United Video Satellite Group

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United Video Satellite Group

7140 S. Lewis Ave.
Tulsa, Oklahoma 74136-5422
U.S.A.
(918) 488-4000
Fax: (918) 488-4979
Web site: http://www.uvsg.com

Wholly Owned Subsidiary of Tele-Communications, Inc.
Incorporated: 1965
Employees: 1,100
Sales: $437.17 million (1996)
Stock Exchanges: NASDAQ
SICs: 4841 Cable & Other Pay Television Services

Look up in the sky—or on your television, your web browser, or your company’s intranet—and there is a good chance one of the affiliate companies of United Video Satellite Group will be there. United Video oversees a diversified group providing information and communication services to cable television systems, home satellite dishes, radio networks, data communications networks, and private business and government agencies. United Video’s Prevue Networks provides onscreen cable program guides, including the Prevue Channel, pay-per-view’s Sneak Prevue, Prevue Interactive, and Prevue International, to more than 70 million cable subscribers in 18 countries. Superstar Satellite Entertainment—which merged in 1996 with parent company TCI’s Liberty Media Netlink arm—provides programming services to some 40 percent of the domestic C-band (large) satellite dish market; Superstar also provides software and marketing services to Hughes Corp.’s DirecTV subscribers. In late 1996, however, the company announced its intention to sell its Superstar affiliate. UVTV, the oldest company in the United Video group, is a domestic and international marketer, distributor, and deliverer of television networks, including WPIX in New York, KTLA in Los Angeles, and CBS, NBC, ABC, PBS, and affiliated stations.

United Video’s 70 percent ownership of SSDS adds that company’s expertise in designing, building, and maintaining information infrastructure services, such as corporate networks, intranets, and web sites, with an emphasis on electronic commerce capabilities. SSDS clients include Federal Express, Fleet Financial Services, Capital One, Time Warner, TCI, and government agencies, including organizations within the Department of Defense, and the Department of Veteran Affairs. SpaceCom Systems is United Video’s satellite transmission technology and services arm providing satellite services to paging companies, financial data networks, radio networks, weather information services, and private business networks.

United Video is a separately traded public subsidiary of Tele-Communications, Inc. (TCI). The two companies merged in 1996 with a trade of stock; TCI owns approximately 36 percent of United Video, but controls 83 percent of United Video’s voting stock. Long-time company leaders Lawrence Flinn and Roy L. Bliss both left United Video in late 1996. Revenues for that year were $437 million, representing a 66 percent increase over the previous year and generating a net income of $33 million.

A Cable Pioneer’s Offshoot in the 1960s

Founded in 1965 as a division of United Cable Television Corp., United Video could already trace its roots back to the origins of cable television. United Cable was started by Gene Schneider, who had pioneered the industry in 1953 when he helped his brother design and build the country’s first cable television system in Casper, Wyoming. In the mid-1960s, Schneider moved to Tulsa, Oklahoma, to start his own cable company, United Cable. Tulsa was wired for cable by 1973; but Schneider had also formed a second division in the company, which later became United Video, to build a larger microwave-based television distribution network. Roy Bliss joined United Cable in 1969, and was placed in charge of building the United Video division. Bliss had known Schneider as a child; Bliss’s father had also been involved in the cable television industry, and as a youth Bliss was employed in painting the various buildings and structures used for housing the collection, processing, and transmission equipment for microwave transmissions. In college, Bliss worked for a company making equipment for the cable industry, eventually joining the company’s marketing department before joining United Cable’s microwave division.

Microwave transmission was an important element to the early years of cable television. A microwave network, which required placement of relay towers every 30 miles, carried the programming of independent stations and emerging cable networks to the cable television system provider, which then delivered the programming to its customers. Cable systems were most attractive to smaller cities and rural areas, typically underserved by the broadcast networks, affiliates, and independent broadcast stations. United Cable began building its microwave network to bring programming to its own and other small cable systems. In many places, as Bliss, who became president of United Video, explained to Tulsa World, ‘.’you either had cable or you didn’t have television.” Cable television found less success in larger cities, where broadcast television was more readily available. The addition of high-profile cable programming—such as the new movie network HBO—was essential to cable systems, and especially those in larger urban areas, for signing up subscribers for their services.

By the mid-1970s, United Cable’s United Video division had built a 300,000-mile microwave network covering most of the Midwest and West. United Video was already providing HBO to United Cable’s Tulsa cable network, and began making plans to bring that and more programming to other cable systems. But in 1975, HBO began sending its signal via satellite transmission; other programmers would shortly follow suit, including Turner Broadcasting, which began satellite transmission in 1977. This new availability of programming prompted cable television’s first boom; but the satellite technology also quickly replaced microwave networks as the primary means of transmission. Bliss saw the technology’s potential early—and also saw the need for a company that could distribute the satellite signals to cable systems. In 1976, Bliss, backed by financing from Lawrence Flinn, bought out the United Video division from United Cable. Flinn, who had previously worked for the Morgan Stanley investment firm, became United Video’s chairman and chief executive office, and also owner of more than 90 percent of the company. Bliss was named president.

United Video sought to enter the satellite transmission market. But the cable television industry was strictly regulated by the Federal Communications Commission (FCC). As Bliss explained to Tulsa World, “[The FCC] had a theory that you had to have a certain receive signal level which required a 10-meter antenna—a $120,000 investment.” That price was too high for the newly independent company. But when deregulation of the cable industry came in 1977, the cost of building an antenna, as well as the size requirement, dropped. With a 15-foot receiver now priced at $20,000, United Video made its move. In 1978, the company rented a satellite transponder—the last one available on the only commercial satellite in orbit at the time—at a cost of $100,000 per month. The company’s plans hinged on FCC approval of its application to broadcast one of three television stations, including WGN of Chicago. “We were certain enough that we were going to get [approval] and we went out on a limb and rented [the] transponder,” Bliss explained to Tulsa World, “which would have sunk us if we hadn’t gotten the approval.”

FCC approval came a month after the company’s transponder lease began. Another month later, United Video began transmitting WGN, and its Chicago Cubs coverage, a relationship that would last until 1996. The company struggled for its first year as a satellite transmission company, as cable systems were slow to add satellite reception capacity. But by 1979, the company had begun to recoup its investment, building revenues to $2 million per year.

Growth into the 1990s

Led by the popularity of superstation WGN, United Video rapidly expanded its number of cable system customers during the 1980s. But the company early on began to add other satellite-based services to complement its transmission capacity. Bliss and Flinn saw a need for more services in order to fuel cable television’s future growth. As Bliss told Tulsa World, “My vision of cable television has always been more—more services, more entertainment, more technology-driven.” United Video formed as a holding company, called United Video Holdings, Inc. and began the in-house development of new services. The first added service developed by the company brought United Video into providing content, in the form of the onscreen cable program guides. Originally named Trakker, Inc., the unit later became known as the Prevue Network.

Company Perspectives:

Prevue Networks: To create and deploy an international, multi-channel, multi-tiered distribution network to maximize affiliate distribution and optimize spectrum space for the purpose of achieving a profit.

Superstar Satellite Entertainment: Having made our mark as a leading satellite programming provider and developer of specialized computer services, in 1996 we plan to take advantage of new opportunities in the telecommunications field. Our broad direct-to-home experience will benefit both our consumer and commercial customers, as we live up to our pledge. We answer to you.

UVTV: UVTV is a team of highly motivated individuals with the mission of profitably developing and marketing valuable programming-related services to customers—program resellers and the general public—while achieving a superior level of customer satisfaction.

SSDS: SSDS’ mission is to help companies and government agencies utilize information technology to compete in their markets based on the relationship they form with their customers.

SpaceCom Systems: To provide innovative, cost-effective mass communications technology to the information industry and solve real-world information delivery problems for wireless and broadcasting companies.

By the mid-1980s, as the launching of more commercial satellites opened up more opportunities, the company expanded into two new areas. Prior to 1986, owners of large-dish (C-band) home satellite dishes could pull in any satellite signal. But HBO began scrambling its signal in 1986, and soon other satellite-based networks followed suit. United Video recognized a new market for its distribution services, and formed Superstar Entertainment, which packaged programming and sold it as subscriptions to home satellite dish owners. Superstar quickly became profitable and proved a strong engine for United Video’s revenue growth, despite the fact that the scrambling technology employed at the time was relatively easy for dish owners to defeat. United Video’s SpaceCom Systems brought the company into a fourth area: providing audio and data transmission for radio stations, government agencies, corporations, and others.

By 1990, the company’s Cable Video Services Group distributed superstation WGN, which lagged only Turner Broadcasting in subscriber numbers, New York’s WPIX, Los Angeles’s KTLA, and the Dallas/Ft. Worth station KTVT, as well as radio stations including WFMT of Chicago and KKJZ of Los Angeles. Meanwhile, Prevue Networks had expanded onto 800 cable systems, reaching more than 20 million homes, and soon added a sister channel, Sneak Prevue, which offered an onscreen program guide for pay-per-view programs. Together, United Video’s companies reached more than 41 million homes through some 14,000 cable systems. The company’s sales had reached $46 million, and United Video showed a strong profit, of $4.5 million.

By 1993, the companies revenues had more than doubled, to $114 million. In November of that year, United Video reorganized as United Video Satellite Group, combining its ownership positions in its four major units. The following month, United Video went public, selling 4.1 million shares and raising $60.4 million in the offering. Flinn remained in control of 90 percent of the company. The company was branching out again, now into the promising arena of interactive services, which offered the home viewer, among other potential services, the ability to search the company’s onscreen program guide. The United Video group added its fifth service, Prevue Interactive, in 1993. Meanwhile, United Video was receiving a big boost on another front. In 1993, satellite transmitters implemented a new scrambling technology that made it more difficult to pirate satellite transmissions. Paying subscriptions quickly tripled, to some 1.9 million homes, and United Video picked up a strong share of the new subscribers, building from 150,000 to 540,000 and passing TCI as the number one provider of C-band satellite transmission services. Superstar’s growth helped boost the company’s 1994 revenues to $196 million. Superstar also offered United Video an opportunity to gain a share of the newly emerging—and competing—direct broadcast satellite market. Using marketing software developed by Superstar, the company was able to offer telemarketing and subscription services to direct satellite providers U.S. Satellite Broadcasting, and Hughes Electronics’ DirecTV, gaining a share of the revenues from this fast-growing market. By 1995, Bliss told Investor’s Business Daily, “Over half of the DirecTV subscriptions come from us.”

United Video began adding the sixth piece of the group in 1994, with purchase of a 10 percent stake in SSDS, Inc., a Colorado-based systems integrator that numbers among its customers such high-profile names as First Data Corp., Sun Microsystems, and the White House. By 1995, United Video had exercised its option to increase its share in SSDS, raising its stake to a controlling 70 percent interest. SSDS, a fast-growing company with $33 million in revenues, offered United Video enhanced technological and especially software-development capacity. United Video’s revenues continued to grow strongly, reaching $263 million and bringing net earnings of more than $23 million in 1995.

Flinn, by then 60 years old, began looking at retirement. His stock—trading at $33 per share—in United Video was by then worth some $500 million. But these shares were not easily marketable—as chairman and chief executive, Flinn’s attempts at selling part of his holdings would have had a negative reception from the market, and sent United Video’s share price falling. United Video was also facing pressures from within the cable and satellite industries, not only from the growth of the direct broadcast satellite market—which threatened to make C-band satellite dishes obsolete within a few years—but also from recent startups, particularly by TCI, of rivals to the company’s Prevue revenue engine.

In June 1995 United Video announced the agreement with TCI that gave the cable giant control of United Video. The transaction, completed in early 1996, formed United Video as a separate, publicly traded subsidiary of TCI. It also involved an exchange of stock, giving Flinn shares of the more marketable TCI stock. Prevue Networks survived, as TCI dropped development of its own onscreen program guide. Later that year, TCI also merged its own C-band satellite programming arm, Liberty Media’s Netlink, into Superstar, moving Netlink’s operations to Tulsa. Flinn, who retained 36 percent of United Video’s stock, remained chairman and chief executive until November 1996, when he stepped down for health reasons.

Bliss remained as president and chief operating officer. But when TCI announced in November 1996 its plans to drop transmission of WGN, Bliss complained, as reported by Tulsa World: “This is obviously a decision made by corporate executives out of touch with local markets.” The following month, Bliss left the company he had founded. By then, however, he had helped lead United Video on an impressive growth spurt, raising revenues by 66 percent in one year. As a nearly $500 million company United Video remained a relatively small player in an industry, as Flinn described it to the New York Times, with “a lot of elephants walking around.” But with the TCI merger, United Video moved into its future with the backing of one of the largest “elephants” of them all.