Home Box Office (HBO) was founded by Time Inc. in 1972 and offered cable television service. HBO bought the rights to recent films and transmitted them to local systems via satellite and microwave relays. Its service was distributed by the local cable operators, typically costing subscribers $6 a month, of which HBO received $3.50.
HBO grew slowly in its first years, as the nascent cable industry struggled to get off the ground. Cable was hampered by market fragmentation, lack of infrastructure, and tough federal regulations, some of them sponsored by the major television networks, which feared that cable could eventually steal much of their audience and revenue.
During the mid-1970s the cable industry laid the groundwork for rapid growth: it expanded its infrastructure through such populous areas as New York City and the suburbs of Boston, won a series of court victories that removed many federal restrictions, and won rate increases from local governments. Pay-TV customers, those buying additional cable services such as HBO, grew from 50,000 in 1974 to approximately l.5 million in 1978. HBO quickly became one of the primary engines driving the growth of the cable industry.
HBO made its first profit in 1977. It lost tens of thousands of customers in 1978, however, as a result of a move by its chief rival, Showtime, which was challenging HBO head-on for the cable film audience. During this time, Showtime’s parent, Viacom, had struck a deal with Teleprompter, the largest cable systems operator in the United States, which resulted in Teleprompter’s customers receiving Showtime instead of HBO.
