The Long, Strange Trip Continues

At the National Cable Television Association’s June 1960 convention, the star of the show was Irving Kahn. The larger-than-life founder of TelePrompTer was famed for hobnobbing with celebrities and running up $1,000-a-month tabs at New York City’s swank Stork Club. But that day he was trying to impress cable operators with the potential of pay TV.

First, Kahn treated cable operators to a live, big-screen, closed circuit heavyweight fight between Floyd Patterson and Ingemar Johansson that TelePrompTer simulcast to some 25,000 subscribers in 13 cable systems nationwide.

Then, he launched into a visionary plan for cable’s future. Promising to buy high-profile sports events and outbid theater owners for first-run movie rights, Kahn urged cable operators to buy Key TV, a kind of pay-per-view system that he believed would produce huge profits for the industry.

Kahn’s PPV plan was about 20 years ahead of its time but it was indicative of the kind of audacious bets made by newcomers to the cable industry in the 1960s.

Kahn, who invented a teleprompter machine and then expanded into closed circuit boxing in the 1950s, had first gotten interested in cable less than a year earlier, when Bill Daniels had visited TelePromTer’s offices in New York City to pitch the huge potential profits from cable TV investments. The company purchased its first system in December of 1959 and never looked back.

By the end of the 1960s, TelePrompTer was one of the country’s largest operators and Kahn, who would later become an early proponent of satellite and fiber optic delivery systems, had emerged as one of the industry’s most prominent evangelists.

Other notable entrepreneurs made their first cable investments in the 1960s, including Cablevision founder Charles Dolan, who would bet everything on an audacious plan to wire Manhattan, and Philadelphia businessman Ralph Roberts, who gathered a group of investors to buy a system in Tupelo Miss.

Phone companies and broadcasters were also expanding into cable.

Southern Bell Telephone & Telegraph, for example, announced it would no longer make poles available to cable operators. Instead it would build entire cable systems and then lease them back to operators, who would handle the programming, marketing, billing and other operations.

After talks with NCTA, parent company AT&T forced Southern Bell to continue to rent poles to operators. But AT&T also announced efforts to market turnkey cable system construction services.

Broadcasters also expanded their cable investments. Cox Enterprises acquired two systems in 1962 and, as the decade continued, CBS, Westinghouse Broadcasting, Newhouse Broadcasting, General Electric and Harriscope all purchased cable systems or applied for franchises in the United States or Canada.

With the influx of investors, prices for cable systems rose from about 3.5 times cash flow to about 7.5 times cash flow, estimated Daniels, whose firm was handling about 80% of the deals.

A 1964 Federal Communications Commission study also found a highly profitable business, with an average operating profit margin of 57%, far more than the 30% margin enjoyed by broadcasters, though programming was still very limited. Three percent of all systems offered one or two channels, 85% had three to eight channels and 11% carried more than eight.

In 1965, the NCTA estimated that there were 1,600 cable systems, up by 200 in just six months and that applications were pending to build systems in another 1,000 communities.

As construction boomed, vendors also prospered and made a number of technical advances.

Jerrold Electronics had supplied much of the equipment in cable’s early years but as the decade wore on, others entered the industry.

In late 1950, the mining company Phelps Dodge began to produce better quality coaxial cable and advances in solid state technology began to improve the reliability of other equipment, which had long been plagued by the short life-span of vacuum tubes used at the time. By the mid-1960s, new systems were typically built with solid state technology, and in 1967 Scientific-Atlanta introduced the first transistorized head-end signal processor.

Less successfully, more experiments were made to launch pay TV services. In California, former NBC president Sylvester “Pat” Weaver, raised $20 million to launch Subscription TV and announced plans to deliver sporting events, films, plays and other programming on an individual basis.

Weaver hired the phone company to build systems first in Los Angeles and San Francisco, but the pay TV service faced trouble from theater owners. They managed to get 1 million signatures for Proposition 15, a ballot initiative that would ban pay TV in the state.

After being subjected to an advertising blitz claiming that the new pay TV services would force viewers to pay to watch the World Series and other popular events, Californians voted two to one in the fall of 1964 to outlaw pay TV.

As these pay TV efforts failed to get off the ground, the industry was embarking on a much more fundamental transition. Cable had always been a creature of small-town America, growing up where broadcast signals were weak or non-existent. Later the industry found it could make money where there were only one or two local stations by importing distant signals.

In the mid-1960s, however, the first large urban franchises began to be awarded in New York City and other metropolitan areas.

In the long run, these urban franchises would make cable TV a ubiquitous feature in American homes, but in the short run, they helped fuel a regulatory backlash that had been brewing since the 1950s.

Alarmed at the idea of cable systems in urban centers, ABC petitioned the FCC to begin regulating cable. Other companies joined the fight, demanding strict limits on cable’s ability to import broadcast signals.

In the 1950s, the FCC had rejected those appeals. But by the early 60s, President Kennedy had appointed three of the FCC’s seven members, including chairman Newton Minow — who would achieve fame for calling television a “vast wasteland.”

In 1965, the FCC issued a bevy of new regulations that severely limited the ability of cable systems to import distant broadcast signals, and Southwestern Cable took the agency to court.

After winning in the Appeals Court, the cable industry suffered a serious setback in June 1968, when the Supreme Court ruled the FCC had virtually unlimited authority to issue rules governing all forms of communications by wire or over the air.

The FCC quickly responded by issuing even more sweeping regulations, including a ban on imported signals in the top 100 DMAs.

That same month, the Supreme Court gave the cable industry a temporary reprieve on copyright issues. In 1960, United Artists Television sued two cable systems in West Virginia for importing broadcast signals with their programs and asked the court to block the practice unless the permission of the copyright holder had been granted.

The District Court and the Appeals court both ruled in UA’s favor. But in June 1968, the Supreme Court overturned those decisions, which could have destroyed the cable industry, and ruled that it was up to Congress and the FCC to settle the copyright issue.

That temporary reprieve, however, was a rare bit of good news for cable in the closing years of the 1960s.

As inflation grew, the prime interest rate soared from 4.5% in January of 1965 to 8.5% in mid-1969, making it harder to finance new systems. The cost of equipment rose and copper prices jumped, boosting the price of coaxial cable by 6% in 1968 alone.

The combination of increased regulation, higher equipment prices, rising franchise costs and a spike in interest rates produced a near-fatal cocktail for cable in the late 1960s and early 1970s. Some systems shut down and construction of new systems ground to a halt. TV Digest, which had reported the launch of more than 250 new systems in 1968, found only 90 startups in 1969.

Throughout the 1960s, TelePrompTer had been using its publicly traded stock to buy cable systems, and other operators embraced the system tactic.

By the end of the decade, there were 10 publicly traded cable companies, including American Television & Communications. But as the economy struggled, Wall Street also turned against cable, shutting off a key source of capital as cable operators began embarking on the very expensive process of wiring urban markets.