Hispanic activist Ciria Sanchez-Baca has invested most of her savings, some $4,000, in a Montgomery County cable company. With luck, cable television industry analysts say, her shares could be worth as much as $1.14 million in 10 years if her entrant wins the county's lucrative franchise.
But if luck isn't with her, Sanchez-Baca's stock will be completely worthless within a few months. "It's a risk; right now putting money on anything is a real risk," she says. "But you have to try."
These days, the prospects for Sanchez-Baca and her company, Montgomery Cable Communications Inc./Times Mirror, are anybody's guess. After a tortured process of public hearings and private consultant reports, County Executive Charles Gilchrist is expected to make a selection later this month from among eight applicants for the county's franchise.
Gilchrist's decision, many say, could well be seen as a judgment on the value of courting prominent local individuals as a way of winning exclusive cabling rights.
The bidder ranked highest by the county's cable consultant, Tribune United Cable of Montgomery, has no local shareholders, a fact that its officials say was no accident in a county that strives for scandal-free government. "It keeps you cleaner," said Mike Pohl, Tribune-United's director of new market development.
Still, local cable investors remain crucial to the strategy of many companies, including communications giant Times Mirror Corp. of California, whose joint venture with 40 local shareholders in Montgomery includes such potent local personalities as lawyer R. Robert Linowes, parking lot czar Leonard B. Doggett and former D.C. Police Chief Maurice Cullinane.
"No one is saying that this is a public service we're in. We're in this to make a profit," said Linowes, chairman of the local stockholders' board of directors. "But we think we're better able to serve the community because of our interest in the community."
In a final appeal to Gilchrist, MCCI/TM filed a statement about a week ago saying that its local stockholders, "by virtue of their commitment and accountability to the community that no cable company can parallel, substantially enhance the capability of the applicant to respond to the needs of the community and assure that the franchise's promises will be honored."
In recent years, widespread charges of influence-peddling across the nation have sharply reduced a practice--called rent-a-citizen by critics--in which cable companies simply handed out free stock to civic leaders in return for their influence. Instead, industry analysts say, cable companies are writing complicated financial deals that offer stock and multimillion dollar profits to local investors at low cost and minimal financial risk.
Critics charge that such practices result in cable subscribers paying higher rates because cable companies raise their charges to cover the cost of carrying the local shareholders. "You and I both know that somebody's got to pay the piper, and it ain't going to be the head honcho of a cable company ," said William Rossi, Fairfax County's cable coordinator. "The subscribers are going to end up paying it."
Several of the applicants competing for the Montgomery franchise have ownership structures similar to that of Times Mirror. While Times Mirror has more local investors than any other company competing in Montgomery, its strategy has not been unique. Four of the other seven competitors also claim local owners, including such influential personages as Capital Center owner Abe Pollin, TV broadcast personality J.C. Hayward and former Redskin Larry Brown.
The other firms, including top-ranked Tribune-United Cable and third-ranked Viacom Cablevision, have employed influential local representatives who draw salaries but do not own company stock. According to Pohl of Tribune United, that kind of arrangement saves criticism in the long run.
"Our position is we'd rather put it up front and put them on salary. We'd rather let people know, "You and I both know that somebody's got to pay the piper, and it ain't going to be the head honcho of a cable company . The subscribers are going to end up paying it." Fairfax County Cable Coordinator William Rossi for example, that Montomery County Democratic chairman Stanton Gildenhorn was working for us," said Pohl.
Gildenhorn resigned after being criticized publicly for his lobbying work.
An examination of MCCI/TM's structure offers insight into the way many of the nation's major cable companies operate. According to documents filed with the county as part of its application, and interviews with many of its shareholders, its 40 members have put $350,000 into the venture and the parent Times Mirror put up $650,000. If the company wins the franchise, the local stockholders have pledged to put up another $10 million toward the estimated $129 million cost of building the system.
Documents filed with the county do not spell out where the other $10 million would come from, but given the history of profits of existing cable firms, presumably it would not be difficult to find a financial institution willing to loan the money. The file includes letters from three area banks, Riggs, Maryland National and First American of Maryland, that indicate each would be interested in lending the money if MCCI/TM gets the franchise.
A simple computation shows why local citizens would be anxious to get a piece of a franchise backed by an industry giant such as Times Mirror. Financial analysts say the Montgomery franchise is one of the most valuable in the nation, and current industry estimates hold that mature cable franchises can be sold for 8 to 10 times cash flow.
Under that formula, the Montgomery system planned by MCCI/TM could be valued at $260 million within 10 years, and the proportionate share of the local investors would be $91 million. In that best-case scenario, Sanchez-Baca's $4,000 investment, although amounting to just 0.437 percent interest in the company, could be valued at $1.14 million, and Linowes' $30,000 could be worth up to $8.5 million by that time.
Sanchez-Baca, a Department of Education official, said, "I've always wondered why the Rockefellers had so much money and the Fords had so much money, and I thought it was time for the Bacas to get some."
It's easy to see why cable television companies turn to local investors for assistance. Because localities control the streets along which the cable is laid, local governing bodies are responsible for passing out franchises that guarantee companies a monopoly on the local cable market. Without well-known politicians and civic leaders to advance their views on decision-makers, many cable companies fear that their proposals could get lost in the quicksand of technical jargon.
"It's not a question of lobbying," said consultant Carl Pilnick, who was hired by Montgomery to make a technical examination of the bids. "All the council member has to do is look down the list, and see this friend or that friend. It's very hard to be completely impartial in a case like that."
To avoid the appearance of undue influence, many communities place strong restrictions on cable lobbying. Both Montgomery and Fairfax counties bar local investors from discussing cable directly with any of the localities' decision-makers, and both have approved resolutions stating that local ownership will not be considered a point in a bidder's favor.
For their part, local investors insist that they are not lobbyists but concerned citizens who can assure better TV service because they can help design programming that suits community needs. "I looked on cable television as a whole new wonderful world of community service," said MCCI/TM investor Rita Beuchert.
Members of the Montgomery County Council took note of the local investor controversy before they embarked on the franchising process, and passed a measure that would penalize any applicant that could not demonstrate its local investors were paying their full share of the cost of the venture.
"They all have the right kinds of words in their applications . . . . We weren't going to play private detective," said John Hansman, the county's on-staff cable expert. "Until I learn otherwise, I'm going to trust them."
The partnership between Times Mirror Cable and its Montgomery County investors was born during a chance encounter in the exercise room of a Mexican resort early in 1980 between Warren Adler, a longtime friend of Linowes, and Jerry Lindauer, a senior vice president of Times Mirror Cable.
Adler arranged a meeting between Times Mirror and a local cable group that Linowes had put together 10 years before. Linowes felt his group needed more economic clout if it was to be a serious contender for Montgomery's business, so a deal was struck, and Adler was invited into the partnership as a local investor.
Back in 1971, when cable was a fledgling industry and few had any idea that it would be grossing $2.2 billion annually in only a decade, Linowes and Washington communications lawyer Lee G. Lovett foresaw the profits--as well as the prospect of intensely political struggles for wiring rights.
"I've often said to people: if you'll just get me a political draw, that's all I want," recalled Lovett, who has since left MCCI and recently lost a franchise bid in Fairfax County.
Linowes had an ample list of political draws on the June day in 1971 when Montgomery Cable Communications Inc. was formed. Linowes himself was known as the county's most powerful zoning attorney; then there were Frederick W. Ford, the former chairman of the Federal Communications Commission; William Greenhalgh, a former Democratic council member; Newton I. Steers, a former congressman and leading Maryland Republican who resigned earlier this summer when he became a candidate for lieutenant governor, and a few others.
"Bob was looking for people who had a lot of community interests because he foresaw that the day would come when the 'who's who' and how they could relate this to the community might be a selling factor," said Rose Kramer, a former County Council member who, with the others, paid a dollar a share to join the group. New members were added by invitation on a "very personalized and informal" basis, she recalled.
"We tried to balance it, to make sure there were not all Democrats, not all Republicans, not all up-county or down-county, not all conservative or liberal," remembers Rita Beuchert, who was also among the group's early investors.
By the end of 1980, the company was well on its way toward expanding its list of local shareholders to include 40 names: people such as Martha Gudelsky, whose developer husband had retained Linowes in several county zoning battles; Mobil lobbyist Paul Petrus, who was a tennis chum of Steers'; Woodward and Lothrop chairman Edwin K. Hoffman, whose company retains Linowes' firm for some of its big land development cases; Stephen D. Harlan, a managing partner of Peat, Marwick Mitchell & Co., who met Linowes through the Washington Board of Trade, and many more.
Many are independently wealthy; some have sparse means. Almost a quarter are named in the Green Book, a listing of socially prominent Washingtonians. Among them, they claim membership in nearly 200 community groups and businesses, ranging from the Academy of Certified Social Workers to the Youth Committee for Peace and Democracy in the Mideast. There are blacks and whites, Christians and Jews. About a quarter of them have been clients of Linowes' law firm, by his estimate, and two more are his law partners.
In almost every instance, they were tied to vocal interest groups to whom they could carry MCCI/TM's message. "Naturally, the more groups that are represented--of course it makes it the company more saleable," said Linowes. "I'd be foolish if I didn't say so."
Lynn Wickwire, the Times-Mirror executive who is coordinating the Montgomery effort, said the firm's local investors have been careful to avoid lobbying the county executive, council members and other key cable officials. "We have done zero lobbying ," he says. "We have bent over backward not to do anything because we want to win this on the merits alone."
MCCI/TM's local investors have been kept busy over the last few months on other fronts, presenting the company's proposal before influential community groups. At recent meetings of the group's local investors, organizers have read off lists of groups that requested speakers.
"With almost every group, someone would say 'Sure, I'm a member of the Rotary,' or whatever it was," remembers Beuchert. "The businessmen talked to the business groups, chambers of commerce, boards of trade. We all did what we could."
Sanchez-Baca telephoned leaders of area Hispanic organizations. Rose Kramer met with fellow members of the county's mental health association.
For Kramer, as for the rest of the local participants, investing in MCCI/TM has been both exhilarating and frightening. Together, they could lose $350,000 if their company fails to win the franchise. Together, they could share $91 million.
For them, asking friends and associates to represent their cause before the County Council and executive is only good business. "It's part of the capitalistic system," said Kramer. "It's a two-way street--I can do for you, you can do for me. I don't know that's unusual in the way things run in America."