Ten years ago, as Hungary was roiling with democratic protests, the country had two television channels, both controlled by the state. But in October 1989, for the first time, news crews accustomed to filming the droning monologues of Communist officials took their cameras into the streets. The box that had once been the voice of party-line platitudes was suddenly filled with real life, offering a window onto the revolution. For the democratic reformers, with no experience of an authentic mass media, the country’s post-Communist media landscape was a blank slate. Top on their agenda was carving out a new space for private, competitive TV.

While during the Communist era, the monotony of state-run TV engendered great skepticism and infrequent viewing, by last year Hungarians were spending close to nearly four hours a day in front of a television set. Today Hungary offers two private and two public broadcast channels, innumerable foreign stations available with a satellite dish, and a half-dozen national cable stations, three of which are controlled by Time Warner: HBO, featuring primarily American films (dubbed into Hungarian); Spektrum, which shows documentaries; and Z-TV, a music channel.

The free market did not work in mysterious ways. As Hungarians emerged from state domination, they got an eye-opening exposure to the well-honed techniques of aggressive lobbying by Western media interests looking to stake a claim in a market expected to grow exponentially in the coming decades. During that tumultuous time, when Hungarians were attempting to learn the rules of an uncharted new economic terrain, Time Warner’s HBO set out to establish itself as the most significant US presence in the cultural landscape of the new Hungary. Dispensing with democratic niceties, the company wrote its own media law. And now, having transformed Hungary’s cable television business in its own image, the company is moving into neighboring Poland with a similar sleight-of-hand.

The history of Hungarian cable TV begins in the eighties, when the Communist government established a constellation of small, local cable outlets, which operated as party mouthpieces parallel to the national channels. In the days of the revolution–when dissidents occupied the streets and then would sit, stunned, to watch themselves on one of the state’s two national channels–the flickering gray light of Hungary’s nascent cable network, as if in a time warp, was still showing exhortations to socialist fraternity delivered by party officials.

After the revolution, HBO was the first to see the potential in those cable outlets as privatization began. In return for 51 percent control of each station, HBO–operating through its then-subsidiary Kabelkom–offered its programming for free and promised to modernize the delivery systems. “HBO went to these companies run by old comrades and made them an offer they couldn’t refuse,” recalls Miklos Haraszti, former media spokesman for the Free Democrats, a leading opposition party at the time. Within five years, those cable stations had become the basis of HBO’s national distribution system, establishing the company as Hungary’s premier cable provider. Today, one-third of Hungarian homes are wired for cable, and HBO has some 200,000 subscribers in a nation of 10 million people.

Hungary’s first post-Communist media law, however, threatened to derail HBO’s carefully laid hardware. As a result, the company forced Hungary into an early test of allegiance, forcing it to choose between its new European and American allies. At first, it appeared that the European media mold would prevail: In mid-1995, the Hungarian Parliament’s Media Committee was set to pass a statute bearing the imprint of European Union guidelines requiring that private channels air at least 20 percent Hungarian-made programs and a total of at least 51 percent European productions. Initially, those rules included cable as well.

Not for long. As Parliament’s Media Committee debated the new law, lobbyists from Time Warner, MTV, CNN and other US cable interests, along with the high-profile Jack Valenti, president and CEO of the Motion Picture Association of America, launched an aggressive campaign to repeal the quotas and provide an exemption for “specialized channels”–i.e., cable. The US Commerce Department, according to several MP’s involved in the negotiations at the time, made clear its support for the companies’ position. “Get rid of those quotas!” was the message, recalls Peter Molnar, a former Free Democrat MP then serving on the Media Committee.

There were fine dinners, copious amounts of smooth Hungarian wine, screenings of top Hollywood films and a trip organized for Media Committee members to HBO’s European headquarters in London. The US lobbyists, explains Molnar, tied their argument to Hungary’s ambition to join the Organization for Economic Cooperation and Development, the Paris-based body comprising the world’s major economic powers. For new members, the admission ticket into the OECD and its capitalist markets is free trade in all products, including entertainment (though long-established members within the European Union have been granted a “cultural exemption” for film and TV).

As the draft media statute was on its way to Parliament, a top official from the Ministry of Industry and Trade made an urgent appeal to the Media Committee. Says Molnar, “He told us, ‘We are on the verge of joining the OECD, but we can’t join with those quotas.’ All of us knew that the OECD is the room from which we could get into the European Union. We also knew that the EU would later want us to have those quotas. But first we had to get into the room called OECD. So we threw out the quotas for cable…. Those quotas were dropped like glasses at the end of a party when all the drunk people are leaving.”

Quotas were not the only provisions dropped like wine glasses. By the time the media law was enacted, restrictions against cross-ownership of production and delivery systems were also removed. The company made it clear that any such restrictions could be circumvented through the use of subsidiaries, recalls Haraszti. “HBO said to us that if the committee didn’t drop those restrictions, ‘we could produce independent companies galore.'” Kabelkom, which was sold last year to a Dutch telecommunications firm, was given a free hand to both provide programming and hardwire the country, a level of vertical integration not permitted in either the United States or most Western European countries.

HBO’s success in blocking quotas or any antimonopoly provisions in the cable portion of the media law gave rise to a new term in Hungary’s informal legal lexicon: Lex HBO–the HBO law. “They [HBO] had their own version of the law written, and put it into our hands–translated into Hungarian,” recalls Haraszti. Thus, the very cables that Kabelkom laid were free to be inundated with its parent company’s specialty: American films.

At a few minutes past 3 o’clock on a spring afternoon, in a gray granite building in a semi-industrial zone of Budapest, the results of Lex HBO can be seen on a bank of seven video monitors playing HBO fare destined for the television sets of Eastern Europe. Here in the basement of the Hungarian headquarters of HBO on Budafoki Street, I can watch the film Promise the Moon, sent via satellite to a Czech downlink. Next to that, the nuclear thriller The Peacekeeper is destined for Romania. In Hungary, they’re being sent the shoot-’em-up film Bounty Hunters. And in Poland, where a precedent-setting legal challenge is being waged against HBO’s domination of cable TV in the region, viewers are being offered a zany American comedy from 1993 called Little Miss Millions–resplendent in Technicolor on monitor number four.

But there is far more going on here than the mere export of cultural product. Lex HBO is at the center of the company’s troubles in Poland, a country with four times the number of potential television viewers as Hungary. Unlike the other countries that are part of HBO’s Eastern European footprint, HBO Polska’s signal is downlinked not by a Polish transmitter but by one in Hungary, just inside the Hungary-Poland border–a method known in the television business as “delocated broadcasting.” In translation, that means broadcasting from one country to another without the latter’s permission or oversight. It’s the television equivalent of establishing a factory in Mexico that does not meet US environmental standards to produce steel for the American market–a practice sure to expand in this era of high-tech communications, in which media signals can be transmitted quite literally from outer space.

Other than the two technicians overseeing the cooled, underground chamber on Budafoki Street, who do little more than monitor the automated consoles as they switch seamlessly from the end credits of one program to the beginning credits of the next, HBO Polska might as well be from outer space. Central European Uplink (CEU), a Time Warner subsidiary, is responsible for beaming digital signals from the wall of whirring videotapes to an Israeli satellite, which bounces them down to the viewers of Poland. But HBO Polska’s programming is registered in London, where the company’s European headquarters staff determines the menu for Poles a thousand miles away, and CEU is registered in Hungary as a telephone service, not a broadcast entity–evading even the mildest guidelines governing mass media. It is as stateless as a modern enterprise can be–suggesting the challenges ahead for governments’ ability to regulate media originating from beyond their national soil.

“Delocated broadcasting” is, in short, the last wildly unregulated frontier of modern television. At a meeting in Strasbourg in September, the European Council’s Standing Committee on Transfrontier Television identified the jurisdictional problem posed by HBO Polska: With an uplink and downlink in Hungary, programmers based in Britain, subscriber-fulfillment service based in the Netherlands and the station’s target audience in Poland, responsibility for regulating HBO Polska is so diffuse as to elude any national oversight. That, in fact, appears to have been the point of HBO’s byzantine business plan–now the subject of an unprecedented lawsuit by HBO’s major competitor in Poland, the French-owned Canal Plus.

Canal Plus’s challenge pits two giants of the world cable industry in a legal duel bound to break new ground in the arena of international media law. With a two-pronged offensive taking place in a Hungarian court and at Hungary’s National Radio and Television Commission (ORTT), Canal Plus claims that by transmitting its signal from Hungary, HBO is engaging in “unfair competition.”

The facts of the case are straightforward: Canal Plus abides by Polish regulations, which require a specific percentage of European and Polish productions to be part of the station’s program schedule. The French company insists that because its competitor’s signal lands in Poland, it should be subject to the same requirements. But HBO claims that its uplink service is little more than a delivery system, a provider of signals across a telephone wire, and thus is subject solely to Hungary’s far more liberal laws–the laws it helped to write. Canal Plus is asking the ORTT to halt HBO Polska’s transmissions and asking the civil court to assess damages for lost subscribers.

Volumes of technical arguments have been submitted to the ORTT by both sides, but the question can be put succinctly: Do the Poles have the right to determine whether Little Miss Millions can prance her way into Polish living rooms? Or, as HBO claims, is this a purely Hungarian question, since Little Miss Millions does her thing in Budapest and only happens to be carried on telecommunications wires into Poland? Of course, this is not simply a matter of Little Miss Millions but also of millions of minutes of celluloid counterparts that will follow her into the increasingly lucrative new media marketplace of Eastern Europe.

Jean-Louis Erneux, a Canal Plus spokesman in Paris, comments: “We operate on the basis of a license issued by the Polish authorities. That license includes obligations, including showing a certain number of Polish and European programs, and promising to invest in a certain number of original Polish-produced programs. We have a competitor that does not abide by any of those rules.”

Publicly, HBO asserts that it has registered its Polish service with the Telecommunications Authority, and is thus operating within legal bounds. “Canal Plus’s objective is to get HBO Polska off the air,” asserts George Douglas, general manager of HBO in Hungary. “They don’t want the competition. It has nothing to do with culture.” Douglas claims that HBO is “gradually increasing” its amount of European programming, though at this stage it is nowhere near Polish standards.

Privately, however, an HBO official based in Europe who requested anonymity confirmed that HBO Polska’s unorthodox status is intended precisely to evade Polish program quotas. “HBO is a Hollywood movie channel,” he says. “Our programming couldn’t exist there, because they have 50 percent European content quotas. It couldn’t operate as a Polish broadcaster, so what HBO Polska does is function as a foreign broadcaster.”

The Canal Plus/Time Warner rivalry has an extra punch given the volatile nature of French-US relations when it comes to America’s entertainment exports. It was the French who launched the crusade against “American cultural imperialism” fifteen years ago and pushed the European Union to impose the program quotas that are now at the center of the dispute. “This case is like the vet’s horse,” says Gabrielle Cseh, a media lawyer who has studied the case in detail, evoking an old Hungarian saying suggesting that there are so many important legal and political principles at stake that it is a sort of prize specimen in the stable.

As this comment implies, the dispute reveals the conflicting pressures faced by Poland and Hungary in navigating the competing US demands for a free media marketplace and the demands for a measure of cultural protectionism by the EU–which both countries hope to join. Uneasy at stepping into this political minefield, Poland’s and Hungary’s nascent media oversight bodies have for nearly three years been treating the case like a contagious disease.

Canal Plus first filed a complaint in 1997 with the ORTT and Poland’s National Television and Radio Council (KRRiTV), which repeatedly refused to hear it on technical grounds inherent in delocated broadcasting: Since the company had neither a Polish license nor a downlink transmitter, the board had no legal basis to hear the case. Former KRRiTV commissioner Karol Jakubowicz told me that although the board was unable to act, he felt HBO’s operation was an attempt “to use Poland and Hungary as a Trojan horse to lower our barriers [to US entertainment imports] before we join the EU, then to subvert them from within.” The barriers he referred to are embodied in the Council of Europe’s Convention on Transfrontier Television, which establishes minimum guidelines for European program content. The convention, which has been signed by both countries, took effect in 1997 over intense US objection.

The pressure is on, with lobbying intensifying from both sides. Attempting to counter HBO’s considerable sway over Hungarian media law, Canal Plus invited Janos Timar and another member of the ORTT to Paris earlier this year, where they were treated to a full-court press on the case. That included meetings at the French Foreign Ministry, which was unambiguous in its support for the French company’s position and expressed concern over the dispute’s implications for Hungary’s integration into the European Union.

In the meantime, Hungary is paying the price for what the European Union itself appears to consider HBO’s outlaw television. The European Commission’s Media Directorate–which will ultimately have the last say over the acceptability of Hungarian media law to the EU–appears to be jamming a door that Peter Molnar hoped would open. In a preliminary finding last year, the directorate determined that HBO Polska’s transmissions to Poland “contradict the Convention [on Transfrontier Television] and, moreover, would imply that Hungary is in breach of its international obligations.” The directorate also addressed the question of delocated satellite transmissions and HBO’s registration in London, concluding that the deciding factor should be where “the satellite uplink is situated.” One direct consequence of Hungary’s failure to conform to European regulations has been a delay in its admission to the EU’s Media II program, which could mean millions of dollars in subsidies to Hungarian film and TV productions.

“The central problem here is that the technology involved has outstripped the legislation,” comments lawyer Gabrielle Cseh. Hungary’s media law was written at a time when the idea of delocated broadcasting may indeed have been a live one inside the hallways of Time Warner, but it certainly didn’t occur to anyone then debating the country’s approach to governing what it hoped would be free and competitive television.

“On the political side,” says ORTT official Janos Timar, “the situation is clear. But on the legal side, it is not so clear. Everybody knows that HBO produces programs. But how do we distinguish between a telephone message and a program message? The devil is in the details.”

The “details” are down in the basement on Budafoki Street. As I stand with George Douglas in front of his seven television monitors and Little Miss Millions continues to evade her pursuers on screen number four, he raises his arms toward the bustle of Budapest above this vault of Americana and tells me that in spite of the Hollywood images that surround us, his product presents no threat to Poland or any other country’s cultural identity. “Go outside. You have McDonald’s here, you have Burger King. But look around you. It’s not America.” Douglas may be right; there is little chance that HBO is going to make Hungarians into Americans. But the company’s first major investment in the post-Communist world has given a valuable lesson in the feints and dodges of the free market at work–there on the tube, around the clock, for all to see.