Cable Television

Industry Structure and Planning

Strategies

Richard A. Gershon, Ph.D.

School of Communication TIM Program
Western Michigan University
 Cable Television:
History and Development

l Cable television (also called CATV) was developed in the

late 1940s in communities unable to receive television
signals.
l The cities of Mahanoy City and Lansford, Pennsylvania
as well as Astoria, Oregon, are credited with having been
the first set of communities in the U.S. to offer CATV
service to its residents.
l What is important about such communities is that it
provides a basic blueprint of how cable television started
in the U.S. Each example started as a pragmatic solution
to the problem of poor television reception.
 John Walson, Mahanoy City, PA
l One such cable system was started
in 1948 in Mahanoy City, PA to cope
with the problem of poor television
reception. In Mahanoy City, a coal
mining town of 10,000 people in the
Appalachians, reception from the
three TV networks 86 miles away in
Philadelphia was all but nonexistent.
l An appliance store owner by the
name of John Walson, could not sell
any TV sets to local residents. The
lack of reception prevented Walson
from demonstrating his TV sets.
 John Walson, Mahoney City, PA
l During the summer of 1947, Walson erected an antenna on a
high ridge of a nearby mountain. Later that year, Walson strung
electrical ribbon wire from the mountain antenna down to his
appliance warehouse, which was a few blocks from his store.
l He was then able to demonstrate for visitors a video image and a
weak audio signal. In 1948, he erected a larger antenna on top of
the mountain and replaced the ribbon wire with a more efficient
twin lead wire. The display caused a local sensation. People
gathered outside the store window to watch the programs being
brought in from Philadelphia.
l Walson next arranged to wires for a fee between his warehouse and
store to the homes of several residents living along the route.
Many of them were neighbors that he had sold television sets
with the promise that they would be connected to his service.
The demand for television sets and for inclusion in the system
jumped substantially in Mahanoy City. The CATV service was soon
established as an ongoing business.
 Cable Television

l Cable television is wired

communication to the home.
l A cable television system
is a communication system
that distributes broadcast
and satellite delivered
programming by means
of coaxial and/or fiber optic
cable to people's homes.
Illustration: Chan, Chin Bong
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 Distribution Network
(Hybrid Fiber-Coax Network Architecture)

l The cable distribution network is patterned after a tree and branch

architecture using a combination of fiber optic and coaxial cable. The
headend point is the cable system's master receiving site for all incoming
broadcast and satellite fed programming. The cable operator uses both
over-the-air television antennas and satellite earth stations to receive, and
process all incoming signals.
l The signals from the headend point are distributed to population centers
(or neighborhoods) on heavy duty cable called trunk lines. The trunk lines
are generally attached to utility poles.
l Since the start of the 1990s, the technical capabilities of cable operating
systems have been greatly enhanced with the integration of fiber optic
cable. The physical design of todays cable operating systems has evolved
into hybrid-fiber coax (HFC) structure. In a modern HFC cable plant, the
trunk cables and amplifiers are replaced by fiber optic cable that runs
directly from the headend point to an optical node in a neighborhood.
 Distribution Network
HFC Network Architecture cont.
 Broadband Communication System

l The term broadband communication

is frequently used as a synonym for cable
television. It describes any technology
capable of delivering multiple channels
of service to the home.
l Broadband is also a term used to describe
the delivery of high speed Internet access
via a cable modem or DSL.
Digital Cable
l What is Digital Cable?
l With digital cable, cable operators
are able to offer greater choice
and quality than is possible with
analog television.
l Cable operators use digital
technology to compress video
signals, allowing more than one
program service to be carried in
the bandwidth space normally
required for one analog program
service. Typically, the signal is
sent to the home and
decompressed in the set-top box
for display on the television.
 Digital Cable cont.

l Digital cable can provide a host of new services,

such as video-on-demand, interactive television
and commercial-free CD-quality music.
l Digital television also allows cable operators
and program networks to offer high-definition
television (HDTV), complete with Dolby
Digital sound and a resolution of 720 or 1,080
active scanning lines respectively.
Cable Television: Business Considerations

l The business of cable television

consists of two primary sets of players,
including:
1. The cable television operator
and
2. The cable program supplier.
 The Cable Operator
l The cable operator is
responsible for providing cable
television service to the
community.
l The cable operator packages a
diverse set of program services
and charges subscribers a fee
accordingly.
Comcast
Cox Cable
Charter Communication
 The Program Supplier
l The program supplier is
responsible for delivering program
services to the cable operator.
l A program supplier can include
both the broadcast television
networks (CBS, ABC, NBC and
Fox as well as cable network
suppliers (CNN, MTV, ESPN etc.)
l Program suppliers break down
into two major categories:
1) advertiser
2) pay supported services
 HBO
l The real move to modern cable television
began on November 8, 1972, when a fledgling
company named Home Box Office (HBO)
began supplying movies to 365 subscribers on
the Service Electric Cable TV system in
Wilkes Barre, Pennsylvania.
l From the beginning, HBO developed three
important strategies that helped to promote its
rapid growth including:
The creation of distinct, highly
differentiated television programming.
The use of a monthly per channel fee
The use of microwave and later satellite
communication (i.e., process innovation)
for the transmission of long-haul
television programming.
 HBO cont.
l The principle of advertiser supported free television was
firmly engrained in the minds of the American public.
What HBO did was change public perception about the
nature of television entertainment. HBO offered a uniquely
innovative service emphasizing recently released movies
and other specialized entertainment that could not be found
elsewhere on the general airwaves.
l While HBO was not the first company to introduce a
monthly per channel fee service, they were the first to make
it work successfully. Thus marked the beginning of
premium television entertainment.
 Principle of Cable Networking
l HBO utilized microwave and later satellite communications
for the transmission of programming, rather than distribution
by videotape. Prior to HBO, there was no precedent for the
extensive use of satellite delivered programming in the U.S.
HBO's 1975 decision to use satellite communications was
significant in two ways.
l First, it demonstrated the feasibility of using satellite
communication for long haul television distribution. As a
consequence, HBO was able to create an efficient distribution
network for the delivery of its programming to cable operators.
l Second, the development of the satellite/cable interface would
usher in a whole new era of cable programmers that were
equally capable of leasing satellite time and delivering their
programs directly to cable operating systems, including:
WTBS, 1976; ESPN, 1979; CNN, 1980; and MTV, 1981.
 Cable Networking cont.

l Thus was born the principle

of cable networking;
that is, television programs
designed exclusively for
cable operating systems
(and later direct broadcast
satellite systems).
 Cable Economics
l Cable television is often considered a natural
monopoly; that is, a one of a kind service in
the community in which it operates.
l Obligations:
Must provide service on a nondiscriminatory basis
Must maintain quality level of service
l Rights:
Is allowed to make all programming decisions
Is allowed to make sufficient return on investment
 Cable Television Penetration Rate

l In the U.S. today, cable

television is the
primary means of
delivering broadband
television services to
the home.
l Cable television is
available in
approximately 58.8%
of all U.S. homes.
Cable Television in the US (2007)
Table 1.
Cable Television Development in the U.S. (2007)
________________________________________________________________________

U.S. Television households 110,900,000

Basic cable TV households 65,600,000
Penetration: Basic cable 58.8%
to television households: (compared to 66.8% in 2005)
Cable Operating Systems 7,090
High Speed Internet Services 119,100,000
Avg. Monthly Price for Expanded Basic $41.17
(compared to $38.23 in 2005)

Source: National Cable & Telecommunications Association

Top 5 Cable Operating Systems

Comcast 21,495,000
Time Warner Cable 11,039,000
Charter Comm. 5,913,000
Cox Communications 5,400,000
Adelphia* 4,876,900
Cablevision 3,065,700

* Adelphia has been sold in a joint

acquisition by Comcast and Time Warner
 Cable Television Influence

l Cable television has fundamentally changed

the American television landscape in four
very important ways. They include:
1. Increasing the level of consumer choice
2. Narrowcasted television services
3. Leveling the electronic playing field
4. Exercising a critical gatekeeping function
 Broadcasting and Cable

l Historically, the relationship between

broadcasters and the cable industry can be
considered antagonistic.
l Beginning in the early 1980s, the U.S. under
the Reagan administration actively promoted
the cause of economic deregulation.
The passage of the Cable Act of 1984 was
especially important to the cable industry.
 Cable Televisions Impact on Broadcasting

l One of the direct consequences of increased

programming and limited capacity is that the
broadcast industry has experienced a steady
decline in broadcast television market share.
l In response, most of the major television networks
(or transnational media parent companies) also
own cable network services. Examples:
Disney (ABC) ESPN
Viacom (CBS) MTV, BET, Nickelodeon
News Corp. (FOX) Fox News Channel, Fox Sports
GE (NBC) MSNBC
 Cable Television Programming

l Programming for a cable operating system

differs significantly from broadcasting.
l A broadcaster is responsible for
programming one channel, whereas, a
cable operator must program a multichannel
television service that can range in size
from 60 to 250 plus channels.
 Cable Programming Types
l A typical cable television system will usually
contain four types of programming service. They
include:
1. Basic Cable
2. Expanded Basic
3. Pay Cable Television
Video on Demand
4. Enhanced Information Services
High Speed Internet Access
High Definition Television
Digital Video Recording
Cable Telephony
 Basic Cable

l Basic cable is the gateway service that all

subscribers must take in order to obtain expanded
basic and/or premium services. Basic cable
consists of approximately 20-30 services.
l It typically includes the four major broadcast
networks, PBS, minor broadcast networks
including the CB network, a Spanish language
channel (Univision, Telemundo etc.), a few
independent stations, a few select cable services,
C-Span, public access channels and one or more
religious channels.
 Expanded Basic
l Expanded Basic is the foundation of cable television
programming and consists of 60-90 channels of
programming. Expanded basic represent the highly
recognized cable program services such as ESPN, CNN,
MTV, Discovery Channel, USA Networks etc.
l Most cable operators do not distinguish between basic and
expanded basic and sell the two as an integrated package.
l Expanded basic cable services are mostly advertiser
supported with the exception of PBS, C-Span and public
access channels.
 Pay Cable Television
l Pay cable television is charging the customer an additional
fee for the right to receive a premium television channel or
service. Pay cable television comes in two forms, including
monthly services like Home Box Office, Showtime and
STARZ as well as pay-per-view (PPV) events which
involves charging the customer by the program rather
than by the service (or channel).
l In principle, pay cable services add a premium value to
the traditional television viewing experience by offering
subscribers programming that they wouldnt normally be
able to get on basic cable such as recently released films,
made for cable specials, specialized concerts, sporting
events, adult entertainment etc.
 Video on Demand (Pay-Per-View)

l Video on Demand (pay-per-view) television represents a

distinct category of pay television services.
l PPV involves charging the customer by the program
rather than by the service (or channel). PPV represents the
consummate form of interactive television and has proven
an excellent strategy for promoting special event programs
like feature films, professional boxing and wrestling, music
concerts and adult entertainment.
l PPV television is not a new idea. Early attempts at
marketing PPV can be traced back to the 1950s and the
early subscription television systems involving traditional
broadcast television.
 Enhanced Information Services
l The future design and development of a broadband
residential network has to be understood in the larger
context that it is providing an electronic gateway to
a whole host of enhanced information, entertainment
and value added services. including:
High Speed Internet Access
High Definition Television
Digital Video Recording
Cable Telephony
l Broadband residential networks represent a core
component in planning for tomorrow's "smart homes.
 Cable Television Franchise
l A cable television system operates under
the auspices of a franchise agreement.
l A cable television franchise is a contractual
agreement between the cable operator and
local government which defines the rights
and responsibilities of both parties in the
construction and operation of the cable
system.
 Franchise Fee

l One of the cable operator's important

responsibilities, includes the requirement to
pay a franchise fee to the local community
in which it operates. The franchise fee
cannot exceed 5% of the cable operator's
gross annual revenues.
Cable Television Franchise Renewal
l A cable television franchise
comes up for renewal
approximately every ten to
twelve years.
l At that time, the cable
operator and the said
community are both obligated
to negotiate a new franchise
agreement that will outline
the requirements and
expectations of both parties.
 4 Steps in a Cable Franchise Renewal
l Whether the process is formal or informal, there are four basic steps
that the community (or franchising authority) should follow:

l 1. Evaluate the Past Performance of the Incumbent Cable

Operator

Has the cable operator fulfilled its obligations to the community

and to its subscribers? If not, the cable operator should not expect
renewal

l 2. Determining the Future Cable-related Needs of the Community

1) What are the future cable related community needs and

interests?
2) What are the cost requirements in order to meet those needs?
4 Steps in a Cable Franchise Renewal (cont.)

l 3. Evaluation of the Incumbent Operator's Proposal

The task here is to evaluate the incumbent operator's proposal for

a new franchise taking into consideration the operator's financial,
technical and legal qualifications to fulfill its proposal

l 4. The Decision to Renew or not Renew the Existing Operators -

Franchise including Terms and Conditions

After conducting the community assessment and establishing

priorities, (as well as reviewing the operators proposal) it is then
time to begin serious negotiations between the cable operator and
the franchising authority.

The decision to renew or not renew is usually the result of

extensive negotiations (or failed negotiations) with the operator.
 Cable Franchising: Changes

l The current system of local cable franchising is

about to undergo a major change.
l Current legislation as it is presently constituted,
will allow new video providers to get a 10-year
franchise within 30 days of filing the requisite
application.
l It also allows cable operators to get a franchise
under the same national franchise terms if a
competitor enters the market with a national
franchise or when their current franchise expires.
 Cable Television: Looking to the Future
l The cable industry is currently undergoing a
major redefinition as to its core business.
While television entertainment will continue
to be the main engine that drives cable television
forward, the very nature of programming will
undergo a profound change.
l Todays cable operator is much more than a
purveyor of television entertainment. Rather,
cable delivery of broadband communication
services makes possible a whole host of
utility and value added features including:
local government, public safety, health care,
education and business
l In a multichannel universe, the origins of
entertainment, information and utility based
services become less distinguishable.
The future of electronic media will come to
include a variety of entertainment and information
based services and give new meaning to the
term programming.