Cable Television Coming of Age

A document from the CQ Researcher archives:

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.1 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.2

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.”3 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.4 This deregulation will be responsible for $800 million in revenues and $500 million in profits by 1990, according to the Arthur D. Little report.

Problems with Recently Won Franchises

While many of the older systems are raking in the profits, some cable operators are having serious problems with systems they agreed to build during the “franchising wars.” Between 1979 and 1983, cable operators and local governments in large urban areas across the country signed what are sometimes called “Cadillac” franchise agreements. In addition to dozens of channels, a typical Cadillac system offers ancillary services such as interactive, two-way services, burglar alarms, channels set aside for community access and free separate circuits that wire together local schools, libraries and government offices—all of this at bargain-basement prices for consumers who receive 20, 30 or more channels for pennies a day.5

The fierce competition among the large cable companies for the big-city franchises, along with the cities' desires to get the fanciest cable systems, meant that in many cases the “cities were over-demanding and the cable operators were over-promising,” said Steve Tuttle, vice president for public affairs with the National Cable Television Association.6 Many cable companies have not been able to live up to the promises they made. To complicate matters, some of the more costly add-ons, including burglar alarm systems and interactive services that allow cable subscribers to communicate with banks, shops and other services, proved to be very unpopular. Moreover, many cable systems, because of tight budgets, did not adequately maintain their systems or efficiently handle customers' complaints. These factors have caused cable operators to undertake what Thomas Whiteside, writing in The New Yorker, called “aggressive campaigns to reduce or back away from their commitments” by asking local governments to drop some of the more costly services.7

As a result there has been a spate of franchise agreement renegotiations in the last two years in many large cities. In some cases—such as Baltimore, sections of Chicago, Detroit, Philadelphia, parts of New York City and Washington, D.C.—cable operators have sought to renegotiate before they even wired their first house. In other cities—including Boston, Cincinnati, Dallas, Denver, Houston, Miami, Milwaukee, Omaha, Pittsburgh and Tucson—operators of working systems have asked for and received contract concessions. John Mansell, a cable analyst with Paul Kagan Associates, found that in 1984 renegotiations were going on in about half of the nation's 100 largest cities. “The only reason most of the other half didn't [undertake renegotiations] is because they were still unfranchised or were in the process of signing agreements or they were awarded franchises years earlier which had already been built,” Mansell said.

Renegotiations in Dallas and Other Big Cities

One of the more publicized franchise problems in recent years took place in Dallas, where the City Council in 1980 chose Warner Amex Cable Communications, the nation's sixth-largest cable operator, to be Dallas' cable company. Warner Amex promised 100 channels, 18 of which would be used for public access. The agreement also committed Warner Amex to provide 10 studios for community use and to build a private data communications link for the city's businesses and institutions. And it included QUBE, an interactive service for individual cable subscribers. Warner Amex's problems in Dallas began not long after the first customer was wired up on Jan. 6, 1982.

The main problem for Warner was that costs far exceeded revenues. “The problems that existed in Dallas were the same exact problems that existed in all the other cities that had problems,” said Kenneth B. Lerer, a vice president of Warner Amex Cable. “It cost more than anybody imagined it would to build. Expenses were higher than anticipated. Institutional networks and access programming were costing a lot of money and there was no return.” Few people signed up for QUBE or for most of the other ancillary services. “So there was virtually no revenue from banking at home, shopping at home, home security, things like that,” Lerer said.

As in other cities, there were numerous complaints from customers about the Dallas system's reliability. Consumers reported long delays in trying to reach the cable company on the telephone; there were problems with service and installation. In the summer of 1983 the city drew up a list of customer service standards and gave Warner Amex two months to comply with them. “They did reach those standards,” said Thomas Z. James, director of the Dallas Department of Consumer Services. “There was an improvement. In midsummer of 1983 in one month 27 percent of the subscribers who attempted to reach the company hung up or were otherwise unable to talk to anyone. [Warner Amex reduced] that to the target of 5 percent.”

Customer service improved, but Warner Amex was disenchanted. With the city's approval it dropped the QUBE service in 1983. The company also began renegotiating with the city to reduce its commitment to viewer access channels and to cut back other services. Not long after Drew Lewis, the former U.S. secretary of transportation, took over as chairman late in 1983, Warner Amex decided to put the franchise up for sale. Heritage Communications Inc., the nation's 16th-biggest cable operator, purchased it for $110 million in October. According to Business Week magazine, Warner Amex suffered $60 million in operating losses in Dallas. Warner also sold its Pittsburgh cable franchise to Tele-Communications, Inc. late in 1984 for some $92 million.8

Among the other recent renegotiations, the Miami cable system's operator—a business group that includes Tele-Communications Inc.—won permission to drop an interactive system. Milwaukee is allowing Warner Amex to delay installation of a QUBE system, significantly cut back the scope of a cable computer data system and eliminate building a local-channel studio. In Montgomery County, Md., a large, affluent suburb outside Washington, D.C., Tribune-United Cable Co. has asked for major contract concessions that include dropping up to half of the 120 channels called for in its 1983 franchise agreement. Tribune-United also wants to cut back the number of promised public access and educational channels and reduce its funding of local programs.9 Not long after it won its franchise—and before it had wired its first house—Tribune-United asked for and received a rate increase.

Controversy Over Extent of Viewer Access

In many cities where renegotiations are taking place the main issues involve unexpected costs by the cable operator for ancillary, high-tech services. But another bone of contention is the issue of community-oriented uses of cable TV—setting aside channels for the use of public agencies, non-profit groups and individuals. Federal regulations require cable systems to provide some sort of viewer access system, with each locality determining exactly what the access consists of.

Before 1979 cable operators generally set aside one or two channels for public use and provided free or low-cost studio space and some equipment for use by the public. But the scope of public access changed significantly during the 1979–1983 big-city franchising frenzy. Cities demanded, and cable companies agreed to, large-scale viewer access systems. These included setting aside a dozen or more public access channels, providing millions of dollars to train citizens to use video equipment and even setting up complete television studio operations, including mobile production vans, for free community use.

The cities consider a public access system a natural adjunct to the cable television franchising system. It “is a public service that [cable operators] offer to provide during the franchising process so that they can win a contract to provide exclusive service in a particular community,” said Paul D'Ari, director of information services for the National Federation of Local Cable Programmers. “As a quid pro quo for getting that monopoly and making a lot of money delivering premium services, they agree to provide community programming.” The cable companies do not argue with the concept of public access. But they believe that cities have asked cable companies for unreasonably excessive systems. “There's no reason why a big system shouldn't have access channels,” Lerer said. “You just have to be reasonable about how many, that's all.”

Cable operators say that the typical Cadillac public access operation costs them millions of dollars and generally does not serve the public good. “By and large people just don't watch those channels,” Tuttle said. “It's very expensive for a cable operator to provide those services, and while there probably is some public good in being able to do that, the question is, do the costs justify that?” Viewer access advocates contend that the systems account for relatively small expenditures by the cable companies. D'Ari conceded that audiences are low for most viewer access programming. Nevertheless. D'Ari said, programs that carry live coverage of local government meetings or provide information for people with specific health problems “fill a tremendous void.” It is “not numbers [of viewers] which is the most important thing when it comes to community television,” he said. “It is the quality of the experience.”

Critics say that the cable companies' desires to cut back on viewer access facilities and evade other costly franchise provisions is a calculated step on the industry's part to lower expenses. Janet Quigley, director of public information for the Cable Television Information Center, a non-profit group that works with local governments to help develop cable TV policy, called the recent spate of refranchising a “hoax.” On one hand, she said, cable companies say “they have no money and they can't afford to do these things, and on the other hand they're being sold for millions of dollars and the older systems seem to be doing OK.” Over-promising is one reason for the renegotiating, Quigley said. But she maintained that the cable companies' aim is to have fewer customers paying much higher rates. “They want to double their rates and cut their audience in half,” she said. “Our view is that cable ought to be a universal service and everybody who wants it can get it because it'll be affordable.”

Tuttle denied that the cable companies are looking for fewer, but higher-paying customers. “We're a consumer business and we would be much healthier if more people subscribed,” he said. “We are in the business of selling entertainment programming and we will make more money if we are able to sell that service to more people.” Tuttle predicted, though, that when cable operators are allowed to raise rates without municipal approval in 1987, the charge for basic service “will rise slightly.” Rates for premium services—pay channels such as HBO and Showtime, which have never been regulated—will “either hold steady or in some cases decline,” he said.

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Programming Challenges

Unfulfilled Promise of ‘Narrowcasting’

Narrowcasting. you won't find the word in your dictionary but it has been in cable television's vocabulary for 25 years. A play on the word “broadcasting,” narrowcasting means offering a wide choice of programs, each tailored for narrow sections of the television audience. The first cable systems (then known as CATV) were set up in 1948 and 1949 to provide clear TV signals to rural areas.10 But by the late 1950s some cable companies began to transmit channels from other cities, and the narrowcasting concept was born. Cable operators were able to bring in channels from faraway cities using microwave relay systems. The first experimental pay-TV services came into being at the same time. These small services sold old movies and some special events, including big prize fights, to cable customers in limited areas on a pay-per-view basis.

The over-the-air broadcast networks did not pay much attention to cable in its earliest years. But that situation changed markedly when cable companies started bringing in outside programming. The networks viewed the nascent cable industry's programming experiments as serious competition. In combination with local, independent stations, the broadcast networks pressured the Federal Communications Commission (FCC) to protect their economic positions. For the next two decades the FCC limited the spread of cable through a series of complex programming restrictions. One ruling, for example, barred cable companies from airing movies that were less than 10 years old; another did not permit showing sporting events on cable that had been broadcast on commercial television in the previous five years. Yet another required cable companies to offer subscribers all local over-the-air stations.11

The FCC, under pressure from the growing cable industry, members of Congress and Nixon administration officials, began to eliminate the highly restrictive federal regulations in the early 1970s. The deregulation effort accelerated during the Carter administration and continues today under President Reagan's FCC head, Mark S. Fowler, who advocates not only deregulation but what he has termed “unregulation.”12

Deregulation provided a boost for expanded cable programming, which was accelerated late in 1975, when RCA placed the Satcom I satellite into orbit. For the first time cable entrepreneurs had a way to deliver programming to every cable system in the country. The first programmer to use the satellite was Home Box Office, a small movie-and-sports pay-TV service owned by Time, Inc., that had been distributing commercial-free programming via microwave transmitters since November 1972. In December 1975 HBO relayed its first signal by satellite to a small cable system in Wilkes-Barre, Pa. Today HBO, with 14.5 million subscribers, is by far the most commercially successful pay-TV service.

Growth of Satellite Channels since 1975

In the late 1970s, a host of other programmers began beaming their channels off the satellite.13 Taking advantage of a 1974 FCC ruling that overturned a restriction limiting the number of companies that could use broadcast satellites, R. E. “Ted” Turner, the owner of a local independent station in Atlanta, came up with the “super station” concept. In December 1976 Turner started sending his station—then called WTCG, now known as WTBS—to cable operators. Initially four systems signed up. Today, the station is seen by 34 million subscribers on virtually all cable systems. It is one of the most lucrative cable services and paved the way for other local independent cable super stations: WGN in Chicago, which went nationwide via cable in November 1978, WOR in New York (April 1979), New York's WPIX (May 1984) and Dallas' KTVT (July 1984). These local stations, which carry a mixture of old movies, broadcast TV reruns and a heavy dose of sports, pick up extra income by attracting national advertisers and collecting fees from cable systems on a per-subscriber basis.

Since HBO and WTBS paved the satellite path, dozens of other programmers have followed suit. Showtime, a pay-TV channel with programming similar to HBO's, started operations in March 1978. In 1979, Warner Communications began a third pay-TV service, the Movie Channel, as well as an advertiser-supported children's programming channel, Nickelodeon.14 That same year saw the debut of C-SPAN, a non-profit network that provides live coverage of the U.S. House of Representatives and other public affairs programs, and ESPN, the leading cable sports programmer. There are now 46 video cable TV services bouncing off satellites, according to the latest data compiled by the National Cable Television Association. In addition, most cable viewers can tune in a regional sports network, which typically broadcasts home games of local professional baseball, basketball and hockey teams.15

In addition to sports, cable channels include religious networks, those designed for black, Hispanic and Jewish audiences, country and rock music programmers, several that offer programming aimed for family audiences, one that provides sexually oriented adult entertainment, a 24-hour weather channel, and channels that offer self-help oriented programs. Despite this seemingly varied menu, most of the esoteric channels have comparatively small viewing audiences. The top 10 cable programming list is dominated by channels whose offerings are not much different from the over-the-air channels: movies, news, sports and TV reruns. The main difference, Whiteside noted, is “that on pay channels there are no commercials.” Cable TV, he said, “consists not of specialized services for specific audiences—the ‘narrowcasting’ that the cable industry enthusiasts liked to boast about in the early days of the industry—but, rather, of movies, and from what I've seen, movies that are repeated too often and that include too much junk.”16

Public Affairs, News, Cultural Offerings

While it is true that the cable menu is overloaded with network-like fare, cable TV has spawned some innovative—and popular—services. The Cable Satellite Public Affairs Network (C-SPAN), which quietly began broadcasting live proceedings of the U.S. House in 1979, is a non-profit venture supported by cable systems and corporate grants. It airs 24 hours a day, showing all House floor action, selected House and Senate committee hearings, call-in programs with members of Congress, government officials and journalists and other public affairs programs.17 C-SPAN, which is carried on some 1,900 cable systems with 21 million subscribers, last year broadcast live the entire proceedings of the Democratic and Republican national conventions.

Turner's Cable News Network (CNN), an all-news channel that went on the air June 1, 1980, is another example of cable programming that is unmatched by the networks. CNN provides around-the-clock news coverage and regularly gives over large blocks of time to breaking news stories. CNN reportedly lost $10 million during its first year of operation but has since achieved fiscal stability.

It also has influenced the way the broadcast networks cover the news. In 1982 ABC, CBS and NBC either added or significantly increased their news programs in the late-night and early-morning hours. ABC and Westinghouse that year inaugurated an all-new cable service, Satellite News Channels. Turner responded by starting a new channel, CNN Headline News, to compete directly with the headline-oriented Satellite News Channels. Turner won the cable news war by buying out SNC in October 1983 and merging it into CNN Headline News.18

Cable programmers have had mixed success with performing arts channels. CBS Cable, which went on the air in October 1981, and RCA's Entertainment Channel, which began in June 1982, offered ballets, operas, concerts and other cultural fare. Both lost millions of dollars and folded within a year after starting. A planned cultural channel by the Public Broadcasting Service never went into operation because of financial problems. ABC's entry in the cultural sweepstakes, ARTS, begun in March 1981, acquired the Entertainment Channel's programing in February 1984 and, with the Hearst Corp., formed a new channel, Arts and Entertainment. A&E, which is carried on some 2,000 systems, and Bravo, a pay service seen only on 210 systems, are cable's only cultural channels.

Cable has had more success with pop music. MTV (Music Television) went on the air in August 1981 with a new concept in television programming: 24 hours a day of rock videos, stylized video versions of popular rock songs aimed squarely at a young audience. MTV, which is owned by Warner Amex, is now the 6th most popular cable service, with 26.2 million subscribers on some 3,100 cable systems.

Moreover, it has become a force in the pop music industry. Record companies have found that exposure on MTV helps sell enormous amounts of records, especially for previously unknown musicians. MTV's success has spawned a sister channel, VH-1, which began in January 1985 and is aimed at the over-25 audience. Cable also has a popular country music channel, The Nashville Network, which is owned by Group W and Opryland USA and is carried by more than 3,000 cable systems.19 A second country channel, Country Music Television, which plays non-stop videos, is carried on 321 systems with some five million subscribers.

Expected Boom in Pay-Per-View Shows

Charging subscribers for a movie or special sporting event on a per-view basis has been a promise of cable television for decades. Some local systems offer the service, but until this year it has not been available nationally, primarily because the vast majority of cable systems are not “addressable.” Only about 25 percent of homes with cable television are equipped with the technology to handle the two-way communication between viewer and cable company needed for pay-per-view to work. “In some advanced systems, you can sit at your TV set and with a remote control device touch a few buttons and watch the picture unscramble,” Tuttle said. “But not [enough] cable systems are capable of that kind of technology to give pay-per-view a national critical mass of subscribers.” Analysts say that in the next 10–12 years when most of the cable operators have rebuilt aging systems and added addressable technology, pay-per-view will blossom into a multibillion-dollar industry with millions of Americans regularly choosing to pay to watch individual movies and big-time sporting events. “It looks like pay-per-view is going to be successful,” Mansell said.

At least two companies agree with Mansell. Viewer's Choice, operated by Showtime-The Movie Channel, began running pay-per-view movies Nov. 27. The nationwide system offers subscribers a first-run movie each week. Local cable companies set the charge for each movie, which is expected to be between $3.95 and $4.95. Request Television, owned by Reiss Media Enterprises, went national on Nov. 28, offering subscribers 120 to 150 first-run movies a year. The average film will cost between $3 and $5.

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New Forms of Competition

Effects of the Varied New Technologies

Until recently the cable industry considered its main competition to be the over-the-air broadcast networks. And, as far as advertising revenues are concerned, they still are.20 But today cable operators also are competing with an array of new technologies that bring television signals to viewers via microwave or directly from satellites. While it is unlikely that any of these technologies will supplant cable, together they are providing television programming to millions of Americans.

Ironically, the technology that many thought would provide the most serious competition to cable—direct broadcast satellite (DBS)—has so far been a failure. DBS systems were to carry programming directly to subscribers' homes via small rooftop dish antennas purchased from a DBS operator. The FCC approved the technology in 1982, and the Communications Satellite Corp. (Comsat) and several other corporations laid out plans to launch their own satellites or lease space on existing communications satellites and beam as many as 30 channels of cable-like programming directly to subscribers. The DBS companies envisioned signing up hundreds of thousands of customers, especially in areas not wired for cable.

Those plans barely got off the ground. Only one company, United Satellite Communications, started a DBS system. It attracted few subscribers and filed for bankruptcy early in 1985. United Satellite and other prospective DBS operators found that the rooftop dishes would cost consumers at least $300, that DBS systems could deliver only a handful of channels and that monthly subscriber fees would be in the $20-to-$40 range. DBS, analysts say, is dead—at least for now. “Until the cost to the consumer comes down, it doesn't appear that DBS will be a viable service,” Tuttle commented.

Two video delivery services, satellite master antenna television (SMATV) and multi-point distribution services (MDS), have had a measure of success in recent years, especially in urban areas where cable franchises have not been awarded. At least 4,500 SMATV systems—sometimes called “private cable”—are operating in apartment buildings, condominiums and hotels across the country. Although precise figures are not available, industry analysts estimate that SMATV systems reach 450,000 to 600,000 subscribers.

SMATV works like this: A SMATV company contracts with a building to install a satellite receiving dish on the roof. The operator then connects wires from the antenna into individual apartments or hotel rooms. Apartment house residents and hotel guests can receive both local and satellite channels. In apartment houses and condominiums subscribers pay monthly fees similar to those charged by cable TV operators. SMATV is not regulated by the FCC, nor does it fall under the jurisdiction of local governments since municipal rights of way are not used. “We pay fees for our programming just like any other cable system,” said Thomas C. Looney, president of Cablecom, Inc. of Chicago. “The difference is that we're free from the shackles of regulation and from the problems of the political arena, which are detrimental to any business.”21

Multi-point distribution services (MDS) transmit programming via line-of-sight microwave signals from a relay tower to small antennas on individual rooftops. MDS operators can offer only one channel of programming—usually a pay service such as HBO. MDS therefore has not been much of a threat to cable. But a new spin-off service called multi-channel MDS (MMDS) may cut in on cable TV's potential audience. The FCC has recently begun awarding franchises for MMDS systems, which will offer four to eight channels of cable-like programming for monthly fees similar to those charged by cable. The main draw-back of MDS and MMDS is that mountains, buildings and even large trees can block the microwave signals.

‘Dish’ Antennas: Scrambling the Signal

The cable industry's most significant competition for subscribers comes from backyard satellite dish antennas (also known as Earth stations). Sales are booming. According to the Society for Private Commercial Earth Stations, about 1.5 million satellite dishes are in use. Industry groups estimate that the number is growing at a rate of 60,000 to 85,000 a month, largely because the price has dropped markedly.22 Five years ago a fully installed home satellite dish cost at least $10,000. A comparable system today sells for less than half that amount, depending on the size of the dish—most of which are 10 to 12 feet in diameter.

Backyard dishes pull in programming from the same communications satellites used by cable TV operators, which means that home dish owners can receive—without charge—all 46 cable satellite channels, the regional sports networks and several dozen signals that are not available to cable subscribers. A sampling of the latter, culled from a recent issue of a programming guide called Birdwatcher, included the NASA Contract Channel, live NASA missions and related events 24 hours a day; the Hospital Satellite Network, medical programming and “uplifting” movies; FUN (Fantasy Unrestricted Network), six hours a day of X-rated, adult movies and other programming; 10 Canadian TV channels; and ABC, CBS, NBC and PBS network feeds to local affiliates.

Even though the 1984 cable act legalized home satellite viewing,23 cable operators regard dish owners as “pirates” who steal cable programming. It is “pretty hard to be in the cable business,” Tuttle said, “when across the street from you somebody is getting it for free. We feel that if they want to watch, they ought to pay, just like cable subscribers pay.” Earth stations have particularly hurt the pay-TV services, such as Home Box Office, Showtime and the Disney Channel, which depend upon individual subscriber fees rather than advertising for revenue. HBO will begin to scramble its signal full-time Jan. 15 so that antenna owners will not be able to watch unless they have a decoder. Industry analysts believe that most of the other major cable programmers will follow suit by the end of 1986. ABC, CBS and NBC, moreover, have announced plans to scramble their news programming, which is sent to affiliates via satellite.

Sellers and owners of backyard dishes now face two problems, both involving scrambling. First, there is the possibility that the cable programmers will adopt different types of decoders and thus force dish owners to buy a separate decoder (which would cost about $400) for each scrambled signal they wish to receive. Second, the pay services may charge unduly high monthly fees to dish owners to receive unscrambled signals. The home satellite industry is lobbying Congress to enact two pieces of legislation to overcome these problems. One bill, introduced by Rep. Judd Gregg, R-N.H., would put a two-year moratorium on scrambling, thus giving the industry time to work out a standardized decoding system. The other bill, sponsored by Rep. W. J. “Billy” Tauzin, D-La., would protect dish owners against “unreasonable” monthly fees for pay-TV services. Observers predict a long congressional and judicial battle over the scrambling and decoding issues.

Popularity of Videocassette Recorders

Because it sells entertainment programming, the cable industry believes it is competing not only against backyard dishes, SMATV and MDS but with a wide range of non-broadcast entertainment sources. These include book stores, movie theaters, video rental stores, and—primarily—the ubiquitous videocassette recorder. The first consumer VCR, Sony's Betamax, came on the market in 1976. By 1980 more than a million VCRs had been sold. This year the industry expects to sell some 7 million VCRs, and by year end about 24 million will be in use. That means that about 30 percent of all TV households are equipped with VCRs.

The increasing use of videocassette recorders has had several adverse effects on the cable industry, particularly for the pay-TV movie channels. Industry surveys indicate that an increasing number of cable subscribers have dropped some or all of their movie channels after purchasing VCRs. The assumption is that people are unhappy with the quality of movies shown on pay TV and are renting movies on tape to play on their VCRs. “Over the last year or so that has reflected in stagnant growth for some of the movie channels,” Tuttle said.

Advertiser-supported cable channels worry about the impact of another use of VCRs, so-called “time-shifting”—taping a program for later viewing. In one respect time-shifting helps cable (and over-the-air broadcasters) because it encourages more TV viewing. But cable operators and broadcasters “fear that if time-shifting spreads sufficiently it may play havoc with the prevailing audience-ratings system upon which advertising agencies rely so heavily,” Whiteside said.24 A parallel concern among advertisers and advertiser-supported cable broadcasters is “zapping,” the growing practice of skipping over commercials when watching a taped program.

Some cable operators have decided to fight VCRs by, in effect, joining them. An increasing number, Tuttle said, are “becoming VCR-friendly” by providing subscribers with instructions on how best to hook up their recorders. Some operators even send a technician to a subscriber's home to help install a newly purchased VCR. One large cable operator, Heritage Communications, is experimenting with selling or renting VCRs to subscribers in some of its systems. The theory is that helping cable subscribers get the most out of their VCRs ultimately will encourage them to increase their TV viewing time of both pay-TV and advertiser-supported programs.

Cable operators also are concerned that in the next decade or two telephone companies may start providing cable-like programming, two-way video services like home banking and shopping and other features such as electronic advertising and editorial services. The fiber-optic glass cables that are gradually replacing many copper wire phone systems would allow phone companies to provide that sort of service to their customers. “Phone companies recognize that there is an overlap between the cable and phone industries in future services [such as] data transmission and institutional networks, things that might be on the horizon perhaps 10 or 15 years from now,” Mansell said. “And they want those markets for themselves.”

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Bibliography

Books

Cunningham, John E., Cable Television, Sams, 1976.

Hollins, Timothy, Beyond Broadcasting: Into the Cable Age, University of Illinois Press, 1984.

Articles

Block, Alex Ben, “Fat, Wired Cats,” Forbes, Feb. 25, 1985.

Broadcasting, selected issues.

Cable Marketing, selected issues.

Cable Vision, selected issues.

Moss, Mitchell L., and Robert Warren, “Public Policy and Community-Oriented Uses of Cable Television,” Urban Affairs Quarterly, December 1984.

Owen, David, “Satellite Television,” Atlantic Monthly, June 1985.

Television Digest, selected issues.

Vamos, Mark N., and Sandra D. Atchison, “Cable TV, Older and Wiser, Looks Like a Good Bet Again,” Business Week, July 22, 1985.

Whiteside, Thomas, “Onward and Upward with the Arts: Cable,” three parts, The New Yorker, May 20, May 27 and June 3, 1985.

“Wired for Growth,” Barron's, Nov. 4, 1985.

Reports and Studies

Arthur D. Little, Inc., “Prosperity for Cable TV: Outlook 1985–1990,” May 1985.

Cable Television Advertising Bureau, “1985 Cable TV Facts,” 1985.

Editorial Research Reports: “Cable TV's Future,” 1982 Vol. II, p. 717; “New Era in TV Sports,” 1984 Vol. II, p. 654.

National Cable Television Association: “Top 50 Multiple System Operators,” May 1985; “Satellite Services Report,” May 1985; “Cable Television Developments,” November 1985.

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Footnotes

[1] The number of systems, 6,844, was cited by Television Digest in its May 1985 issue. The number of subscribers, 38,610,870, and the percentage of cable penetration, 44,4 percent, were cited by Arbitron, the television ratings service, in its October-November 1985 report.

[2] “Prosperity for Cable TV: Outlook 1985–1990,” Arthur D. Little, Inc., May 1985, p. 1. The report was prepared for the National Cable Television Association.

[3] Quoted by Mark N. Vamos and Sandra D. Atchison in “Cable TV. Older and Wiser. Looks Like a Good Bet Again,” Business Week, July 22, 1985, p. 126.

[4] The Cable Communications Policy Act of 1984 (PL 98–549). For background see 1984 Congressional Quarterly Almanac, p. 286.

[5] The average basic rate in 1984 was $9.20 per month, according to Paul Kagan Associates, the top cable industry research firm. Nearly 70 percent of the systems offer 20 or more channels, according to Television Digest. Some new franchises call for operators to provide 30–60 channels for under $2 a month (see table, p. 981).

[6] Tuttle and others quoted in this report, unless otherwise indicated, were interviewed by the author.

[7] Thomas Whiteside. “Onward and Upward With the Arts: Cable III,” The New Yorker, June 3, 1985. pp. 100–101.

[8] Analysts predict that the new owners of the Dallas and Pittsburgh systems will cut costs by seeking to drop most of the ancillary services.

[9] Tribune-United halted all new construction on its Montgomery County system in October after wiring some 18,600 out of the county's 228,000 homes. On Nov. 12, the county government announced it would revoke Tribune-United's franchise and seize $5 million the company posted as collateral. Tribune-United won a lawsuit in federal court eight days later voiding the county's monetary seizure, but the county still plans to proceed with its plan to revoke Tribune-United's franchise. Hauser Communications signed a contract Dec. 20 to buy the cable system for $40 million.

[10] See “Cable Television: The Coming Medium,” E.R.R., 1970 Vol. II, pp. 667–686.

[11] The so-called “must-carry” regulation was outlawed by the U.S. Court of Appeals in Washington in July 1985. The broadcast industry has appealed that decision to the U.S. Supreme Court.

[12] For background on FCC deregulation of the cable industry, see “Cable TV's Future,” E.R.R., 1982 Vol. II, pp. 717–736, and Whiteside, op. cit., pp. 94–95.

[13] The American Telephone & Telegraph Co. launched the first communications satellite, Telstar 1. on July 10, 1962. That satellite could relay one television signal or 12 telephone calls at a time, and carried the first intercontinental television broadcast. Today, 20 communications satellites hover in stationary orbit 22,300 miles above the United States. Each satellite has up to 24 transponders. Each transponder can relay 2,400 phone calls or receive one television signal and relay it to Earth stations, also known as satellite dishes. Three satellites deliver the bulk of cable programming: RCA's Satcom IIIR and Satcom IV and Hughes Aircraft's Galaxy I.

[14] The Movie Channel has since merged with Showtime, although both continue to be marketed separately.

[15] The first regional sports network, Madison Square Garden Network in New York City, which is owned by Gulf & Western, began operating in November 1979. The bulk of the other regional sports networks—most of which are pay services—started up in the last four years. See “New Era in TV Sports,” E.R.R. 1984 Vol. II. pp. 654–673.

[16] Whiteside, op. cit., p. 95.

[17] The Senate does not permit telecasts of its floor proceedings.

[18] The Wall Street Journal reported Nov. 27 that the NBC and Reuters news services are discussing setting up a competitor to CNN.

[19] See “Country Music,” E.R.R., 1985 Vol. I, pp. 397–416.

[20] According to the Cable Television Advertising Bureau, cable advertising revenue is expected to total $749 million in 1985 and rise to $995 million in 1986. Advertising revenue for the over-the-air networks is expected to reach $8.7 billion in 1985, according to the Television Advertising Bureau, All non-cable television advertising revenue is expected to be $20.8 billion.

[21] Quoted in National Journal, Feb. 18, 1984, p. 316.

[22] The Satellite Television Industry Association (SPACE), the industry's top lobbying group, estimates that there are now 1.6 million backyard dishes and that the number is growing by more than 85,000 a month. First Communications Group, which publishes a backyard dish newsletter, estimates that there are 1.25 million dishes in use and that the number is growing by 60,000 to 65,000 monthly. See “Home Satellite Industry Lobbies Official Washington,” Broadcasting, Nov. 4, 1985, pp. 66–68.

[23] The Cable Communications Act permitted dish owners to receive an unscrambled cable signal without charge providing the programmer has not set up a “marketing system” to authorize reception. Under the law if a marketing system is set up, dish owners must get authorization to receive the signal legally.

[24] Whiteside, op. cit., p. 96.

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Cable and the First Amendment

On Nov. 12 the U.S. Supreme Court agreed to hear a case that could determine whether cable operators have freedom of speech rights under the First Amendment. The court will consider whether cities that grant exclusive franchises to a single cable operator deny the free speech rights of competing cable companies.

Preferred Communications brought suit against the city of Los Angeles after it lost out in the bidding for the cable contract in the city's South Central District. A federal district court judge dismissed the case, finding that the First Amendment did not apply. But in March 1985, the 9th U.S. Circuit Court of Appeals disagreed and reinstated the lawsuit. The Supreme Court decision is expected in the spring.

The cable TV industry views the case as a step toward recognizing that cable is a form of “electronic publishing” which merits the same constitutional protection that newspapers enjoy. If the Supreme Court upholds the appeals court decision, it is possible that every market will be open to all operators. But it is highly unlikely that cable operators would try to challenge existing franchises. It simply is too expensive to build a system from scratch and expect to compete with an operating cable company.

Top 10 Cable Programmers

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