Episode 5: Cable TV Struggles to Survive

The early success of cable television resulted in growing apprehension among local broadcasters and the major networks throughout most of the 1950's, but failed to push the Federal Communications Commission's to regulate the new service.

The earliest FCC inquiry of CATV began tentatively after the first experiments. In July 1949, the Portland Oregonian reported the expansion of Ed Parson's antenna system in Astoria. The article prompted a demand from the American Society of Composers, Authors and Publishers (ASCAP) for payment for music Parsons was retransmitting from KING-TV Seattle. Parsons responded by removing ASCAP music from his radio station's (KAST) play list, and substituted Broadcast Music, Inc. (BMI), a competitor. The controversy continued for almost a year until ASCAP capitulated.

The FCC also noticed the article in the Oregonian and sent a staffer to investigate. After a short visit with Parsons, the staffer concluded that cable television was a "common carrier" and not subject to regulation. No further action was taken.

The next case dealing with CATV was the authorization by the Commission for the construction of microwave relay stations in California to carry signals to CATV systems in 1954. A group of broadcasters in 1955 filed a complaint against 288 CATV operators in 36 states asking the F.C.C. to exert jurisdiction and establish guidelines for CATV charges. This time the Commission ruled that since the definition of a "common carrier" was an entity which provided the means of transmission, but left the choice of message content to the user, CATV systems did not qualify under current regulatory policies. Under increased pressure from broadcasters, however, the F.C.C. began its own inquiry of cable in 1959.

Pay Television

As the F.C.C. searched for ways to regulate cable, a controversy over "pay-tv" began that would change the Commission's perspective. Since the inception of CATV, various terms for "Pay-TV", such as "Pay-As-You-See-TV" and "Subscription Television", became well known in the press. By the sixties a distinction was made between cable television and television systems delivered by wire and microwave: the latter required subscribers to pay for sports and cultural programs as each were viewed. This concept was a significant departure from older CATV operations. Now for the first time original programming outside the network system, at least in theory, was possible for a national audience. If it succeeded, the networks stood to lose millions of dollars in advertising revenue.

The broadcast television industry was especially concerned about a Canadian pay-tv experiment, which some observers thought might "influence the future of television in this country...” The Canadian experiment was financed by an American film company, Paramount Pictures. By 1960 Zenith Radio Corporation had spent $10 million on Pay-tv research. In April of that year Zenith announced a deal with RKO General, another movie company, to conduct a three year trial of Zenith's "Phonevision" pay service in Hartford, Connecticut. Other closely watched pay-tv experiments were begun by Subscription Television Inc., a company created by Dun and Bradstreet, Lear Siegler, a large California electronics firm, and the Dodgers and Giants baseball teams. Other pay-tv projects were begun by Cox Communications and Storer Broadcasting, an owner of independent and largely rural TV stations.

Reaction from broadcasters and movie theater owners was swift. Calling pay-tv a "backdoor to cable", industry leaders predicted the collapse of over the air broadcasting. Robert Sarnoff, President of NBC and successor to his father David Sarnoff, had this prediction:

"If Pay-TV progressively siphoned off our key attractions, we would lose our only means of holding a mass audience. Advertising effectiveness would disintegrate, revenues would progressively shrink. Development of new programs, continuance of public service programs... would be financially untenable."

Leonard Goldman, President of ABC, also predicted pay-tv would lead to the destruction of free television. "The proponents of pay-tv have stated that it is in the American tradition to give pay-tv a test. To permit such a test is equivalent to starting an epidemic to test a new vaccine." The vehemence of the broadcasters was most pronounced with the introduction of STV in California.

STV, Inc. of California

Subscription Television, Inc. of California was the most ambitious and controversial of the pay-tv companies. The man behind STV was Mathew Fox, an entrepreneur who made his fortune in film production and distribution. In 1955, noting the policy of major film companies to sell only the oldest and lowest budget movies to television, Fox purchased R.K.O. Radio Pictures' film library. The library included several classic Fred Astaire and Ginger Rodgers movies, which Fox thought could be sold to individual television stations around the country. The library proved to be a wise investment. Fox's initial film sales earned $10 million, breaking a boycott of small stations by the film industry, and giving him a reputation as a canning investor in television.

Soon after, Fox became interested in a pay-tv system developed by a small company named Skiatron, Inc. This system allowed operators to charge for viewing specific programs, as well as telling them which subscribers were watching a given show. Fox was especially interested in the measurement capabilities of the Skiatron system, because it could provide an accurate way of gauging audiences, thus justifying advertising rates, which despite the rhetoric seemed inevitable. Viewer tallies would also settle disputes about royalties to film owners.

Fox arranged for the exclusive use of the system, then approached Walter O'Malley, owner of the Brooklyn Dodgers, to discuss putting baseball games on pay-tv. But O'Malley was reluctant, largely because he feared public criticism for taking Dodgers games off broadcast television, which viewers watched free. He also was worried that gate receipts would drop if the pay-tv system was effective. Fox's answer startled the owner: move the Dodgers to the west coast. O'Malley had already been considering the idea because he did not think New York could support three teams. But the baseball commissioner's office told O'Malley that he had to convince another team to move with the Dodgers or stay in New York. The owners wanted more than one team in California to justify traveling to the west coast for games. Fox and O'Malley then approached Horace Stoneham, the Giants owner, about relocating. Stoneham agreed, but only if he, like O'Malley, received a percentage of the pay-tv company.This was agreed, and both teams moved in 1957 and began the season in California.

In the next five years Fox searched for a television professional who would not only make Dodger and Giant games profitable, but someone who could lay the groundwork for a new television service rivaling the networks. To compete on this level, this person had to have intimate knowledge of how commercial television operated. The man Fox found was Sylvester L. (Pat) Weaver, (the father of future film star Sigourney Weaver and brother of 1960’s comedian Doodles Weaver).

Pat Weaver had been president of NBC from 1953 to 1958, but was mainly known for his early innovations that had since become standards for the networks. It was Weaver who helped reduce the influence of advertising agencies by introducing statistical data of audiences. Weaver was also responsible for NBC's brief deviations from half-hour and hour formats for "specials", and for creating the "Today" and "Tonight" series. Weaver also introduced American audiences to short-lived telecasts of opera. But Pat Weaver was much more than the archetypical television man. He was an advertising executive by training, and it was this background that prepared him for the task of building, and selling a pay-tv service.

The Campaign Against STV

Weaver needed all his skills to maneuver around the opposition that was rapidly gaining momentum in California. Subscription TV announced plans to be on the air in Los Angeles in July 1964 and soon after in San Francisco. Fearing a loss of audiences and charging "unfair competition", southern California theater owners joined television broadcasters in a campaign to place an initiative on the California ballot, which would effectively outlaw Pay TV. Two "front" organizations called the "California Crusade for Free-TV" and the "Citizens Committee for Free TV", made up of representatives from seniors groups and women's clubs, and funded by the theater owners and networks, were created to promote the ballot measure: Proposition 15, and to begin a campaign against STV. Opposing them was another group supported by the pay-tv companies called the "Fair Trial for Pay-tv Committee".

The Crusade's anti-pay-tv campaign was especially effective. California theater owners and television broadcasters contributed up to $15 million to the group. Some of the money was used for commercials depicting a burglar stealing television sets from old ladies and children. Another spot announced, "Pay-tv: Before they're done they'll charge for the air and rent the sun." At the same time, Weaver learned that network stations in California were refusing STV's ads, while editorializing against the pay-tv company in the Los Angeles Times and the Herald Examiner.

Meanwhile, the theater owners spoke before senior groups, urging them to vote for Proposition 15 or risk losing the comfort of free TV. Theater owners also added anti-pay trailers to their feature films in each movie house, and rented highway billboards, one of which read: "Keep TV free in your home - vote yes on 15 - stop pay-tv." These efforts eventually served their purpose. In August, 1964, STV was forced to reduce programming to pay for the counter campaign to fight Proposition 15.

Pat Weaver Fights Back

Weaver defended his company and tried to keep a positive outlook. To the argument that viewers would lose free TV, Weaver wrote that "Subscription TV in no way interferes with the ability of a customer's television set to receive all standard broadcast programs." Moreover, he noted, programs would be presented "...in the convenience and comfort of the home, (where) any number of viewers can enjoy an attraction ...at no more than one adult admission ..."

There even greater benefits, Weaver argued. STV projected one million subscribers in California by 1970, which would create 38,000 new jobs in the state. In the future the company's annual payroll would be in excess of $315 million, with investments of $170 million and television production expenditures of $24 million. Employment in film production alone, Weaver stated, would result in an additional 32,000 jobs. This would add $1.9 billion to the state economy, enough to support a population increase of 650,000.

Other supporters rallied to STV's cause. Writing in the National Review, William F. Buckley called the campaign to derail pay-tv "...an epochal attempt to stop progress, interfere with the First Amendment, (and) secure monopolies,..." Buckley also viewed the new service as "... the most encouraging cultural exploitation of the photoelectric formulas Einstein thought through years and years ago, making television possible." Characterizing the opposition as a "motley group (of theater owners and broadcasters who have) bamboozled a gaggle of undisciplined, social-minded exhibitionists...," Buckley had no doubt that if passed the proposition would be overturned by the Supreme Court.

Aftermath

Despite the moral arguments and financial projections, Proposition 15 passed by more than a 2 to 1 margin in the November 1964 election. STV unsuccessfully challenged the vote in the California Supreme Court, then convinced a federal court that Proposition 15 was unconstitutional. By that time it was too late. STV, Inc. had filed for bankruptcy and its pay-tv service evaporated. In a later editorial titled "Stupid Question, Stupid Answer", Life magazine criticized the amendment and the campaign against STV, then concluded that if the conflict was over competitive interests, a vote of consumer dollars should have decided pay-tv's future.

Even by this standard pay-tv may have been doomed. Early indications were that subscriptions in experimental pay-tv systems were low. By June, 1964 STV had only 5,200 subscribers in Los Angeles and 2000 in San Francisco. Ironically, the low subscription rates may have been caused by a lack of program diversity, the principal selling point of the service. In a study conducted by Television Magazine of Zenith's Hartford pay-tv system over a three month period, 147 programs were duplicated, of which 105 were movies, 16 were sporting events, 15 were educational films and only 11 were cultural events.

Low program diversity, in turn, may have been caused by high production costs. Business Week cited STV expenses of up to $500,000 per original show, and reported that program suppliers had begun insisting on taking a percentage of future revenues instead of payment up front. STV also seemed to be undercapitalized, given expenses for color equipment ($1.5 million), microwave facilities ($1.8 million), home program selectors ($3.8 million) and telephone pole rentals ($7 million).

A public denial of pay-tv, a service delivered by the same means as cable, in one of the nation's most populous states, could not be ignored by the FCC. Within months the Commission prepared and issued an order asserting jurisdiction over all CATV systems served by microwave.This was clearly a test of the FCC's jurisdiction over cable, and a prelude to more stringent regulations. In response, a bill was introduced in the U.S. House of Representatives calling for amendments to the Communications Act and hearings on whether the order should be reviewed by Congress before becoming law.

Testifying at the hearings, FCC Chairman E. William Henry argued that cable systems may be violating exclusivity rules established for distant signals brought into areas already served by local stations, while in most cases refusing to carry these stations. Henry concluded his testimony by stating that the FCC's policy to exert jurisdiction over cable television was aimed toward regulating the new service "...in a way that would be consistent both with the orderly growth of ...CATV and the healthy maintenance or establishment of free television broadcast service."

When no Congressional action was taken, the FCC literally had a free hand to regulate the cable industry. In 1966 the Commission issued a report and order exerting jurisdiction over all cable systems in the United States.

Next Time: Cable TV Matures

Copyright © 2007 R.E. Xavier