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.
Growing Up in the ‘Me Decade’
When Ted Turner gambled on the launch of CNN in June of 1980, he wasn’t the only one betting heavily on the future of cable in the late 1970s and early 1980s. Just four years after HBO first launched on satellite, some 27 programmers were being carried on Satcom 1.
CNN was the first 24-hour news network, but most of the other major programming genres were beginning to be covered by cable networks. By the start of the 1980s, pay programmers now included HBO, Showtime, The Movie Channel, Home Theater Network and Galavision. Turner’s Superstation WTBS had been joined by WGN, WOR and KTVU. Sports was covered by ESPN, Madison Square Garden Network and the Total Communications Service.
Besides the news and information on CNN and C-SPAN, viewers could watch programming from Warner’s Nickelodeon and UA Columbia’s Calliope and religious fare from the Christian Broadcast Network, PTL and Trinity Broadcasting Network.
Major corporations were also investing in cable. Throughout the 1970s, Time Inc. had been increasing its 9% investment in American Television & Communications Corp. and in 1978 finally took full control.
Other giants moving into cable included: Times Mirror, which purchased Communication Properties in 1979; the New York Times Co., which bought systems serving 55,000 from Irving Kahn in 1980; Hearst, which partnered with ABC to launch ARTS (renamed A&E Network in the mid 1980s); Newhouse, which acquired systems from Daniels Properties serving 116,000 subscribers; Tribune Co., which bid on franchises and invested in cable channels; Dow Jones & Co., which purchased a 24.5% stake in Continental Cablevision; American Express, which purchased a 50% stake in Warner Cable in 1979; and Getty Oil paid $10 million in 1979 for 85% of ESPN.
The biggest deal, however, was Westinghouse Electric Co.’s 1981 acquisition of TelePrompTer for $736 million.
Hardware suppliers, meanwhile, were developing new equipment that would allow cable operators to significantly expand their channel lineups. In 1979, Motorola introduced a 53-channel amplifier priced at $30, the same as the older 35-channel model, and Jerrold unveiled a 400-Megaherz system.
In 1980, Dallas-based equipment manufacturer TOCOM launched a 55-channel addressable converter at the National Cable Television Association’s convention priced in the $150 to $200 range and other vendors quickly followed with addressable set-top boxes.
With the new capital, technology and programming, cable began wiring the nation’s largest cities in earnest.
Between 1978 and 1983, Boston, Chicago, Cincinnati, Detroit, Dallas, Denver, Houston, Indianapolis, Kansas City, Miami, Milwaukee, Minneapolis, New Orleans, Omaha, Pittsburgh, the outer boroughs of New York, Tampa and Washington, D.C., were all awarded cable franchises.
One of the most successful players winning franchises was Warner Cable, which regularly sent city officials to Columbus, Ohio, to see its much-hyped QUBE interactive system that was launched in 1977 with groundbreaking pay per view, new cable channels and interactive TV programming.
But the cost of building these systems proved much more expensive than anyone expected. In 1983, Warner Amex Cable’s losses hit $99 million and it was struggling under $875 million in debt.
Alarmed by the red ink, American Express forced Warner chairman Steve Ross to hire a new head of the cable operations, Drew Lewis. He quickly shut down QUBE, laid off half the staff in the company’s headquarters, stopped bidding on new franchises and renegotiated franchise agreements in many cities.
And American Express wasn’t the only investor getting cold feet as the huge cost of wiring major urban centers produced massive losses.
In upcoming years, nearly all of the big companies that entered the industry in the late 1970s and early 1980s, would get out of the business. American Express, Westinghouse, Times Mirror, General Electric, Tribune, Hearst, The New York Times, Rogers and Dow Jones would shed their systems interests, though GE, Tribune and Hearst would remain heavily involved in cable programming.
Broadcast networks that entered cable also ran into financial problems. CBS launched a cultural service, CBS Cable in October 1981 with much fanfare. But after losing some $30 million in less than a year, the service was shuttered.
The Entertainment Channel, part-owned by NBC-parent RCA, suffered a similar fate after losing nearly $10 million in nine months. It merged with the ARTS network run by Hearst and ABC, creating the Arts & Entertainment Channel.
Hearst and ABC also merged its Daytime service with the Cable Health Network, which was owned by Viacom and Jeffrey Reiss, to create Lifetime. Both launched in 1982 and had struggled to gain carriage.
But the biggest failure was an attempt by ABC and Group W Cable to launch a news channel to compete with CNN.
Many expected the Satellite News Channel to crush CNN, which was still losing money, but when SNC launched in June 1982, it had only 2.3 million subscribers. In November 1983, Turner agreed to pay ABC and Group W $25 million to get out of the business. During its short life, SNC managed to lose $100 million.
Pay TV was also running into problems. The total pay TV subscribers jumped from 1.6 million in 1977 to 9 million in 1980 and 29.9 million in 1984. But operators added only 300,000 new subscribers in 1984, in part because of the growing popularity of VCRs, which had become fixtures in about 20% of all American homes.
But not all operators suffered fatal losses in the urban franchise wars. TelePrompTer, American Television & Communications, Continental Cablevision, Comcast, United Cable and a number of other MSOs were much more prudent in their bids and emerged relatively unscathed.
TCI, meanwhile, stayed on the sidelines. “We just didn’t want to join the liars club,” of making expensive promises that would be impossible to keep, John Malone later explained.
Instead, TCI focused on buying up smaller systems, many of which were classic independent operations. Applying economies of scale, TCI was able to quickly cut costs at newly acquired systems and boost cash flow.
As some investors sought to get out of their expensive franchise deals, TCI also began buying systems at distressed prices, acquiring the Pittsburgh systems from Warner for $93 million.
The industry also received a much needed boost from the Cable Act of 1984. It largely freed cable from regulation by the cities and let systems increase subscriber rates.
The new revenue from higher rates could then be invested in new programming, technologies and services that would attract new subscribers and cable operators made it much easier to raise new capital for acquisitions, prompting a flurry of deals.
In the last half of the decade, TCI, for example, gobbled up United Artists Communications, United Cable Television Corp., WestMarc and Heritage Communications, growing into the nation’s largest cable operator.
The decision by a number of major companies to sell their cable assets and the availability of new capital from Wall Street, also spurred the growth of midsized companies like Comcast.
Comcast co-founder Ralph Roberts was a Wharton School of Business graduate and worked in the ad business and at Muzak Corp. before founding his own men’s accessory business. After selling the business in the early 1960s for a handsome profit, he was approached by Daniel Aaron at Jerrold to buy one of Jerrold’s cable systems. Roberts agreed on the condition that Aaron would join him and help run the system. The two men were soon joined by Julian Brodsky, creating a management trio that would build one of the country’s most successful operators.
In 1983, Comcast was the country’s 18th largest cable company with about 500,000 subscribers but the company embarked on a huge growth spurt in the last half of the decade. In 1985, it joined with Time Inc. and TCI to buy Group W’s 1.9 million subscribers for about $1.7 billion. Three years later, Comcast, TCI and Knight Ridder acquired Storer’s 1.5 million subscribers for $2.8 billion.
A graphic illustration of the deal-making frenzy of the era can be found in a subsequent survey by the General Accounting Office. Between 1986 and 1989, the GAO found that cable systems serving over half (53%) of all cable subscribers changed ownership.
Operators also ramped up their programming investments, with TCI leading the pack. Malone hired John Sie to invest in struggling channels and to develop new programming.
One of Sie’s first deals was with John Hendricks’ The Discovery Channel. Launched on a shoestring in 1985, the documentary service was ready to fold when Sie put together a consortium of cable operators — TCI, Newhouse, United Cable and Cox — to invest a total of $6 million in the programmer.
A consortium of 31 cable companies, including TCI and Time, also acquired a 37% stake in Turner Broadcasting System after Ted Turner ran into financial troubles following his acquisition of MGM.
Major programmers also began bolstering their programming. ESPN was launched as a free service in 1979, but by the late 1980s, it had expensive deals for popular professional sports, including Major League Baseball and the National Football League, thanks to the increasingly hefty affiliate fees it was charging operators.
USA Network also spent much of the decade improving the quality of its programming, again at a price. The network inked expensive deals for exclusive rights to run episodes of Miami Vice and Murder She Wrote, and in 1988, it budgeted $250 million to develop original programming. To pay for this, USA quadrupled its affiliate fees in the 1980s.
Programmers also began delivering new kinds of services. Roy Bliss Jr. at United Video, which distributed WGN and other broadcast signals, came up with the idea of using a portion of the available satellite signal known as sideband to create new service.
Initially, Bliss used sideband to offer music channels and in 1981, he created a programming guide. By the end of the 1980s, the Prevue Guide was available in about 44 million homes.
The Weather Channel, the brainchild of former broadcast network weatherman John Coleman with financial backing from Landmark Communications, launched in 1982. Later, it began using the sideband to transmit thousands of other individualized weather report to cable systems that could be used to customize Weather’s national feed.
Operators were also finally delivering pay-per-view movies and events, thanks to the spread of addressable converters. By the end of the 1980s, there were some 17 million addressable homes in the U.S. or about 35% of all cable homes. About six million of those homes were PPV customers who generated about $210 million a year in revenue.
About 28 new ad-supported cable networks were launched in the last half of the 1980s and cable operators boosted their spending on programming to $3 billion, up 50% from 1984, according to the National Cable Television Association.
Meanwhile audience share for the whole day for cable networks doubled to 35% between 1984 and 1990 and cable advertising revenue hit $2.5 billion, up from $800 million in 1985.
But as programmers proliferated, operators began to run short of channels and faced expensive upgrades to their systems.
One solution was fiber. While working for Oceanic Cable in Hawaii, Jim Chiddix installed a fiber-optic link to hook up the Oceanic headend to the satellite dish on the other side of Oahu’s formidable mountains.
Oceanic Cable was owned by American Television & Communications and in 1986, Chiddix moved to the corporate headquarters. Here he formed a research group with Dave Pangrac and Louis Williamson. They used a new type of laser called a “distributed feedback laser” to produce a much purer optical signal. It could transmit 40 AM channels of television over 10 kilometers of fiber with no amplification.
This system, which the group demonstrated the system to a meeting of the NCTA engineering committee in the fall of 1987, would give cable operators the capacity to add a multitude of new channels and, for the first time, compete with phone companies with new data and voice services.
As the price of lasers dropped from $100,000 to around $3,000 in the mid-1990s, it became more cost effective to run fiber from the headend to nodes of homes. Soon hybrid fiber coax, or HFC become standard in the cable industry. Jones Intercable was the first to build an entire system using fiber for the backbone in Augusta, Ga.
But if fiber was the future, subscriber growth in newly wired urban areas and rate increases drove much of the growth.
The average price of basic cable grew 73% between 1986 and 1990 to $16.78, according to Paul Kagan Associates and the total number of basic subscribers jumped from 42 million in 1986 to 55 million in 1990. Not surprisingly, cable system prices had soared to $2,500 per subscriber, up from $1,000 in the pre-Cable Act era.
Once again, however, a political backlash was developing against cable, thanks to poor customer service and rate increases.
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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