Growth is the primary objective of every business. Gaining new customers, introducing new products, expanding into new markets — these and other factors determine the health of our economy, which is largely perceived by how well and how quickly businesses are growing.
The cable industry is a key contributor to business growth. In fact, our recent research shows that cable has been a significant driver of American economic growth for well over a decade. The industry's steady development — in dollars, stature, and consumer appeal — is a uniquely American success story, one that can best be appreciated by taking a look at the gains made during the course of the last decade.
Thirteen years ago, Bortz Media issued Impact '90: A Report of Cable Television's Impact on the U.S. Economy.
The industry was doing pretty well back then. There were 79 cable networks and Nielsen reported a delivery of 6.5 million homes for basic cable. Cable systems' operating margin was at 43%. Operators and their direct suppliers employed 170,000 people. All in all, the cable industry was succeeding at its goal — delivering a basic package of video channels to consumers.
But change is inevitable. There were major changes to telecommunications regulation in 1992 and again in 1996. The direct-to-home satellite industry has made great gains. The Internet has become a major part of the telecommunications picture. So earlier this year, the time seemed ripe for another look at how cable fits into America's economy.
We have just issued an up to date examination of cable's economic influence: Reinvesting in America: An Analysis of the Cable Industry's Impact on the U.S. Economy.
The results are extraordinary.
In almost every area, the cable industry has made tremendous gains in the process becoming a vital part of America's telecommunications infrastructure. Cable's impact on the U.S. economy has increased correspondingly.
In 2002, the cable industry — directly and indirectly — accounted for 1.1 million jobs, more than double the level in 1990. Approximately 3% of U.S. job growth from 1990 to 2002 can be attributed to cable. This growth has resulted from significant enhancements implemented by the industry, as well as structural change in the marketplace.
These varied changes relate to the introduction of such advanced services as digital cable and high-speed Internet access, along with the selective deployment of competitive residential telephony. Each of these new services has been labor-intensive, requiring incremental sales, installation, customer-service and technical or maintenance personnel. As a result, the ratio of subscribers per employee has declined steadily over the last few years.
In other words, it now takes proportionately more people to support each individual subscriber. Cable operator revenues in 2002 totaled more than $48 billion, while compensation to individuals directly employed by the cable industry totaled almost $9 billion.
This impact isn't isolated to just a few regions of the U.S. The cable industry and its employees are located in all 50 states, with the bulk of the industry's employment concentrated at the local level. In addition, over 100,000 government jobs are generated by the cable industry, most of which are also found at the state and local level.
On the content side, there is an equally impressive story to tell. There has been a 350% increase in the number of national cable networks since 1992, with over 300 programming services available today. Within the universe of cable homes, usage of cable has increased almost 80%.
Last year, for the first time, the aggregate primetime viewership of basic cable exceeded the combined primetime viewership of the seven broadcast networks. In addition, the steadily rising number of nominations and awards from the Golden Globes and Emmys demonstrates that cable is delivering an array of programming that is both diverse and high in quality.
What marketplace factors have led to all this growth? One influence was the passage of the Telecommunications Act of 1996. Since deregulation, the cable industry has invested over $75 billion in a massive infrastructure upgrade. In doing so, cable operators have invested the vast majority (nearly three-quarters) of their cash flow back into their systems.
As recently as seven years ago, the "industry standard" for system bandwidth was 450 Megahertz or less, with fewer than 20% of subscribers served by systems with bandwidth meeting or exceeding this level. By the end of last year, about 80% of all homes passed were served by cable systems at 750 MHz or greater. Ultimately, the '96 Act created a more stable environment that has resulted in a more vibrant and competitive business, with consumers benefiting from a wide array of services and choices.
Consumer response to cable's new services has affirmed the industry's investment. At year-end 2002, digital cable was available to more than 90% of cable homes and approximately 30% of those customers (19 million) subscribed to digital service. More than 80% of homes passed had access to cable's high-speed Internet service, while the phone companies' offering — digital subscriber line — was available to fewer than 60% or their customer locations. It's not surprising then that cable has 12 million cable modem subscribers. In addition, cable telephony counted 2.5 million customers as of year-end 2002, and is poised for another growth spurt as Voice over Internet Protocol service is rolled out.
What will be the response to the next generation of cable broadband services — such as digital video recorders, HDTV and home networking? I have no doubt that the next Bortz Media impact analysis will show continued growth in the range, quality and popularity of cable's service offerings, as well as a further increase in the industry's economic impact.
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