What the Early Days of the Cable Industry Reveal About Silicon Valley
John Malone, the man behind the bid to merge Charter Communications and Time Warner Cable, made his name in an upstart business that resembles the tech landscape today.
In the second season of the HBO comedy Silicon Valley (minor spoiler alert), a tech company debuts its highly anticipated data compression algorithm by livestreaming a pivotal mixed martial arts match in ultra high definition over the Internet. The plot point feels perfectly 2015, right down to the sly joke embedded in the notion of a “highly anticipated data compression algorithm.”
But it was also a subtle reference to when, 40 years earlier, HBO and the young cable industry demonstrated their capabilities by bringing the heavyweight boxing match of the century—the legendary “Thrilla in Manila,” Muhammad Ali vs. Joe Frazier—into people’s homes in real time.
It’s a moment that cable historians point to as the true beginning of the industry’s massive rise. And it’s one of many parallels between the early days of the cable industry and the current era dominated by Internet and media behemoths.
With this week’s announcement of Charter Communications’ long-anticipated plans to merge with Time Warner Cable, much attention has focused on the merger’s implications for customers and for the media and telecommunications industries. But the announcement is interesting for another reason: In it, history is reasserting itself, and that history is most notably encapsulated in one of the primary players in this deal—a longtime industry leader named John Malone.
Malone, a principal backer of Charter Communications, became a bona fide media mogul during the cable industry’s formative moments in the 70s. Profiles of Malone were all over the place this week. Here’s a quick bio of the man from NPR’s David Folkenflik:
The 74-year-old executive is called Dr. Malone by many people at his Denver headquarters, a nod to his engineering PhD from Johns Hopkins. Malone got his start in the 1960s at AT&T’s Bell Labs, became a consultant for McKinsey and Company and then built what became the nation's leading cable provider, TCI. He later sold it to AT&T. Malone is a billionaire many times over, whose companies own or control the Atlanta Braves, Starz TV, and Sirius XM Satellite Radio.
The rush of attention to a man with a career that spans a half-century provides a useful contrast to today’s many profiles of 20- and 30-something tech founders and CEOs, who are often invited to expound on theoretically unprecedented changes in society, without any historical context to weigh against their remarks. Take, for example, these observations by Mark Zuckerberg included in a 2010 New Yorker profile:
“No one has done a study on this, as far as I can tell, but I think Facebook might be the first place where a large number of people have come out,” [Zuckerberg] said. “We didn’t create that—society was generally ready for that.” He went on, “I think this is just part of the general trend that we talked about, about society being more open, and I think that’s good.”
In decades-old remarks from Malone and his early contemporaries in the cable industry, by comparison, not only is the history more settled, but there are also notable precedents for evolving business climates and perspectives common in the tech and media industries today.
For the cable industry, the closest analog to the tech-industry mythos of the founder’s garage might be a hilltop in rural Colorado. Cable’s earliest customers were rural residents too far from a broadcast antenna to receive any television channels. Entrepreneurial cable operators would perch big antennas in spots where they could catch the nearest signal, and then run lines of cable to the homes of paying customers and pipe programming to their TVs. This is why one of the early names for cable television was “community antenna TV”—a community was sharing the signals from an antenna.
Malone’s company TCI was a pioneer in this era. So was one of the main forebears for Time Warner Cable—the American Television and Communications Corp., or ATC. The signature approach these companies took was pulling together independent cable operators into larger, highly professional operations, and using infusions of capital investment to rapidly expand those networks.
Just as venture-capital fever has played a definitive role in tech-industry booms and busts, cable’s initial rise was partly fueled by strategic IPOs and venture capital. (In Time Warner Cable’s own lovingly hagiographic book about its history, it mentions that ATC won a “National Venture Capital Award” in 1969 for the “skillful appraisal of cable television growth potential.”) Here’s how John Malone described that time in a comprehensive oral history from 2001 conducted by the industry-funded Cable Center:
We became very aggressive in consolidating the cable industry because I saw from the beginning that scale economics was going to determine who was going to survive and who wasn't. We had the advantage of even though we were a public company, we were controlled. Bob Magness, as ... the controlling shareholder, wasn't particularly interested in near-term earnings and was willing to really pursue a long-term strategy, which certainly I was, and so we were able to do things that most public companies can't do. We really didn't care about the impact of an acquisition on our earnings, so we would go out and do fairly highly leveraged acquisitions.
That description—a company whose shareholders have given it a loose leash to pursue long-term growth—unmistakably echoes the party line on Amazon today.
The cable industry’s clashes with regulators and broadcasters—see, for example, Comcast’s denied bid to purchase Time Warner Cable—are also a venerable part of this history. Here’s a passage from a 1986 interview with Bill Daniels, sometimes described as “the father of cable television”:
We were outnumbered politically and our enemies weren't just the broadcasters. Let me just list a few of them, and it amazed me because we were really just getting started. In 1955, the year I went in as President of the National Cable & Telecommunications Association, I think we had something like 300 cable systems. Pennsylvania was getting pretty well blanketed because of the terrain, parts of the Northwest, Wyoming and our little operation, that was just about it.
Even at that early stage, the people who saw us as a threat started fighting us; the telephone company, they were concerned about us. We had a wire going into the home, capable of audio and video. They didn't have that capacity, they still don't have that capacity. Theaters, they were concerned about us bringing movies on television from the bigger markets into the small towns. The three networks were fighting us, they didn't know why, but it was the thing to do to be opposed to cable because we were spreading our signal out of the Denver market all over the Rocky Mountain area. They lost control of their signal, so to speak. City governments started to think, "Now what are these guys up to?" County commissioners, public utilities commissions: "What are these guys up to?" The FCC, congressmen, because of the power that the TV stations had over their congressmen and their senators. That's a pretty tough group of enemies to have then. …
I have often said that the two friends [the cable industry has had] since day one have been Main Street and Wall Street. Main Street is the public, because the public wanted more television, or they wanted some television where there was no television; in markets where there they had only one or two stations, they wanted more. The people who financed us, the bankers and so forth, they were excited about us because they could see a new communications industry and we serviced our debt beautifully.
Decades later, that strategy of appealing to “Main Street and Wall Street” is part of the playbook of some tech industry leaders. In a 2013 Wall Street Journal story about the rising fortunes of Uber, for example, Andy Kessler noted that the company “puts a premium on customer satisfaction. Uber has been successful enough that city bureaucrats across the country, eager to protect homegrown taxi and limousine services, have thrown up regulatory roadblocks left and right.” “A lot of my job is taking … anticapitalist taxi protectionism, and putting it in populist terms,” Kessler quoted Travis Kalanick as saying. “What they're really saying when they put a floor on prices is that only wealthy people are allowed to get into town cars."
Another reality that persists from the early years of cable is the boys’ club sensibility that emerges in these accounts. Monroe “Monty” Rifkin, the first CEO of ATC, gives a warm recounting of the company’s board members and its first hires and franchisees in a 1998 interview. Here’s a partial list of the names, in sequence: Dick Zell, Doug Dittrick, Jack Gault, Bruce Lovitt, Don Jones, Jim Sheffley, Gene Devalpine, Collier Crumb, Pete Conrad, Trygve Myhren, John Rigsby, Larry Howe, Dave Van Valkenburg. It’s not hard to find profiles of a contemporary tech industry leaders, such as this 2010 profile of Peter Thiel, that depict social networks with a similar gender skew.
When Rifkin gets to the point in his story where he leaves ATC and forms his own firm, he mentions a name that breaks the pattern: June Travis, who, according to Rifkin, joined ATC as a secretary, eventually became executive vice president of operations, and later joined his firm as president and COO. She later became president of the National Cable Trade Association. Travis’ own oral history, from 1999, has a very different character than Rifkin’s: Of the first twelve questions, eight refer to the role of women in the industry, and most of the rest concern her leadership of the group Women in Cable Television.
In his interview, Monty Rifkin discussed three distinct eras of the cable industry. The early days, when companies such as TCI and ATC were just beginning their ascent, gave way to the cable satellite era in 1975. That was when executives at a little company called Home Box Office had the idea to launch a satellite and beam a live show—the “Thrilla in Manila”—to many antennas at once, allowing cable companies to pipe those signals in and create a robust enough suite of programming to attract customers in cities across the country. Then, in the mid-90s, came the dawn of the digital Internet era, which brings us today, when John Malone, if he gets his way, may once again lead the industry.