Episode 7: Cable Breaks the Television Monopoly: the Origins of the Information Highway

Cable TV introduced a new model for television that was disruptive to the major broadcast networks. In this episode we shall see that cable was remarkable not only for challenging broadcast TV in the 50’s and 60’s, but also for laying the groundwork for a global information network known today as the Internet.

More Television Channels

Cable systems were the first technology to expand the number of television channels, introducing 4 and 8 channel systems in the 1950’s. By the time the FCC began regulating cable in 1966 most systems could receive 12, and some as many as 16 channels. This development disproved an initial assumption about television: There was no longer a scarcity of channels, as the FCC had assumed by judiciously allotting a finite number of “over-the-air” spectrum assignments. Channel scarcity was also the foundation of laws protecting the rights of NBC,CBS, and ABC as guardians of television as a public resource, and rewarding them with a multi-billion dollar industry. Now that channels were theoretically abundant, why wouldn't other channel operators have the same rights of protection? But the ability to increase channels also raised important questions for cable operators: where would program content come from, and who would produce it.

The increase in the number of channels forced cable operators to find more programming. At first broadcast television companies refused to license its programs, then charged high fees, forcing most cable operators to produce and “originate” their own shows, or search for other suppliers. By the early 1970’s many new suppliers appeared, and marked the rise of television producers who, for the first time, were independent of the three networks. The FCC encouraged this trend by allowing the first “experiments” in cable origination in 1969. Later, a new FCC chairman and intervention by the Nixon administration further liberalized cable programming rules in 1972.

A New Method of Distribution

Greater channel capacity also stimulated the development of alternative methods of program distribution. Tape distribution was time consuming, labor intensive, and costly. Sending tapes by mail to cable systems spread all over the country was slow and unreliable. Transmitting analogue images through telephone lines and microwave systems owned by AT&T was too expensive for most cable operators. A solution was provided by America's competition with the Soviet Union over satellites.

The use of satellites for communications was first popularized by Science Fiction writer Arthur C. Clark in 1947. A decade later, at the height of the Cold War, the United States was altered to the Soviet Union's nuclear missile capability with the launch of Sputnik. The government was also concerned about the advantage Sputnik provided in communications and exploration. The American military responded by launching a series of space vehicles to counter the Soviet "threat". These launches provided opportunities for American companies serving as commercial partners to test other new technologies for commercial use.

Bell Laboratory scientists, for example, used the aluminum skin of a plastic balloon satellite launched by NASA to bounce radio signals, telephone conversations, and visual signals between New Jersey and California in 1959. In the early sixties Gemini and Apollo astronauts carried experimental hand-held video cameras, recorders and tape duplicators created by RCA to document their flights. This equipment revolutionized television news gathering later in the decade. The first television pictures were bounced off Echo 1 on April 24, 1962 after being transmitted by MIT scientists in California.

American companies also observed that NASA had perfected the technique of placing satellites in "geosynchronous" orbits, synchronizing their flight with the Earth's rotation to prevent signal blackouts. Aided by this knowledge, AT&T, ITT, RCA and Western Union International formed a consortium called the Communications Satellite Corporation (or Comsat) to develop an orbiting communications system.

Comsat's incorporation and the maturing of the cable television industry in the 1960’s were major incentives for commercial ventures joining multi-channel cable systems and satellites.

Home Box Office

Two pioneers in this field were Charles Dolan and Gerald Levin. In 1965 Dolan was a partner with Time, Inc. in a company called Sterling Communications, which held the cable franchise in lower Manhattan. From the beginning, however, the venture made little money due to competition from the networks and local stations in New York City. Time, already stung by the loss of advertising revenue from Life Magazine in the late sixties and outbid for other cable franchises, began selling off its television holdings.

Dolan was able to convince Time's management not to sell the Manhattan franchise only by proposing to cablecast live sports events from Madison Square Garden and films for an extra fee through an elaborate microwave system. With the help of Gerald Levin, an attorney with experience in television sports contracts, and one other cable system in Pennsylvania signed up to receive its offerings, Dolan created "Home Box Office" in 1972, the first programming service exclusively for cable.

In its first years, HBO operated at a loss. In 1973 only fourteen systems carried the service. Time managers soon began to lose interest and sold the rest of its cable systems. As a result, Dolan left the partnership. Time then elevated Levin to HBO's presidency. After Dolan's departure, Levin coped with the rising costs of transmitting HBO as an independent pay-tv service through the Bell System’s overland microwave system and the prospect of putting together a more complicated system in order to go national.

In 1975 Levin proposed an alternative to Time. Levin wanted to lease transponder space on a new communications satellite that RCA was scheduled to launch at the end of the year. HBO could then bypass AT&T's expensive system and transmit directly to contracting cable operators across the country. There were potential obstacles, Levin conceded. Primarily, the cost of receiving dishes averaged $100,000 each. There was also the possibility of FCC restrictions on the new service. The potential, Levin argued, was far greater. Cable systems in small and large cities could receive, for a one-time cost of the "dish", programming from anywhere in the United States. If this occurred there would be insurmountable pressure on the FCC to allow the service. Moreover, the potential advertising revenue for a national audience would be worth the risk.

Time’s board of directors tentatively agreed to the proposal and signed a five year lease with RCA for two transponders on Sat-com I for $6.5 million. By 1977 two hundred and sixty-two cable systems carried HBO. More importantly, HBO's bold move encouraged other programmers to enter the field. The irony was that many new services leased satellite time from RCA, the same company that owned NBC, a bitter opponent of cable television. It was the availability of RCA's satellite, and others owned by corporations with investments in cable, that opened the first cracks in broadcasting's defenses.

A New Era Dawns

HBO's success opened the way for a number of other cable satellite services. Ted Turner's UHF station WTCG (later renamed WTBS after the formation of the Turner Broadcasting System) was the next to be delivered via Sat-com I in December, 1976. The launch of Turner's new "superstation", which offered movies, news and sports, started a parallel development in "basic" cable services that cable operators provided without additional cost to the subscriber.

Many more companies soon launched satellites. By the end of 1983 thirteen American satellites were aloft. On them were programmed 34 different "channels", "services" and "networks", of which 10 were pay-tv or "premium" services and 24 were "basic". The majority of the basic satellite services (21 out of 24) accepted advertising. There were also 6 basic services offered irregularly, and 24 other services being planned.

Cable television was virtually booming in the 1980's. Subscriptions increased between 2 million and 6 million annually through 1983. The total number of basic subscribers in 1983 reached over 30 million. Most impressive was that cable penetration (the percentage of cable subscribers among all television households) nearly tripled between 1980 and 1983, as compared to 1979. By 1985 the total subscribers reached 34 million, with gross industry revenues almost eight times that of 1975.

New Audiences

And yet, other innovations by the cable industry had more lasting effects on the future of communications in the United States. One could argue that cable's most significant triumph over broadcast television was not new programming, satellite delivery, or HBO. The industry's real achievement was its perception of television audiences.

By the early eighties cable was identifying multiple audience tastes and interests, then servicing them with an increasing number of programming channels delivered by satellite. This was in direct conflict with the old television model, a holdover from radio, of broadcasting to a mass audience, and helped create new markets for service providers both within and outside the industry.

Besides HBO and WTBS, the cable industry spawned “niche” channels by targeting smaller audience segments interested in News, Sports, Music, History, Science Fiction, Education, Children, Weather, Shopping, Ethnic Culture, Comedy, and Politics. This opened the floodgates for the conceptual branding of even smaller interest groups within each topic area. The endless possibilities of defining what any group of people would watch redefined how advertisers, television producers, and eventually, internet web site creators, conceived a new generation of services delivered to regional, national, and ultimately, global audiences.

In this respect, cable's practice of “narrowcasting” over broadcasting was less about technical know-how, entrepreneurial zeal, or even creativity, and more about marketing. What could be more flattering to a prospective subscriber than to discover an almost endless variety of shows? Cable’s new way of doing business was thus likely to challenge network television, and provided the link to the wide variety of choices we see today on the internet.

Communications on the Brink of Change

Cable's expansion was only a part of the changing character of communications in the United States at this time. Although threatened by cable's growth, the three broadcast television networks continued to dominate consumer media throughout the 1980’s. Like other corporations, each had diversified its holdings in cable and elsewhere. In 1983 ABC, CBS and NBC led all media companies with combined broadcast and cable revenue of just over $7 billion.

The next seven companies were cable operators. Of those, 5 owned VHF or UHF TV stations. Four cable companies owned AM or FM radio stations. Four had interests in or controlled satellite programming services. All 7 cable companies owned television or film production businesses. Four cable companies had also purchased their own satellite transponders. By the end of the 1980’s television was divided into two dominant camps: Broadcast Television and the new upstart, Cable Television.

As their competition intensified, other events would have significant effects on both industries. These included the testing and development of ARPA-Net in the 1970's, a computer network linking military bases and research facilities; the Federal government’s break-up of the Bell System and AT&T’s hold on long-distance transmission lines in 1984; and the adoption and refinement of binary code in the early 1990’s. The effects of those developments will be the subject of the final episodes.

Next Time: The Birth of the Internet (Part I)

Copyright © 2008 R.E. Xavier