While cable operators generally applauded Home Box Office's
move to add new branded channels to "mega-brand" multiplex packages from HBO and
Cinemax, they also raised questions about the strategy that touched on the fundamental
issues that are facing the pay category on cable.
These issues included branding, product differentiation,
churn and competition from direct-broadcast satellite services.
With an eye toward expanded channel capacity on digital
systems, HBO and Cinemax will begin branding additional channels in June, bringing the
total number of channels offered by the two services to 10 by the end of the year.
The HBO "mega-brand," to be known as "HBO
The Works," will include:
HBO, the original HBO service;
HBO Plus, a counterprogrammed service to HBO;
HBO Signature, for the "discriminating light
television viewer" -- a showcase for original movies, series and documentaries, as
well as theatrical films;
HBO Zone, aimed at a "Gen-X sensibility,"
with films, boxing and programming aimed at the post-baby boomer demo;
HBO Family; and
HBO Comedy.
The Time Warner Entertainment-owned company will begin
adding these services in the fourth quarter.
In June, Cinemax will expand to four channels, collectively
known as MultiMAX:
Cinemax, the original Cinemax;
MoreMAX, with harder-to-find movies, including
premieres of foreign and independent films;
ActionMAX; and
ThrillerMAX.
Cable operators said they were pleased that the new
channels -- which will be made available at no additional cost to cable systems -- would
add perceived value to their premium offerings. They also felt that the descriptive names
of the channels would make it easier for customer-service representatives to sell premium
packages to cable customers.
The new channels, said Jerry McKenna, vice president of
strategic marketing for Cable One, will "bring added value to the service."
McKenna said he liked the new branded names because they "clearly visualized"
what the channels offered.
With channels that are better differentiated, said Geof
Rochester, senior vice president of sales and marketing for Comcast Corp.'s Comcast Cable
Communications, HBO is going in "the right direction."
"What matters at the end of the day is how easily our
customer-service reps can sell and market our products. This should be a boon to us, and
it puts all of the major pay networks in the same mind-set," Rochester said.
But operators also said the dramatic increase in the number
of available premium channels represented something of a double-edged sword that
symbolized the critical issues that they faced in the all-important pay category.
While they acknowledged the need for multiplexing to help
them compete with DBS services -- which have been highly successful in offering large
numbers of premium channels, drawing pay customers away from cable -- cable operators also
fear that more channels will further drive the discounted promotional packages that have
resulted in heavy churn in the category.
"What we really need to do," Rochester said,
"is to continually reinforce the benefits of straight-ahead, nondiscounted pay
networks."
HBO executives denied that they were playing catch-up to
Encore Media Group's multiplex of six thematic channels and to Showtime Networks Inc.'s
recent addition of "Showtime Extreme," which is devoted to action-and-adventure
movies.
The new mega-brand, HBO executives said, was introduced in
response to "exhaustive" consumer research showing a demand for more easily
identifiable channels, to the success of multiplexing on DBS services and to the onset of
a digital-driven, "high-volume" channel environment in cable.
Bob Grassi, senior vice president of affiliate relations
for HBO, asserted that the new HBO and Cinemax multiplex packages would "help cable
operators to drive digital boxes into homes by offering more choice, convenience and
better value."
Eric Kessler, senior vice president of marketing for HBO,
compared the company's new strategy to building a house.
"The base brand is the foundation," he said,
"and each new channel is an additional room."
Dave Baldwin, senior vice president of program planning for
HBO, said the new channels "were designed as destination propositions. They will all
be dependable locations that will help viewers to find what they want, when they want
it."
Not surprisingly, HBO's rivals at Encore/Starz! and
Showtime said its new channel lineup reaffirmed moves that they had already made.
"HBO finally woke up," said John Sie, chairman
and CEO of Encore Media. "It looks like they decided, 'We better make it thematic
like Encore and provide dependable destinations, or consumers will get lost.' We blazed
the trail, and this vindicates what we've been doing."
Over at No. 2 pay rival Showtime, HBO's move to give its
plexes brand names won high marks.
"If you are going to brand, you have to give viewers
more channels with different product, and our strategy has been to offer real brands on
their own. More and different equals a better value than more of the same," said
Jeffrey Wade, Showtime's executive vice president of sales and marketing.
Wade also asked a rhetorical question echoed by many
operators and applicable to all of the premium networks: By presenting a slew of new
brands, "do you take away from your core brand? How far do you go[with new
brands]?"
Lee Clayton, vice president of marketing for Rifkin &
Associates Inc., made it clear that she felt that the new HBO lineup and brands would
"shore up the perceived value" of HBO and Cinemax and make her CSRs "more
comfortable" selling the product.
But Clayton, who worked as a marketing consultant for many
years before taking the Rifkin job late last year, also articulated a concern voiced by
other operators when she wondered out loud how much the new brands "will compete with
each other."
Kessler responded that while each multiplex channel would
have a "different feel and personality," the majority of advertising and
promotion would focus on marketing the image of the HBO brand name.
Operators also questioned whether the thematic-multiplex
trend on premium networks really offers viewers different product, or whether it merely
reconfigures existing programming.
"How did they arrive at these categories?" asked
McKenna. "Was it based on customer desires, or on inventory?"
Similarly, Tom French, senior vice president of corporate
marketing for Tele-Communications Inc., said, "How many channels add value? I'd
rather take fewer that are more salient than more channels that are less salient."
Cable executives expect U.S. Satellite Broadcasting, the
satellite service specializing in premium-network distribution, to carry the new HBO
lineup. Stanley Hubbard, president and CEO of USSB, praised HBO's move in published
reports. A company spokesman said USSB couldn't comment on specifics, but it would make a
announcement concerning carriage "relatively soon."
USSB, however, already carries 10 HBO and Cinemax feeds,
and it would only have to substitute the new services for its current lineup.
