Pain and Cable

Into the looking-glass world of local franchising.

Thomas W. Hazlett from the June 1991 issue

If the following story sounds familiar, you’re almost paying too much attention. Because in 1982 I wrote-in this very magazine-an article on the bizarre auctioning of cable television franchises by city governments around the country. Within that article was a long sidebar that detailed the frustrating exploits of two brothers, Carl and Clinton Galloway. Their firm, Universal Cable, had then spent three years trying to procure a franchise to do business in the city of Los Angeles. The tale seemed to demonstrate the crass politicization of the process by which local governments award cable franchises and to highlight the plight of those who attempt to fight the insiders at city hall.

Little did we know how good a story the Galloways were. For in the intervening years, their tale has expanded to include a landmark legal fight that has gone to the U.S. Supreme Court; a federal court decision finding that Los Angeles violated the Constitution on seven different grounds in its cable franchise maneuverings; a series of front-page “cable scandals” exposed ever-so-belatedly by the Los Angeles Times; and a cable monopoly that, despite making a mockery of everything Los Angeles claims it seeks to promote, is still protected by the local government-in defiance of federal law.

So, while in 1982 the Galloways were the little folks fighting the downtown interests, their battle has now gained national prominence and has even come to typify how free speech and robust communications competition are strangled by the bureaucratic process. Our little horror story has become an epic struggle.

South-Central Los Angeles is a classic urban market. It contains a dense housing mix of about 210,000 family units for a predominantly black and Hispanic population. Social services, including entertainment, are limited: Only one movie theater operates within the entire area. People tend to have lots of kids, and they like to stay home at night due to the high crime rate. Telephone poles provide easy access to the great majority of homes, eliminating the expense required to bury coaxial cables underground. It is, in many respects, a surprisingly solid market for cable television service.

This was the perception of Carl and Clinton Galloway back in the late 1970s. The brothers were financially successful (Carl, a physician; Clinton, an investment banker), and they had invested in Ebony Cablevision, a producer of shows of interest primarily to black Americans. Integrating Ebony into the distribution business seemed like a great idea: South-Central Los Angeles was a fat cable market, and it was entirely unwired. The Galloways took Ebony into reorganization, with the new firm-Universal Cable - dedicated to providing a wider variety of programs to all viewers. Then they marched down to City Hall to procure their license to sell cable television subscriptions in South-Central L.A.

That seemingly perfunctory trip, in mid-1979, has yet to arrive at its final destination. The voyage has taken the Galloways to Franchising Hell, an Alice-in-Wonderland world where the ability of government power brokers to reward friends, punish enemies, and manipulate the “public interest” is virtually unconstrained-even by the U.S. Constitution.

What Universal Cable ran into was an elaborate franchising process, complete with. public hearings, consultants’ reports, “needs assessments,” and evaluation of (voluminous) competitive bids. To those not intimately involved in the process, the procedure might have looked like an objective way to choose the best cable company to serve South-Central Los Angeles. That’s just the way the architects of the system wanted it to look. For those involved in the process of actually awarding cable franchises, for South-Central L.A., the only factor that made any difference at all was one’s score on the political-juice meter.

When the Galloways asked Los Angeles for a license to build a cable television system, necessary to obtain permits to cross public rights-of-way with a cable, they were referred to Councilman Robert Farrell’s office. The City Council had determined that South-Central was a “black franchise” and that Mayor Tom Bradley and the three black city councilmen would jointly determine its dispensation. Farrell quickly seized leadership on the issue, instructing all interested parties to deal with his staff counsel fresh from Harvard Law School, Channing Johnson.

Johnson is the man to whom the Galloways had to explain their cable franchise request in the summer of 1979. Johnson was clearly moved by the Galloways’ optimistic assessment of the South-Central cable market. By early 1980, he had a) devised and implemented a restructuring of the Los Angeles cable franchise map to more clearly delineate ethnic areas; b) left the City Council; and c) formed his own cable company, CTI, to vie for the South-Central franchise. B) and c) appeared to overlap. But the city attorney dropped his conflict of- interest investigation (City Councilwoman Peg Stevenson had instantly called the city attorney’s office after the Galloways informed her of the deal) when both Channing Johnson and Robert Farrell refused to answer questions.

The City Council conducted two very complicated rounds of franchise proposals and evaluations in 1980-83. The bidding between CTI and Universal was joined by a subsidiary of American Television & Communications, then the largest cable operator in the country (and today owned by media giant Time-Warner). The latter had distributed a full 20 percent of its equity shares to a collection of community organizations (including the World Christian Training Center, the Sugar Ray Youth Foundation, and the Westminster Neighborhood Association) in hopes of buying some local clout. But ATC’s real problem was its race. As Councilman Farrell told the Los Angeles Times, “it’s important a black-owned company get the award…not just another honky group that wants to get into L.A. and make a profit.”

ATC began a process of political tanning, so to speak, as it “respect[ed] the need” for incorporating more black ownership. “If I were ATC,” advised Councilman Farrell, “I’d worry about my chances to get the final award without taking on more black participation.” Since ATC had already unloaded 20 percent of its stock off the top, the price for the franchise was getting very stiff indeed.

During a series of closed-door meetings during 1980, 1981, and 1982, Mayor Bradley and Councilmen Farrell and David Cunningham (another black representative with a hands-on approach to franchise assignments) pointedly told both ATC and the Galloways that merging with Channing Johnson’s CTI was the only way to go. The Galloways resented the interference from city hall and insisted that awarding a huge share of stock to political brokers was a recipe for economic disaster that would undermine their desire to actually build a cable television system. Their firm had already entered into a 60-40 partnership (Universal having 60 percent) with a “white” cable company, Six Star Neilsen, and their refusal to abandon existing business relations for political expediency killed any hope of a merger with CTI: “You can’t just divide a cable franchise two or three ways with a political deal,” Carl Galloway told the Times in mid-1981.

Carl may have been slightly naïve; he has since learned precisely how it’s done. After the Galloways lost their bid for a franchise in 1982 by a single vote, the 15-member City Council deadlocked and denied all three bidders. ATC took its “honky” cable proposal home, and the political wheels began rolling toward what might be called Operation Oreo.

The well-connected real estate development firm Kaufman & Broad, longtime financial supporters of the mayor, formed a shell corporation, ACCESS, that gained the South-Central franchise. Kaufman & Broad carefully doled out 20 percent of ACCESS shares to the CTI movers and shakers, including the former South-Central cable policy maker Johnson and two religious leaders with close ties to Tom Bradley. Danny Bakewell walked away with an impressive 4.25 percent of the stock for his Brotherhood Crusade, and another 0.5 percent of the shares for himself (a sort of pastoral gratuity, perhaps). According to a 1986 memo by Channing Johnson, “all parties agreed that the Brotherhood Crusade would temporarily hold” the stock until Bakewell could organize his partners (sort of gives “brotherhood” a capitalized value). The energetic Bishop H.H. Brookins, a regional director of the African Methodist Episcopal Church (despite having no actual flock) and a political mentor of Bradley, pocketed 1 percent. Some “investors,” including Bakewell and Brookins, ponied up not one dime.

During the franchising rounds, Bradley’s liaison to the black community William Elkins and Bishop Brookins frantically attempted to engineer a merger of CTI4he politically correct “black” fi-with Universal. “All that we ever do is to try to make certain that credible minorities are in the bid process,” Elkins said in a 1988 deposition.