It’s Not TV: HBO, The Company That Changed Television: The Green Channel

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10) The Green Channel

Let’s say it’s the 1960s, and you live in New York City, some place in downtown Manhattan. You’re cool, you’re with it, so maybe it’s a nifty loft in the Chelsea district. That puts you maybe twenty blocks from the Empire State Building, the transmission source for all over-the-air TV signals in the city. Well, if your neat, beatnik pad happens to be in just the wrong place, with one of those famous New York City skyscrapers standing between you and the Empire State, somebody living 15 miles away in the New Jersey ‘burbs is getting better TV reception than you. While you may appreciate the poetic irony of living amidst the greatest collection of television signals in the country and not being able to get any of it, you don’t think it’s nearly as funny as your friends over in Jersey do. You want somebody to do something about it.

Somebody does. Enter Charles Dolan.

Dolan’s media career had started humbly back in his native Cleveland with him editing together sports and industrial films at home with his wife, then marketing and distributing them for TV syndication. Dolan sold the business and moved with the new parent company to New York where he saw an area ripe — so he thought — for exploitation.

Dolan was the first guy who didn’t see why the same CATV system working so well out in the boonies wouldn’t work just as well in big cities to solve problems like yours. He already had a closed circuit system in New York called Teleguide set up to pipe tourist information into 35,000 hotels rooms in the city. Dolan got the idea of turning this system into something bigger — a regular urban-set cable company — so he set up Sterling Information Services in 1965 to provide cable-carried TV to lower Manhattan. The system worked fine. The business, well, that’s another story, and not because Chuck was any kind of slouch at the business end of things (Dolan would eventually become the billionaire founder of Cablevision Systems, ultimately one of the country’s largest cable operators, and also owning substantial percentages of a number of programming entities, Madison Square Garden, and several major sports teams).

Laying cable anywhere is an expensive proposition. The way it usually works is the cable company makes a deal with the phone or local utility company giving it the right to run its cable along the company’s poles. Dolan’s problem was that there were no telephone or utility poles in Manhattan.

It so happens that in the early part of the century, there was an enormous blizzard that hit New York City and knocked down telephone and telegraph lines. This was viewed by city officials and residents with great annoyance and concern (consider it the snowy version of the Hurricane Sandy of its day), and they vowed this disruption of vital services would never happen again. They consequently made it a city regulation that all city street wiring from that point on had to go underground.

Along came Chuck Dolan a few generations later, and this going underground business turned out to be a big headache for him. In those days, it could cost something like $10,000 a mile to cable a typical suburban neighborhood. In Dolan’s case, what with running cable underground and then having to worm it through hundreds of apartments piled up on top of each other in modern high rises and ancient walk-ups built before homes were wired for electricity, it was costing ten times that, sometimes with the cost running even higher, to $300,000 per mile (adjust that for today’s inflation and it sends shivers down any investor’s spine). Two years after Dolan had launched Sterling, he’d wired less than three dozen blocks, had only 400 subscribers, was out two million bucks, and bleeding money from the eyeballs at the rate of another half-million every month. This situation is what financial professionals describe as, “Ouch.” Barring a quantum leap in cabling technology of “Star Trek” proportions, cabling New York was not going to get any easier for Dolan — or cheaper — in the foreseeable future.

Part of the solution to Dolan’s problems was more money. He couldn’t keep losing cash the way he was and stay in business. Time Inc., which, at the time, was primarily noted for its magazines, had been dabbling with non-print media including cable. Time had studies in hand reporting cable was a good thing to get into; this was a cutting edge technology offering bright future possibilities. So, Time bought into Sterling, keeping the company afloat and providing deep pockets to support and continue the company’s expansion. Six years later, the studies were still telling Time cable was a good long-term investment despite Sterling adamantly and stubbornly continuing to operate at a loss, which undoubtedly begged the question in some Time Inc. exec meetings, “Just how long is ‘long-term’?”

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Money wasn’t Dolan’s only problem. It wasn’t money keeping people already in wired areas from signing on to his service. Time Inc. may have provided Dolan with the money to stay afloat, but his business still lacked a more important — the most important — strategic asset any product needs: a compelling reason to buy it.

Dolan was getting hammered on two flanks. It was a struggle to keep prices appetizing what with the enormous costs of running cable in Manhattan. But even at reasonable prices, as bad as over the-air reception may have been in parts of the city, quite a few people didn’t want to shell out monthly subscription fees of any kind just to get a clear picture of “Gidget” or “My Three Sons.” So, like RCA (which had created a network so people would have a reason to buy their radios), and Columbia (which had created a network so people would buy their records and record players), and John Walson (who had provided cable service so people had a reason to buy his TVs), Dolan needed a compelling reason for people to want cable; something that made potential customers say, “I have to have it!” Average, everyday network offerings weren’t doing it.

It was the summer of 1971, and Dolan was on a cruise to France on the Queen Elizabeth II with his family. On the trip across the Atlantic, Dolan — who evidently couldn’t turn his entrepreneurial mind off even on a vacation cruise — focused his deck chair musings on making Sterling more profitable. When Dolan & Family disembarked at Le Havre, instead of mailing postcards home to his friends, he mailed what would be the first of several memos putting forth arguments for his Next Thing: something he called, “The Green Channel.”

Dolan envisioned a special channel, something exclusive to his cable system, something filled with out-of-the-ordinary entertainment; something worth spending money for. Never mind the improved reception; people would take his cable service just to get The Green Channel…and, in a nice bit of symmetry, because there was a Green Channel, people would chase after his cable service.

All these years later, Dolan’s idea seems like a sure thing. After all; look where that idea wound up! But, at the time, nobody was running around pointing at Dolan’s idea and screaming, “Eureka! This is it!” What a lot of them did, in fact, was knit their brows, scratch their chins, and go, “Hmmm. You sure about this, Chuck?”

You see, the idea of subscription or pay television wasn’t new. That was the problem with it. After 40 years of trying, nobody’d gotten it to work yet.

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There’s an old saying that if something is too good to be true, it probably is. That brings us to the idea of “free TV.”

Free TV is something of a misnomer. None of us get billed directly for over-the-air commercial television, but we pay for it just the same. That’s because the people buying all that TV ad time aren’t just pulling that ad money out of the air. Every time you buy a car, a refrigerator, a bar of soap — any of the bizillion products you buy advertised on TV — some small sliver of the money you spend goes towards paying a manufacturer’s TV advertising bills. In 1990, it was estimated advertising on broadcast TV was costing the average consumer family something in the neighborhood of $300 per year.

But — and this is a big “but” — there’s no real bill for that service; you don’t see the money going out. The cost of TV is incorporated into a lot of other daily activities — like buying soap — so there’s no sense on the part of TV viewers they’re paying for television.

That’s an important point because the object of subscription television is to get people to go out of their way to pay for something that, previously, they thought they were getting for nothing. Trying to rationalize paying for TV to a lot of people by bringing up this whole advertising dollar business is less likely to bring understanding, and more likely to bring back an invitation for the speaker to take a long walk off a short pier. “Free TV” still looked free, and nobody wanted to start writing checks to pay for television.

At least that was the thinking around the time Chuck Dolan came up with the idea of his Green Channel. The prevailing wisdom in those days was trying to get people to pay for television was like trying to get them to buy air.

But, optimists like Dolan believed that if you’ve ever lived next to a fertilizer factory, well, the idea of selling somebody better air is not as ridiculous as it might seem. Still, the idea of pay-TV had history against it.

Zenith had done a bit of laboratory finagling with something called “Phonevision” as long ago as 1931. Zenith had been hoping for a system where people would make a phone call and receive a special transmission of a one-time event. The idea survived — that’s sort of the basis of today’s pay-per-view events — but Phonevision didn’t. The Depression and World War II delayed development and the system didn’t get an experimental launch until 1947. How well it went over is indicated by the fact Phonevision didn’t show up anywhere again until the 1960s.

After the Second World War, a lot of people were looking to plug into the public’s desire to put hard times behind them with some rousing entertainment, and pay-TV — Phonevision not withstanding — seemed like a good bet. A number of over-the-air pay-TV systems were announced in the following years but none ever made it to market.

Every time a pay-TV dabbler used over-the-air, it had to deal with the FCC and that meant regulatory headaches. Cable, when its use didn’t cross state lines, wasn’t regulated by the FCC so a number of pay-TV experiments were attempted in the simpler arena of regional and local markets.

International Telemeter Corp. (which was majority-owned by Paramount Pictures) got a few test runs out its pay-TV concept, one running for five months in Palm Springs in 1953, while the second, launched in 1960, stayed up and running for five years in a Canadian suburb — not a bad run for an eventual flop. Jerrold Electronics went in with Video Independent Theatres, Inc. to get a service running for nine months in Bartlesville, Oklahoma in 1957. Teleprompter bought cable systems hoping to launch its Key TV subscription service on them, but Key TV never got beyond the technical testing stage.

More successful was Subscription Television, Inc., set up in Los Angeles in 1964 by Pat Weaver, the former head of NBC (the same guy who came up with the idea of selling advertising time on a network instead of program sponsorships). Subscription was a throwback to the Phonevision system where subscribers selected programs by phone and received them by cable. The service lasted six months before it went bankrupt.

Interestingly, what crippled Subscription Television the most wasn’t that the service didn’t work, or that people didn’t want it, but that there were still other people who had a vested interested in seeing the service go under.

Movie studios looked kindly on the idea of an outfit like Subscription Television because it would provide another market for their product (keep in mind, this was at a time when the studios were on the prowl for new sources of income as they were losing tons of money because people were staying home and watching TV instead of going to the movies; average weekly movie attendance had dropped from 82 million at the close of WW II to 20 million by the time Weaver rolled out Subscription Television). But movie theater owners, on the other hand, considered a stay-at-home movie service some kind of crime. Maybe the movie studios could still make their money selling their flicks to an outfit like Subscription Television, but where would that leave theater owners and their big, expensive, potentially empty theaters?

The National Association of Theatre Owners (NATO) started a “Crusade For Free TV” warning the public that if pay-TV were to succeed, eventually everything worth watching would migrate to services like Subscription Television, leaving “free” TV a garbage can of shows nobody wanted to watch. As a result of NATO’s campaign, a referendum was passed in California outlawing pay-TV services. The law was later overturned as unconstitutional by the state supreme court, but that was too late to save Subscription which collapsed anyway, a lot of its finances drained from fighting the NATO campaign.

The Television Entertainment Co. also resurrected Phonevision in Hartford, Connecticut where it managed to impressively keep an over-the-air pay-TV service going from June, 1962 until January of 1969. Despite the long run, system never achieved break-even and eventually folded.

Sending pay-TV signals over the air as a cheaper alternative to cable carriage brought along with it a lot of technological and business headaches. The big business headache was over-the-air signals were highly vulnerable to piracy. Most of the working over-the-air pay-TV services used some sort of encrypted (also referred to as encoded, or scrambled) broadcast signals which was where the technological headaches come in. You see, the scrambling technology of the time couldn’t always put the Humpty Dumptied picture back together again in an acceptable way. Television Entertainment’s system in Hartford, for example, only worked with black and white transmissions at a time when everybody was running out to buy color TV sets.

So, even though hooking people up by cable could run into a few dollars, it had its upside when Dolan proposed his Green Channel concept. Besides side-stepping FCC obstacles, a local cable system solved the question of signal security. A cable-carried pay-TV service would only go to the people you hooked up; you didn’t have to worry about some electronics wiz figuring out a way to get his own antenna up to pull in your over-the-air pay-TV signal (cable would develop its own piracy problems but we’ll get to that in a later installment).

Secure or not, it was still an open question whether or not anybody would want such a service. After all, nobody was going to have to worry about anybody stealing something they couldn’t convince people was worth buying. The track record of cable-carried pay-TV services wasn’t any better than that of over-the-air attempts, and there weren’t a lot of promising signs on hand. To wit:

Time Inc. sent out a direct-mail research brochure to residents of six cities in three states to see what people thought of the idea of pay-TV. Almost 99% of them didn’t think it was as good an idea as Chuck Dolan did. Another survey, this one conducted by an independent consultant, only did marginally better: a microscopic 4% said they were “almost certain” to subscribe to such a service (meaning a spine-snapping 96% were of the opinion that Time Inc. could take their pay-TV idea and a heavy rock and go jump in a lake).

However, Time got better results taking the issue into the field. The company carried out a test in Allentown, Pennsylvania where salesmen went door-to-door offering a first-month-free-and-refundable-installation-charge deal which attracted one out of every two residents. But, to prove every silver lining has a cloud, this more positive result had its doubters to — just because people said they’d sign up didn’t mean they wouldn’t back out later.

By this time, The Green Channel had gone through a name change. In one of the meetings where Dolan and some of the Time people now working on the project were writing that first, disastrous research brochure, names started getting tossed around for the new service. The name they settled on was not a favorite by any means, but something was needed quickly to meet the printer’s deadline. Believing they could — and would — change it later, they decided on, “Home Box Office.”

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Ironically, the service didn’t debut on Dolan’s Sterling Communications. For reasons not outlined even in Time Inc.’s own corporate history (but probably involve finding a market with an extensive cable system already in place), HBO was set to debut on a system in Allentown owned by John Walson (yes! the very same!).

The debut of HBO was anything but auspigatory. For a moment, it looked like it might not happen at all. Part of the service’s line-up was supposed to be NBA basketball games. However, to protect ticket sales to NBA events, the NBA — like other sports organizations — enforces a “blackout” rule which says a game can’t be televised within a certain radius of where the game is unless the game is sold out. Allentown was within the NBA’s blackout area for Philadelphia.

To move HBO outside the NBA’s blackout range, and to make reception of the HBO transmission easier (HBO was going to send its signal to Walson by microwave after which it would be transmitted to customers by cable), Walson offered another system he owned in Wilkes-Barre.

Wilkes-Barre had its problems, too, the main one being it was underwater.

Hurricane Agnes had recently come through leaving the streets submerged and half of the city’s 10,000 cable subs disconnected. Working out of a storefront whichh still had water marks half-way up the walls, HBO representatives managed to sell just 365 Wilkes-Barrians on getting HBO for $6.00 per month.

On November 8, 1972, the HBO premier line-up consisted of a movie and a hockey game between the Rangers and the Canucks (another irony; no NBA games the first night anyway). The name of the film was, appropriately enough, Sometimes a Great Notion (1970).

And then…

Well, and then, not all that much.

NEXT:  Into the Sky, Junior Birdmen!

 

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





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