Home Box Office, Inc.

Origins as Sterling Communications

HBO, Inc.'s origins trace to December 1, 1965, when Charles Dolan—who had already done pioneering work in the commercial use of cables—was granted a franchise permit by the New York City Council to build a cable television system encompassing the Lower Manhattan section of New York City (traversing southward from 79th Street on the Upper East Side to 86th Street on the Upper West Side). Along with Dolan, TelePrompTer Corporation (which was assigned most of Upper Manhattan) and CATV Enterprises Inc. (which was assigned part of the city's Upper West Side, extending north of the Harlem River, and The Bronx's Riverdale neighborhood) were also awarded cable franchise permits on that date. Dolan's maiden television venture was Teleguide, a closed-circuit television system started by his initial company, Sterling Movies U.S.A., in June 1962; it distributed a schedule of tourist information, news, interview segments and feature interstitials to hotels, and by 1964, apartment buildings and office buildings in the New York metropolitan area.

Through Dolan's Sterling Information Services subsidiary, Manhattan Cable TV Services began limited cable service in September 1966. Manhattan Cable (renamed Sterling Manhattan Cable Television in January 1971) was the first urban underground cable television system to operate in the United States. Rather than string up cable on telephone poles or use microwave antennas to receive the signals, Sterling had laid new cable lines beneath the streets of and into buildings throughout Manhattan, and repurposed Teleguide's existing cable infrastructure for use by the new operation. Sterling's use of underground cables complied with a longstanding New York City Council ordinance—originally implemented to prevent broad-scale telephone and telegraph outages, after a severe blizzard affecting the Northeastern United States in March 1888 had caused widespread damage to above-ground utility lines in the area—requiring all electrical and telecommunication wiring to be laid underground to limit weather-related service disruptions, and because the multitude of tall buildings on Manhattan Island subjected television signals to reception impairments. Dolan curried the financial backing of Time-Life, Inc. (then the book publishing unit of Time Inc.), resulting in Manhattan Cable becoming one of its first cable system properties. Despite the investments from Time-Life's share of Sterling (initially 20% at the beginning of operations), Sterling Manhattan consistently lost money throughout its first six years of operation; the company incurred much of its debt from underground wiring expenses (costing as much as $300,000 per mile), and its difficulties attracting new subscribers to generate income (Manhattan Cable managed to receive only around 400 customers by 1967). On August 27, 1969, Sterling Communications consolidated ownership of the cable assets: it acquired Time-Life's 49% share in Sterling Manhattan, in exchange for stock and other assets worth $1.84 million. (Time-Life's interest in Sterling Communications concurrently increased from 25% to 44.5%.)

Dolan was looking for a way to help his struggling cable company grow to become financially viable. In the summer of 1971, during a family vacation to France aboard the Queen Elizabeth 2, Dolan conceived "The Green Channel", a codenamed concept for a cable-originated television channel that would be distributed via Sterling Manhattan and other participating cable systems. The proposed service would offer unedited theatrical movies licensed from the major Hollywood film studios and live sporting events, all presented without interruptions by advertising and sold for a flat monthly fee to prospective subscribers. Dolan wanted to offset the service's start-up costs by having Sterling enter into carriage agreements with other cable television providers to transmit and sell the service to their customers, and draw revenue from fees charged to subscribers who added the channel onto their existing cable service (which then consisted exclusively of local and imported broadcast stations). Dolan later presented his idea to management at Time-Life, who, despite the potential benefit to the company's cable assets, were initially hesitant to consider the "Green Channel" proposal. In the early 1970s, the cable television industry was not very profitable, and was under constant scrutiny from FCC regulators and the major broadcast television networks (CBS, NBC and ABC), who saw cable as a threat to their viability. Attempts to launch pay television services had been done on an experimental basis in the United States dating to 1951 (among them, Phonevision in New York City, Chicago and Hartford; SubscriberVision in New York City; Telemeter in Palm Springs, California; and Telemovies in Bartlesville, Oklahoma) with little to no success, muzzled by campaigns backed by movie theater chains and commercial broadcasters meant to alarm television viewers to the supposed threat of pay television to the movie industry and free-to-air television access, limited user interest, and FCC restrictions on the types of programming that could be offered to subscription services. Undeterred, Dolan managed to persuade Time-Life to assist him in backing the project.

After the Federal Communications Commission ruled that local governments could not restrict the operation of subscription television services in cable franchise terms, in July 1971, Sterling Communications—now consisting of Sterling Manhattan; its Long Island-based sister system, Sterling Nassau Cable Television; production firm Allegro Films; and direct-to-cable programming firm Television Presentations Inc.—informed the FCC that it planned to operate a cable-originated pay television service. Because Sterling's New York City Council franchise grant specifically required FCC approval for that purpose, Time/Sterling filed an FCC request to authorize pay television operations. Sterling indicated that a subscription television operation would also help Sterling Manhattan fund its fledgling local origination channel, which had incurred $1 million in start-up debt on top of annual company operating losses of $250,000. On September 10, 1971, the FCC gave preemptive authorization to Time-Life and Sterling Manhattan Cable to begin a pay television operation. On November 2, 1971, Time Inc.'s board of directors approved the "Green Channel" proposal, agreeing to give Dolan a $150,000 development grant for the project.

Early history; dissolution of Sterling