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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.

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cable television industry structure and planning strategies

Cable TelevisionIndustry Structure and Planning Strategies

Richard A. Gershon, Ph.D.

School of Communication – TIM Program

Western Michigan University

cable television history and development
Cable Television: History and Development
  • Cable television (also called CATV) was developed in the late 1940’s in communities unable to receive television signals.
  • 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.
  • 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
John Walson, Mahanoy City, PA
  • 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.
  • 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

john walson mahoney city pa
John Walson, Mahoney City, PA
  • 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.
  • 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.
  • 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
Cable Television
  • Cable television is wired communication to the home.
  • 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.
distribution network hybrid fiber coax network architecture
Distribution Network(Hybrid Fiber-Coax Network Architecture)
  • 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.
  • 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.
  • 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 today’s 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.
broadband communication system
Broadband Communication System
  • 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.
  • Broadband is also a term used to describe the delivery of high speed Internet access via a cable modem or DSL.
digital cable
Digital Cable
  • What is Digital Cable?
  • With digital cable, cable operators are able to offer greater choice and quality than is possible with analog television.
  • 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
Digital Cablecont.
  • Digital cable can provide a host of new services, such as video-on-demand, interactive television and commercial-free CD-quality music.
  • 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
Cable Television: Business Considerations
  • 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
The Cable Operator
  • The cable operator is responsible for providing cable television service to the community.
  • The cable operator packages a diverse set of program services and charges subscribers a fee accordingly.
    • Comcast
    • Cox Cable
    • Charter Communication
the program supplier
The Program Supplier
  • The program supplier is responsible for delivering program services to the cable operator.
  • 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.)
  • Program suppliers break down into two major categories:
    • 1) advertiser
    • 2) pay supported services
  • 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.
  • 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
HBO cont.
  • 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.
  • 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
Principle of Cable Networking
  • 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.
  • 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.
  • 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
Cable Networkingcont.
  • 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
Cable Economics
  • Cable television is often considered a natural monopoly; that is, a one of a kind service in the community in which it operates.
  • Obligations:
    • Must provide service on a nondiscriminatory basis
    • Must maintain quality level of service
  • Rights:
    • Is allowed to make all programming decisions
    • Is allowed to make sufficient return on investment
cable television penetration rate
Cable Television Penetration Rate
  • In the U.S. today, cable television is the primary means of delivering broadband television services to the home.
  • Cable television is available in approximately 58.8% of all U.S. homes.
cable television in the us 2007
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
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
Cable Television Influence
  • 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
Broadcasting and Cable
  • Historically, the relationship between broadcasters and the cable industry can be considered antagonistic.
  • Beginning in the early 1980’s, 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 television s impact on broadcasting
Cable Television’s Impact on Broadcasting
  • 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.
  • 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
Cable Television Programming
  • Programming for a cable operating system differs significantly from broadcasting.
  • 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
Cable Programming Types
  • 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
Basic Cable
  • 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.
  • 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
Expanded Basic
  • 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.
  • Most cable operators do not distinguish between basic and expanded basic and sell the two as an integrated package.
  • Expanded basic cable services are mostly advertiser supported with the exception of PBS, C-Span and public access channels.
pay cable television
Pay Cable Television
  • 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 aspay-per-view (PPV) events which involves charging the customer by the program rather than by the service (or channel).
  • In principle, pay cable services add a premium value to the traditional television viewing experience by offering subscribers programming that they wouldn’t 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
Video on Demand (Pay-Per-View)
  • Video on Demand (pay-per-view) television represents a distinct category of pay television services.
  • 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.
  • PPV television is not a new idea. Early attempts at marketing PPV can be traced back to the 1950’s and the early subscription television systems involving traditional broadcast television.
enhanced information services
Enhanced Information Services
  • 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
  • Broadband residential networks represent a core component in planning for tomorrow's "smart homes.”
cable television franchise
Cable Television Franchise
  • A cable television system operates under the auspices of a franchise agreement.
  • 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
Franchise Fee
  • 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
Cable Television Franchise Renewal
  • A cable television franchise comes up for renewal approximately every ten to twelve years.
  • 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
4 Steps in a Cable Franchise Renewal
  • Whether the process is formal or informal, there are four basic steps that the community (or franchising authority) should follow:
  • 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
  • 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
4 Steps in a Cable Franchise Renewal (cont.)
  • 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
  • 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
Cable Franchising: Changes
  • The current system of local cable franchising is about to undergo a major change.
  • 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.
  • 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
Cable Television: Looking to the Future
  • 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.
  • Today’s 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
  • 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.”