Matt Polka - 2014
Interview Date: September 22, 2014
Interview Location: The Cable Center, Denver, CO 80210
Interviewer: Stewart Schley
Collection: Cable Center Oral History Program
Schley: Hello. Since 1997, the voice of the independent cable industry has really been Matt Polka. We’re happy to have him today to talk to as part of the Cable Center’s Oral History Series. I’m Stewart Schley; the date is late September, 2014. It might even be the 22nd, I believe.
Polka: First day of fall.
Schley: Matt, it is a pleasure to have you in the studios of the Cable Center and to chat with us for a little bit today.
Polka: Thanks for having me here. I have been fortunate to have a long history with the Cable Center since its opening and our members at the American Cable Association have been proud sponsors of the Cable Center. So I’m glad to be here and glad you’re taking time to visit with our members this year in the oral history program.
Schley: You probably wouldn’t use the phrase “the voice of the independent cable industry,” but I really think it’s appropriate. So I want to talk about how that came about and your pathway into the industry and sort of where it all started.
You were originally a journalism guy.
Polka: I was.
Schley: Now you’re president of the American Cable Association. What happened?
Polka: It was a funny long story as you’ve heard it said before. And it wasn’t a radio station in Minnesota a long time ago, not one of those stories. But yes, I was a journalism major. I wrote on some newspapers, actually worked for the national boating newspaper called Soundings. I covered the maritime industry, out of journalism school at West Virginia University. I always had the dream to be a lawyer. So I went back home to Pittsburgh, and I went to Duquesne University’s School of Law and became a lawyer. In that process, I wanted to become a trial lawyer. So I was hired by a firm in Pittsburgh where I sought a spot in the litigation section and they said, “We’d love to have you here in the firm. Unfortunately, our litigation section is full. What else have you done in your background?” I said, “Well, communications. I’m a journalist, I’m a writer.” And I’m thinking, First Amendment law, rights to free speech and all of that and I’m thinking, we’ll be protecting the newspapers, right? They said, “Since you have a communications background, we have a perfect section for you called ‘investment tax.’” I hated tax. But what investment tax was was a section that actually represented cable clients doing mergers, acquisitions, sales transactions back in the late Eighties when there was a lot of activity to build the cable industry.
So I basically became a cable lawyer right then, and then worked in the cable industry for a couple of years in the law firm representing cable clients. In that process I actually went in-house with a small firm a couple of years later called Star Cable Associates, where I became general counsel of that company. I was general counsel of the company for seven years. So I did everything cable-related. That was from 1990-1997 when I was general counsel of the firm.
In 1992, Congress re-regulated the cable industry with the Cable Act, the 1992 Cable Act, where all cable operators came together and basically said, “What happened?” Particularly we as smaller operators of which my company was one—we had about 72,000 subscribers. So we got together actually through the help of Stan Searle and Dean Peterson, two independent operators who sent out letters across the country in early 1993 saying we need to have an emergency national meeting in Kansas City.
Schley: Why emergency? What was the dustup around that...?
Polka: Because there was around a foot-long stack of FCC regulations to impose rate re-regulation on the cable industry with a disproportionate impact on smaller businesses, independent companies that would be disproportionately impacted by this foot-long stack of regulations.
Schley: The 1992 Act was sort of a dark moment for the cable industry at large...
Polka: Very much so.
Schley: Because it had been a somewhat unregulated—the industry had won rate deregulation...
Polka: That was the irony of it. Before, you had municipalities imposing heavy regulation on the distribution of cable. In 1984 Congress lifted that to try to encourage the industry, but before 1984 and 1992 there were horrible stories of service issues and other things like that. So Congress in 1992 decided to re-regulate. And that’s when the law was passed, the regulations were implemented, rate re-regulation was imposed, retransmission consent was created and we as smaller operators basically said, “How do we deal with this? Because we don’t have the staffs, we don’t have the depth, this is really harming our business and our ability to provide service in markets—and re-regulating us in a way that we weren’t responsible for in the first place.” What we realized was we needed to go to that emergency national meeting because we needed to create a voice. So in that hotel, the airport hotel in Kansas City in May of 1993, we created the Small Cable Business Association.
Polka: SCBA. You’ve exactly pointed out why we changed our name and I’ll get into that. But Dave Kinley, who was a small cable operator at the time, became our first chairman and we created a volunteer organization to basically create a voice for independent cable companies in Washington because we realized that our paths, our interests, were different than some larger companies because of the rural nature of where we lived and worked, the fact that we served about twenty homes a mile. We were in smaller markets, rural areas, we weren’t in the urban areas. And we needed to create an independent voice for us at the time.
Schley: Can you drill down and just explain how the economics were different and how rate re-regulation maybe disproportionately affected a smaller operator you just talked about...?
Polka: It all comes back to cost of operation as well as return on investment. And when you look at our smaller markets where you essentially operated with twenty homes per mile, that doesn’t necessarily mean customers, but twenty homes per mile where maybe you serve twelve or fifteen, your entire return on investment is based for that mile of cable, which costs the same in the middle of Kansas as it does in New York City—is based on those fewer subscribers. So now if the government imposes rate re-regulation that suppresses what you can recover in terms of your costs then you’re basically underwater. And that’s basically what we started to say when we as a group came to Washington to say we weren’t the problem, we live and work in the communities we serve, we want to continue to provide this service but you have to give us some help and you have to ease up on the regulations. Basically it took us four years to get there but Congress finally eased up.
Schley: Pre-dating the emergency meeting and the need to find a solution, what happened whereby the smaller independent cable industry found itself sort of not being represented by for instance, the National Cable Television Association. There was a schism there, I guess.
Polka: I wouldn’t say that necessarily as maybe just at the time when you look back to 1990-1991-1992, things were going pretty well in the industry. We had won as an industry rate deregulation. There were threats of re-regulation in 1990-1991 and actually we felt pretty good as an industry at the time that we could weather the storm. It just so happened that in 1992 that circumstances came together that really allowed both Republicans and Democrats in Congress to come together and say, OK, it’s time to implement this law, despite the objections of the cable industry. And as many have said, that law that was passed by Congress was vetoed by the first President Bush, No. 41. It was the only veto of his that was overridden by Congress, so Congress actually overrode a veto to implement the Act and then what happened from there—particularly with the change of administration at the time with the new FCC that came in 1992, was very, very heavily regulatory. So the amount of regulations to be imposed on companies was really over the top. I mean, literally I would go out into our small communities in North Carolina and South Carolina and Mississippi in my job as general counsel and I literally would take the stack of regulations and plop them on the table and say, “Do you want to choose to regulate us by going through all this paper?” And the fact of the matter is our small communities didn’t because we worked with them. Again, we weren’t the problem. But this was what many other operators were facing and why it was so important for us to establish that voice.
So it wasn’t so much that we differ with the larger operators, but we have a different slice of views when it comes to who we are as smaller providers of service, and that’s all we do. Over the years that’s all our members do is provide today voice, video, broadband service. They’re not connected to content companies, they’re not connected to other large organizations, etc. What they do, they live and work in the communities they provide service. Plus we’re smaller so that has a significant difference too, as we look at the content world of things. It does create some different views, but we consider ourselves always pro-cable operator and have always spoken for the pro-cable operator issues, which we continue to do today.
Schley: Just a final piece of the political backdrop, there was an organization called the Community Antenna Television Association or CATA, and you know Steve Effros well. What was its role in the mix? And talk about sort of where the different associations fit including the SCBA at the time.
Polka: Yes, and ironically—and Steve will tell you this—CATA was formed pretty much for the same reason as we were: to be a voice more for the independent companies or for smaller companies. It was largely focused on regulatory issues as opposed to political but it would get involved in Capitol Hill as well. But what happened was a situation that happens a lot, I think, from my perspective as I look back, within CATA which is where larger companies become members, they get involved in the organization, and then as we were establishing ourselves, I think larger companies just basically said, we have two voices through NCTA and CATA and we really only need one.
So that led to CATA moving on but we continued to remain as an independent voice, but it’s something that actually as a student of history as we like to think of ourselves, we learn from lessons like that where today, regardless of how big or small your company is within our association, we have a very bedrock tenet—which is, one company, one vote. So our largest member to our smallest member—when it comes to our member votes, our board votes, etc.—one company, one vote. We do try to make sure that every voice is heard and we fully represent the interests of all our members.
Schley: So now, post-emergency meeting—it’s interesting from my view of your career, you’ve been general counsel for Star Cable, now you’re thrust into this role or anointed into this role that—you’re in the political environment suddenly and dealing with D.C. and the Beltway and all the regulatory agencies that flowed from the 1992 Act.
Polka: Washington is fascinating. I love working there. It’s dysfunctional and it’s gotten more dysfunctional as time has gone on but it is truly a fascinating place to work in this industry as well as just as a citizen—to see it work. It’s not perfect but it’s still the best system out there. But yes, we had to get involved. We were a volunteer organization. We had nothing, we had no infrastructure. Basically we had fax machines where we would have literally state fax trees, phone trees, where to get the message out, a state captain would fax another member who would fax another member and we’d make calls and send faxes and we would send letters—when you could send them at that time and actually get them in to members of Congress. We had to establish a voice and that was what was really was so important for us at the time in those early years and it took us a number of years, really, to do that.
Schley: What were some of the wins or how did you ease the impact of that 1992 Act? What were some of the things you were able to achieve?
Polka: Two in particular. We fought very hard at the FCC on the implementation of the rate regulations and in 1994, the FCC implemented its Small System Order, which basically provided rate relief for smaller companies. Which then, in 1996, Congress emphasized again, as part of the Telecommunications Act where they deregulated companies that had less than 1% of all cable subscribers across the country. So that virtually covered all of our member companies at the time. That was really important because again, the 1996 Act, even though it doesn’t mention the word “Internet” all that often, the idea was there’s a brave new world back in 1996 just as we’re encountering today in 2014. We need to be open to investment in smaller markets and realize that we can’t regulate small companies the same way we regulate maybe larger companies. So that was an important win for us to establish two important changes to the 1992 Act and the 1993 regulations following up with the 1994 Small System Order and the 1996 Act, which actually really, really helped to take off some of the pressure on smaller business to encourage investment and that led to quite a boom in terms of further growth within the independent cable sector to where many of our providers are still around today because of that encouragement back then...
Schley: They are and the flip side is, had you not worked with the FCC, I guess, to allow some permissiveness on rates for smaller systems, what would have happened to those companies?
Polka: It would have been, I think, disastrous because you simply have to face a situation where the small company with a small staff—certainly not a legal staff, not a deep technical staff—would not be able to sort through the regulations. The return on investment and the cost of providing the service, would outweigh the return. So what you would have had would have been just a slow trickle of companies closing and fortunately that didn’t happen. We think it’s directly as a result of those changes in regulation which again, encouraged investment, really laid the groundwork for what today is a broadband business that our members enjoy and our customers enjoy, and really set the stage for the future.
Schley: From the viewpoint of history, Matt, I think the other thing is that you have this threat of severe rate crimping going on from Congress and the FCC and that was around the time when the satellite television business was beginning to percolate...
Polka: Back then, it was a real concern. In fact, I used to go into it, as a volunteer lobbyist, and then once I was hired by the organization in 1997, I would go into some offices and some of the members of Congress that were promoting competition, you’d literally walk into their office and on their desk or beside their desk was a big satellite dish.
Polka: So you kind of knew where they stood from a standpoint of competition. That of course frightened us as an industry because we had never really had that competition before. But you know, you’ve always heard the phrase, “Competition makes you better.” It really did and it really helped our members to learn the value of their local connection. You might have an offer from a satellite company to maybe give you lower service but on the other hand, when you’re seeing your customers at the grocery store, in church, down the block, it makes a real difference. So it really helped our members to understand—they always understood it anyway but the importance underlying their localism, their local connection, the fact that they live and work in the community and are customers very, very loyal to them. But it did really make us think about having this competitor out there and you mentioned the satellite company—hence, the name and why we switched it and I have to come back to that.
Schley: They were...
Polka: They were the Satellite Business and Communications Association: SBCA. We were the Small Cable Business Association: SCBA. So we kept getting confused with them all the time. Even in FCC Orders, in implementation. So we decided in 1999, we said, forget it, we’ve got to end this confusion. So we changed the name and we said, what are we going to do? Well, we thought a couple of things. We thought, first off, most organizations have four names, four letters in their acronym. We said, let’s make it three. So we’ll change ourselves there. And we said, I’m a big baseball fan so American League, National League, you have the NCTA, we became the American Cable Association. The other benefit we thought was, for a small organization trying to get known, it’s not bad to be at the top of the alphabet so that’s where we ended up.
Schley: It’s the old Yellow Pages thing.
Polka: And after that, the FCC was very happy. I got a note from one of their bureau chiefs saying, “Our ability to proofread has increased dramatically. So you’ve changed a lot of errors here...”
Schley: It’s a much better name...
I want to go back for one more question. When you were doing the flurry of faxes and the fax tree and you’re scrambling to almost preserve the solvency of this category of the cable industry. What was fun about that? What was enjoyable for you?
Polka: It was just so exciting. We felt like and still do that you can make a difference. Your voice can be heard. And that was really the essence of why we started the organization from scratch because the voice didn’t exist but a voice needed to be created. And we realized that despite the fact that we don’t know Washington, we’re not experts, that the people that go there work for us. We send them there. We are important community citizens where we have a right to make our voice and our issues known, to work with members of a key committee. So I think it was that realization that even though you may not be large, sophisticated, deep, have tons of money, that you can, through hard work, through commitment and through desire, really change things.
Schley: So legislators, policymakers and their aides returned your calls? I mean, doors began to open?
Polka: Over time, yes. And it was a lot of tenacity. We were sort of breaking some eggs at the time because we had to get noticed in our issues because it’s still the case that big interests—and there’s so many in Washington—they have big voices and it’s hard to make sure your voice gets heard. But I always consider a compliment one of the things that was said to one of our founders. A lady by the name of Lynn Simpson, who was one of our founders and one of our first employees with the organization. She spent a lot of time in Washington and you know back in those early years, we were sort of the crazy uncle from left field, coming out of left field with these different views that made people a little bit nervous. And Lynn told us one time—and I will never forget what she said and we still have it up on the wall—that one day one of the big interests that we were competing with said to Lynn, “You know, you guys may be small, but you’re very annoying.” And we thought, that’s exactly right.
Schley: High praise.
Polka: We’re making headway and we are getting ourselves heard. Over time that’s what we’ve tried to do. Not in an annoying way but in a very credible deep sensitive way to help lawmakers understand that there are important reasons for them to care about smaller markets, rural areas, competitive areas and that we matter to the whole communications landscape. We’ve achieved that.
Schley: It’s interesting just in talking to you for twenty minutes or so, how the localism theme really was an asset for your community of members but for the association itself.
Polka: It makes a big difference and it still does today. Because again, the primary nature of who our members are, as small businesses, as family businesses. We have people on our board whose companies literally helped to create the cable industry in their various states. Martin Brophy, who’s now with Service Electric, his company, Shen-Heights TV, his dad was one of the founders of cable in eastern Pennsylvania as well as others from eastern Pennsylvania. But we have members from Kentucky and Oregon and other states that were leading the creation of the industry. So yes, it’s a different voice of people that are willing to commit their livelihood to providing service to their customers in the communities they serve. And it does make a difference, it really, really does to have that local connection.
Schley: Take us then to 1994 up to the passage of the 1996 Telecommunications Act rewrite. What was going on then and I know we’re going to talk about retransmission consent a lot in this conversation, but what were some of the issues you’ve then sort of segued into working on?
Polka: One of the first things we thought about in that segment between 1994 and really 1996-1997 first as an association is this work takes full-time commitment. We can't do this on a volunteer basis. So the organization—and I was very privileged to serve on the board at the time—said, we’ve got to hire someone, we’ve got to create staff. We’ve got to have people thinking about this work day in and day out, 24/7. We looked in Washington and again, it’s a very costly city. And as a small organization with very little to do from a standpoint of funding and compensation, it was difficult. So ultimately the board came around and said, well, Matt’s a lawyer, he’s been in the cable industry, he’s been in Washington for us for the last four years, why don’t we see if Matt would be willing to do it? I was, but really on one condition. I had little kids and I didn’t want to move to Washington. So I said, Washington is close enough so whether I drive or fly, I can get there and actually it will be cheaper for me to work in Pittsburgh. Which is still the case, by the way, for our home office to be based there. Plus the idea of being based outside the Beltway really has benefited us in more ways than we could ever imagine because we’re not perceived to be inside even though we have staff members that work there. So we had to professionalize and that’s what we did in 1997. I was hired and the lady that I worked with as my paralegal came on sort of halftime. So 1.5 people were hired at the beginning.
But then we really started to look at the issues going forward. We said, “We’ve got to be serious about what’s happening. And really, our first effort was focused on rate deregulation, again going back to our original principle because there were a lot of still legacy regulations that we needed to find ways to either provide waivers or exemptions or some relief for smaller companies. Then we really started to dig in on what were the content issues. Through merger reviews at the FCC that were taking place back then and when Cap Cities, Disney, ABC came together and other mergers during that time where we saw the beginning of combination of greater content interest to create more leverage. And at the same time we saw through that consolidation tying and bundling through retransmission consent. Where again, regulations were set up for a particular reason for cable operators and local general managers of stations to negotiate. Now those negotiations were being co-opted by the larger owners of content who said, hey, we control these stations. Why don’t we tie our programming to it as well?
So really the nature of the big bundle that we face as consumers today, increasing bundle, had many of its roots back in the early retransmission consent days.
Schley: Can you explain that in a sort of granular way, Matt? The relationship between a local TV broadcast station and the ability of a cable company to carry and distribute that signal really had vast implications for the national network cable programming scene...
Polka: Sure did, and in the second round of retransmission consent in 1996, that’s where the networks really saw the connection because ESPN2 was a retrans channel. FX was a retrans channel...
Schley: In other words, one condition of you getting to carry that local signal was, oh, I have a network I want you to put on your system...
Polka: In 1993, the first round of retransmission consent, it literally was a guy like me representing a small company, talking with local general manager, working out trade deals, advertising deals, bill stuffers, lots of things that provided more information in the community. And promoted the station. But by 1996, things started to change and we saw those deals start to happen. So after that, the era of bundling affiliated programming really became significant and now when you look at many of the channels that are still on today, they have their roots in retransmission consent and negotiations...
Schley: I always thought it was one of the great examples of an unintended consequence. Is that fair?
Polka: Absolutely. Without question. And from a consumer perspective today when they look at what they watch and particularly now that we’re in a marketplace that is based on greater choice, where consumers say, hey, I’ve got the ability with my iPad or with my laptop to watch what I want when I want it, why does that not apply to TV where I have to have everything whether I want it or not? And I get these big bundles that I may not like. So it’s really put a light to shine on the problem of the bundling which really had many of its roots going back to these early days of retransmission consent negotiations.
Schley: So you and your members could start to feel pressure on the programming side, even in 1997-1998.
Polka: Yes, without question. Because as smaller operators, again, we’re negotiating with large entities and it’s a question of leverage and scale and size. It’s so ironic when we hear today in our marketplace where a company like Comcast says, it needs to have more scale to compete. Good heavens! I’d love to have a tenth of that scale. We never had that and that’s the situation we find ourselves in. Consequently, we pay pretty much as much as you’re allowed to pay or that a programmer is willing basically to charge us and that’s it.
Schley: What as an organization could you guys do about it? How could you influence if at all that dynamic?
Polka: We couldn’t do a lot. That’s still the case, because again of entrenched interests where there’s lots of money involved. But we could be a voice. One of the things that we have said about ourselves as we look back at our history and as we look at our present. We oftentimes consider ourselves the canary in the coal mine where because of our independence, we can speak freely to issues that ever are occurring today, or we see happening in the future. Because we’re not connected to other content interests or other business interests through large combinations, we can speak freely to those issues to say this is a problem today that needs to be addressed and this is a problem of tomorrow. A good example is what today is occurring in the realm of retransmission consent and in the realm of reform of retransmission consent. I mean, we’ve been fighting this issue to try to bring fairness to these negotiations for more than a decade. Loudly. I mean, as a voice for this and for the first time ever, in 2014, you have the House that’s passed a bill that has included some retransmission consent reform. The Senate Commerce Committee just did last week. The FCC has already done so earlier this year and you have the prospects in 2015 of the beginning of an entirely new Communications Act update to get rid of these old laws and regulations, to change things for the betterment of consumers.
So we think it’s important to be that strong voice so we’re working on continuing to change outdated regulations while at the same time, we’re looking ahead to the world of online programming. Our members are broadband providers. Consumers love to use that service to get choice whether through Netflix, Amazon, Hulu, you name it. They also want more choice with us as well as their video provider and we want to give them more choice. So for instance, in the Net Neutrality debate today, and how Chairman Wheeler is looking at imposing regulations on Internet service providers to prevent blocking and discrimination. We’re saying the same thing ought to apply on the other end of the pipe; that someone that owns content shouldn’t be able to target ISP addresses to say some people can receive our content but others can't, particularly as a result of a programming dispute on cable.
So we’re already the canary in the coal mine again looking ahead on these issues saying, there are issues that need to be addressed, Congress has a role, the FCC has a role. The industry needs to be aware of these things and we’re going to fight for change.
Schley: You know, I had the privilege of doing some interviews at the Independent Show this summer with some of your members and I completely agree. There was a discussion about creative approaches to the business going forward that you really hear from your community not so much necessarily yet from the big cable companies.
Polka: It’s true. That one thing about our members that I have always said—I mean, I'm so proud of them. Contrary to what you said at the beginning as sort of the voice of the small cable operator, I'm privileged to work for them. They truly are inspirational and it’s a privilege for me to make sure their voice is heard. It’s their voice that I want to be heard, not mine. And I'm hopefully just a conduit to their voices. The thing that’s interesting, as small companies, they don’t have the levels of management, hierarchy, decision making where they can figure things out. I mean, a guy like Bill Bower at Windbreak Cable with a couple of hundred subscribers was on the leading edge of the development of broadband in rural Nebraska before some of the big companies were. We have dozens of examples like that across the country where smaller cable operators were making things work before the bigger companies were getting to it because they’re smart, they’re nimble, they are fast and they know how to get things done and they know how to deal with challenges because if you live and work in a small market, you’ve got to figure it out. You’ve got lots of challenges.
Schley: Broadband. So talk about that time in the development of the independent cable sector. You had some video pressure and some economic pressure and you could see maybe clouds forming on the horizon around where content was going. But we started to have this new business opportunity emerge around the Internet and high-speed delivery of the Internet. How did that affect or change the game for smaller independent cable companies?
Polka: It’s really become transformative. We look at ourselves today and I'm sure every operator does, but we look at ourselves today primarily as broadband providers. Because we see that’s what our customers want to consume more of. They want to use it for lots of different reasons, not only for video but now we hear this term the “Internet of Things.” Where homes are connected. I mean, your refrigerator is connected, your microwave is connected, your coffeemaker is connected so you can send a little thing from an app on your smartphone to say, “Start the coffeemaker.” You know, that sort of thing. Everything’s connected but that’s all through the broadband pipe and the broadband service we provide. And that’s on the residential front. Look at the business side of things, too, which is enormous in terms of growth and potential because businesses in small markets in rural areas want to be connected at the same speed and capacity as New York, Chicago, Los Angeles, and with the world. And we provide that.
So it really is transformative. As we see today the way the video portion of our business is changing, we as a broadband provider are going to be able to provide consumers those choices. Whether it’s continue linear video, but we see also the introduction of new competitors to the market. Here again, we’re sort of back to the days when we were the cable industry and now the satellite came in to compete. Well now you have announced at least new over-the-top providers that want to provide a virtual cable system over broadband. That’s a competitor to the cable service we provide but they also need a broadband pipe to deliver it. And we’re the pipe. So we see our members even more intricately involved in the lives of their communities, with their businesses, with their residential customers because every one of those customers is going to want to use our broadband pipe to meet their needs, whether it’s for entertainment or whether it’s for business.
Schley: Clearly from an economic standpoint I think—I don’t want to characterize broadband as the savior of the independent cable category—but it had a huge effect just on the ability to generate return on investment...
Polka: It’s a very good business. That’s why we’re very, very concerned about imposition of Net Neutrality regulations. In many ways where we are in 2014, speaking about Net Neutrality is similar to where we were in 1992 speaking about the re-regulation of the cable industry because we have a burgeoning industry that consumers like, whether business or residential. They want more of it. We have to provide that to them. We have to build and pay for the infrastructure to give them more of the speed and capacity that they want. But we also have to get a return on investment, particularly if Congress and the FCC want us to do more of it, right? So if you have heavy-handed regulation of the Internet, broadband service of Internet service providers, that’s going to affect the ability of smaller companies particularly to provide those services and to be able to try to meet the demand going forward. So we’re very concerned about imposition of regulation on the ISP—Internet Service Provider—but we also are a leading voice again on the content side of things. Because we fear that one of the things that could happen as our industry changes and as content companies look to continue to monetize their content, is we fear what we call the “cable-ization” of the Internet. By that what I mean, we take the wholesale programming model where content companies today come to us as cable operators and say, you will pay us a per subscriber fee per month to be able to receive our content on cable, basically doing the same thing on broadband. To give your customers, to allow them to have access to our content online, you will pay us a fee for every one of those consumers, whether they go to our websites or not.
Today actually consumers pretty much can go anywhere they want on the Internet and consume whatever lawful content they want. They may have to pay for it but it’s their choice. We’re not the middleman in that transaction. The cable-ization of the Internet would create that wholesale middleman status and would impose that content cost on the delivery of broadband and frankly, I think, have a dramatic impact on what we can deliver. It certainly would be a significantly higher price. We would see the same kinds of problems repeated on the broadband side that we’ve seen on the cable side with tying, bundling, increasing price increases, things of that nature. So we’re the canary in the coal mine on that issue as well.
Schley: You mentioned this earlier but I thought it was interesting that you guys have made very vocal use of social media at the American Cable Association. I think you were the first organization I ever heard of to twin this notion of certain content providers, only certain classes of customers can get their content over the Internet. I thought to make the parallel between that and what’s gone on historically on the video side is really interesting.
Polka: We have pointed it out. We think it’s unfair. When you look at a situation earlier this year where fifty or sixty of our members took a stand. They said, “We are not going to renew our big Viacom bundled contract because it costs too much, our consumers tell us they don’t want it and it’s not really compelling programming.” So fifty or sixty of our members representing about a million subscribers did not renew their contract. In retaliation what Viacom did was specifically target the ISP addresses of those companies’ broadband subscribers and block them from receiving the freely available content that Viacom would put online to everybody.
Polka: And basically said, your cable operator did this to you. Which was not the truth because the cable operator didn’t target the ISP and block it. Someone on the content side did that basically to create pressure to say, sign our big bundle deal and we’ll give you access. We think that’s unfair. That’s not right, particularly because the content itself was made freely available over the Internet. Now if Viacom wanted to charge, they’d charge anybody for it.
Schley: Directly to the consumer.
Polka: They wanted to charge the consumer directly, but they didn’t do that. They make it freely available, but then they block it because you didn’t redo a deal. We think that’s not right. We think that’s the same violation of Net Neutrality that would occur if the cable operator said, to get back at Viacom, we’re going to block our broadband subscribers from receiving it. Same thing. So we think Net Neutrality needs to apply fairly on both sides of the pipe in that regard.
Schley: That issue, Matt, and others you’ve dealt with, it’s complicated and it’s hard for legislators, it’s hard for policymakers to understand. Is there appreciation of these business relationships today in your view and have you helped to sort of foster that?
Polka: A lot of time when we have—and you’re right: it is complicated. Very, very difficult when you get into the nuances of the regulations and how they apply. What we oftentimes do is say, “Think of yourself as a consumer.” Because everybody we meet with in Washington—whether they’re a staff person, chief of staff, member of Congress or senator—they all have a subscription. Usually. Most of them do. They all know what it’s like as a consumer. So we say, “Think of yourself as a consumer. If you were trying to get access to something where it was blocked or denied. Or your local station was blacked out in a retransmission consent dispute where you couldn’t get access to the shows you like to watch or the games you like to watch. Think of those situations. Now let us explain why that happens and how the rules that were created by Congress and the FCC actually impact that.” It really helps in terms of creating a base of understanding to move reform efforts forward.
Schley: What is sort of the numbers on the American Cable Association in terms of members and the customers they serve today?
Polka: We have about 850 member companies. We’re in all fifty states, we’re in many territories—Puerto Rico, Guam, down in the Caribbean islands—a few places like that. We serve about 7.5 million video subscribers but interestingly, our number of broadband subscribers are increasing, either matching or—I think we’re at a point where our broadband subscribers are even greater than our video subscribers. And that’s a trend that’s happening for all ISPs and cable operators where broadband subscribers are now higher in terms of numbers than cable subscribers. As we see evidence of cord cutting, cord shaving, consumer demand toward more content choices online. So we still represent a small but very vocal group. It doesn’t seem like a lot in terms of numbers of subscribers, but it covers an enormous amount of land when you look at the country and how we have about 4,000 headends from our members that serve these 7.5 million subscribers. I mean, scattered literally across states, hundreds of miles apart, with technicians and other service people roaming states to provide service to their customers. So it covers a lot of land even though it’s not that big in terms of subscribers when you think of Comcast or AT&T or others.
Schley: I mean in wired cable subscribers, what are there? 60 million in the United States today?
Polka: Yes, about 60.
Schley: Over 10%...
Polka: We’re about 10%.
Schley: You’re bigger than you were when you started, too.
Polka: That’s exactly right.
Schley: Who’s your biggest company, how big are they and how small do you go?
Polka: Our largest company is Mediacom. They have about a million subscribers. We have hundreds that have literally hundreds of subscribers. The median size of our member companies is 1,500. And then when you look at the breakdown of our 850 members, about 20% of our members are larger members that are sort of 10,000-15,000 and up. But we have 80% of our members that are 5,000 and below. So it is a very, very small segment of the independent cable sector that is still very vibrant. I mean, I always get that question. Will small operators survive? Aren’t you guys sort of being bought up by the big companies? And the answer to that is no. In fact the big companies can’t wait to leave our areas because they don’t find them economically interesting or compelling to stay. So oftentimes our members have made businesses out of the systems that the larger companies wanted to sell in these smaller markets and less densely populated areas.
Schley: I think in many cases, unless I'm mistaken, correct me; many of the smaller companies remain family owned?
Polka: Very much so.
Schley: Do the founding families still control these companies?
Polka: It happens a lot. We see it on our board of directors and through our membership and with you being at the Independent Show, you had a good example of that cross-section of members. These are people that love their communities and love what they do and are sticking to it. And it’s generational where we see other generations coming into the business and taking over from the founders and now we’re in some cases on to the third and even the fourth generation of people taking over the business.
Schley: What’s the relationship between the NCTC [National Cable Television Cooperative] and ACA? How does that interplay work?
Polka: We’re strong partners representing independent cable companies. And over time, both of our organizations, when you look back at our history—and we just celebrated that with NCTC’s 30th anniversary at our Independent Show—we realize that we were created to meet a need specifically for the independent cable sector, whether it’s ACA from a political, regulatory, legal—providing a voice for the independent operator. Or NCTC. From a business perspective, realizing that there is strength through numbers. When we come together we can negotiate better deals, better pricing, better economics for smaller providers. What we realized over time as we first were founded and then started to work more closely together, we realized we were representing the same constituency as independent cable operators. NCTC was very helpful to ACA in our early years, helped to get us off the ground. And what we realized over time was that anything you do on a political level has a business component and vice-versa. So we realized that our fates and our futures were entwined even more significantly. In the year 2000, we created what still works today what we call a strategic membership alliance. ACA and NCTC are two separate organizations. We’re a Pennsylvania nonprofit membership corporation, they’re a Kansas cooperative corporation, but we created a strategic membership alliance where basically anybody that’s a member of NCTC can become a member of ACA simply by checking the box on the invoice that they receive from NCTC every month regarding our ACA dues line item.
So we have to earn the trust of our members every month. It’s not automatic. Members can opt out and there are a couple that do but the vast majority of members have continued to serve and support ACA and we’re very, very pleased for their help and support.
Schley: I was sort of captivated by the aside you threw out earlier about one vote per member. I'm just curious. Was that controversial or how did that sort of percolate early on?
Polka: At the time early on—and I give so much credit to guys like Stan Searle and Dean Peterson and Dave Kinley and Norman Mills, who’s since passed on but from Montana, a terrific, terrific member, and Lynn Simpson—who came together and really were mindful of history in the industry. And they realized that we have to have fairness among our membership regardless of size, and we can’t allow one voice just because they happen to be bigger to carry more weight than a smaller voice. We have to try to represent all of the members. So they made it very clear in our bylaws and in our foundation right then to say, one company, one vote. And that’s what we continue to do today and we’ve not moved from the one bed and I think it’s made us a stronger association.
Schley: Matt, maybe drafting off the recent Independent Show in Kansas City, what are some of the sort of cornerstone directional or trend lines that you see your operators beginning to carry out at a very local business level? What are some of the important things?
Polka: Mostly focused on broadband, trying to figure out where the industry’s going. I mean, we’re all trying to figure this out. We’re all trying to see who are the players, what our role will be as providers. Some have projected that we will become essentially what amounts to a broadband utility where we just simply send bits down and charge for bits. That’s a possibility. We may be more active as an over-the-top provider. We may be continuing to be active as a linear cable provider, phone provider. But it still ultimately comes down to service. Our members routinely survey their customers but as I said before, they see them everywhere they go. They’re taking to them all the time. And they know just as they are consumers of service, that so are we. Here I am, a guy who’s in my middle fifties, but I subscribe to Netflix, Amazon, Hulu—I do all of it just like anybody else, and I want more of that as well. I am I think pretty typical. Certainly not like the young kids who can do so much more but I'm pretty typical of wanting more of that choice and so what our members are focusing on, even though there’s so many uncertainties in the business, is how can we meet the needs of our customers, to give them what they want. There’s been a whole debate in our industry about should consumers have choice, and that leads to the word “a la carte.” Which for many has been a bad word for many, many years. We don’t think of it that way. We think that giving consumers what they want can't be a bad thing because if you are meeting the needs of the consumer, then that’s going to be a good business. It has to be a good business because you're connected to the consumer in ways that they want to be connected, giving them what they want.
So while we acknowledge there are lots of issues to the implementation of issues like a la carte that I believe someday will become either something we accept as businesses if not imposed on us by Washington. We don’t see it as a bad thing. So the more we start thinking progressively about our future, being willing and open to embrace those kinds of concepts, the better off we’ll be, because at the end of the day we’ll be giving our consumers more of what they want.
Schley: It was interesting to hear companies like Wave Broadband openly talk about the possibility of maybe not delivering a bundled video product in the traditional manner going forward. I'm struck by the thought that if that were to happen, or if a similarly sort of seismic change in the way services are rendered by the smaller cable community comes to pass, do you think it will ultimately influence the way the cable industry at large perhaps behaves? Is it sort of an incubation crucible if you will for change in some respects?
Polka: Completely. We’re seeing it today as our consumers migrate toward more of using their cell phones, their smartphones, their iPads, their laptops, on airplanes, hotels, wherever—using the device to see what they want when they want it. So yes, it is a crucible of what is developing and to me, it comes back to our members having the broadband pipe and the broadband service that our customers want, and enabling them to have the choices and the opportunities that they want. To provide the services, whether cable, phone, broadband, online video, over-the-top, and to be part of that transaction.
Schley: But I like your canary in the coal mine analogy. I think the other differentiating element is obviously this agility and nimbleness that smaller companies, less layered companies... bring to bear.
Polka: A good example you mentioned is Steve Weed of Wave Broadband. He was one of our former chairmen; we actually have three in Wave Broadband with Steve Weed and Steve Friedman and Patrick Norrell, all former chairmen of our organization. So very, very forward thinking, looking ahead, challenging our members and really causing our members at the Independent Show and elsewhere to think about, hey, I could survive, I can get through this. It’s not what I expected because when I got into this business I was a cable business and then I saw broadband and phone, etc., and now I've added those on. But now I can see truly the migration toward broadband as the central service we provide with everything springing up and I can survive as long as I'm willing to step boldly into that future.
Schley: There’s been a lot of effort made, Matt, at the federal government level—NTIA [National Telecommunications and Information Administration] and I think, the FCC, to understand where broadband is available in this country and to map it out. Nobody sort of knows exactly, but you take your best shot at it. But in some communities, are your members the sole conduit to the Internet...?
Polka: Absolutely, and that’s why it’s so critical when we look at the impact of regulation. If the impact of regulation is disproportionate again, often it’s cost and it’s a technology issue. You have to be able—it’s a return on investment issue—you have to be able to get a return on your investment to survive. And if the impact of regulation—for instance, we heard Chairman Wheeler talk about imposing Title II rate regulation, service regulation, etc.—it literally could be the difference between being able to provide a service or not. Because if you can’t pay for the providing the infrastructure, then you can’t make a go of it. So I mean it really is critical and in many of our communities, it that wired line broadband service is eliminated, it won’t be replaced. And that’s why we come back to oftentimes fundamental tenets of our advocacy, which is that companies like our members that serve in our markets matter. They matter to national policymakers. National policymakers say we have to have the same level of service in small markets and rural areas as we have in any major city. Well, our members are going to be the ones that provide it.
If you make it too difficult by the imposition of laws and regulations where they can’t provide it, then you’ve defeated the purpose of getting more service out there in the first place.
Schley: I think it’s a powerful statement: that that infrastructure likely would not be replaced.
Polka: It is a very real possibility. We are very concerned about Net Neutrality regulation, the imposition of regulation. It is very akin to what to what we saw back in 1992. If there were heavy-handed regulations imposed—much akin to 1992 and 1993—we would increase our voice, we would re-double our efforts and seek over time to try to win relief from those regulations. We are also very concerned—we don’t want to see them to begin with and would rather not see them imposed rather than having to fight to get relief from them.
Schley: I think I had a question percolating in my mind about what scares you about the possible outcome of Net Neutrality and I guess a Title II reversion would be right at the top of the list.
Polka: Very similar. It was a very scary time as a smaller operator in a small company in small markets where we were looking at the economics of providing continued cable service at the time. Again for the cable industry in 1992; we see the same thing here. Particularly at a time when with broadband there is an explosion about to occur of service, availability, of options, of being part of that, of giving consumers what they want. The last thing we want to do is dial that back and not provide consumers the speed or the capacity they want or even leave the market. That’s the last thing we want to do.
Schley: You don’t see Amazon, Hulu, and Netflix at all as the enemies necessarily of your constituency’s business.
Polka: We don’t. I don’t. I think again it forces us to be smarter about our business. It forces us to realize it’s not the same cable/phone/broadband business that we were in just a couple years ago. The pace of change and competition is changing much faster than it did before and we just have to be ready for it. But at the same time, all of those names that you mentioned require a connection, require a broadband connection. The best connection that’s out there is the one that our members are going to provide so we feel as if we’re part of that transaction to help to give consumers more of what we want. So obviously our businesses are evolving—the nature of our business as well as the regulation that affects it. As long as we embrace it and are willing to consider change and realize that we’re part of that important level of service to consumers, we feel like we’ll be successful going forward for many, many years.
Schley: Hopefully you’ll still be doing this in ten years and maybe we can reconvene. But whether it’s you or a successor, where do you see the American Cable Association? Do you still see it continuing on in the next decade, and maybe what would we be talking about ten years from now?
Polka: I do, I absolutely do. I had that question asked of me recently: where do you see the organization in five years? And I basically said, “I have a hard time seeing five days ahead let alone five years because we find ourselves involved on so many issues on our members’ behalf. We want to be in the mix because of again the importance of who our members are, the service that they provide and making sure that voice is heard. Making their voice heard.
So we feel as if the issues aren’t going to go away. They will change, they will be more broadband-centric. We’ll see much more Internet regulation issues. We’re dealing today with broadband subsidies in the marketplace similar to what we’ve seen with universal service so there are always those issues and fairness of providing funds where a broadband provider exists. There are always fairness issues there. So we see ourselves as involved as ever going forward because I don’t see the nature of the small company going away. Again, it comes back to who we are in our marketplaces, where we serve, the services our customers want, our ability to provide it to them and making that connection. And that’s something I think has survived for already 50-60-70 years and we see it surviving long into the future. As I've said oftentimes, the demise of smaller independent cable operators is largely exaggerated.
Schley: I want to close with a small question and perhaps a parochial one but I'm interested in it, and a big question. So the small is, I was surprised when earlier this year, late last year, President Obama’s Commission on Technology in Schools came out with sort of a dour report about broadband availability in public schools. Because, honestly, I had thought the cable industry and others had done a pretty good job of supplying connectivity. Do you have a perspective on that or a thought from the independent managers...?
Polka: My sense anecdotally is that’s not the case. To get back to your question before about how do you demonstrate on a map where broadband exists. It’s not an easy thing to do. Our members anecdotally tell us they’re very, very involved in providing services. In fact, it’s usually a condition of their franchising agreement. But they want to provide it. They want to be that connection. I mean, I have examples today where I think of companies like Chantelle in Virginia and West Virginia providing computers and iPads connected to their Chantelle service. Cable One just did something recently as well in a middle school in one of their marketplaces. Where our members are connected with their schools and being really the facilitator of more broadband service for their local schools. So I tend to think that may have been a question about what information may have been available at the time. We certainly don’t see it. It’s something I know is very, very important to our members and they definitely are part of the solution. They’re not part of the problem.
Schley: I guess the final question is in talking to you, you seem to have a genuine more than fondness—passion for this community, I guess. Maybe just invite you to talk a little about what drives that and what is inspiring about the work that you do.
Polka: As I said, I never expected to be doing what I'm doing. I mean, it literally was one door closing and another opened at the time. In 1997, when I was hired as president of the organization, I said to our board, “What do I know about running an association? I have no training in running an association. I know the cable industry, I know the independent cable industry and I can assure you that I will be focused on those principles.” So basically what has driven me is our continuing desire to be better for our members. I made a point in talking to our board way back when, to say, “If you're looking for overnight change, forget it. It’s not going to happen, plus it’s not the way you want to work in Washington because things are very fleeting. You have to plant roots, you have to commit to being part of that process and staying there and making a difference.” So I was committing to the board as now for a long slow climb-out of continuing success and commitment. That we will continue to grow. We will continue to do better what we do and what really has guided me through all of these years of not having any association training is when it comes down to a question of what to do. I always come back to the questions: what is the right thing for the members? What is the right thing for the members, what’s the right thing for the association? What is the right thing to do? And that has guided us through some storms, some difficulties through good times as well as bad over the years. It takes a long time to get stuff done in Washington and there are many years where you're more disappointed than you are pleased with what Washington does. But I’m very, very thankful that our board and our members have committed to that long-term view of Washington and then just seeing our members, seeing what they do day in and day out. That’s why I want you to get their story. They are the ones who do it day in and day out. I just repeat what they tell me about their communities. And they truly are—and I've used this word inspirational—they’re small businesses that matter. I know that they look at us and they are very, very pleased with the service we provide. They’re happy we’re in Washington and they don’t have to be in Washington all the time, although they always do a great job when they come to Washington. But they just have made such a difference in their communities. And when I see it, when I see them, I just want to be more successful for them each and every day.
Schley: We enjoy talking to your members. I've enjoyed this conversation a great deal because you have a perspective I think is unique in this industry. And really, thank you, Matt, for sharing...
Polka: It’s an honor to be here. Thank you so much.
Schley: ...with me and on behalf of the cable Center’s Oral History Series.
END OF INTERVIEW