Looking back at the brief but memorable life of the world's first two-way cable system
Editor's note: In 1977, Warner Cable launched a grand experiment in Columbus. Called "Qube," the innovative, interactive cable system allowed subscribers to participate in game shows, order movies, choose music videos and more. Qube didn't last (it ended in 1984), but programs on the service laid the foundation for such television breakthroughs as MTV and Nickelodeon. Columbus Monthly contributing editor John Maher captured the excitement surrounding Qube in this 1978 article.
Just a short time ago anyone could have walked into the building on Olentangy River Road just north of West Third Avenue, made a few pertinent observations and correctly answered the questions, "What is this? What does it mean to Columbus? And what does it portend for America?" The answers would have been “Ken Bush Appliance warehouse,” “very little” and "nothing at all.”
Ah, but how times change. The building that once held washers and dryers now houses television studios, executive offices and a well-guided computer complex. Employees bustle through the halls saying things like: "Nothing like this has ever been done before.” “It's the wave of the future.” They suggest that allowing a viewer to select from among 30 television channels is the only true form of democracy.
And those statements are more conservative than some that have appeared in print. Time recently gushed, "This New Atlantis [Columbus to those of us who live here] since last December has become the prototype electronic village. The Columbian connection is called Qube. ... Oh, brave New World! Hail Columbus!"
Indeed, Warner Cable Corporation's Columbus project has stirred up so much media interest that Warner Cable chairman and chief executive officer Gustave Hauser's statement, "The whole world is Watching," doesn't even sound like an exaggeration.
But WBNS-TV general manager Gene D’Angelo, who has answered more than a few calls about the new entry into the entertainment field, says, "It’s you guys [the media] that are making such a big deal of it. They’re not our competition, channels 4 and 6 are. How many subscribers do they have anyway?”
Until Feb. 13, that was one of the $64 questions about Qube. Then, exactly one year after Qube had been announced to the world, it released its first subscriber count—13,000. The world, via the press, learned this the way it finds out most things about Qube: through a press release. Qube has the secrecy and well-orchestrated public relations that one would expect from a project that Warner hopes is in fact an infant industry.
Qube is Warner’s attempt to make cable television very profitable in urban areas. When it was just a top secret project in Warner’s New York offices, it was known by such working names as Cable World, Orbit and Project X. The name Qube was picked over hundreds of other meaningless words by Frankfurt Communication Company of New York to suggest an alternative to television. It rhymes with tube. It lends itself to flashy graphics. And, with a stretch of the imagination it even suggests the seven-inch-by-six-inch-by-two-inch-home console that is central to the system.
The idea for Qube was born just over three years ago when Warner Cable was pursuing a policy that Hauser termed “doing more with less.” That policy was necessary because even though Warner had close to the almost 140 cable systems that it has today, the division, like most other major cable operators, wasn’t showing a profit. This was partly because Warner and other cable companies, hampered by federal restrictions about what they could and could not carry, had jumped into urban markets without a highly desirable product. Cable television, after all, was originally just a means of improving reception in rural areas. Warner Cable started showing profits after it instituted a nationwide price hike in 1974 that brought the average monthly subscription rate up to $7.33 by the end of 1976. In many of the operations of Warner also introduced Warner Star Channel, a package of movies and other entertainment features that could be purchased by subscribers for an additional $6 or $7 a month. Warner now has more than 550,000 subscribers nationwide and the cable operation generated more than $55 million in 1977. Profits, however, were down $3.4 million from 1975’s record $11.9 million. Variety, the entertainment trade paper, reported that profits would have exceeded the 1976 figure in 1977 except for the start-up costs of Qube.
But Hauser says, “If increased rates or a pay channel were the answer, we wouldn’t need to do this.” In that vein, he describes All-American Cablevision’s recent offering of another subscription service, HomeBox Office, for only $5 a month as a “loss leader. They’re just suckering people in and then they’ll raise the rates.” Indeed, All-American’s HBO price is probably the lowest in the country. Elsewhere it sells for $8-10 a month.
The low price has led some to believe that HBO’s parent company, Time Inc., has decided to make Columbus a battleground between pay-per-view and subscription-pay TV. But Time magazine’s effusively inaccurate article praising Qube would suggest that the competition is still way short of all-out corporate war.
According to Hauser, Qube is not a “blue sky” project. It’s not an attempt to show the marvelous services that cable can provide, but to be a package that people will buy. Hauser, a smooth former Fullbright scholar and Harvard Law School grad who is confident enough to use the corporate “I,” says, “I can read meters, but who wants their meters read? I can do electronic fund transfers. But who’s asking for it? We could have home production of newspapers. But who wants a bulky machine like that in their living room?”
Instead, the living rooms of Qube subscribers contain a small, black, online computer terminal that is connected to a wall and the television set and to the home console known as “the Qube.” The Qube has five buttons that allow viewers to respond to questions and situations posed in Qube’s live programming. When viewers make their preferences known, it’s known as “touching in.”
The same two-way hardware and computer that make it possible for viewers to touch in also make it possible to bill viewers of pay programming on a pay-per-view basis. The theory is that having a viewer buy just what he wants will be more profitable than a fat subscription package—if the viewer is given enough alternatives from which to select.
Right now, for the base monthly rate of $10.95, Qube offers its subscribers 30 channels, which are divided into three groups of 10 each on Qube’s home console.
The “T,” or television, column has a public access channel, the four Columbus TV stations, four out-of-town stations and a channel that carries program listings.
The “C,” or community, column features a station carrying Qube’s live programming. It also has stations carrying religious and children’s programming and educational shows. Computerized print-outs of business news, weather, consumer information, sports and news occupy other channels.
Originally the electronic information channels were all separate, but their total daily output could easily have been carried on a single channel. Several have now been consolidated to make room for a channel devoted to sports and one composed exclusively of “Golden Oldies,” 1950s television shows like “The Lone Ranger,” “The Cisco Kid” and “Robin Hood.”
The Wall Street Journal reported that a Qube official said Qube was receiving 50 letters a day requesting these old movies and shows. Ron Castell, marketing vice president for Qube, says that astounding number was a misquote, but adds “We are getting a lot of letters.”
The “P,” or premium, column has programs that subscribers have to pay extra to see. It has specials, sporting events, how-to courses and college-at-home. One channel, P-10, carries adult movies and is optional. Harlan Kleiman, head of Qube’s premium channels, says that the adult movies “are not hard R. What we’re selling is titillation.” Kleiman, a former programming vice president with Home Box Office, says that an initial obstacle facing Qube’s pay programming is that “people don’t know how to watch something that doesn’t have commercials.”
Kleiman sees Qube’s role as not just offering specials, but “creating events.”
Sports provides another big area for pay programming. Qube has covered the Cleveland Cavaliers, Ohio State basketball, some minor collegiate sports and has plans to cover high school football in the fall. For that they are planning to use three television cameras and a slow motion disc for each wirecast. WCMH general manager Ben McKeel notes, “It’s kind of frightening what they can spend.”
Both Qube and Coaxial have tried to get the rights to what would have been the most lucrative pay-per-view wire cast—Ohio State football games. Last year Qube lined up two games before ABC claimed that the arrangement would violate its exclusive contract with the NCAA. Kleiman says, “The NCAA is owned by ABC. I think they’ve got a contract that is against the law.”
Qube’s plans sound rather ambitious, but Warner Communications is an entertainment conglomerate almost ideally constructed for such an undertaking.
Warner ranks just about in the middle of the Fortune 500 and last year, for the first time, did a billion dollars worth of business.
Qube officials say that Warner “likes to keep its divisions separate,” but almost all are applicable to Qube’s format. And, Warner’s chairman and chief executive officer, Steven J. Ross, has been quoted as saying that the cable division will eventually be the company’s biggest money-maker.
For Qube, Warner’s big-name recording stars are a ready-made source of specials and Warner’s lesser-lights already show up on “Columbus Goes Bananaz,” one of the live Qube shows. Warner films, which had a record year last year, appear on Qube’s premium channels, and Warner recently created almost an entirely new film operation by hiring top United Artists Inc. personnel and investing a reported $90 million for new productions.
Warner is also prepared for the newest craze in television use, electronic video games. In October 1976, for approximately $12 million cash and $16 million in debentures, Warner acquired Atari Inc, which is the maker of video television games and such barroom staples as Pong, Tank and Breakout. If needed, Atari could provide the expertise if Qube ever gets around to introducing video games. Through a 95 percent-owned subsidiary, Warner also owns and operates the New York Cosmos, a franchise which has recently been turned into one of the hottest in the country by management’s policy of offering fat contacts to bona fide international soccer stars like Pele.
Qube won’t say when and if games will be carried on the pay channel, but Pele, now retired from pro soccer, gives taped soccer tips on one of Qube’s community channel and has been hired by Warner as an international consultant.
All this, of course, would not be ticketed just for the Columbus market. Qube is both an ongoing experiment as to what Columbus residents will buy and a prototype for future Qube projects. Initially, at least, future Qube projects will be located near Columbus, which will serve as headquarters. Warner hopes to put Qube in the as-yet-unwired cities of Ft. Wayne and Pittsburgh, and plans to extend it to Warner’s existing regular cable operation in Akron.
Qube officials say Columbus was chosen for Qube’s birthplace for a number of reasons. The basic cable equipment here is fairly new, and Columbus has not placed too many restrictions on cable companies. “People here are nice,” Hauser says. “They leave you alone.”
Columbus is also seen as a town where people would purchase a new service. Kleiman says that conventional cable in Columbus wasn’t really much of a buy, but pointed out Warner “had almost 30 per cent penetration” (about 27,000 subscribers out of a possible 100,000 that are in Warner’s service area).
“That showed people here were desperate for something more than the three networks were providing,” he adds.
Another attraction was Columbus’ record as a good test market, which has been proven on innumerable products. The possibility of having the ideal sampling tool wired to the ideal sample probably has a lot of people excited.
The only drawback with starting Qube in Columbus is that although Columbus is the country’s fourth largest cable market—behind only Los Angeles, New York City and San Diego— it is split among four franchises. That means that two out of three people aren’t really targets of Qube’s advertisements on billboards, benches, buses, and in the newspapers. They can’t get Qube even if they want it.
Hauser says, “It’s unfortunate that people have to be denied something because of arbitrary territorial divisions. With a little patience, however, a way to provide Qube service to everyone will be worked out.” And, at a recent Women in Communications Inc. meeting, Vivian Horner, head of educational programming at Qube, implied that Qube would buy the other Columbus cable companies out as soon as they agreed to a reasonable price. With the money Warner is investing in Columbus, that seems like the only logical conclusion.
But Larry Wangberg, president of Coaxial Communications, says that “rumors about buy-outs have been going on ever since we started.” For some time a Chicago-based financial concern, CNA Financial Corporation, had been trying to wrest control of Coaxial Communications’ Columbus operations from the Florida-based parent company, claiming it was owed more than $8 million in promissory notes and interest. But the case was recently dismissed in federal court and Wangberg now dismisses the plaintiffs as just “takeover artists” who this time didn’t succeed.
Wangberg says of Columbus: “This is our biggest operation, and we’re committed to it.” And, recent releases of subscriber numbers actually place Coaxial even with, or slightly ahead of, Warner. And that’s in spite of the fact that Coaxial’s territory contains only about 62,000 homes, while Warner’s has upwards of 100,000. The other operating cable company, All-American, claims that since the announcement that it was offering the Home Box Office service, it has had trouble keeping up with demand.
But such success stories don’t seem to bother anyone at Qube. Before Qube was officially declared a success in the Feb. 13 press release, employees casually brought up the possibility of utter failure, tossing out phrases like, “This may be the biggest flop in the history of communications.”
However, such statements were probably made more for dramatic impact than out of any gnawing concern. Hauser says, “Good heavens, no, we’re not going to fail. I expect to be here forever. The product may be different, however.”
Gauging how well Qube is doing is almost impossible for anybody except top management. That’s because income and profits can be derived from a number of sources.
The most basic is the monthly subscription rate of $10.95. Given just the 13,000 subscribers claimed in February, that would mean $1.7 million in yearly revenues. If subscribers buy the two films month that the release says they do, that makes another $1 million. Other offerings on the pay channels should up that figure significantly.
Right now advertising revenue is not that lucrative a source of income, since an advertiser on the live channel would be lucky to reach 1,000 homes. However, when subscribers increase and the push-button ordering process is made more practical, advertising revenues could increase dramatically.
Qube also has an FM stereo package that can be hooked up for $10. And Qube will soon begin to offer fire and burglar alarms that will be tied to the computer.
Another unpredictable income source is Qube’s potential as a marketing tool. As it is, the mere monitoring of viewing patterns could be a valuable service for a TV producer. Qube can tell exactly when viewers tune out on a given program. That puts Qube in the enviable position of knowing more about the viewing patterns on the broadcast channels than do the broadcasters, who have to depend on rating services to find out months later who watched what and when.
What’s more, if Qube’s responding viewers ever develop a good track record for predicting new product success, like Columbus itself has, that service will find a lot of buyers. Such experiments began the day Qube did.
Presumably, marketing research materials would be more valuable if other specific characteristics (previous responses) of the individual respondents were also known.
Qube’s computer probably has the capability to perform that operation. However, one built-in safeguard of the system is that it does not register which individual at the terminal in the home is responding.
To discourage fears of Big-Brother-like invasion of privacy, Qube’s lavish promotional booklet points out: “Our computer makes no record of individual home viewing other than the record of Premium Channel purchases for billing each subscriber. The record is strictly confidential. Individual home responses to interactive programs are not recorded unless they are called for as part of the program format.”
And, since its inception, Qube has proved its ability to keep secrets.
One of the strangest and quietest incidents in Qube’s short history was the disappearance of its first president, Lawrence Hilford. Hilford is a Yale graduate and a Harvard MBA who came to Warner about a year ago from Viacom International, where he was director and executive vice-president. Cablevision magazine reported that Warner approached Hilford a number of times before he finally decided to jump to Warner as head of Qube division. Hilford reportedly got along very well with those under him at Qube and was outwardly very enthusiastic about the whole project. But suddenly, just after Qube made its Dec. 1 debut, Hilford was gone.
Hilford’s absence, even to most Qube employees, was attributed to that most corporate reasons, “personal.” The loss of Qube’s president rated only two lines at the bottom of Citizen-Journal TV writer David Drake’s column, where even some of Qube’s minor achievement had in the past been trumpeted.
When contacted two months later in New York, Hilford was still looking for a new job and said only that he preferred not to comment on the situation. He added, “It’s a marvellous experiment and I hope it succeeds.”
Since that time Qube has been without a president, although Castell says, “I assume eventually we’ll have one.” Meanwhile Hauser, head of Warner’s entire cable division, is running the show from Columbus.
One area about which Hauser and others aren’t saying too much is Qube’s price tag. Originally, the estimated development cost released by Warner was $10 million. But many observers would agree with WCMH general manager Ben McKeel, who says, “That sounds a little low.” Dispatch TV writer Bud Wilkinson estimated that $14-25 million would be a little more like it. A figure of $12 million has also appeared. But now, about as specific as any Qube official would get is, “Let’s just say it’s in eight figures.”
Qube has also not released the cost of the “Qubes,” which are made by Pioneer Electronics, a Japanese firm in which Warner Communications owns over 250,000 shares. James L. Fischer, Qube’s manager of special projects, says only that for legal purposes, such as destruction or theft, the Qubes are valued at $250.
Another area where the only word has been mum is the specific ratings of shows and the number of subscribers Qube eventually hopes to have. The early projection—one that hasn’t been repeated lately— was up to 70,000 homes.
Up until Feb. 13, it looked like the number of subscribers was also going to remain a secret for some time. The reason, one employee explains, was that “it was so small it would have sounded ridiculous.” The more than 50 per cent conversion rate for existing Warner subscribers in just over two months, however, doesn’t sound ridiculous. It caused Qube to be linked with the word “success” in a number of newspaper headlines. And, by comparison, Coaxial has had its pay-per-view system for about four years and still has only about 5,000 subscribers.
But selling Qube to those who didn’t have Warner Cable should be the real test. After all, those on Warner Cable are already paying two-thirds of the price for Qube. For that extra third, Qube offers a lot more. To convince its own subscribers, Warner also has the benefit of being able to demonstrate its news product for free on one of its channels. It won’t have that luxury when trying to enlist entirely new subscribers. And Channel 4, for one, won’t be carrying any Qube commercials. McKeel considers Qube competition and says that permitting Qube to advertise “would not be in our best interest.”
But right now, it looks like Qube has chosen to sell itself to non-subscribers by telephone. It has begun to run help wanted ads for solicitors who work for about six months on wage plus commission.
Over at Qube, there’s not much talk of competition. Qube is an operation almost totally consumed with itself. And why not? It’s a time where ideas can suddenly become progress, programs can become entire stations and each additional service could be the start of a whole new century.
This story originally appeared in the May 1978 issue of Columbus Monthly.
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