Cable goes from rural curiosity to dominant player
by Will Workman
Look back with the spyglass of time at the landscape of "cable" in 1983 and it reveals an impossibly prehistoric terrain. TV sets carried 13 channels, and the three broadcast networks (Fox would be born two years later) garnered nearly all viewers who weren't tuning into PBS or a local UHF network. Cable since the 1950s had been filling a very small niche by serving homes where rabbit ears couldn't pick up clear broadcast signals.
Until 1975, however, there had really been no reason for most urban and suburban dwellers to get cable. That year a fledgling pay programming service, Home Box Office, began satellite distribution of programming to cable systems, offering the Ali vs. Frazier "Thrilla in Manila" fight, and commercial-free movies. Suddenly, customers were chasing cable trucks in the street to get hooked up.
In a wave of early programming services, others followed HBO's suit, including regional sports channels and "superstations" WOR and WGN, and cable subscriptions boomed; even so, cable by 1985 had reached only 41.5 million homes, hardly the ubiquitous presence of today. But cable visionaries beginning in the 1970s had prophesied a national interactive network of cable systems (for kicks try reading The Wired Nation, by Ralph Lee Smith), and their vision was about to come true.
To get from then to now took some monumental tremors. That said, here's my list, in chronological order, of the Top 10 events in cable history over the last 20 years:
• 1979-1985: The Second Programming Wave. The Entertainment and Sports Programming Network (ESPN) launches in 1979, followed shortly by Cable New Network (CNN), Nickelodeon and MTV (which in 1981 kicks off with the first music video: The Buggles' Video Killed the Radio Star), The Weather Channel (1982) and Discovery Channel (1985). This marks the first wave of services aimed at audiences of specific genres. Also launching in 1979: C-SPAN, funded as a nonprofit by the cable industry, with nonstop live coverage of Congress. Together these networks build cable viewership and ad revenues with programming that erodes broadcast ratings (in 1987, for example, ESPN landed the NFL on Sunday nights). Subscribers climb to more than 41.5 million by 1985, or more than half of all homes served by cable. That, in turn, increases the coffers of operators for the broadband buildout of the late 90s.
• 1986: HBO becomes the first cable service to scramble its signal, causing sales of C-Band dishes (bought primarily to get HBO for free) to evaporate at a time when backyard dish ownership had climbed to two million. HBO's subscription pricing drives John R. MacDougall, a frustrated dish salesman moonlighting as an engineer at an uplink facility, to override HBO's signal with his own teletext message:
GOOD EVENING HBO
FROM CAPTAIN MIDNIGHT
(SHOWTIME/MOVIE CHANNEL BEWARE)
The "Captain Midnight" legend is born, fueling jokes for Carson and Letterman and putting HBO in a froth. After intense heat from the feds, MacDougall's pleads guilty and is fined $1,000.
• 1992: Time Warner Cable begins preparations for the Full Service Network in Orlando, Florida. Partnering with Toshiba, Silicon Graphics and others, FSN is the industry's first large -- scale attempt to offer such futuristic services as video -- on-demand (VOD), an interactive programming guide, data, telephony and gaming, using a broadband (750 Mhz) backbone and server-based technology. Other operators follow suit with smaller trials, and telcos respond as well. Bell Atlantic in 1993 launches its Stargazer VOD service, using asymmetric digital subscriber line (ADSL) technology, to 300 employees in Alexandria, Va.
• 1993: John Malone, head of TCI, the nation's largest cable operator, makes his famous "500 Channels" speech, predicting that digital compression will allow for hundreds of channels of programming. Betting heavily on filling that void, TCI and other cable operators, as well as media investors, take stakes in new programming services.
• 1990-1994: The Third Programming Wave. Targeting even more "niche" audiences, services such as the History Channel, Sci-Fi Channel, HGTV, Court TV, Food TV and others launch. History Channel is an excellent example of a service critics thought no one would watch (History? On TV?), but now counts more than 62 million subscribers and an avid fan base. Discovery Channel alone debuts a slew of niche services, including Animal Planet, Discovery Health and the Travel Channel (which it acquired). Cable viewing by 2002 will eclipse broadcast viewing on some nights.
• 1994: Competition Looms. Five months after it's announced, Bell Atlantic's acquisition of the nation's largest cable operator, TCI, falls apart, as well as a proposed merger between Cox and Southwestern Bell. This puts a temporary halt to telco-cable unions until AT&T's acquisition of TCI at the end of the decade. Despite numerous plans and some trials of video service, the Baby Bells never gain a foothold in the video distribution business.
Also in that year, DirecTV launches a high power direct broadcast satellite (DBS) service, and racks up 400,000 homes by year-end. Joined later by Echostar, DBS begins to build a customer base beyond rural dwellers that can't get cable.
Time Warner launches Full Service Network in 1994 and trials for 18 months to 4,000 customers. The technology proves prohibitively expensive, including $3,000 set-top boxes, costing the operator millions. But the lessons learned will pay off for the entire industry a decade later (when boxes drop to a tenth of the price).
The increasingly competitive landscape spurs operators to rebuild to offer "broadband" 750-Mhz bandwidth, igniting rapid industry consolidation as smaller players sell out. Companies and investors outside cable place bets on the industry, capped by Microsoft's $1 billion stake in Comcast in 1997, fueling a surge of capital expenditures that reaches a peak of $5 billion in 1997. Cable's broadband networks set the stage for cable modems, VOD, HDTV, telephony and other futuristic services.
• The Telecommunications Act of 1996, following on the heels of the Cable Act of 1993, which freezes or rolls back cable rates and requires operators to carry broadcast signals, levels the competitive landscape in some areas, but creates a regulatory muck in others. Cable operators can offer telephony service to compete with RBOCs, but the RBOCs don't get much regulatory relief in offering their own video services. Overall, the 1996 Act opens the door for further media consolidation.
• 1997: Tivo launches, becoming the brand synonymous with the personal video recorder (PVR), now more commonly known as a digital video recorder (DVR). Carrying a massive video hard drive, allowing viewers to pause live programming, record only the shows they want, and skip commercials, DVRs threaten to revolutionize the entire TV business model. Attached to cable's broadband network, and using peer-to-peer file sharing, the devices terrify studio executives. Tivo now has nearly 1 million subscribers, and cable set-top box manufacturers are integrating DVRs into the new generation of boxes.
• 1999: AT&T builds itself into the world's largest cable operator by acquiring TCI and MediaOne for a combined $103 billion, in the latter deal valuing MediaOne cable subscribers at a whopping $4,632 per. AT&T boss C. Michael Armstrong, justifying the princely sum he paid, lays out a glowing plan to bundle services into a complete convergence package of wireless, telephony, data and video. But Armstrong fails to execute, the telco bubble bursts, and he's forced to split up the company into four units to please investors. Comcast's Brian Roberts will swoop in on the cable unit, AT&T Broadband.
• 2001: You've got AOL Time Warner. AOL completes its takeover of Time Warner in a $350 billion stock merger. Whereas just a few years earlier Time Warner had looked at acquiring AOL for a few hundred million, AOL on the cusp of the Internet bubble burst is able to cash in on its swollen stock to create the world's largest vertically integrated media company. At year's end, Comcast merges with AT&T Broadband to create AT&T Comcast Corp., with 22 million subscribers.
You can reach Will at [email protected]