Tucson's Recent Cable TV Mess Is Part Of A Much Larger Problem.
By Rick Emrich
NEARLY 20 YEARS ago, Tucson found itself the center of attention in frenzied courting rituals by companies seeking the city's blessing to offer cable television service to video-starved Tucsonans.
For months our fair desert community became the site of a bidding war led by prospective suitors like multi-nationals Warner and Time, and local and regional beaus American Cable and Cablecom-General.
When the dust finally settled in 1981, Tucson had a 15-year contract with Cox Cable Communications to provide the city with a state-of-the-art, 128-channel, interactive cable system with $30 million in funding for 51 public access and community channels.
As happens too often with marriages, however, the reality of the shared relationship didn't meet the expectations set by the courtship. Now, a decade and a half and five cable companies later, city residents have an ailing 64-channel system run by TCI of Tucson; and the license agreement governing the service, which expired two months ago, has yet to be renewed.
Since the contract expired, Access Tucson, the organization responsible for administering the system's public access channels, has been eking by on funds that were only supposed to last through this past December 6. To add to the confusion, just before the New Year TCI of Tucson dropped several popular channels, outraging many of its 80,000 customers.
Tucson's cable woes are not unique. Across the country, cable systems operated by TCI of Tucson's parent company, Colorado-based cable megalith Tele-Communications, Inc. (TCI), are in turmoil:
THE CABLE INDUSTRY is governed by a combination of federal and local policies. Local communities help regulate cable systems through license or franchise agreements, which allow them to require their cable operators to provide certain kinds of services and to make payments to the communites in exchange for using public rights of way to sell cable subscriptions.
The arrangements give local governments the opportunity to ensure that cable systems operate in the best interests of their communities. One popular means for achieving that goal is by establishing provisions on a system for public, educational and government channels (PEGs), such as those operated by Access Tucson, the city government and other organizations. As mandated by the recently expired license, the cable system here has 13 channels designated for PEG use.
Originally agreed to by the City Council and Cox Cable in 1981, Tucson's cable license has been renewed with amendments each time the system changed hands, and has been modified other times at the request of cable providers. The contract has been reworked no fewer than a dozen times, extensively reducing the obligations of providers over the past 15 years.
According to Bob Hunnicutt, the city's telecommunications administrator, the amendments show a consistent pattern of cable providers trying to get out of provisions of the license agreement. Hunnicutt is responsible for coordinating the license renewal process and for making recommendations on cable policy to the city.
"Usually every time the system is sold, an operator says, 'Fine, but we ain't doing all this,' " says Hunnicutt.
This pattern is not limited to Tucson, he says, but indicates that cable companies across the country have been prepared to exaggerate what they're willing or able to do for a community in order to secure licenses. "When cable franchising started in the early '80s," he says, "cities were promised lots and lots of stuff, and they never got it."
Ken Watts, general manager of TCI of Tucson, says TCI is not in the habit of making agreements it cannot or will not keep. "As a company we don't do that," he says, "and I would challenge anyone to show (that we do)." Watts says the number of changes over the life of the license indicates it was a "bad agreement." He suggests the current dispute may rest with "unrealistic expectations" on the part of the city.
Many of the expectations for cable systems can be attributed to industry hype. When TCI took over the cable system here in 1994, the company seemed to be riding a wave of enthusiasm for the technological advances the cable industry was promising its customers. The 500-channel universe was just around the corner, we were told, as were an abundance of high-tech services that would come to us through the same wires that deliver television signals.
So it's no surprise people have come to expect that soon they'll be getting high-speed internet access through cable modems.
But that promise of a glittering future may have reached its ebb for some consumers, however, when TCI CEO John Malone (who brought the phrase "500-channel universe" into the cable lexicon) announced recently the company was backing off from promises to revamp cable systems so they could deliver television, telephone and interactive computer signals simultaneously.
He confessed TCI had been over-ambitious about the upgrades and needed to pull back to protect plummeting stock prices.
The company says it still expects to provide increased channel capacity through data compression on most systems, but it plans to limit the necessary upgrades for new technologies primarily to areas where there is direct competition.
Thus it's not surprising Tucson and TCI officials are at odds over whether the system here will be upgraded to accommodate new technology.
According to Watts, "The city has every right to discuss system capacity...but (TCI needs) to be able to decide on the technology."
He says the city wants to establish a citywide internet connection through the cable system. But such a network would not be possible with the compression systems TCI seems to favor.
ONE REASON CABLE franchises are so valuable is that historically they've faced limited competition. Industry insiders frequently describe cable systems as "natural monopolies."
They argue that setting up the infrastructure for a cable system--receivers, satellite stations, miles and miles of cable, and the like--is so expensive that in most cases it doesn't make sense for a company to construct a cable system where another system already exists.
Setting up the second system (which is called an "overbuild" in cable jargon) would mean that two systems would compete for the same consumers, while each spending just as much money setting up the system as if there were only one system. That would force system owners to compete head-to-head with other operators for half the business.
The prevalence of one-horse cable towns means that most viewers have had only one cable company to choose from. The consumer's choice in the cable market becomes either subscribing to cable with that company, or not getting cable at all. Until recently, this has meant that consumers either bought cable and got access to its plethora of programming, or went back to watching a handful of local broadcast stations.
The appearance of direct broadcast satellite and "wireless" cable systems like DirecTV and People's Choice Television has given viewer's another option, however. While satellite systems still have minuscule distribution compared to cable, in the Tucson area, People's Choice is estimated to have about 30,000 to 40,000 customers.
Hunnicutt points out that if TCI's strategy of upgrading systems with competition is real, then Tucson should be high on the list of communities to get such upgrades. But, apparently, it isn't.
IN LATE 1996, TCI announced it was taking measures to control costs by cutting expensive cable programming services from many of its systems.
Those services were to include Chicago superstation WGN (which carries the Cubs and White Sox baseball games), VH-1 and Comedy Central. Each of those channels was eliminated in Tucson (though the company recently announced it plans to restore VH-1). The stations were replaced with services like Discovery's Animal Planet, Home and Garden Television, and the Cartoon Network. Here in Tucson, Turner Classic Movies, a service that TCI previously carried then dropped, was restored to the system in the channel juggle.
In Tucson, the change in channels inspired what Hunnicutt called an "unprecedented" number of complaints to his office--more than 750 in six weeks. At the national level, The New York Times described the move as reflecting the increased leverage that cable providers like TCI have over programmers.
One reason for this leverage is that the cable television business, like other media industries, is increasingly coming under the control of a handful of ever-growing companies. The great majority of cable television viewers live in areas served by Multiple Systems Operators (MSOs), large corporations that manage separate cable systems in many different communities.
TCI is the largest MSO in the world, with about 14 million subscribers in the United States alone. Those viewers account for about 25 percent of cable customers in the country. Between them, TCI and its closest cable rival, Time Warner, have nearly half the cable business in the U.S., and each company individually dwarfs the next-closest rival, Continental Cablevision, which has four million customers.
In order for a commercial cable channel to be successful, it has to get as large a share of the market as possible. Since stations cannot get decent ratings unless they're available, cable programmers are desperate to keep or get their channels onto systems run by the two huge MSOs.
Although operators like TCI traditionally pay programmers for the channels they carry (and TCI is said to command the lowest carriage rates in the business), TCI recently succeeded in extracting one time, up front "launch fees" from some programmers to get the company to run their channels on its systems.
Industry estimates are that the new channels on TCI's systems paid $5 to $8 per subscriber to get the company to carry them. Considering the huge number of subscribers on TCI systems. these fees could potentially net the company more than $100 million.
Even rivals in this industry aren't exactly what they seem to be. Thanks to last year's absorption of Turner Broadcasting by Time Warner, TCI owns nine percent of its biggest "competitor's" stock.
Another characteristic of the industry is that larger MSOs often may have financial interests in cable networks and programming they carry. This situation (known as "vertical integration" in anti-trust lingo) gives an MSO a clear incentive to put its own programming on a system, rather than choosing a competitor's programming.
For example, TCI's programming subsidiary, Liberty Media, owns nearly a 50 percent interest in Discovery Communications, the company distributing Animal Planet, one of the network pick-ups during the recent channel shake-up in Tucson.
Watts says that while TCI does carry programming in which it has a financial stake, the company has also been known to drop its own channels. He also argues TCI's investments in programming have made success stories of channels like Discovery, which may never otherwise have been seen on cable.
And as far as the size of the industry goes, he says, "The cable industry combined is smaller than the smallest of the Baby Bells."
Considering TCI's cash crunch, up-front fees from budding networks provide tremendous incentive to find ways to make room for the new arrivals. This not only puts pressure on commercial programming, it also puts public-interest programming at risk on systems that are already filled to capacity, says Eileen Meehan, a local cable TV expert.
A professor in the UA Department of Media Arts, Meehan studies the structure of media corporations and how that structure influences the kinds of programming they produce. Meehan says the concentration of ownership and vertical integration in cable "translates into threats to drop channels at local levels...and gives TCI the chance to put at risk any non-commercial channel."
She points out that, in the past, TCI has told customers their favorite programming could not be carried because of the presence of PEG channels on the system. In the most recent channel shake-up, TCI of Tucson canceled C-Span 1, the non-profit network covering U.S. Congressional hearings and related events, in order to make room for the incoming commercial stations. It's since announced plans to restore C-Span 1 by eliminating C-Span 2, its sister network covering the U.S. Senate.
THE IRONY OF the level of tension surrounding TCI's channel switch is that cable companies are allowed to carry any channels they choose, and nobody can do much about it--federal law doesn't allow channel selection to be part of a cable license. The only exceptions are PEG channels, which the city has negotiated into the contract. While those channels are still operating, TCI is not funding public access now, and argues its obligation to access ended in December 1995, a position that Access Tucson and the city say is incorrect. They say TCI continues to charge customers for access even though they are not contributing (see "Cable Trouble," Tucson Weekly, November 21, 1996).
Sam Behrend, Executive Director of Access Tucson, says the organization has been operating on reserve funds since the cable license expired. He notes, however, "TCI is still collecting money."
Access Tucson is "starting to feel the stress" of the lack of resources, Behrend says, and has instituted temporary cutbacks such as putting off equipment repairs, leaving staff positions unfilled, and discontinuing certain employee benefits.
"We've tried to cut all unessential spending in ways that won't affect services too much," he says. "Most things the public will not see."
Behrend estimates Access Tucson could continue to operate through March with its present resources, but says he hopes to obtain some operating funds before then.
Meanwhile, TCI's Watts says the financial issues facing the cable company at the national level have no significant effect on what happens in Tucson.
But the combination of TCI's size and the question of where it is headed have people wondering what might happen next.
"This is a big deal in the industry," says the city's Hunnicutt. "It's such a big damn company that you've got to wonder what's going on."
In November, the city filed a notice of default, indicating TCI had failed to sufficiently address the dilapidated state of its cable.
"Here's a system in a state of disrepair," says Hunnicutt. "And clearly they're not willing to fix things up in a reasonable amount of time."
Watts counters, "Some of this was posturing by the city." He says TCI first informed the city of the condition of the system, and that the company should be given time to repair damage left over from past landlords.
Tucson's license agreement is in limbo now. Informal negotiations between TCI and the city were stalled a couple of months ago, when the parties could not agree on levels of funding for PEG channels, a plan to make needed repairs, or the kinds of technological upgrades TCI would commit to the system. The city is proceeding with a formal process to determine community needs and formally present them to the company.
In the meantime, TCI has filed suit in U.S. District Court here, asking for an injunction extending the expired contract until a new agreement is in place. Watts calls the move "procedural," but it seems that, if granted, the motion would codify TCI's interpretation of the agreement. That would not bode well for public access.
IN 1961, NEWTON Minow, chairman of the Federal Communications Commission under President John F. Kennedy, told a group of broadcasters that television was becoming a "vast wasteland" of game shows, violence, formula comedies and endless commercials, and warned that if things didn't shape up, they shouldn't expect pro forma renewals of their licenses to operate broadcast stations. Minow's often-quoted speech marked the beginning of his campaign to bring non-commercial broadcasting into the television industry, and rested on a long-standing (but too often overlooked) principle that the airwaves belong to everyone, and that a television license is a trust that requires broadcasters to serve the public interest.
If Minow thought the wasteland was vast nearly four decades ago, it's difficult to imagine what superlatives he could come up with that would adequately describe the state of television in 1997. But we should not forget the more important issue behind his message--television, whether broadcast or otherwise, is a medium that must serve the needs of the community. It cannot do so if profit is the only reason for its existence.
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