their teeth while they waited for the signal that they were back on the air.)
In those early home dish days, cable programmers weren’t too worried about it either. There were so few dishes out there, what difference could it make? Besides, it wasn’t like you could keep TVRO owners from getting satellite-carried programming. The Cable Communications Act of 1984 even said that any signal not protected by encryption was fair game for people with their own dish.
Eventually, the price of a home unit came down considerably with their growing popularity. After forty thousand dollars, ten thousand seemed like a bargain, and by 1985 the typical cost was down to $3000 (and the price would keep going south; at one point, bottom-end C-band receivers were going for about $1000). The dishes were getting easier to install, too, as their size shrank from nine meters (almost 30 feet) to ten feet to six feet. Between the dropping price and shrinking size, by the mid-1980s, home dishes were selling at the rate of 75,000 per month. One estimate puts home dish ownership at three million by 1986, and they weren’t all TV-deprived rural residents. The idea of never paying another monthly fee (and not having to deal with snippy customer service reps, repairmen who kept you waiting all day and then didn’t show up, and service interruptions) had appeal even inside cable franchise areas. Now that was something to put cable operators in a bit of a sweat.
More aggravating to HBO and other pay-TV services than private individuals with their own TVRO dish were the bars, restaurants, and hotels and motels putting up their own dishes and pulling down service which they used to attract customers to their businesses. For places like that, even thirty-forty grand wasn’t a bad investment at all. “Come on in, have a few beers and watch some HBO!” And they did it without forking over a dime to HBO, or Showtime, or any of the other cable channels these establishments were hawking.
This also made cable ops mad. They looked like highway robbers asking people to pay their monthly bills when somebody just outside of town was getting everything available on cable for free through a home dish. Ops were also worried about how many people within their markets were buying dishes. One study made around 1985 told ops that somewhere around a third of all dishes being sold were going up inside cable franchise areas. Oh-oh.
People with hotels and motels who were legitimately subscribing to pay-TV services were also mad because they had competitors who were offering the same service without the same costs.
Movie distributors and fight promoters were mad, too, because they were selling their stuff to pay-TV services based on the services’ sub counts, only there were all these uncounted subs out there watching that they weren’t getting paid for thanks to home dishes.
That was an awful lot of mad people.
The situation didn’t make HBO mad. It made HBO hungry. Beyond having to deal with their business relations — ops, distributors, promoters, legit subs — all mad and feeling gypped, the company realized that, as the home dish market grew, there was money to be made out in those distant hills filling with TVROs.
Problem: the only way you could get dish owners to pay was to keep them from getting what they were now getting for free, and you had to do that in a way that didn’t interfere with the people who were supposed to get service, and you had to do it in a way that didn’t degrade the signal.
Which brings us to scrambling, or encoding, or encryption; take your pick, it all means the same thing.
HBO had been talking about scrambling satellite signals and selling them to home dish owners as early as 1983. It took a while to develop a workable encryption system, with HBO finally settling on General Instruments’ VideoCipher II in a unit designed by a company called M/A-Com. What VideoCipher II did was break down the video and audio signals into digital components at the uplink. A descrambler at the receiver put the Humpty-Dumptied picture and sound back together again. Each decoder had an electronic identity. A central computer center in Chicago was set up to keep track of the individual accounts and given the capability of targeting any one of the tens of thousands of decoders — or any one service on those decoders — for activation or de-activation.
In January 1986, HBO scrambled its signals full-time, the first TV programmer to do so, and offered service to the backyard dish market. In an HBO 20th anniversary booklet, HBO senior vice president of technology operations Bob Zitter described the massive paradigm shift caused by that flick of the scramble switch succinctly: “We invented satellite scrambling, and by inventing satellite scrambling we invented the C-band DBS (Direct Broadcast-Satellite) business…”
Dish owners were less enthused by the advent of encryption. They weren’t just upset. They weren’t even just mad. They were outraged, teed off, volcanic! This wasn’t just unfair (in their view); it was a crime! More than that, it was some kind of sin! Here they were with all this money sunk into their dishes, now they were being told that they’d need a descrambler (which was another couple of hundred bucks) to get programming they’d have to pay monthly fees for (maybe another couple of hundred bucks over the course of a year). Keep in mind, some of these people had been getting free cable programming for years. Then to suddenly yank it away from them? Yeah, that wasn’t going to go down very well.
An HBO employee tells how hot the heat was the company took from dish owners at the time:
We were scrambled maybe three or four weeks when I picked up a call that was my first bomb scare. I called Security and they told me not to worry about it; the company was getting a couple every week since we’d scrambled.
We got called everything in the book. Crooks, thieves, pawns of Satan. I’m not kidding! Scrambling was the work of the devil!
You’d explain to them that the money they’d paid for their dish equipment, no matter how much it was, didn’t do anything to pay for programming. They wouldn’t hear it.
They’d scream about how they were taxpayers and taxpayers’ money had put the satellites in the sky. You’d explain that a private company owned the satellite we were using, and they were charging us an arm and a leg for transponder space; that taxpayers had little to do with it. They wouldn’t hear it.
You’d tell them about how not being scrambled was unfair to cable subscribers; that cable subs were essentially subsidizing programming for dish owners who weren’t paying for it. They wouldn’t hear it. All they knew was they’d been getting something for nothing and now they weren’t.
It was so scary there for a while that some of the company reps, when they’d go to satellite trade shows, they’d register at their hotel under assumed names.
Despite the outrage and the urge to march on HBO headquarters with pitchforks and torches, the other major players in cable programming quickly followed suit. In the year after HBO scrambled, Showtime, TMC, CNN and CNN Headline, ESPN, USA, and several superstations, including WTBS, encrypted.
The fact that, channel by channel, the spectrum of unencrypted programming available to dish owners was evaporating did not encourage scads of dish owners to pick up the phone and order themselves up some pay-TV. By the middle of 1987, only about 180,000 dish owners were paying for some sort of scrambled programming.
Instead, what scrambling did do was encourage a lot of people to find some way to get around the encryption system. The scrambling code itself was unbreakable by Joe Average (The GI encryption methodology was similar to military scrambling systems; maybe the KGB could break it, but Mr. Radio Shack might have a problem). Instead, what some pay-TV pirates did was illegally import foreign-made “pirate chips”; descrambling computer chips sold on a black market basis that could be fitted into descrambler units to decode encrypted signals. Other rather shady types figured out a way to mess with the chips that were already in the descrambler to decode coded signals.
One popular scam was for some enterprising soul i.e. Mr. Scam Artist to go out and buy himself a bunch of descramblers, then call in to legitimately order service under a slate of bogus names. Then, he’d turn around and sell those authorized descramblers to Mr. Unsuspecting Dish Owner saying, “Look, this here box is special. You just hook it up and you get all the programming you want. You don’t have to pay anybody. Just give me a couple hundred bucks for the box and forget about monthly bills and all that crap.” Mr. Unsuspecting Dish Owner would buy the box, take it home, hook it up to his dish, and for a month be happy as a clam. Then, at the end of the month, the bills would go to the make-believe addresses Mr. Scam Artist had given the order center. When those bills didn’t get paid, all the Mr. Unsuspecting Dish Owners who’d bought one of these boxes would have their service cut off. Meanwhile, Mr. Scam Artist was down in Barbados ordering pina coladas and tipping the waiter handsomely with Mr. Unsuspecting Dish Owner’s money.
It was years before the home dish business turned into anything more than a hope. First, there was the matter of making scrambled signals more secure. A few busts by U.S. Customs let people know that smuggling in pirate chips was not that great a business to be in. Attempts were also made to make the descrambler boxes themselves more secure to prevent tinkering.
One such attempt involved encasing the decoding chip inside a block of some sort of unbreakable plastic stuff. It worked too well. Not only could aspiring pay-TV pirates not get into the block with the chip, but the heat that came off the chip during operation couldn’t get out. After a while, the unit burned out.
What worked better was improving the encryption system itself. HBO and other scrambled services upgraded to a GI system called VideoCipher II+. A safeguard to go with the new technology was that programmers began routinely changing their scrambling codes periodically leaving pirate chips and decoders out in the cold. No one in the business assumed piracy would ever be completely beaten. The hope, as procedures and hardware improved, was to make pirating so annoying, expensive, and time-consuming that more and more people would think it wasn’t worth the time and trouble.
In those early years of encryption, the relationship between scrambled programmers and manufacturers, retailers and owners of home dishes reminded you of the range wars in the Old West. We’re talking blood feuds here. In their view, these people who built and sold dishes had good reason to be angry. In one fell swoop they’d seen their business go down the tubes. Granted, in those early years, a lot of channels were still unscrambled which left people who owned dishes with a lot of stuff to watch. But few people were willing to fork out thousands of dollars for TVRO hardware when they were hearing that, as encryption expanded, the only cable programming that eventually might be left to them was The Weather Channel…maybe.
It also didn’t help that in those early years the only people who were actually selling programming to dish owners were the programmers themselves. The prices they were offering to dish owners weren’t that different from what cable systems were charging (and without the 60/40 split that was the average in cable retail, almost every dime programmers got from dish owners was pure profit). What a lot of dish people saw was Big Bad Business take something free away, then turning around and to sell it back to them at a hefty price (well, hefty when compared to free).
For their part, programmers were reluctant to allow third party retailers to sell their service. They didn’t see any practical reason to pay someone else to sell what they could sell themselves.
Programmers were also sensitive to cable op concerns. Ops looked at the dish business as direct competition. With cable providing most of programmers’ business, programmers were a bit hinky about looking like they were building a business designed to cut into cable’s turf.
All these relationships mellowed over time. Programmers and dish retailers realized that to grow in the new environment required a certain amount of interdependency. In simpler words: if you want to get along, you go along. All these parties were certainly going to accomplish a lot more working together than leaving burning paper sacks of manure on each others’ front porches.
Consequently, programmers began supplying retailers with incentives to sell programming packages along with dishes and offered them marketing support as well. As more and more channels scrambled, it became increasingly convenient to allow a number of third party retailers to participate in the selling, and the added competition helped drive down the price of program packages. Cable companies were even invited to sell programming to dish owners inside their franchises as well as in the areas immediately around their markets.
(Speaking of those programming packages, they represented a curious evolution in the CBD business which illustrates a paradox of consumer behavior: the difference between what consumers say they want, and what, in practice, it turns out they really want.
One of the knocks on cable service had long been that subscribers were forced to buy channels in bundles – tiers – which often included program services they didn’t want. “I only want channels where guys are hurting guys! I want ESPN! I want more wrestling! I want to see NASCAR pile-ups! Why the hell do I have to get Lifetime with that?” But private dish ownership and the spreading practice of encryption allowed consumers to subscribe to individual channels. You want HBO? Call and subscribe to HBO. You want ESPN? Call and subscribe to ESPN.
Which turned out to be an incredible pain in the patoot. And a bit expensive, too.
A circumstance which, in turn, created a market for retailers who would bundle channels together and sell those bundles at a more attractive, collective rate…A lot like what cable operators were already doing.)
One measure of how far relationships between encrypted programmers and dish retailers had turned around was the changed relationship between satellite retailers and scrambling leader HBO. In January 1986, HBO CEO Michael Fuchs was the retailers’ anti-Christ and got himself — in his words — “rotisseried” by then Tennessee Senator Al Gore for taking programming away from dish owners by scrambling. But by January of 1993, the Satellite Broadcasting and Communications Association (SBCA) — the dish hardware trade organization — was inviting Fuchs to give the keynote speech at their winter show. Said Fuchs in his we’re-all-in-it-together-styled remarks (while also trying to comfort cable ops that the dish boom didn’t mean they were being shown the door):
…new technologies hold the possibility of adding millions of new households of incremental revenue …What we’re looking at…is not a replacement, but a very lucrative addition to existing technologies. That’s an important point to remember because established delivery systems fret unnecessarily about their place in the technological spectrum. This new era is not going to carve itself out of the hide of another, but add to it. FM radio did not kill AM; television did not kill radio; cable did not kill broadcast TV; VCR’s did not kill pay TV. The pie is getting bigger…
HBO had every reason to be as appreciative of the SBCA as the SBCA was of HBO; at the end of 1992, HBO announced its home dish sales had increased by as much in the one year as they had in the six previous years. By the end of 1993, the company’s DBS sales were double 1992’s, and doubled again in ’94. In the company’s 1994 annual report, the company reported their best subscriber growth since “the pre-VCR era,” and observers attributed a lot of that new acquisition energy to the home dish market.
Even while HBO’s CBD business was still in the ascent, the company was already looking down the road to see what the Next Big Thing was. It couldn’t have been more than a year or two into the CBD business when I remember sitting in a briefing led by Larry Carlson, HBO’s president of HBO Satellite Services, with him telling us about Ku-Band.
C-Band – which was then the foundation of the DBS business — was a low-power satellite transmission technology. Ku-Band was high power and was being considered the next generation of satellite technology. NBC had already been using Ku-Band for its channel since early 1983. Ku-band not only provided better grade digital video and audio than C-Band, but also provided the capacity for High-Definition telecasting which was beyond C-Band’s capability.
Ku-Band receiving dishes, Carlson predicted “…would be about the size of a large pizza.” And beyond Ku-Band? Carlson put a non-working mock-up on the conference room table: something about as big as a laptop computer. It opened like a laptop and what would be the laptop’s screen was a satellite receiver. This is what’s down the road, Carlson said.
HBO had had to play catch-up with C-Band, stepping in and encrypting its signal after hundreds of thousands of people had already bought TVRO dishes and had been getting free service for years. This time, the company decided to get out ahead of the curve and invested in a Ku-Band satellite under construction. It was the first time the company had invested in transmission hardware.
It also turned out to be, for a company with usually pretty sharp foresight, a major miscalculation.
Oh, the company had read the tea leaves right; Ku-Band was the Next Big Thing, and all those little dishes you see hanging on people’s houses and outside apartment windows are the proof. No, the miscalculation was in the timing. Cable systems had invested millions in a C-Band infrastructure that was still working quite fine, thank you. Didn’t make any sense to spend good money on a new technology they didn’t need (yet).
Eventually, due to ops’ lack of interest, HBO would sell its interest in the unlaunched satellite. Afterward, it became something of an unwritten law in the company not to get involved in the hardware end of the business again. Hardware dated, hardware needed upgrading, hardware — … Well, hardware wasn’t what HBO was about.
With the coming of Ku-Band, more and more CBD subscribers began switching to the smaller Ku-Band dishes, and HBO subsequently handed off maintaining dwindling CBD accounts and retailing to the shrinking pool of CBD dish owners to outside companies. As profitable as retailing had been, the headaches that went with retailing – marketing, monitoring accounts, billing, collections, etc. – were something else the company felt it could live without. Retailing, as the company came to realize, wasn’t what HBO was about either.
Curious thing about CBD HBO subscribers. The CBD market had a better retention rate than the cable market. Granted, part of that was CBD subs were so hungry for entertainment they would’ve stayed with the service even if the channel had still been running polka festivals and swim meets. But there was something else; one of the reasons they stuck with their HBO/Cinemax channels was they got more of them.
After HBO went on the satellite in 1975, as its national audience built up, the company saw the same need the broadcast networks had seen decades before in providing its affiliates with separate signal feeds for the eastern and western parts of the country. The different feeds offered the exact same programming, only time-adjusted so that a program that aired in New York at 8:00 pm also aired in Los Angeles at 8:00 pm.
(Note: Typically, cable affiliates in the Central and Eastern Time Zones took HBO and Cinemax East, while Pacific and Rocky Mountain Time Zone affiliates took HBO and Cinemax West. However, that wasn’t a requirement. Systems could take whichever feed – or feeds — they wanted. A small number of systems in the Rocky Mountain Zone, for example, unhappy that using the western feeds meant they were getting programs an hour later than the coast zones, elected to take the eastern feeds which meant they were getting programs two hours earlier. That explained complaints to the New York office from subs about having to chase the kids out of the living room when late night fixture Real Sex appeared on the family TV at nine in the evening.)
But people with their own TVRO dishes got everything on the satellite. Even after HBO encrypted, a legit sub would get both east and west feeds which meant that at any given time of the day, they had programming choices on their service HBO/Cinemax cable subs didn’t have.
And that led to the development of multiplexing. It was a simple concept: HBO began playing around with its content library to program an expanding array of channels. HBO 2 (later renamed HBO Plus) was the first plex channel rolled out in 1991. It was simply another version of the “mother channel,” but with different programming. But subsequent HBO plex channels were more theme specific: comedy, family, HBO Latino, etc. Cinemax similarly rolled out a spread of channels (one focusing on action flicks, another on sci fi/horror, etc.).
Initially, cable ops weren’t that crazy about the idea. It meant dedicating valuable channel space to a single service, when they felt cable service might be more attractive to subs and potential subs if the system was offering a wider selection of different channels, instead of a bunch of different versions of a single service.
A combination of signal compression technologies, which allowed programmers to fit several channels into the same transmission pipeline which had once carried only a single channel, and allowed cable ops to do the same on their systems, combined with ops switching out their aging copper wire infrastructure for fiber optic cable which offered a massive increase in channel capacity, made the issue moot. It was a respectable cable system in the 1980s that offered dozens of channels. Signal compression and fiber optic cable now provide a capacity numbering in hundreds of TV and audio channels, and systems routinely offer plex versions of any number of program services.
Hitting the wall in 1984 proved a simple fact: the cable universe had limits. The boosts provided by aggressive marketing and expanding into the home TVRO market had to be considered temporary; it would only take HBO to a somewhat higher but inevitable saturation point.
But if the domestic universe was close to being mined out, there was a whole other universe that remained untapped; a universe outside American borders.
Expanding the business overseas seemed a natural step, but it was a substantially more complicated matter than simply hanging up a shingle on a storefront in, say, downtown Kabul saying, “Getcher HBO here!”
HBO’s original programs belonged to HBO and the company could do whatever it wanted with them. However, movies – which made up the bulk of the service’s programming – were licensed to HBO, and those licenses specified what the company could and couldn’t do with them: how many times they could be aired over how long a period, whether or not they could be aired in prime time, and most relevantly, that HBO only retained the right to air them in the U.S. and on American territory (HBO is available in the U.S. territories of Puerto Rico, Guam, and the U.S. Virgin Islands because, God knows, if you go to the Virgin Islands, it’s because you want to spend your time watching TV).
The media environment also differs substantially around the globe. To show you just how different TV can get overseas, listen to this tale from an HBO staffer who worked on a presentation for HBO’s top engineer, Bob Zitter, for a lecture by American TV engineers invited to Tsblisi in the Soviet Union in the late 1980s to explain to Soviet TV people how U.S. TV worked:
It took us forever to work out the language of the speech because phrases and ideas we take for granted in the West were meaningless there. We couldn’t say “commercial TV” because they didn’t have commercial TV and didn’t know what it was. We couldn’t say “network” because they didn’t have a word for that. The whole concept of ad time and ratings, competing for viewers, product promotion…the same thing. Meaningless. They had government-controlled TV and you either watched that or you watched nothing.
They had satellite delivery of TV signals but their system was completely different from ours. Instead of high-flying geostationary birds, they used a series of low-flying satellites, like a relay system. One would be coming into range of the transmitter just as the previous one was going out, and they would switch their signal to the approaching satellite. If you were watching TV, your picture would regularly go blank every time they switched birds. We thought it was wasteful, but for them, that was a cheaper, technologically simpler system then the one we use.
Even their programming was different. They had game shows but nobody ever really lost because that ran counter to the Communist ethic, and, of course, they didn’t advertise anything.
Nor was every part of the world equally attractive as a potential market. HBO looked for territory that was both politically and economically stable (didn’t pay to set up shop and lose everything when the next revolution came along), where the government was open to outsiders doing business on their home ground and would look after an entrepreneur’s rights, and, most importantly, where there was a worthwhile number of people with money to spend and the will to spend it.
You couldn’t think of going overseas without first thinking of doing business in Europe, an area roughly the size — in both area and population — of the United States, politically stable, more or less on an economic par with our country, and where American TV programming had long been popular.
But Europe is not a unified entity; it’s a patchwork of small countries, each with its own language, culture, economy, and political system. And besides, HBO was coming late to the party.
Launched in 1984, French-based subscription channel Canal+ (since it’s French, that’s pronounced Canal Ploos, and also since it’s French, usually said with something of a snotty French accent), had quickly expanded into and locked up the most lucrative Western European markets. By the early 1990s, Canal+ had sister channels in Belgium, Germany, Sweden, The Netherlands, and Spain as well as some markets in North Africa, and had also expanded into international film and TV production.
What that left for HBO were the countries of Eastern Europe, which had overthrown their Soviet-dominated Communist regimes 1989-1992. The years under oppressive Communist rule had left some of these countries economically ravaged…but not all.
For those European markets, satellite transmission was impractical because of the limited size of the individual markets, and the suffocating cost of satellite time. In the U.S. at that time, a broadcaster could get transponder space for as low as $800,000 per year. In most of the world, the usual price range for transponder time ran between $1 million-$2.5 million per year. In Europe, however, transponder costs spiked to between $5-8 million per year.
Since it doesn’t cost any more to build and launch a European satellite than it does to build and launch an American satellite, why the huge increase in costs? Off the record, some American sources will tell you that the idea was to keep Americans off the satellite. The European fear was that American programmers on the satellite would come to dominate the European satellite TV market much as they’d come to dominate the international motion picture and TV production and distribution businesses.
HBO’s first foray into Europe was Hungary, and it offers a good illustration of problem solving the difficulties peculiar to the European market. An HBO program service was offered over KábelKom, a Hungarian cable service which was a joint venture between subsidiaries of Time Warner (HBO’s parent company) and United Communications International, set up in 1991 to offer cable service and pay-TV in Hungary. HBO Hungary was, in fact, KabelKom’s initial program offering. But, rather than lay out the astronomical money for satellite time to serve a numerically small market (at the time, Hungary’s total population was just about that of New Jersey with Manhattan thrown in), HBO Hungary’s signal was fed to KábelKom systems terrestrially, by microwave, just like in the old days of HBO here in the U.S. It wasn’t as efficient as satellite carriage, but for a market the size of Hungary, it was more cost-effective. By the end of 1994, Hungarian cable subs were paying about $5 a month for 20 channels, HBO Hungary was in 160,000 households, and the partners were calling the venture a comfortable success. Since Its Hungarian debut, HBO has since expanded into 15 European markets.
In Latin America, the conditions of the market were quite the reverse. With most of Central and South America sharing the same language and many cultural values, and with transponder costs infinitely more reasonable, satellite transmission to the entire continent made more sense. As in Eastern Europe, HBO was the first U.S. programmer to jump into the Latin American market with its Spanish-language HBO Ole in 1991. A joint venture of HBO and Venezuelan-based Omnivision Latinamerican Entertainment, Inc., HBO Ole was made available across Central and South America as well as the Carribean to both cable systems and private dish owners. The company hit its break-even by 1993, and had a half-million subs by 1994, the same year the company launched a second channel as well as a Portuguese version of the service for the Brazilian market. In its first three months, HBO Brazil picked up 150,000 subs and was predicting a half-million subs in two years.
In the Pacific, with a market comprised of small and large countries scattered across thousands of miles in Southeast Asia and the southern Pacific, pan-Asian satellite delivery seemed the most practical way of distributing programming across a geographically enormous market.
Based in Singapore, HBO Asia went on the air in 1993 initially serving the Philippines and Thailand. The multiplex, multilingual service (HBO Asia programming is available in Mandarin Chinese, Thai, and Bahasa, the primary language of Indonesia) is now available in 23 Asian nations stretching from Mongolia to Vietnam, from Nepal to Papua New Guinea.
What’s remarkable about HBO’s international expansion is its demonstration of the value of the HBO brand. Keep in mind, none of these markets were getting the HBO available in the U.S. For all intents and purposes, these were all home-grown services, kinda/sorta resembling the Mother Ship back in the States, but with their own independently programmed and scheduled channels. In other words, the only thing HBO had to sell was its name, and in most overseas markets where HBO debuted, it was clear the HBO name was a universal gold standard in TV programming.
By the end of the 20th Century and the company’s third decade in business, it was also clear that the value of HBO gold was on the rise.
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