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Growth in Premium Pay TV Subscriber Units

It's no small accomplishment that the five full-pay TV movie services are thriving, given that an explosion of media over the past 10 years has intensified the competition for consumer dollars.

Despite the challenges from video-on-demand, video games, mobile TV phones and the like, total subscriber units to the five full-pay premium services rose from 46.4 million at end 1995 to 81.5 million at end 2005, according to Kagan Research. That's a 76 percent increase. How did HBO, Showtime, Cinemax, The Movie Channel and Starz collectively achieve those gains?

"The premium services have quickly adopted new technology over the past decade and a half," says Deana Myers, senior analyst at Kagan Research. "They've managed to reposition themselves by embracing the new, rather than standing still and letting new media marginalize them."

For example, the three companies that own the five services were early adopters in multiplexing � creating new TV channels for digital services in the early 1990s. They took advantage of enlarged channel capacity with the advent of digital, prior to the basic cable network explosion. "Consumers valued multiple movie channels and the strategy helped cable operators move subscribers to digital," notes Myers. Today, the HBO group consists of the flagship (launched in 1972), Cinemax and 13 sibling channels, while Starz has 16 multiplexes, including its sister network mini-pay Encore.

More recently, the premium pay channels were early adopters in video-on-demand, developing the subscription-VOD model that offers unlimited access to a fixed pool of titles. Initially, cable operators offered S-VOD as either a separately priced service or a free bonus to digital pay network subs � often referred to as the embedded price model.

"Now, most of the cable operators have moved their pay network S-VOD products to the embedded price model," notes Myers. "Consumers feel S-VOD adds value to their pay subscription and cable systems find it helps reduced churn." These days, premium pay is also focusing on creating more arresting original programs like HBO's Sopranos and Sex and the City and Showtime's Fat Actress, in addition to their theatrical offerings.

Kagan's premium pay category also includes mini-pay � Flix, Encore and Sundance. In aggregate, their total subscriber unit counts climbed from 8.9 million at end 1995 to 67.1 million at end 2005 � a strapping 654 percent increase.

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