Interview Date: July 6, 2001
Interviewer: Jack Cole
Abstract
Steve Effros describes his work for the FCC on the cable television task force. He discusses the creation of federal regulations for the industry at a time of contention with the broadcast lobby. He talks about concerns such as the effect on advertising revenues, and broadcast television’s role as the primary vehicle for politicians to reach local audiences. In addition he mentions the mistaken analysis of the movie industry towards VCR’s. He comments on his move to a private law firm specializing in cable matters, the disparities between large and small cable operators, and his role in the development and governing of CATA. Effros describes the negotiations over copyright fees, the lifting of the freeze on cable expansion, as well as the advances in the industry after the Thrilla from Manila was presented. He talks about the CATA petition to approve small, less expensive dishes. He remarks on the uniqueness of the cable infrastructure, built without government support; the international industry; and his substantial involvement in creating franchising, access and programming rules. He concludes with a discussion about the merger of CATA and NCTA.
Interview Transcript
JACK COLE: I’m Jack Cole, and we’re at the offices of Effros Communications in Fairfax, Virginia just outside of the city of Washington. The date is July the 6th, 2001, and we are here to do the oral and video history of Stephen R. Effros, a gentleman who has been a significant player in cable communications and the cable television industry for the past 30 years. All of this is made possible through The Cable Center and the Hauser Foundation. Steve, it’s a pleasure to be here and to see you, and I know you have some stories to tell about a 30 year history closely aligned with the powers in the cable television industry.
STEVE EFFROS: Sometimes.
COLE: I think I will lead you in by saying that I know that you came to work with the Federal Communications Commission, which was probably your first contact with cable, in 1971. So, we’re facing the 30th anniversary of that event in your life. Why don’t you tell us something about coming to the Commission and how you got there?
EFFROS: Well, I went through college very rapidly at American University, finished in 3 ½ years, wound up at the New York Times. When I was at the New York Times, I was a full-time staff writer there at the age of 21, and I wound up meeting Irving Kahn. Irving Kahn, as you know, was the head of TelePrompTer at that time, and TelePrompTer was the largest cable company, and cable as nowhere on the map.
COLE: I well recall both of those points.
EFFROS: But Irving was a very, very effective salesman, and Irving was the proselytizer for the cable industry at the time, saying that this was the future, and I sat and talked with him for a long time and he was the one who first got me interested in cable television, and I knew at that time that I was going to law school and that I was specializing in communications law because I had been in the news business. So I went to NYU Law after the New York Times, specialized in communications law, and then interviewed at the FCC and they offered me – this was in 1970 – and they said, “Well, we want you. So you can have the broadcast bureau, if you want to go to the broadcast bureau, or you can have the common carrier bureau, if you want to go to the common carrier bureau. Or there’s this new thing… you may not be interested in this. It’s the cable television task force that we just set up.” And I remembered the discussions with Irving Kahn and I said, “That’s the one I want!” So I would up at the cable television task force in January of ’71 when the effort was being made to create for the first time real federal rules for cable.
COLE: I recall that at that time, Sol Schildhause was the head of the task force. Interestingly enough, the day I went to work for the FCC in 1956, Sol Schildhause was my immediate boss. So I’m sure we had some similar experiences working under his supervision. Tell us a little bit about those early days in the task force.
EFFROS: Well, cable television was the new guy on the block, and as you remember, cable was considered a threat to the broadcasting industry, still is today 30 years later, and so because of the structure of the FCC, which was a bureau structure, each industry had its own advocates in essence in the House, in the Commission, and there was a very powerful broadcast bureau, cable was pretty much suppressed. The rules for cable were written specifically to protect the broadcast industry, and therefore, when I got there, there was something that was generally known as the cable freeze at that time, which basically stopped the development of cable television in the major markets of this country. The objective of the cable task force was to be a new power, another power locus inside the FCC to start advocating for the cable interests as opposed to the broadcast interests, and it turned into a major battle. It was a free-for-all inside the Commission for a long time.
COLE: Now with respect to protecting the broadcast industry, I think you were talking about protecting them against competition, enhancing their commercial or competitive interests in the industry. That was a phenomenon that had been ongoing for some time, and as you just said, goes on today. Tell us something about those early disputes within the Commission hierarchy when the cable bureau was being formed.
EFFROS: Well, the general counsel of the FCC at the time, Henry Gellar, was very concerned about making sure that the broadcast interests were protected, as was the broadcast bureau. Sol Schildhause, with his merry band of troops in the cable task force, was trying to figure out ways to write rules that would be as open as they possibly could to allow the cable industry to develop, and that’s what we did. Our charge was to try to write a set of rules that would pass muster, not only with the Commission, but this was a large enough issue that we knew that it would wind up at the White House, and we knew that it would wind up on Capitol Hill, and it did indeed wind up in both places before we were able to finally cut a deal on what the new rules for cable television were, which went into effect in early 1972, which in essence broke the freeze and allowed cable to start developing in the major markets. But there were all sorts of things. It got so bad inside the Commission as the rules were being developed, at the time the chairman of the Commission was Dean Burch, and Dean Burch had made it very clear that his objective was to get a new set of rules that would allow cable television to operate in the major cities. So that was the primary focus. The objective we knew. Now the question was how did you do it? While at the same time protecting the broadcast interests and getting this politically to the point where you had enough votes to get the rules done. It was a very difficult process. It was a very contentious process to the point where there were five of us who were writing the rules, who were actually trying to design and figure out the sensible way of writing these things, and things got so contentious because Sol Schildhause would be advocating for the cable industry, and the broadcast bureau was advocating for the broadcasters, primarily being led by Henry Geller who was the general counsel at the time, and telephone calls would be flying in left and right arguing to write the rule this way, write the rule that way, this was prior to the sunshine laws of later years where everything had to be done in a different way. But it got so bad that Dean Burch ultimately, and his assistant, who were key in getting this done, Chuck Lichtenstein, took the team of five who were writing the rules, took them out of the cable task force – it was named the cable bureau at that point – took us out of the bureau, put us in his offices, took out all the phones in an extra office in the chairman’s office, and had us finish writing the rules without anybody being able to get to us. It was that contentious at that point.
COLE: The broadcast industry had always been an especially powerful lobby in Washington D.C., and that lobby was really concentrated in the power of the then three major television networks. Tell us how they wielded enormous political power behind the scenes to keep the cable television industry somewhat under wraps.
EFFROS: Once cable started developing, there were three legs to the stool. There was the broadcast industry with, as you say, primarily the network powerhouses. There was the cable industry, and there was the motion picture industry. Jack Valenti in the motion picture industry being the supplier of product to the television industry, and the television industry being very concerned about protecting its advertising base against this new guy on the block, the cable television industry, and also being very interested in making sure that the markets that had been carved out for the broadcasters because of the technology of broadcasting, you know, in New York you could only reach a certain number of people in the New York area, and in Philadelphia you could only reach a certain number of people in Philadelphia, and Washington, and so on, the net result is everybody had carved out their markets. The thing that created the problem with this new kid on the block, cable television, was that it blurred the markets. The cable operator had the ability to move that signal from New York into the Philadelphia, or that signal from Philadelphia to the Washington market, and therefore the local broadcasters lost what they saw as their God given right, which was the exclusive ability to deliver video in these markets. The motion picture industry was also concerned because it liked the ability to sell its product, whether it was motion pictures or series or whatever it was, they liked the ability to sell their product repeatedly in different markets. So they could sell it not once to the East Coast, but they sold it in New York and Philadelphia and everywhere else, and this was a very comfortable market structure for these folks, and they certainly didn’t want anybody interfering with it, and that’s what cable did. Cable was going to interfere with it, and the broadcasters being the powerhouse they were, primarily because they were perceived, correctly, still are, as the primary vehicle for politicians to reach local audiences. The politicians in Washington are afraid of the broadcasters. A senator can get either good press or…
COLE: With good reason.
EFFROS: With good reason, yeah. They can get either good press or bad press, depending on how the local broadcaster wants to portray whatever they’re doing in Washington. You don’t have to have an endorsement from a local broadcaster, but it sure makes a difference how that newscast comes out and how many times their face shows up on the screen, and therefore they always – they, the politicians – were very solicitous of the broadcasters, and when the broadcasters went to Capitol Hill and said, “Hey, this cable thing is going to be very dangerous. It’s going to threaten broadcasting, it’s a bad thing and you’ve got to watch it very carefully,” that message went from Capitol Hill to the FCC in a phone call very rapidly. So we all had to deal with that day in and day out.
COLE: Well, people today who can access 40, 50, 60, 70 channels on their television set should be informed, I think, about what the typical available television fare was limited to back in the early ’70s, even in the large cities, but certainly most of the country in the rural areas.
EFFROS: What people don’t remember, and even in the ’70s, those of us who lived in the larger cities didn’t realize, was that in a lot of places even three networks were not available in the more rural areas. It was usually one or two and the third station, if there was one, would switch back and forth between various networks cherry-picking one versus the other depending on what part of the day it was and what programming seemed the most interesting to that broadcaster. So while we in Washington or New York may have been used to three networks and a couple of independent stations and an educational station, out in the rest of the country maybe they got three networks. Maybe they got one independent station. And that was it.
COLE: So in sum it was a fairly exclusive club among those who provided cable television programming to the public.
EFFROS: Sure. And they wanted to keep it that way. Their revenue was based on advertising.
COLE: And they were very successful in that for many, many years.
EFFROS: Yeah, they were. And that was the fight that we had. There were some legitimate arguments. I mean, you and I might not thing they were terribly legitimate, but there were some legitimate arguments of saying you can’t simply ignore the copyright, the rights of the authors of programming, the creators of programming. It’s interesting, we’re going through the same issues again today with the internet, with Napster and all of the things that are going on now you see echoes of the fights that we had in the early and mid ’70s with regard to cable television and the carriage of broadcast signals. These are not new fights.
COLE: I have always thought that the practice of communications law, ever since I have been in it for almost fifty years now, was a constant battle between the ins and the outs, and those that wanted to maintain the status quo.
EFFROS: And the producers of programming, the intellectually property owners, who almost uniformly have been wrong every time they have tried to protect whatever the existing structure was. When they failed at protecting the existing structure, they found out that they made more money by not protecting the existing structure. Video-tape recorders are a great example of that, the whole VCR, Sony Betamax fight that the movie industry fought trying to stop video-tape recorders from proliferating in the American public, and they failed ultimately at the Supreme Court. Video-tape recorders did get distributed around the country, and lo and behold, the movie companies were making more from tape rentals than they were from selling the product to television, and they were just wrong in the way they analyzed the market, and it may again be true today with the internet. I don’t know. But so far it’s been pretty consistent.
COLE: That will be for another generation.
EFFROS: Not on this tape!
COLE: Steve, you stayed at the Commission until the mid ’70s. Is that about right? ’76 or so?
EFFROS: Right, I left in January of ’76.
COLE: And then had an opportunity to go into private practice, into the law firm of Brown and Effros, and you were in private practice for approximately two years or so?
EFFROS: Two years.
COLE: Was that practice cable-oriented in essence, or was it a broad spectrum of communications?
EFFROS: It was primarily cable. We helped start an association of small cable operators, the Cable Telecommunications Association, they were originally called the Community Antenna Television Association, because at the time there was a growing disparity between the business interests of the large operators, the growing operators, such as TelePrompTer, the big operators like TCI, which ultimately became AT&T eventually. There was a disparity in the interests of the big operators and the small operators. Brown and Effros was the firm that helped start CATA, and I was counsel to that group. The other thing that we happened to do at the time was CB radio. We were the representative to the largest CB Radio manufacturer in the United States, and that was during the CB radio craze, so we were pretty busy.
COLE: Well, back in those days, I guess there was a division of interests between the smaller operators, and we got to recognize that cable really started as a mom and pop operation, a family-oriented operation in hundreds and hundreds of cities throughout the country, and then on the other hand, many of those smaller operators sold out to larger operators who became bigger and bigger and bigger. So you had the small operator on one hand, and you had the major growing businesses, corporate monsters, all over the country. Tell us about the division of interests that really required the development of a trade association to look out for the smaller operators.
EFFROS: Well, there always was an association for the industry, cable operators in general, and that was the National Cable Television Association, and when I was at the FCC, the National Cable Television Association was the association that lobbied me when I was trying to help those rules. When I got out of the Commission in ’76, it was increasingly apparent that since the FCC had written rules pretty much designed to help cable get into the major metropolitan areas that those companies were going to be very different from the companies you just discussed as the mom and pop companies in the smaller communities around the country because the small mom and pop operation couldn’t build New York City or Washington D.C. or Philadelphia. So you were seeing an entirely different type of business develop. It was a business that relied on distant broadcast signals. Again, think of the difference between that rural area we talked about a little earlier and the urban area. In the rural area, as I said, you may have had two, not three network signals. You may have had one independent signal. You may have gotten an educator, but not necessarily. So when a cable operator, or a CATV system, started in those rural areas, it brought in signals that were never there before.
COLE: And if it could bring in two or three outside signals, that might have doubled the number of television channels.
EFFROS: That was a miracle. That’s right. And that was the business they were in, and the people loved it. Now you move to the big city; in the big city they already had all three networks, they already had the independent stations.
COLE: And an educational one.
EFFROS: And an educational station. So the benefit that was brought in the big cities was two-fold. One, in a place like New York City because of technical reasons called multi-path distortion, people couldn’t get the signal over the air very well, so the cable system helped them get the signal, and the second thing it did is it imported other broadcast signals that they couldn’t receive. So the folks in New York got the Philadelphia network station so that maybe you could see the NBC evening news at 6:30 instead of 7:00 by watching the Philly signal rather than the New York signal. Well, that’s when the broadcasters went crazy. They weren’t terribly worried about what was going on in rural America, but when they saw their major money bases, the big cities, start to be threatened, they started to get very active against cable television. It was because of that that a whole series of rules were written. Meanwhile, the small guys are saying, wait a minute, all of these rules are being written because of what some big corporation is doing in New York City or Philadelphia, and I’m the one that has to pay the bill. I have to start hiring lawyers like Jack Cole, and I don’t want to hire lawyers like Jack Cole, and I don’t want to have to do all this stuff. So the small guys were saying leave us out of this. If you want to deal with TelePrompTer or whoever in New York City, you go ahead and do that, but leave me out of it. This got to a point in 1976 where one of the deals, if you’ll remember I was saying to you before that a lot of deals had to be cut and a lot of negotiations in the backrooms had to take place to get those early 1972 rules into effect. One of the deals that was cut was an agreement by the cable industry that they would pay copyright fees. Up until that time, the Supreme Court, through a series of decisions, had said the cable industry is not responsible for copyright fees because they are not the copyright user. It is the broadcast station that is sending the signal; it already pays those copyright fees. You don’t have to pay them again to transmit the signal into people’s homes via cable. This was one of the major issues for the movie companies. It was a major issue for the broadcasters, more so for the movie companies, and one of the deals that was cut in 1971 to get the ’72 rules out so that the freeze was off on cable television was that the cable industry would agree to pay copyright, to agree to negotiate on Capitol Hill to change the copyright law. That didn’t happen until 1976. ’75-’76 was the time where that negotiation was seriously taking place. There had been eleven years worth of fighting in Washington over copyright law, and the big operators said, all right, we’ve agreed we will pay copyright. The problem at the time was that the National Cable Television Association named as its chief negotiator Al Stern, who was the head of Warner Communications, which was Warner Brothers at the time, which was also a member of Jack Valenti’s Motion Picture Association. So the cable operators were naming as a negotiator somebody who’s company was also a member of the negotiator on the other side of the table. The small operators said, wait a minute. That means that the guy who’s negotiating is simply taking money out of one pocket and putting it into another pocket. So he doesn’t care how hard he negotiates this deal for cable. Meanwhile, the small cable operators were saying, we’re not even at the table. We’re not being represented, and yet we’re the ones that have to pay the bill so that these guys can get into the big cities, and we’re not interested in going into the big cities in the first place. We were perfectly happy where we were. So they decided they had to have their own representation, and that’s what my law firm helped them do is start an association, and it started primarily on the copyright issue, and we got deeply involved as a negotiator.
COLE: You were really the founder of that association. You were the first head of the association, and were trying to give those operators a real voice on the Washington scene.
EFFROS: I was the general counsel. Rick Brown, my partner was the guy who helped found it. They had an executive director. It was started in Oklahoma. It was small operators all the way, and we represented them through the law firm. It became clear to me after two years of being in the law firm that I wasn’t comfortable practicing law. I didn’t like being hired out by the most money. Whoever had the most money got…?
COLE: You didn’t like the hired gun.
EFFROS: I didn’t like being the hired gun that way. I preferred to argue for the things that I really firmly believed in. I also didn’t like the idea that seemed to be current at the time, and I was not the biggest friend of most lawyers in Washington, that the way you deal with all of the new rules and things that are going on in Washington is you simply tell the business people, well, go hire a Washington law firm. They’ll take care of filing this application and filing that application. So I started doing something a little different. I started writing material called CATA Briefs at the time to explain to operators how they could file these things themselves. How they could do it without a lawyer. How do you teach them to be self-sufficient? And they loved it. And I preferred operating that way, so I left the law firm and became president of the association.
COLE: And that was in?
EFFROS: ’78.
COLE: ’78. My recollection is that the cable industry, all facets of it were able to tie up the copyright legislation because they had a particular in with an Arkansas senator, John McClellan.
EFFROS: McClellan, yeah. That’s not quite accurate. I have to take exception to that. Certainly we had a friend in Mr. McClellan, but there were a lot of deals that were cut for that copyright law to be written, and McClellan had spent well over eleven years trying to tie up the copyright law. It wasn’t just cable television that was holding it up. It was also, at that time everybody called it the Xerox machine, photocopying, and the legitimate use of photocopying in libraries and schools was one of the big issues, and another big issue was jukeboxes and how you dealt with jukeboxes. These were the things that… he was totally frustrated because these were the last hurdles that he was trying to get over and he couldn’t get over them, and yes, you’re right, we had a lot of small operators in his state, and he was a friend of the cable industry in terms of helping to structure the legislation in way that was effective for us.
COLE: Without John McClellan’s assistance, I think it was thought fairly that copyright laws would have been enacted prior to 1978, and that they probably would have treated cable much more harshly in terms of fees.
EFFROS: There wouldn’t have been a cable industry. I don’t think they could have afforded… The original copyright laws that were being proposed were designed with fees that everybody understood would have prevented the importation of distant signals, and that would have meant that there was nothing, basically, for the companies to sell in the major markets, and that was their intent, and I think politically there was an understanding as far back as 1972 when the cable industry agreed to negotiation a copyright law that if there was any set of regulations that looked like they would threaten the ability to bring cable to the major markets it would be unacceptable, and McClellan made that clear, but so did several others.
COLE: Our friend and colleague, Strat Smith, his theory of the master antenna concept prevailed in the 1968 litigation, and that gave the industry a time to fight a rearguard action against harsh legislation at that time. But moving on a little bit, the trade associations in Washington that represented the cable interests, the National Association and CATA, their real interests were in fighting the political wars against a very entrenched, and when I say entrenched I mean extremely potent politically interests of both broadcast, and as you say, the motion picture interests, but it’s always been interesting to me that as much as the cable operator was outgunned at that particular time, the trade associations did such a marvelous job at keeping the industry’s head above water while it was able to make progress, albeit somewhat slowly, but one point that we have not touched on took place in 1975, and that was a momentous move in the history of the industry that we enjoy and love, and that was when the Thrilla from Manila was distributed via cable, and that opened up the cable industry for original programming, or non-broadcast programming. Tell us a little bit about those effects because that was really the first time, and they didn’t all develop in 1975, but between 1975 and 1980, the CNNs and the ESPNs, and all of these other services came onboard and made cable a very attractive commodity.
EFFROS: Well, you aren’t going to see this in most of the written histories. The Thrilla from Manila, and the entire business of Home Box Office going up on satellite would have been a very short-lived event for most of the cable industry had it not been for CATA, and I’ll take credit for this one, because HBO and the big operators at the time were looking at what were known as 10-meter dishes. You had $125,000, 30-foot across dish to pick up that signal from the satellites, and the small operators, who needed this satellite distribution much more than the big guys did because you could effectively distribute to a major city through land lines. You can’t effectively distribute any video to smaller markets via land line. So the small guys needed those satellites. They couldn’t afford those big dishes and nobody at the National Cable Television Association, and nobody at Home Box Office was pushing to eliminate the then current FCC rules that said it had to be a 10-meter dish. You couldn’t have a dish that was smaller than 10-meters to receive programming, satellite programming. The theory behind that, by the way, was that they wanted to assure the quality of the signal. Now this is the broadcasters again trying to figure out a way to stymie distribution, but the National Cable Television Association being the representative of the big operators, they didn’t see any problem with spending $125,000 for a 10-meter dish in their major market systems, and therefore they said fine. CATA jumped in with both feet, and you were saying before about how is it that the associations were able to help the industry survive during a politically tough time, and I think the answer is we were pretty good at guerilla warfare. You couldn’t go head-to-head with the broadcasters; they had too many guns. But you sure could play guerilla warfare with them. So we did things like organize a drive onto Capitol Hill with the small 3 ½ meter dish, plant it right on the lawn on Capitol Hill and tune it in, and show congressmen and senators right on the lawn of the Capitol that we were getting a perfectly fine signal. There was nothing wrong with this 3 ½ meter dish, and that the only thing that was going on was the FCC was helping the broadcasters by keeping those dishes at 10-meters. We had them on trucks; we organized all sorts of things like that, and then filed the petition to allow small dishes to be legalized.
COLE: The first mobile demonstration was at a convention in California, and one of our clients, TelePrompTer, Hub Schlafly put that demonstration on. I would take issue with CATA taking all of the credit because I can remember very deep involvement in some of those issues on behalf of big clients and small clients.
EFFROS: I would just recommend that you look back in the record and you will find in the minutes of the NCTA that the strongest proposal that was made was let’s have a committee to look at this, and CATA said to hell with the committee, we’re filing petitions, and we filed a petition, and the petition won.
COLE: I agree that NCTA at that time was not really representative of the small operator, but many law firms in Washington, including our law firm; we had hundreds of smaller operators, many of whom were members of CATA. So it was a joint effort.
EFFROS: What happened there was we filed petitions with the FCC to approve small dishes. It wound up that there was another piece of legislation that was of interest to everybody, and Lionel Van Deerlin – and this was the pole attachment bill – and Lionel Van Deerlin was having hearings at the time, and we educated Van Deerlin on what was going on with small dishes in rural America and the need for small operators to have these things, and he basically let the Commission know that he felt that this should move rather rapidly and if the Commission wanted this other legislation maybe they ought to finish this piece first. There was a very rapid move at the FCC to approve small dishes and they got approved.
COLE: You should point out for viewers that Van Deerlin was the chairman of the communications sub-committee and had a very powerful hold on the Commission’s budget, so he was a man to be listened to by the regulators.
EFFROS: That’s right, and as you well know, that’s the game we had to play all the time. You found you, like McClellan, like Van Deerlin, Carl Albert we used once when he was Speaker of the House, and we blocked a piece of legislation because the Speaker had certain powers. That’s what I mean, guerilla warfare.
COLE: The end result of the satellite distribution of cable programming, of originated cable programming changed the face of the industry.
EFFROS: Absolutely.
COLE: It became not a signal delivery business, but a programming business, an entertainment business, and that’s when cable began to take off throughout the country. That’s when the subscriber growth just mushroomed. Tell us about some of the smaller operators, how they joined in that rush to 20 and 30 channels of programming.
EFFROS: Well, again, because of the structure in the small operations where they didn’t have, for instance, small independent signals, one of the first signals that went up on satellite after HBO’s experiment was WTBS. It was WTCG at the time, Ted Turner’s station in Atlanta. It was the first independent television station on satellite, and the net result of that was that the small operators all over the country picked up that independent station via satellite. That’s why we were so interested in those small dishes because we wanted to bring in signals that you couldn’t get any other way. Ted, as a matter of fact at one point we gave him an award at CATA, and he said without you guys supporting me I never would have made it because the big guys in the big cities didn’t need WTCG. They already had WPIX or WGN or any of the independent stations. It was the small guys that didn’t have any independent stations. So that was the first real success on satellite distribution of programming other than pay programming like HBO.
COLE: I remember back in those days being out at a cable meeting in the state of Washington and seeing a promotion of Atlanta Braves baseball caps, so that’s a pretty good indication of what happened.
EFFROS: It was very successful, and it proved Turner’s vision that this type of distribution could work and change things, and they did change things. His signal, which was then named WTBS, was called the Superstation and it changed all sorts of things with copyright law. It had major implications as you went down the road, and then you got CNN, again from Turner because he got the money from TCG and so on, and it started to take off, and all of this programming was totally unique both in urban and rural areas, and you’re right, that’s what cable became was a distribution medium for multichannel video programming. And that’s what we still are, as well as now a distribution medium for a lot of other things.
COLE: What do you see for the future of the industry, for other young men to tackle and carry on with?
EFFROS: Well, I think what has happened is we have built an infrastructure that nobody else has. It’s gone through a lot of iterations, we’ve made a lot of mistakes, but in essence when you look at it, we have built an infrastructure the likes of which, in a way, nobody has ever done before. If you built the road system, you were financed by federal money. If you built the telephone system, you were not only financed in rural areas with federal loan grants and so on, but you were guaranteed a monopoly so you had no problem financing it to build it. Cable was built competitively, now granted there’s usually only one cable company in a given market, but we had to convince the banks that this was a business that would really work. We do have competition now with satellite, among other distribution media, and the good news is that we’ve built an infrastructure that has more capability than any other distribution infrastructure. We are more powerful in our distribution capability than the broadcasters. The broadcasters are only one-way; more powerful than the satellite companies. They have at the moment more channels until cable goes fully digital, but they are also effectively only one-way. You can do two-way satellite, but there are time delays to get up to a satellite, to a bird at 25,000…
COLE: And very expensive.
EFFROS: Yes. And we’re certainly stronger than the telephone companies because the twisted pair, the infrastructure that they still are totally reliant on, can’t effectively distribute high quality video signals. The cable plant that has been built has the capability of doing all of those things. It can distribute a high-quality video signal; it can distribute data very efficiently. That screen behind me has a cable modem on it, and I’ve been saying to the cable industry for years that cable modems are the nicotine of the cable industry because once you get that you never give it up. You’d never want to give that up! We also have the capability now for video-on-demand, and telephony, and a lot of other things, all in that same infrastructure. That is going to lead to the same types of fights that we had in the ’70s over copyright. So if somebody wants to get into the business in terms of the legal and political side of this, I think we have a lot of lessons to teach, you and I, but I think the fights are going to go all over again.
COLE: I also see in this same regard that many areas of the rest of the world are imitating what we did over the last 30 or 40 years. It’s beginning to take hold worldwide now, the establishment of broadband networks.
EFFROS: And interestingly, some of the major American companies who have the most experience in it are now the owners and operators of those systems. You can follow the line from TelePrompTer through TCI to AT&T to Liberty, and Liberty is now the largest owner of cable systems in Germany, and a major partner in Japan. A good friend of ours, Bill Bresnan, just sold major interests in Poland or Czechoslovakia. So, yeah, the same folks who had the expertise to build it here are helping around the world, and broadband information technology is a very exciting technology. It took a long time to get here; we have the fights between the bigs and the littles, and we have all of the politics of who owns the programming and how that programming is going to be distributed, and those fights will continue as we find new ways to distribute.
COLE: And many of the same political battles are being fought in these other countries also.
EFFROS: Follow the money.
COLE: Exactly.
EFFROS: Just follow the money and you’ll see where the fight is.
COLE: Steve, tell us a little bit about CATA’s growth. How many members or subscribers did it represent at its zenith?
EFFROS: At its peak we were close to equivalent to the National Cable Television Association. We were up around 30 million-35 million subscribers because what happened with CATA was that we started representing the small operators. We started from a position of trying to equalize the interests, or at least recognize the interests that were not being recognized at the NCTA. That succeeded after a period of time, and the sensitivity grew that you couldn’t regulate somebody in Enid, Oklahoma that same way you regulated somebody in New York City. That type of sensitivity grew in part because folks like me, who had been at the FCC, who had been lobbied, who had written rules… I mean, I remember writing rules in 1971-72, and you’ll remember these, where we had a certificate of compliance and we required all sorts of things that the operator had to fill out, and then you had to give a copy of everything to the city, to the town that you were in.
COLE: I sent my son to college on certificates of compliance.
EFFROS: I believe you did. I wrote that rule. I was in charge of writing all the rules on federal, state, and local relationships. So all the franchising issues I dealt with, and all of the access and program access issues I dealt with because the team that wrote the rules split out what each person would write, and I remember being lobbied at the time by the NCTA, and working with them to try to write these rules reasonably, and nobody at the time ever mentioned to me, it just never came up, that we were all making an assumption that every cable system had a photocopy machine. It just never came up because we were dealing with lawyers in Washington, we were dealing with general counsels in New York City, and nobody ever said, wait a minute, you’re writing a rule here that assumes that we can do this easily. Same thing happened in ’76 with the copyright rules. The copyright office wrote a rule that required that you have a certified check, treasury check; go in to pay for the copyright fees. You couldn’t write a check on your own stationary, and they didn’t appreciate that for a small operator where there’s only one person in the office, and maybe one out on the road trying to keep the system up and running that you didn’t have a huge office staff that could just go run down to the bank and get… this was very simple. So when I helped start CATA, those were the sensitivities I had when I started learning from the small operators what the problems were out there, and it’s not like they couldn’t have been dealt with. They were very easy; it’s just that nobody’d ever mentioned them before. It isn’t that the regulators in Washington wanted to hurt the small guy; it’s just that nobody’d ever mentioned it. So that was our first objective in CATA was to educate the regulatory agencies and Capitol Hill on how the distinctions should be drawn in what you do in regulation. Well, after a period of years we won that. It got to the point where on any regulation when they wrote the report and order, or when they wrote the effort to look at what the rule should be, they always asked, well, okay, this is what we can do for the big operator, now how do we deal with the small operator? So we were successful in that, and CATA moved on to doing a different role for the industry, and that was as somewhat of a mouthpiece, somewhat of the responder to criticism of the industry. I became known as the institutional loose cannon of the cable industry because you always knew that a reporter could call up and get a response from me, whereas the tendency in major corporations and the tendency at major trade groups, including the NCTA, was to duck. They were always saying no comment. They didn’t want to be out front. So I was writing a newsletter for the industry in essence at that time. We had the CATA Briefs, which explained how to do the rules, how to deal with the rules on a practical level at the local system level, which the operators loved because, with all due respect, Jack, law firms don’t know how to write things without footnotes, and general managers of cable systems don’t know how to read footnotes. So there was this disconnect in terms of communications. CATA filled that gap, and we wrote the simplified rules, all right? And I always worked with you and your folks, and with folks at the NCTA, and none of them would be willing to put their name on the stuff that we wrote because they’d say, well, yes, that’s true, but there’s this exception and that exception and this exception and so on, and that didn’t help small operators or any operator. What the larger operators found out, TCI, for instance, was in essence, they were just a conglomeration of small cable systems in most instances. So their general managers were just as interested in that material as the mom and pop operator because it helped them do their business. So the operators, the general managers, were asking the front office, look, can we join CATA so we can get that material? And then I was writing a newsletter as well just trying to explain what was going on in the industry, what my take was, what was interesting and what wasn’t, what to watch out for, and that became very popular. I’ve been writing a column now, once a week now; it was once a month, for 25 years in this industry.
COLE: That’s a lot of writing.
EFFROS: That’s a lot of writing! But it was writing that said five years before anybody recognized it that cable modems were going to be something important, you’d better start watching out for data, or watch out for the vertical blanking interval, the information within the television signal that the public doesn’t see, because that vertical blanking interval is going to have economic value in the future. I mean, we were writing about that five, seven years before it actually happened in public in terms of negotiations. So they found a value in that, the big operators, and they started joining, and by the time CATA was done we had virtually of the top 30 operators were members of CATA. As a matter of fact, we had all top ten and NCTA didn’t.
COLE: Did that create any divisions within the association between the mom and pop operators and these big guys?
EFFROS: Sure. The biggest problem, and it is still the biggest problem today, is program negotiations. Negotiations for programming contracts. The big programmers, such as ESPN, have a relationship with the biggest operators with discounted deals that they don’t have with the small operators because the small operator doesn’t have leverage for that type of negotiation. And the small operators were always asking me to do something about that, to figure out some legal challenge or some way to fight this, and unfortunately, I haven’t found a legal way to fight tit. It is one of the thorniest issues around, and it’s always been the thing that created the most friction between the small operators, the big operators and the programmers, and of course the operators and the programmers are both members of the NCTA. CATA that was not true, CATA was purely operators. So that was one that I couldn’t figure out a solution to that, and the small operators were not happy with that. The best solution we came up with was a buying co-op for the small operators and we helped set up, we helped do the legal work to set up the National Cable Television Co-op, which is a buying co-op that now represents 14 million subscribers, it’s in essence the third largest.
COLE: Quite a bit of buying power.
EFFROS: And they have buying power. But that was our solution to that, and I said this is not a political solution. You don’t go to Capitol Hill for this one. You do an economic solution, and we helped set that up and we stayed totally out of it, so at that point CATA became sort of the information flow, the membership services, newsletters and so on, for the entire industry, and we did that until the industry started its serious consolidation, at which point the big operators started saying, well, why do we need two because if you’re the biggest operator you theoretically have your own public affairs department, you theoretically have your own lawyers. I think they made a mistake because I still don’t think they do a very good job on public affairs, but NCTA and CATA got closer and closer together. As a matter of fact, the NCTA funded CATA to run a public affairs training program for the entire industry to train general managers in public affairs because they knew they weren’t very good at it, and they knew that was our expertise. So for about eight years we did an entire training program for the industry, which was very successful at the time.
COLE: Well, has CATA effectively merged into NCTA? They are one trade association, speak as one voice now?
EFFROS: Yes. Well, I don’t know that I would go that far. The problem for the NCTA is now that we have as consolidated an industry as we have, you find that the three or four largest cable operators because of all these other things I was talking about whether it’s telephony or data transmission or video on-demand and all of these other things, the various major companies have different business plans, and therefore it’s very difficult for any association to speak with one voice for the cable industry because the biggest players in the cable industry have totally different opinions on where it should go.
COLE: But what I mean is they speak…
EFFROS: The only national trade association is NCTA. CATA merged into the NCTA close to two years ago, and there hasn’t been a CATA Brief since. They were going to write CATA Briefs, and the first one, my executive vice-president, the guy who was with me for eleven years and helped do all this and was brilliant at it, Jim Ewalt, went over to the NCTA as part of the merger.
COLE: I know Jim well and always had a high regard for him.
EFFROS: Well, one of his original missions was to maintain the publication of the CATA Briefs. As I understand it, he drafted the first one over there, it went into the legal department, and never came back out. So you really do need sort of a loose cannon around to do some of this stuff.
COLE: Well, Steve, you’ve really left a mark, and it only took you 30 years of hard work to do it. Is there anything you’d like to add for the benefit of our viewers that I haven’t been able to bring out or think about yet?
EFFROS: Well, there’s lot of things that go into the industry, and as you well know, we all have our memories of all of the little vagaries of what really happened and how it really took place as opposed to what it looks like on the record. I think the important thing is I think we’ve all had fun, and as long as people are still having fun doing this stuff and making an impact, making a difference in what we’re doing, then there’s still a lot of chance for younger people to come along and to do it again.
COLE: I don’t think I’m deluding myself to say that there have been a parade, and I mean a parade of fascinating characters in this industry. If you don’t have anything further, I think we’ll wrap this up and say thank you very much, not only on behalf of The Cable Center, but on behalf of the industry at large.
EFFROS: Well, thank you, Jack.
