The Right to Compete and to Speak
APRIL 01, 1966 by ELIZABETH GILLETT
Elizabeth Gillett is a free-lance writer on business, economic, and political matters, whose by-lined articles have appeared in Barron’s, The Journal of Commerce, Saturday Review, and elsewhere. This article is condensed from an original research piece she is doing for another publication.
On November 4, 1964, it became illegal in California, by a two-to-one vote of the people, for anyone to sell and broadcast original television programs to you on your home set.
How the California viewer lost his option to pay at home for special TV shows without commercials and not available on other channels is an amazing story in twentieth-century America. It could only happen in this nation’s current "mixed economy" of swelling government controls over business, endorsed or unchallenged by the businessmen themselves.
Today, in this "land of the free," enough aroused citizens can still "execute" a business competitor, and freedom of speech, simply by majority vote — even as the Athenians "democratically" voted the death of Socrates some 2,300 years ago. Fortunately, also in this country, the victim of such perversions of constitutional government can seek redress by exercising his constitutional right to use the governmental function in a proper way — as the avenue of his self-defense and the agent of legitimate retaliatory force. Sometimes, however, the court costs —in time and money — of such redress can be crippling.
The "gadfly" of the Golden State, its victim, is Subscription Television, Inc. (STV), run since October 1963 by Sylvester (Pat) Weaver, veteran of commercial television, former president of National Broadcasting Company. STV was formed in January 1963 with patents on a cable system from Skiatron Electronics and capital from Lear Siegler, Inc. (electronics manufacturer) and Reuben H. Donnelley Corp. (sales promotion organization). In the next year and a half, STV got total public financing of around $20 million.
Broadcasting over STV’s three simultaneous channels to 2,300 subscribers in Los Angeles began July 17, 1964; to 1,810 subscribers in San Francisco, on August 14, 1964. In both sites, STV gathered fewer starting subscriptions on the movie industry’s home-ground than anticipated. Mr. Weaver soon lined up five major film producers to make movies for STV, among other original programming he sought for subscribers each evening during "prime time," 7 to 11 p.m., in compatible color.
Meanwhile, the pay-TV antagonists, led by the Southern California Theatre Owners Association — backed by what is now the National Association of Theatre Owners, Inc., were lining up strategy, funds, and allies, including their former foes, commercial television and even community-antenna companies. All saw a competitive threat in STV. They feared that if pay television caught on and gained enough subscriber-volume, audiences would not come to movie theaters and commercial TV might lose some of its top attractions to pay-TV.
The antagonists persuaded many California residents that pay-Tv meant the end of "free" (advertiser-supported) television. They gathered a "war chest" of $1.5 million or more from trade, union, and individual contributors. SCTOA recruited the necessary 468,259 signatures to get Proposition 15 on the California ballot, which would outlaw pay-TV in the home.
Despite protests from local Better Business Bureaus and Chambers of Commerce, Southern California print space and air time were flooded with warnings against the predatory menace of pay-TV, which, it was alleged, would end the World Series on "free TV" — despite NBC’s contract (recently renewed through 1968).
However, STV had suffered far heavier expenses than planned, thanks to its elaborate programming and time-consuming cable installations, even before this formidable campaign erupted. It did manage to pour $180,000 and much energy into the fight, plus a few thousands contributed by various individuals and unions. But the antagonists were too strong, their propaganda apparently overwhelming. When Proposition 15 was voted into law in November 1964, Mr. Weaver’s operation had reportedly been losing between $3,000 and $10,000 a day since its start of operations.
STV suspended broadcasting as of November 10, 1964. It recovered its 6,000 receiver-billing boxes, refunded installation charges, and shelved "orders for 40,000 more [installations]," according to Lewis M. Marcy, STV vice-president. It also retrenched by selling most of its usable equipment and moving a reduced staff to New York City. Its stock’s $12 offering price soon reached a low of $1.50. In late March 1965, STV filed a Chapter 11 bankruptcy plea.
But this was not the end of STV (whose stock in mid-February 1966 had recovered to over $4) or of the resilient Mr. Weaver, who began plans for a new business of "network program service" in 1965, while directing STV’s court battles on the Coast.
The Turning Point
On May 20, 1965, Judge Irving H. Perluss of the Superior Court of Sacramento County overruled the California Secretary of State’s rejection of Mr. Weaver’s charter for a new subscription television company, submitted on December 9, 1964. Judge Perluss found the Free Television Act, established by favorable initiative vote on Proposition 15, unconstitutional because it "abridges freedom of speech."
About the pay-TV opponents, Judge Perluss observed, the " ‘evil’ with which they are concerned is speculative and illusory…. namely] that subscription television may destroy free television operation" (emphasis his). Healso noted that "the charges here made could have been made by the radio industry when television was made available for the home… Invention and progress may not and should not be so restricted…."
The defendant, California’s Secretary of State, with amicus curiae, the theater-owners, soon appealed this decision.¹ (On March 2, the State Supreme Court in a 6-1 decision agreed with Judge Perluss that the, November 1964 Free Television Act is unconstitutional.) Also outstanding is a decision on STV’s conspiracy suit against several California exhibitors’ groups and others for $117 million in damages, the verdict on which may also cause an appeal. (STV, in addition, is suing the State of California for $14 million in damages sustained as a result of the Proposition 15 initiative.) For good measure, the theater owners will have to continue lobbying on the FCC’s pending decision on the petition of Zenith Corporation, through Teco, Inc., to establish the first nationwide pay-TV system (by air, not cable), submitted just before Judge Perluss’ decision.
What is to be learned from these facts and events? Some enduring and fundamental truths underlie them, of economic, political, and moral nature. Besides, this infant industry carries significant implications for its entrepreneurs, its competitors, and its potential customers.
We must begin by stressing that the quality of fare offered by the various screen media via different technical and marketing methods is not at issue here. Rather, the property right of every businessman to offer his own wares in a free market is the crucial concept denied by the voters of California in the 1964 election. Instead, they legalized the false concept that existing vested interests have the property "right" to rule a free market — a contradiction.
As STV’s Marcy puts it, "This could be compared to Western Union saying there should be no telephones."
What were STV’s property rights? Did the company overstep them? STV sought to sell programs cheaply that it had created and paid for, sent out over cables it had bought and laid (attached to phone wires for which it paid rent), to be received on a subscriber’s own TV set by means of a small control box owned and manufactured by STV, which it rented cheaply to the subscriber after a moderate installation fee.
STV never forced anyone to subscribe, but tried to win customers on the appeal of its wares: absolutely no commercials, the novelty of paid performances seen in the home by residents and their guests, original programs not to be seen on freevee, limited but convenient viewing times, and low prices in comparison with most alternatives. STV stressed its supplemental nature in relation to commercial TV. It had no cancellations during its few operating months. It made no attempt to crush its competition — except to survive.
Since STV’s form of business was a variation of an existing mass communications medium, freedom of speech was also violated when the Free Television Act forced STV to stop operating. Thus, when any individual property rights can be abolished overnight by majority vote, as happened in California, then all related, subsidiary individual rights become legally vulnerable to the mob. Individual rights are safe only if property rights — which include the right to sell or trade one’s own goods — are legally inalienable, protected by government. Otherwise, blondes and brunettes could vote the exile or extinction of redheads, since one’s life is also one’s property.
What "crime," then, did STV commit that persuaded California voters to outlaw it?
The highly publicized "threat" that pay-TV would deprive the low-income viewing masses of "free" TV entertainment by bidding away top shows and talent for the exclusive pleasure of "those willing and able to pay for it," in the words of Robert W. Sarnoff on June 3, 1964 in Beverly Hills, California. While Mr. Sarnoff, then NBC chairman, now RCA president, also deplored "seeking government protection against a pay system that does not use public frequencies," movie exhibitors ignored this qualification and echoed his basic charge in spades.
This righteous-sounding objection is typical of today’s muddled economic thinking: "Anything that hurts my business is immoral and ought to be illegal." It means that those who can pay for special entertainment should not be permitted to buy it on television. Does Sam, who can afford to buy a car, deprive Jack, who cannot, of anything that is rightfully Jack’s? No. Nor does Sam owe a car to Jack simply because Sam has more money.
Almost twenty years ago, in an antitrust decision, exhibitors lost their contractually exclusive right to first runs of new films produced by the movie companies — before television of any kind. Had film producers retained (or regained) their ownership of movie theaters, there would be no question today as to who gets new movies first. But since new films can be sold to the highest bidder, and commercial TV now has the biggest audience and pocketbook, it now may be just a matter of time for exhibitors.`’ Now, they want their government-destroyed property right reinstated in a new form by crying wolf at pay-TV.
The craven, despicable behavior of commercial TV and movie exhibitors toward their new competitor springs from a common default by most twentieth-century U.S. businessmen. They have not troubled to see that consistent, proper restrictions were kept on government relative to business. Instead, some have sought government favors. Many have stood by and watched while government, under varied pressures, took on more powers and usurped property rights of other businessmen. A few even sought these ends.
Now, American communications leaders, in particular, have lost their own freedom of business action. Since the 1920′s, when the government confiscated permanently the property rights to airwaves (in the "public interest"), urged by men who should have known better,3 the mass communications field has become an ever-thickening jungle of intrigue and bureaucratic "pull." One must have the government on one’s side — and off one’s back — to gain business success in broadcasting.
The actions of exhibitors and commercial TV toward pay-TV are only understandable if we see their roles as fellow creators of a Frankenstein monster: expanding, manipulative governmental power. It has turned on them, and they do not know where it will strike next; they seek to win safety from the tyrant by feeding it victims other than themselves. Having sacrificed their own property rights — to the air waves and to integrated production and distribution of their product — they do not shrink at sacrificing the property rights of anyone else, especially a competitor for part of their lethargic market.
The twentieth-century United States has gained tremendous wealth and technological achievements, thanks primarily to the precedent-setting, arduous efforts of its politically free men of the nineteenth century who began with their own property — often slight at first — and competed with other men like themselves in a market almost entirely free of governmental restrictions.
If the California theater owners and commercial TV can keep their competition outlawed, this will mean a regression to the medieval guild system. There, all innovators were imprisoned and old ways of doing things were forcefully enshrined for centuries, to everyone’s loss. Poverty, ignorance, decadence, and serfdom were the result. (Do Californians want this?)
Under free-enterprise capitalism government must protect the individual’s right to buy and sell as best he can, not guarantee him a captive market. Today’s malicious stampede to manipulate government for one’s own benefit at the direct expense of some other citizen or group or business enterprise must be halted. So must the evil of allowing anyone’s property rights, and the derived rights like freedom of speech, to be voted away by the majority or stripped away by court decision.
If individual property and business initiative do not receive their just, legal protection, then all Americans risk losing present and future benefits from the riches that only free, independent men ever have produced—or ever will.
1 Paramount’s International Telemeter Corp. and the American Civil Liberties Union were amici curiae for STV.
2 The networks have already started to help finance a few new movies slated for first runs on television.
3 For a full discussion of these matters, see "The Property Status of the Airwaves," by Ayn Rand, in The Objectivist Newsletter of April 1964.