Before pay TV’s heyday, a movement was literally afoot in Colorado.
Back in 1952, insurance salesman Bill Daniels caught a glimpse of TV while traveling through Denver and ended up moving to Cherry Creek North and helping to launch an industry.
For a time, Denver was the nation’s cable capital, with the three largest cable companies headquartered here. And while those companies have consolidated or moved east, they left their engineering teams here and the region is still home to a significant cable workforce.
Major operations of Comcast and Charter Communications are based in Colorado, along with technology shop CableLabs in Louisville and the Cable Center, a monument to the history of cable TV housed at the University of Denver.
As the industry expanded, consolidated and rolled out new technologies, like broadband internet access, it’s the video business — and legacy business model — that is being forced into a corner as programming costs continue to soar and more consumers gravitate toward cord cutting.
“The Cable Center, for one, (is) looking at what’s it going to be like in 2025. One of the committees is trying to define the new ecosystem,” said Paul Maxwell, who started industry news publication CableFAX Daily in the 1980s and sits on the Cable Center’s board of directors. “What business are we all really in?”
The slow-moving industry is rethinking video, its raison d’être for the last half of the 20th century. Some smaller cable companies are getting out of video entirely, though sticking with internet service. The rising costs of programs and TV channels has resulted in the largest companies letting channels go dark.
Customers experienced a record number of blackouts this year as contract disputes hit a wall, according to the American Television Alliance.
Companies are reconfiguring, trying to figure out the future.
Denver-based Liberty Global, the international cable company chaired by former Tele-Communications Inc. head John Malone, started off the year with a reorganization to cut costs and went on to sell off a bunch of its European cable businesses “as a result of purposeful rebalancing,” CEO Mike Fries said during an August earnings call.
Comcast is battling with Denver-based channel Altitude Sports over how cable TV programs traditionally make money. Comcast wants out of the old business model, which relies on the majority of cable subscribers pay for the majority of channels whether viewers watch or not. Stalled negotiations have left Denver Nuggets and Colorado Avalanche fans without the ability to watch the games on Comcast since early September.
Meanwhile, long-time disruptor Charlie Ergen, founder of Dish Network in Douglas County, testified last week in federal court in support of the T-Mobile and Sprint merger. If approved, T-Mobile would sell $5 billion worth of prepaid customer accounts and some wireless spectrum to Dish, which in turn would pivot into becoming a wireless service to offset declines in its satellite TV business.
“Cable companies are not cable companies anymore,” said Bruce Leichtman, president and principal analyst for Leichtman Research Group, which tracks broadband and video providers. “The cable companies are broadband companies. Broadband is their growth engine. Broadband is a higher margin product. That’s the one thing Charter and Comcast have. They have the bundle but they look at video now as being a part of the bundle that helps them with their broadband product, which is really their core service now.”
How cable got this far: Technology
When Leslie Ellis moved to Denver in 1990 to cover the cable industry for MultiChannel News, she recalls 18 cable companies headquartered in Denver.
“You’ve heard Bill Daniels,” said Ellis, now president of Ellis Edits, a technology writing service. “… He stopped at a bar in Denver on the way back to Wyoming and saw TV for the first time and said, ‘I want to have this.’ So it kind of all started in Denver.”
Back in the 1950s, if you lived too far away from the broadcast signal, you couldn’t watch TV. So Daniels, who was born in Greeley, used microwave technology to broadcast TV signals from Denver to Casper more than 200 miles away, according to the Cable Center. Daniels went on to start several cable systems nationwide.
Over the next two decades, Glenn Jones bought a cable system in Georgetown and turned it into Jones Intercable. Gene Schneider started United Cable Television Corporation in Denver. And Texan Bob Magness started up Tele-Communications Inc, bringing in Malone to run the Denver-based operation.
But what really contributed to the industry’s continued growth was its technology innovation, Ellis said. After satellites started going up in the 1970s, HBO broadcast the “Thrilla in Manila” boxing match between Muhammad Ali and Joe Frazier nationwide and cable companies thought, “Why don’t we do more of this?” she said.
“And then after that it was like, ‘Well, maybe we should build for 12 channels’ and people were like ‘Why would we ever need more than 12 channels? That’s ridiculous,’” she said. “It (basic cable) just kind of took off because it was the ‘80s when the programming deluge began with MTV. I was in high school in the ‘80s and some of my friends had it. We would all go over there and watch it because they had MTV.”
By the late 1980s, the nation’s three largest cable providers were in Denver: TCI (now part of Comcast) was the largest, followed by the American Television and Communications Corp. (now part of Charter) and United Cable after it merged with United Artists (and now part of Liberty Global).
Because cable companies literally strung cables throughout a city, local governments would have to step in and approve a video franchise agreement with the cable service. Typically, only one cable franchise was granted per city, which meant no competition, Ellis said. Not having to worry about a direct competitor helped technology develop as companies willingly shared technical problems with one another and worked together to solve issues.
In 1988, Malone and other cable leaders started CableLabs as an industry-sponsored organization aimed at experimentation and a place to test new ways to get more video into people’s homes.
“We were really, at that point, taking over television technologically in America,” Malone said in a video documenting the organization’s 30th anniversary last year. “The broadcasters were conceding, I would say, technology leadership to CableLabs and that was a critical turning point as well.”
Out of the group came today’s digital video standard known as MPEG, increased capacity over cable lines, and, eventually, data over cable to make use of a new thing called the internet.
“Back then, video in fact was important,” CableLabs CEO Phil McKinney said. “The industry came together, including the content producers and CableLabs led the effort for the development of MPEG, which is the digital standard. So if you like watching videos over MPEG format, that’s a CableLabs technology. And that started the digital revolution for video.”
In more recent years, CableLabs has focused on the network which became the distribution for services like Netflix, Google and anyone making money online. CableLabs is now working on security and privacy of the network, speeding up sluggishness between a user’s command and what happens on screen, and the next generation of internet tech that it calls 10G, short for 10 gigabits per second.
But even with the focus on internet, major cable providers are not giving up on video entirely even if they have to cover some of the cost increases programmers ask for.
“They still see value in providing (video) because the customers provide value. A customer who has video is less likely to (leave), they tend to be a longer term customer,” McKinney said. “But you’re also seeing unique partnerships — what Comcast has done with Netflix and Hulu and Prime. Now, you get single search on the (Comcast) X1 platform so you don’t have to go ‘I want to watch that show, oh shoot, is it on Hulu? Is it on Netflix?’”
Consumers still love their TV
Cable and satellite companies are still losing video customers. According to Leichtman Research Group, the major satellite and cable companies have lost 4 million subscribers in the first nine months of this year. Last year? They shed 2.9 million customers for the entire 12 months.
Despite the losses, consumers still watch a lot of TV, according to MRI-Simmons, a market research firm that surveyed 24,000 people about their TV viewing habits. And the majority of American consumers still pay for “corded” TV, said Karen Ramspacher, senior vice president of Innovation & Insight for MRI-Simmons, a consumer insights firm.
“This is not a quick thing that people do,” Ramspacher said. “Cord cutting makes it sound like you’re just going to pull out a pair of scissors and clip it, but you don’t do that because this bill is often tied to your internet and often on autopay.”
According to MRI-Simmons’ 2019 Cord Evolution Study, traditional customers are adding on to their cable bills by subscribing to the alternatives. Approximately 64% of cord loyalists streamed video in the past 12 months, compared to 89% of cord cutters and 78% of cord nevers.
At home, Netflix, Amazon Prime and others are being integrated into the cable box so customers can use the same remote to access non-cable content.
New services also continue to launch. Most notably, Disney+ signed up 10 million users in its first 24 hours last month. The company, which charges $5.99 a month for the new service, doesn’t expect Disney+ to be profitable until the end of fiscal 2024, according to a Wall Street Journal report.
The majority of consumers are still “Corded & Keeping it,” category of customers in the MRI-Simmon’s study that still pay for traditional TV. But the category is in decline, at 65% in November compared with 71% a year ago.
“The steady, but slow decline is what we did expect to see,” Ramspacher added. “And when I think of what will be different a year from now, it’s the entrance of these new offerings, many of whom have made special offers right now — get a year for free or get a year for a reduced rate. What will that do to people’s viewing and their feelings towards the different offerings? That’s what we’ll be keeping an eye on.”
Behavior change coming from within industry
That said, the larger pay-TV companies aren’t sitting still, although it’s taking time to figure out their own streaming services.
While the TV-everywhere feature was rolled out earlier this decade, giving existing cable customers access to the same content online, there’s a push to reach more potential video customers.
In February, Charter unveiled its $15-a-month Spectrum TV Essentials service that’s available to its internet-only customers. Comcast is investing $2 billion in a standalone Peacock streaming service, scheduled to launch in April.
“Netflix was a big wake up call for the video side of the business,” Ellis said, pointing to the pivotal years around 2008 or 2009, when Netflix switched from mailing out DVDs to streaming. “You could stream a title and pay them $9.95 a month versus whatever you were paying your cable company. That was when the whole cord cutting thing started. And the operators said, ‘Holy crap, we’ve got to turn this ship around.’”
Companies are taking a hint from rival technology Dish, which launched its streaming service Sling TV in 2015. Perhaps more importantly for its bottomline, Dish shifted company focus to profitable customers for its satellite business, while pushing those looking for cheaper deals to the lower-priced SlingTV, Leichtman said.
“There’s this perception that people are flying out the door of the pay TV companies. The reality is,” Leichtman said, “the disconnect rate of pay TV, overall, is actually no different from the disconnect rate of Netflix.”
In other words, people cancel Netflix at the same rate as their pay-TV accounts. But by not chasing those finicky customers, Dish and others have the latitude to focus on higher-paying customers. Dish, for its part, has seen subscribers grow thanks to SlingTV and its recent earnings were better than financial analysts had expected.
“It’s not just about the consumer behavior,” Leichtman said. “It’s also about provider behavior, and which consumers they want to retain and acquire.”
Another change, Ellis added, is that companies are making a renewed effort to focus on customers.
“It’s all consuming, especially Comcast. Any meeting I’ve been to at Comcast — and I do a lot of work to them — there’s always a chair in the room that has like a wrapping on it that says customer, because they want to remind themselves that anytime they’re talking about a plan that the customer is always in the room,” she said. “I think that’s kind of cool.”
In many ways, Denver’s cable pioneers built the cable system to link people to content and that’s still very much the case, said Paul Maxwell, with The Cable Center.
“Those guys, they really changed the world in how they created the infrastructure that made so many other things possible,” Maxwell said. “The cable industry kept metamorphosing, you know, every decade almost since the ‘50s. And that’s what they’re still doing.”