Three years ago, Group W Cable Inc. won a heated battle for the exclusive cable franchise in El Monte by promising to install a 120-channel system, equip and train residents to produce programs and provide a studio with several full-time staff members to run it. Group W was so eager to secure the contract that it prepaid $500,000 in franchise fees to the city.
Today--with its El Monte operation awash in red ink--Group W Cable is engaged in another struggle, this one to persuade the El Monte City Council to renegotiate major portions of its franchise contract to help stem mounting losses. The company says operating losses totaled $1.9 million at the end of last year. A hearing on the proposal is scheduled for 7 p.m. Oct. 14 at City Hall.
Cable companies throughout the country are seeing their once-rosy projections of viewership and return on investment give way to the harsh realities of low market penetration and higher-than-expected costs that add up to big losses.
Consequently, Group W and at least three more of the 12 cable television companies serving the San Gabriel Valley have sought relief from expensive conditions of their franchise agreements, most involving commitments of equipment, training and personnel for community access programs.
Several companies already have been freed of local rate restrictions by a state law that went into effect this year. Others, which may not have sufficiently fulfilled franchise obligations and therefore are not covered by the state law, are asking cities to deregulate them anyway. A federal law deregulating all cable rates will take effect in December, 1986.
Group W, whose monthly rates for basic service are strictly regulated by the El Monte City Council, wants permission for a $2 increase over its present $7.95 rate. It also wants to deactivate one of its two 60-channel cables, cut staff assigned to help produce local programming and slash $385,000 from allocations for equipment. If Group W receives everything it wants, it will save more than $400,000, but the company said it expects to lose more than $2 million next year on its El Monte operation.
Group W is not seeking changes in its Arcadia and Sierra Madre franchise agreements, a spokeswoman said.
Meanwhile, Group W's parent firm, Westinghouse Electric Corp., announced in August that it wants to sell the company, which is the nation's third largest cable operator with 2.1 million subscribers. Westinghouse set a $2.5 billion price tag on the total system.
In Monterey Park, Falcon Cable TV wants to buy its way out of a franchise obligation to operate a television studio in the basement of City Hall. Falcon, which has canceled its lease on the studio, is willing to to provide $14,000 for equipment and programming and throw in a $1,000 donation to the Boys' Club if the city takes over operation of the facility.
Foothill Cablevision plans to ask for increases in its basic rate it in Monrovia, Glendora and Upland, operations manager J. B. Bush said.
"What a lot of cable companies are finding is that they overpromised," said Michael Friedman, vice president of Telecommunications Management Corp., a Los Angeles-based consulting firm serving El Monte and other cities. "The systems cost more to build than they anticipated. They are approaching cities to get relief to make their systems financially viable."
Friedman said that many other cities, including Denver, Portland, Milwaukee and other large cities have renegotiated franchises in recent years to ease the burden on financially troubled cable companies. He added, however, that renegotiation demands have become so common that the issue of the companies' original intent has been raised.
"There are some communities that feel that operators overpromised knowing that they would come back at some point along the line and ask for concessions," Friedman said. "Competition sometimes brings out the best in us and sometimes brings out the worst. When you see so many cities going through this experience so quickly--as soon as the ink is dry--it fuels suspicion about intentions."
Cable company officials insist that their dilemma was caused by the unexpectedly high construction costs. They say they underestimated the cost of installation, the amount of cable needed and the cost of operations and programming. The officials said revenues have not met expectations, in part because much of the programming and services expected to attract customers never materialized or were canceled.
Willing to Listen
So far, most cities have at least been willing to listen.
"Most cities have approached it from the point of view that it's to no one's benefit for cable operators not to succeed," Friedman said. "The subscribers do not benefit. The city doesn't benefit. Service suffers. Ideally, everyone benefits when the cable company is making a reasonable return on its investment."