It may have taken nine months to merge pay television's Showtime and The Movie Channel, but it's going to take far longer before the venture makes a dent in Home Box Office's dominance of the industry.
That's the view here at the headquarters of both the newly combined pay services and at HBO and in Hollywood, where guessing at what the merger will mean for film prices and the future of pay television are among the entertainment world's most popular pastimes.
Mike Weinblatt, the former Showtime chief executive who now heads the joint venture--creatively named Showtime/The Movie Channel Inc.--is filling in few details at this point about the deal. Weinblatt will not talk of a timetable, but, when asked his goals, says he thinks the venture will make a run at HBO. "I certainly hope we can have 50 percent of the market," Weinblatt said.
He is quick to point out that the new combination will offer the basic economies of scale expected of a merger of similar operations. Moreover, he thinks the venture can capitalize on resentment of HBO's success and style among factions in the cable and film worlds.
"We're very much for a differentiation of services," Weinblatt said recently of his efforts to make clear to cable operators and subscribers the programming differences of the various services. "But I'm also looking for a differentiation of companies.
"I think we have a style which is essentially much more understanding of the cable operator and how to work with them. I honestly believe HBO has a much more predatory style. They create things just to knock off other guys."
In particular, Weinblatt thinks his operation can help cable operators encourage subscribers to fork over more money for multiple services. In the lingo of the cable world, Weinblatt talks of "trying to expand the multipay environment . . . getting to triple and quads are not unattainable goals."
But according to HBO top brass, cable subscribers do not want to pay for more than two services. "The world is two pay out there," responds Frank Biondi, HBO's president and chief executive. "The world is not willing to pay more than $26 or $27 a month."
Without question, combining Viacom International Inc.'s Showtime, second to Time Inc.'s HBO's 13.5 million subscribers with 4.5 million, with the previously struggling Movie Channel, the Warner Communications-American Express partnership that serves about 2.5 million homes, brings added market share to the fray. Cinemax, HBO's companion service, has about 2.6 million subscribers.
"They do have a better chance of making some profits under one umbrella," said Alan Cole-Ford, an analyst with The Pay-TV Newsletter. "But how they'll use their new-found leverage is completely uncertain."
When the merger was originally announced in January, the Showtime/Movie Channel amalgamation included fresh players, MCA Inc. and Paramount Pictures, who had hoped to bring to the competition the linkages with two key producers of television product. Subsequently, Justice Department opposition killed those studios' involvement in the venture.
The partners decided, however, to move forward in an effort to take advantage of the deeper pockets that come with merging, of The Movie Channel parent's link to the Warner Brothers studio, and the merchandising plus of having one sales staff packaging and selling both services.
At this point, however, it's going to take more than packaging for Weinblatt, a former NBC programming chief, to make inroads on HBO's position. Not only are HBO's subscriber numbers impressive, but it has links across Hollywood in its $400 million Tri-Star studio venture with CBS Inc. and Columbia Pictures.
Then there are potential problems with corporate chemistry the partners in the deal may face. "Doomsayers look at it and say Viacom is not prone to risk-taking, Warner's has other problems, and American Express is without expertise in pay-TV," said one industry expert.
What Weinblatt does have is a fair amount of imaginative programming, ranging from ambitious Broadway adaptations to well-received children's tales. And Cole-Ford notes that the marriage can work well even with more limited aspirations. "Long-term, the industry's growth prospects are such that even if you take a conservative approach to the market, and all you have is 20 to 25 percent of the market, you have a heck of a business on your hands," he said.
In a decade, according to Cole-Ford, the total number of pay television units could rise to 104 million from a current total one quarter that size. With only 25 percent of a market that size paying a relatively modest $10 a month, annual pay-TV revenues come to more than $3 billion. That's a business that somebody can get rich in without dominating.
That's why pay television is getting so much attention from Hollywood these days. And that's why Washington-area residents, yearning desperately for the day when they too can send a monthly check to the local cable company, ought to be interested in the changing market.