Pay TV: The Right to Complete - and to Speak; E. Gillett

How the California viewer lost his option to pay at home for special TV shows without com mercials and not available on other channels is an amazing story in twentieth-century America. It could only happen in this nation's current "mixed economy" of swell ing government controls over business, endorsed or unchallenged by the businessmen themselves. Today, in this "land of the free," enough aroused citizens can still "execute" a business com petitor, and freedom of speech, simply by majority vote-even as the Athenians "democratically" voted the death of Socrates some Elizabeth Gillett is a freelance writer on busi ness, economic, and political matters, whose by-lined articles have appeared in Barron's, The Journal of Commerce, Saturday Review, and elsewhere. This article is condensed from an original research piece she is doing for another publication. 38 2,300 years ago. Fortunately, also in this country, the victim of such perversions of constitutional gov ernment can seek redress by exer cising his constitutional right to use the governmental function in a proper way - as the avenue of his self-defense and the agent of legitimate retaliatory force. Some times, however, the court costs in time and. money - of such re dress can be crippling.

The Battle The "gadfly" of the Golden State, its victim, is Subscription Television, Inc. (STV), run since October 1963 by Sylvester (Pat) Weaver, veteran of commercial television, former president of Na tional Broadcasting Company. STY was' formed in January 1963 with patents on a cable system from Skiatron Electronics and capital from Lear Siegler, Inc. (electron ics manufacturer) and Reuben H. Donnelley Corp. (sales promotion organization). In the next year and a half, STY got total public 1966 PAY TELEVISION 39 financing of around $20 .million. Broadcasting over STY's three simultaneous channels to 2,300 subscribers in Los Angeles began July 17, 1964; to 1,810 subscribers in· San Francisco, on August 14, 1964. In both sites, STY gathered fewer starting subscriptions on the movie industry's home-ground than anticipated. Mr. Weaver soon lined up five major film producers to make movies for STY, among other original programing he sought for subscribers each eve ning during "prime time," 7 to 11 p.m., in compatible color.

Meanwhile, the pay-Tv antagon ists, led by the Southern Cali fornia Theatre Owners ,Associa tion - backed. by what is now the National Association of TheatI'e Owners, Inc., were lining up strat egy, funds, and allies, including their former foes, commercial tele vision and even community-an tenna companies. All saw .a com petitive threat in STY. They feared that if pay television caught on and gained enough sub scriber-volume, audiences would not come to movie theaters and commercial TV might lose some of its top attractions to :pay-Tv. The antagonists persuaded many California residents that pay-Tv meant the end of "free" (ad vertiser-supported) television. They gathered a "war., chest" of $1.5 million or more from trade, union, and individual contributors. SCTOA recruited, the ,necessary 468,259 signatures togetProposi tion 15 .on,.,the' California "ballot, which would outlaw pay-TV in the home.

Despite protests from local Better Business Bureaus and Chambers· of Commerce, /Southern California print space and air time --were flooded with .warnings against the predatory menace, of pay-TV, which, it was alleged, would end the World Series _on "free T'V"- despite NBC's contract (recently renewed through 1968). However, STY had suffered far heavier expenses than planned, thanks to its elabora.te program ingand -time-consuming _cable -in stallations, even before _this for midable -campaign erupted. It did manage topour $180,000 and much energy into the fight, plus a few thousands contributed by various individuals -and unions. But the antagonists were toOl strong, their propaganda apparently over whelming. When Proposition 15 was voted into law in November 1964, Mr. Weaver's operation had reportedly been losing between $3,000 and $10,000 a day since its start· of opera tions. STY suspended broadcasting as of November 10,1964. It recov ered its-6,000 receiver-billing boxes, refunded installation charges, and shelved "orders for 40 THE FREEMAN April 40,000 more [installations]," ac cording to Lewis M. Marcy, STY vice-president. It also retrenched by selling most of its usable equip ment and moving a reduced staff to New York City. Its stock's $12 offering price soon reached a low of $1.50. In late March 1965, STV filed a Chapter 11 bankruptcy plea.

But this was not the end of STV (whose stock in mid-Febru ary 1966 had recovered to over $4) or of the resilient Mr. Weaver, who began plans for a new business of "network program service" in 1965, while directing STY's court battles on the Coast. The Turning Point On· May 20, 1965, Judge Irving H. Perluss of the Superior Court of Sacramento County overruled the California Secretary of State's rejection of Mr. Weaver's charter for a new subscription television company, submitted on December 9, 1964. Judge Perluss found the Free Television Act, established by favorable initiative vote on Proposition 15, unconstitutional because it "abridges freedom of speech." About the pay-TV opponents, Judge Perluss observed, the" 'evil' with which they are concerned is speculative and illusory .... [namely] that subscription tele vision may destroy free television operation" (emphasis his) . He also noted that "the charges here made could have been made by the radio industry when television was made available for the home.

. . . Invention and progress may not and should not be so re stricted .... " The defendant, California's Sec retary of State, with amicus cu riae, the theater-owners, soon ap pealed this decision.! (On March 2, the State Supreme Court in a 6-1 decision agreed with Judge Perluss that the, November 1964 Free Tele vision Act is unconstitutional.) Also outstanding is a decision on STV's conspiracy suit against sev eral California exhibitors' groups and others for $117 million in dam ages, the verdict on which may also cause an appeal. (STV, in addition, is suing the State of California for $14 million in dam ages sustained as a result of the Proposition 15 initiative.) For good measure, the theater owners will have to continue lobbying on the FCC's pending decision on the petition of Zenith Corporation, through Teeo, Inc., to establish the first nationwide pay-TVsystem (by air, not cable), submitted just be fore Judge Perluss' decision.

Significance What is to be learned from 1 Paramount's International Telemeter Corp. and the American Civil Liberties Union were amici curiae for STY.

1966 PAY TELEVISION 41 these facts and events? Some en during and fundamental truths underlie them, of economic, polit ical, and moral nature. Besides, this infant industry carries signifi cant implications for its entrepre neurs, its competitors, and its potential customers. We must begin by stressing that the quality of fare offered by the various screen media via different technical and marketing methods is not at issue here. Rather, the p1l'operty right of every business man to offer his own wares in a free market is the crucial concept denied by the voters of California in the 1964 election. Instead, they legalized the false concept that existing vested interests have the property "right" to rule a free market - a contradiction. As STY's Marcy puts it, "This could be compared to Western Union saying there should be no telephones. " What were STY's property rights? Did the company overstep them? STY sought to sell pro grams cheaply that it had created and paid for, sent out over cables it had bought and laid (attached to phone wires· for which it paid rent), to be received on a sub scriber's own TV set by means of a small control box owned and manufactured by STY, which it rented cheaply to the subscriber after a moderate installation fee.

STY never forced anyone to subscribe, but tried to win cus tomers on the appeal of its wares: absolutely no commercials, the novelty of paid performances seen in the home by residents and their guests, original··. programs not to be seen on freevee, limited but convenient viewing times, and low prices in comparison with most al ternatives. STY stressed its sup plemental nature in relation to commercial TV. It had no cancella tions during its few operating months. It made no attempt to crush its competition - except to survive. Since STY's form of business was a variation of an existing mass communications medium, freedom of speech was also violated when the Free Television Act forced STY to stop operating. Thus, when any individual property rights can be abolished overnight by majority vote, as happened in California; then all related, sub sidiary individual rights become legally vulnerable to the mob. In dividual rights are safe only if property rights - which include the right to sell or trade one's own goods - are legally inalienable, protected by government. Other wise, blondes and brunettes could vote the exile or extinction of red heads, since one's life is also one's property.

What "crime," then, did STY 42 THE FREEMAN April commit that persuaded California voters to outlaw it? The .' highly publicized "threat" that pay-TV would deprive the low income viewing masses of "free" TV· entertainment by bidding away top shows and talent for the exclu-. sive pleasure of "those willing and able to pay for it," in the words of RobertW. Sarnoff on June 3, 1964 in Beverly Hills, California. While Mr. Sarnoff, then NBC chairman, now RCA president, also deplored "seeking government pro tection against a pay system that does not use .public frequencies," movie exhibitors ignored this qual ification and echoed his basic charge in spades. This righteous-sounding objec tion is typical of today's muddled economic thinking: "Anything that hurts my business is immoral and ought to be illegal." It means that those who can pay for special entertainment should not be per mitted to buy it on television.

Does Sam, who can afford to buy a car, deprive Jack, who cannot, of anything that is rightfully Jack's? No. Nor does Sam owe a car to Jack simply because Sam has more money. Almost twenty years ago, in an antitrust decision, exhibitors lost their contractually exclusive right to first runs of new films produced by the movie companies - before television of any kind. Had film prod ucers retained (or regained) their ownership of movie theaters, there. would be no question today as to who gets new movies first. But since new films can be sold to the highest bidder, and· commercial TV now has the biggest audience and pocketbook, it now may be just a· matter of time. for exhibitors. 2 Now, they want their government destroyed property right reinstated in a new form by crying wolf at pay-TV. Conclusion The craven, despicable behavior of commercial TV and movie ex hibitors toward their· new com petitor springs from a common default by most twentieth-century U.S. businessmen. They have not troubled to see that consistent, proper restrictions were kept on government relative to business.

Instead, some have sought gov ernment favors. Many have stood by and watched while government, under varied pressures, took on more powers and usurped property rights of other businessmen. A few even sought these ends. Now, American communications leaders, in particular, have lost their own freedom of business ac tion. Since the 1920's, when the government confiscated perma2 The networks have already started to help finance a few new movies slated for first runs on television.

1966 PAY TELEVISION 43 nently the property rights to air waves (in the "public interest"), urged by men who should have known better,3 the mass communi cations field has· become an ever thickening jungle of intrigue and bureaucratic "pull." One must have the government on one's side ~ and off one's back - to gain business success in broadcasting. The actions of exhibitors and commercial TV toward pay-TV are only understandable if we see their roles as fellow creators of a Frankenstein monster: expanding, manipulative governmental power. It has turned on them, and they do not know where it will strike next; they seek to win safety from the tyrant by feeding it victims other than themselves. Having sacrificed their own property rights - to the air waves and to integrated pro duction and distribution of their product - they do not shrink at sacrificing the .property rights . of anyone else, especially a. competi tor for part of their lethargic market.

The twentieth-century United States has gained tremendous wealth and technological achieve ments, thanks. primarily to the precedent-setting, arduous efforts of its politically free men of the nineteenth century .who began 3 For a full discussion of these mat ters see "The Property Status of the Air~aves," by Ayn Rand, in The Objec tivist Newsletter of April 1964. with their own property - often slight at first - and competed with other men like themselves in a market almost entirely free of governmental restrictions. If the California theater owners and commercial TV can keep, their competition outlawed, this will mean a regression to the-medieval guild system. There, all innova tors were imprisoned and old ways of doing things were forcefully enshrined for centuries, to every one's loss. Poverty, ignorance, dec adence, and serfdom were the result. (Do Californians want this ?) Under free-enterprise capitalism government must protect· the in dividual's right to buy and sell as best he can, not guarantee him a captive market. Today's malicious stampede to manipulate govern ment for one's own benefit at the direct expense of some other citi zen or group or business enter prise must be halted. So must the evil of allowing anyone's property rights, and the derived rights like freedom of speech, to be voted away by the majority or stripped away by court decision.

If individual property and busi ness initiative do not receive their just, legal. protection, then all Americans risk losing present and future benefits from the riches that only free, independent men ever have produced-or ever will.