HBO Chief Fuchs Sees Diversity as Key to the Future : Cable: As the pay-TV outlet reaches maturity, it retains profits while expanding overseas and offering network-like variety.

The Everlast boxing gloves and the leather pad embossed “Be reasonable--do it my way” in Michael Fuchs’ office testify to the HBO chairman’s reputation as a brash, take-no-prisoners executive. But the image is tempered by family photos--Fuchs with his father, several photos of his sister’s children, a shot of his dog, Hudsie.

Fifteen years ago, HBO, the first successful pay-TV network in the country, was feared as the beast that would eat Hollywood, demanding exclusive deals with the movie studios for showing their theatrical films on pay TV and leading the expansion of cable TV to end the broadcast networks’ oligarchic reign. In those days, as one entertainment lawyer puts it, HBO “was so arrogant that, in a business where the art is saying no so that it feels like yes , they had a way of saying yes that could make you feel terrible.”

Fuchs, who joined HBO as a 30-year-old programming executive in 1976, seemed to relish leading the charge. Today, he’s still contentious and competitive, but he seems softer than those “HBO Warrior” days.

“Yeah, I guess I have mellowed a little bit,” the 46-year-old executive reluctantly agreed during a recent interview. “If I haven’t changed in 15 years, I’m in big trouble. . . . But, listen, you have to remember the climate in which HBO started 20 years ago. . . . In my mind I used to liken this place to Israel. We were like a little sliver in this big entertainment watering hole. We had real enemies--the unions were against us, the TV networks were against us. We had to fight our way in. Born that way, HBO had to hustle. We never took it for granted that we belonged or that we would always belong.”

Just as its leader has evolved, so too has HBO. When it launched 20 years ago Sunday with the showing of a hockey game and the movie “Sometimes a Great Notion” to 365 cable subscribers in Wilkes-Barre, Pa., the pay-TV company specialized in bringing theatrical films to subscribers’ homes. Now it is reinventing itself.

Home Box Office Inc. has expanded its pay-TV operations overseas. It continues to spice up its theatrical schedule with made-for-cable movies, series, documentaries and sports events. It operates a home-video division. And it has become a supplier of original programming to the very networks with which it once warred--including the current Fox series “Roc,” “Martin” and “The Ben Stiller Show.”

“HBO is becoming a diversified entertainment company,” explained Fuchs, who has been chairman since 1984. “If HBO were just a channel showing movies, the way it was in the beginning, it would not exist today.”

“In five years, I think HBO will look more like a broadcast network in its mix of programming,” said Ed Atarino, an analyst who follows entertainment companies for the Salomon Bros. investment firm in New York. “They’re trying to differentiate and broaden their programming mix, and they’re doing that while generating solid profit performance.”

HBO earned a record $195 million in profits in 1991, up from $182 million in 1990, and Atarino projects that the company, a Time Warner unit, will make $200 million in 1992.

HBO’s diversification is an acknowledgment that pay-TV in this country is a “mature” business, unlikely to grow much in the future. In the face of competition from the home-video industry, HBO has seen its subscriber base drop from 17.6 million in 1990 to 17.3 million in 1991--and 1992 is expected to be about the same. And pay-TV faces the problem of “churn,” the industry term for the rate at which subscribers, over the course of a year, disconnect or reconnect their monthly service. The “churn” factor today is a whopping 50% per year, and HBO spends $100 million a year just to market its pay-TV service.

To differentiate HBO from competitors such as Showtime and the Movie Channel, HBO has sought to create a TV-network identity with a full slate of original programming. It has grown increasingly high-profile in recent years, with such critically praised series as “Dream On” and “Tales From the Crypt” and such Emmy Award-winning productions as “The Josephine Baker Story,” “Age-Old Friends,” “Tanner ‘88,” “Dear America: Letters Home From Vietnam” and “Without Warning: The James Brady Story.”

This fall, Garry Shandling’s HBO series about a late-night talk-show host, “The Larry Sanders Show,” has been hailed by many TV critics as the best new comedy of the season, and coming Nov. 21 is HBO’s most expensive movie to date, the $10-million “Stalin,” with Robert Duvall in the title role. Upcoming are a drama about the Exxon Valdez oil spill, a political parable called “Daybreak”--a “1984”-like drama about a futuristic America thrown into turmoil by an AIDS-like epidemic--and a dramatization of Randy Shilts’ AIDS history, “And the Band Played On.”

The aim of HBO’s made-for-cable shows, Fuchs said, “is to put on something that tries to go where the broadcast networks can’t go, whether it’s politics, controversy or comedy that’s a little edgier or smarter in tone.”

According to HBO’s audience research, Fuchs said, it’s the Shandling show and other original programming that is bringing in new subscribers. “The people who would subscribe to HBO for theatrical films are probably already signed on with us,” Fuchs said. “I can’t prove that we’ll get a lot of new subscribers with ‘Stalin,’ but it helps create an image for us as quality programmers in a crowded TV environment.”

But in addition to fighting the major broadcast networks for viewers every night, HBO is making a determined effort to join them. Through a production unit, Home Box Office Independent Productions, HBO is making series for commercial television. In addition to the three it has on Fox now, it produced “Down the Shore” for Fox and “Arresting Behavior” for ABC, and is developing shows for CBS and NBC as well. It also is producing an anniversary special that will air in December on CBS and will include performances by Bette Midler, Billy Crystal and Robin Williams, whose comedy acts were given early, unexpurgated exposure on HBO before they were major stars.

“They’ve been very savvy about the way they’re getting into series production,” observed CBS Entertainment President Jeff Sagansky. “They’re doing it by signing personalities that Michael and HBO have been associated with on their comedy shows and developing series for them.”

HBO, for example, developed “Martin” for Fox with Martin Lawrence, a stand-up comedian who had worked on HBO comedy specials. And, in the case of “The Ben Stiller Show,” the production arm used the pay-TV division to help sell Fox on the show. According to Chris Albrecht, who is senior vice president, original programming and the executive in charge at HBO Independent Productions, Fox executives were not sure that the comedy-variety format would work. HBO agreed to underwrite half the cost of producing a half-hour pilot, planning to run it as a comedy special if Fox did not buy the series. Fox did pick up the series, and the program never aired on HBO.

Fuchs said that HBO’s ancillary businesses--including the independent production arm and foreign operations such as HBO Ole, the Spanish-language pay-TV service in Latin America--now make up about 20% to 25% of the company’s revenues. “We’re already close to break-even on (HBO Independent Productions),” Fuchs said, “and, in five years, we would like for one-third of our profits to be from ancillary businesses.”

That means pay TV will continue to be the core business. Even there, however, HBO is looking to technology for help. As cable systems expand and are able to provide subscribers 100 or more channels, HBO wants to offer its service on three channels instead of one, staggering the starting time of movies and programs to give viewers more choice and convenience. HBO has been testing “multiplexing,” as it is called, in several cable systems around the country and expects to offer it--at no additional charge--to about 10% of its subscribers by the end of the year. Offering more choice in scheduling is viewed as a way to overcome “churn.”

One area where Fuchs has not had success is launching a basic-cable network. Time Warner owns a piece of E! Entertainment Television and Black Entertainment Television. But HBO’s Comedy Channel, launched in 1988, eventually merged with Viacom’s HA! comedy network in 1989, after a year of bitter rivalry between the two companies and a multimillion-dollar lawsuit filed by Viacom alleging anti-competitive practices by HBO in the battle between Viacom’s Showtime and HBO to get onto cable systems across the country. The lawsuit was settled this summer, and the two companies now are cooperating on a joint campaign to market pay-TV.

Will expanded channel capacity in the future be cause for HBO to launch a basic-cable network?

“No way, Jose,” Fuchs said, laughing. “Not in my lifetime. We already have a lot of eggs in the cable basket. That’s what diversification is all about.”

Home Box Office at 20: The Milestones

1972: First HBO programming, a National Hockey League game from Madison Square Garden.

1973: First HBO championship boxing match, George Foreman vs. Joe Frazier.

1975: First use of satellite for regular transmission of programming, Muhammad Ali vs. Joe Frazier in Manila.

1977: U.S. Court of Appeals sets aside FCC’s 1975 pay-cable rules in landmark “HBO Decision.”

1978: First pay-TV preproduction film investment announced (“Bell Jar,” “Wild Geese,” “Watership Down”).

1980: Cinemax launched.

1981: HBO announces the first made-for-pay-TV movie, “The Terry Fox Story.” Programming schedule expands to 24 hours a day, seven days a week.

1982: HBO, Columbia Pictures and CBS agree to form a new feature film company, TriStar Pictures.

1984: Michael Fuchs named chairman.

1986: Full-time scrambling is initiated. First “Comic Relief” special.

1987: First pay-cable program to receive an Academy Award, HBO’s documentary “Down and Out in America,” directed by Lee Grant.

1988: HBO wins three prime-time Emmy Awards, the first for the cable industry.

1989: Comedy Channel launched.

1990: “Madonna--Live! Blond Ambition World Tour ‘90” is aired. Comedy Channel merges with HA! the TV Comedy Network to become Comedy Central.

1991: Airing of “The Josephine Baker Story” beats out all the networks. HBO places its first series on a network schedule with “Roc” on Fox.

1992: Scheduled Nov. 21 is HBO’s most expensive movie to date, the $10-million “Stalin.”