The Justice Department staff has concluded that the government should block the merger of Showtime and The Movie Channel, the pay television networks that are the two largest competitors of industry leader Home Box Office, sources said today.
If this preliminary view is endorsed by Assistant Attorney General for Antitrust William Baxter, it would represent a serious blow to efforts by the owners of the two ventures, major movie studio and cable companies, to join forces to challenge Time Inc.'s HBO.
Baxter, however, said he has not yet received a staff recommendation and has not reached a decision on the issue.
Word of the staff's position reached the involved entertainment industry executives within the last several days, and they have been meeting here and in Hollywood in an effort to come up with a strategy to save their proposed venture, sources said.
In a related case, department staffers have yet to recommend what the government should do in the case of HBO's plans to form a major movie studio, named Tri-Star Pictures, with CBS Inc. and Coca Cola Co.'s Columbia Pictures Inc. They plan to invest $400 million in that venture and, although the government has yet to approve the six-month-old combination, they announced last week that they intend to begin work on six films within the next few months.
Showtime, the No. 2 pay television service, is owned by Viacom International Inc., a cable and programming company, while The Movie Channel is owned by Paramount Pictures, a Gulf and Western Industries subsidiary; Warner Communications Inc.; MCA Inc., which owns Universal Pictures; and American Express Co.
Showtime has about 4 million subscribers, and The Movie Channel has about 2.5 million, while HBO has about 12 million, close to double the total of the two competitors. The new combination would be run under a single management, although the owners said in announcing their plans in January that the two would continue as separate, 24-hour-a-day pay programming services.
The two cases are vitally important to the television and film industries, which are involved in a frantic rush to gain access to new and emerging markets, particularly in pay television. They are viewed by many entertainment lawyers and executives as precedent-setting effort to define in competitive terms the future shape of the video market.
Three years ago, the government went to court to block the plan by three movie studios and Getty Oil Co. to form a pay venture to be named Premiere.
But in the latest venture, studio executives had decided to join forces once again in an effort to challenge HBO, a move that seemed to some antitrust specialists more likely to pass government muster because the new channel would not be given exclusive rights to the products from those studios, the principal government objection to the Premiere combination.