CABLE FEELS THREAT OF THE CASSETTE

There was a gremlin hidden this week somewhere in the vast, labyrinthine corridors of the Convention Center here.

The videocassette never came out to show itself, but its presence at this year’s convention of the National Cable Television Assn. was as obvious as the remarkably and almost inexplicably optimistic spirit that permeated the four-day cable industry trade show.

“We must fight the VCR rental invasion!” implored Ralph M. Baruch, a cable industry pioneer and chairman of Viacom International Inc., parent company of Showtime/The Movie Channel Inc. “VCR’s are the ally of subscription cable. Cassette rentals are not.”

No other segment of the entertainment industry has been so negatively affected by the astronomical rise in the cassette rental business as has cable TV, especially the pay-TV networks that until quite recently constituted the principal medium for viewers who wanted to watch relatively recent, uncut movies at home.

Just five years ago, according to one study discussed here, cassette rentals totaled a mere $200 million a year. Last year, that figure rose to $1.2 billion.

Hollywood studios have their own beef with the rental business--they are virtually excluded from participating in it--but pay-TV networks have a much bigger problem. Not only do cassette rentals eat away at pay TV’s once-solid movie franchise, they also threaten the lifeblood of pay TV by luring away the core audience that built pay TV into the $3.5-billion industry it is today.

As the rental business has boomed, the growth in the number of pay-TV subscribers has stood still, and, according to one published report widely mentioned here, by the time the final numbers for 1985 are in, pay-TV’s audience may actually decline for the first time. That’s a sobering prospect for a business that grew an astonishing 6,000% (to 30 million subscribers) in the past 10 years.

Pay TV’s response has been as varied as the firms in the business. Showtime took much of the public-relations thunder this week with its announcement that it plans to launch a pay-per-view network this summer. Arch rival Home Box Office Inc. got just as much attention by announcing nothing and insisting that the threat of the cassette is not nearly as great as most convention delegates believed.

“Pay television had a movie franchise that’s been eroded slightly,” insisted Michael J. Fuchs, the outspoken chairman of Home Box Office, one of the few cable programmers downplaying the impact of the cassette business on pay TV.

Fuchs argued that pay-TV’s problems are as much a result of the slowdown in the construction of cable-TV systems as of the growth of the cassette business.

His singular position was quoted often through the four days of speeches and panel sessions, even as much of the rest of the cable industry seemed ready to embrace pay-per-view as cable’s best chance to fight the cassette business.

“The train is pulling out of the station, and we are moving inexorably into the pay-per-view era,” said Philip Lind, president of Rogers U.S. Cablesystems, a Canadian-based cable-operating company that has been among the most aggressive firms promoting pay-per-view program services.

But that kind of enthusiasm didn’t seem to affect Fuchs and HBO. Fuchs dismissed Lind’s oft-quoted remark with his own metaphor. “I don’t even know where the track is,” he said.

According to some observers, there was a refreshing sobriety to the Fuchs-HBO position--a candid acknowledgement that pay-TV’s problems are its own and not necessarily the result of what one executive here called the cassette “devil.” According to this view, pay-per-view is just the latest symptom of cable’s chronic blue-sky technological optimism that flares up within the industry with the regularity of malaria.

“One of the ways to fight the VCR is (by promoting) the volume and the value of pay television,” Fuchs argued, suggesting that there is little reason to believe that pay-per-view will drive home video out of business.