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Cable Television Industry Structure and Planning Strategies


Industry Structure and Planning Strategies Richard A. Gershon, Ph.D. School of Communication TIM Program Western Michigan University Cable Television: History and ... – PowerPoint PPT presentation

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Title: Cable Television Industry Structure and Planning Strategies

Cable TelevisionIndustry Structure and Planning
  • Richard A. Gershon, Ph.D.
  • School of Communication TIM Program
  • Western Michigan University

Cable Television History and Development
  • Cable television (also called CATV) was developed
    in the late 1940s 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
  • 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
  • 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 is wired communication to the
  • 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
  • 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 todays
    cable operating systems has evolved into
    hybrid-fiber coax (HFC) structure. In a modern
    HFC cable plant, the trunk cables and amplifiers
    are replaced by fiber optic cable that runs
    directly from the headend point to an optical
    node in a neighborhood.

Distribution NetworkHFC Network Architecture
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
  • 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 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

Cable Television Business Considerations
  • The business of cable television consists of two
    primary sets of players, including
  • 1. The cable television operator
  • 2. The cable program supplier.

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
  • Comcast
  • Cox Cable
  • Charter Communication

The Program Supplier
  • The program supplier is responsible for
    delivering program services to the cable
  • A program supplier can include both the broadcast
    television networks (CBS, ABC, NBC and Fox as
    well as cable network suppliers (CNN, MTV, ESPN
  • Program suppliers break down into two major
  • 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

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

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.
  • Thus was born the principle of cable networking
    that is, television programs designed
    exclusively for cable operating systems
    (and later direct broadcast satellite

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
  • 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)
  • 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
  • to television households (compared to 66.8
    in 2005)
  • Cable Operating Systems
  • High Speed Internet Services
  • Avg. Monthly Price for Expanded Basic

  • (compared to 38.23 in 2005)
  • Source National Cable Telecommunications

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

Cable Televisions Impact on Broadcasting
  • 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.
  • Disney (ABC) ESPN
  • Viacom (CBS) MTV, BET, Nickelodeon
  • News Corp. (FOX) Fox News Channel, Fox Sports

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
  • A typical cable television system will usually
    contain four types of programming service. They
  • 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 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

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 is charging the customer an
    additional fee for the right to receive a premium
    television channel or service. Pay cable
    television comes in two forms, including monthly
    services like Home Box Office, Showtime and STARZ
    as well as pay-per-view (PPV) events which
    involves charging the customer by the program
    rather than by the service (or channel).
  • In principle, pay cable services add a premium
    value to the traditional television
    viewing experience by offering subscribers
    programming that they wouldnt normally be able
    to get on basic cable such as recently released
    films, made for cable specials, specialized
    concerts, sporting events, adult entertainment

Video on Demand (Pay-Per-View)
  • Video on Demand (pay-per-view) television
    represents a distinct category of pay television
  • 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
  • PPV television is not a new idea. Early attempts
    at marketing PPV can be traced back to the 1950s
    and the early subscription television systems
    involving traditional broadcast television.

Enhanced Information Services
  • 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

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
  • 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
  • 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
  • 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.)
  • 3. Evaluation of the Incumbent Operator's
  • 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
  • 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
  • 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

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
  • Todays cable operator is much more than a
    purveyor of television entertainment. Rather,
    cable delivery of broadband communication
    services makes possible a whole host of
    utility and value added features including
    local government, public safety,
    health care, education and business
  • 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.