Interview Date: Wednesday, April 21, 2004
Interviewer: Craig Kuhl
Abstract
Barry Babcock describes his entry into the cable industry as an attorney overseeing relations between municipalities and cable companies. He discusses regulations imposed by the FCC on cable companies and the effect on acquisitions; negotiations for programming discounts; engaging investors; and his involvement in industry affairs. He concludes by reflecting on his own successful management philosophy.
Interview Transcript
CRAIG KUHL: On behalf of The Cable Center we’d like to welcome Barry Babcock here. Barry is a part of the oral history series here at The Cable Center and I’d like to introduce Barry. Barry has been an integral part of the cable community for well past 25 years now, co-founder of Charter Communications and a fan of the cable industry for years. Today we’re going to go back in time with Barry and have him explain to us in detail some of his early days with the cable industry and even before that. So, Barry, welcome to The Cable Center. It’s great to have you here.
BARRY BABCOCK: Thank you.
KUHL: Barry, let me start from the beginning. You were inspired early on, I know, in your educational days and your college days and high school days and even before, growing up in Minneapolis. Why don’t you just walk us through some of those early days and maybe some of the moment in times that maybe inspired you to join the cable industry and become such an integral part of that industry?
BABCOCK: Okay. I think it’s fair to say that it was a very circuitous road to the cable industry. If there were a couple of themes maybe that influenced my direction, the first was from an old Yogi Berra saying, “When you come to a fork in the road take it.” By that I mean I just had a number of opportunities along the way and as we all do you have to decide whether you’re going to go in this direction, that direction, and I always seemed to have made the right choice, so that was good. The other thing is that I’ve had a number of opportunities in my life to manage people, to work with people and that really stood me in good stead as I got into the cable business and into the management and as we went from company to company I had the experience that really helped me a lot.
I was born in Minneapolis, but I did not grow up in Minneapolis. I grew up in Oklahoma City. My family moved to Oklahoma City when I was very young and we grew up in a lower middle class neighborhood. We didn’t have a lot of money. My dad was literally a traveling salesman. I went to grade school, had a great time. I just remember having a good childhood. I’ve often said I didn’t know that I was poor until I went to junior high school because everyone in my grade school lived in the same neighborhood, so when I went to junior high school that’s when I figured out I was a little bit… I didn’t have quite as much money as everybody else. That was okay; it didn’t bother me. At an early age I got involved in politics and that’s one thing that I’ve stayed involved with my whole life. When I was in 7th or 8th grade, I was the school representative for Richard Nixon and somebody else was the representative for Kennedy – so this was in ’60 – and we had an election. So we made speeches and so on, and I won that election. So even though Kennedy won the big one, I won the one at my school. But I was always interested in politics and just the political process. I would say in high school the thing that maybe helped me the most was that I got involved in an activity which was the stage crew. It was a lot of fun for me. I wasn’t an actor or anything but I enjoyed being behind the scenes, which is also sort of a theme in my life. I’ve never been one to be in the spotlight. I’ve always enjoyed being behind the scenes. My junior and senior year there I was the stage manager and that meant that I had a lot of kids working for me and a lots of projects and it was just a great experience. I learned a lot about dealing with people and dealing with faculty.
When I left high school – you know, nowadays my kids have college counselors and they take all these tests and whatever. When I left high school there was only one place that I was going to go to school and that was the University of Oklahoma. I had a scholarship there and I couldn’t afford to go anyplace else anyway, but I was happy to go to OU and had a great four years there. I got involved in student politics at OU. Ultimately I was president of the student body, but it was another great experience for me to work with lots of people. I was secretary general of the model UN and that was kind of getting involved in some of the political stuff, maybe more on an international basis. So again, I really enjoyed working with people. At the same time, I majored in geology. When I went to school, when I went to OU, I had no idea what I was going to major in. I had none, whatsoever. But I needed a job and so I went to, I don’t know, the employment office at the school and I said, “I need a job,” and they said, “Well, we have these three jobs available,” and I picked the one that seemed the more interesting to me and it happened to be in the geology department. So I went to work in the geology department and then I got kind of interested in that and they asked me in the summer of my freshman year if I wanted to go out to the geology field camp, which is here in Colorado just outside Canon City, and that sounded like a lot of fun. So I went out there. My job was to wash pots and pans and clean up the cabins, which I did. I had a great time. They let me go on the field trips with them, and that’s what really got my interest in geology. From there I had a wonderful four years majoring in geology. It was a subject that I liked, that I was interested in. I didn’t know what I was going to do with it, I just knew that it was a way to graduate from school with a bachelor of science and I enjoyed it. So that’s what I did. I was in ROTC because that was another way for me to pay for my education and at the time – and I graduated in 1969 – so at the time I had a four year commitment in the Navy, which was of course in the middle of the Vietnam War, and I was home ported in San Diego. So I had a four year stint in the Navy, went to Vietnam three times. It was a great experience for me; I loved it. To think about a young man coming out of the Navy after four years, and I had 150 people that reported to me, and at the age of 22 I was the boss of a lot of people and a lot of problems came up that you had to deal with. I had to deal with crusty old chiefs and young seamen that got themselves in trouble and so on. So again, I had a tremendous opportunity to learn, to grow as a manager, to grow in dealing with people, and it was a wonderful experience. At the end of that period of time I’d decided that I wanted to go to law school. I didn’t really connect geology and law school. I just felt that law school was where I wanted to go because I thought it would prepare me for whatever I was going to do.
KUHL: At this point in time did you have aspirations to be an attorney in some form or another?
BABCOCK: I had friends that had told me that you should either get an MBA or go to law school, one of the two, as good preparation for business and so on. I think one of the biggest mistakes I ever made was that OU had a joint program where you could get an MBA and a law degree and I didn’t do that. I just did the law degree part. But there’s an interesting story about that. First of all, when I was in the Navy, the commanding officer of my ship called me in his office and he said, “We really want you to stay. The Navy’s got a program where we’ll send you to law school, we’ll pay all your expenses, but it’s a two for one deal. So you got to law school for three years, then your commitment is six years after that, but we’ll pay for it all, you’ll get lieutenant’s pay when you’re not in school.” I did the math quickly, that would have been a 13 year total commitment in the Navy, which is too close to 20 to get out. So the question was was I going to make a career in the Navy and the answer was no. I didn’t want to do that. I enjoyed the Navy tremendously and I learned a lot, it was just a great time in my life, but I recognized that most of the career people that I worked with in the Navy were people who were comfortable in an environment where all the decisions were made for them. While that was all right for me, I really wanted to be at a place where I make my own decisions and where I can decide my future and not have it decided by somebody else. So it took me three seconds to tell my captain that I was not going to stay in the Navy. But then what happened, I went home – it was in the summer, and I went home and stayed a few days with my parents and my plan was that I was going to go to Colorado and be a ski bum. I figured I’d gone to college, I’d been in the Navy for four years; it was time to take a year off, relax, have some fun, learn to ski, probably wait tables somewhere because I waited tables when I was in law school – well, that’s coming up, I haven’t done that yet. Anyway, I stopped in Norman on the way to Colorado and visited some friends of mine, some college friends of mine that I hadn’t seen in a while. We were sitting around that night and my friend said, “Well, what are you going to do?” I said, “I’m going to be a ski bum. I’m going to Colorado, learn to ski.” He said, “You know, I just read an article and it said that every year you put off getting your education on the front end is a year less earnings on the back end.” So in effect you give away a lot of money because you’re giving away a year where you’re earning a lot of money at the end of your career. I hadn’t thought about that.
KUHL: Interesting concept.
BABCOCK: I said, “Well, you know…” Law school had already started, as a matter of fact. They had a two week kind of preschool for all the students, just a kind of introduction to law. It wasn’t really part of the school but it had already started. So I said, “You know, I haven’t even applied.” And so he said, “Why don’t you apply and see if you can get in? They know you over there.” I was fairly well known on the campus, so he said, “Try it out.” So I went to the law school, the dean of the law school, and I said, “I haven’t applied,” I had taken the LSAT that was a requirement to get in, but I hadn’t applied and I said, “If I applied will you accept me?” They said, “Well, law school’s already started, but if you can get your application in by tomorrow we’ll accept you in law school.” So that was a challenge for me because it was a rather long application and required three references from faculty. So I went home and I just decided to take the challenge because I just thought it would be fun to do. So I went home and I wrote three references for me and I took them to the professors that were friends of mine and I said, “You sign this one, you sign this one, you sign this one,” and I took them all into the office the next day and I was in law school. So I never made it to Colorado, I never made it being a ski bum, and I’m not a very good skier today.
KUHL: Yeah, I was going to ask you, did you ever learn how to ski?
BABCOCK: I can ski. I can get down to the bottom of the hill, but that’s about it. So I went into law school. At first I thought, well, I’ll put the geology degree and the law degree together, I’ll come out and I’ll be some sort of an oil company lawyer or something like that. I didn’t know, but I could kind of see where it might make sense. But I still needed money. I was on the GI bill then, but I still needed some money and so I wanted to work as an intern because I wanted to start learning the business of being a lawyer. A friend of mine knew somebody at the City of Oklahoma City in the law department and said they had intern programs there, maybe you should go apply for one. That kind of interested me because again, it was kind of back to the politics and government and so on, which had always been an interest to me. So I said, “What the heck, I’ll go apply for a job there.” I’d applied at some other places to, but I said I’d apply there and I did and I got the job. So I started out and I worked in the summer as an intern at the city of Oklahoma City and went to law school during the year, summer interns in Oklahoma City. In the meantime, one of my good friends from college had become the campaign manager for Jim Inhofe who was running for governor of Oklahoma, a Republican running for governor. He’s now a Senator from Oklahoma, but back then he ran for governor and I got involved in that campaign and I was sort of like the assistant campaign manager. I had a good time. I took a semester off of law school to do it, but it was a lot of fun and I, again, learned a lot about politics and whatever. We lost the race. I went back to law school and finished up. As I said, he’s now a Senator from Oklahoma so it worked out well for him ultimately. But it was another good learning experience for me. At the end of my law school time, I was offered a job with the City of Oklahoma City as assistant city attorney and I was comfortable there and I really wanted to do that, but people asked me, “What are you going to do with your geology degree?” And I’d had a couple of job offers to go to work for oilmen at a company and so on. I guess the short answer was I really thought I was interested in this Oklahoma City job. It was fun for me and I always sort of just went with my gut and that decision, which ultimately got me into the cable business, was a decision that just for me felt right. It was something I wanted to do and it seemed like it would be fun to do. So I went to work for the City of Oklahoma City. A kind of long story short – I was head of the planning and zoning department for the city and the mayor asked me if I would head up a staff committee to bring cable to Oklahoma City. This was back in the mid-70s and it was during the franchising war days, and because I was an attorney and because at the time the FCC was regulating cable to a fair degree they felt like they needed to have an attorney who had this thing up because there was a lot of legal details that were involved in franchises. So, I took on that task which turned out to be a very important thing for me to do. I soon figured out that we needed to have a consultant help us to get the franchise in Oklahoma City and I ended up hiring Bob Brooks, who at the time… Bob was one of the early cable pioneers. Bob had been and was a good friend of Bill Bresnan and Bill Daniels and lots of other people that were the early pioneers. Bob was running a consulting business in St. Louis. The name of his company was Telecom Engineering. We went through the franchising process; I met a lot of these guys that now are kind of my heroes in the cable business, I met them in Oklahoma City because they all came down wanting to get the franchise. Ultimately the franchise was awarded to Cox and they still have that franchise today, so I think it turned out to be a good decision for the city. But at the end of this process Bob asked me if I wanted to join his consulting company because he consulted with cities around the country. He needed an attorney on his staff and he wanted someone who understood the municipal side of things and had some experience working for city governments. So it seemed like a good fit to me, but here was a big crossroads in my life because here I was an attorney, and I should go back and say in law school I met my wife and we got married and we’d only been married about a year when we got this offer from Bob to go to St. Louis. While it was a consulting job it was really not a lawyer job. I had a legal background and I was going to use that knowledge and so on, but it wasn’t being a lawyer in a law firm or working for some governmental entity, it was just helping out in a consulting business. So it was a tough decision for me to make. I didn’t know what to do. I’d just been a lawyer for three or four years and I enjoyed it. I did think the practice of law was somewhat boring for me. It had moments of excitement and even terror when you’re in the courtroom or whatever, but there was so much that was pretty mundane and just wasn’t very interesting. So I was motivated to kind of look for something else to do. Unfortunately, though, my wife thought she’d married an attorney so this was a tough thing for her to deal with. I got to talking to some of my friends, my attorney friends, in Oklahoma City and I said, “What would you do if you had this opportunity?” and I think to a man they all said, “You know, you ought to take this opportunity because to the extent that we’ve made money,” each one of them said, “to the extent I’ve made money, it hasn’t been practicing law. It’s been getting involved in side deals, business deals, real estate deals and so on, really businesses where the action is. So you’ve got this opportunity, you should take it.” To my wife’s credit she said, “If that’s what you want to do, that’s what we’ll do,” and it involved moving to St. Louis, so we did that. I went to work for Bob and at the time the company, even though he was running a consulting company, he had a couple of small franchises on the side, and there were some people in the company that were helping Bob to run these cable systems. One was Columbia, Missouri and the other was St. Charles, Missouri. This was back before satellites and you were just taking the over-the-air signal either off the antenna or you were microwaving it, in the case of Columbia, across the state and that’s all you were providing, really, was just off-air signals. There wasn’t much else at the time. But our primary business was consulting with cities and we did that for two or three years and had a good time, but we also did some international consulting. I spent some time in Chile and it was a lot of fun. I really enjoyed that. Cable was just starting out as a business. Most people didn’t even know what it was, nobody knew if it was going to be a success or not, so it was not a situation where I felt like I was getting into a business that was a hugely successful, fast-growing, new industry. I thought it had potential and I could see that things were moving. TBS, which wasn’t TBS at the time, Ted Turner’s station in Atlanta (WTCG), he had gone up on the satellite, HBO had gone up on the satellite so technology was starting to kick in. Bob had just bought an earth station for Columbia and back in those days you had to register the earth station with the FCC, you had to get a license and all that stuff. It was a 10-meter dish, which is a huge dish, and it cost $100,000, which was a huge amount of money back then. But Bob believed in technology, he was an engineer himself and so that kind of was the start of the cable business. The satellite made a huge difference because for the first time we started getting some programming available other than the off-the-air stuff and that’s what really made cable kick in. In any event, my first kind of business experience with the cable industry, other than this consulting part, was that the company we were working for, Telecom Engineering, headquartered in St. Louis and had a couple of cable systems, we were approached by TelePrompTer. Russell Carp was the chairman, Bill Bresnan was the president at the time. I knew Bill from Oklahoma City; Bob had known Bill for many years, they were friends and had worked in Minnesota together. They came to us and they said, “We want to try to get some franchises in the St. Louis area,” it was kind of an interesting place because besides the city of St. Louis there were about 90 communities in the immediate area around St. Louis so there was a lot of franchising to be done, and so Bill and Bob were already old buddies and we had the meeting. “Would you all help us franchise?” And the reason that they asked us to help was a lot of the companies would come into town and would hire a local politician or they’d hire some person who was well known in the community and it was sort of like a “rent-a-citizen”, that’s what they used to call it. Well, TelePrompTer didn’t want to do “rent-a-citizen” but they wanted us to be involved because we were local and we were in the cable business so it seemed like a good fit. The other reason is because Irving Kahn had recently gotten out of jail and they felt like it was a liability, that people would not trust TelePrompTer and that in these highly competitive franchise battles TelePrompTer needed something else. So that’s why they came to us and said would you do this. So we agreed to do it and I immediately started my new career of getting franchises in the St. Louis area.
KUHL: Barry, we are back to your new career now and moving towards your days with Charter Communications and relationship with Bill Bresnan and a number of other cable pioneers such as yourself. Why don’t you walk us through now this new career that is opening up for you in your pre-Charter days and some of the mindset, the mentality that you had during those pre-Charter days, which must have been pretty scary, pretty risky, but why don’t you take us through that?
BABCOCK: Well, it was scary and it was risky. In fact, the company that I went to work for got into a serious financial bind because if you recall back in the early ’80s interest rates were very high and they had a loan on these cable systems that was five over prime, and at one point in time prime got to 16, they were paying 21% annual. It wasn’t going to work. They couldn’t make it work so they were forced to sell these cable systems and they ended up selling them to TelePrompTer. So here we were, it was in 1982… well, let me back up and say that I really had a great time franchising in the St. Louis area and some other places, too. I learned a lot, I met a lot of people who went on to be executives in the industry who were kind of young like I was at the time, but in 1982 the company that I was working for sold, and the cable properties went over to TelePrompTer. So the cable division of this company, we were looking for something to do and Bob was our leader. He was a very charismatic guy and had a very forceful personality, kind of a man’s man type person and people warmed up to him very easily. So, Bob took Jim Allen, Charlie Morrison and myself from the now sold company and the four of us put what money we had – my wife and I actually borrowed $20,000 to put into this company so we’d have some equity in the company, and we didn’t have any money, but we borrowed the money, we put it in and basically all of our net worth plus some was in this company. We formed the company; it was called Cencom Cable Associates. I would say the most important thing about the company was that it was a startup. We had some relationships, but not really much in the way of banking relationships and so on from our previous company. So it really was a true startup. The only place we could get money was from a venture capital company, which happened to be here in Denver. It was called the Centennial Fund with Steve Alstead and Jack Tankersly, and they made the initial investment in Cencom Cable Associates. Bob put together a board which included Bill Bresnan and Frank Drendel. Frank was an old friend of Bob’s, this was back in ’82. I was senior vice-president and general counsel of this company. There were only four of us so we were all basically doing everything, but Jim was the numbers guy, Charlie was the engineering guy and I was kind of the legal guy, but we all did everything. It was a good learning experience for me because I dealt with all the contracts and all the insurance and ultimately the franchises and bank loans and everything. It was a good way to learn the business. It was a sink or swim type thing. So we started Cencom Cable Associates, we had no subscribers, we gradually started making little tiny acquisitions – 1,200 subs here, 400 subs here – and that was a very interesting time. The tax laws were such that up until 1985 we decided to go with a funding vehicle which was a limited partnership vehicle, which was a great tax shelter. So you went around and we had some people help us, investment banking houses – small regional houses, not the big guys because they wouldn’t even pay attention to us – but we had a lot of regional guys help us raise money. Back in those days we didn’t have much on the balance sheet, in fact we had very little on the balance sheet. It was tough to borrow money. Interest rates were still very high, and so we had to use this vehicle to raise money to buy systems. So what we would do is we’d go out and we’d find a system or a group of systems, get a contract to buy it and then we’d have to go sell these limited partnerships. We were out there competing with Glenn Jones who was selling all of his own limited partnerships, sold it in a little different way, but we’d always be running into those guys around the country. I guess the point of this is that every time we did one of these deals, if we didn’t do it we were out of business. So here I was involved in a business where I had everything that I owned in this business plus some, and every time we went out to do a deal if we didn’t raise this money we were bankrupt. We had to do the next deal to keep going. That’s the way it was back then. I will never forget: it was our first big acquisition where we were going to use this limited partner vehicle and in those days you sold the limited partnerships and then you closed on the acquisition and you closed on the partnership at the same time because when you closed on the partnership that’s when the partners sent the money in and then that’s the money we would use to buy the cable properties. So we were in Washington D.C. closing on a number of properties in the Carolinas and it was our first big acquisition. It was a very important acquisition for us. So we’re closing and in order to fund you not only had to close the limited partnership but you had to file the papers in the state in which the partnership was created. In this case it was South Carolina. This sounds complicated but there was a certain procedure you had to follow. So we’re in the process of closing, everyone’s really nervous because you don’t close you’re out of business, we get a call from our local attorney in South Carolina that I had hired and the attorney said, “You won’t believe this, but I can’t file the papers.” We had to close that day. If it went just one day then the limited partnership deal fell apart because the commitments were only through that day. I said, “What do you mean you can’t file the papers?” It was like a Wednesday or something. He said, “Well, the secretary of state’s office is on holiday today.” I said, “What do you mean? What holiday?” “Well, it’s Jefferson Davis’s birthday. Every state office in South Carolina gets to choose when they take a holiday and the secretary of state chose Jefferson Davis’s birthday and he’s not in his office. Neither is anybody else. I didn’t know about it. I’m sorry. It didn’t occur to me that he would do this.” So I don’t know if Apollo 13 had happened or not, but basically what I said to him was, “You know what? Failure is not an option here. We don’t have an option to wait. You have to file these papers today.” He said, “Well, I’ll tell you what. There’s one thing I can do. I’ll try to find him and if I find him I can file the papers with him because that’s perfectly legal.” So again, long story short, he was on a golf course, my attorney caught him on the 9th hole, filed the papers with him, he signed them as having received the papers. He called me back and said the papers have been filed and we closed that deal, but it was a very tough, nervous time and we did this again two more times where you had to file… since it was a tax deal we ended up closing these things – not the first one, but the next two – we closed them on December 31st. You had to close them by the end of the year. That brought its own problems because trying to get things done New Year’s Eve day was always a big problem and we had some major problems, and I won’t go into it. We always got them closed but it was very tense.
KUHL: So it sounds like this is almost sort of like you’re gaining that experience and almost like this right of passage now to kind of transition and take that next step to Charter. Is that kind of what you were thinking about at this point in time?
BABCOCK: Well, it was in the sense that while we were the management team, we didn’t have a big chunk of the company. Between the Centennial Fund and then a company out of New York – I’ll think of the name in a minute – we had basically sold most of the equity of the company just to get deals done and we ended up at the end of the day only having about a 25% share of the company, and the reason that’s important is because the executives of Cencom, we all knew that at some point in time we wanted to own our own company and we wanted to have a situation where we controlled our own destiny. So that was always out there and we knew at some point in time we all had this yearning to do that, but now we were in the middle of Cencom and we were still struggling with these financial situations. We finally did a deal and we bought some cable properties from Group W. We bought a lot of properties in the St. Louis area, and this was the first deal that was so big that the management fees from the properties would carry us forward and we didn’t have to do a next deal. It was the deal that made Cencom. So, we continued to grow the company. In 1986 I made a trip to Denver to meet with John Malone and the reason that I met with John is that we wanted to see if we could cut a deal with TCI to provide programming discounts for us because the programming costs were just eating us alive. I’ll never forget, I walked into John’s office and I’d never met him. I knew of him; he wasn’t quite as famous back then as he later became, but everybody knew who John was and TCI was the biggest cable company. When I walked into his office John had a sports shirt on – I was coat and tie and he had a sports shirt on and a pair of slacks – and we sat down, we talked about what we needed to have happen and it was a pretty easy deal to construct. They had done similar deals with other companies. John wanted to put Larry Carlton on our board and that was fine with us. We expected that. But when I went back to St. Louis I said, “You know what? If John Malone doesn’t have to wear a coat and tie, why do I have to wear a coat and tie?” So I started sort of a trend in our company where we didn’t wear coats and ties until the bankers showed up, or the investment bankers, and we all put our coat and tie on. Ultimately we didn’t even do that. So that was my one inspiration from John. Larry Carlton came on our board and was a fantastic board member and TCI was a fantastic partner for us. They never bothered us. They had a bad reputation; they had a reputation of kind of being a bully in the industry, but to us they were wonderful. We got the discounts we needed, they never said a word to us. At one point in time, John said to me because I said something to him, “I really appreciate the fact that you guys don’t meddle in our business,” and he said, “Why would I meddle in your business? You can run cable better than I can run cable, so why would I do that?” And I thought that was a valid comment and I appreciated it, so we had a good partnership. But part of the deal with TCI was we had what was called a shotgun buy-sell, which meant that at the end of five years, which was 1991, either Cencom or TCI could put a price on the table and the other person would say whether they were a buyer or a seller. We agreed to that. On the surface it seems like that’s a pretty fair way to do it. If you want to sell you put a price on the table and you hope it’s low enough the other guy will buy and so on, and you sort of know what’s going on. But underneath it wasn’t such a good deal and we knew it wasn’t because they had all the leverage. TCI had all the money. They could put a price on the table that we knew we couldn’t meet and then they could end up buying the company. So we decided, or the investors… TCI owned about a quarter of the company, our other investors, Centennial Fund and the other one was Charterhouse owned about half the company, and management owned the other quarter. While Charterhouse, Centennial Fund and the management didn’t want to get into a situation where we were going to have to sell to TCI because we didn’t think we’d get value for our money. So we went out looking for a buyer. Ultimately what we did was we ended up having an agreement to sell to Crown Media, which was headed up by Jim Hoak at the time and was owned by Hallmark Cards. Hallmark had decided to get into the cable business because they had a whole lot of cash and they needed some tax shelter. That was their incentive, and they went out and hired Jim who’d just sold Heritage and Jim was looking for something to do and they hired Jim to run this Crown Media. So we cut a deal with them; we sold the company to Crown Media. It was a good price. We didn’t want to sell but we felt like we had to. We didn’t have control of the situation. But a couple of things came out of that that I think are important. One is that we had developed a relationship and were managing some partners for a company called Gaylord Entertainment, which was owned by the Gaylord family out of Oklahoma City. They needed to buy some cable companies and we had done a deal with them. They had come in not at Charter’s level, but at the underlying deal level as an equity player, and we had developed a really nice relationship with them and they were just great partners. The management team of Cencom had a contract with Gaylord to manage these properties and it was like a personal contract. It wasn’t part of the assets that were being sold to Crown Media. Crown Media, though, would not buy Cencom unless they got the management of these Gaylord properties. So the management team said, “Well, okay, if you want to do that you have to pay the management team because we have the contracts with Gaylord.” And Gaylord was backing us up on that. Gaylord said, “Our deal is with these guys.” Crown said, “We’re not going to pay you,” and we knew we were kind of in a box. We went to our investors and we said, “We think we should get something of value for these contracts because it’s obviously valuable to Crown.” Charterhouse was the only one that stepped up to the plate and said, “We agree. We will give you x number of dollars because we think it’s worth it and we’ll do that even if the other investors don’t step up to the plate.” That was a very crucial thing that happened because first of all, it sealed our loyalty and our relationship to Charterhouse, and we had some bad feelings for some of the other guys because we felt like it wasn’t fair. The other thing that happened was that Crown had signed a contract with us as the management team and part of the contract was that we would not move from St. Louis and that we’d continue to manage all the Cencom properties even though it was under Hoak’s management because it was sort of looked at as a joint venture. Ultimately, Crown decided, or Jim Hoak decided that he didn’t want to keep the Cencom headquarters in St. Louis; he wanted to move them to Dallas. It was a breach of contract. So that was the catalyst that eventually got the management team, which at the time was Jerry Kent, Howard Wood and Barry Babcock, to say we’re no longer bound by this contract, you’re breaking it. We’re going to go off and start our own company. The deal that we cut with them was we would release them of any liability for violating the contract, which they did. In return we wanted their programming discounts because they were a pretty large company. We wanted their programming discounts for our new company.
KUHL: Which ultimately became Charter.
BABCOCK: Ultimately became Charter. This was in 1992. So we broke off from Cencom. Most of the employees were moved to Dallas, some of them didn’t move, but we resolved that we would never again be in a situation where we’d lose control of our company and that if it meant we had to stay a small company, we’d stay a small company but we would not lose control. That was the genesis of Charter Communications. The name came from Charterhouse, even though Charterhouse’s investment terms would not allow them to invest as a partner of Charter, they were there to invest in our underlying deals. We already had good banking relationships this time around. Everybody knew us. Toronto Dominion was our lead bank. We were set up to go. Most importantly, Gaylord came in, too, the parent company. It was just an unbelievable relationship there. They literally came to us and said, “Here’s five million dollars to get started. Make us a lot of money.” There were no strings attached at all. There were no management provisions, there were no buyout provisions, just here’s the money, you guys do what you know what to do. It was an unbelievable start for us given how we’d started Cencom. I should say, by the way, at Cencom, we formed that company in ’82. In ’83 Jerry Kent came on board as a vice-president of finance or something, and Howard Wood came on board in 1987 when Bob Brooks became ill, had a heart attack, had some other health problems. Howard came on and took over Bob’s day to day operations as chairman of the board. So that was the nucleus. Howard, Jerry and I were the executives of Cencom. Now we broke off and formed Charter Communications in 1993. We had no customers, no subscribers. It was just three of us and a secretary that we had hired that used to work for Howard. We had a little office, 1800 square feet. We had a copy machine, coffee pot. My wife and I literally went to Sam’s discount store and bought some desks and furnished the office. But we were on our own, we were independent, we had the programming discounts, we were set up and we started looking for properties to buy. At the time, I had become involved in industry affairs. I was always kind of the outside guy for the company and I remember that I was on the board of CATA – Community Antenna Television Association, which was later Cable and Telecommunications. They changed the acronym but it stayed CATA. But anyway, I was on the CATA board and I remember at the time we started Charter I’d occasionally sit on some panel or something and people would say introduce yourself, who you are, what company, how many subscribers you have. For almost 18 months we didn’t have any subscribers, so I remember sitting at a Texas show on some panel and saying, “I’m currently in between subscribers, but we’re going to get there. We’re going to get subscribers.” Ultimately we cut our first deal. It was with the McDonald brothers of the southwest. They lived in Birmingham, Alabama, but they had a lot of systems around, about 100,000 subscribers. It was a bittersweet deal because the reason that they were going to sell was that one of the brothers was dying of cancer and they wanted to liquidate the properties and disperse the proceeds before he died, or at least in preparation for his death. This was a very strange time. This was after cable re-reged one and two. The FCC had just taken 17% off the top revenue for the cable companies and it was a time when none of the sellers knew what to ask and none of the buyers knew what to offer. Nobody knew what anything was worth. Nobody knew what the impact of the cable regulations were going to be. It was a very, very tough time. It turned out to be a great time for us because we were opportunists and when there were situations that came up where people for whatever reason had to sell we were there. We had the backing of our bankers and our investors, so we went ahead with this deal and we cut a deal with the McDonald brothers. I’ll never forget – I was sitting in the conference room, we were finishing up details, going over it, and the secretary stuck her head in the door and said that Allen had just died, literally while we were having this meeting Allen had died, and that was the end of that meeting. Also, the second re-regulation hit almost at the same time and we went back to McDonald – we went back to Bill now – and we said, “Bill…
KUHL: This was Bill?
BABCOCK: Bill McDonald. We went back to Bill and said, “Bill, this cable re-regulation thing has changed everything. We can’t stay with our original deal, and that’s very tough for us to say, but it is definitely a change of circumstances.” He understood and he agreed that we had to make some changes in the way that we structured the deal. I think ultimately we didn’t change the purchase price but we changed some ways that they were being paid. Ultimately we closed that deal – that was our first deal, we had about 100,000 subs – and Charter was on its way.
KUHL: Barry, there’s certainly some new opportunities arising for you and Charter as you launch Charter Communications. Why don’t you walk us through that and we’ll take it from there.
BABCOCK: You know there are lots of stories about the various acquisitions and the people we acquired from. A lot of interesting stories, but I guess there’s one story that I do want to highlight because it had a lot of significance to our company, and that was that after we had bought the McDonald properties and a couple of other smaller properties Crown Media… I’ve got to go back and retell this story a little bit. When we sold Cencom to Crown Media, we sold it at what we thought was a very good price, and Crown Media went off and we left and formed Charter and we went on our way and they went on their way. The Cencom properties came up for sale because Crown Media, about three years into Charter’s existence, decided to sell all their cable properties. They were getting out. What happened was that Hallmark had lost their nerve, and the reason Hallmark lost their nerve is because they were having trouble with their core business, which was the greeting cards business and their company was owned 1/3 by employees and the employees were saying to Hallmark executives “Why are you putting all this money in cable when the core business is suffering?” And so it was a decision they made – I’m sure it was sort of a relatively easy decision for them to make – to sell the properties including all the Cencom properties that had been purchased. At the time, we had approached Crown – remember, we were the ones that sold to them – and said, “Would you allow us to bid in this process for the Cencom properties?” and the answer was “No, you’re not invited,” because there was some bad blood there. We said okay and we went on about our business. Well, what happened was that one by one the bidders fell off and the biggest bidder, TCI, Bob Lewis had cut a deal with Crown to buy all these properties but it was subject to John Malone’s approval and for whatever reason John said I don’t want to do the deal. So at the end of the day there was nobody to buy the Cencom properties except Charter. And so Charter raised our hand again and we said, “Guys, our money is just as green as everybody else’s. If you’re going to sell these properties and you don’t have anybody else to sell them to, why don’t you sell them to us?” Long story short, they ended up selling us the properties for less than they paid us and we got all the properties that were our properties, we knew them, we knew most of the managers that were still there. It was the idea acquisition for Charter. It made the company; it put us on a firm footing. It was almost half a million subscribers at the time and it was just a deal that was made in heaven for us. So the old saying, “Sometimes it’s better to be lucky than good” we were definitely lucky there. But the other saying is “The harder I work the luckier I get” and we had worked that deal very hard and ultimately all the hard work we’d put into it paid off.
KUHL: And it’s paid off for six million subscribers now at Charter? Through acquisitions you’ve added beginning in ’93 and moved it forward from there.
BABCOCK: Right, we did. To kind of finish up the Charter story, we made more acquisitions, all the time management kept control. We had investors that came in. In addition to Charterhouse, we had another investment banking house in New York called Kelso and Kelso was a major investor in Charter, and we continued to make investments along with Kelso and Charterhouse and our banking friends and we continued to grow the company. Things were going well. As I said, management had complete control. We always structured our investment arrangements around the principal that if we do what we say we’re going to do then we get x amount of money. Now if we don’t do what we say we’re going to do then you have the ability to come in and in effect take more of the equity, but we always felt if we could create a situation where we could bet on ourselves that we were fine with that. And so in Charter we always bet on ourselves and we always did well. We managed the companies very well and ultimately ended up making a lot of money for our investors and for ourselves and for our employees. In 1999, it may have been ’98, Paul Allen decided to get into the cable business and Bill Savoy came to Charter. At the time we were trying to buy some properties in Minneapolis-St. Paul, and we were dealing with a company that was going to invest in this deal and we’d made an agreement with them we wouldn’t take on any other investments until we’d finished this deal. That was the time that Paul Allen came to us, and so we said, “Sorry, but we’re not able to talk to you and we’re not able to sell Charter and we don’t want to anyway,” so there just wasn’t much to be said for that. He went around the country and talked with lots of other people and ultimately ended up buying Marcus Communications from Jeff Marcus, and in the meantime, our deal in Minneapolis fell through. We didn’t get it even though we worked very hard on that deal, but we didn’t get the deal. It was probably the best thing that ever happened to us because we were now free and about his time when Paul bought the properties from Jeff he didn’t have a management team in cable and he assumed, and in fact he discussed with Jeff that Jeff and his company would be Paul’s management team and they’d try to build a cable company from that foundation. Literally the day that they signed the contract to buy the cable properties, Jeff announced to Paul that he was leaving. Paul was very upset about this and wasn’t quite sure what to do about it. Ultimately he came to Charter and said, “You know what? I wanted you guys to be my management team first time anyway. Now Jeff has left. Would you consider selling Charter to me and you guys stay on as the management team?” We said, “It’s an interesting thought, but we really prefer to stay on our own and we are, in fact, preparing to do an initial public offering for Charter,” and we had been. We’d been working with investment bankers in New York for quite a while working up this IPO. He said, “Would you do one thing for me? Before you decided to take the company public, would you give me one shot at buying your company?” We said, “Well, what we’ll do is when we come up with the price for the IPO and when we come up with a value for our company, we’ll come back to you and give you a shot at it.” A sort of right of first refusal. So, we continued down the road doing the initial public offering. We got all the documents together and the red herring and all that stuff, and we got our investors – Kelso, Charterhouse – in the room the day that the investment bankers were coming in to bid on the IPO and each banker would come in and say, “Well, this is what we think you’re worth and this is what price we think you should go out at, and this is how we’re going to sell your shares.” It’s their time to sell to you, and we had three different banks do that and it was a good competition and the price that they were suggesting that we would be valued at was a pretty high price. So we were all feeling pretty good about it. We said to our investors, “Okay, now we’ve got the value established for the company. Paul wants a shot at the company and we’ve said that we’ll go back to Paul one time.” We said to our investors, “We need to break for lunch and while we’re at lunch, you need to decide what number it would take for you to sell this company to Paul rather than take the company public, and each of you come back after lunch and we’ll talk about it and see if there’s a number we can agree on.” But we also said, “we” being management said, “There are eight points that in our opinion are non-negotiable if we do sell this thing to Paul, and so in addition to naming the price, we want your agreement that you will support us on these management points which are non-financial points on the acquisition with Paul.” So we broke for lunch, came back, everybody basically came up with a number that they thought was sort of ridiculously high and that if they got they would think was great, and so we came up with a number that basically was about 15 times cash flow at the time. They also agreed that they would support management in the eight points that we had, and the points were we wanted to continue our stock option program for our employees; we wanted to make sure that the headquarters stayed in St. Louis, remember we’d had that problem once before; we wanted to make sure that we had full authority to hire and fire and continue on as we had been even though Paul was going to be the new owner; and there were some other points that were sort of along those lines. So our investors said, “This is the price at which we would sell to Paul and we agree that we’ll support you on these eight points that you have.” So we said, “Thank you very much,” we called up the investment banking houses who were waiting to find out who was going to win this beauty contest and we said, “We’ll let you know tomorrow,” and we all got on our plane going back to St. Louis. We called up Bill Savoy – we were in the plane and we called him up – we said, “Bill, here’s the price and there are eight points that you have to agree to,” and he said, “Okay, what’s the price?” I think we said it was 4.6 billion dollars, which worked out to 15 times. He said, “What are the points?” We read down the list of the points. This conversation lasted approximately two minutes, Bill said, “We’ll buy it.” We said, “Okay.” We didn’t really think they’d do that, but they did. We said, “Okay, but we want the contract signed in ten days,” and this was a big acquisition and it meant that all the attorneys and accountants had to show up in St. Louis literally the next day and stay there for ten days and do all the due diligence and everything to get it done in ten days, but we said, “If it’s not done in ten days, the deal’s off.” I guess the interesting thing I would say about it, there came a point in the negotiations when Paul and Bill tried to chip away on some of the eight points and we said, “They’re non-negotiable, we said that when we went in.” These eight points were important to us, so they went to our investors and they said, “Are you guys supporting these? These are non-economic points. Why do you care?” And to their credit they said, “We committed to stay with the management and we will stay with them and if you don’t go along with these points we’re not going to do this deal.” So, they said, “Okay.” And the deal was done. It was a fabulous deal for the investors. It was the most return on investment that any one of them had ever made in any deal. The management team made a lot of money, but to the point that you’d made earlier, we’d risked a lot of money. We’d risked everything, basically. Gaylord, our friends who’d started us out with the five million dollars no strings attached made a huge amount of money on their investment. The only thing I’ll say about Gaylord – I sort of want to regress for a minute – when we first met them they were looking for a management team and actually they had basically decided, they said, to go with Comcast and Brian Roberts and that cast of characters, and Comcast was a very good management company, but we hit it off and the chemistry was just right. Gaylord liked us and we liked them, but the one point I wanted to make is that the deal we made with Gaylord, which was back in 1988 and this Charter sale was in 1999, so it was over a long period of time, the deal we made which was a 400 million dollar deal at that time was literally done on a yellow legal pad – all the points of the deal. As we went through the negotiating, all the purchase contracts, the management agreements and everything, the lawyers kept trying to chip away at the deal, both sides. “We want this, and we want this…” Gaylord for their part and Charter for our part, well at the time it was Cencom, we said, “Go back to the piece of paper. If it’s not on that paper, it’s not the deal.” That was the relationship we had with Gaylord and that’s the relationship that carried all the way through Charter and it paid off very handsomely for them and for everybody else. The one thing I’ll say that I’m probably most proud of is that our philosophy at Charter was… we had a number of guiding principals. One of them was that customer service was number one. Another one was that in terms of corporate culture, there was nothing more important than integrity and we had a corporate culture statement and it listed ten things on it. One was integrity and one was that family and God were the first priorities and the company was below that. One was work hard, play hard. We had a very distinct culture and we had a reputation around the industry. It was a good reputation. People knew that if you did a deal with Charter they wouldn’t screw you; we might be tough but we were honest and did what we said we’d do. One of the guiding principals was that we wanted the employees to be owners of the company. We insisted every time an investor came in or made an investment on one of our deals, we always said to them, “One of the things you have to agree to is set aside 10% of the equity for the employees,” and they always agreed to do that. All right, so when we ended up selling Charter – and it was a tough thing for us to do because we were losing control for the first time, but at least this time we knew that we were losing it. We felt like we had created a situation that protected the employees and so on. Out of that sale, 52 of our executives became millionaires, over 100 people had over $100,000, and every employee in the company – and there were over 3,000 employees – my two partners and myself contributed 15 million dollars into a fund which meant that every employee in the company got a $5,000 check. Just from the customer service to the installer, whoever it was, anybody who worked for us got $5,000 as a bonus for this sale, and everybody kept their job. Things went on, just under new ownership. That’s something that I’m very proud of. There have been a lot of cable sales over the years. Some owners have been as generous as we were, I think. Bill Daniels has always been my role model for being generous with his employees and I think that Bill had an important influence on us when we decided early on that employees were important and that sharing equity was important. I think Bill should get credit for that, but there have been quite a few guys who didn’t share the wealth and I’ve always regretted that they didn’t see the error of their ways because I think it probably even hurt them financially to some extent.
KUHL: Well, Barry, I think that’s a good segue into your… You retired shortly thereafter, after Paul purchased the company and it led to an endowment here at The Cable Center. Why don’t we talk briefly about your endowment here, the purpose of it and what its mission is.
BABCOCK: At the time that we sold, obviously I made a good bit of money and I wanted to give some of it back, and there were a number of contributions that were made to some charities and so on, but I thought it was important to create an endowment at The Cable Center that dealt with the relationships between cable companies and municipalities. I consider myself somewhat of an expert in that area and I had always been pretty skilled at dealing with municipal officials and dealing with issues that came up, which occur all the time. There are a lot of problems that arise between cable companies and cities and I felt that The Cable Center was a fantastic place to create an endowment that would find ways to bring cable company officials and city officials together to find common ground, to work on issues, to solve problems in a sort of academic, objective environment, a sort of third-party neutral environment where everybody could trust everybody and get some things done. Now we’re still working on exactly how we’re going to structure that, but the endowment’s here to support that and I think that The Cable Center believes strongly in the idea and we’ll just have to wait and see how it all comes out.
KUHL: Well, Barry, it’s been a real pleasure. I think we can wrap this up now. Where do you go from here? I know you have a couple of youngsters.
BABCOCK: I do, and people always ask me “What do you do?” I’m happy to be retired. I have a 7th grader and a 9th grader, so that keeps me busy. I literally drive them to school, pick them up after school. I’m involved in a number of charities, but one of the charities I’m involved in is I’m on the board of their school and it’s a working board. I spend a lot of time there working with that school. I love to fish, I love to play golf and travel. My wife and I travel a lot, with the kids too, when they can get away from school. So we’re very busy. We have plenty to do. We have a place in Florida we visit. We like to take vacations around the world, so we’re enjoying life and I guess the one thing I would say about all that is that as I was growing up in the business world I heard so many senior executives say that they wished they spent more time with their kids and wished they’d had more time to spend with their kids when they were building their careers. Well, I have that time and I appreciate the fact that I have that time, and I think my kids appreciate the fact that I’m spending the time, along with my wife, with the kids now. So it’s a great situation and I’m very happy. Life’s good.
KUHL: That’s great. Well, Barry, it’s been a real pleasure having you participate in the oral history series here at The Cable Center, and I think you probably took the right road off that fork, it sounds like. That’s my favorite saying, too, of Yogi’s. Anyway, Barry thank you so much for participating.
BABCOCK: You bet. I enjoyed it.
