HBO Signs Deal for Exclusive Pay-TV Rights to Warner Movies

Home Box Office, the nation’s largest pay-television company, announced Wednesday that it has signed a five-year pact for the pay-TV rights of Warner Bros. motion pictures.

Financial details were not disclosed, but industry analyst Steven Rosenberg estimated that the deal will cost HBO, a Time Inc. subsidiary, at least $300 million and possibly more than $600 million during the five-year period.

Industry executives pronounced the deal a coup for Burbank-based Warner and a sign that HBO reluctantly has joined a costly new round of bidding for exclusive rights touched off recently by its smaller competitor, Showtime/The Movie Channel.

Although the Warner deal is billed as “non-exclusive,” executives close to the negotiations explained that Warner can require HBO to pay more and take each year’s batch of films on exclusive terms.

Warner Bros. Wanted Protection

“We did not want it to be an exclusive deal,” Steve Scheffer, HBO executive vice president of film programming and home video, said in a telephone interview. He said HBO agreed to the provision because Warner Bros. wanted “protection” in the event that HBO’s competitor, Showtime/The Movie Channel, carries out a threat to show only those movies to which it has exclusive rights.

Fred Schneier, Showtime/The Movie Channel’s senior vice president of program acquisitions and program enterprises, said Wednesday that his company will pass up the Warner Bros. offerings and adhere to its new policy. “I think we’ve told that to everyone,” he said.

If Warner Bros. requires HBO to pay for exclusive rights, HBO will probably pay an additional $60 million each year for exclusivity in addition to a $65-million guarantee already pledged for the annual slate, according to one pay-TV industry executive who requested anonymity.

He and other industry sources privately expressed the view that HBO “blinked” at the negotiating table out of fear that Showtime/The Movie Channel might lock up exclusive rights to Warner. The studio, a subsidiary of Warner Communications, has just ended its second year as the box-office leader in the United States with such films as “The Goonies,” produced by Steven Spielberg, and “Spies Like Us,” starring Chevy Chase and Dan Ackroyd.

Introduced Exclusivity in 1978

Showtime/The Movie Channel, a Viacom International unit, already has an exclusive pact with Paramount Pictures and recently signed three other exclusive deals.

Ironically, HBO introduced exclusivity to the fledgling pay-TV business in 1978 and escalated such deals in the early 1980s. But HBO abandoned the practice in early 1984 when it concluded that viewers were indifferent to the pay-TV services’ efforts to distinguish their programming by locking up rights to various studio film slates. After all, consumers could rent a videocassette of a popular motion picture six months before the studios released the same film to pay-TV companies, so HBO executives reasoned that “exclusivity” had little meaning.

Three months ago, however, Showtime executives decided to revive the practice in an effort to win new subscriptions. By their own admission, Showtime/The Movie Channel subscriptions have declined 2% during the 12 months ended March 31. Since then, Showtime/The Movie Channel has negotiated three long-term, exclusive deals with Walt Disney Co.’s Touchstone label, Cannon Group and Atlantic Entertainment Group for a total of about $290 million.

Analysts are uncertain of whether the exclusivity gambit will pay off. “(Cable-TV) operators have been ho-hum about exclusivity,” said Rosenberg, an analyst for Paul Kagan Associates. “VCRs take away any real selling power of exclusivity.”