Financial Picture Dim for Duarte-Owned Cable TV

For years, television reception in Duarte was fuzzy.

To make matters worse, cable television, almost a necessity in some parts of the city because of the nearby foothills, was nonexistent or undependable.

“Groups of people would come to the City Council and scream, but we could not control the situation,” said Bob Wight, chairman of the city’s Cable Commission.

City-Owned System

By 1983, three different cable companies had failed to solve the problems. In fact, only 350 of the city’s 7,000 households were wired for cable.

So the city decided to switch channels.

Instead of trying to award the franchise to another company, the city took over the operation itself, becoming only the third city in California to own its own cable system.

Although the entire city became wired for cable one year ago and most subscribers say the service is dependable, the city is losing money and is uncertain whether taxpayers should continue to subsidize the service.

The city recently had to use more than $300,000 in reserve funds to make a $350,000 interest payment on $4.7 million in bonds issued to buy the system and make improvements.

“The system is set up to guarantee quality service to the residents, not to raise revenue for the city,” Wight said. “But we do not want it to be a financial albatross. We have a good product and a good operator, but things need to be resolved so we are on a strong financial footing.”

The picture started to clear up in 1985, when the city finally bought the system from Acton Cable TV for $250,000 and hired Kinneloa Television Systems of Pasadena to manage it.

Entire City Wired

More than $2 million was used to do what none of the private companies had been able to do: wire the entire city.

City officials had hoped that they could make payments on the bonds by assessing Duarte Cable Communications, Kinneloa’s operation here, 7% of its yearly gross.

But that amounted to only $10,000 in the first year, which ended this month, said Donald Pruyn, Duarte’s director of community services.

Concerned that the system still has only 1,700 subscribers, the city is trying to determine if the marketing effort by Duarte Cable has been aggressive enough. City officials had hoped that by now, half of the 7,000 housing units would be hooked up to the system.

Mel Matthews, president of Kinneloa, said: “We’ve pulled out all the stops, and I can’t imagine what more we can do” to get more subscribers.

Rates Too Low

City officials also believe that the basic rate paid by subscribers--$7.95 a month--is probably too low. Cable subscribers in neighboring Monrovia pay $15.95 and the statewide average is $12.

Former Mayor John Van Doren said the city wanted to keep the rate low to make the system attractive to potential subscribers.

Van Doren said the city had hoped that many subscribers would sign up for premium channels in addition to the basic service, but the number of such sign-ups, which increase revenue, has been disappointing.

If the financial situation does not improve, city officials will be faced with three choices, Pruyn said.

The city can continue to subsidize the system, find another operator who can generate more income or sell the system and take a one-time loss.

Can System Pay?

“We need a better idea whether the system can ever pay for itself,” Pruyn said.

The city has hired a consultant to recommend solutions. Among other things, the consultant is studying finances, management techniques and marketing.

Wight said that if the system cannot begin to pay for itself by 1990, when the first payment is due on the principal of the bonds, the city will have to sell it.

In order to eliminate the need for more subsidies, the basic subscription rate and the number of subscribers must be raised, he said.

Another way to raise more money, he said, would be to add a special channel on which businesses would pay a fee to advertise their goods.

Little Interest

Duarte’s financial problems with its cable system reflect one reason why more cities do not own their cable systems, said Kathleen Schuler, executive director of the state Foundation for Community Service Cable Television, established by the Legislature to serve governmental entities and the cable industry.

In searching for a company to manage its cable system, Duarte found that few cable companies were interested in running a municipally owned system.

The city got bids from only two companies. “Kinneloa had demonstrated it could operate a system of this size effectively in (east) Pasadena, it had the technical expertise and was local,” City Manager Jesse Duff said in explaining why that company was selected.

“Customer service was a high priority, and we found that had been their strong point.”

Kinneloa, which has served the eastern portions of Pasadena and Altadena for 18 years, is one of the few “mom and pop” companies still operating in the state, Schuler said.

Workable Arrangement

“We are a small company and Duarte is a small city, so the arrangement works out,” Kinneloa’s Matthews said.

Kinneloa has a 10-year lease and an option to renew it for five more years. Any rate changes must be reviewed by the city, which Duarte regards as an advantage of owning the system.

Kinneloa, like Duarte, is happy with the system except for the financial aspects, Matthews said.

“We are uncertain as to the long-term financial situation and we are losing money now, but this is normal in a start-up operation,” Matthews said. “We are trying to get more subscribers and we are in it for the long run.”

However, said Duff, “we are not hooking up new customers as quickly as we had hoped, and we are now trying to determine why because the city is not recovering its investment.

“We get calls from all over the country because more cities are looking at the idea of ownership.

“But if a city has a . . . citywide (system owned by a private company) and it is efficient, then maybe it doesn’t make sense for the city to own the system.”