The city has reached a tentative agreement with its cable television franchise holder that will allow the firm, which lost nearly $3 million last year, to keep $250,000 due the city this year.
The city's decision to cancel the $250,000 payment owed by Rogers Cablesystems of California Inc., was one of several concessions made in a tentative agreement reached last week that is expected to be voted on Tuesday by the City Council.
Downey officials said they made the concessions to protect residents against interruption of cable service, and that the concessions would have no impact on Downey subscribers.
City officials said they also wanted to help the financially troubled cable firm so that it would be able to borrow from banks the money needed to pay for maintaining the local cable network, as well as completing wiring up new subscribers.
"They (Rogers) were in such a bad cash flow position and the banks needed some changes before they would help them with their cash problems," said Councilman James Santangelo, who headed a city committee that took seven months to negotiate the tentative agreement.
"Just to hang tough and not give them any slack at all wouldn't have done Downey any good," agreed City Manager Robert (Bud) Ovrom.
Rogers lost $2.9 million before taxes last year and is facing $5 million in losses this year, said Michael J. Friedman, assistant to the president of Telecommunications Management Corp. of Los Angeles. Telecommunications is consultant to the five-city Southern California consortium served by the Rogers cable network that includes Downey.
Because of the heavy financial losses, the five-city cable network owned by Rogers has been put up for sale by its parent corporation, Rogers Cablesystems Inc. of Toronto, Friedman said.
The network has 20,000 subscribers, half of whom are in Downey. Other cities served by the cable network are Santa Fe Springs, Lynwood, Bell Gardens and Paramount. The firm is seeking similar concessions from the other cities in ongoing discussions.
The president of the California cable company, Robert LaTourette, could not be reached for comment two days last week. Other company officials declined comment.
The problems Downey is facing with its cable television franchise holder are mirrored across the nation. From Los Angeles to Boston to Milwaukee to Dallas, cable franchisees are trying to renege on contracts negotiated when an unlimited boom was envisioned for the industry. Last month, the largest cable television franchise holder serving Los Angeles, CommuniCom, became the nation's first urban cable system to file for protection under bankruptcy laws.
The City of Downey signed a 15-year contract with the Rogers firm in 1981, which called for the firm to pay $300,000 a year to the city's Community Access Corp., an agency that monitors the cable firm's performance and distributes money for production of local programming.
In the tentative agreement, however, the city accepts a lesser payment of $50,000, on the condition that the firm helps the city produce local programs. The agreement is for one year only and will be reviewed later this year to see if the full $300,000 payment should be reinstated for 1986, officials said.
Other concessions agreed to by city officials include postponing two state-of-the-art cable services agreed to in 1981 that were dropped due to financial problems and a lack of consumer interest, city officials said. These services were a cable television network that would link businesses and government so they could exchange information using the cable network, and a system that would allow residents to shop, bank and vote by cable.
The city also agreed to reduce the company's performance bond, an insurance policy that guaranteed the firm would install the city's present cable network, from $300,000 to $60,000. The city agreed to the reduction because the system's major facilities are substantially in place, city officials said.
The city, however, has declined the company's request for a five-year contract extension that would have extended the present 15-year contract to the year 2001, agreeing to review that request in Deember.
Prefer Long-Term Pacts
Cable television companies generally prefer long-term contracts because they expect to lose money early with new franchises, but they make up the loss by the end of the contract. But Downey officials said they wanted more time to assess the financial status of the Rogers firm before considering a contract extension.
The cable company's financial problems were caused by underestimating construction and operating costs and overestimating revenues when the firm signed the 15-year contract with the five-city consortium, said consultant Friedman.
While Rogers planned to spend $18 million to build the system, which was planned for seven cities, the system built for five cities actually cost $22 million as of last year, Friedman said. The consortium originally was supposed to include Commerce and Pico Rivera, but those two cities withdrew from the group.
In addition, the firm expected to spend $4.7 million on operating costs this year, but instead ran up $6.9 million in operating expenses, Friedman said.