Push from cablers has pay webs soaring

After four years of declining subscriber dollars, pay TV networks like HBO and Showtime have shot forward in the last 18 months, chalking up total revenues that, in projections for calendar 1995, will top the previous record of $5.1 billion in 1990.

“The headlines may be full of reports about interactive television and pay-per-view movies on demand,” says Matt Blank, president and CEO of the Showtime Networks. “But those technologies are in the future – pay TV is here right now, and it’s a gigantic source of revenue to cable operators.”

Pay TV is also funneling big bucks into the coffers of satellite distributors like Direct TV, USSB and Primestar, which are heavily promoting movie services in their massive ad campaigns.

But satellite-to-home services are only a small part of networks’ revenue base. The main market is cable operators, who started to flog their pay channels late in 1993, says Erica Gruen, associate media director of Saatchi & Saatchi, when Congress and the Federal Communications Commission “put a severe crimp on the growth of the basic-cable networks” through a new set of regulations.

By contrast, pay TV networks are not subject to any government regulation – cable systems can charge whatever they want.

But in many cases subscribers are actually paying less for a pay network than they were two years ago. Jeff Wayne, VP of marketing for Colony Communications, a top-20 multi-system cable operator that’s having a solid year in the category, says, “We stepped up to the plate with more telemarketing, offering a package of three pay channels for $19.95.”

A number of other cable operators pitched similar three-for-the-price-of-two discounts, resulting in a big increase of what Wayne calls “unit growth” – subscribers to one pay channel signing up for one or more others.

That’s why, for example, the best growth stories among individual networks are HBO’s sister channel Cinemax, which added 1.1 million subscribers in 1994, a strapping 16% jump over its 1993 count, and Showtime’s fraternal twin the Movie Channel, which climbed 13% in 1994. In most cases, subscribers to the networks with the greater brand identity (HBO, with 19.2 million customers, and Showtime, with 8.1 million) added one or more of the sidekicks (Cinemax, with 7.8 million subscribers, and TMC, with 3.1 million).

But it’s still tough for cable operators trying to get the household that’s never subscribed to HBO or Showtime to take a run at them. These reluctant customers “are too ingrained in their habits to be willing to pay a monthly fee for the network, plus the cable box, plus the additional remote control,” says Lynne Buening, VP of programming for Falcon Cable TV, a top-15 MSO.

Potential subscribers are supposed to be lured by pay cable’s boast that it gets movies exclusively a year or so after their debut in theaters. But that boast sometimes proves hollow, Buening says, citing the biggest-grossing movie of all time, “Jurassic Park,” which bypassed pay cable during its TV debut May 7.

And the free two- or three-day previews that the pay channels promote every four months or so are a mixed blessing to Buening because many cable subscribers figure that, if they watch or tape each offering on the freebie schedule, they’re getting the best of the network’s programming and thus don’t have to become paying customers.

HBO is trying to address the conscientious objectors, says Bob Grassi, HBO’s senior VP of affiliate relations, by directing more of its marketing budget of $115 million a year for training programs to help turn customer service representatives at each cable system into articulate spielmeisters for HBO and the other pay services.

While the cable operators struggle to break down subscriber resistance, the pay networks have picked up 4.4 million subs who get their TV through satellite dishes, not through cable. That’s the estimate of Paul Kagan Associates, which says that, as of Dec. 31,1994, HBO and Cinemax together have signed 1.5 million satellite-dish subscribers; Showtime and the Movie Channel, 1.2 million; the Disney Channel, 995,000; the eight Encore multiplex channels, 690,000; and the Playboy Channel, 121,000.

Showtime’s Blank says one important factor in pay-services like HBO and Showtime pulling in more cable and satellite customers is that they’re filling their lineups with lots of original movies, series and specials. (By contrast, networks like Cinemax, TMC and the Encore multiplexes shun original programming in favor of wall-to-wall movies.)

But Mike Egan, VP of programming for Cablevision Industries, a top-10 MSO that was recently sold to No. 2 Time Warner Cable, says the main reason people buy a pay TV network is “the blockbuster movies.” If these people then start to enjoy the original movies and made-for-pay series, they may be less prone to cancel their subscription.

In truth, pay TV subscribers are breathtakingly fickle. HBO, which has the best track record of all the pay networks, still loses one of every two subscribers in the course of a year.

While many cable operators are cheerful that pay TV is doing better these days, they worry privately about whether HBO, Showtime and the other networks will be outmoded in a couple of years, when rebuilt cable systems will be so technologically advanced they’ll be offering dozens of pay-per-view movie channels to subscribers, who’ll be able to order a popular movie at 15-minute intervals with the touch of a button on the remote.

Blank’s answer is that Showtime and its sister channels will adapt to cyberspace by letting subscribers call up any movie or series episode in a given month’s lineup whenever they feel the urge, and not have to adhere to the chronology dictated by the networks’ schedule-makers.

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