For decades, Storer Broadcasting Co. has been in the forefront of the communications business.
During the 1920s, for example, Storer was one of the pioneers in establishing a group of radio stations. It built three television stations in the 1940s when that medium was the stuff dreams were made of. And in the early 1960s, the company got into cable TV when the system was used mainly to bring big-city television to those down on the farm.
But for all its successes, Storer remained an almost invisible company, a reflection of its publicity-shy founder and controlling shareholder, George B. Storer. He kept a low profile, and dictated the same policy for his company -- which in the 1950s he took woth him when he moved from Birmingham, Mich., to Maimi Beach.
It was his ball and bat, and we all played by his rules," recalls Terry H. Lee, 58, who has worked for Storer Broadcasting for 21 years and now is president.
George Storer was an old-style broadcaster who was most comfortable running radio and television stations. Although the broadcaster was in the forefront of the development of cable television, he remained unimpressed by its potential financial future. As a result, in his final years as head of the company, there were a number of important developments in cable television that Storer had not anticipated.
In 1975, the first satellite was put in orbit that allowed cable operators to transmit programs over vast distances. At about the same time, the federal government began moving toward deregulation of the industry. Financial institutions started making loans to the cable companies, which require enormous amounts of capital to lay cable once they have been granted franchises.
As a wider variety of programming became available, cable companies found that at least 50 percent of the people in a franchise area would subscribe. What's more, subscribers were paying extra money each month for such highly profitable cable services as Home Box Office, which offered shows, sporting events and current movies. Suddenly it became clear that there was big money to be made in cable TV -- and that realization produced madcap compeition among cable companies to grab off the best franchises.
George Storer died on Nov. 4, 1975, at the age of 76. Since then, Storer Broadcasting -- under the direction of George's son Peter, 52, the chief executive officer -- has gone through a dramatic change of direction.
In 1978, the company made an abrupt departure from the past when it sold off six of George Storer's cherished radio stations. (It still owns one radio outlet in Chicago because by law radio stations must be kept for three years from the date of their acquisition.) Storer took the $42 million realized from the sale of the stations -- and then some -- and used the money to plunge headlong into the cable business.
Back in 1974, Storer had about 133,700 subscribers to its marginally profitable "classic" cable service -- carrying network TV to remote areas. By the end of 1980, there will be 600,000 subscribers to Storer cable television, Peter Storer predicts.
The newest cable franchises offer a bewildering variety of programming to the viewer -- for a price.For example, Storer and others bidding for the Dallas franchise are offering 104 channels. Some 35 channels of program services are beamed in by satellite and include the Cable News Network and a 24-hour sports network. There are many local channels, serving schools and colleges, and the system has the potential of being two-way to allow the TV user to shop, voice an opinion, set up a burglar and fire alarm system and perform other tasks.
The basic service of some 18 to 20 channels costs the subscriber $5 or $6 a month. If he wants to Home Box Office or 24-hour movies or Showtime with shows from Broadway and Las Vegas, each will cost him about $10 a month.
Almost overnight, Storer has become one of the leaders among the 50 or so companies vying for the rapidly dwindling number of valuable cable franchises. The biggest companies are Teleprompter Corp. with 1.3 million subscribers, followed by American Television Communications (a Time Inc. subsidiary) with 1.2 million, Tele-Communications, Inc. with 1 million, Cox Cable Communications, Inc. with 800,000 and Warner Amex Cable Communications, Inc. with 750,000.
In a soon-to-be-released survey of the cable industry, the investment banking firm of Warburg Paribas Becker Inc. says that in 1979 "profitability jumped dramatically as net income rose 84 percent on average and cash flow from operations increased 25 percent."
Storer's cable operation now account for about 24 percent of the company's rfevenues and 18 percent of its operating income, according to a recent report by an investment analyst at Goldman Sachs & Co. Most of the company's income still comes from its seven television stations in Cleveland, Atlanta, Detroit, Boston, Milwaukee, San Diego and Toledo. While prodicting "fairly steady, if unexciting, growth from these operations," Goldman Sachs says that "Storer's investment appeal at the moment lies in the future growth potential of its cable operations.
In its brief time in the business, Storer has become perhaps the most aggressive competitor for frachises in an industry not known for timid souls. It now controls about 200 franchises nationwide and is adding new ones with regularity.
In suburban Washington, its pursuit of franchises is being led by its vice president, Winfield M. Kelly Jr., the former Prince George's County executive. Storer already has been awarded the franchies in nine incorporated towns in Prince George's, and is bidding for the whole county. It also holds the franchises for Howard County and for Leesburg, Va.
Prince George's and Montgomery counties, along with suburban Dallas and Houston are described by Peter Storer as "ideal franchises -- high density and suburban."
Perhaps the most sought-after franchises right now is Fairfield County, Conn. It includes wealthy bedroom communities such as Greenwich, Westport and Darien that are favored by well-heeled New York commuters, as well as the booming business community of stamford.
A state utility commission soon will decide among eight cable companies competing for the franchise. Storer is one of two leading contenders for the franchise, according to a state official.
After Storer sees the Connecticut franchise, which he estimates will cost about $24 million to build, as important for his company's new, aggressive image. Storer says the franchise, in an area heavily populated with financial and advertising executives, could be "one hell of a showcase."
Being well thought of by the financial community is extremely important for cable companies, which must finance the heavy capital outlay in stringing cable. The per-mile cost can range from $8,000 $10,000 in rural areas, where it can be run overhead between poles, to more than $100,000 in New York City, where cables must be squeezed through already crowded underground conduits.
Under the conservative George Storer, bank borrowings were kept at a minimum, and in 1977, on the eve of the company's plunge into cable, it had a minimal debt. Now, however, the Goldman Sachs report estimates that Storer Broadcasting's long-term debt will rise to between $100 and $150 million by the end of this year.
According to Martin Malarkey of Washington-based Malarkey, Taylor and Associates, the largest consulting engineering firm to the cable industry, the "crossover point" where income equals operating costs normally comes after a cable system has been in full operation for two or three years.
"The banks recognize that this is a growth industry and offering a product that has tremendous mass appeal," says Malarkey in explaining why financial institutions are seeking out cable customers.
In addition to debt financing, Storer has gone to the equity market for the first time in decades. In April, the company issued 2 millin shares of common stock priced at 24 7/8 a share. Storer stock, which is listed on the New York Stock Exchange, has been trading at about $31 a share recently.
For the first time, Storer executives have been addressing gatherings of securities analysts to stoke up interest in the company. They seem to be succeeding. According to Storer President Lee, "Before, if a couple of thousand shares of the stock was traded in a week, it was a big deal. Now the trading averages 30,000 shares a day."
When he died, George Storer controlled the company with 19 percent of its shares outstanding. Most of that stock was bought by the company. Now the biggest individual shareholder is Peter Storer with 1.6 percent of the stock.
A trust fund set up by George Storer at the Detroit Bank & Trust Co. holds 11.18 percent of storer stock. Reader's Digest Association Inc. became a major investor in Storer a couple of years ago when it bought 4.9 percent of the stock.