2008 CABLE SHOW: Cable @ 60: The 1990s

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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.


No Slacking for Cable
For many years, there hadbeen an informal agreement between the state of Hawaii and American Television & Communications, which owned Hawaii’s largest cable system, Oceanic Cable: In exchange for a low 1% franchise fee ATC had agreed to keep rate increases to a minimum. But in June of 1988, shortly after longtime ATC chairman Tygve Myhren resigned, Time Inc. had its ATC subsidiary raise rates by 10%. Another 10% increase was set for January of 1989.

Within hours of the announcement, the administrative assistant to Sen. Daniel Inouye was on the phone, complaining of the rate increases. And, Inouye wasn’t the only political leader in Washington who was getting increasingly upset over cable TV rate increases and poor customer service.

A few senators, such as Howard Metzenbaum (D-Ohio) and Al Gore (D-Tenn.) had been attacking cable ever since the ink dried on the 1984 Act that deregulated cable rates. In the early 1990s, though, some of the most powerful men in Washington, including Inouye and Sen. John Danforth (R-Mo.) joined the list of critics, complaining of rate increases and poor customer service in Congress.

The National Cable Television Association responded by establishing a nationwide set of customer service standards that included a pledge that customer service calls would be answered within 30 seconds and that systems would respond to service interruptions within 24 hours.

But it takes time to change consumer perceptions and even more time for those views to trickle up to elected representatives.

In 1992, Congress passed the Cable Television Consumer Protection and Competition Act. The law gave the Federal Communications Commission and, in some cases, local franchising authorities the right to regulate cable rates. It also allowed broadcasters to choose whether they wanted to be given “must-carry status” or negotiate fees for carriage from cable operators, laying the groundwork for today’s contentious retransmission consent battles.

But as the industry faced a tougher regulatory climate, it was also eyeing the potential of digital technologies.

The prospect of using digital signals to send TV transmissions took hold in cable in the mid-1980s, when HBO began offering operators a scrambled analog video signal and an encoded digital audio stream.

Then, in 1990, a team at General Instrument began to research ways to transmit newly developed high-definition TV, which seemed like it would soon take off. HDTV would require enormous amount of bandwidth, so GI developed a compression system that made it possible to transmit digital video signals using less than 2% of the information that would have been required to send an analog transmission.

In the long run, these emerging digital technologies would allow cable systems to dramatically expand their channel lineups and add new data and phone services. But in the short run, the digital compression would dramatically reduce the cost of transmitting standard-definition signals and allow direct-broadcast satellite to become a serious competitor to cable.

Before the advance in digital transmission, a satellite provider launching two 24-transponder satellites could only provide 48 channels, about what a local cable system could provide. But with a compressed signal, a DBS operator could offer hundreds of signals.

The first serious threat came from Stanley Hubbard — who had founded United States Satellite Broadcasting (USSB) in 1981 and had been trying to launch a DBS service ever since — and Hughes Communications’ Direc­TV.

By offering more channels and a clearer picture than most cable systems, DBS quickly took hold. By the end of 1996, DirecTV had a subscriber base of 2.34 million, just short of the 3 million needed to break even, and EchoStar Communications, which launched in March 1996, had signed up 356,000 customers.

Cable was also touting digital’s potential. In December 1992, John Malone announced TeleCommunications Inc. had placed orders for 1 million digital set-top box converters and a front page story in The New York Times predicted that cable systems with 500 channels of programming were on the horizon.

Time Warner also moved quickly to explore the potential of digital technologies. In January 1993, Time Warner unveiled plans for a “full service network” to be built in Orlando, Fla.

When the system was finished in December 1994, it used a fiber backbone, digital transmissions and file servers to deliver such services as video on demand, video phones, sophisticated interactive games, shopping, telemedicine and online news.

The new technologies also opened up the potential of offering voice and data, once the exclusive preserve of telcos.

At the time, telephony in the U.S. generated revenue of more than $100 billion per year, while the cable industry produced less than $30 billion. Taking just 10% of the telcos’ revenue would boost the size of the cable industry by one third.

Such numbers encouraged a number of cable operators to move into the phone and data business. In early 1992, Cox Communications and TCI acquired the Teleport Communications Group, which had constructed a fiber optic network in New York City to provide telecommunications services.

Cox had also been developing a “personal communications system” that would allow subscribers to use a single phone at work, home or while in the car. In February 1992, Cox Enterprises chairman James Kennedy placed the first PCS call to FCC chairman Al Sikes.

But cable’s embrace of new digital technologies also caught the eye of major phone companies. Worried about the potential competition, they reacted by trying to buy out the enemy.

In February 1993, Southwestern Bell announced plans to buy Hauser Communications, touching off a flurry of deals.

But the biggest deal was the September 1993 announcement that Bell Atlantic would purchase the country’s largest cable operator, TCI for about $11.8 billion.

“It’s been a great ride for the last 20 years,” Ted Turner said at the Western Show in December 1993. “This is [the industry’s] last cable show. We’ll manage to adjust to our new telephone company owners.”

Ironically, a heavy-handed attempt to roll back cable TV rates had the unintended effect of de­railing some of the new telco deals.

After the passage of the 1992 Cable Act, the FCC initially froze rates. Then, in 1994, the agency announced new rules that would force cable operators to reduce their rates to a level that was about 17% below the rates they charged prior to the passage of the 1992 Act.

The impact of the FCC rules were devastating. The first casualty was the merger of TCI and Bell Atlantic. Realizing that the rate cuts would reduce TCI’s cash flow by $300 million, both sides backed away from the deal.

As Southwestern Bell’s plan to buy Cox also collapsed, the cable sector fell into a serious slump. Operators slashed capital expenditures and cancelled construction projects. TCI cut its $1 billion budget for system upgrades in half and Time Warner lopped $100 million off its $700 million capital budget.

Meanwhile, larger more powerful programming groups were emerging that could stand toe-to-toe with cable in tough negotiations over carriage. Following the completion of the Disney/ABC merger in 1995, Time Warner announced plans to merge with Turner Broadcasting System. Then, in 1999, Viacom acquired CBS.

The new satellite services and the deployment of digital tiers by cable operators also strengthened the power of programmers and opened up opportunities for new channels.

In 1991, John Malone spun off TCI’s programming assets as a separate company, Liberty­ Media, and over the next few years, it launched Court TV, Encore and acquired interests in home shopping networks. In 1994, under the leadership of John Sie, it also launched the pay TV service Starz.

Cable channels continued to expand their audience in this 1990s, thanks to increased programming expenditures and such high-profile successes as CNN’s live satellite feed from Baghdad during the first Gulf War.

In the 1989-1990 season, the national broadcast networks, independent stations and public TV stations had a 67.4% audience share, down from 86.7% in the 1984-1985 season. By the 1999-2000 season, broadcast station’s share had eroded even further, to 53.4%, and basic, premium and other cable networks had increased their share to 46.6%.

While the rollout of digital video services was taking much longer than expected, cable operators were also making progress on their promise of offering high-speed Internet connections and discounted phone services.

One early pioneer was Continental Cablevision. In the late 1980s, Continental Cablevision began using fiber to interconnect all its systems and began offering data services to businesses.

In 1993, it announced a partnership with Performance Systems International, a leading maker of equipment to link PCs to the Inter­net and in March 1994, the company launched an Internet access service in Cambridge, Mass. The offering allowed users to download information 200 times faster than dial-up phone lines.

In 1995, TCI teamed with a group of San Francisco entrepreneurs to launch @Home. Seven other cable operators soon joined as equity partners in @Home, which had more than 100,000 high-speed data subscribers by the middle of 1998.

In March 1997, CableLabs also released the Data Over Cable Service Interface Specification, or DOCSIS 1.0. The new international standard allowed cable operators to buy much less expensive modems and deploy high-speed data services in a more cost effective manner.

Cable telephony was also making strides. In 1996, Cox and Sprint launched a personal communication service. In 1998 MediaOne rolled out its phone service and Cable­vision announced plans to make telephony available to about 60,000 homes by the end of the year.

In the last half of the 1990s, the long delayed rollout of digital video services began. TCI launched its digital system, dubbed ALLTV in Hartford, Conn., in October 1996, and by the end of April 1998, it had some 275,000 digital customers.

These advances also caught the eye of investors. In 1997, Microsoft invested $1 billion to buy a 11.7% stake in Comcast and Microsoft co-founder Paul Allen began making his first cable investments, purchasing 94% of Marcus Cable Partners for $2.8 billion, and buying Charter Communications for $4.5 billion.

But the biggest deal came just a few months before cable’s 50th anniversary. In June 1998, AT&T announced that it would spend $48 billion to buy TCI.

The deal highlighted just how far the industry had come from its humble beginnings, when a few appliance store owners jerry-rigged some cables to an community antenna so they could pick up a broadcast TV signal and sell more TVs. In 1998, cable TV pulled in about $31 billion in revenue and had over 65 million subscribers.

While the next decade would see even greater growth, the ride would not be a smooth one. After the collapse of the Internet bubble, AT&T would be forced to sell its cable systems, ending another attempt by the phone companies to expand into cable. But new competition would soon emerge. Verizon and AT&T would launch new IPTV services and an old cable hand — John Malone — would acquire DirecTV.

The history of cable up to the 1990s is entirely based on Thomas Southwick’sDistant Signals: How Cable TV Changed the World of Telecommunications


For more news from NCTA's The Cable Show '08, click here.

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