Pay-TV vs. Free TV: May the best deal win 

9 August 2021

With a variety of new services, fee-TV is challenging traditional ways of satisfying viewer needs


Illustration: Teresa Fasolino


TV Guide cover

From TV Guide for 1-7 August 1981

“Save Free TV!” That was the battle cry emblazoned on movie marquees and in newspaper ads during the mid-1960s when the great bogyman called “pay television” reared its malefic head and threatened to kill off not only “free” television but also your neighborhood movie theater. The campaign worked. The dragons of pay-TV were slain by the forces of law and order, or died of malnutrition; and peace returned to the valley for 10 whole years.

It seems like a long time ago. Today, more than 10 million American homes — fully 12 per cent of the total 80 million — are receiving pay-TV of one sort or another. By 1990, well over 30 million U.S. homes will be paying out perhaps $15 billion a year — above and beyond any outlays for basic cable-television service — to get new movies, major sports events, Broadway plays, comedy, variety and informational programs beamed to their living rooms.

It’s a whole new industry that’s emerged in just the last few years, and even its most vocal evangelists are astonished at how fervently the public has taken pay-TV to its bosom. As recently as 1975, pay-TV was virtually nonexistent in this country; now half of all cable subscribers pay an extra $9 or $11 a month [$27 and $33 in today’s money, allowing for inflation] for “premium” pay-cable services; and about a million homes get their pay-TV “over the air” from so-called subscription-TV (STV) stations that transmit a scrambled signal to TV sets having a special decoder. Around 50 per cent of all households that went “on the cable” in the last year opted for at least one pay channel, and many have anted up the additional monthly charge for two, three and even four pay channels — even when they’d be seeing many of the same movies on each.


Courtesy of ewjxn


HBO logo

The biggest pay-TV company in the country by far is Home Box Office (HBO), which controls 60 per cent of the entire pay-TV industry. HBO and its competitors will spend $390 million [$1.2bn] this year to acquire and create programs; and while that’s no match—yet—for the $2.4 billion [£7.5bn] that ABC, CBS and NBC will expend on broadcast television, it’s a fair start.

Waiting in the wings is a thing called “pay-per-view” television that is available on a test basis right now, via cable, in Columbus, Ohio, and has been tried a few times over STV. Some day soon, all cable systems in the U.S. will have pay-per-view channels. Consider: if half of those 30 million pay-TV homes in 1990 could be persuaded to watch a single major sports event or blockbuster movie and pay $10 [$30] per home for the privilege, that event would gross for its promoters $150 million [$450m] — in a single night.

All of which raises the unscientific question: what the devil’s going on here, anyway? How come the public is suddenly willing — nay, downright eager — to pay for the same kinds of television programs it’s received free for more than 30 years? After all, pay-TV is mostly plain old Hollywood movies, with a sprinkling of sports and specials. No news, no sitcoms, no soap operas, no game shows. And how much of their disposable income are people willing to budget for TV diversion in the home?

Zenith logo

For decades, ambitious entrepreneurs have been scheming to extract extra dollars from television watchers. As far back as 1949, when commercial TV was still in swaddling clothes, the Zenith Radio Corporation petitioned the FCC for authority to conduct over-the-air pay-TV tests in Chicago. Systems with names like Skiatron and Telemeter entered the lists in the early 1950s. RCA chairman David Sarnoff warned that the public’s “freedom to look and listen” would be “destroyed,” and that “the present competitive system of broadcasting would be jeopardized.”

His fears were premature. Heralded pay-TV experiments in Toronto and in Hartford, Conn., failed in the 1960s. The most ambitious and best-financed pay-TV venture of that era was Subscription Television, Inc., an over-the-air pay system in Los Angeles and San Francisco. It attracted the fire, however, of California theater owners, who managed to get a “Save Free TV” referendum on the ballot. The referendum passed and Subscription Television, Inc., went bankrupt only six months after it began.


Courtesy of robatsea2009


That did it. “Feevee” (as it was called) lay prostrate and exhausted on the beach until a lifeguard named cable television came along a decade later and gave it mouth-to-mouth resuscitation. In 1972, six million homes were getting their TV via cable. HBO was born that year as a humble pay-TV service piggybacking on a single cable system in Wilkes-Barre, Pa.; and it expanded, with no great distinction, to six cable systems, with a paltry subscribership of 200,000, by 1975.

Then, suddenly, HBO had the bright idea of distributing its programs via satellite instead of sending tapes to cable systems through the mails. It invested $7.5 million [$40m] in a five-year lease on a satellite transponder, and urged cable systems to buy the proper antennas (called “earth stations”) to receive the signal. The floodgates opened. Today, Home Box Office has more than six million subscribers in more than 2500 cable systems.

The Movie Channel logo

Other companies quickly formed to replicate the HBO model: Showtime is now the second-biggest pay-cable service; Galavision offers Spanish-language programming. There’s Bravo, a cultural channel; and there are adult-movie services, like Escapade and Private Screenings. Still others with names like The Movie Channel and Home Theater Network are jockeying for a share of the booty. RCA is a partner in a pay-cable service, RCTV, that will distribute to Americans the venerable programs of the British Broadcasting Corp. And even the poverty-stricken Public Broadcasting Service is preparing a so-called “Grand Alliance” of cultural institutions to cooperate in a pay-cable scheme that will help (they hope) to bail public television out of its financial miseries.

Home Theater Network logo

Meanwhile, good old over-the-air STV, which was left on the beach to die in the mid-’60s, has gotten back on its feet in a big way in the last three years. Operating mostly in areas where cable TV is sparse or (so far) nonexistent, STV has grown from six scattered systems in 1979 to 24 today, serving almost 1.5 million homes; and by 1984 it will grow further (says one major analyst): to 45 systems with 3.2 million subscribers and gross revenues of $768 million [$2.5bn], or almost 10 per cent of current total revenues of the entire U.S. television broadcast industry. The guess is that STV outfits — many of which need only about 35,000 homes per market to break even — can be effective regional pay-TV services, filling in the chinks where cable isn’t dominant.

Yet another currently operative pay-TV method is what’s called multipoint distribution service (MDS), which is a microwave common-carrier broadcast technique that beams TV signals within a 20-mile radius to master antennas on the rooftops of hotels and apartment buildings. Currently, only about 500,000 customers get their pay-TV that way, but MDS operators point out that while cable systems are vastly expensive to construct in urban areas (up to $100 million [$300m]), an MDS station can get on the air for about $100,000 [$300,000]; and it’s at least technically feasible to broadcast 20 or 30 TV signals simultaneously on MDS, making it a possible alternative to cable TV in some areas.

Bravo logo

Still another pay-TV model is the “regional cable network,” the first of which — the Gill Cable Bay Area Interconnect — has been formed in the San Francisco area to join 28 separate cable systems in a syndicate to buy and sell major sports, concerts and movies to pay audiences on a per-channel and pay-per-view basis. In three years, the Interconnect expects to include a million homes.

But the most revolutionary pay-TV scheme still in prospect is direct broadcast satellite (DBS), an idea proposed by the Communications Satellite Corp. (Comsat). DBS would deliver simultaneously three 24-hour channels of entertainment and information straight to the home without the need for cable TV, STV stations, MDS or anything else, except a cheap rooftop antenna. Conventional broadcasters already are ganging up on DBS in an effort to abort its birth.

Showtime logo

If all of the aforementioned pay-TV models prosper — pay-cable, STV, pay-per-view, MDS, DBS — Americans in the next decade will face a major reordering of their entertainment expenditures. Already, pay-TV is perceived as a bargain by the 10 million homes that have it: families know they’ll spend more going out to a single movie than a whole month’s worth of pay-TV might cost them. In that light, pay-TV is probably the right technology for the right historical moment: relatively cheap home entertainment at a time when inflation is topic No. 1, and when urban crime makes city streets a hazard after dark. Perhaps the only thing that could stop pay-TV is the product itself, or more properly, lack of it. If Home Box Office, Showtime and the rest run short of first-run or first-rate films and don’t have original shows to fill the breach, viewers might cancel service in a hurry.


Courtesy of The Fun & Games Channel


An Arbitron “New Electronic Media Study” asked a large sampling of pay-TV viewers exactly why they signed up for the service, and the largest segment, 22.4 per cent, said it was to get “movies not shown on regular TV”; 18 per cent said it was for “uninterrupted movies.” Other responses: 14 per cent, because of “no commercials”; 14 per cent, to see “movies missed at theaters”; and 14 per cent, to have the “convenience of movies at home.”


TV Guide listings grid

TV Guide listings grid for Saturday 1 August 1981 in the San Fransisco metro area


Whatever the reasons, one of the big losers is traditional network television. Pay homes tune out the networks in droves: in a recent Nielsen survey of prime-time viewing, network ratings were 18 per cent lower in pay-TV homes than nationally; and the pay-TV audience consists mostly of larger, younger families— the ones most attractive to advertisers. On one occasion, an R-rated movie called “Pretty Maids All in a Row” actually out-rated all three networks combined among pay viewers.


Courtesy of Mike Rivest


It’s inevitable, say the experts, that most major sports and cultural events someday will wind up on pay-TV because that’s where the big money will be: promoters can sell “tickets” directly to the public and cut out the middleman, namely the advertiser. One clear danger in all this is that pay-TV will drive a wedge between the haves and have-nots, with all the best programming being available only to those who can afford to pay for it. Another danger is that individual privacy will suffer, as viewer preferences (for R-rated movies?) are recorded and stored in computers, with no absolute guarantee they mightn’t be used mischievously.

But, no matter, “feevee” is here to stay. The only remaining question is how big a chunk of their monthly budgets people will be willing to allot to such home entertainment. Nobody knows the answer. The limits haven’t been tested. But the pay-TV industry aims to find out.


The following section is commentary from our expert writers

Chase McPherson writes: We can all agree the “Save Free TV” campaign lost its deposit, right?

Today we not only have Pay TV, we have countless competitors all shilling How To Pay for TV.

You have cable. You have satellite. There are paid “cord-cutting” bundles similar to what you’d see on offer from cable or satellite companies, only streaming, for the Gigabit audience.

Every broadcast network in the USA now has an on-demand pay alternative that lets you pick what you want to watch and when.

ABC and Fox have most of its programs on Hulu (with some former series on corporate counterpart Disney+).

CBS amalgamates with its cable properties on Paramount+ (formerly CBS All Access).

NBC and its cable outlets stream via Peacock, which has a totally free option with fewer choices as well as adverts.

Even PBS enters this fold with Passport – making regular donations to your home station gives you access to its wide library of programs.

Free-to-air TV will never go away for good. The FCC mandates free access to the airwaves. But for those who wish for reliable picture quality (as much as your internet provider will allow) and ultimately the convenience of choice and on-demand satisfaction, the market is permanently positioned for pay services.

You Say

1 response to this article

Harald Stelsen 10 August 2021 at 5:17 am

Governments love PayTV as well as “free TV” so long as it is being distributed by cable systems or satellite TV package providers.

Why is this you ask?

Over the air free TV requires no payments and therefore no sales tax can be levied. but the government (except Alaska, Delaware, Montana, New Hampshire, and Oregon) can get a cut of the action from sales tax on all those cable, satellite, IPTV and Pay TV subscriptions.

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