It’s lonely at the top

HBO's success is at a peak, but will that satisfy AOL?

HBO is at the pinnacle. The pay network’s profits have tripled over the past five years, with another 20% jump projected for 2001. It now reaches 28 million subscribers, who pay a typical monthly fee of $12 a home.

That ain’t all. On Sept. 16, HBO will show up at the annual Emmy Awards telecast with 94 noms, more than any other network. Subscribers and critics are equally enthusiastic about many of its series (“The Sopranos,” “Sex and the City” and “Six Feet Under”), original movies (“61,*”), comedy specials, concerts like the recent Madonna event and documentaries.

The network’s exec roster is the model of stability, and the teams behind HBO’s series and telepics applaud the unique creative leeway they’re given.

But does all this euphoria represent HBO’s glory days, or does it presage a storm cloud or two on the skyline?

Some program suppliers grumble that more creative freedom doesn’t entirely offset the smaller paycheck they take home. “There’s a lot of money being made at HBO, but it all stays inhouse,” says one disgruntled producer.

In addition, the net occasionally stretches industry credulity: Its execs claim that petty broadcast concerns such as Nielsen ratings are never high on the agenda, but their actions indicate that they may be more nervous about audiences than they’re letting on.

For example, execs don’t hesitate to shift schedules to shore up their prized series. When the new “Six Feet Under” hemorrhaged viewers on just one night (Sunday, June 10) immediately following “Arliss,” HBO made a lighting-quick shift to move the show’s timeslot up a half-hour to benefit from the lead-in of the much-higher-rated “Sex & the City.”

And it worked.

That shift is one indication that HBO is looking over its shoulder at the no-nonsense bookkeepers who keep quarterly profits cascading into the coffers of AOL.

HBO’s new owner is causing anxiety among some execs, who stay up nights praying that the parent has enough sense not to mess with a winning formula. Hollywood’s boulevards are, after all, littered with sad tales of corporate patriarchs who couldn’t leave well enough alone.

In general, the corporate mentality reduces everything to what’s good for the bottom line. And HBO has a particular challenge: Many of its series and movies have generated accolades, and kept the net’s suppliers enthusiastic. But it’s nearly impossible to bottom-line these successes — i.e., to prove how many subscribers stay on thanks to “Sex and the City” or “61*.”

And while the miniseries “Band of Brothers” is a prestige project, thanks to exec producers Steven Spielberg and Tom Hanks, it’s a question mark whether HBO can ever recoup the $125 million budget of the 10-hour event.

Thanks to projects like “Brothers,” many HBO workers are apprehensive that, at the first sign of diminished profits, AOL will rear its ugly fiscal head, putting HBO’s programming budget on a strict dollar-reduction diet.

HBO says that’s nonsense: It’s the most profitable division in all of Time Warner.

Jeff Bewkes, chairman-CEO of HBO, says that its programming will keep the net’s base growing by 1 million subs a year over the next three-to-five years, feeding HBO’s already bloated annual earnings.

How does HBO keep defying the laws of TV-network gravity on a regular basis? In a series of interviews with execs both within and outside HBO, three elements kept cropping up.

  • The net spends more money on originals than anybody else in cable TV.

    HBO’s programming budget for 2001 will climb above $400 million, despite the fact that its ongoing series commitments are much more limited than broadcasters’: between eight hours (for “Oz”) and 18 half-hours (for “Sex & the City”).

    But when it gets behind a project, HBO goes all the way.

    “Band of Brothers,” which bows Sept. 9, cost more than any other mini in TV history. HBO ponied up a staggering $18 million for “61*,” and the average HBO movie rings up about $10 million in production costs, a bigger average than that of any other cabler.

    Series prices soar

    “The Sopranos” has become one of the priciest series on TV — more than $3 million an episode next season — and the budget of “Sex & the City” has soared to $2 million a half-hour.

  • HBO basks in the kind of freedom that broadcast networks and basic-cable channels can only fantasize about.

    Because HBO is commercial-free, there are no advertisers threatening to pull their dollars from programs laced with disturbing content.

    And no conservative general managers of TV stations are shaking their spears, hell-bent on canceling a show that’s too cutting-edge for their local communities.

    Even members of the religious right keep their tongues zipped, recognizing the fact that HBO gets funneled only into the homes of willing viewers.

    HBO content often sets a very high bar for everybody else in broadcast and cable. “Sex and the City,” “Oz” and “Sopranos” deal graphically with sex, and the last two feature violence which surpasses that of most R-rated movies.

    In one example, Joe Pantaliano’s character beat to death a young stripper in a “Sopranos” episode this year. The violence was so vivid that NBC chairman Bob Wright was moved to issue an internal memo — leaked to the New York Times — asking whether HBO had gone so far that NBC, to stay competitive, might be forced to ramp up the body count on its own primetime series.

    But HBO’s best series weave sex and violence into the fabric of heightened emotions and human conflicts. The shows are hits because of the quality of the writing, acting and directing, which operate on a level that few series on other networks come close to.

  • The top creative execs at HBO rarely quit their jobs to search for greener pastures because — as these execs will tell you without taking a breath — there are no pastures greener than HBO’s.

    Of course, no network is immune to high-powered exits.

    Michael Fuchs departed in 1995 as chairman and CEO. Such top programmers as Robert Cooper and John Matoian resigned with some fanfare, as did Charles Schreger, president of HBO Enterprises.

    Fuchs’ exit turned out to be a watershed because his vision had transformed HBO into an industry powerhouse when he took charge in the early ’80s. Many observers predicted that HBO would lose its moorings in the aftermath of his withdrawal.

    Instead, his designated successor, Bewkes — despite spending much of his career not in the creative vineyards but as HBO’s top financial exec — exhibited a showbiz savvy which matched that of Fuchs, his mentor. Bewkes’ big-picture decision to shift HBO’s center of gravity from theatrical movies to original programming proved to be the right strategy.

    Bewkes’ incumbency at HBO has reached 22 years, which is not all that unusual: The average tenure for the seven top creative execs is a stunning 16 years. That number personifies extraordinary longevity in an industry whose volatility makes execs as disposable as MidEast peace agreements.

In their blood

“HBO is in my blood,” says Colin Callender, president of HBO Films, who joined the company 14 years ago. Callender says he and his boss, HBO Original Programming prez Chris Albrecht (16 years with HBO), “finish each other’s sentences.”

As Callender puts it, “Chris and I can look at a piece of material and know pretty quickly if it works or doesn’t work for HBO.”

HBO comes up with the ideas for 90% of the made-fors that it bankrolls, he says, “because people aren’t writing on spec the kind of risk-taking movies we want to do.” Four of the five Emmy-nominated movies this year — “61*,” “Wit,” “Conspiracy” and “For Love or Country: The Arturo Sandoval Story” — are HBO originals.

Because HBO generates only eight to 12 inhouse movies a year, Callender says the net can afford to splurge on the budgets. (HBO’s biggest pay-TV competitor, Showtime, commissioned 35 in the past year, at a per-title cost of less than half the HBO average.)

Its preferred economic model is to fully finance original movies and series, hanging on to the backend for HBO Enterprises to sell in foreign markets.

Domestically, it is averse to selling reruns to a basic-cable network, or to TV stations in syndication, preferring to keep the program for eternal replay on its various multiplex channels.

The cabler is counting on its multiplex clones — HBO Signature, HBO Family, HBO Latino, etc. — to keep people so stuffed with programming that they’ll stop canceling their subscriptions. More than 50% of its subscriber base turns over every year. But at least one-third of those are itinerants who cancel HBO when they move, but immediately resubscribe at the new location.

The one-revenue-stream financial structure affects HBO’s negotiations with high-powered talent. To empower its multiplexes, HBO walked away from an offer by the basic-cable Oxygen Channel to pay $750,000 an episode for the reruns of “Sex & the City.”

One sign of the magnitude of Oxygen’s offer: Only “Seinfeld” reruns fetched a higher price for a half-hour on basic cable when TBS agreed to pay $1 million an episode for the series back in 1998.

“Sex” creator and co-exec producer Darren Star says he didn’t even wince at losing out on his percentage from the sale to Oxygen.

“I’m sure HBO is not in the business of making a series so that the show can become a driving force for another cable network,” Star says.

The top writer-producers on HBO’s series — Star, David Chase of “The Sopranos,” Alan Ball of “Six Feet Under,” and Tom Fontana of “Oz” — have resigned themselves to the fact that, as a result of their deals with HBO, they’re not going to amass millions of dollars on the back end of a hit series.

Financial drawback

HBO’s insistence on keeping reruns of its series inhouse for the multiplex channels has kept such talented series creators as Steven Bochco (“NYPD Blue”), David Kelley (“Ally McBeal”), John Wells (“ER”) and Aaron Sorkin (“The West Wing”) from writing and producing shows for the network.

“It’s difficult for the talent agents to bring their biggest money earners to HBO,” says Albrecht, “because we haven’t come up with the financial model that would compensate them” with the vats of money they can stockpile when a hit broadcast series gets sold to a basic-cable network or to TV stations in rerun syndication.

But the Bochcos and Kelleys don’t necessarily need HBO for creative fulfillment: They deliver hit series, so the broadcast networks keep allowing them to push the boundaries of content year after year.

Star even goes so far as to predict that in a few years most ad-supported networks and TV stations “will be able to run any episode of ‘Sex & the City’ uncut.”

But freedom from content restrictions is no guarantee of Emmy awards.

“Arliss,” the longrunning half-hour comedy about a sports agent, is an acquired taste that most critics have gone out of their way not to acquire. Early reaction to HBO’s newest series “The Mind of the Married Man,” which premieres this month, is reserved (see review, page 71).

And, HBO execs are loath to even mention projects that didn’t pan out — everything from a Sydney Pollack/Larry McMurtry-produced 10-hour Western saga to a George Clooney-generated series, “Kilroy.”

The paybox simply shrugs off past failures and concentrates on current projects, such as “Band of Brothers,” the WWII mini based on the nonfiction book by Stephen Ambrose.

Bewkes says no broadcaster would have commissioned “Brothers” because “there are no women in it. There are no love scenes. I can hear a network exec looking at the script and saying, ‘Where’s the B-story?’ ”

Bewkes is confident that HBO subscribers won’t be asking that question, and that the authenticity of “Brothers” will override any objections to the absence of females.

Certainly if masses of subscribers turn away from this painstaking re-creation of men in war, Bewkes won’t be happy.

Neither will AOL.

But Bewkes is convinced that HBO’s hefty profits will cushion it against any questions raised by the parent company about potential programming setbacks — even one as highly visible as a $125 million miniseries.

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