How Comcast got to be Comcast

Posted by Dan Barkin on February 14, 2014 

Sooner or later, I figured, Comcast was going to be my cable company.

Comcast has put in a $45 billion bid to buy my current cable provider, Time Warner. This continues the trend of Comcast’s incredible growth story.

If the deal goes through, the combined company will have 30 million customers in 42 states, counting the 2.1 million that Time Warner has in the Carolinas, including more than 460,000 in the Triangle.

Although it seems as though cable companies have been around forever, they had a very modest beginning. The cable industry was born in 1950, in rural Pennsylvania.

Appliance retailers installed the first systems in a couple of small towns where they wanted to sell television sets. These cities didn’t get good signals from the big cities, so Community Antenna Television, or CATV, was born. When color TV sets came along, this process of wiring outlying areas accelerated, because if you were going to invest in “living color,” you wanted a good picture.

Humble beginnings

Cable companies were mostly small, mom-and-pop operations. Cities and towns gave them permission to dig up the sidewalks and lay cable, and the cable companies paid franchise fees. It was a nice, if unspectacular, business for a long time.

And for a long time, the Federal Communications Commission made it difficult for cable to carry more channels and to penetrate into the top broadcast markets.

The behemoth that is now Comcast started out in 1963 in Mississippi. Ralph Roberts, a businessman in his mid-30s, bought the 8-year-old franchise in Tupelo with several partners. They bought several others, to bring in signals from Memphis and Mobile to these small towns. One of the franchises had as few as 210 customers. Perhaps you’ve heard of Okolona, in Chickasaw County.

The genius of Ralph Roberts, and the reason that Comcast is the giant it is today, was that he figured out a couple of things.

First, scale was important. Once improved technology and deregulation made it possible to add more channels on the cable system, more networks would come along. The more cable systems you owned, the better you could negotiate with these networks to buy their programming. Like getting a better deal from HBO, which was launched in 1972 and acquired by Time-Life a year later, programming that really helped accelerate the spread of cable households from small towns into the metro suburbs.

Cash-free deals

Second, it became clear that – while technical know-how was important – financial skills were very important. Roberts and his team were smart when it came to raising capital, and that was critical, because buying cable systems and upgrading technology was expensive. Comcast always seemed to be able to do deals that other cable system owners couldn’t.

Here’s one example, which was described nearly 20 years ago by Bloomberg News. In 1994, Comcast bought the cable systems owned by Maclean-Hunter, a Canadian communications conglomerate, for around $1.2 billion. Comcast got the California Public Employees Retirement System to invest $555 million. Then it used a line of credit that Maclean-Hunter had to borrow $715 million. So Comcast gained 540,000 new subscribers for hardly any cash upfront. The following year, Comcast pulled off the same trick in acquiring 800,000 subscribers from the acquisition of E.W. Scripps’ cable franchises.

And every time it brought in hundreds of thousands of new customers through essentially cash-free acquisitions, Comcast got discounts from programmers that boosted its bottom line with millions in actual cash.

Comcast, like Time Warner, gets criticized for poor customer service. But the company has not only survived, it is now the largest cable company in the nation. It didn’t get there by being dumb.

Dan Barkin is a senior editor at The News & Observer. Reach him at 919-829-4562 or dbarkin@newsobserver.com.

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