2008 CABLE SHOW: TV & BEYOND: Cable @ 60
With the construction of the first cable systems in 1948, cable TV entered a golden age of rapid growth
-- Multichannel News, 5/16/2008 7:46:00 AM
2008 CABLE SHOW: TV & BEYOND: CABLE@60
“Television during the second half of the 20th century changed the world more profoundly than any invention since the printing press,” wrote Thomas Southwick in his history of cable, Distant Signals: How Cable TV Changed the World of Telecommunications. “Yet television did not reach its full potential until the development of cable and its related businesses, satellite-distributed programming.”
How cable revolutionized the TV industry and in the process transformed telecommunications is one of the great, but often ignored stories of business, technology and culture in modern American history. As cable celebrates its 60th anniversary at the Cable Show, the editors of Multichannel News decided to take a look back at the industry’s rise.
This history illustrates how cable has fundamentally altered the way people access entertainment, news and movies. It also provides insight into many of the major issues and problems facing the industry today.
To tell the story of cable television between 1948 and the end of the 1990s, Multichannel News has obtained rights to print a condensed version of Southwick’s book, which was published by PRIMEDIA Intertec in 1998. The first section, which begins below, covers the late 1940s and 1950s, subsequent chapters follow the story, decade by decade to the end of the 20th century. Excerpts were selected and edited by Multichannel News contributor George Winslow. Executive editor of content Kent Gibbons carries the story from 2000 up to the present.
To further enhance the feature, Leslie Ellis has produced a series of videos, available at www.multichannel.com.
The Cable Center, which has a huge library of oral histories and photos, has generously supplied material for the print and video versions of the history.
The Beginning Of The Road The 1950s
In the beginning there was coax. But who strung the first wire is a matter of some dispute.
The very first cable systems were probably constructed prior to World War II in the U.K., where several companies hooked up multiple units in apartment buildings into a single community antenna receiving the British Broadcasting Co.’s newly launched TV service.
In the United States, several towns have laid claim to the title of cable’s birthplace. What seems most certain is that cable TV was invented independently by different people around the country at about the same time.
A front page article in the Tuckerman Record in Arkansas on Nov. 18, 1948, is the first published account of a system using a community antenna to deliver a TV signal via coaxial cable to multiple sites.
In Tuckerman, Ark., population 2,000, appliance store owner James Y. “Jimmy” Davidson, and his sole employee, Louis French built a 100-foot-high tower on top of a two-story building and ran a coaxial cable down to television sets in his appliance store, where he successfully received test broadcasts from WMCT-TV, which was located over 100 miles away in Memphis, Tenn.
After WMCT-TV began fulltime transmission on Jan. 1, 1949, Davidson began looking for other locations for community antennas. After completing a system in Batesville, he began building other systems in Arkansas, financing each from the revenue generated from the others.
Davidson also founded a company, Davco that supplied equipment and expertise for would-be cable operators in Arkansas and other southern states.
About the same time, 2,200 miles away in Astoria, Ore., the wife of local radio station owner Ed Parsons insisted he spend $1,000 on a TV set even though it was impossible to receive television broadcasts with a regular antenna in Astoria.
So Parsons invented a system to receive the signal. Using an antenna on top of the Astoria hotel, he ran a coaxial cable to their apartment across the street where the couple and a large group of friends watched KRSC’s first broadcasts from Seattle on Thanksgiving 1948.
Parsons went on to wire local bars and homes, charging customers about $125 to hook up the service. As news of the system quickly spread, budding cable entrepreneurs began visiting Parsons for advice on the equipment he’d developed and in April 1950 Popular Mechanics printed the first article in a national magazine about cable TV.
“Astoria is only one town — the beginning,” the article concluded. “But what works in Astoria may work all over the Northwest and the nation too.”
Meanwhile, the business was also taking off in Pennsylvania, which became the cable industry’s Mesopotamia.
One early Pennsylvania entrepreneur was John Walson, who ran an appliance store in Mahanoy City, Pa. In June 1948, he strung a twin lead antenna wire down to his store so customers could see a better picture, laying the foundation for Service Electric Co., which had 14,250 subscribers by 1957.
But all the records documenting the achievement were destroyed and the earliest newspaper accounts of Walson’s cable system date from the 1950s.
Another Pennsylvanian pioneer was Martin Malarkey, a radio and TV appliance owner in Pottsville. He got the idea of starting a cable system in the spring of 1949 after seeing a community antenna that served all 500 rooms of the Waldorf Astoria in New York City.
Initially, Malarkey hoped the system would help him sell more TV sets but he quickly realized that there was more money to be made from charging monthly fees for cable services. With money from those fees, he began wiring other Pennsylvania communities.
Eventually Malarkey owned systems in Pennsylvania, Virginia and Maryland and began earning consulting fees from other would-be cable operators.
In the fall of 1951, after the Internal Revenue Service made an unsuccessful demand for excise taxes on his cable revenue, Malarkey also convinced other operators to create the industry’s first trade association, the National Community Television Council, which eventually evolved into the NCTA.
While Malarkey, Davidson and Walson set up cable systems to boost demand for TVs at their local appliance stores, Bob Tarlton and a group of investors were the first to build a system with the express purpose of collecting subscriber fees from customers. Their Lansford, Pa., system also received widespread national publicity, setting off a nationwide cable construction boom.
Parsons, Walson, Malarkey and Tarlton all said later that they had invented their cable systems independently. Each insisted he had never heard of the others when he began to construct his system.
Regardless of who was the first to build what could be called a true cable system, the idea spread like wildfire in the early 1950s, spurred by an unlikely ally: the federal government.
On Sept. 30, 1948, the Federal Communications Commission decided to freeze the number of new television stations. Suddenly, Americans who had expected to get TV from a local broadcast station now had to turn to cable systems that imported distant broadcast signals. By 1952, when the FCC lifted the freeze, about 14,000 American homes were getting TV signals through a coaxial cable hooked up to a community antenna.
The fledgling industry, however, faced a serious shortage of capital.
Milton Jerrold Shapp, founder and president of Jerrold Electronics, supplied equipment to Tarlton’s Lansford system and believed the industry had a great future. But Shapp instinctively realized that Jerrold had to be more than an equipment supplier if cable was to realize its potential.
Shapp persuaded three venture capital firms — J.H. Whitney, Fox Wells and Goldman Sachs — to put a total of $200,000 to finance construction of a cable system in Williamsport, Pa., and enlisted Tarlton to build and run it. It soon became the largest system in the country and within three years was sold for $1 million, producing a hefty profit for the original investors.
With Williamsport underway, Shapp and Tarlton began barnstorming the country, preaching the gospel to potential investors. Shapp raised the money, manufactured the equipment and did the deals, while Tarlton built the systems.
Generally, potential investors signed what became known as yellow dog contracts with Jerrold. The operators agreed to finance the construction of the system in exchange for a 51% stake and pledged to buy all of their equipment from Jerrold, which would supply engineering and operational expertise in return for a 49% stake.
During the building boom that followed, the 1950s saw the emergence of number of entrepreneurs who would play a major role in the industry’s history, including Bill Daniels.
One of these was a cottonseed buyer, Bob Magness. After picking up two hitchhikers who were working on a cable system, he became fascinated with the business. By 1955, Magness’s first system was up and running in Memphis, Texas, laying the foundation for what would eventually become Tele-Communications Inc.
Also during this period, John Rigas, a theater owner in Coudersport, Pa., acquired the town’s cable franchise for $100 in 1953, spawning Adelphia Communications.
During the 1950s, cable systems simply retransmitted broadcast TV signals, often offering customers only one or two channels. But in 1953, Paramount Pictures subsidiary Telemeter built a cable system in Palm Springs, Calif., designed to offer “pay as you look” movies.
About 73 homes were equipped with coin boxes that allowed them to watch the premiere of a theatrical movie for only $1.35. But theater owners protested and Paramount shut down the operation in the fall of 1954.
Also in the 1950s, movie theater chain Video Independent Theaters built a cable system in Bartlesville, Okla. It offered uncut movies for a monthly fee of $9.95. The operation quickly signed up 1,000 subscribers but they soon dropped to about 300 and within a year the pioneering operation was shut down.
Still, the industry thrived. By the end of the decade, Television Digest estimated that about 650,000 U.S. homes were getting their television signals from 640 cable systems, with most reporting large profits. In 1956, a Clarksburg, W.Va., system with 7,000 subscribers reported profits of $264,000 on income of $415,840, an astonishing 64% cash-flow margin.
But in the last few years of the 1950s, problems began to emerge.
The U.S. Department of Justice filed an antitrust lawsuit against Jerrold in 1957. After losing the case in 1961, Jerrold was prohibited from buying additional systems and its exclusive equipment buying contracts were voided.
Broadcasters had initially viewed cable as a way to expand their audiences, but they soon began worrying that imported signals airing on cable would hurt their ad revenue and they began lobbying the FCC to impose regulations on the cable industry.
Copyright holders were also worried. The producer of the popular TV show Cisco Kid took a cable system in Reno, Nev., to court, claiming it didn’t have rights to import the signal of a San Francisco station that aired the show.
In the 1960s, those political pressures would produce new federal legislation and regulations, creating the industry’s first real regulatory and financial crisis.
Wired For Deals: Bill Daniels
In 1952, former Golden Gloves boxing champ Bill Daniels was driving from New Mexico to Wyoming, where he planned to start an insurance business. On the way, he stopped for dinner at Murphy’s Restaurant in Denver, where he saw television for the first time.
Daniels was so impressed that he began thinking about bringing cable television to Casper, Wyo.
He raised $250,000 from a group of oil men to launch Community Television Systems and hired Gene and Richard Schneider to construct the state’s first cable system in 1953.
The system was an immediate success, picking up 4,000 subscribers in its first year and CTS subsequently built systems in Rawlings, Wyo. and Farmington, N.M.
In 1956 and 1957, Daniels served as head of the National Cable Television Association and in 1958, Daniels formed Daniels & Associates with partner, Denver lawyer, Carl Williams.
By the mid-1960s, the company was handling about 80% of the cable system sales in the U.S. and over time was responsible for creating many of the industry’s most important players. TelePrompTer Corp., one of the country’s largest operators in the 1960s and 1970s, American Television & Communications Corp., which was later sold to Time Inc., Cox Communications, Tele-Communications Inc., and Sammons Communications, all acquired many of their early systems with help from Daniels & Associates.
Daniels himself was in and out of the operational side of the cable business several times. In 1960, Daniels sold CTS to the Schneiders but quickly began acquiring new systems, building up operations serving about 115,000 subscribers that he sold to Newhouse Corp. for $100 million. After a new round of acquisitions, he sold an 88,000-subscriber operation to United Artists Cable for about $200 million in 1988.
The history of cable up to the 1990s is entirely based on Thomas Southwick’s Distant Signals: How Cable TV Changed the World of Telecommunications
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