June 4, 2021 • 42 mins
What happened to HBO once cable subscriptions hit a saturation point? We look at how the company transitioned from startup to corporate.
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Speaker 1 (00:04):
Welcome to Tech Stuff, a production from I Heart Radio.
Hey there, and welcome to tech Stuff. I'm your host
job on Strickland. I'm an executive producer with iHeart Radio
and I love all things tech. And it is time
front of a classic episode and it's actually gonna be
a continuation of our previous classic episode. So this episode
(00:29):
the HBO Story Part two, originally published on May seven,
and um, we are just going to jump right in,
get back into the story. Let's go. HBO as an entity,
has heavily influenced what cable television is and what entertainment
delivery services are in general. If it hadn't been for HBO,
(00:50):
our landscape would be dramatically different today. So that's why
we're doing it. In fact, think about it. Without HBO,
you don't have cable companies, cable system operators pushing cable
copper cable into cities anywhere near as quickly. Right, you
might not have ever seen it happen, or it might
have taken a decade longer, which means you would not
(01:12):
even have the infrastructure that the Internet relies on today.
For high speed internet, we'd be using telephone lines. Still, yeah,
you might Furthermore, not have had people adopt as quickly
the idea of using satellites to beam information, uh television
information out to many far spread networks. Exactly So, like
(01:34):
we said, landscape very different without HBO. Whether you love
it or hate it, it's a large part of why
the world is as far as the cable world and
entertainment worlds, why things are the way they are so
so um. A little tiny bit of backstory, very tiny.
HBO owned by Time, Yes, Time Incorporated, not not Time,
(01:55):
the the physical entity like the actual not Father Time,
the progression of changes throughout not the fourth dimension that
we know of, Time Incorporated, the company that owned Time
magazine or still does Time Magazine, Fortune Magazine, Sports Illustrated, etcetera, etcetera. Correct. So,
in Time launched a second pay TV channel called Cinemax,
(02:16):
primarily as a competitor to the less expensive Showtime. Yes, so,
there were a couple of different ways to compete against Showtime.
One was let's try and grab as much exclusive content
as we possibly can that Showtime can't have. And thus
people will say, hey, we want HBO because they have
these movies and Showtime doesn't. However, that's really expensive Another
(02:37):
approach was to create a second paid television network, Cinemax,
and to run a lot of the same programming that
HBO itself already had, and maybe concentrate on some genres
that didn't necessarily fit into HBO's corporate appearances, like they're there,
their their culture, and furthermore, that happened to be a
lot less expensive to purchase. Like I like cult films
(02:59):
and kind of obscure noir stuff. One of my favorite
cult films of all time I first saw on Cinemax.
I had heard about it, but I've never seen it.
And that film, of course, is the brilliant movie Shock Treatment.
The not a sequel, not a prequel, but an equal
to the Rocky Horror Picture Show. And that's how I
saw it the first time I ever experienced it. It
(03:21):
was shown on Cinemax because it fit into that realm
of the Cinemax movie where it were there were some
of these kind of cult classic, schlocky, sort of cheap
movies to license, but they still had their audience. So
this approach did not come without criticism, specifically from Viacom,
which was the parent company of Showtime. They said that
(03:43):
Cinemax was being offered at below cost. In other words,
HBO was suffering a loss to run Cinemax just so
that they could undercut Showtime. Uh now, if you remember
Showtime kind of Viacom also did this thing in the
last episode we talked about, where it showed Viacom end
up by aggressively undercut HBO. They essentially muscled HBO out
(04:04):
of entire markets because they made this exclusive agreement with
the largest cable provider in the United States at that time.
So there's a little bit of a war going on. Yeah,
a little bit of a oh yeah, so yeah, that's
that's kind of the technical term. But Cinemax, you know,
starts doing pretty well. And also in nineteen HBO has
an affiliate in every single state in the United States. Now,
(04:27):
if you listen to our last episode, you realize that's
a big deal. This is the first time that any
channel has been able to do that, and it is
because they're using this satellite delivery system where the various
cable operators across the United States have the receiver dishes
that bring in the signal and then they can distribute
it to their customers. So now there's an affiliate in
every state. Remember, It started off justin Wilkes Bar, Pennsylvania.
(04:51):
Then it's spread through most of Pennsylvania, then to New York,
and then finally started to creep out into the rest
of the United States. So big moment for HBO. All
of this is allowing them to have a pretty incredible
profit considering that they only hit profitability a year or
two previously. Um. They their profits have grown from which
(05:12):
again understandable because now they're they're available in way more markets.
So the company is experiencing astronomical growth at this point
because because once the cable operators decide yes we will
carry HBO, that gives HBO the chance to target new
customer bases that they had no access to before. Oh sure,
um and there as a result able to offer their
(05:34):
employees some pretty ridiculous benefits. Um It kind of the
stories that I've read about it at the time remind
me a little bit of what happened after the Facebook boom,
um and and just that that tiny, free, free wheeling
startup culture that turned into this very large, very freewheeling
startup culture. It reminds me a lot of what Google
(05:56):
attempts to continue to push at the Google Plex and
of course, anyone who's worked in one of the satellite
offices of Google probably is very familiar with what things,
what what's available at the Googleplex versus what's available in
some of those satellite offices. So there was also some
tension between say HBO and the folks over at Time.
(06:16):
Keep in mind that at this point they're still all
working in the same building. They're working in Time Incorporate
its headquarters, and so you had sort of these freewheeling
young guys who are running HBO, who are having parties
all the time. They said that essentially, the the motto
at HBO is work, work, work, party, party, party and uh.
And so you know, any excuse to get together and
(06:39):
have a big dinner, and you know, they're still getting
stuff done. But they also took a lot of time
and developed this camaraderie. There's still some tension actually within
the company itself because a very different culture existed between
Time and Coorporated employees and HBO. Now in one Showtime
makes a big move, which you could argue at the time,
(07:00):
Time was mostly posturing. Uh. They decided to go to
a full twenty four hour schedule, right because if you
remember from our last episode. Again, at the time, these
cable stations would sign off at a certain point every night. Yeah,
like after midnight they'd say, all right, time, time to
go to bed, because we don't have anything else we
can show you. So showtime goes to twenty four hours,
(07:20):
not necessarily being able to support that with enough content
so that they're not incredibly repetitive, but HBO, not to
be outdone, follow suit. So later on in they also
become twenty four hour. Uh. And so you with anytime
you wanted to turn on HBO it was three in
the morning, you can turn on HBO and something would
be playing. Uh. And then they end up also hitting
(07:43):
the big time on one of those pre buy movies
we talked about. Now, this is where HBO puts in
money in the pre production phase for a movie and
in return, they get exclusive rights to show that movie
on HBO for a certain length of time. And in
this case, they hit the jackpot. Now, it's not a
movie that I think a lot of people are going
(08:03):
to be rip roar and excited about, but it was
a critically acclaimed success. It was on Golden Pond. Yeah,
it won multiple Academy Awards. YEP. So this exclusivity was
a big deal. It was a movie that people had
heard about, they knew that it was award winning, and
HBO was the only place you could see it outside
of the theater. Keep in mind, this is before the
(08:25):
home video craze starts, like, this is really before the
VCR has taken off, So HBO exclusivity in this case
was really important. Now they started moving to these output deals,
which is when a pay TV service agrees to take
on all the movies made by a certain studio over
a certain time span. Again, tends to be kind of
(08:45):
a grab bag situation. You might get a few big hits,
you might have some mediocre films in there that you know,
some people care about but most people don't. And you
could have some outright flops. So a little bit of
a risky situation. There's also this idea of a multi
year agreement which HBO would have agreed to pick up
a certain number of films the studio would produce over
a given period of time, but have a little bit
more safe which one like you made. We want twenty
(09:09):
movies that you guys are going to make over the
course of the next five years. Yeah, so once the
five year period starts coming up. You're like, well, now
we're stuck. Yeah, but but we got to be choosy
at the beginning. Either way, these exclusivity deals were really
really expensive, and it meant that it was tough to
(09:30):
to make a profit unless you continuously grow. Now, at
this time that wasn't a problem because cable was still
entering in lots more markets, which meant you had access
to brand new customers. So in the early days kind
of automatically growing. Yeah. Yeah, you didn't have to worry
about about boosting your your customer base so much because
people were still eager to join. It wasn't until a
(09:51):
couple of years later that things got a little tougher,
but we'll get there. So companies were paying these big
bucks for exclusive rights to movies for just a couple
of years. Eventually those exclusivity rights would expire and those
movies could be carried on other pay television stations like
Showtime could pick it up. So in the long run,
you would have a bank of movies that was essentially
(10:14):
identical to your competitors. So for a couple of years
you'd have exclusivity, but it wasn't a long term You
would wind up evening out. Yeah. So yeah, one of
those things that that you know, they really had to
look at a little bit later because it was just
it was not the best way to continuously grow your revenue.
Now three, we get one of my favorite stories. Yeah, yeah, okay,
(10:35):
this this is a big one. So so twenty century
Fox negotiated to get Star Wars onto pay TV. Yes,
so Star Wars big movie in ninety seven. Of course,
that's when Return of the Jedi came out. So the
original trilogy, you know, the only one that exists, is
complete at this time. And Star Wars itself, the movie
that started it all. Uh, the second big blockbuster following
(10:58):
Jaws from Live is available to go on to pay TV. However,
it's not an exclusive deal. This is something they they
negotiate to put it on every page television station essentially,
so Showtime's gonna get HBO is gonna get it now. Normally,
the way these channels like to try and and position
the big ticket items that they get is to wait
(11:20):
and put it out on prime time preferably like eight pm. Yeah, Friday, Saturday,
Sunday night, Sunday night, probably preferably to to really get
all of the home viewers in right, so you would
you know when the weekend would come around eight pm.
That's when you could be guaranteed that that was when
the biggest movies were going to be uh showcased on
these pay television stations. However, Star Wars was such a
(11:43):
big deal, being that summer blockbuster, that both Showtime and
HBO wanted to make sure they took advantage of it
and did not allow the other channel to show it
before they did. So HBO didn't want Showtime to show
it first. Showtime didn't want HBO to show it first.
According to the agreement they signed with Fox, neither could
show it any time before six am on February one,
(12:06):
So both of them scheduled the first showing of Star
Wars to be six am, February first, even knowing that
that's not an ideal time for their customers. They just
didn't want the other one to get the scoop, and
HBO went a step further. So remember in that last
episode where I talked about cable being a cutthroat business
and nothing is really you know, off limits, that includes bribery.
(12:27):
That's probably a strong word. HBO didn't bribe twentieth century Fox.
Well they paid them more money. They paid them more money.
That's very much like a bribe. Yeah, so that they
could be allowed to show Star Wars one minute after
midnight on February one, so six hours before showtime could
although they weren't allowed to announce it. Yeah, so you
had to have been watching HBO at one midnight after
(12:51):
midnight on February one to have noticed that this had happened. However,
the they were able to say legitimately that they were
the first to pay television station to carry Star Wars,
and that actually carried some weight. There were people who said,
wait a minute, why is HBO showing it before showtime?
I should have HBO not showtime, despite the fact that
we're talking about a six hour window when most people
(13:14):
wouldn't be watching television anyway. Um that that part didn't matter.
So very interesting that this battle happened. It was another
expensive battle, but an important one. As we all know,
Star Wars one of the most important pieces of art
created in the history. There's like the Mona Lisa Star
Wars David, that's the order it goes in. So three
(13:38):
also was there another amazing piece of art premiered on
HBO and original program aimed at children. Yeah, Jim Henson's
Fraggle Rock yep down in Fraggle Rock. So I was
a huge Fraggle Rock fan back in the day. Um.
They actually came to dragon Con and we covered the
dragon Con parade. We actually shut this coverage. Me and
(13:58):
Ben Bowen and Lauren You were there and we did
it like Macy's Thanksgiving Day Parade style. It never it
never saw the light of day, probably because there were
long stretches where nothing was happening. We we we haven't
had anyone had time to edit the whole thing really long. Yeah,
but were in it. They were in it. And there
is a photo gallery that I did. I was running
a still camera through the parade and so and and
(14:21):
she she waved at me. Yeah. I got choked up. Yeah,
I got choked up watching the Fraggles. I mean, I'm
not I'm not embarrassed to admit it. The Fraggles are
meant a lot to be I'm getting a little tiory
right now. In fact, all right, Well that was the
first segment of HBO Story Part two. We've got more
chapters here. The Game of Thrones, I think I guess
we'll find out, but first let's take a quick break. Now,
(14:51):
Jim Henson had already had a relationship with HBO. HBO
had produced a couple of years earlier a Christmas special,
immitt Otter's jug Band Christmas. So now Jim Hinson had
the the freedom to create this entire children's series, which
lasted five seasons, and it ended up being a big success.
It was one of the few breakaway successes of children's
(15:12):
programming on HBO. A lot of the other programming UH
people liked the idea of but no one ever bothered
to watch, so Fraggle Rock was not among that. That
was an incredibly popular show, in fact, so popular that
HBO would end up making other versions of Fraggle Rock
for other countries, and some of them would have their
(15:33):
own version of Doc and Sprocket that wouldn't necessarily be
called Doc and Sprocket, and they would be different people,
like the I think in England it was like a
lighthouse keeper who was really crabby. But anyway, they would
also be dubbed into different languages, so everyone had their
own version of Fraggle Rock, which was kind of cool.
It wasn't just a you know, it wasn't just switching
out the soundtrack. It was actually Taylor made to These
(15:56):
Nations and another series that premiered that year, and I
remember the series too, was not necessarily The News, which
was kind of a news parody sketch comedy show. It
was the news thing was kind of the the conceit
the book ends for these various sketches that may or
may not be very loosely connected, right, And it was
kind of Brian's very first television writing gig also uh,
(16:19):
not consistently very good, but but one of the examples
of HBO getting into original programming, which is again they
started looking at how to differentiate themselves from the showtimes
of the world, and these exclusivity deals, like we said,
could be really really expensive, so maybe making original programming
would have been a better approach. Now they learned that
(16:41):
making good original programming is very tricky. It might not
be expensive, but it's very hard to do, and getting
people to pay attention is also sometimes tricky. Right. Yeah,
Sometimes they would make an amazing show that the critics
loved in nobody watched. We will talk about several of
those in our third episode. But meanwhile, twelve years after
(17:01):
its inception, HBO finally got their own offices. Yeah, they
moved over into a building on Avenue, and it had
the nickname the flash Cube. All right, kids years ago,
like in the eighties, cameras which had film in them,
none of this digital stuff also had flash you know, flashes,
(17:22):
like a separate flash unit that you had to attach
to the top little cube that would flash light so
you could get some light on that image you're trying
to capture onto film. That's why it was called the
flash cube because the building looked like one. So this
building that looked like something you've never seen looked exactly
like just just like that thing. So now you had
(17:43):
a building where the actual departments could all sit together.
The divisions were no longer divided. They could all be
in a cohesive unit. So that amazing camaraderie they had
developed back at Time Incorporated, when they had this kind
of startup mentality went away. What's completely ruined. Yeah, suddenly
they were physically closer and yet emotionally so distant. Um.
(18:05):
It turned out that HBO was starting to become more
of a business, less of this kind of startup entrepreneur
approach and I had more of a of a corporate structure. Yeah,
And it also was when HBO started to notice that
growing as a business was going to get very difficult,
they did what was called hitting the wall. The wall
in this case was saturation. You had a saturation point
(18:28):
where cable had pretty much entered all the markets that
was gonna go into. So that meant that you no
longer could expect to suddenly have access to twenty thousand
new subscribers potential new subscribers because someone finally built the
infrastructure out to this one region. Now all the regions
pretty much had cable, so there were not going to
be any of these these gift baskets of potential customers
(18:50):
just arriving at HBO. They were gonna have to work
for it. And also on top of that, they had
a churn rate going on, right. So churn rate is
when you lose a certain number of customers over a
course of a general amount of time. So there's was
about two per month back in which means that in
order to just stay even, you have to grow by
(19:13):
two percent, right to to just maintain the same number
of customers from the beginning of the month to the
end of the month. If you want to grow beyond that,
then obviously you have to get more than two percent
new customers to replace the two percent who who left. Now,
some of the people who left they left because they
were relocating and eventually maybe they come back, but some
of them were just saying, oh, I don't want to
have this expense anymore. So you had to convince them, hey,
(19:35):
we're worth the money, or you had to convince new people, hey,
we're worth the money. And now there were fewer new
people to get access to. So this was a very
scary time at HBO. You had this young company that
had been used to this incredible growth suddenly realizing, oh,
things are not going to be as easy anymore. We're
not going to have this essentially blank check that we
(19:57):
can hand out for these exclusivity deals. We're not going
to have this this endless line of new customers coming
in through the door. What are we gonna do? And
in fact, one of the first things they had to
do was layoff about a hundred and twenty five employees,
which was the first time in HBO's history that people
had been let go like that. Also, around the same time,
the VCR became a thing, and that was a boy
(20:20):
talk about a big bite out of the business. So
keep in mind, remember this is the time when HBO
their main purpose was to create way for people to
watch these movies that were uncut and uncensored that wouldn't
be carried on broadcast television. But now, with the birth
of the VCR and the growth of the home video market,
(20:41):
where you could go to a rental store and rent
a movie, you can get access to all sorts of
movies beyond the what we'll call the playlist that HBO
had access to. Remember, HBO is paying licensing fees to
be able to show these movies, so they don't have
licenses for every movie. They have to pick and choose,
and sometimes they pick before they even know what the
movie is going to be like, and sometimes they lose
(21:02):
out on that. Oh sure, and they can only air
so many things at a time, They can only pay
to keep so many things on the air at a
single time, and whatever they happen to have might not
be what you feel like watching. Once once stores started
carrying rentable VHS tapes, it was I mean for for
younger listeners, I mean, like I have a hard time
imagining this and I remember VHS tapes. I remember all
(21:25):
of that very clearly, and it still sounds crazy to
me that you that there was a time when you
couldn't just watch whatever you wanted. Yeah. Now, you would
go into the store and you would hope that that
one copy of Young Einstein was still available, because you
know what a breakaway hit that was. Um, hey, that
was an important film. Hey, yeah, who's serious one of
my heroes. Okay, I'm not don't take any thing away
(21:47):
from the series, but yeah, just just the fact that
you go into the store, you know, and hope that
the thing is the movie that you want is there.
There was an illusion that you had a more choice
with the home video market. Now, the true was dependent
upon how many copies of a certain movie the rental
store had and how big a customer base it had,
because there might be some movies that, unless you just
(22:09):
looked out, were constantly being checked out. So so it
seems even if Blockbuster had thirty copies of whatever it was,
it might all be gone right. So so hypothetically you
had a much larger choice, but in practice it may
or may not have happened. And either way, it was
probably more than just Beast Master over and over. Yes,
HBO started getting the There was a joke that HBOS
(22:31):
actually stood for Hey beast Masters on um. Yeah, that
that was the That was again a comment about the
repeats UH and UH, which were the movies that had
been shown multiple times within a certain licensing period, and returns,
which were movies that were still under license but had
been pulled out of the circulation of movies shown on
(22:52):
HBO and then reinserted later on. So you know, HBO
licensed out these movies and those licenses were very specific.
They would say you can show this movie X number
of times and during these times of day, Like, they
were very the way you had to program and HBO
schedule was dependent upon these licenses because some of them
(23:13):
were like, Okay, we don't want you showing this this
movie before six pm. Well then they would have to
plan that out, you know, before six pm and after midnight.
I'm sure that FCC regulations and stuff like that would
prevent some content from being shown during HBO specifically police
themselves and put they would not allow anything that was
(23:33):
R rated to go on before eight p m. So
it had to be after eight pm to to go
onto HBO Uh, there was largely a self imposed rule,
and it was just an easy one for them to
to go with because they knew that that would be
something that would most likely fit their subscribers desires and
would at least mollify the kind of groups that would
(23:55):
have had complaints otherwise exactly most of them. Yes. So anyway,
those life since has put limiting factors on HBO how
many movies they would have access to it a given time,
how many, how frequently they could show it. But then
HBO also had this model, this business model, where the
idea was, we're going to get this pool of movies.
We're gonna make a schedule where we're going to show
(24:17):
these movies at different times on different days, so that
our customers can look at the schedule and say, oh,
the movie I want to see is gonna be on
at six pm on Wednesday. I'll make sure to watch
it on Wednesday at six pm. But instead, what they
found that was that people were treating HBO like it
was a television channel. That's ridiculous. Well, I mean, you know,
(24:38):
once again, once BCRs entered the picture and they could
just record something, yeah, it didn't matter so much about
when it was on, but they and also yeah, someone
would just turn on the TV and just be like, oh,
what's on right now? Okay, yeah, oh it's beast Master again. Yeah.
That was the problem was that people were not treating
it like the way the company had thought of the
service and we the movie theater, which yeah, exactly. We've
(25:02):
seen this happen in other industries, right, We've seen it
where someone creates a service, let's say Twitter, great example,
someone creates a service and they have in their mind
the way the service is going to be used by
the customers, and customers go, oh, this great thing for
this entirely different purpose. And so if you're a good company,
you move with the customers and you don't try and
(25:23):
force them into a model that they don't want, because
otherwise your your business suffers. So HBO started seeing, oh,
we're gonna have to think of some other way to
change up our programming so that we don't have the
same you know, list of movies showing so frequently, because
we're going to end up driving customers away. And we're
already having to deal with this churn issue and the
(25:44):
saturation issue. So all of these factors we're going into
HBO and the executive's minds thinking all right, we gotta
we gotta think of a new way of approaching content. Meanwhile,
Michael Folks, who we had talked about in the last
episod So, who had come over from a talent agency
and had joined HBO. He becomes the head of HBO.
(26:06):
He replaced Frank Beyondi, who had pretty much been forced out.
He had made a really expensive licensing agreement with Columbia Pictures. Uh,
there's a little movie called Ghostbusters that nearly broke the
bank for HBO. We're talking like millions of dollars, like
forty million dollars just to have this one movie because
they had agreed beforehand, before knowing what this was going
(26:27):
to be, and there was no cap on how much
they could spend. So that deal pretty much melt the
in for Beyondi. Yeah, well that that was. That was
the first place that I saw Ghostbusters. So wow, I
saw it in the theater opening day. The librarians, what
are we? I was two. We've got more to say
about this chapter in HBO's history, but before we get
(26:49):
to that, let's take another quick break. All Right, We're
up to nineteen five and that's what HBO decided to
launch a big summer advertising campaign. Now. They they saw
that the wall had hit, They saw this saturation in
(27:11):
churn issue, they saw the exclusivity issue, and they thought,
how can we attract more customers so that we can
continue to grow, And they decided that they would really
concentrate in an advertising campaign that spanned the summer of
n and they would repeat this a couple of times.
Oh yeah, yeah, and why the summer, you ask. Summer
is a when kids are out of school and parents
need something to do with these suddenly free tiny humans. Yeah,
(27:35):
most of us have to continue to work in the
summer months, and so how do you keep the tiny
humans from rising up against their masters and enslaving us
all good HBO. Furthermore, as most of us know, summer
is when many television shows are in reruns. All of
the all of the really big primary prime time sort
of things are broken for the summer. Yeah, broadcast television
(27:58):
is tends to be pretty pretty barren over the summer,
like you're either watching reruns or especially just don't care
about especially back in those days. These days, it's changing
a little. It's a little bit. It's a little bit
now where you can get interesting programming. Yeah, especially now
that you have shows that are dividing their seasons up
into season breaking bad, you don't don't perpetuate the breaking
(28:22):
bad problem. I mean, breaking bad great show, but you know,
splitting up your seasons, oh bad, breaking bad bad? All right.
But anyway, Yeah, HBO decided, hey, we we can take
this opportunity to really grab this this audience that doesn't
yet subscribe to HBO. So what they did was they
sent ads through direct mail and they also did telemarketing.
(28:44):
They called people, cold calling people to convince them to
sign up, and as irritating as it was, it was worked. Yeah.
They sent six hundred forty million ads to folks between
six billion, twice the population of the United States. They
also did start investing more in original programming. Yes, um,
(29:08):
and and you know, sports was something that they had
been doing since the beginning. Yeah, that was one of
the you remember the two things you could watch an
HBO when it premiered was a movie, uh that that
was about logging and a hockey game. So sports had
always been part of HBO. Also, stand up comedy specials
had been a part of HBO since the early days.
Oh yeah, yeah, those really great old rap and Williams
(29:30):
or Richard pryor special. Steve Martin had a good one too. Yeah.
You had a bunch of people who were the the
kind of the loudest voices of comedy in the seventies
and eighties. George Carlin another one. Some amazing comedians who
would get their HBO special And even to this day
you'll hear comedians talk about, you know, feeling like they
made it when they got an HBO special like that.
(29:51):
That was like a mark of success. You know, that's
when you know you've you've arrived. They continued to do that,
so stand up comedy also big. They also ended up
backing several documentary series. They ended up creating several series,
including a brand called America Undercover. There are several documentaries
in that series, and that helped to differentiate them again
(30:12):
more from the showtimes in the world. Now, keep in
mind Showtime at this point not really getting into original
programming that much. They were still very much dependent upon
the uncut, uncensored versions of movies. HBO was trying to
kind of break away from that a little bit while
still having movies on the channel, but trying to differentiate
themselves by adding variety that you could not get anywhere else.
(30:35):
A right, right, it's a little bit, if you remember
from our cable provider and streaming media discussion, or I mean,
if you pay attention to the Internet these days, a
little bit of what what Netflix is doing to kind
of try to move itself forward in front of channels
like HBO. In fact, if HBO had not done this,
we would not have a Netflix, and we certainly wouldn't
(30:56):
have a Netflix that's making its own content. Same thing
with Hulu, same thing with am is on. The reason
why they're able to make their own content, why that's
a viable choice is because HBO tried it and made
it work. Now, not everything HBO did with the independent
stuff that they did, the original programming stuff worked and
we'll talk a lot about some of both the successes
and the failures. Um, not everything caught on. However, they
(31:20):
also partnered at that time with a company called Thorne
E m I, which was an independent film producer and
video distributor. So their main business model was to partner
with other movie studios that did not have a home
video distribution market. So some of the big ones did
they They had They had it all in place where
either they had their own production company or distribution company
(31:43):
or they partnered with someone already. Thorny and I would
would partner with lots of smaller, smaller distribution companies. So
they ended up getting a lot of um we all
those cheap action movies, you know, the ones that started Internet, Darling,
Chuck Norris, those were big ones. But uh. The following
year six, Cannon Pictures bought out thorn em I's interest,
(32:04):
so HBO and thorny em I had um HBO and
thorny Emi had partnered together. Cannon Pictures comes in buys
out thorn em I, but still partners with HBO and
it becomes HBO Slash Cannon Video and again most of
the movies low budget action films, awesome movies, not taking
anything away from him. By seven, HBO Cannon ends up
(32:27):
being renamed HBO Video. Short time later, it changes names
again to HBO Entertainment and they had a few successes,
but really it was touch and go for a while.
It wouldn't be until HBO original programming really took off
in the nineties when HBO Entertainment had it made. Because
(32:47):
now they became the distribution for HBO originals that everybody
wanted to have, all right, but at the time it
was really just scraping by. Moving on to Night six,
that's when HBO established HBO Showcase, which was an actual
production company. So they had already moved into distribution, and
they had a production company over on the West Coast
(33:07):
in Los Angeles called HBO Pictures, but now they wanted
to create another production company on the East Coast, so
this one was based in New York. And the idea
was to make grittier, more you know, kind of realistic
or hard hitting movies than HBO Pictures was known for.
So their first picture was about a KGB agent who
(33:28):
was involved in a big CIA operation. This was actually
a true story about Uri Nasinko. So they they were
going kind of this this hard, gritty route, and in
general people said it felt more like HBO, whereas the
stuff from HBO Pictures a little more you know, glossy
and glitzy. Certainly had bigger budgets, had access to bigger names,
(33:50):
so you saw more movie stars in HBO Pictures productions,
but the HBO Showcase would be the kind of more
down to earth stuff. So both of these would eventually
merge together and become HBO Films, and Colin Callender, who
had been the head of HBO Showcase, became the head
of this whole department. I'm sure there were some grumblings
(34:13):
on both sides. I'm sure the the the Showcase folks
were thinking, you know, they get all the money and
they get they get access to all that talent, whereas
the pictures folks were probably thinking, they have this crazy reputation,
which we should have because look at what we're doing.
So so everyone get together and play nice. Yeah. Uh.
Fortunately they were separated by the rest of the United States,
(34:35):
with one being in l a and the other being
in New York, so I think they could. They were
insulated enough where it wasn't too much of a problem.
Also in now, this is another big moment in HBO
history because it established a practice that ended up becoming
an industry wide standard. It's another reason why we really
wanted to talk about HBO at length, because so many
(34:58):
of the things they did influen inst multiple industries. In
this case, they began to scramble or encode signals full
time for those satellite signals. Now, if you listen to
the first episode you learned about HBO using up links
to send a signal up to a satellite, which used
transponders leased by HBO to amplify the signal send it
(35:19):
back down to down links across the nation to cable providers,
because it spread out over the entirety of North America,
and at this point, the cost of purchasing a satellite
dish for yourself head lowered to the point where where
common families could purchase one if they wanted yea, if
they if they saved up. I mean, even back when
it was still tens of thousands of dollars. You had
a few crazy people with lots of money buying these
(35:40):
things because the signals weren't scrambled, the signals were clear.
So so once you bought in what i mean for
for the purchase price of that satellite dish, you could
watch whatever you wanted to absolutely free. And so pay
TV stations didn't like this because you didn't have to
subscribe to cable at all. Cable companies didn't like it
because you didn't have to subscribe to cable at all.
You just had this dish, which at the time was enormous. Uh.
(36:04):
This was before they had developed the the dishes that
are more common these days. This is when if you
remember back in the eighties, the enormous satellite dishes that
might be out in front of someone's yard or in
the backyard. That's what I'm talking about, the big like
nine footers. So you're able to get these signals clear.
And not only that, broadcast television hated it. And you
might think, well, why did broadcast television hate it? You
(36:25):
could get those shows for free using an antenna. Well,
it's because those shows aren't really free. The reason why
those shows are are possible at almost because their ads supported, right,
advertisers by advertising time on those shows, and that money
goes to the production companies. They are more steps in here,
but in general, the production companies are able to make
(36:47):
shows because the money made through advertising. Well, if you're
using a satellite to pull down the raw feed, you're
getting the raw feed, you're getting what's called the back
hall feed, which is before they put any commercials into
the content. So you were getting commercial free content from
all the different providers, something that broadcast and cable stations
and cable providers all hated. So how do you fix
(37:09):
this problem? Well, what HBO decided to do was to
invest in this encoding and scrambling technology. They ended up
going with General Instruments Video cipher to to encrypt the
audio and video signals. Once they've done that, you'd have
to have a decryption box on the private end in
order to decrypt the signals. Right, So cable companies had
(37:31):
these D scramblers, Right, they can just descramble it, and
they had an agreement with HBO. Originally it was just HBO,
but other other channels would follow suit. So HBO ended up,
like I said, creating this industry standard approach. So the
cable providers would all have these D scramblers. And as
a private citizen, you could get a D scrambler, but uh,
it wouldn't necessarily work. You'd have to pay HBO to
(37:54):
have access. You could actually go out and buy chips
that would decrypt things for you, but often these chips
would only be good for about a month, and what
would happen is that the provider on the other end
would see that someone usually it's some fake address that's
been made out to a customer has not paid their bill,
(38:15):
and so they cut off the service. So for a
month you have service and then suddenly you don't. So
people kept trying to find ways to get around this,
but it meant that for the most part, it was
much harder to pirate a signal. Now this made satellite
dish owners very, very angry. They felt entitled to the
stuff they were stealing because, in their minds they had
paid thousands of dollars for a Sally dish, therefore they
(38:38):
should have access to all this content, despite the fact
that all the content providers are saying, yeah, see, the
money you spent didn't go to help pay for the
actual content, and unless we get paid for the content
we make, we can't make it. So you're actually talking
about a behavior that ultimately will completely destroy the business
(38:58):
that you want to to enjoy. You want this content,
you want to be able to watch stuff, but if
we're not getting money for it, we can't make the
stuff you want to watch. But the satellite provide satellite
owners said, I want my free HBO. So Jonathan has
some opinions. I don't side with the pirates on this one.
To be honest, I understand. I understand the other arguments,
(39:22):
which we'll get into when we talk about streaming. I'll
you know, it's not that I don't feel empathy for
folks who want to have access to content. It's just
that if you had the choice of either spending thousands
of dollars for a satellite dish and then stealing everything
or just that that is a different issue. And it's
a little bit on the silly end um. But meanwhile,
(39:43):
also in six uh, Jeff Bukes became HBO's chief financial officer.
He wouldn't be finished rising the ranks because if you
listen to our last episode, we kind of gave it away.
HBO launches Festival. This is gonna sound like it's a
like it's a Dejah all over again. All right, right?
Remember take two? Yeah, that was the idea of creating
(40:05):
a kid friendly network that was lower priced, so people
who weren't either willing to pay the full subscription price
for HBO or objected to the content would have an alternative.
It also did not work. Yeah, apparently they didn't learn
anything from Take two because Festival to me sounds like
it was the same thing, exactly the same thing. Yeah,
it would it would find up getting canceled entirely than
(40:27):
a year. Yeah, the problem was that they were trying
to target two different populations. They wanted to target the
conservative older people who didn't want all that filth on
their TV, and they wanted to target families with young
children who wanted to have kid friendly programming. But the
problem was all the older conservatives said, why do you
have all this children programming on my station? I don't
(40:49):
want any of this. This is not interesting to me.
And all the families were saying, I got this channel
so that I could watch stuff and my kids could
watch stuff. But when my kids have gone to bed,
the only stuff you have on is on Golden Pond
times in a row. I don't care about that. So
neither target audience was satisfied. So it's the lesson here
(41:10):
is if you want to target two very different audiences,
splitting the difference hardly ever works. Yes. Um the next
year though in Something with Kids did work out. Yes.
The Kids in the Hall in fact, premiered on HBO
Canadian sketch comedy Troupe Brilliant, one of my favorites seen
him live, Good stuff. And that wraps up the HBO
(41:33):
story Part two. Next week we will have the part
three of the story, and again Like I said, a
lot has happened in the years since, so I'll probably
have to do an update to this at some point
and talk really about how HBO and Warner Brothers have
really transformed the entertainment space, particularly in a world that
(41:57):
went through a pandemic that really shook things up in
a big, big way. But that'll have to wait in
the meantime. If you have any suggestions for topics I
should cover in future episodes of tech Stuff or ones
that require an update, let me know. The best way
to do that is to reach out on Twitter and
the handle I use is text Stuff hs W. Next
(42:17):
week we're gonna have part three of this, so stay
tuned for that and I'll talk to you again really soon.
Text Stuff is an I Heart Radio production. For more
podcasts from my Heart Radio, visit the i Heart Radio app,
Apple Podcasts, or wherever you listen to your favorite shows.
Welcome to Tech Stuff, a production from I Heart Radio.
Hey there, and welcome to tech Stuff. I'm your host
job on Strickland. I'm an executive producer with iHeart Radio
and I love all things tech. And it is time
front of a classic episode and it's actually gonna be
a continuation of our previous classic episode. So this episode
(00:29):
the HBO Story Part two, originally published on May seven,
and um, we are just going to jump right in,
get back into the story. Let's go. HBO as an entity,
has heavily influenced what cable television is and what entertainment
delivery services are in general. If it hadn't been for HBO,
(00:50):
our landscape would be dramatically different today. So that's why
we're doing it. In fact, think about it. Without HBO,
you don't have cable companies, cable system operators pushing cable
copper cable into cities anywhere near as quickly. Right, you
might not have ever seen it happen, or it might
have taken a decade longer, which means you would not
(01:12):
even have the infrastructure that the Internet relies on today.
For high speed internet, we'd be using telephone lines. Still, yeah,
you might Furthermore, not have had people adopt as quickly
the idea of using satellites to beam information, uh television
information out to many far spread networks. Exactly So, like
(01:34):
we said, landscape very different without HBO. Whether you love
it or hate it, it's a large part of why
the world is as far as the cable world and
entertainment worlds, why things are the way they are so
so um. A little tiny bit of backstory, very tiny.
HBO owned by Time, Yes, Time Incorporated, not not Time,
(01:55):
the the physical entity like the actual not Father Time,
the progression of changes throughout not the fourth dimension that
we know of, Time Incorporated, the company that owned Time
magazine or still does Time Magazine, Fortune Magazine, Sports Illustrated, etcetera, etcetera. Correct. So,
in Time launched a second pay TV channel called Cinemax,
(02:16):
primarily as a competitor to the less expensive Showtime. Yes, so,
there were a couple of different ways to compete against Showtime.
One was let's try and grab as much exclusive content
as we possibly can that Showtime can't have. And thus
people will say, hey, we want HBO because they have
these movies and Showtime doesn't. However, that's really expensive Another
(02:37):
approach was to create a second paid television network, Cinemax,
and to run a lot of the same programming that
HBO itself already had, and maybe concentrate on some genres
that didn't necessarily fit into HBO's corporate appearances, like they're there,
their their culture, and furthermore, that happened to be a
lot less expensive to purchase. Like I like cult films
(02:59):
and kind of obscure noir stuff. One of my favorite
cult films of all time I first saw on Cinemax.
I had heard about it, but I've never seen it.
And that film, of course, is the brilliant movie Shock Treatment.
The not a sequel, not a prequel, but an equal
to the Rocky Horror Picture Show. And that's how I
saw it the first time I ever experienced it. It
(03:21):
was shown on Cinemax because it fit into that realm
of the Cinemax movie where it were there were some
of these kind of cult classic, schlocky, sort of cheap
movies to license, but they still had their audience. So
this approach did not come without criticism, specifically from Viacom,
which was the parent company of Showtime. They said that
(03:43):
Cinemax was being offered at below cost. In other words,
HBO was suffering a loss to run Cinemax just so
that they could undercut Showtime. Uh now, if you remember
Showtime kind of Viacom also did this thing in the
last episode we talked about, where it showed Viacom end
up by aggressively undercut HBO. They essentially muscled HBO out
(04:04):
of entire markets because they made this exclusive agreement with
the largest cable provider in the United States at that time.
So there's a little bit of a war going on. Yeah,
a little bit of a oh yeah, so yeah, that's
that's kind of the technical term. But Cinemax, you know,
starts doing pretty well. And also in nineteen HBO has
an affiliate in every single state in the United States. Now,
(04:27):
if you listen to our last episode, you realize that's
a big deal. This is the first time that any
channel has been able to do that, and it is
because they're using this satellite delivery system where the various
cable operators across the United States have the receiver dishes
that bring in the signal and then they can distribute
it to their customers. So now there's an affiliate in
every state. Remember, It started off justin Wilkes Bar, Pennsylvania.
(04:51):
Then it's spread through most of Pennsylvania, then to New York,
and then finally started to creep out into the rest
of the United States. So big moment for HBO. All
of this is allowing them to have a pretty incredible
profit considering that they only hit profitability a year or
two previously. Um. They their profits have grown from which
(05:12):
again understandable because now they're they're available in way more markets.
So the company is experiencing astronomical growth at this point
because because once the cable operators decide yes we will
carry HBO, that gives HBO the chance to target new
customer bases that they had no access to before. Oh sure,
um and there as a result able to offer their
(05:34):
employees some pretty ridiculous benefits. Um It kind of the
stories that I've read about it at the time remind
me a little bit of what happened after the Facebook boom,
um and and just that that tiny, free, free wheeling
startup culture that turned into this very large, very freewheeling
startup culture. It reminds me a lot of what Google
(05:56):
attempts to continue to push at the Google Plex and
of course, anyone who's worked in one of the satellite
offices of Google probably is very familiar with what things,
what what's available at the Googleplex versus what's available in
some of those satellite offices. So there was also some
tension between say HBO and the folks over at Time.
(06:16):
Keep in mind that at this point they're still all
working in the same building. They're working in Time Incorporate
its headquarters, and so you had sort of these freewheeling
young guys who are running HBO, who are having parties
all the time. They said that essentially, the the motto
at HBO is work, work, work, party, party, party and uh.
And so you know, any excuse to get together and
(06:39):
have a big dinner, and you know, they're still getting
stuff done. But they also took a lot of time
and developed this camaraderie. There's still some tension actually within
the company itself because a very different culture existed between
Time and Coorporated employees and HBO. Now in one Showtime
makes a big move, which you could argue at the time,
(07:00):
Time was mostly posturing. Uh. They decided to go to
a full twenty four hour schedule, right because if you
remember from our last episode. Again, at the time, these
cable stations would sign off at a certain point every night. Yeah,
like after midnight they'd say, all right, time, time to
go to bed, because we don't have anything else we
can show you. So showtime goes to twenty four hours,
(07:20):
not necessarily being able to support that with enough content
so that they're not incredibly repetitive, but HBO, not to
be outdone, follow suit. So later on in they also
become twenty four hour. Uh. And so you with anytime
you wanted to turn on HBO it was three in
the morning, you can turn on HBO and something would
be playing. Uh. And then they end up also hitting
(07:43):
the big time on one of those pre buy movies
we talked about. Now, this is where HBO puts in
money in the pre production phase for a movie and
in return, they get exclusive rights to show that movie
on HBO for a certain length of time. And in
this case, they hit the jackpot. Now, it's not a
movie that I think a lot of people are going
(08:03):
to be rip roar and excited about, but it was
a critically acclaimed success. It was on Golden Pond. Yeah,
it won multiple Academy Awards. YEP. So this exclusivity was
a big deal. It was a movie that people had
heard about, they knew that it was award winning, and
HBO was the only place you could see it outside
of the theater. Keep in mind, this is before the
(08:25):
home video craze starts, like, this is really before the
VCR has taken off, So HBO exclusivity in this case
was really important. Now they started moving to these output deals,
which is when a pay TV service agrees to take
on all the movies made by a certain studio over
a certain time span. Again, tends to be kind of
(08:45):
a grab bag situation. You might get a few big hits,
you might have some mediocre films in there that you know,
some people care about but most people don't. And you
could have some outright flops. So a little bit of
a risky situation. There's also this idea of a multi
year agreement which HBO would have agreed to pick up
a certain number of films the studio would produce over
a given period of time, but have a little bit
more safe which one like you made. We want twenty
(09:09):
movies that you guys are going to make over the
course of the next five years. Yeah, so once the
five year period starts coming up. You're like, well, now
we're stuck. Yeah, but but we got to be choosy
at the beginning. Either way, these exclusivity deals were really
really expensive, and it meant that it was tough to
(09:30):
to make a profit unless you continuously grow. Now, at
this time that wasn't a problem because cable was still
entering in lots more markets, which meant you had access
to brand new customers. So in the early days kind
of automatically growing. Yeah. Yeah, you didn't have to worry
about about boosting your your customer base so much because
people were still eager to join. It wasn't until a
(09:51):
couple of years later that things got a little tougher,
but we'll get there. So companies were paying these big
bucks for exclusive rights to movies for just a couple
of years. Eventually those exclusivity rights would expire and those
movies could be carried on other pay television stations like
Showtime could pick it up. So in the long run,
you would have a bank of movies that was essentially
(10:14):
identical to your competitors. So for a couple of years
you'd have exclusivity, but it wasn't a long term You
would wind up evening out. Yeah. So yeah, one of
those things that that you know, they really had to
look at a little bit later because it was just
it was not the best way to continuously grow your revenue.
Now three, we get one of my favorite stories. Yeah, yeah, okay,
(10:35):
this this is a big one. So so twenty century
Fox negotiated to get Star Wars onto pay TV. Yes,
so Star Wars big movie in ninety seven. Of course,
that's when Return of the Jedi came out. So the
original trilogy, you know, the only one that exists, is
complete at this time. And Star Wars itself, the movie
that started it all. Uh, the second big blockbuster following
(10:58):
Jaws from Live is available to go on to pay TV. However,
it's not an exclusive deal. This is something they they
negotiate to put it on every page television station essentially,
so Showtime's gonna get HBO is gonna get it now. Normally,
the way these channels like to try and and position
the big ticket items that they get is to wait
(11:20):
and put it out on prime time preferably like eight pm. Yeah, Friday, Saturday,
Sunday night, Sunday night, probably preferably to to really get
all of the home viewers in right, so you would
you know when the weekend would come around eight pm.
That's when you could be guaranteed that that was when
the biggest movies were going to be uh showcased on
these pay television stations. However, Star Wars was such a
(11:43):
big deal, being that summer blockbuster, that both Showtime and
HBO wanted to make sure they took advantage of it
and did not allow the other channel to show it
before they did. So HBO didn't want Showtime to show
it first. Showtime didn't want HBO to show it first.
According to the agreement they signed with Fox, neither could
show it any time before six am on February one,
(12:06):
So both of them scheduled the first showing of Star
Wars to be six am, February first, even knowing that
that's not an ideal time for their customers. They just
didn't want the other one to get the scoop, and
HBO went a step further. So remember in that last
episode where I talked about cable being a cutthroat business
and nothing is really you know, off limits, that includes bribery.
(12:27):
That's probably a strong word. HBO didn't bribe twentieth century Fox.
Well they paid them more money. They paid them more money.
That's very much like a bribe. Yeah, so that they
could be allowed to show Star Wars one minute after
midnight on February one, so six hours before showtime could
although they weren't allowed to announce it. Yeah, so you
had to have been watching HBO at one midnight after
(12:51):
midnight on February one to have noticed that this had happened. However,
the they were able to say legitimately that they were
the first to pay television station to carry Star Wars,
and that actually carried some weight. There were people who said,
wait a minute, why is HBO showing it before showtime?
I should have HBO not showtime, despite the fact that
we're talking about a six hour window when most people
(13:14):
wouldn't be watching television anyway. Um that that part didn't matter.
So very interesting that this battle happened. It was another
expensive battle, but an important one. As we all know,
Star Wars one of the most important pieces of art
created in the history. There's like the Mona Lisa Star
Wars David, that's the order it goes in. So three
(13:38):
also was there another amazing piece of art premiered on
HBO and original program aimed at children. Yeah, Jim Henson's
Fraggle Rock yep down in Fraggle Rock. So I was
a huge Fraggle Rock fan back in the day. Um.
They actually came to dragon Con and we covered the
dragon Con parade. We actually shut this coverage. Me and
(13:58):
Ben Bowen and Lauren You were there and we did
it like Macy's Thanksgiving Day Parade style. It never it
never saw the light of day, probably because there were
long stretches where nothing was happening. We we we haven't
had anyone had time to edit the whole thing really long. Yeah,
but were in it. They were in it. And there
is a photo gallery that I did. I was running
a still camera through the parade and so and and
(14:21):
she she waved at me. Yeah. I got choked up. Yeah,
I got choked up watching the Fraggles. I mean, I'm
not I'm not embarrassed to admit it. The Fraggles are
meant a lot to be I'm getting a little tiory
right now. In fact, all right, Well that was the
first segment of HBO Story Part two. We've got more
chapters here. The Game of Thrones, I think I guess
we'll find out, but first let's take a quick break. Now,
(14:51):
Jim Henson had already had a relationship with HBO. HBO
had produced a couple of years earlier a Christmas special,
immitt Otter's jug Band Christmas. So now Jim Hinson had
the the freedom to create this entire children's series, which
lasted five seasons, and it ended up being a big success.
It was one of the few breakaway successes of children's
(15:12):
programming on HBO. A lot of the other programming UH
people liked the idea of but no one ever bothered
to watch, so Fraggle Rock was not among that. That
was an incredibly popular show, in fact, so popular that
HBO would end up making other versions of Fraggle Rock
for other countries, and some of them would have their
(15:33):
own version of Doc and Sprocket that wouldn't necessarily be
called Doc and Sprocket, and they would be different people,
like the I think in England it was like a
lighthouse keeper who was really crabby. But anyway, they would
also be dubbed into different languages, so everyone had their
own version of Fraggle Rock, which was kind of cool.
It wasn't just a you know, it wasn't just switching
out the soundtrack. It was actually Taylor made to These
(15:56):
Nations and another series that premiered that year, and I
remember the series too, was not necessarily The News, which
was kind of a news parody sketch comedy show. It
was the news thing was kind of the the conceit
the book ends for these various sketches that may or
may not be very loosely connected, right, And it was
kind of Brian's very first television writing gig also uh,
(16:19):
not consistently very good, but but one of the examples
of HBO getting into original programming, which is again they
started looking at how to differentiate themselves from the showtimes
of the world, and these exclusivity deals, like we said,
could be really really expensive, so maybe making original programming
would have been a better approach. Now they learned that
(16:41):
making good original programming is very tricky. It might not
be expensive, but it's very hard to do, and getting
people to pay attention is also sometimes tricky. Right. Yeah,
Sometimes they would make an amazing show that the critics
loved in nobody watched. We will talk about several of
those in our third episode. But meanwhile, twelve years after
(17:01):
its inception, HBO finally got their own offices. Yeah, they
moved over into a building on Avenue, and it had
the nickname the flash Cube. All right, kids years ago,
like in the eighties, cameras which had film in them,
none of this digital stuff also had flash you know, flashes,
(17:22):
like a separate flash unit that you had to attach
to the top little cube that would flash light so
you could get some light on that image you're trying
to capture onto film. That's why it was called the
flash cube because the building looked like one. So this
building that looked like something you've never seen looked exactly
like just just like that thing. So now you had
(17:43):
a building where the actual departments could all sit together.
The divisions were no longer divided. They could all be
in a cohesive unit. So that amazing camaraderie they had
developed back at Time Incorporated, when they had this kind
of startup mentality went away. What's completely ruined. Yeah, suddenly
they were physically closer and yet emotionally so distant. Um.
(18:05):
It turned out that HBO was starting to become more
of a business, less of this kind of startup entrepreneur
approach and I had more of a of a corporate structure. Yeah,
And it also was when HBO started to notice that
growing as a business was going to get very difficult,
they did what was called hitting the wall. The wall
in this case was saturation. You had a saturation point
(18:28):
where cable had pretty much entered all the markets that
was gonna go into. So that meant that you no
longer could expect to suddenly have access to twenty thousand
new subscribers potential new subscribers because someone finally built the
infrastructure out to this one region. Now all the regions
pretty much had cable, so there were not going to
be any of these these gift baskets of potential customers
(18:50):
just arriving at HBO. They were gonna have to work
for it. And also on top of that, they had
a churn rate going on, right. So churn rate is
when you lose a certain number of customers over a
course of a general amount of time. So there's was
about two per month back in which means that in
order to just stay even, you have to grow by
(19:13):
two percent, right to to just maintain the same number
of customers from the beginning of the month to the
end of the month. If you want to grow beyond that,
then obviously you have to get more than two percent
new customers to replace the two percent who who left. Now,
some of the people who left they left because they
were relocating and eventually maybe they come back, but some
of them were just saying, oh, I don't want to
have this expense anymore. So you had to convince them, hey,
(19:35):
we're worth the money, or you had to convince new people, hey,
we're worth the money. And now there were fewer new
people to get access to. So this was a very
scary time at HBO. You had this young company that
had been used to this incredible growth suddenly realizing, oh,
things are not going to be as easy anymore. We're
not going to have this essentially blank check that we
(19:57):
can hand out for these exclusivity deals. We're not going
to have this this endless line of new customers coming
in through the door. What are we gonna do? And
in fact, one of the first things they had to
do was layoff about a hundred and twenty five employees,
which was the first time in HBO's history that people
had been let go like that. Also, around the same time,
the VCR became a thing, and that was a boy
(20:20):
talk about a big bite out of the business. So
keep in mind, remember this is the time when HBO
their main purpose was to create way for people to
watch these movies that were uncut and uncensored that wouldn't
be carried on broadcast television. But now, with the birth
of the VCR and the growth of the home video market,
(20:41):
where you could go to a rental store and rent
a movie, you can get access to all sorts of
movies beyond the what we'll call the playlist that HBO
had access to. Remember, HBO is paying licensing fees to
be able to show these movies, so they don't have
licenses for every movie. They have to pick and choose,
and sometimes they pick before they even know what the
movie is going to be like, and sometimes they lose
(21:02):
out on that. Oh sure, and they can only air
so many things at a time, They can only pay
to keep so many things on the air at a
single time, and whatever they happen to have might not
be what you feel like watching. Once once stores started
carrying rentable VHS tapes, it was I mean for for
younger listeners, I mean, like I have a hard time
imagining this and I remember VHS tapes. I remember all
(21:25):
of that very clearly, and it still sounds crazy to
me that you that there was a time when you
couldn't just watch whatever you wanted. Yeah. Now, you would
go into the store and you would hope that that
one copy of Young Einstein was still available, because you
know what a breakaway hit that was. Um, hey, that
was an important film. Hey, yeah, who's serious one of
my heroes. Okay, I'm not don't take any thing away
(21:47):
from the series, but yeah, just just the fact that
you go into the store, you know, and hope that
the thing is the movie that you want is there.
There was an illusion that you had a more choice
with the home video market. Now, the true was dependent
upon how many copies of a certain movie the rental
store had and how big a customer base it had,
because there might be some movies that, unless you just
(22:09):
looked out, were constantly being checked out. So so it
seems even if Blockbuster had thirty copies of whatever it was,
it might all be gone right. So so hypothetically you
had a much larger choice, but in practice it may
or may not have happened. And either way, it was
probably more than just Beast Master over and over. Yes,
HBO started getting the There was a joke that HBOS
(22:31):
actually stood for Hey beast Masters on um. Yeah, that
that was the That was again a comment about the
repeats UH and UH, which were the movies that had
been shown multiple times within a certain licensing period, and returns,
which were movies that were still under license but had
been pulled out of the circulation of movies shown on
(22:52):
HBO and then reinserted later on. So you know, HBO
licensed out these movies and those licenses were very specific.
They would say you can show this movie X number
of times and during these times of day, Like, they
were very the way you had to program and HBO
schedule was dependent upon these licenses because some of them
(23:13):
were like, Okay, we don't want you showing this this
movie before six pm. Well then they would have to
plan that out, you know, before six pm and after midnight.
I'm sure that FCC regulations and stuff like that would
prevent some content from being shown during HBO specifically police
themselves and put they would not allow anything that was
(23:33):
R rated to go on before eight p m. So
it had to be after eight pm to to go
onto HBO Uh, there was largely a self imposed rule,
and it was just an easy one for them to
to go with because they knew that that would be
something that would most likely fit their subscribers desires and
would at least mollify the kind of groups that would
(23:55):
have had complaints otherwise exactly most of them. Yes. So anyway,
those life since has put limiting factors on HBO how
many movies they would have access to it a given time,
how many, how frequently they could show it. But then
HBO also had this model, this business model, where the
idea was, we're going to get this pool of movies.
We're gonna make a schedule where we're going to show
(24:17):
these movies at different times on different days, so that
our customers can look at the schedule and say, oh,
the movie I want to see is gonna be on
at six pm on Wednesday. I'll make sure to watch
it on Wednesday at six pm. But instead, what they
found that was that people were treating HBO like it
was a television channel. That's ridiculous. Well, I mean, you know,
(24:38):
once again, once BCRs entered the picture and they could
just record something, yeah, it didn't matter so much about
when it was on, but they and also yeah, someone
would just turn on the TV and just be like, oh,
what's on right now? Okay, yeah, oh it's beast Master again. Yeah.
That was the problem was that people were not treating
it like the way the company had thought of the
service and we the movie theater, which yeah, exactly. We've
(25:02):
seen this happen in other industries, right, We've seen it
where someone creates a service, let's say Twitter, great example,
someone creates a service and they have in their mind
the way the service is going to be used by
the customers, and customers go, oh, this great thing for
this entirely different purpose. And so if you're a good company,
you move with the customers and you don't try and
(25:23):
force them into a model that they don't want, because
otherwise your your business suffers. So HBO started seeing, oh,
we're gonna have to think of some other way to
change up our programming so that we don't have the
same you know, list of movies showing so frequently, because
we're going to end up driving customers away. And we're
already having to deal with this churn issue and the
(25:44):
saturation issue. So all of these factors we're going into
HBO and the executive's minds thinking all right, we gotta
we gotta think of a new way of approaching content. Meanwhile,
Michael Folks, who we had talked about in the last
episod So, who had come over from a talent agency
and had joined HBO. He becomes the head of HBO.
(26:06):
He replaced Frank Beyondi, who had pretty much been forced out.
He had made a really expensive licensing agreement with Columbia Pictures. Uh,
there's a little movie called Ghostbusters that nearly broke the
bank for HBO. We're talking like millions of dollars, like
forty million dollars just to have this one movie because
they had agreed beforehand, before knowing what this was going
(26:27):
to be, and there was no cap on how much
they could spend. So that deal pretty much melt the
in for Beyondi. Yeah, well that that was. That was
the first place that I saw Ghostbusters. So wow, I
saw it in the theater opening day. The librarians, what
are we? I was two. We've got more to say
about this chapter in HBO's history, but before we get
(26:49):
to that, let's take another quick break. All Right, We're
up to nineteen five and that's what HBO decided to
launch a big summer advertising campaign. Now. They they saw
that the wall had hit, They saw this saturation in
(27:11):
churn issue, they saw the exclusivity issue, and they thought,
how can we attract more customers so that we can
continue to grow, And they decided that they would really
concentrate in an advertising campaign that spanned the summer of
n and they would repeat this a couple of times.
Oh yeah, yeah, and why the summer, you ask. Summer
is a when kids are out of school and parents
need something to do with these suddenly free tiny humans. Yeah,
(27:35):
most of us have to continue to work in the
summer months, and so how do you keep the tiny
humans from rising up against their masters and enslaving us
all good HBO. Furthermore, as most of us know, summer
is when many television shows are in reruns. All of
the all of the really big primary prime time sort
of things are broken for the summer. Yeah, broadcast television
(27:58):
is tends to be pretty pretty barren over the summer,
like you're either watching reruns or especially just don't care
about especially back in those days. These days, it's changing
a little. It's a little bit. It's a little bit
now where you can get interesting programming. Yeah, especially now
that you have shows that are dividing their seasons up
into season breaking bad, you don't don't perpetuate the breaking
(28:22):
bad problem. I mean, breaking bad great show, but you know,
splitting up your seasons, oh bad, breaking bad bad? All right.
But anyway, Yeah, HBO decided, hey, we we can take
this opportunity to really grab this this audience that doesn't
yet subscribe to HBO. So what they did was they
sent ads through direct mail and they also did telemarketing.
(28:44):
They called people, cold calling people to convince them to
sign up, and as irritating as it was, it was worked. Yeah.
They sent six hundred forty million ads to folks between
six billion, twice the population of the United States. They
also did start investing more in original programming. Yes, um,
(29:08):
and and you know, sports was something that they had
been doing since the beginning. Yeah, that was one of
the you remember the two things you could watch an
HBO when it premiered was a movie, uh that that
was about logging and a hockey game. So sports had
always been part of HBO. Also, stand up comedy specials
had been a part of HBO since the early days.
Oh yeah, yeah, those really great old rap and Williams
(29:30):
or Richard pryor special. Steve Martin had a good one too. Yeah.
You had a bunch of people who were the the
kind of the loudest voices of comedy in the seventies
and eighties. George Carlin another one. Some amazing comedians who
would get their HBO special And even to this day
you'll hear comedians talk about, you know, feeling like they
made it when they got an HBO special like that.
(29:51):
That was like a mark of success. You know, that's
when you know you've you've arrived. They continued to do that,
so stand up comedy also big. They also ended up
backing several documentary series. They ended up creating several series,
including a brand called America Undercover. There are several documentaries
in that series, and that helped to differentiate them again
(30:12):
more from the showtimes in the world. Now, keep in
mind Showtime at this point not really getting into original
programming that much. They were still very much dependent upon
the uncut, uncensored versions of movies. HBO was trying to
kind of break away from that a little bit while
still having movies on the channel, but trying to differentiate
themselves by adding variety that you could not get anywhere else.
(30:35):
A right, right, it's a little bit, if you remember
from our cable provider and streaming media discussion, or I mean,
if you pay attention to the Internet these days, a
little bit of what what Netflix is doing to kind
of try to move itself forward in front of channels
like HBO. In fact, if HBO had not done this,
we would not have a Netflix, and we certainly wouldn't
(30:56):
have a Netflix that's making its own content. Same thing
with Hulu, same thing with am is on. The reason
why they're able to make their own content, why that's
a viable choice is because HBO tried it and made
it work. Now, not everything HBO did with the independent
stuff that they did, the original programming stuff worked and
we'll talk a lot about some of both the successes
and the failures. Um, not everything caught on. However, they
(31:20):
also partnered at that time with a company called Thorne
E m I, which was an independent film producer and
video distributor. So their main business model was to partner
with other movie studios that did not have a home
video distribution market. So some of the big ones did
they They had They had it all in place where
either they had their own production company or distribution company
(31:43):
or they partnered with someone already. Thorny and I would
would partner with lots of smaller, smaller distribution companies. So
they ended up getting a lot of um we all
those cheap action movies, you know, the ones that started Internet, Darling,
Chuck Norris, those were big ones. But uh. The following
year six, Cannon Pictures bought out thorn em I's interest,
(32:04):
so HBO and thorny em I had um HBO and
thorny Emi had partnered together. Cannon Pictures comes in buys
out thorn em I, but still partners with HBO and
it becomes HBO Slash Cannon Video and again most of
the movies low budget action films, awesome movies, not taking
anything away from him. By seven, HBO Cannon ends up
(32:27):
being renamed HBO Video. Short time later, it changes names
again to HBO Entertainment and they had a few successes,
but really it was touch and go for a while.
It wouldn't be until HBO original programming really took off
in the nineties when HBO Entertainment had it made. Because
(32:47):
now they became the distribution for HBO originals that everybody
wanted to have, all right, but at the time it
was really just scraping by. Moving on to Night six,
that's when HBO established HBO Showcase, which was an actual
production company. So they had already moved into distribution, and
they had a production company over on the West Coast
(33:07):
in Los Angeles called HBO Pictures, but now they wanted
to create another production company on the East Coast, so
this one was based in New York. And the idea
was to make grittier, more you know, kind of realistic
or hard hitting movies than HBO Pictures was known for.
So their first picture was about a KGB agent who
(33:28):
was involved in a big CIA operation. This was actually
a true story about Uri Nasinko. So they they were
going kind of this this hard, gritty route, and in
general people said it felt more like HBO, whereas the
stuff from HBO Pictures a little more you know, glossy
and glitzy. Certainly had bigger budgets, had access to bigger names,
(33:50):
so you saw more movie stars in HBO Pictures productions,
but the HBO Showcase would be the kind of more
down to earth stuff. So both of these would eventually
merge together and become HBO Films, and Colin Callender, who
had been the head of HBO Showcase, became the head
of this whole department. I'm sure there were some grumblings
(34:13):
on both sides. I'm sure the the the Showcase folks
were thinking, you know, they get all the money and
they get they get access to all that talent, whereas
the pictures folks were probably thinking, they have this crazy reputation,
which we should have because look at what we're doing.
So so everyone get together and play nice. Yeah. Uh.
Fortunately they were separated by the rest of the United States,
(34:35):
with one being in l a and the other being
in New York, so I think they could. They were
insulated enough where it wasn't too much of a problem.
Also in now, this is another big moment in HBO
history because it established a practice that ended up becoming
an industry wide standard. It's another reason why we really
wanted to talk about HBO at length, because so many
(34:58):
of the things they did influen inst multiple industries. In
this case, they began to scramble or encode signals full
time for those satellite signals. Now, if you listen to
the first episode you learned about HBO using up links
to send a signal up to a satellite, which used
transponders leased by HBO to amplify the signal send it
(35:19):
back down to down links across the nation to cable providers,
because it spread out over the entirety of North America,
and at this point, the cost of purchasing a satellite
dish for yourself head lowered to the point where where
common families could purchase one if they wanted yea, if
they if they saved up. I mean, even back when
it was still tens of thousands of dollars. You had
a few crazy people with lots of money buying these
(35:40):
things because the signals weren't scrambled, the signals were clear.
So so once you bought in what i mean for
for the purchase price of that satellite dish, you could
watch whatever you wanted to absolutely free. And so pay
TV stations didn't like this because you didn't have to
subscribe to cable at all. Cable companies didn't like it
because you didn't have to subscribe to cable at all.
You just had this dish, which at the time was enormous. Uh.
(36:04):
This was before they had developed the the dishes that
are more common these days. This is when if you
remember back in the eighties, the enormous satellite dishes that
might be out in front of someone's yard or in
the backyard. That's what I'm talking about, the big like
nine footers. So you're able to get these signals clear.
And not only that, broadcast television hated it. And you
might think, well, why did broadcast television hate it? You
(36:25):
could get those shows for free using an antenna. Well,
it's because those shows aren't really free. The reason why
those shows are are possible at almost because their ads supported, right,
advertisers by advertising time on those shows, and that money
goes to the production companies. They are more steps in here,
but in general, the production companies are able to make
(36:47):
shows because the money made through advertising. Well, if you're
using a satellite to pull down the raw feed, you're
getting the raw feed, you're getting what's called the back
hall feed, which is before they put any commercials into
the content. So you were getting commercial free content from
all the different providers, something that broadcast and cable stations
and cable providers all hated. So how do you fix
(37:09):
this problem? Well, what HBO decided to do was to
invest in this encoding and scrambling technology. They ended up
going with General Instruments Video cipher to to encrypt the
audio and video signals. Once they've done that, you'd have
to have a decryption box on the private end in
order to decrypt the signals. Right, So cable companies had
(37:31):
these D scramblers, Right, they can just descramble it, and
they had an agreement with HBO. Originally it was just HBO,
but other other channels would follow suit. So HBO ended up,
like I said, creating this industry standard approach. So the
cable providers would all have these D scramblers. And as
a private citizen, you could get a D scrambler, but uh,
it wouldn't necessarily work. You'd have to pay HBO to
(37:54):
have access. You could actually go out and buy chips
that would decrypt things for you, but often these chips
would only be good for about a month, and what
would happen is that the provider on the other end
would see that someone usually it's some fake address that's
been made out to a customer has not paid their bill,
(38:15):
and so they cut off the service. So for a
month you have service and then suddenly you don't. So
people kept trying to find ways to get around this,
but it meant that for the most part, it was
much harder to pirate a signal. Now this made satellite
dish owners very, very angry. They felt entitled to the
stuff they were stealing because, in their minds they had
paid thousands of dollars for a Sally dish, therefore they
(38:38):
should have access to all this content, despite the fact
that all the content providers are saying, yeah, see, the
money you spent didn't go to help pay for the
actual content, and unless we get paid for the content
we make, we can't make it. So you're actually talking
about a behavior that ultimately will completely destroy the business
(38:58):
that you want to to enjoy. You want this content,
you want to be able to watch stuff, but if
we're not getting money for it, we can't make the
stuff you want to watch. But the satellite provide satellite
owners said, I want my free HBO. So Jonathan has
some opinions. I don't side with the pirates on this one.
To be honest, I understand. I understand the other arguments,
(39:22):
which we'll get into when we talk about streaming. I'll
you know, it's not that I don't feel empathy for
folks who want to have access to content. It's just
that if you had the choice of either spending thousands
of dollars for a satellite dish and then stealing everything
or just that that is a different issue. And it's
a little bit on the silly end um. But meanwhile,
(39:43):
also in six uh, Jeff Bukes became HBO's chief financial officer.
He wouldn't be finished rising the ranks because if you
listen to our last episode, we kind of gave it away.
HBO launches Festival. This is gonna sound like it's a
like it's a Dejah all over again. All right, right?
Remember take two? Yeah, that was the idea of creating
(40:05):
a kid friendly network that was lower priced, so people
who weren't either willing to pay the full subscription price
for HBO or objected to the content would have an alternative.
It also did not work. Yeah, apparently they didn't learn
anything from Take two because Festival to me sounds like
it was the same thing, exactly the same thing. Yeah,
it would it would find up getting canceled entirely than
(40:27):
a year. Yeah, the problem was that they were trying
to target two different populations. They wanted to target the
conservative older people who didn't want all that filth on
their TV, and they wanted to target families with young
children who wanted to have kid friendly programming. But the
problem was all the older conservatives said, why do you
have all this children programming on my station? I don't
(40:49):
want any of this. This is not interesting to me.
And all the families were saying, I got this channel
so that I could watch stuff and my kids could
watch stuff. But when my kids have gone to bed,
the only stuff you have on is on Golden Pond
times in a row. I don't care about that. So
neither target audience was satisfied. So it's the lesson here
(41:10):
is if you want to target two very different audiences,
splitting the difference hardly ever works. Yes. Um the next
year though in Something with Kids did work out. Yes.
The Kids in the Hall in fact, premiered on HBO
Canadian sketch comedy Troupe Brilliant, one of my favorites seen
him live, Good stuff. And that wraps up the HBO
(41:33):
story Part two. Next week we will have the part
three of the story, and again Like I said, a
lot has happened in the years since, so I'll probably
have to do an update to this at some point
and talk really about how HBO and Warner Brothers have
really transformed the entertainment space, particularly in a world that
(41:57):
went through a pandemic that really shook things up in
a big, big way. But that'll have to wait in
the meantime. If you have any suggestions for topics I
should cover in future episodes of tech Stuff or ones
that require an update, let me know. The best way
to do that is to reach out on Twitter and
the handle I use is text Stuff hs W. Next
(42:17):
week we're gonna have part three of this, so stay
tuned for that and I'll talk to you again really soon.
Text Stuff is an I Heart Radio production. For more
podcasts from my Heart Radio, visit the i Heart Radio app,
Apple Podcasts, or wherever you listen to your favorite shows.
TechStuff News
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Karah Preiss
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