2008 CABLE SHOW: Cable @ 60: This Decade

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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.

New Landscape for a New Millennium
The past decade has been onein which cable operators expanded into hugely significant and profitable new business lines — while seeing system ownership dwindle as a result of the big getting bigger, the small selling out after the telecom boom turned to bust and, in one notable instance, a top 10 cable operator self destruct amid fraud charges.

The investment numbers are well known. Since cable’s big rebuild began in earnest in 1999, when total capital expenditures spiked to $10.6 billion (from $5.6 billion in 1998), the industry has spent an estimated $113.2 billion expanding capacity to add channels and voice and data services, according to Kagan Research.

From a standing start of 500,000 customers at the end of 1998, the collective count of cable-modem subscribers is now around 35.6 million, according to the National Cable & Telecommunications Association.

Broadband momentum continues to build. The recent first-quarter operating reports from the top two cable operators showed Comcast and Time Warner Cable accelerating their theft of phone companies’ digital subscriber line customers.

Voice offerings from cable companies were nascent at the end of the 1990s, despite efforts from Cox Communications and AT&T (which bought former top operator Tele-Communications Inc. in 1998) to make circuit-switched telephony a big business for cable.

Not until operators were able to integrate phone service into the cable-modem infrastructure did “digital voice” become an essential product for cablers. Still, the big two operators now have more than 8 million combined voice customers, and cable operators overall ended 2007 with 15 million voice customers.

In 1996, Cox launched cable-modem service as part of the @Home consortium. David Pugliese, senior vice president of product marketing at the MSO, said that at the time, for consumers stuck with dialup service, “it was like a miracle elixir.”

“We had a great product at a great price [$29.95] that consumers really wanted,” he said. “It was a great time to be a marketer frankly.” The challenge was explaining the benefits to some consumers, so Cox and other cablers did a lot of demonstrations at public events.

On the phone service front — a business Cox entered in 1997 — one of the big challenges was internal, according to Pugliese, who came to Cox with a phone-company background. It required adopting a “911 mentality,” he said. If cable goes out, that’s a problem and it needs to be restored quickly. “It’s a whole different world should your phone service go out at 2 in the morning. First of all it’s not permissible that it does. But if it does, you’ve got to have ways to get that up really quickly because that’s a life-and-death service for some consumers.”

On the employment front, the industry has increased job rolls by 80,000, while wireline phone companies have thinned their ranks by 250,000, according to Mediacom Communications chairman and CEO Rocco Commisso, a co-chairman of the upcoming Cable Show.

“We’re probably the only domestic industry that has accomplished what it has — and the last 10 years are a prime example of that — without having asked the government for any incentives, any changes in the law, any tax breaks or any subsidies,” Commisso said.

Commisso’s company, Mediacom, was one of four operators that took advantage of strong economic trends and went public with a stock offering during a seven-month period between mid-1999 and early 2000.

The others that went public at that time were Charter Communications, with a $3.2 billion initial public offering that at the time was fourth-biggest in U.S. history; Insight Communications, taken private (the more recent cable trend) in 2005; and Classic Communications, a rural operator that struggled financially and sold out to Cequel III (doing business now as Suddenlink) in 2003.

Charter’s IPO came after the entry of a huge financial player into the cable business: Paul Allen. The billionaire co-founder of Microsoft (and Vanguard Awardee at this year’s Cable Show) made his first cable system acquisition — Marcus Cable, for $2.8 billion — only 10 months after Microsoft (led by co-founder Bill Gates) took Comcast chief Brian Roberts’s advice about investing in cable. Microsoft bought 11% of Comcast for $1 billion.

Allen followed his Marcus acquisition with buyouts of Charter (for $4.5 billion in July 1998) and of systems from Greater Media, Fanch Communications, Falcon Cable, Rifkin, Bresnan Communications and others, for $12 billion in all. By the end of 2001, Charter controlled 6 million cable subscribers.

Money flowing into telecoms brought funding to “overbuilders” — companies that proposed to build cable, voice and data networks competing with incumbent cable and telephone firms — including RCN, Knology and Everest Connections.

Of those, RCN and Knology are still in business (though both shed debt through Chapter 11 reorganizations) but Everest and others collapsed — as Commisso consistently predicted they would.

Satellite TV has been a success, to the detriment of Mediacom and other cable operators in rural and urban territories, alike. Born in the mid-1990s, DirecTV and Dish Network now combine for more than 30 million video customers. Along the way, DirecTV scooped up a cable-operator-backed satellite-TV provider (PrimeStar Partners, with 2.3 million subscribers); attempted to merge with Dish Network and then was sold to Rupert Murdoch’s News Corp. and then John Malone’s Liberty Media.

Charlie Ergen’s Dish Network has maintained its independence. Though the federal government thwarted his attempt to merge with DirecTV (in 2003), Ergen benefited from another failed merger, with Murdoch’s News Corp. Murdoch bailed from that merger, and ended up having to pay Dish a $1 billion breakup fee and to sell Dish key satellite assets.

From early deployments — such as TCI’s in Hartford, Conn., in October 1996 — cable grew to about 5 million digital-TV customers at the end of 1999. Last year it ended with an NCTA-estimated 37.1 million.

The FCC’s count of national programming services rose to 565 at the end of 2006, double the number at the end of 1999.

As channels have proliferated, the price of cable’s expanded basic package has risen, to an average $42.76 in 2007 from $28.92 in 1999, according to the NCTA, using Kagan Research estimates.

There have been a rising number of contentious negotiations over license-fee increases and requirements that distributors buy bundles of multiple networks from big programming companies.

One such dispute took place when ESPN’s contract calling for annual 20% fee increases came up for renewal in 2004. Jim Robbins, then chief of Cox Communications, and others (including Commisso) publicly called on ESPN to pull back on the size of the increases, or face being dropped. In February 2004, Cox and Charter signed new nine-year deals covering expanded-basic distribution of ESPN and ESPN2 and guaranteeing distribution for other ESPN services, including ESPNews, ESPN Classic and ESPN HD, at terms that moderated the rate of increase and that were a template for deals with other distributors.

“These are just business issues that are endemic of any business — trying to identify what the right price value relationship for a product is in the marketplace,” said Sean Bratches, ESPN’s affiliate sales and marketing chief at the time and now executive vice president of sales and marketing. “Although that dispute was unfortunately taken public,” he added, “ultimately I think we resolved our differences appropriately and we have an extraordinarily strong relationship with Cox to this day.”

Sports on television has been “a significant driver of the subscription business,” Bratches said, citing research that indicated when ESPN first put National Football League contests on cable in 1987 that it led to about 1 million new cable subscriptions­.

Comcast and Time Warner Cable’s impact on a programming service’s business prospects is something that’s grown significantly over the past decade. At the end of 1999, both were on the list of the top five cable operators.

The difference is, back then, No. 1 Time Warner (12.9 million subscribers) and No. 4 Comcast (5.67 million) combined for about one-third of the top 10 combined cable companies’ base of 54 million, based on Warren Publishing estimates at the time.

Today, No. 1 Comcast (24.7 million) and No. 2 Time Warner Cable (13.3 million) are almost two-thirds of the top 10’s subscriber base, which stood at about 58 million in December 2007, according to SNL Kagan.

Even back in 1999, consolidation was rampant, and that trend has continued. Time Warner Cable then was about 10 times the size of the 10th biggest MSO, Lenfest Communications.

Comcast today is about 35 times bigger than No. 10 Cable One Inc., with about 700,000 subscribers, using the Kagan figure.

Between then and now, Comcast acquired the former No. 2 cabler, AT&T Broadband; the No. 5 cabler, MediaOne Group (which had sold out to AT&T); and Lenfest.

The current No. 6 operator, Bright House Networks, actually emerged from Time Warner Cable in 2003 as Time Warner and Bright House majority owner Advance/Newhouse reworked a partnership.

And Adelphia Communications, which was the No. 8 MSO in 1999 even before it bought the then No. 9 operator (Century Communications), ended up being divided between Comcast and Time Warner, after bankruptcy proceedings that followed the company’s financial collapse amid a massive accounting scandal.

Adelphia was sold at auction after John Rigas, who co-founded the company in 1953, and his sons Timothy and Michael were arrested on federal fraud and conspiracy charges related to accounting schemes used to build the company and enrich the accused men. John and Timothy Rigas were convicted on 18 counts in 2004 and began serving jail sentences in August 2007.

The drive into multiple-service sales has increased the need for more technical expertise among customer service representatives and installers (or “broadband technicians” as they are also called now). Even on the video front, CSRs need to know about high-definition TV offerings, video on demand and digital video recorders, all rapidly growing in adoption.

Lynne Ramsey, senior vice president of human resources at Charter and president of the Cable Telecommunications Human Resources Association, said her operator has put a greater emphasis on attracting and retaining skilled workers. Charter studied within its operating regions areas where it hung onto employees better and found “there is a definite correlation between employee churn and customer churn.”

Programmers also need employees with different skills, according to Lisa Chang, executive vice president of human resources at The Weather Channel and CTHRA’s vice president.

“For our network alone we are dealing with transformation of skills,” Chang said. “Our HD network will launch later this year and we’re trying to make sure we have everything in place to make that happen.”

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

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