Showtime Networks, Inc.

views updated

Showtime Networks, Inc.

1633 Broadway
New York, New York 10019
U.S.A.
Telephone: (212) 708-1600
Fax: (212) 708-1217
Web site: http://www.sho.com

Wholly Owned Subsidiary of CBS Corporation
Incorporated: 1976
Employees: 650
Sales: $906 million (2005)
NAIC: 515120 Television Broadcasting; 515210 Cable and Other Subscription Programming; 512110 Motion Picture and Video Production; 512191 Teleproduction and Other Postproduction Services

Showtime Networks, Inc., owns and operates subscription-based cable television networks Showtime, The Movie Channel, and FLIX, along with related multiplexed digital networks like Showtime Extreme, Showtime Women, and Showtime HD. The company also offers pay-per-view sports events and concerts; operates and co-owns the Sundance Channel; and has a joint venture with Zone Vision to run an advertising-supported network in Turkey. The firm's signature network, which features a mix of recent hit movies and original programming like The L Word and Fat Actress, is the number three U.S. subscription cable channel after HBO and Starz.

BEGINNINGS

The origins of Showtime Networks, Inc. (SNI) date to 1976, when Viacom, Inc. (once a part of CBS, but spun off in 1971 because of antitrust concerns) created a new subscription-based cable television network in the mold of market leader Home Box Office (HBO). On July 1, 1976 Showtime began airing on several cable systems that Viacom owned in northern California, charging a monthly subscription fee of $9.95 ($2 more than HBO typically cost). Showtime was launched nationally in 1978, and by the end of 1981 its subscriber base had grown to 2.8 million, a third the total of HBO. That year saw the network post its first profit.

In 1982 Showtime began shooting new episodes of The Paper Chase, a critically acclaimed drama about law students that had run on CBS for just one season starting in 1978. Its creator and principal stars would be involved with the Showtime version, which eventually was produced for three more seasons. The network budgeted $500,000 per episode to shoot the program on the 20th Century Fox lot, making it the first original cable series made at a major studio. Other original shows also were being produced at this time, including a comedy series called Bizarre, but the network's bread and butter continued to be recent Hollywood hits.

In September 1983 the firm merged with The Movie Channel (TMC) in a joint venture between Viacom International, Warner Communications, and the American Express Company, which would own 50 percent, 40.5 percent, and 9.5 percent, respectively. TMC was a pay-cable service that had about half as many subscribers as Showtime. December saw the company sign a five-year, $500 million deal that gave it exclusive rights to air films from Paramount Pictures, and buy a small pay-cable service called Spotlight for an estimated $40 million. Showtime had 4.8 million subscribers and TMC had 2.6 million.

In 1986 Showtime began running It's Gary Shandling's Show, a sitcom starring stand-up comic Shandling. The creative half-hour sitcom won critical raves and was later shown on the new Fox broadcast network after episodes had been seen on Showtime. That year also saw the firm begin airing boxing matches as pay-per-view events, and later forming a partnership with legendary boxing promoter Don King for a regular series of bouts featuring top boxers like Mike Tyson and Evander Holyfield. By 1988, SNI had revenues of $420 million, though it posted a loss of $13.3 million for the year.

In 1989 Showtime parent Viacom sued HBO owner Time, Inc., and several cable TV units it also owned, alleging that antitrust violations had kept Showtime from having a fair competitive advantage and asking for a total of $2.4 billion in damages. By this time the company's pay-per-view unit Showtime Event Television was airing boxing matches as well as concerts by acts like the teen-pop group New Kids on the Block, who viewers could catch "live" on TV for a fee of about $20. Sister network TMC continued to focus exclusively on theatrical films. Also in 1989 Viacom entered into talks with cable system operator TCI, who would buy half of the firm for $225 million. The negotiations dragged on, and were finally abandoned as TCI began preparing its own Showtime-like services called Encore and Starz.

While the total number of pay-cable subscribers had increased each year in the late 1970s and early 1980s, the middle of the latter decade saw a slowdown as home videocassette players and rental tapes made access to recent hit movies, long the cornerstone of channels like HBO and Showtime, not only cheaper and more convenient for viewers, but more timely, as the tapes were available up to six months before titles appeared on TV. Cable service providers also were raising their rates more and more often while many additional basic cable channels (such as commercial-free American Movie Classics) were being launched, making the $10 monthly fee for HBO or Showtime seem like a luxury.

Concerned about these trends, in 1990 the firm proposed a new fee structure to cable operators that would reduce the rates paid by subscribers as a way to increase subscription levels over time, though it required that the cable system pay Showtime a small fee for all subscribers. Some companies agreed to the proposal, while others did not. The company also appointed onetime HBO marketing executive Matthew Blank president and chief operating officer of SNI during the year, with Tony Cox remaining chairman and CEO.

In 1992 a new network called FLIX was launched, which was a lower-cost subscription channel that carried movies from the 1960s through the 1990s, including many that had already premiered on Showtime. August of that year saw a settlement reached in the firm's suit against Time Warner, Inc., which would result in wider distribution of SNI offerings on Time's cable systems, joint marketing campaigns by SNI and HBO, new cooperation between Time units and SNI sister firm MTV Networks, the transfer of Viacom's Milwaukee, Wisconsin, cable system to Time Warner, and a cash payment from Time to Viacom of $95 million.

KEY DATES

1976:: Viacom, Inc. creates a subscription-based cable network called Showtime.
1978:: Showtime is made available nationally.
1983:: The company merges with The Movie Channel (TMC).
1992:: The new lower cost FLIX movie channel is launched; a lawsuit with Time Warner is settled; a new production unit is formed.
1996:: The Sundance Channel is launched in partnership with Robert Redford.
2000:: The gay-themed Queer as Folk series debuts and proves a hit.
2003:: New programmer Robert Greenblatt boosts production of original series.
2006:: SNI becomes part of CBS, Inc. with the breakup of Viacom into two units.

FORMATION OF SHOWTIME ENTERTAINMENT GROUP IN 1992

The year 1992 also saw SNI form a new unit called Showtime Entertainment Group to produce up to 20 original movies per year for the network, along with some of its continuing series like Fallen Angels, which would be directed by famous actors like Tom Cruise, Tom Hanks, and Sigourney Weaver. Other projects included remakes of 1950s American International drive-in titles like Rock All Night and Dragstrip Girl, directed by the likes of Quentin Tarantino and John Milius and made in partnership with Spelling Films International and CBS/Fox Video. The latter would also be released theatrically overseas.

The firm's first joint ad campaign with HBO debuted in early 1993. The multimillion dollar effort, which was the most ever spent to promote cable broadcasting, included television and radio ads, print, direct mail, and more. The year also saw SNI pursue a new strategy of releasing films it had produced to U.S. theaters to give them added cachet. Titles handled this way included Drew Barrymore-starring Guncrazy and documentary Hearts of Darkness, about the production of Francis Ford Coppola's Apocalypse Now.

The year 1993 also saw formation of a new business development unit to seek brand extensions and other new products, and the signing of an exclusive seven-year deal with MGM that covered as many as 150 theatrical releases for a total possible value of up to $1 billion. Other pacts had been made with New Line, TriStar, Orion, and Castle Rock during this period, and Viacom's merger with Paramount Pictures would give SNI exclusive use of that studio's titles beginning in 1998.

In late 1994 and 1995 the firm began preparations to launch several digital multiplex channels, which included a Spanish-language version of Showtime and other thematically programmed film channels. These were run on digital cable systems that had hundreds of channels, and gave subscribers to Showtime additional choices at any given viewing time.

In early 1995 Tony Cox departed SNI and the firm let 45 staffers go as it restructured to become a unit of Blockbuster Entertainment, which Viacom had recently purchased. Also in 1995 the company began tripling production of original movies to more than 40 per year under new president of programming Jerry Offsay, with a total budget of approximately $150 million. Theatrical runs would be sought for as many as possible, as would video sales through Blockbuster.

LAUNCH OF THE SUNDANCE CHANNEL IN 1996

In February 1996 SNI and actor/director Robert Redford launched a new subscription-based cable channel, which would feature independent and foreign films, called the Sundance Channel after Redford's annual festival in Utah. A stake was subsequently sold to Poly-Gram Filmed Entertainment. In March SNI bought 12 percent of new studio Phoenix Pictures, whose output would be aired exclusively by the firm's networks. For 1996 the company had revenues of $669.7 million.

In 1998 SNI's new in-house ad agency launched a $40 million campaign to re-brand the Showtime channel under the tagline, "No Limits." In May of that year the network acquired the controversial French-produced film Lolita, which had been rejected by all of the Hollywood studios because of its subject matter, a middle-aged man's sexual obsession with an underage girl. The Samuel Goldwyn Company subsequently agreed to distribute it to theaters.

In 1999 the firm invested several million dollars in the new digital television recorder manufacturer TiVo Inc., and also began making plans for more digital channels, including a high-definition (HD) one, which used the new video format that had been created to replace the lower-resolution standard that dated to the 1940s. SNI was now in third place behind both HBO and Encore's Starz channel, but its profit margins were up thanks to the growth of satellite dish subscribers and the increasing amount of low-budget original programming it ran, including soft-core pornographic series Beverly Hills Bordello and a $14 million miniseries about the Bonanno crime family. SNI took in an estimated $800 million in 1999, with a profit of $136 million. The network was now running 35 to 40 original movies and six to seven series per year, mostly shot in Canada where costs were lower and the government offered substantial subsidies. By the end of 1999 the firm's subscription total was up 65 percent from just five years earlier.

In 2000 SNI doubled its boxing events to a twice-monthly schedule, most of which aired on Showtime. The network also had strong pay-per-view boxing and wrestling franchises going, and aired other special pay events like a concert by rock band Kiss.

INTRODUCTION OF QUEER AS FOLK IN LATE 2000

In December Showtime debuted a new Americanized version of the hit British series Queer as Folk, about the lives of seven gay men and women living in Pittsburgh. It was launched with a major ad campaign in both straight and gay media, and the show proved a major success. The firm had also begun broadcasting ad-supported channels in Spain and Turkey as joint ventures with other companies, and had invested in Replay TV, which made a TiVo-like device.

In 2001 SNI made further changes to its multiplex channels, adding Showtime Next, for 12- to 17-year-old viewers, Showtime Women, and Showtime Familyzone, as well as renaming several others. Queer as Folk was the top-rated program on the network, and its success led to the creation of a number of licensed products, including calendars, posters, coffee mugs, and more.

In 2003 Showtime introduced Penn & Teller: Bullshit!, in which the edgy magic/comedy duo exposed frauds in a variety of areas including science, health, and spiritualism. In the spring the firm laid off 10 percent of its workforce, a move attributed to the U.S. economic slowdown.

Summer of 2003 saw the producer of HBO's hit Six Feet Under, Robert Greenblatt, hired as SNI's president of entertainment. He immediately decided to cut production of TV movies to just 12 per year, while increasing the number of original series. HBO had been extremely successful in recent years with series like The Sopranos and Sex and the City, while Showtime's once-vaunted slate of original TV movies had left little lasting impression. In November 2003 Showtime aired the controversial miniseries The Reagans after recently acquired Viacom sister unit CBS had decided not to broadcast it.

The network's lineup of gay-themed shows was bolstered in January 2004 when a new series called The L Word premiered. The show, about a group of lesbians, was promoted heavily, and proved an even bigger hit than Queer as Folk. SNI had started a range of marketing techniques, including sponsoring gay pride events around the United States, to reach the gay and lesbian community.

The fall of 2004 saw the firm begin rolling out its most ambitious schedule of original series to date. Huff, the first show produced with Robert Greenblatt's input, starred Hank Azaria as a burned-out psychologist. At $2 million per episode it was SNI's most expensive series ever, but despite a major marketing campaign its ratings did not meet expectations. During 2005 other new series were added, including Weeds, about a suburban mom who sold marijuana, and Fat Actress, a reality/comedy show about the efforts of former Cheers star Kirstie Alley to lose weight.

Although Showtime had less than half of HBO's 27 million subscribers, and was even further behind the potential audience of the broadcast networks, it was trying to increase viewership by offering programs via Showtime on Demand (which allowed subscribers instant playback of requested shows) and DVD sets of its hit series. For the March 7, 2005 premiere of Fat Actress, Showtime offered a free Internet stream of the show to entice new viewers, while now offering them premiums like a $25 gift certificate for Apple products, two Xbox video games, or a year's worth of Haagen Dazs ice cream. In the fall the network also introduced Barbershop, a black-cast comedy series based on the hit MGM movies, and The Cell, about an undercover agent infiltrating a small group of U.S.-based terrorists.

Viacom's 2000 merger with CBS had begun coming unraveled, and when the two firms decided to split up, several units were reassigned, including SNI, which on January 1, 2006 became part of CBS Corp. That company's other holdings included the CBS and UPN broadcast networks and other television, radio, advertising, theme park, and publishing companies. As the merger was being finalized, SNI laid off about 10 percent of its staff of 700.

In early 2006 SNI added Showtime Interactive to its growing online offerings, which allowed subscribers to watch hundreds of hours of programs as well as unseen footage, all at DVD-like quality for $1.99 per show. In late 2005 the firm had begun offering audio podcasts (programs downloadable from the Internet) of specially created content, and in February 2006 several of its series were added to Apple's iTunes online store for purchasers to view on the video iPod.

Thirty years after its founding, Showtime Networks, Inc. had grown to operate several cable networks and a pay-per-view service, and was beginning to offer its content as downloadable files over the Internet. Although the company earned steady annual profits, it was continuing to seek ways to emerge from the shadow of larger rival HBO.

PRINCIPAL SUBSIDIARIES

The Movie Channel; FLIX; SET (Showtime Event Television) Pay Per View.

PRINCIPAL COMPETITORS

Home Box Office, Inc.; Starz Entertainment Group L.L.C.; Turner Broadcasting System, Inc.; NBC Universal, Inc.; Fox Entertainment Group, Inc.; The Walt Disney Company.