October 5, 2012
By Larry Satkowiak
I saw the press release a couple of weeks ago announcing that Bill Nelson, CEO of Home Box Office, is retiring at the end of this year. Among his countless accomplishments, HBO recently generated more than $1.5 billion in revenue for Time Warner, Inc. with more than 100 million subscribers worldwide and it recently received 81 Emmy nominations for its creative efforts with some of the most amazing programming on television. This fact, along with some recent emails, reminded me of its humble beginnings. HBO had to be an innovator to survive and it is truly an outstanding example of the American free enterprise system.
Inspired by a passion for movies, in the early 1970s Chuck Dolan developed an idea to bring movies and live sports to the cable television audience under an innovative new model. Time Life approved the plan in 1971 and provided financing for the idea. Dolan formed a team of talented executives, including John Barrington from TelePrompTer and Gerald Levin, a 33-year-old attorney working at an international law firm. The team had to overcome countless legal, programmatic and technology barriers along the way to get the new venture off the ground.
Then, as now, success depends on the delivery of great content. When the new team looked for movie content, they naturally turned to the Hollywood studios. The resistance was fierce, but they managed to strike a deal with Universal Pictures for a collection of films. In the sports arena, resistance was equally ferocious. Sport teams at the time relied heavily on ticket sales and blackout rules prevented the viewing of some sports events on television. Sport franchises protected their content and television viewing was not the revenue driver it is today.
John Walson of Service Electric deserves the credit for working with the HBO founders to deliver the first programs on November 8, 1972. He was facing competition from a rival cable company and felt that HBO would give him an edge. In the age before satellite, microwave transmission was the best way to feed a signal into Walson’s Wilkes Barre service area. On that evening, the weather did not cooperate; the freezing rain and high winds made the necessary alignment of the signal difficult. Reports show that an employee had to climb the tower to hold things together and to keep everything working.
Just a few minutes before coming on the air, Levin recalls that they were still having difficulty with the transmission. He introduced HBO that evening, and the program started with a hockey game and the movie “Sometimes a Great Notion,” starring Paul Newman. The system had signed 375 customers to HBO in Wilkes Barre before the broadcast. HBO entered the history books that day, but the service grew for one other reason that we do not think about today. The agreement between HBO and Service Electric introduced a novel financial arrangement called revenue sharing. The monthly fee for HBO was set at $6.50 per month with HBO getting $3.50 and $3.00 going to Service Electric. This established the pattern for the agreements between cable operators and programmers for all other services to this day.
HBO flourished in the satellite era as the cost of transmission went down and reliability went up. Like other companies, the business we see today is the result of numerous people making individual contributions to deliver a superior product to the customer. We forget the First Amendment battles to show movies as the filmmaker intended that HBO fought along the way. We don’t think much about the evolution of the service from old movies to “Boardwalk Empire” and even the latest innovations like HBO GO. Imagine 375 customers to 100 million in forty years—who would have thought that was even possible in 1972? HBO is a great success story by any measure, and thanks to some great leaders at HBO, we will look forward to their continued success well into the future.
(Larry Satkowiak is president and CEO of The Cable Center, the nonprofit educational arm of the cable industry. The Center preserves cable’s enduring contributions to society, strengthens relationships between cable and academia and unites the industry around the advancement of exceptional customer service. www.cablecenter.org)