Cable Television Coming of Age

December 27, 1985

Report Outline
State of the Industry
Programming Challenges
New Forms of Competition
Special Focus

State of the Industry

Very Strong Financial Picture Predicted

Are these the best or the worst of times for the cable television industry? There seems to be ample evidence in both directions. On the up side, the industry—the operators that own the local cable systems and the programmers that provide the cable channels—is growing rapidly. Five years ago 4,225 cable TV systems across the country served about 16 million subscribers. Today more than 6,800 systems serve more than 38 million subscribers. Over 44 percent of the American households that have television sets are wired for cable. And more people than ever are watching cable shows. The networks held 89 percent of the prime-time audience in the 1978–79 TV season; by 1983–84 their share had dropped to 75 percent, according to the latest statistics compiled by the Cable Television Advertising Bureau in New York.

Many of the systems are very profitable and their future looks bright. A 1985 report by the Arthur D. Little research firm predicts a “strong financial performance” for the industry over the next few years. The research firm expects the cable systems to double their 1984 revenues (an estimated $8.4 billion) to $16.5 billion in 1990 and the number of subscribers to grow by nearly 40 percent. The industry will no longer be a “net user of cash during years of heavy capital investment,” the report said; it will become “a net source of cash” in the next five years.

There are two main reasons for the bullish outlook. First, and most important, the days of highly capital intensive franchising and construction—many systems cost more than $100 million to build—are nearly over. Most systems that have been operating for more than five years are now reaping the benefits of decreased expenses and increasing revenues. “We could always see the day when these would be mature systems,” said Fred A. Vierra, president of United Cable Television Corp., the eighth-largest operator. “You open the door Monday morning, and there's a huge pile of cash.” Second, in 1987 cable operators for the first time will be able to raise rates without permission from local authorities under terms of a 1984 law passed by Congress. This deregulation will be responsible for $800 million in revenues and $500 million in profits by 1990, according to the Arthur D. Little report.

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