Time Inc.’ Home Box Office was the first ‘premium services’ cable channel which charged a monthly fee for recent, uncut films and exclusive sports events without commercial breaks. At first, it lost a lot of money, but in 1975 it leased satellite space, then challenged the Federal Communications Commission (FCC) on both receiving-dish regulations and its right to show features of any age – FCC regulations worked, in effect, to protect network television. By 1978, HBO was feeding over 700 cable systems and had two million subscribers; it also had competitors. At present, about half of all homes with television subscribe to cable and about a third of these receive at least one pay cable service. Time’s merger with Warner in 1989 brought to Time Inc. not lonely Warner’s diversified entertainment activities but also Warner Cable Communications, the fifth largest cable operator, with a million and a half subscribers. By then HBO was being sold to 7,000 cable systems and Cinemax, also operated by Time/HBO, to 5,000 cable systems. HBO’s main competitor is Viacom, with the Showtime channel (second to HBO in size) and The Movie Channel (fourth in size after Cinemax). Viacom’s combined market share is about 25 per cent compared with HBO’s 58 per cent. Both HBO and Viacom have extensive cable interests beyond the four main channels, with Viacom, for example, generating significant revenues from its advertising-based basic cable networks like MTV and Nickleodeon. The owner of Viacom, Summer Redstone, built his fortune with the eight largest American theatre chain and moved into pay cable – as well as syndication and television production (such as Roseanne) – on the perception that entertainment would be centred increasingly on the home.(1)

The first priority of the new cable systems was to ensure a supply of new product, and first and foremost this meant access to movies. Since the majors produced only about 120 films a year, other sources were necessary , but even the independent producers whose product was considered suitable for cable showing could not meet the demand. As well as financing independent pictures and taking stakes in Tri-Star and Orion, HBO also began to put finance into movies being made by the majors as a way of securing cable rights. HBO became, in fact, Hollywood’s largest financer of movies, and the boom in independent production in the early and mid 1980s had much to do with finance from the cable companies as with the growth of home video. HBO and Viacom were, in a sense, vertically integrated in the manner of the old studios, financing and distributing programmes or movies but also having guaranteed access to their own cable outlets. HBO, with its dominant market share, was particularly able to pressure film suppliers. As a result, the majors attempted to become directly involved in pay cable themselves, but they came up against legal bars to integrating vertically in this way and had to find other ways to counter HBO’s influence or at least to assimilate6 it, as in the formation of Tri-Star by Columbia Pictures, HBO and the CBS network. During the 1980s. the rapid development of home video, and particularly the majors’ growing domination of that market, had the effect of reducing HBO’s and Viacom’s advantage of being able to transmit recent theatrical features, uncut and uninterrupted by commercials, into the home. Warner’s merger with Time also implied different relationships between cable and the majors in the future. (2)