How the Courts Helped HBO Change the World

Plus: A new Soderbergh assigned.

Longtime viewers of HBO, the premium cable channel celebrating a half-century on the air this year, will find much to enjoy in James Andrew Miller’s Tinderbox: HBO’s Ruthless Pursuit of New Frontiers. The nearly 1,000-page behemoth is filled with corporate intrigue and the backstories of TV shows spanning decades, from the groundbreaking comedy The Larry Sanders Show to the groundbreaking prison drama Oz to the groundbreaking troika of shows—The Sopranos, Sex in the City, and Curb Your Enthusiasm—that cemented HBO’s status as a must-watch network for anyone who wished to be part of the zeitgeist.

What I found most interesting, however, were some of the legal issues that helped create the environment in which HBO (and now, HBO Max) could flourish. All of us HBO fans owe the courts a debt of gratitude for helping the channel become as prominent as it has.

Early on in HBO’s existence, for example, there was an odd Federal Communications Commission rule known as the “three-to-ten-year rule.” Basically, it restricted pay-TV showings of any movie between three and ten years after its release. Needless to say, this was a weird constraint on HBO’s ability to show movies, one that excluded a fairly large chunk of films that people would be interested in seeing: movies that were a little older (and thus cheaper to acquire rights to) but not so old that audiences had forgotten about them and thus lost interest.

In 1977, the Supreme Court struck down the rule on First Amendment grounds; as Miller notes, “It became known as the Home Box Office decision.” And as Nick Nicholas, an executive at Time Inc. noted, it was a gamechanger.

“If that law hadn’t been struck down, it would have been a problem. The movies on average would have been older, post-theatrical releases. The decision made our inventory more current for subscribers,” he said. The effect was almost immediate: Nicholas said that in August of 1977, HBO had its first profitable month. “In 1978, we made about $40 million in profits.”

A few years later, understanding that HBO was making a ton of money on the backs of their labors, a bunch of big studios teamed up to form the Premiere network. Paramount, Twentieth Century Fox, Columbia, and Universal wanted to kill HBO (and its competitor Showtime) before they had a chance to really take root. Fortunately, the Southern District of New York ruled that this effort would have harmed consumers by driving up prices, killing Premiere before it had a chance to take off.

“Premiere was a big scare for us,” said Michael Fuchs, an early HBO executive. “The studios tried to put us out of business. We went to the government to stop them.” Nicholas was more blunt: “If we had been forced to compete against a clone of HBO, with the movie companies giving themselves favorable deals, we would have been up shit’s creek.”

A huge ruling, for sure. But I think there’s one more that had little direct impact on HBO’s business model but massively shifted the channel’s usefulness to the home-video consumer: the Betamax decision. “The Betamax decision came down in the early 1980s, which permitted recording in the home, and enabled people to record movies off HBO,” said Steve Scheffer, who joined HBO in 1980. “You could now build your own library, a compelling proposition.”

This was the true beginning of the home theater revolution, the moment when it became affordable to build your own library even if you had to do so at the whim of the TV schedule. You can draw a more or less straight line from that decision to our streaming wars and the rise of HBO Max: As the appeal of home libraries became more apparent, costs of VHS tapes (which had initially been in the range of $100 per tape) came down. When VHS transitioned to DVD, studios hit a bonanza as big box stores sold discs at a loss in the hopes of increasing consumer foot traffic. This shift would dilute the primary source of income for studios: theatrical exhibition. That in turn papered over the collapse in appeal of the mid-budget movie for adults, as studios were able to skate by on home-video revenue even for flicks that flopped in theaters.

But then the disc market collapsed as streaming and VOD took off: Why buy a movie when you could watch it for free on HBO On Demand or Netflix and its competitors? This is why studios have all invested in their own streaming platforms and seem content to let theatrical exhibition wither on the vine: The future became convincing someone to pay you $12 a month for a channel rather than buy two $20 movie tickets a year. That future is our present.

And HBO is no small part of how we got here.

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Make sure to listen to the bonus episode of Across the Movie Aisle this week; we talked about the films of Ivan Reitman (more on him in the links section below). That’s for members only, so if you haven’t signed up, do so now. And if you have signed up, well, I love you.

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Links!

• It’s been a very sad week. First came news that Ivan Reitman, the director of Stripes, Ghostbusters, and Kindergarten Cop, had died. I wrote a bit about his legacy here. Then, on Tuesday, word came that the great P.J. O’Rourke had died. The encomiums have been many and lovely: read JVL here, Matt Labash here, and John Podhoretz here.
  
  I don’t know that I have a ton to add to what they have to say, except to say that Ivan Reitman was one of the first directors whose name I recognized and that P.J. O’Rourke was one of the first writers whose name I recognized and both of them, with their National Lampoon-inflected brands of comedy, likely did more to shape my own personal sense of humor than just about anyone else.

• I reviewed Uncharted, the latest effort to turn a video game into a feature film. Very curious to see the box office on this one: it’s still not clear if Tom Holland is a draw outside of Spidey’s red and blue spandex.

• Streaming companies are terrible for artists. That goes double for comedians, who are getting royally screwed.

• On The Bulwark Goes to Hollywood this week I talked to Dominic Patten about an issue I find totally fascinating: Village Roadshow’s lawsuit against Warner Bros. VR is suing WB for shifting The Matrix Resurrections to HBO Max and theatrical simultaneously, a move that production company contends cost them hundreds of millions in potential revenue and irrevocably damaged the brand. (I’d say The Matrix Resurrections itself irrevocably damaged the brand, but that’s neither here nor there, I guess.)

• Francis Ford Coppola’s out here throwing bombs.

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Assigned Viewing: Kimi (HBO Max)

One of the genuinely great aspects of our fragmented, streaming future is the fact that Steven Soderbergh will just drop a gem on us almost at random every few months. The latest is Kimi, starring Zoë Kravitz as a programmer who accidentally uncovers a murder when the Alexa-like devices she’s helping develop speech-recognition software for record a killing.

I wrote about the film at length for the Washington Post this week; suffice to say, it’s one of the few good pandemic-era movies to really understand how to use the pandemic in a way that’s not intrusive to the audiences or destructive to the story being told. It feels organic and Kimi’s own panic at having to deal with the outside world feels very much like the panic radiating off of the critics I see who are constantly talking about how terrifying it is to go to movie theaters despite being vaccinated.