Time Reports Spurt in Subscriptions for Pay-TV Services

After a year and a half of stalled growth, Time Inc.’s HBO and Cinemax pay-television services have been rapidly adding subscribers since late 1986, and seem likely to continue to do so, Time officials said Friday.

Addressing financial analysts, Time President Nicholas J. Nicholas and Chief Executive J. Richard Munro said the two services gained 800,000 subscribers in 1986, and had continued their rapid growth in the first months of this year. They predicted the services will see improved profits this year, and attributed the turnaround to promotional blitzes, discounting, a better selection of movies, and the waning public interest in renting movies on videocassettes.

“HBO is back,” Munro said.

Some analysts in their audience, however, said they wonder if the growth primarily reflects the price-cutting. “If it’s price cuts, we’ll know soon enough from their bottom line,” said one analyst, who asked not to be identified.

Time officials predicted that HBO earnings in the first quarter of 1987 would be slightly lower than they were in the first quarter of 1986.

The pay-movie services’ fast growth was a wonder of the entertainment industry from about 1978 until the 1985 slowdown, which was largely blamed on the easy availability of rental cassettes for home viewing.

Time’s pay-TV services and others began offering discounts last year, partly because they feared consumers might begin dropping pay services as cable operators raised basic-cable rates this year as government regulation of rates was ended.

(Time’s cable subsidiary, American Television & Communications, for example, raised its rates for cable service 7% to 9%, officials said.)

The discounts were deep, and the services also offered free trial service in some cases, said Steven Rosenberg, an analyst with Paul Kagan Associates, a research firm in Carmel, Calif.

According to the Kagan firm’s research, HBO gained 400,000 subscribers in 1986, including 300,000 in the fourth quarter. The smaller Cinemax gained an equal amount, with the same share in the fourth quarter, the researcher’s figures show.

The other principal beneficiary of the trend was Walt Disney Co.’s Disney Channel, which added 690,000 subscribers last year, 270,000 of whom signed up in the fourth quarter.

Rosenberg, while acknowledging the effect of the discounting, said he believes the entire pay-TV industry is on an upswing due to waning interest in video rentals. “The initial cannibalization of pay-cable by the VCR is over,” he said. “People are realizing the convenience and other price benefits of the pay services.”

HBO had a 48% market share last year, with 15 million subscribers.

Cinemax’s 4.1 million subscribers represented a 13% share, according to Kagan’s figures.

Separately, E. Thayer Bigelow, Time’s chief financial officer, told analysts Time officials are “comfortable” with Wall Street’s estimates that their 1987 per-share earnings will be between $3.75 and $4.25 per share. The New York-based company earned $5.95 per share last year.

Time officials also said they might be interested in purchasing portions of Harper & Row that don’t interest Rupert Murdoch. That New York-based publishing house last week agreed to be purchased by Murdoch’s News Corp. Ltd.