Chapter 2: A Hell of a Business
"Anybody can do it," George Bright of Panther Cable TV, the first cable system in the nation to receive widespread publicity, told The New York Times in December of 1950. He should have said "anybody with money."
The technology of cable was relatively simple. The equipment was readily available. Consumers in small towns throughout America were ravenous for television service. Even after the FCC lifted its ban on construction of new television stations in 1952, millions of Americans were still beyond the reach of broadcast television signals.
The only real obstacle to growth in cable was money. As would happen periodically throughout its first half century, the fledgling industry in the mid-1950s faced a serious shortage of capital. And as it would throughout its history, the industry solved the problem with some ingenuity, perseverance and some old-fashioned luck.
At the center of it all, through the Eisenhower Administration, was Jerrold Electronics and its dynamo of a founder and president, Milton Shapp.
Shapp had seen his first cable system under construction in Lansford, Pa., over the Thanksgiving weekend in 1950. He never looked back. When the Lansford system launched a few months later, all the national publicity about it included the name Jerrold. Shapp began to field questions from hundreds of would-be cable operators from all around the country.
Instinctively he recognized that his company had to be more than an equipment supplier. It needed to be the catalyst to get this new industry off the ground. He moved quickly. As news of the success in Lansford reached the offices of the major Wall Street financial houses, Shapp was quickly at their doors. He persuaded three venture capital firms - J.H. Whitney, Fox Wells, and Goldman Sachs - to put up a total of $200,000 to finance construction of a cable system in Williamsport, Pa. No sooner had he concluded the deal than he called Bob Tarlton, who had founded Panther Valley Cable TV, and asked him to run the Williamsport system.
Later Tarlton recalled, "Milt said, 'Bob, I've got a problem. I just sold a system to a venture capital group in New York City.' He said he needed someone who knew how to construct and adapt a system to the Williamsport area."
Tarlton's system in Lansford was up and running just fine. His son had finished high school and was headed to art school in Philadelphia. So a move to Jerrold, based in Philadelphia, would enable him to give his son a place to live while he went to school.
And, of course, Shapp did a great sales job. "I always give Mr. Shapp credit for being a very, very fine salesman," Tarlton said later. "The very fine salesman that he is must have convinced me to go with him." So Tarlton signed on with Jerrold and headed to Williamsport. The challenges were much greater than in Lansford. It was a bigger town and required a much longer run from the antenna site to the homes: seven or eight miles, Tarlton recalled. This produced the first major equipment failure the industry was to experience, but not the last.
Most coaxial cable in those days was produced for the military in lengths of 100 feet or less. The only company willing to make it in the longer lengths needed by cable operators was a New Jersey firm called Plastoid. But making cable in such long lengths required pulling the copper core through the insulator in several segments. This was accomplished by a device called an extruder, which every so often would grab hold of the copper and pull it through the cable.
Each time it grabbed the cable it put a small, hardly noticeable, dent in the copper. When these cables were installed in Williamsport, the dents were sufficient to interfere with the sound portion of the television signal.
While the Americans were getting their cable industry up and running, the industry was also getting under way in Canada. The first and most ambitious system in the 1950s was built in Montreal by Rediffusion Ltd., a British company that had constructed small master antenna and single channel cable systems in the United Kingdom following World War II.
According to Rediffusion chief engineer K.J. Easton, in his book "Thirty Years in Cable TV," by September 1952, Rediffusion had run 200 miles of cable past 58,000 homes in Montreal.
But the system quickly ran into problems. It was constructed to carry only two channels.
The idea was that one would be the fledgling Canadian Broadcast Corp. channel and the other a channel of French-language films for the big French-Canadian population. But CBC didn't like the idea of competing with a film channel, in any language, and forced Rediffusion to take it off.
Second, it was possible for nearly all the homes in Montreal to receive the CBC channels and U.S. channels from across the border, without having to pay for cable. Finally, unlike the British, Canadians preferred to own their own TV sets rather than rent them, so the combined TV rental-cable service fee that worked for Rediffusion in the U.K. failed across the Atlantic.
But while Rediffusion ran into problems with its big Montreal system, entrepreneurs began to spring up in small towns all across the country, importing broadcast signals into communities that could not get off air signals.
Easton credits two backyard electronics buffs from London, Ontario, Ed Jarmain and Harry Anderson, with building the first system in Canada in 1951 after they had paid a visit to Martin Malarkey in Pottsville, Pa.
By 1957 the National Community Antenna Association of Canada had been formed. By 1959 TV Digest reported that some 200 systems in Canada were serving more than 135,000 homes.
Tarlton recalled: "We were tearing our hair out after having installed a good system, a good portion of it, and we were getting ready for a demonstration. We planned a grand opening where we'd throw the switch and, lo and behold, there we have television.
"Well, we were going to have the grand opening at the Lycoming Hotel in Williamsport. And for a week or two before we had all kind of problems. We couldn't get Channel 4. We couldn't get any decent sound. We had picture but no sound and we couldn't figure it out."
With the help of the manufacturer the problem was identified, the coax replaced and the system got up and running. "Williamsport," Tarlton noted, "was a learning process because it was the first large system that any of us had any experience with." The Williamsport system had another problem: competition. Two other local cable companies had announced plans to build and both had started construction by the time the Jerrold system turned on. But Jerrold had made a key decision. While the other two systems concentrated on the wealthier areas of town, figuring they would be the likeliest customers for an expensive service such as television, the Jerrold system wired the areas with the highest densities of homes, mostly middle-class neighborhoods. It was a gamble, but it paid off. System manager Ray Schneider remembered the day after the first demo- nstration:
"We had an office on Williams Street. I drove up the next morning. I couldn't get near my office. People were lined up for a block and a half, with their $135 (installation fee) in their hot little hands. Some people came in and said, 'I'll pay you half now and half when you install it.' We said, 'I'm sorry we can't do that.' They dug right down and got the other half out and laid it on the counter. In one year we had twice as many customers hooked up to the Williamsport Jerrold Cable System as both our competitors combined." It was a lesson that cable never forgot. Almost without exception, the most lucrative areas for a cable system are not the high-end homes where television is sometimes looked at as something only the lower classes watch and where there are lots of other entertainment options. Rather it is blue collar and middle-class suburban areas that have produced the highest penetration rates for cable systems.
Schneider also organized a professional sales force, perhaps the first for any cable system in the country. After signing up all those customers who came to the office, Schneider hired a group of furnace salesmen who had been trained to sell door-to-door on a salary plus commission basis. The effectiveness of the door-to-door campaign was increased because the system had built in the high density areas where a salesman could make more calls per day than in the less populated neighborhoods.
Within two years, Williamsport had become the largest cable system in the country. In three years, it was sold for $1 million, all of which was profit for the original investors.
With Williamsport under way, Shapp and Tarlton began to barnstorm the country, preaching the gospel to potential investors, possible partners and city councils. Shapp raised the money, manufactured the equipment and did the deals. Tarlton built the systems. In each community, he took care to visit his former colleagues, the TV set retailers, and enlist their support for the new cable system. His tour was extensive: Clarksburg and Fairmont, W. Va.; Berlin, N.H.; Wenatchee, Wash.; and points in between. Among the towns he visited was Uvalde, Texas, where Jerrold was partnered with a young man named Benjamin J. Conroy Jr.
Ben Conroy, like so many of the cable pioneers, was a veteran, a Naval Academy graduate who had seen service during World War II and Korea. His father, also named Ben, had had some success as a wholesaler of furniture and children's toys and moved the family to Brooklyn from Vermont when young Ben was a child. In 1955, after combat duty in Korea, Conroy was assigned to the US Naval Academy training program for midshipmen. He grew restless shuffling paper and took a month off to decide his next career move. One day while he was lounging at the beach, a friend handed him some literature from Jerrold and Conroy brought it home to his father.
The two did some homework and went down to see Shapp in August 1954. He offered them the standard Jerrold deal:
The Conroys would finance the system in return for a 51% ownership. Jerrold would supply engineering and operational expertise in return for a 49%. The Conroys would agree to purchase all their equipment from Jerrold and pay Jerrold a maintenance fee of 25 cents per subscriber per month.
The operators called it a "yellow dog" contract, but it was the only game in town. (The term "yellow dog" came from politics. In the South in the first half of the 20th century, voters so consistently favored the Democrats over the Republicans that they would sometimes say they would vote for a yellow dog over any Republican. They became known as "yellow dog" Democrats.)
Conroy had done a little communications work in the Navy, but nothing that would qualify him to build a cable system. He also had no business training, though his father had acquired a pretty good working knowledge from running his wholesale company.
They spent some time thinking about it and then took the Jerrold offer. Shapp told them he had two deals in the works. One was in Bemidji, Minn., which sounded chilly to Conroy. The other was in Uvalde, Tex. The Conroys took the Uvalde deal, and Ben resigned from the Navy.
Together, the father and son agreed to put up $84,000 to secure a 51% share of a franchise in a city they had never seen to build a cable system they knew almost nothing about.
Jerrold had a regular training program for would-be operators and sent Conroy to school, first at Clarksburg, W.Va., and later in Williamsport. In January of 1955 Ben Conroy - born in Vermont, raised in Brooklyn, a Navy veteran whose main talent was operating 16-inch guns on the battleship New Jersey -- first laid eyes on Uvalde Tex.
There wasn't much to see.
It was a town of about 9,000 residents, roughly one-third of whom were Mexican Americans (something Jerrold, based in Pennsylvania, hadn't taken into account). About 90 miles west of San Antonio, it could barely receive the signals from the larger city.
Cable Growth Through the 1950's
Year Systems Subscribers
1952 70 14,000
1953 150 30,000
1954 300 65,000
1955 400 150,000
1956 450 300,000
1957 500 350,000
1958 525 450,000
1959 560 550,000
1960 640 650,000
Source: Television Digest
In Conroy's words: "At that time that part of Texas was in very severe drought conditions. The economy there was mainly farming and ranching. A lot of ranchers went broke. It was, however, a good time for the irrigating farmers... So it was a split kind of an economy. It was tough going for a lot of people." Many of the Mexican-American families spent a good deal of the year up north, working on the farms, and had little interest in English-language television in any case.
Together with the local Jerrold contact in Uvalde, a TV repairman named Faber Spires, Conroy walked the town, measuring how long the distances were between the utility poles where they wanted to string their cable. The system began construction in April and hooked up its first subscribers in June. Conroy and Spires each made $100 a month salary.
Trained in the Navy to run things by the book, Conroy followed the Lansford model religiously. He charged an installation fee of $125 per home and $4 per month for service (plus an 8% excise tax).
It wasn't as easy as it had been in Lansford, and it wasn't as cheap as Jerrold had projected. But Conroy stuck it out, putting up with comments about the "Yankee" and even enduring a "snipe hunt" for the amusement of the local jokesters. He struck up a friendship with Uvalde's most famous citizen, former Vice President of the United States John Nance Garner.
"We'd go over to Garner's about 5 p.m. some days, and, as they would call it, 'strike a blow for liberty.' He'd break his bottle of Jack Daniels out of the ice box and (say) 'Well, let's strike a blow.' And we'd chat. He'd talk about the old days and he'd want to know when this cable was going to get in here. He was one of my first customers. He bought two sets, and he wanted two connections so we split a connection. We had two channels, so he wanted a set for each channel. We had a picture taken of him watching Dave Garroway and I sent it up to NBC to Dave Garroway. We got a letter back from him, 'Glad to see Mr. Garner watching.'"
(Garner reemerged into the national limelight briefly in 1960 when Texas Senator Lyndon Johnson was offered the vice presidential nomination by John F. Kennedy. Johnson called Garner to ask his advice. Garner told Johnson the vice presidency wasn't worth "a bucket of warm spit." Johnson took the job anyway.) But not everybody was ready to sign up as quickly as Garner. In a town where many residents were barely making a living, several hundred dollars for a TV set plus $125 for cable installation and another $4 a month for service was a fair chunk of change. After six months in operation, Conroy had only 250 subscribers.
Conroy found he needed to promote the product constantly. He went door to door with a yellow legal pad making notes of the addresses of any houses with rooftop antennas, figuring those already had TV sets and were the most likely subscribers. He came back and knocked on those doors to sell service himself. He worked on joint promotions with the local TV set dealers. He wrote ads out by hand and delivered them to the local newspaper. He offered a discount on installation to anybody who would bring in a chicken to donate to charity. He offered a $10 rebate on service to any subscriber who brought in a new customer. "Anything to get people in," Conroy said. "They weren't flocking to the door by any means. We added on about 300 a year pretty evenly as we went. We didn't crack that Mexican-American market until we were able to bring in (Spanish language) Channel 41 by microwave from San Antonio in about 1960-61."
Conroy tried to think of other ways to make money. He sought the help of local motel owners, asking them to install cable, but made no sales. Finally he gained permission to put TV sets in the motel rooms and wire them himself. Then he hooked up a coin box in each room and charged two bits to watch. He split the take with the motel owner. It wasn't quite Spectravision, but it did add a few bucks to the bottom line.
With the marketing problems and other issues, the Uvalde system ran in the red for most of the rest of the decade: "You can figure that at 300 people (which was the subscriber total after the first year) at $4 a month, that's not a lot of monthly revenue. So we were in the hole." By 1958 the system owed Jerrold $35,000 for equipment, and the senior Conroy paid a visit to Milton Shapp. Jerrold, in the meantime, had run into some problems of its own. There were other cable equipment manufac-turers now on the scene (Blonder Tongue Labs, C-COR, Philco, RCA, Spencer Kennedy Labs, Technical Appliance Corp., Transvision, National Antenna Corp, for example). But Jerrold had roughly 80% of the business, partly because of the sales acumen of Shapp and partly because of the "yellow dog" contracts Jerrold signed with so many of their partners in cable operations pledging them to buy only from Jerrold and giving Jerrold part-ownership of the systems. By 1957 Jerrold was facing an antitrust lawsuit filed by the U.S. Department of Justice.
So when the senior Conroy walked in to Jerrold, Shapp was ready to dump his interest in the system in Uvalde. The two agreed that Shapp would sell his 49% of the system and the Conroys would pay Jerrold what they owed for equipment. "Basically we paid what we owed and we got the 49%. We ended up sole owners," the younger Conroy recalled.
By 1960 the system had dropped its installation fee to $10 with a monthly service charge of $8.95. The new deal made cable affordable to many more people, and the Hispanic population began to sign up to get the Spanish station from San Antonio. As the subscriber rolls grew, the system moved into the black. Conroy turned his attention to expansion.
He hooked up with a neighboring operator, Jack Crosby, and the two began to seek franchises in other communities. By the mid-1960s they had formed an alliance with some other operators including Gene Schneider from Casper, Wyo., to form a holding company that Schneider eventually took control of and renamed United Cable Television Co., later one of the nation's largest cable companies. When that group broke up, Conroy and Crosby bought out their original systems in Uvalde and Del Rio, Tex., won additional franchises and built their own cable company. By 1979, when it was purchased by the Times Mirror Co., publishers of the Los Angeles Times, the company served 340,000 subscribers.
Another Texan building systems in the late 1950s was a former cotton seed salesman named Bob Magness. A native of Oklahoma, Magness had served as a rifleman with Gen. George Patton in World War II and returned home to get a degree in business from Southwestern State College. He went to work for the Anderson-Clayton Co. buying cotton seed for use in margarine, salad oil, cattle feed and other products. One day, while calling on a ginner near Paducah, Tex., he ran into some folks whose truck had broken down and needed a ride.
He drove them back to town, stopped for a hamburger along the way and learned that they had been involved in constructing a cable system in Paducah. Later, after a friend mentioned what a good business cable was getting to be, Magness tracked down the hitchhikers and picked their brains. By 1955, he had his first system up and operating in Memphis, Tex. It was the beginning of what would become the largest cable company in the world: Tele-Communications Inc. And it would make Magness a billionaire.
Among others who built early cable systems which grew into major cable companies were John Rigas, who built his first system in Coudersport, Pa., in 1953, and Alan Gerry, a TV appliance dealer, who built his first system in Liberty, N.Y., in 1955. Rigas's system was the first in what would become Adelphia Cable Co. and Gerry's was the foundation for Cablevision Industries.
While Magness, Conroy, Rigas, Gerry and dozens of other entrepreneurs were putting up their family savings and borrowing from partners or local banks to build small cable systems, Bill Daniels was beginning to hit pay dirt in his quest for big investors to back the business. After serving as chairman of the National Cable Television Association in 1956-57, Daniels hung out his shingle, or, more accurately, sent a mimeographed sheet around to all his friends in cable announcing he was in the brokerage business.
The first big bite came from Joe Sariks, who owned cable systems serving 7,500 subscribers in Bradford, Pa., and nearby towns in New York state. "He wanted one million bucks, in cash, for his property," Daniels recalled. "He priced it, I didn't. We had no idea what Joe's property was worth. So I went to see Joe and got some numbers together and I struggled with those, 'cause I'm not an accountant."
Daniels worked out a deal with Sariks to sell the system for $1,050,000, with the $50,000 being Daniels' commission.
A few weeks later Daniels was the speaker at a dinner in Rapid City, S.D. Next to him was sitting a broadcast executive from Dallas named Charles Sammons. Sammons listened to Daniels' pitch for cable and later wrote to say he wanted to get in the business.
Daniels offered him the Bradford property. When Sammons looked at the figures he found the system was generating in excess of $50,000 a month in cash flow. He asked only one question: "Will you take a check?' As Daniels watched, Sammons wrote a check for $1,050,000, a price equal to 1.75 times cash flow, or $133 per subscriber.
Daniels later recalled "Sammons, having been around the business world for years, knew you usually buy a company for five to 10 times (cash flow). Today it's 10 times cash flow. But what I didn't realize, and Sammons did, was here's a hell of a business. It will pay out in 18 months and even if the business goes to hell and there's some kind of a wave that brings television over the mountains, I have minimal risk."
Sammons bought some more properties from Daniels, and eventually hired him to manage them for 20% of the equity, a formula Daniels used with other major investors who didn't want to actively manage the properties.
Another early Daniels customer was Bob Magness. In 1958, Daniels sold the system in Bozeman, Mont., to Magness. Over time, Magness and the company he would later found (TCI) would become Daniels' biggest customer.
Sammons' banker was the Bank of New York. As Daniels found other would-be investors he brought them to the bank which quickly became the largest lender to the fledgling industry.
But bringing other banks and financial houses into the business proved to be a tough sell, Daniels found: "In the early days, in my dealings with the banks, and investment bankers, the principals in the company had to personally guarantee the loans (which) leaves very little risk to the bank. The next step was they agreed that they would lend money from 3-5 years without personal endorsement on the loan. Then it grew to 5-7 years.
"The cash flow is high and everything is rosy today," Daniels recalled 30 years later. "But in the early days it was tough convincing them that some kind of invention wasn't going to put us out of business overnight."
There were plenty of candidates to put cable under. As the TV frenzy swept the nation, entrepreneurs, backyard electronics buffs, inventors, crackpots and broadcasters themselves considered a wide array of techniques to extend the broadcast signals. Boosters on broadcast towers and construction of mini broadcast towers (known as satellites) were the two most common suggested solutions.
One enterprising businessman in the Rocky Mountain region began to market a "rhombic antenna," that was 80 feet high and 150 feet wide. The antenna was intended to be placed on a mountain top where it would reflect broadcast signals down into an otherwise unserved valley. The materials, the investor told Television Digest, cost only $25. The problem was how to mount such an unwieldy structure on a mountaintop. Nevertheless, he reported getting more than 5,000 inquires.
Following the Money
Jerrold Electronics founder Milton Shapp laid out the economics of cable in the mid 1950's:
Building an antenna tower and running cable to town: $2,500 to $3,500 per mile.
Wiring the town: $3,000 per mile or $25 per home with a 135 homes/mile density.
Fixed costs (trucks, legal, offices, test equipment): $5,000 to $10,000/system.
Startup office costs: $2,000 per system.
Total prelaunch construction for 2,000-home community: $80,000.
Installation: $125 per home.
Monthly fee: $3.50 to $3.75 per home.
Despite the development of these alternative systems, the growth of cable continued. Many of the early entrepreneurs sold out, becoming wealthy beyond their dreams in the process.
Fueling the fires of system trades in the 1950s was the federal income tax law, which allowed operators to write off or depreciate the cost of their equipment on their taxes over a limited number of years (typically three to five). After that time, the operators were unable to get a tax break for the amount they had spent for equipment.
But when a system was sold, the new owner could begin the depreciation cycle all over again. This anomaly of the tax law, written to encourage industries to invest in new equipment, had the unintended consequence of making it almost irresistible for cable operators to sell their systems after five or six years of operation. Some of them would then take the money and buy back into the industry. The broadcast television business in the meantime was booming. After the FCC lifted its freeze on new stations in 1952 it began handing out new construction permits by the bushel. The number of stations grew from 109 during the freeze to more than 300 two years later. Many of these stations were UHF stations and many were serving smaller- or medium-sized communities where cable also had gained a foothold.
For most of the '50s, broadcasters looked on cable simply as a way to extend their signals into areas that couldn't otherwise be reached. But as broadcast stations began to spring up in towns where cable also was present, the two were bound to clash.
One of the first conflicts came in Asheville, N.C. There the city council banned construction of a cable system because the prospective operator of a local UHF broadcast station said he wouldn't build as long as he had to compete with the big Charlotte station being imported into Asheville via cable. In Memphis, Tenn., the local broadcaster informed area cable systems it regarded use of its signal as piracy.
In Fairmont, W.Va., the owner of a UHF broadcast station called for federal legislation to limit cable systems, stating that the local system would carry his station only two days a week, threatening his "very existence."
CLOSE-UP: CABLE AND THE FCC
While the FCC briefly looked like a safe haven for the cable industry in the late 1950s, when the industry hoped, incorrectly as it turned out, that the commission would provide minimal regulation as part of a 1960 cable regulation bill, the industry has rarely mistaken the FCC for a friend again.
In 1962 the FCC sparked the drive for distant signal and copyright law by denying a cable operator the right to import Denver TV signals into Riverton, Wyo.
In 1965, the commission restricted distant signal importation by cable operators, imposed must-carry for all local signals and froze the microwave applications that made it possible to deliver signals. The FCC's distant signal rules were upheld by the Supreme Court and gave the commission wide discretion in regulating cable.
In 1972, the industry did catch a break: New FCC rules expanded the distant signals cable could offer and limited franchise fees to 5%. In 1975, the commission issued rules for pay TV, which cleared the way for the creation of Home Box Office and the other pay services that followed it.
But in the 1990s, the FCC and the cable industry really faced off. Congress directed the FCC to regulate cable rates once again. In 1993, the FCC froze rates for 120 days and then rolled prices back to 1992 levels. Future rate increases were to be governed by a complicated rate formula.
Cable operators complained that the paperwork associated with the rules threatened to overwhelm their operations, and some customers found their rates actually rising instead of dropping under the rate formula. In 1994, the commission extended the rate freeze and rolled prices back another 7%. Planned mergers between telcos and cable companies fell apart -- and industry stocks would not recover until Bill Gates decided to sink $1 billion into Comcast Corp. in 1997.
Copyright holders also were uneasy about the new medium. In Reno, Nev., the producer of the popular Cisco Kid TV series took the cable system to court, charging that the rights to the series had been sold exclusively to the local broadcast station and that the cable system therefore was violating the contract by importing the show from San Francisco stations.
Television producer Arche Mayers told the 1954 National TV Film Council that cable systems "cheat" the film industry because they pay no copyright fees on the programs they import from distant broadcast stations.
In Casper, Wyo., the applicant for a local TV station license dropped his bid, noting that he could not compete for viewers with the Denver stations that were being imported by Casper's cable system. Many broadcasters speculated that as stations continued to grow, they would begin to put out of business the cable systems that previously had been the only way to receive television signals. But cable defied these predictions and continued to expand.
In Kalispell, Mont., the owner of a local broadcast station shut his operation down, blaming competition from the distant signals imported on the local cable system. The local cable system offered to buy him out and run the station itself.
The storm clouds were clearly brewing, and by spring of 1956 they burst when a group of television and radio stations in western states filed with the FCC seeking federal regulation of cable systems. Cable, they argued, was making it difficult for local broadcast stations to survive in small and mid-sized communities. The stations simply could not compete for viewers or national advertising with distant signals imported by the cable system from bigger cities.
The broadcasters asked the FCC to declare that cable was a common carrier (like the phone companies) and to regulate cable's rates and services the way it regulated other common carriers. By mid-decade, the larger stations had become uneasy about cable as well. This was fueled in part by the prospect of pay television that would bring uncut movies and other fare into the homes of TV viewers, causing them to switch off the programming offered by broadcast stations.
One of the first such experiments took place in Palm Springs, Calif. International Telemeter, a small company owned by movie studio Paramount Pictures, built a cable system with the express purpose of testing pay-per-view movies. It launched the "pay as you look" service in November 1953, offering the chance to watch the premiere of Forever Female with Ginger Rogers for $1.35. A local theater owner was charging $1.15 to see the same film in the theater. The system also offered the Notre Dame-USC football game for $1.
Some 73 homes in Palm Springs were equipped with coin boxes that allowed viewing of the movie and football game. But when theater owners, alarmed at the prospect of studios selling directly to consumers, formed a group to protest fee TV, Paramount retreated, shutting down its Palm Springs pay-as-you-see operation in the fall of 1954.
The most widely publicized pay television operation in the 1950s took place in Bartlesville, Okla. A chain of theaters, Video Independent Theaters, decided that the best way to compete with television was to join it. VIT won a franchise to build the cable system in Bartlesville with the express purpose of offering a channel of uncut motion pictures.
Bartlesville was picked because it was a town well within the range of three major broadcast stations in Tulsa. VIT figured that if it could make the operation work in Bartlesville it could challenge broadcast television anywhere. It offered the 28,000 residents of Bartlesville a channel of first-run, uncut movies for a monthly fee of $9.95. Initial response was positive but the number of subscribers quickly fell to about 300 from the initial figure of over 1,000. A cut in price to $4.95 a month helped, but the operation was forced to close after less than a year.
The project was a victim of multiple problems. Local broadcast television stations increased their offerings of movies, the local telco hiked its charges for pole rentals in Bartlesville, and subscribers expressed a preference for a system that would allow them to pick the movies they wanted and pay only to see those, similar to what they experienced in the theaters.
But company president Henry Griffing said his operation was simply ahead of its time and predicted that one day pay television would be as pervasive in American homes as vacuum cleaners or refrigerators. Jerrold announced plans to produce equipment that would allow viewers to select and pay for single movies.
All of a sudden, it appeared to big broadcast stations that cable, once a nice way to add a few extra viewers in areas beyond broadcast signals, was likely to be a major competitor within the broadcasters' home turf. They began to join their smaller market colleagues in calls for regulation of cable.
The dispute spilled over into congressional hearings where lawmakers, sensitive to the power of broadcasters, took a skeptical view of cable's impact on the broadcast business. The Senate Commerce Committee hired a special counsel, Kenneth Cox, to conduct hearings on the industry. In his report to the committee, Cox took the position that the public interest was best served by the widest possible distribution of broadcast stations. He concluded that cable in many small towns was interfering with the development of local broadcast stations by importing distant signals that competed with the local stations.
He noted that broadcast stations were regulated by the FCC and required, before they were granted licenses, to provide an array of public services. Cable systems, he pointed out, were free of such requirements. Cox urged Congress to give the FCC the authority to regulate cable. "It seems clear," the Cox report stated, "that the TV industry cannot thrive and grow, to the greatest ultimate public interest, if it continues to exist only half regulated."
Broadcasters had always wrapped themselves in the red-white-and-blue cloak of public service, claiming that their businesses deserved special status because they provided essential services to the public. Among those making this claim for broadcasters was the godfather of broadcasting, David Sarnoff, chairman of RCA and NBC. Speaking before the 1953 convention of the National Association of Radio and Television Broadcasters, Sarnoff took a shot at those who would charge viewers for the chance to watch television.
Of such operations, Sarnoff said: "It would be a negation of the philosophy upon which American broadcasting has been established - freedom to listen and in television freedom to look. It has become part of the American heritage."
Customer service problems also were beginning to plague cable systems. This was a natural outgrowth of the speed with which many cable systems were constructed. In addition, many of the homemade or early prototype versions of amplifiers, splitters and other cable equipment weren't very good. The pictures the systems delivered were consequently often filled with snow or other so-called "artifacts" that could give viewers a splitting headache after a half hour of watching.
Initially, cable customers were happy to pay to get any type of signal at all. But as time went on and some of them had a chance to compare what they were getting with what others closer to the broadcast signals were able to receive for free via rooftop antennas, they began to express dissatisfaction.
A group of subscribers in Walnut Creek and nearby towns in California took their complaints to the state and asked the California public utility commission to regulate the industry the same way it regulated telephone companies. The PUC agreed, and the case went to court.
But the most powerful opponent to cable in the 1950s were the phone companies, and the contest between the David cable operators and the Goliath telcos would continue for two decades. Cable systems needed to put their wires on the utility poles sometimes controlled by the electric companies, but more often by the telcos. The cable systems paid to do this. At first the phone and electric companies saw the rent from their poles - usually ranging for $1.50 to $3 per pole per year -- as an added source of revenue which cost them nothing.
But as cable became more powerful, pervasive and lucrative, the telephone companies began to consider how they might enter the video delivery business themselves, or at least benefit from higher pole attachment fees. By the end of the decade several major telephone companies had begun to deny cable companies access to poles. Others hiked the rates they were charging, in some cases doubling them. Several of these cases also went to court, and in the initial round of skirmishes cable systems won the right to string their wires at reasonable rates. But the battles continued and the issue would not be finally resolved until Congress passed the Pole Attachment Act in 1978.
In 1958 the FCC, in its most important ruling of the decade for the industry, voted unanimously to reject the request of the western states broadcasters that the FCC regulate cable as a common carrier. Common carriers, the agency said, were characterized by a willingness to carry any message from anyone willing to pay to have it delivered. Telephones and telegraphs operate this way.
But cable systems, the commission said, were not common carriers because they made the decision on which signals to carry based on the needs and desires of their customers, not simply on the ability of a would-be sender to pay.
The commission was asked several times to reconsider the issue and continued to come to the same conclusion. In April 1959, for example, it stated that if the FCC were to regulate cable in an attempt to limit its impact on local broadcasting, the FCC would have to act as a "censor" deciding which programs a cable system could carry and which it could not.
Blocked at the FCC, the broadcasters began to lobby heavily for action in the Congress. They were able to persuade half a dozen members of Congress to introduce various versions of legislation to regulate cable and to limit its impact on broadcasting.
The issue came to a head on the floor of the Senate in dramatic fashion. Throughout 1959, the Senate Commerce Committee's communications subcommittee, chaired by Sen. John Pastore (D-R.I.), held hearings on a variety of legislative proposals designed to follow up on the Cox report. The hearings and the legislative proposals for regulation split the cable industry into two bitterly opposed camps, one favoring federal legislation that would preempt local and state laws and the other group opposing any attempt to regulate the industry at any level.
Throughout the 1950s the industry had been forced to fight many different wars on many different fronts. Cable was battling the telephone companies, the broadcasters, copyright holders, state and local governments and the federal regulators. These battles took place in state and federal courts, city councils, the Congress, the FCC, in state legislatures, governors' mansions and state public utility commissions.
The NCTA Through the Years
An influential faction within the cable industry, including the board of directors of the NCTA and its chief counsel, Stratford Smith, concluded that it would be better to have a single set of regulations on the federal level, administered by the FCC, that would supersede all local and state laws. This, they reasoned, would be preferable to having dozens, if not hundreds of sets of regulations at various levels of government, in various stages of implementation and challenge. They reasoned that the FCC, which had already expressed its unwillingness to regulate cable systems, would be a sympathetic forum in which the industry could make its case.
But other cable operators were bitterly opposed to any type of regulation at any level. Many were conservative Republican businessmen who instinctively recoiled at any type of regulation by the government.
"I can remember this," Bill Daniels said years later. "I can remember that, having fought in World War II and Korea, and having been in the cable business such a short time and having the government tell me what I could or could not do, I deeply resented it, because I thought 'now wait a minute, goddamit, I've been out there busting my ass and getting shot at and all I want to do is make a living.'"
When Senator Pastore's subcommittee held its hearings in 1959, Smith testified on behalf of the NCTA that the industry would be willing to support legislation to allow the FCC to regulate cable systems under the same standards that applied to broadcast television stations.
One of the cable operators who favored the legislation was Charles Clements, who had built one of the first systems in Washington state, home to Senate Commerce Committee Chairman Warren Magnuson (D-Wash.). Clements was actively involved in the legislative efforts and served on the NCTA board of directors during the late 1950s.
"I was very active early, politically, with Senator Magnuson," Clements later recalled. "I was party chairman in his district and became very well acquainted with Senator Magnuson...who was chairman of the Senate Interstate and Foreign Commerce Committee which had jurisdiction over broadcasting and communications. A lot of people thought that we ought to put cable television under some sort of control. I worked with Senator Magnuson on that."
But while Clements and others on the NCTA board and staff were working to promote legislation regulating cable, other cable industry figures were beginning to move in the opposite direction. "We had a lot of internal opposition to it in our industry," Clements recalled, "which I didn't realize, from Jerrold Electronics, who were also cable operators. A fellow in Oklahoma, Henry Griffing (chairman of VIT which had built the Bartlesville system), was very, very powerful politically." When the bill emerged from the Commerce Committee it would have done four things:
Required cable systems to obtain a license from the FCC.
Required the FCC to include limits in the cable system licenses that would protect the interests of local broadcast stations that might be threatened by the startup of a cable system in their community.
Required cable systems to carry all local broadcast signals, without degrading their signals.
Prohibited cable systems from importing programs that were already being aired by the local broadcast station.
For the hard liners, this was a far cry from the minimal regulation that they had envisioned when the NCTA board asked for FCC jurisdiction over cable. They particularly bristled at the "non-duplication" clause that would have prohibited them from importing into a community any program that duplicated a show being aired by the local station.
As Glenn Flinn, a cable operator from Tyler, Tex., told the Pastore committee: "I believe that a TV signal, once broadcast, is free to be received by anyone, whether an individual or a community antenna."
Backers of regulation continued to believe that the Pastore proposal, while not perfect, would still be preferable to the continued battles at state, local and federal levels. They persuaded Pastore to accept several softening amendments and to reject a proposal that would have required cable systems to obtain permission from any broadcast station before retransmitting that station's signal on the system. Pastore went along with the changes proposed by cable with the understanding that the industry would back the final version of the bill.
But even these changes weren't enough to satisfy the anti-regulation hawks in the cable industry. The big break came when Jerrold president Milton Shapp changed his mind on the bill. He joined with VIT's Henry Griffing to send an urgent telegram to all cable operators urging them to come to Washington to oppose the bill.
As Montana cable operator Archer Taylor remembered it "Henry, I think, was the one that persuaded Milt and said, 'Look, you don't want regulation. You like it the way it's been. You can do anything you want to do, until they stop you.' So he and Milt Shapp turned the industry around, and they set up a grass roots campaign to go into the halls of Congress and lobby against the bill that they had been lobbying for."
Shortly before the Senate took up the bill, the NCTA board reversed its positions, declaring that it was now opposed to the measure. Griffing persuaded the two senators from his home state of Oklahoma, Mike Monroney and Robert Kerr, to lead the opposition to the bill on the floor of the Senate. Just a few months before the Kennedy-Nixon presidential election, just days after the Soviet Union shot down a US Air Force U-2 "spy" plane that nearly brought the world to the brink of a nuclear war, and only weeks after the Congress had finished debating one of the most important civil rights bills in history, the United States Senate devoted two full days of often rancorous debate to the issue of how to regulate cable television.
But sometimes the most innocuous issues can generate the most rancor. The New York Times reported that the debate at times degenerated into a "shouting match" between senators. And Congressional Quarterly magazine noted that "the Senate spent two days of heated debate" on the bill. Backers of the legislation charged that the cable industry had broken its word on the bill. They noted that the NCTA had called for federal regulation just a year before and that several amendments backed by cable had been incorporated into the legislation.
But these changes in the bill weren't enough to placate the industry hawks. "Amendments worked out in earlier negotiations with CATV spokesmen were adopted on the floor but failed to save the measure" from cable industry opposition, Congressional Quarterly reported.
The 1960 Bill
The cable industry reversed its position, first supporting, then opposing, a 1960 bill that would have regulated the industry. The about face angered many senators, and left a bitter taste on Capitol Hill for many years.
The bill would have:
Required systems to obtain an FCC license.
Required the FCC limit the number of cable licenses to protect local broadcasters.
Required cable systems to carry all local TV stations.
Prohibited importation of programs that local systems already were carrying.
The halls of the Senate were filled with lobbyists on all sides of the issue. The NCTA called on all its members to participate, and senators were swamped with calls and letters from cable operators back home urging opposition to the bill.
"We've never seen anything like it in this industry," Television Digest reported. "At very last minute, CATV operators pushed panic button, admittedly, called in colleagues from entire country. Some 100 responded, talked to virtually every Senator in Washington. Campaign was naive and crude by most lobbying standards, but it worked."
The debate became highly charged and very personal. Senator Kerr, in particular, launched a rhetorical barrage at the NCTA and Smith. Taylor, who was sitting in the Senate gallery with Smith listening to the debate, later recalled: "Senator Kerr of course, he was owned lock stock and barrel by interests in Oklahoma, mostly oil, but Griffing was a powerful enough one so that when Griffing said 'vote against it,' he voted against it. So (Kerr) got up and made this impassioned speech about how the lawyers were just walking all over these poor little people that are running cable television systems: 'Strat Smith is the guy; he's just terrible, he's just taking these people down the primrose path.' And here he (Smith) is sitting right along side me and he can't say a word."
"It was vicious. And he (Kerr) cried, you know. Kerr could weep at the drop of a hat; it was important to weep." Smith also remembered Pastore pointing to Smith in the gallery and telling the Senate: "That man assured me the cable industry would support this bill." Pastore, Smith recalled, added some comments about lawyers and lobbyists that were later deemed too intemperate and were stricken from the Congressional Record.
Behind the scenes, the opponents of the bill sensed victory, and intensified their lobbying. Sandford Randolph, manager of the system in Clarksburg, W.Va., and president of the NCTA, persuaded his home state senator, Democrat Jennings Randolph (no relation) to engineer a "live pair" on the Senate floor. (This procedure occurs when a senator who is absent for a vote asks a colleague on the other side of the issue to refrain from voting. The "live pair" would be executed by one senator standing up and saying "My colleague, Senator Randolph, cannot be here today. He would normally vote against the bill. I would normally vote for it. As a courtesy to him, I am withholding my vote.") In the end, the tearful Senator Kerr and the cable industry hawks won. By the margin of a single vote, 39-38, the Senate agreed to send the Pastore bill back to committee, effectively killing it. The bill probably would not have become law, at least that year, in any case, because the House had not scheduled a vote on a similar measure. But the exercise left a lasting legacy.
The cable industry engendered an enormous amount of bitterness among some of the most powerful Senators and among those in the industry who had earlier lobbied on behalf of the legislation.
As Clements later noted. "I had to go to Magnuson's office, and he had this bill introduced on behalf of the industry and then the industry defeated it. The two factions of the NCTA were not communicating with one another, and a deal one group would make was likely to be abrogated by the other.
"We had a lot of internal opposition to it in our industry which I didn't realize," Clements noted. "I thought everybody in the industry wanted it. I was mistaken. So was our Washington, D.C., staff." The NCTA's reversal of position and subsequent divisions provided fodder for its opponents. But the industry also alienated some of its strongest supporters and some powerful lawmakers who had been neutral. Senator J. William Fulbright of Arkansas, for example, had been a supporter of the cable industry and had been a prime sponsor of the bill. But after the debate, he told Arkansas cable operators, according to Taylor, "Look I'll always support you in the Senate, but don't ever come and ask me to front for you again."
And Senator Pastore, a short, hot-tempered lawmaker who had been willing to work with the cable industry was, according to Taylor, "absolutely livid with rage because, he said, 'I had no ax to grind at all, I have no cable systems in my constituencies. I supported you on this bill and now you're coming along and asking me to turn it around.' "
"Boy, he was just-double crossed. He was livid with rage," Taylor remembered. Soon after the vote it became evident that the industry's political woes were not over. The FCC, able to read the winds on Capitol Hill, recommended legislation to prevent cable systems from carrying programming duplicated on local stations and to require operators to get permission to carry signals from other broadcast stations.
The industry dug in its heels. It voted to oppose any regulation and announced a search for a national spokesperson to carry its case. Smith, who had testified before Congress about the NCTA willingness to accept regulation, stepped down from his post as NCTA general counsel. The old adage says history repeats itself. That's certainly true in this case. The 1960 Senate melodrama was to be reenacted almost without a script change exactly 30 years later when the NCTA board again reversed its position on a piece of regulatory legislation and was successful in killing it at the last minute. Like the 1960 event, the 1990 change of position left many Senators charging betrayal and would return to haunt the industry a few years later.
The cast of characters even overlapped. Two senators on the floor to vote on the 1960 bill (Strom Thurmond and Robert Byrd) were still around for the debate in 1990. And the fathers of both George Bush and Al Gore were both present in the Senate to cast votes in 1960. In 1990 Bush, as President, and Gore, as senator from Tennessee, were to play key roles in the debate over cable regulation.
Dodging the various bullets that local, state and national governments sent their way, cable operators continued throughout the 1950s to expand their business. By the end of the decade, according to a Television Digest estimate, some 650,000 U.S. homes were getting their television signals from 640 cable systems. On average, more than one new cable system had launched every week since the Lansford, Pa., system began operations in 1950. An average of more than 180 new customers signed on for cable service every single day during the 1950s.
Bill Daniels was right. It was a hell of a business. Most systems were making money hand over fist. One of the nation's largest systems in the mid-1950s was in Clarksburg, W.Va. In 1956, the 7,000-subscriber system reported profits of $264,000 on income of $415,840. That produced an astounding 64% cash flow margin. The system was owned by Fox, Wells, one of the first big Wall Street firms to heed Shapp's summons to enter the cable business. Within a year the system was sold to NWL Corp., another New York investment company, for just under $900,000, or a multiple of just under 3.5 times cash flow.
Meanwhile, in the courts, the industry won a huge victory when the U.S. Circuit Court of Appeals struck down the IRS proposal to impose an 8% excise tax on cable system subscriber fees. The excise tax, the court ruled, was not intended to apply to cable systems which did not even exist when Congress passed the law imposing the tax on utilities. The victory was a big one for the NCTA and Smith.
The NCTA and Smith also were deeply involved in a California case in which the state supreme court struck down an attempt by the state Public Utility Commission to regulate cable as a utility. The case was the first such one in state courts.
The industry stepped up its presence in Washington, holding its 1958 national convention at the Mayflower Hotel in the nation's capital and swarming over the Hill to take cable's case to congressmen, senators and the FCC.
To combat growing customer service problems, the NCTA instituted a standards and practices committee chaired by Meadville, Pa., operator George Barco. The group was charged with establishing a set of guidelines for operation of cable systems. But customer service problems would continue to plague operators through the remainder of the century.
Partly it was because of the technology. "At the time everything was tubes," Casper Wyoming cable operator Gene Schneider recalled. "There was no such thing as a transistor. Those tubes used to go out overnight, the worst time of night, right in the middle of a fight or something and blow the whole bit."
Schneider (no relation to Ray) remembered keeping his fingers crossed every time there was a big sporting event. "I can recall times when the wind was moving the dish and the pictures were flopping in and out. Whenever you had a big event like a Rose Bowl Game or a World Series you always were just on pins and needles hoping, 'My gosh, I hope this thing doesn't go off.'"
The cable itself was subject to weather. Moisture would get inside the dielectric and cause snowy pictures. During cold weather, the copper core would shrink and disconnect from taps or amplifier hookups.
But other problems were the result of more than just first-generation technology. Some operators built their own equipment. (The National Cable Television Center & Museum has some amplifiers that were welded inside coffee cans.) And some operators cut corners to save on cash. Ray Schneider, who later worked for Times Fiber selling coaxial cable, remembered one operator in Michigan who would call every so often to see if he could buy the odds and ends of cable that were left on the spools after all the standard lengths had been sold. Schneider was happy to sell him these for next to nothing. He estimated that this operator had wired his system with thousands of cheap, short pieces of cable spliced together. Each splice, of course, was a potential source of problems.
In one of the first articles on the economics of the new industry, TV Digest interviewed Shapp, who estimated that the cost of building a system would average out to about $5-$6 per person in the community. The costs broke down as follows:
Antenna tower and cable run to town, approximately $2,500 to $3,500 per mile depending on the distance.
Wiring the town, about $3,000 per mile or about $22-$25 per home in a community with 135 homes per mile.
Other fixed costs such as trucks, legal expenses, offices, test equipment, etc., added $5,000 to $10,000 per system. Preliminary operation costs such as maintaining an office, pre-launch promotion and so forth would add $1,500 to $2,000.
This would bring pre-launch construction and other costs to about $80,000 for a community of 2,000 homes. Costs per home for installation were pegged at $18-$20 per home. Most operators, he said, were charging about $125 per installation and a monthly fee of $3.50 to $3.75. Operating costs, he said, would be "modest" with the average system employing between four and eight people.
Using those numbers, he projected that a system signing up 500 homes in the community could pay back its startup costs in less than two years. After that, the vast bulk of revenue would be profits. No wonder the number of cable systems was increasing by one a week.
And the number of channels served by these systems was increasing as well. In October 1953, Jerrold installed its first five-channel system and told cable operators it would cost about $400 a mile to upgrade from the old three-channel service. And the introduction of color proved no problem for the robust coaxial cable.
In Pennsylvania, Jim Palmer led his manufacturing company, C-COR Electronics, in developing cable powered amplifiers. Blonder Tongue Labs introduced split band amplifiers to replace the old strip amps and provide 12 channels rather than five channels of capacity. And Spencer Kennedy Laboratories introduced the first broadband amplifiers based on a concept originated by a British engineer for EMI. This amplifier provided the platform to deliver even greater channel capacity.
In Arkansas, cable operator Jim Davidson founded a distribution company that would assemble a complete headend at Davco's plant and then fly it to the system where it could be installed in a single day.
With such a growing and lucrative business at stake, it was not long before juicy franchises were the subject of warring parties. City councils were asked to choose between competing bids for the right to wire city streets for cable. This process degenerated rapidly, drawing out the worst instincts of local politicians and the worst instincts of cable operators. One of the first big contests was in Dubuque, Iowa, where a group backed by Jerrold competed against a local operation proposing to use equipment manufactured by Spencer Kennedy Labs. Two local professors hired as consultants by the city council recommended Jerrold, but the council voted for the better-connected local group instead.
Jerrold then took its case to the people, garnering 400 petitions to place the issue on an election ballot and then winning a special election that generated a bigger voter turnout in Dubuque than any election except the 1952 presidential contest. The effort paid off. By the end of its first year in operation, Jerrold had more than 2,200 subscribers.
Without question the 1950s was the Jerrold era in cable television. The company had grown from a side business started by Milton Shapp to a major corporation with revenues of $8 million by 1959. Shapp had brought the first serious money into the business and built the first really big systems, securing most of their business for Jerrold with exclusive supplier contracts and keeping part-ownership, as he did with the Uvalde, Tex., system.
Jerrold also entered into arrangements with favored companies that supplied equipment Jerrold did not make itself. Times Wire & Cable of Wallingford, Conn., for example, had the inside track to provide most of the coaxial cable in Jerrold-owned and operated systems, giving it the lion's share of the coax market in the 1950s.
Shapp was a tireless and outspoken booster of cable, making speeches around the country touting the business and predicting tremendous growth. Jerrold supplied much of the equipment for the Bartlesville pay TV system and by 1956 the company let it be known it was considering buying first-run films directly from Hollywood producers for showing on pay-per-view basis on cable systems. All this was bound to draw the attention of Jerrold's competitors and eventually the U.S. Department of Justice. This was particularly true because of the atmosphere surrounding television in the late 1950s.
TV had exploded into the national consciousness in a way that affected almost every aspect of American life. In less than 10 years the number of TV households grew from less than 100,000 to more than 40 million. Viewers were glued to I Love Lucy and Show of Shows.
And TV demonstrated its political power as well, destroying the career of anti-Communist witch hunter Joseph McCarthy and bringing such events as the national political conventions into almost every living room in the nation.
The power of television, increasingly concentrated in the hands of the broadcast networks, threatened the stability of the political process, and politicians scrambled to gain a hold on the medium. This movement was accelerated with the payola scandals of the late 1950s when a shocked nation learned that the most popular quiz show on the air had been fixed.
Congress jumped quickly into the fray, investigating the payola scandals and launching an investigation of television itself.
In such a highly charged atmosphere, Jerrold stood out as an almost irresistible target. Competitors and cable operators alike had complained steadily about Jerrold's tactics. Montana operator Archer Taylor decided not to use Jerrold equipment. When Taylor's partner ran into the local Jerrold representative in a Montana barroom one day, the rep shouted across the room that Jerrold would "run you right out of business." Taylor's partner wrote letters recounting the incident to the President, the FCC and members of Congress. He wasn't the only one to complain of heavy-handed tactics by Jerrold
. In 1957, the U.S. Department of Justice filed suit charging Jerrold with restraint of trade and other violations of the Sherman and Clayton Antitrust acts. The Department's suit cited Jerrold's practice of insisting on exclusive contracts with cable companies, its ownership of cable systems and its alleged threats to build competing cable systems in communities where the cable operator refused to do business with Jerrold.
Jerrold strongly denied the charges, and Shapp noted that his company competed with much bigger entities such as RCA and Philco for the cable equipment business. The case dragged on for more than two years, consuming considerable resources for Jerrold. During that time the company began to abandon some of the practices that had landed it in such hot water. It eliminated its exclusive contracts and began to shed ownership in cable systems, selling nine of them to H&B American, a Los Angeles-based construction and transportation company. Once H&B got a taste of the cash flow cable could generate, it jettisoned its other businesses and quickly catapulted itself into the position of the nation's largest cable operator.
When a decision in the Jerrold antitrust case finally arrived, in 1961, it proved to be mixed. The court restrained Jerrold from buying any more cable systems, but did not expressly order it to divest those it already owned. It also prohibited the exclusive contracts which Jerrold said had already been discontinued. But the court did not go further in punishing Jerrold, as the Justice Department had requested.
Nevertheless, the lawsuit effectively marked the end of an era in which Jerrold so completely dominated so many aspects of the cable business -- operations, manufacturing, franchising, finance, lobbying. Shortly after the suit was filed, Jerrold acquired the Harmon Kardon consumer stereo equipment company, expanding outside cable for the first time. It then sold the rest of its cable systems. Finally, in 1961, Shapp sold his one-third interest in the company to oil and entertainment executive Jack Wrather for $4.4 million.
Shapp remained as Jerrold's president, but shortly exited the company to concentrate on politics. He was elected governor of Pennsylvania in 1970 and was a candidate for the Democratic nomination for president in 1972.
Jerrold (the name was changed in the 1990s to the GI Communications Division of General Instrument Corp. and again in 1997 to NextLevel) would continue to be a leading supplier of equipment to the business and a key developer of new technology for cable for the rest of the century. It would even be able to get back in the cable operating business in the mid-1960s.
But it would never again play the central role in so many aspects of the industry as it did in the 1950s. The baton of leadership in the industry was about to pass to others.
At the head of the list was a rotund 43-year-old from New Jersey, the son of Russian Jewish immigrants, the winner of a baton-twirling scholarship to the University of Alabama, the nephew and namesake of composer Irving Berlin, the holder of a patent on a new device that allowed actors and politicians to read scripts without moving their eyes from a camera, a leading promoter of heavyweight boxing events, and a consummate showman himself.
His name was Irving Berlin Kahn and his company was TelePrompTer.