Static Hits ‘Pay-Per-View’ TV : Now an Entertainment Midget, Its Future Could Be Brighter

At next month’s Academy Awards ceremonies, studio executives can congratulate themselves on a year of soaring ticket sales. But 1987 was no banner year for the efforts by Hollywood and the cable television industry to sell movies, sports events and concerts on pay-per-view TV. Indeed, some might see the TV awards show as a pay-per-view opportunity that got away.

Movie companies have the most to gain--or lose--with the emergence of pay-per-view. Despite its advances last year, pay-per-view remains a relatively small business. Paul Kagan Associates, a media research firm, reports that “Heartbreak Ridge,” for instance, might ultimately do $45 million at the box office and $4 million in videocassette sales. Pay-per-view delivered only $750,000.

Small today, but the potential is enormous. Pay-per-view’s top boxing event, the 1982 Gerry Cooney-Larry Holmes fight, generated $10 million in revenue. If 10% of the homes that could have received the Grateful Dead concert last New Year’s Eve bought it, at $19.95 a pop, the pay-per-view take would have topped $5 million.

That kind of multiplication appeals to producers. And with the growth of wide-screen television and ever-rising cable penetration, pay-per-view could turn a living room into a home box office.

For the consumer, pay-per-view offers a convenient alternative to watching major sporting events on closed-circuit theater screens. It also could give viewers an alternative to buying supplementary cable programing services like Home Box Office by enabling them to pay for only the specific shows they want.

And pay-per-view could enable many more people to see an opening night’s performance. A Broadway show could premiere on pay-per-view, reaching places the live theater production might never get to.

For all its appeal, pay-per-view faces a number of marketing and programming problems before the mathematics will work. Among them:

- The ‘Who Foots The Bill?’ Problem. Who will buy the equipment that viewers need to receive pay-per-view programs? Of the 40 million U.S. cable subscribers, only an estimated 5 million have the addressable decoder and sidecar, an electronic box that allows subscribers to order a specific program and be charged for it. Increasing that number will widen the marketplace. But who should pay for the new equipment, which costs about $115, consumers or the cable industry?

From the customer’s viewpoint, having pay-per-view machinery means nothing until the right event comes along. So, the thinking goes, why invest now? On the other hand, when it came to TV sets in the 1950s or VCRs in the 1980s, consumers--not broadcasters or video rental stores--bought the hardware.

Some systems finance the equipment on speculation, hoping that the pay-per-view sidecar will become the family’s favorite plaything. But it can be risky. Only one out of five homes that can purchase pay-per-view events ever do.

- The Busy Signal Problem. There’s the still-unresolved matter of how to take thousands of pay-per-view orders, sometimes made five minutes before a program goes on. Computerized systems exist. But some cable systems still rely on switchboard operators who get swamped just before air time. If somebody ordered the Thomas Hearns-Marvin Hagler fight three minutes after it began, they’d have missed it.

- The Al Capone Vault Problem. Events like rock concerts or the popular Wrestlemania series are only the beginning of pay-per-view’s program potential. Pay-per-view is a hits-driven business. Routine sports and non-blockbuster films don’t fare well.

It needs programs that have the immediacy or perceived value to persuade consumers to spend $5 or $10 on impulse to watch. Geraldo Rivera’s opening of Al Capone’s vault created that excitement. Or take this year’s Grammy show, with a rare live performance by Michael Jackson. These might have succeeded as pay-per-view events. So pay-per-view needs to create more superstar events.

Trouble is, that brings us to . . .

- The Sacred Cow Problem. In searching for new programs, pay-per-view can’t be too grabby, politically speaking. Take the Super Bowl, the World Series or the Oscars away from advertiser-supported TV, and Congress might step in. Given its growing economic influence, the last thing the cable industry needs is a grass-roots protest about its power to pirate shows from free TV.

And, finally, there is . . .

- The Peace With Hollywood Problem. Pay-per-view needs an early link with hit movies, and getting Hollywood to cooperate will be tricky if not impossible. Motion pictures are released first to theaters, next to video stores, then to pay-per-view (although sometimes about the same time as video), next to pay cable, and finally to the likes of superstation WTBS or local TV stations. (Because of showings on pay cable and videocassettes, ABC, NBC and CBS rarely get large enough audiences to make it worthwhile to show movies).

Videocassettes are a sizable, established part of a movie’s revenue stream. So studios are reluctant to risk losing videocassette sales because of prior exposure on pay-per-view. An exclusive window for home video keeps sales and marketing support from video retailers going.

But you don’t have to be a math genius to see that pay-per-view could deliver enormous revenue for hit movies.

Imagine 1991. Paramount is about to release “Top Gun V.” If 5% of, say, 60 million cable homes pay $6, the film delivers $18 million in a single showing. And that doesn’t require thousands of prints or tens of thousands of cassettes to be shipped.

But Hollywood is concerned with how the pie gets split. On a typical pay-per-view movie costing $4.50, the cable system and the movie producer take about 45% each, and the go-between pay-per-view company claims a 10% fee.

Jack Valenti, president of the Motion Picture Assn. of America, considers large U.S. cable operators “mega-monopolies” that pay too little for what Hollywood sells. Some studios may see the current pay-per-view revenue split as further evidence of the imbalance.

Unless Hollywood is assured that it will get a better share of pay-per-view revenue, it has little incentive to move in pay-per-view’s direction.

Some pay-per-view networks, like Request Television, operate as middlemen between the studios and cable. But two of the other four national services--Viewer’s Choice and Home Premiere--are owned by companies that operate cable systems.

When Home Premiere was launched last November, two studios, Warner and Paramount, did not offer their products. Perhaps these studios concluded that if cable is both exhibitor and middleman, they will be unable to win a bigger share of revenue later on.

The resistance from Hollywood notwithstanding, the cable industry will move forward with its Oscar nominee to the American consumer this year. As the trade ads might say, For Your Consideration: Pay-per-view. And with more hardware in cable homes, better order-taking systems and innovative programing not tied to the movies, pay-per-view may someday may walk away a winner.