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Ted Turner's Cable Scam: Mar. 1987
« on: November 15, 2013, 02:53:19 PM »

Ted Turner's Cable Scam: Mar. 1987

The celebrated author investigates CNN's cronyism.

By Malcolm Gladwell – From the March 1987 issue

Editor's Note: The release of the fifth book, David and Goliath: Underdogs, Misfits, and the Art of Battling Giants, by Malcolm Gladwell, an alumnus of The American Spectator, has inspired us to mine our archives. In our March 1987 issue, Gladwell investigated Ted Turner's creation of CNN, which included all the usual elements of crony capitalism: duplicity and deception, sleazy lobbyists, and business protections enshrined by Congress.

Ted Turner first came to Washington to peddle his vision of how cable television would change America in 1976. "You have to remember that there are three supernetworks who only own four or five stations apiece that are controlling the way this nation thinks and raking off exorbitant profits," he told Congress. "They have an absolute, a virtual stranglehold, on what Americans see and think, and I think a lot of times they do not operate in the public good."

Turner looked at society's ills, and he knew who was to blame. Ever wonder why the crime rate is up 400 percent? "It's because of movies and the crummy television programs," Turner told members of the Television Academy in New York. "What these networks are doing is making Hitler youth out of the American people." Then he checked off the vices inspired by prime-time TV: laziness, drug abuse, homosexuality, lasciviousness, materialism, and disrespect. "We've got to change a lot of things in order for there to be a future," he would say later. "So far we've been dying by TV. It's been used to teach us all the wrong things."

Cable television, he said, could be the instrument for teaching all the right things. "We'll be another voice," he told Congress, a better voice teaching positive, wholesome values. In 1980, at the ceremony inaugurating his 24-hour news network, CNN, he raised three flags—that of his home state of Georgia, the flag of the United States, and also the flag of the United Nations. Why? "Because we hope with our greater depth, and our international coverage, to make possible a better understanding of how people from different nations can live and work, and so to bring together in brotherhood and kindness and peace the people of this nation and world." It was with this in mind that Turner went to Congress in 1976, asking for special favors for his fledging industry. "I would love desperately," he vowed, "to create a Fourth Network for cable television, producing our own programs, not just running 'I Love Lucy' and 'Gilligan's Island' for the fifty-seventh time."

Congress granted Turner those favors, and granted him more in 1979, and still more in 1984. Over and over again the last ten years, the regulatory and legislative bodies responsible for cable television's direction have ratified Turner's vision of cable as the salvation of television. There is no longer any debate about whether cable should come to television. In those cities that have not yet handed out cable franchises, it is only a question of when.

Indeed as Ted Turner has pranced in and out of the public eye in the last decade—as defender of the 1977 America's Cup, as owner of basketball's Atlanta Hawks and baseball's Atlanta Braves, as Playgirl's Man-of-the-Year, as the putative raider of CBS, and as Soviet Russia's suitor during last summer's Goodwill Games—the cable industry of which he is the crown prince has gone from reaching 10 million homes to over 40 million. In 1976, Turner took the tiny UHF station that he had purchased six years earlier for $2.5 million and, by beaming its signal up to a satellite, turned it into a national superstation. Today WTBS reaches 36 million homes and is worth $600 million. CNN is worth another $800 million, and the profits from both have made Turner a very rich man.

There is something quite remarkable about this ascendancy. The so-called cable revolution of the mid-seventies was a technological breakthrough and really not much else. What Turner and others grasped was that through the use of a satellite a single TV station could beam its signal all over the United States. Suddenly cable was no longer simply a means of delivering broadcast signals to remote communities. Suddenly it was possible for little broadcasters to act like networks, and for the viewing options of TV-watchers to be doubled, tripled, or even quadrupled. But there was no reason to assume that cable's technological breakthrough should have guaranteed such popularity, nor to agree automatically with people like Ted Turner that the ability of cable to expand programming choices would make the quality of television any better. If the combined effort of three billion-dollar networks left TV a wasteland, after all, how was the addition of twenty low-budget channels going to make the landscape any less bleak?

The answer is, of course, that cable has brought little that is new or of high quality to television. The most popular shows on basic cable networks are a pallid mix of low-budget sportscasts and reruns. Look at the line-up of top-rated programming from last November: two old movies, an LSU/Alabama football game, "Andy Griffith Show" reruns, and "The Best of World Championship Wrestling." Today on WTBS, ten years after he promised Congress that he would stop showing reruns of "I Love Lucy" and "Gilligan's Island" for the fifty-seventh time, Turner still shows reruns of "I Love Lucy" and "Gilligan's Island."

What Turner discovered was that producing original programming ate just a little too much into the fat profit margins of his one-man band in Atlanta. And he also discovered that when it came to buying new syndicated programming on the open market, he couldn't afford to pay national rates for anything but creaky fifties reruns. In short, Turner realized very early on that the commitment he had made to promoting a quality alternative to broadcast television was impossible to fulfill. But did that stop him? Last summer he went out and spent $1.4 billion for MGM's massive film library. If he couldn't buy new movies, then he would buy old movies. More importantly, he shifted his feet a little, and started saying the same things about "I Love Lucy" and "Leave It to Beaver" that he had said before about the wonderful programming he and his cable comrades were supposedly going to create. "Fifteen years ago TV had a higher quality," the new Turner explained, as if it were obvious. "There were good, all-family shows that reflected the basic values. They emphasized a good strong family life, a good strong work ethic, frugality, patriotism, the worth of those people who serve our society, such as school teachers and police. These are the kind of values that make a society great."

It seems incredible, in retrospect, that Turner was able to get away with this. Here was a man too cheap to buy anything but reruns claiming to be the defender of the family and traditional American values. Meanwhile the King of Cable's real feelings were on constant, public display in his personal life: Turner, the married father of five and self-appointed defender of the family, was running around openly with every woman he could get his hands on. There were the women in Newport during the America's Cup; there was Tracy Wickersham, who Turner made into a star on WTBS, and there were numerous, nameless others. "That's the little girl I took to Cuba with me," he told Sports Illustrated last summer, pointing to a blonde in a skimpy bikini. "I don't object to sex appeal on TV, but I'm against gratuitous sex and homosexuality and philandering around," Turner said once in another interview, before pausing to elaborate on just what he meant by philandering around: “As long as it's your wife or girlfriend, I don't think there's anything wrong with that."

But he did get away with it. In the late seventies and early eighties, when gushing profile after gushing profile appeared about Turner in the mainstream press, his womanizing would come up often, and just as often would be dismissed with a nudge and a wink. (Atlanta Magazine: "Turner does not always do all he can to dispel notions of his rakishness…Asked who he would most like to go on a long trip with, Turner's quick answer is, 'Bo Derek.' Then, he pauses and says, 'No, my wife. My boys. I like to see my family.") Only Playboy—which after all makes a living at this sort of thing—pointed out the obvious contradiction between what Turner said in public and what he did in public. "That [Turner] treats his family with crude vulgarity is nobody's business—until he starts doing it in front of journalists and then sermonizes publicly out of the other side of his mouth," wrote Peter Ross Range, in an aside to what is probably the best interview ever conducted with Turner. It was not until the Goodwill Games of last summer that the rest of the press, in particular the right-wing press, caught on to the fact that Turner was not "conservative" in any sense at all, but rather a man whose primary allegiances were to his bank account and himself.

Turner has also cloaked himself in patriotic garb when he discusses the news programming of the networks: "I mean, the way the networks covered the Vietnam war just sickened me. It was anti-American. They never showed the American boys getting medals or helping villagers or anything." Turner wants more upbeat newscasts. The networks "just bring you 22 minutes of gloom and doom headlines." But is CNN a good-news network, one that shrinks from covering a story that might reflect badly on the American government? Of course not. One of CNN's biggest scoops a few years ago, for example, was a story about how American advisers in El Salvador were carrying rifles. Again it was Playboy that narrowed in on the contradictions:

PLAYBOY: You've said that the networks' coverage of Vietnam was anti-American. Do you think [the El Salvador story] was anti-American?

TURNER: No . . .

PLAYBOY: Well, it amounted to the same thing—reporting news our government might not like. What's the difference?

TURNER: Balance. All you've got to do is ask Norman Lear. Ask anybody...

PLAYBOY: Norman Lear, the producer? What does he have to do with it?

TURNER: Norman Lear likes CNN. He told me so. He's a pretty good man as far as judging the quality and fairness of TV.

PLAYBOY: That's not what we were discussing. Lear never complained that the networks were anti-American in their Vietnam war coverage.

TURNER: Well, anyway, the American people support me. CNN is good for the American people.

Nothing that Turner says about the major networks can, in the end, be taken all that seriously. In the summer of 1985, during his abortive attempt to buy CBS, he talked in terms of high principle. "I'm working to see a better world," he said. "That is my main reason for trying to take over this network." But then he confessed that there wasn't anything about, for example, CBS News that really upset him: "I don't imagine I'd interfere with it much." Nor was he much troubled by Dan Rather. "I have no plans to get rid of [him]. In fact, I have never met him and I am looking forward to meeting him one way or the other. He doesn't look like such a bad guy to me." Turner even admitted that although he thought journalists were by and large liberal, there was nothing wrong with that: "Liberals and Conservatives love their country, even though sometimes they don't think the other side does."

So why take over CBS then? Simple: Turner realized in 1985 what most Wall Street watchers didn't grasp until much later, that CBS was worth a great deal more than its book price of $4-5 billion. Television companies, writes Les Brown of Channels magazine, "tend to be notoriously undervalued in the stock market because the absolute worth of their licenses is rarely taken into account. A broadcast license is an abstraction, a unique privilege protected by the government: it is not like real property, yet it has a way of appreciating." Capital Cities paid $118 per share in its friendly takeover of ABC in 1985 on stock that was trading at $52 before takeover rumors began. That totaled $3.5 billion. But how much is ABC really worth? Probably another two billion, say industry insiders, and the same was true of CBS.

Turner wasn't working to see a better world. He wanted CBS because it was a bargain, and he would stop at nothing to get it. William Paley, founder of CBS, he called a "failure"; the network itself a "cheap whore-house" that had been "taken over by the sleaze artists." Network executives, he said, "oughta be tried for treason, they're the worst enemies America's ever had." Turner even hoodwinked the hapless Jesse Helms crew into believing that he was on their side. At a critical moment in his attempt to convince the Senator's Fairness in Media group to buy up CBS stock, Turner fired his chief political correspondent—the veteran liberal Daniel Schorr. Coincidence? Not likely. This, it seems in retrospect, was nothing but a sop to his right-wing allies of the moment.

Then there were last summer's Goodwill Games, the U.S.-Soviet mini-Olympics that Turner went $20 million in the hole putting together in Moscow. Turner tried to pass them off as his personal exercise in detente, but in reality the games were staged principally for business reasons. By cozying up to the Soviets, Turner hoped to get access to what he sees as the enormous untapped media potential of the Eastern bloc. At the same time, if the 1990 Goodwill Games in Seattle are even moderately successful, Turner stands to clear $200 million or more.

There is more here, though, than simply the issue of money. Consider Turner's offer to CBS shareholders, a mixture of high-risk junk bonds and shares in the Turner broadcasting systems but no cash. As Les Brown points out, "He was not so much buying CBS as running for its presidency. In proposing to buy the company largely with its own money, Turner in effect was asking the shareholders to vote him in, because he is who he is—whatever that is."

"Whatever that is" is someone who seems to have convinced at least himself that there is a higher purpose to his construction of a media empire. Listen to his personal goal as a businessman, a goal he repeats again and again: "My main concern is to be of benefit to the world, to build up a global communications system that helps humanity come together . . ." Turner thinks he can help save the world by launching satellites and erecting transmission towers, by buying television networks and by building the structures of communication.

Turner wouldn't have gone near the idea of the Goodwill Games if he didn't see a significant future dividend, but once he got involved with the project he only half-jokingly called the games his bid for a Nobel Peace Prize. Turner thought that by getting Americans and Russians on the same screen, by staging "the biggest joint effort between the Soviet Union and the U.S. since World War II," he was making an important contribution to East-West relations. He wanted to set up the cameras and the broadcast towers and the satellites so that the two countries could talk.

As philosophies go, this is fairly empty and naive. Turner never seemed too concerned, for example, about what would actually be said. For him, the talking was more important than the words. It does, however, bear a striking resemblance to his approach to cable television. Why has he cared so little and displayed such cynicism about TV programming? Because for him the promise and potential of cable is tied up in its technical revolution, in its remarkable ability to beam out programming all over America by satellite, in its ability to give viewers two or three or even four times as many shows to watch on their television. But not in the shows themselves. For Turner, in a remarkably literal sense, the medium is the message.

This is not an unusual attitude for a technological pioneer to take. David Sarnoff, the founder of RCA, started NBC as a free service to his customers because he wanted to sell more radios; programming was as distant and trivial a concern to him as it is to Turner. The difference is that Sarnoff was quite frank about preferring the medium to the message, while Turner has sought to obscure his true feelings with level upon level of nonsense about American values and cleaning up TV.

At the same time, Turner's opinion matters in a way that Sarnoff's never did. Turner operates in an industry which has been nurtured, protected, and in some sense created by a series of very favorable regulatory and legislative judgments over the past ten years. "My biggest job," Turner has always acknowledged, "is in Washington. . . . I've got to protect myself first in Washington." And here, the question of just what it is Turner believes is of some importance. For it is clear that all of the regulators and legislators who have looked so favorably upon cable have done so in part because they took Turner's vision of ending the wasteland that is TV seriously. It may be going too far to say that they were fooled by Turner. But certainly had they known in 1976 and 1980—the critical years of cable regulation—that Turner's message extended no further than the medium, and that his grand vision was no more than the desire to get cable into more homes and more money into his pockets, they might have balked at some of the industry's more excessive demands. Let us say, charitably, that there was confusion in Washington, and that that confusion extended to the regulation of the industry. Congress and the FCC thought that the effect of all the handouts and protections that cable asked for would be to promote the quality and diversity of cable programming. They were wrong.

Of all the breaks Congress has given the cable industry, none is more remarkable than cable's exemption from copyright liability. Say you own an independent television station in Cleveland, and pay a million dollars to a syndicator for three years' worth of "M*A*S*H" reruns. A cable system operator in Kansas City has the right to pick up your broadcast signal, and re-transmit your programming without getting your permission or paying you any money. The cable operator, by dint of the Copyright Act of 1976, has a "compulsory license" to pick up whatever he wants off the air, and pipe it to his subscribers. All he has to do is pay a nominal fee to what is known as the Copyright Royalty Tribunal (CRT).

"There's no question that the compulsory license amounts to a subsidy for cable," says Fritz Attaway, vice president of the Motion Picture Association of America. With every other kind of copyrighted material, rights are acquired by negotiation, and values are set by the marketplace. Cable, however, gets whatever programming it wants, and pays according to a rate set by Congress. And that rate, even after it was readjusted in 1981, is still less than what cable operators would pay for TV shows if they were forced to buy them on the open market. The result is that while broadcast TV stations pay about 40 percent of their revenues for programming, cable pays, at most, 4 percent of revenues for copyright to on-the-air programming.

The effect is to relieve cable programmers, like Turner, of much of their responsibility to create original TV fare, and makes the operators of cable systems much more attractive to potential subscribers. Where would cable be, for example, without the pirated signals of WGN and WOR? If a TV viewer watches "The Cosby Show" on cable, it isn't because Turner or some other cable channel has gone out and spent millions to buy the rights to it. It's because WOR has, and local operators have picked up WOR's signal for next to nothing. As long as there is such a cheap source of prime-time programming for cable, people like Turner are under little pressure to produce original TV shows themselves. That's one of the reasons the Motion Picture Association is so strongly opposed to the compulsory license. Says Attaway: "It inhibits the development of made for cable programming because that does have to be paid for in the marketplace."

Since 1976, numerous attempts have been made in Congress to take away the compulsory license and abolish the CRT. Cable had a close call in 1979, for example, when Congress seemed dead set on changing the rules. But Turner had some powerful friends in the Senate—including Barry Goldwater, who, no doubt, saw in Turner some kind of entrepreneurial ideal—and killed the bill with a knock-‘em-dead appearance before Goldwater's Communications subcommittee. Turner turned what should have been a discussion of complicated copyright law into a referendum on the performance of the major networks. The irony, Turner later admitted to a meeting in Atlanta, was that "everything my enemies said was true. We won in Washington on an emotional issue! I just decided to attack the rest of television. The logic was that it was in the best interest of the American people to steal those no-good bastards' programs anyway."

In 1980, cable got another big break, this time from the FCC. Up until that point, cable operators had not been able to pipe in a TV show that was already being shown locally. In other words, if a TV station in Cleveland bought the rights to "M*A*S*H" from a syndicator, that meant that no one else could show "M*A*S*H" in Cleveland. Copyright implied exclusivity. If a cable operator was to bring in, say, WOR from New York, and WOR carried "M*A*S*H," the operator had to black the show out when it appeared.

The FCC abolished this rule in 1980. The key here was FCC Commissioner Charles Ferris, a man who liked cable so much that after he quit the FCC he signed on as one of Ted Turner's lawyers. Ferris claimed that he was freeing the industry from government intervention, but that wasn't what he was doing at all. In reality, he was fundamentally altering the relationship between cable and broadcast television. Now cable operators and TV station owners were both running "M*A*S*H" and competing for the same audience. Any cable operator had an overwhelming advantage: he was pirating "M*A*S*H" off the air-waves for next to nothing while the local TV station was paying for it on the open market. Under the new rule, where was cable's incentive to come up with original programming? People like Turner could now just show the same reruns all the local TV stations were showing. The effect, in short, of the Copyright Act and the FCC's policy change was to make cable less of a distinct television alternative and more of a parasite on the broadcast industry.

There are other, infinitely more complicated areas in which cable has been given an unfair advantage over its broadcast competitors. Consider the effective monopoly cable has on the transmission of TV signals. Whoever runs a TV cable into the back of someone's TV set, controls the channels that set receives. Even if the homeowner leaves his antenna up, he needs to install a complicated series of switches in order to receive over-the-air programming. This gives cable companies potentially tremendous power over local TV stations. Picture again our independent TV station in Cleveland. A cable franchise is granted, and the operator decides not to carry you on his system. Say he signs up 50 percent of the Cleveland TV audience: suddenly you've been locked out of half the city's homes.

Can anyone else run a cable into private homes? No way. Cable franchises are monopolies. Independent TV stations would love to get together with the local phone company and run their signals in on fibre optic, but the 1984 Cable Communications Act makes that illegal. "Cable won that one," admits Preston Padden, president of the Association of Independent Television Stations. "We were asleep at the switch."

The cable industry refuses to admit that what they have is a monopoly, and insist that they have a First Amendment right to "edit" the channels their subscribers receive. Luckily, such "editing" was temporarily forbidden by an FCC order of last summer, although cable still has a few tricks up its sleeve. Consider the tale of channel 13 in Seattle, a popular independent movie station. A cable operator came to town, carried 13 on its system, but banished it to the commercial oblivion of channel 37. In its place was inserted cable's Arts and Entertainment network, which shows roughly the same programming. Sleazy? Sure. Illegal? Oh, no.

There is no likelihood of cable losing these privileges in the near future. The comprehensive Cable Act of 1984 was supposed to be deregulatory, which it was only in the narrow sense that it removed regulations that hurt cable and kept those that helped. Control by local governments over cable subscriber rates, for example, was shelved. CRT rates weren't. "Cable's got the best of all possible worlds," says Attaway. "It's totally deregulated in what it can charge its subscribers, and highly regulated in terms of what it has to pay for its programming." "They're very good at lobbying," concludes Henry Geller, former counsel to the FCC. "They're better than anyone else."

"Historically, cable TV has gained its advantages by posing as a little mom and pop industry that couldn't afford to play by the rules," says Preston Padden. Here Ted Turner's role has been critical. It was he who went before Congress in 1976, painting himself a maverick upstart struggling to make "more voices heard than the network voices out of New York." Congress bought the act, granting cable preferential treatment because it was thought that it would be "impractical and unduly burdensome" to require every cable system to negotiate with every copyright owner. Congress wanted to protect the fledging cable industry because of all the good it was thought the Turners of the world would bring to television. Now, of course, cable TV is a $6-billion-a-year operation whose main players include Time Inc., Westinghouse, Warner-Amex, and Times Mirror. Turner's empire alone is worth one and a half billion. Moms and Pops? "They've sold out and are living in Palm Springs," says Padden. Yet the image remains, and the handouts keep coming.

Turner can't be blamed, of course, for trying to get the best deal he can out of Washington. The blame, if it is to be applied, belongs entirely with the regulators and legislators who have been mesmerized by the Turner talk and who have frittered away the possibilities for a real cable alternative with short-sighted and ill-considered decisions. Nor is Turner's hypocrisy really all that shocking. He may have told Congress ten years ago that "if I cannot do a good enough job to attract the viewers to my station in the free and open marketplace, then I do not deserve these viewers. I do not think that I should, by government regulation, be protected," just before he asked Congress for precisely that protection. But everyone does this now, if not on the same grand scale as Turner.

Ted Turner's story amounts, in the end, simply to a cautionary tale about the role of ideas in Washington. For the benefit of his regulators, and his audience, Turner has played embattled entrepreneur, television savior, right-wing point man, and—for his own whims— communications peacemaker. What he really wants to do is make a lot of money. Somehow we would all have been better off if he had admitted that to us—and to himself—ten years ago.
“The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.” G Washington July 2, 1776

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