Ever since singer Justin Timberlake tore away Janet Jackson’s blouse during the halftime show at this year’s NFL Super Bowl, the debate over indecent programming on television and radio has intensified in the U.S. But Matt Blank, chairman and chief executive of Showtime Networks, contends that his network should be spared the scrutiny and criticism that have dogged competitors. “The one thing we can say – some of my friends in Washington would say we hide behind this, but I’d say we stand in front of it – is that we’re invited into the home. NBC isn’t invited in. MTV isn’t. Oprah isn’t.”
Showtime’s channels offer premium programming; subscribers pay extra – typically about $12 a month – to receive it. That means they understand what they’re getting and have demonstrated that they want it, Blank told an audience at Wharton in early April. And that’s true even though Showtime has a reputation for broadcasting edgier fare than many channels. For example, it offered the first television series about openly gay characters – Queer as Folk. And this year, it has grabbed attention for showing one about lesbians called The L Word.
“If somebody is suggesting, as I read in The Baltimore Sun recently, that [U.S. Attorney General] John Ashcroft is going to come after the pay-TV channels, I say, ‘Bring ’em on,’” said Blank. “I can’t think that a Showtime subscriber who pays that bill every month needs the same protections as someone who tunes into NBC.”
The Jackson-sparked debate over indecency has lately roiled Blank’s industry. The Federal Communications Commission, which regulates the airwaves, has announced that it intends to redouble its scrutiny of indecent broadcasting. Federal lawmakers have held hearings on the topic, with some calling for new laws. Firing back, a group made up of members from the media, broadcast, entertainment and legal industries recently asked the FCC to reverse a ruling against the rock star Bono. That ruling found Bono’s use of the phrase “f—ing brilliant” during a show on NBC to be “indecent,” and “profane.”
A few broadcasters are already responding to what appears to be growing criticism of nudity, sex, violence, controversial subject matter and indecent language. Clear Channel, the Texas-based radio-station-owner, has barred radio shock jock Howard Stern from several of its stations. A Stern wannabe who broadcast under the name “Bubba the Love Sponge” in Tampa was fired from a station there.
Even Blank says he’s spending more time discussing the topic with his management team and industry peers. Going forward, he said, all broadcasters will likely be more careful about what they air because the stakes are so high. “There’s a whole cadre of people waiting to pile on,” he explained. Congressman Ed Markey, “who ran the telecommunications subcommittee when the Democrats controlled the Congress, said to me once, ‘The problem is that there are no advocates for you guys – no advocates for violence and indecency. So when you blow it, it’s an open vessel for those who believe that people shouldn’t have access to certain things.’ It’s a convenient political issue because no one writes to their congressman and says, ‘I’m in favor of indecency.’”
The hullabaloo over Jackson’s bared breast is hardly the only challenge that broadcasters such as Showtime are grappling with. Like nearly every other industry, the media’s pace of change seems to have accelerated as new technologies have created openings for new competitors.
When Blank started his career in the 1970s, cable was in its infancy and premium channels such as Showtime and its direct competitor, Home Box Office, were the main medium for the release of theatrical movies after they had appeared in theaters. “I don’t think anybody knows that Mission Impossible III, if it’s made, will be shown exclusively on Showtime. And nobody cares. Why? Because you saw it in the theater. You rented the DVD. You saw it on pay-per-view. Probably by then, you’ll be downloading it off the Internet. So saying we have Mission Impossible III exclusively just doesn’t mean anything to consumers anymore.”
That’s not the only way the industry has changed in the last three decades. In its early days, Showtime’s distributors – cable operators – were monopolies with “a monopolist’s marketing skills,” Blank quipped. “You don’t have to be a great marketer to sell a product that no one can get anywhere else.” The industry’s suppliers, about half a dozen Hollywood studios, were oligopolies, and the only direct competition was HBO, which had started earlier. Its customers had few sources of substitute programming. Then again, they had little reason to seek alternatives since the programming was cheap – about $8 to $10 a month for basic cable service and another $10 to $12 for the premium channels.
Compare that with today. If anything, there are even fewer distributors, as large media companies such as Time Warner and Comcast have swallowed smaller cable operators. “If you go back 15 years, there were about 20 major cable companies,” Blank noted. “We’re probably down to six today, and two of them most likely won’t be around in five years.” Satellite television has arisen as a competitor to cable, but that industry, too, has consolidated, down from about six companies to two – DirecTV and Dish. Blank estimated that approximately 70 million American households subscribe to cable and 20 million to satellite television, leaving about 16 million with traditional broadcast TV.
Both cable and satellite have unique strengths so it’s unclear whether one of them will eventually prevail, according to Blank. “Cable can provide broadband services because it has a high-speed two-way channel to your house. Even if satellite could beam you a high-speed signal, that little dish doesn’t allow you to broadcast back. So cable has huge product advantages.” Cable companies can also provide high-speed internet hookups and eventually plan to offer telephone services via the Internet.
But satellite broadcasters have a marketing advantage. “There are 40,000 outlets nationwide for their services,” Blank pointed out. “You can walk into a Radio Shack or a Best Buy anywhere in the country, and somebody will hand you a dish for $199 and a number to call for free installation.” The viability of the two types of outlets should benefit networks such as Showtime because it will provide more competition for their programming, Blank added.
As far as suppliers go, the big movie studios are less powerful than they once were because many different outlets offer original work today. HBO, for example, has drawn kudos for The Sopranos and Sex in the City. And Showtime, too, offers a broad menu of original programs. (Because cable TV and satellite radio don’t use public airwaves, they aren’t subject to the same regulations that broadcasters are.)
But as the power of the studios has dwindled, the heft of Showtime’s competitors has grown. Simply put, more channels are offering more stuff. “TNT, TBS, FOX, A&E – all of those companies are competing with us for share of mind from consumers,” Blank said. Add to that the fact that consumers are paying far higher monthly cable bills than they did in the early days, which in theory makes it harder for pay channels to keep their customers. “In Manhattan, if you take broadband Internet access, too, our service probably comes in a package that costs $120 a month. If someone looks at that bill and wants to save money, he sees he can drop the pay-TV service and get $12 off.” That kind of math has forced Showtime to respond with a spate of programs and technologies to keep viewers satisfied, Blank said.
From the beginning, Showtime has tried to attract audiences such as gays and lesbians, African Americans, Latinos and even boxing fans who weren’t well served by no-pay networks. It also has been willing to air shows considered to be controversial, such as ones with strong political viewpoints, like The Reagans, or a movie called Bastard Out of Carolina based on an award-winning novel about child abuse. “We don’t have to win the night at 8 p.m. on a Sunday like CBS does,” Blank explained. “We like to say we’re not in the eyeballs business. We’re in the hearts and minds business. If we get into people’s hearts and minds, subscriptions will increase.”
At the same time, Showtime has expanded its menu of channels. “It’s possible in some places for you to get 20 channels of Showtime for the same price.” The network also has tried to put itself at the vanguard of technology. Most of its original programming is suitable for viewing on high-definition televisions. And it has begun offering on-demand programming. So far, two million of its subscribers have elected the service, which offers as many as 150 programs that viewers can watch whenever they want. “We’ve found that the length of time someone tunes into on-demand service is 50% longer,” Blank pointed out. “It’s a marketing home run.”
Blank didn’t divulge Showtime’s sales or profits but did say that “if you were to go to one of the key analysts in our industry, he would have told you that, seven or eight years ago, Showtime was on its way to losing $100 million a year. Today, he would probably project that for 2004 on revenues of about $1 billion, Showtime will earn about $300 million. I can’t confirm or deny those numbers. But we think we’ve been a real success story. And this is a high margin business. Again, if you were to go to the analyst’s numbers, he would say our margin is in excess of 30%. This is a business that remains challenged by technology and competition. But we feel pretty confident that the pay-TV model is a good one.”
