Julian Brodsky

Interview Date: June 16, 1998
Interviewer: Jim Keller

Abstract

Julian Brodsky describes his first exposure to the cable industry as well as his initial meeting with Ralph Roberts. He talks about joining Roberts’ business, the company’s first cable system in Tupelo, Mississippi, and explains how systems were built out as well as Dan Aaron’s marketing strategies. He discusses partnering with the Philadelphia Bulletin, increasing channel capacity, and developing a primitive weather channel. Brodsky remembers pole attachment problems, building a first underground system, and generational issues with subscribers. He mentions the legal formation of Comcast Corporation, names the principal sources of funding, and long term fixed rate limited-priced debt as one key to cable financing. He recounts the innovative use of teletype models for cable projections, goes on to talk about success with limited partnerships and an unsuccessful deal to acquire Storer. Brodsky describes the company’s philosophy about the treatment of partners, joining into the “franchise wars” of the 1980’s, and the effect of HBO on the industry. He elucidates the second attempt to buy Storer properties, explores the deal with TCI and Time to acquire Group W, and the entry of Brian Roberts into leadership of Comcast in 1990. Next, he discusses Microsoft’s $1 billion investment in the company and how the funds were allocated. Brodsky affirms that Comcast always had a positive financial situation and concludes with reflections about the positive evolution of cable.

Interview Transcript

JIM KELLER: This is the oral history of Julian A. Brodsky, the financial wizard and vice chairman of Comcast Corporation, also a founder of Comcast Corporation which is currently the fourth largest cable TV operation in the country. We are doing this interview at Mr. Brodsky’s office at Comcast headquarters at 1500 Market Street in Philadelphia, Pennsylvania. The date is June 16, 1998. The interviewer is Jim Keller. Julian, thank you for seeing us. Would you please give us a little idea of your background, where you came from, what did you do before you got into cable?

JULIAN BRODSKY: Sure. I was literally born in Philadelphia about a mile and a half from where we’re sitting now. Grew up, graduated from the Wharton School at the University of Pennsylvania. Spent two years in the Army, following school, was trained as an accountant in school and after the service, after a brief career in industry, decided to become a CPA, and joined a Philadelphia public accounting firm, literally across the street from where we’re sitting. The firm was William E. Howe and Company. One of the unique things about William E. Howe and Company was that it had among its clientele several of the cable pioneers in Pennsylvania, specifically, John Walson, Marty Malarkey, and the Reinhart family in Palmerton, Pennsylvania, and a couple others. Two of the partners there, Ed Mallon and Tom Farley were early experts particularly in the area again of tax planning for cable entrepreneurs. So I had my first exposure to the cable industry, and this was either late 1958 or early 1959 when Congress had amended the tax act, I don’t know if it was the ’56 act or ’58 act but it was probably the ’56 act, that created the Sub chapter S corporation. And it became apparent to us in practice that this was an ideal structure for a business that generated up front bosses as you built a cable system, and substantial depreciation due to a large amount of capital expenditures associated with cable operations. So my job was to go around to these various clients who were the cable pioneers and convert their operations into Sub chapter S corporations.

KELLER: Were you also involved at that time in the battle to allow the amortization of franchises?

BRODSKY: It was later on, because at that time, the world was mainly in a construction phase and there were not a great deal of costs associated with acquiring a cable franchise. Anyone who was willing to risk the money to buy a cable franchise, the franchising authority, the city, the town, or county was more than happy to grant them the necessary rights and permits to do that. Acquisitions were principally involved when you got to the allocation of purchase price attributable to the fixed assets and franchise amortization was not nearly the issue it became, starting a little later in the ’60s. I would say probably 1964, ’65, ’66 was the first time we really started to think about allocation of purchase price away from franchises to things, costs for lists, fixed assets, favorable contracts, the like and then perhaps the franchises. Franchise amortization then became the issue. My first serious fight in that matter was probably on our ’65, ’66 tax returns with the Internal Revenue Service.

KELLER: Was that here at Comcast?

BRODSKY: At Comcast, or predecessors to Comcast.

KELLER: So you’d already been involved in buying, selling or trading systems?

BRODSKY: At the Comcast level, yes. Our clients, when I was in public accounting, that group of clients were only building cable systems. So I kind of fell in love when I was out in these valleys in Pennsylvania. I remember we had no idea in the city, what cable television was. It had no relevance in our lives because the industry at that point was merely a reception service. Put an antenna up on the hill to serve a town in the valley, because the curvature of the earth, the signals just passed them over. And people were just selling network services from nearby cities to towns that had no television reception. So I remember coming back to the staff room and saying “Guys, you will not believe what I just saw.” I went out to Mahoney City or Oil City or Schuylkill Haven or one of these places, and these fellas put an antenna up on a hill, they run wire down through the trees, they come to town, they tack it to the poles, they tack it to the side of the houses and they charge a person 100 dollars to hook up, take that hundred dollars and wire the next street, charge three dollars a month because of the tax attributes, they keep it all. This is the best thing since sliced bread. You have a lot of interesting clients when you’re in public accounting, but nothing struck me…

KELLER: But did you know there and then that this was going to be a business?

BRODSKY: I knew it was a reception business. My mind at that point did not extend beyond whatever these folks were doing in Pennsylvania as a going business.

KELLER: None of us did at that point.

BRODSKY: We had a group of clients, dozens of clients and they were neat guys. They were neat guys. John Walson was a fascinating character; Marty Malarkey was in an absolute class by himself. Just charming, very imaginative and that peripheral contact was with the guys in Jerrold, Cy Pomeranz, who was helping people build who had questions with financing and that sort of thing. And his accountants, Ralph Fratkin…

KELLER: Fratkin was the first name I had ever heard in CATV accounting because he was involved in more of these in the very early days.

BRODSKY: Ralph had been deeply involved and we consulted with him on occasion because we had cable clients.

KELLER: I think he was the first accountant for what was then the National Community Antenna Television Association. I think he represented them on the accounting level as Strat Smith did on the legal level.

BRODSKY: That could have been before my time, I don’t remember that. I knew Ralph, Ralph’s a Philadelphia accountant, so it was a small world. And he may have been doing Telesystems as well, which was Fred Lieberman’s company.

KELLER: Could very well have been. I like bringing these names into this oral history because it kind of connects everything and pulls it all together as to what happened in those early days.

BRODSKY: So for me, life went on. I changed accounting firms, because I wanted to work for two firms before I sat for the CPA’s exam to get a diversity of experience, and I moved two blocks away and went to work for another CPA firm. Had all kinds of clients, no cable clients. But one of the clients the firm had was a company called Pioneer Belt and Suspender Company, later the name changed to Pioneer Industries, whose chief executive officer and principle shareholder was one Ralph J. Roberts. They were not a client of mine; I worked on the edges of it. But the company decided to sell – there were never two belt manufacturers in the United States among other things – so they decided to sell their business in true American fashion to the number one belt manufacturer in the United States, the Hickock Belt Company. Hickock was represented by a big time New York law firm and a big time aggressive accounting firm in New York and Ralph had very competent financial personnel in the form of their treasurer and controller, these people were really management, financial and accounting types. Very comfortable in the manufacturing environment, and had never been exposed to transactions of this nature. So Ralph called down to the accounting firm, said I think I’m going to need a little help in consummating this transaction. Who do you have? And I was a little bit of a hired gun in those days for taxes, deals, anything odd that came down the pike away from the straight auditing. I was a bit of a tax specialist as well.

KELLER: This was in the late ’50s?

BRODSKY: This was 1960, ’60 or ’61, around there. So the firm lent me to Ralph for three weeks, a month or so, and I did all the work on the transaction, on the contract, making sure the inventory was counted properly, that the seller got everything to which the seller was entitled, and protected the sellers interests. At that point, Ralph was left with a portfolio of cash and security, the corporation, not Ralph. It changed its name to International Equity Corporation, probably a name grander than its resources. But they needed a name in a hurry because they sold the name Pioneer to Hickock, and I think Ralph just made up this name, International Equity Corporation. So it had a portfolio of cash and securities, and had a small men’s toiletries operation retained out of the Pioneer business, which gave Ralph something to focus on. He took a secretary and bookkeeper with him from Pioneer, and between Ralph, the secretary and the bookkeeper, they ran this toiletries business, and Hickock was the distributor to retailers of the toiletries and it was a little business, but really Ralph intended to utilize the proceeds from the sale of the belt business to find another activity, another business to go into. And he looked at several over time and I retained Ralph as a client at that point. He wasn’t much of a client, because he didn’t have a lot of economic activity and he didn’t have any professional financial management. So once a quarter I would go out and Ralph moved into the Barclay Building in Bala Cynwyd, just across the line from Philadelphia. His belt business was in Darby, Pennsylvania, a Delaware County suburb of Philadelphia. And I went out once a quarter and I had all day to knock out a financial statement, re-wrap up the data on his portfolio of investments, and the activities of the toiletries company. Took me about an hour and a half. Wasn’t very complicated, so it gave Ralph and me the rest of the day to talk together. Talk about what he was going to do, what kind of bill he was looking at. At that point Ralph’s brother Joe, Joseph W. Roberts, was executive vice president of the Muzak Corporation, in New York City and he was kind of encouraging Ralph to look at cable. So Ralph looked at a couple cable situations.

KELLER: Was Joe familiar with cable at that point?

BRODSKY: Vaguely. I was not much involved in these early looks. He looked at Yuma, Louisiana, at a couple of other things, met with Bruce Merrill to learn about cable. Met with Fratkin and Milt Shapp just to get a little education about cable. He decided he didn’t like it that much. So they went on looking at other industries, let’s say this was ’62. And he looked, and he didn’t really find anything that he liked. Finally in early ’63 I guess it was, he ran into Dan Aaron on the street in Philadelphia.

KELLER: Ran into him?

BRODSKY: They kind of knew each other, they both lived in the same town, half mile apart from each other in Cheltenham, Pennsylvania. And Dan had been working for Jerrold, for Milt Shapp. He was running their cable operations in the late ’50s which might have been one of the largest MSO at that point.

KELLER: It was before they were required to divest, yes.

BRODSKY: And Dan looked out west and he’d seen what Bill Daniels was accomplishing as a broker, entrepreneur, brokering cable systems, keeping a little bit of the equity here and there, selling and reselling and that looked pretty neat to Dan as something he might want to do. So he resigned from Jerrold, put out his shingle as a cable broker, got a listing from a fellow here in town Warren V. Pete Musser, who had bought the Tupelo cable system from Jerrold I believe. Jerrold had built this in the mid to late ’50s.

KELLER: Were Jerrold and Ben Conroy involved in that one down there?

BRODSKY: Could have been. Pete owned it, had unbuilt franchises in West Point and Laurel, Mississippi, and because of his other interests, Safeguard and that was a very famous and large company owned by Pete Musser’s Sears companies, wanted to get liquid and out of the cable business so they could employ his capital in other directions, gave listen to Dan. Dan was working out of Pete Musser’s office, which incidentally was on the top floor of the building which I was working in the accounting firm so everybody saw each other in the elevators and stuff like that. So Dan makes a big pitch to Ralph, about going to the cable system, what a great property Tupelo is, and how Ralph should look for something to do, he should do this. And Ralph, being the absolute genius that he is, there’s no one with a greater strategic sense and sense of timing, and what to do when, than Ralph Roberts. He’s an absolute class by himself, for this type of vision and thinking. He remembered all he’d seen about cable, the things he liked about it, things he thought were kind of dull about it. At the beginning it wasn’t the most exciting business in the world. Ralph’s a marketing guy, came out of an advertising background. He wanted the market to sell things, and cable didn’t exactly operate that way in the late ’50s and early ’60s. It was not highly imaginative in the marketing and PR world. But he had a better idea. So after listening to Dan, and seeing it and looking at some numbers, he said to Dan “Alright I’ll buy Tupelo, Mississippi, but on one condition. You come along with it, and together we can build a national cable company.” And the chemistry was right – I don’t know how well you know Ralph.

KELLER: I don’t know Ralph.

BRODSKY: Totally charming. To know him is to love him and it was good chemistry. Very bright guy, Dan is a very bright, intellectual guy.

KELLER: I know Dan.

BRODSKY: So they hit it off, Dan said that’s a pretty good idea. Be in equity participation and all that. Then I started to get involved in what was happening, and so as soon the right deal was going to happen, I walked into Ralph, he thought I was crazy, “I resigned today, you’re not doing this without me.” So he thought I was out of my mind. What he was going to save on accounting fees, I was going to cost him nothing to have me around. The salary was almost equal to that. And so, we purchased this unbuilt, 1,800 subs in Tupelo, Mississippi, these unbuilt franchises in West Port and Laurel and that closed – it was a terrible time – it closed a week before the Kennedy assassination, so it was November of 1963 that it closed. That’s really the economic genesis of Comcast, before that it was International Equity Corporation put together its brother and sister companies to form Comcast, but in an accounting and an economic sense, it all traces back…the first economic happening of Comcast was the purchase of the cable system in Tupelo, Mississippi in November of 1963. So we were in this little office in Bala Cynwyd. Ralph had moved once, he moved from out of 600 square feet to 900 square feet, and then had a secretary, another person working in the toiletries business and I was going to be the seventh person in that office. There was no desk. So I said to my wife “Where’s our card table?” She said, “Why do you need the card table? “Because I started work today with Ralph, and there’s no desk.” She seriously doubted my sanity and the wisdom of what I was doing. But I quickly remedied it. I bought a used desk. City Service Oil Company was in our building, they had a credit operation or something there. They had a used furniture department, so I bought an old steel linoleum covered desk for fifteen dollars, the first week. But you had to really shoehorn it in there. The seven of us could barely fit in the space. And we stayed in that space for almost…that was late ’63 or early ’64 and we stayed there until May of ’65.

KELLER: Did Dan actually go down and oversee the construction of the system?

BRODSKY: Well, it worked like this. We had a cable veteran by the name of Frank Haley and his wife Thelma, who were the general manager and office manager respectively of the system in Tupelo when we bought it who did the day to day stuff. Dan and/ or I would have a survey at least once a month or more often during the construction. We started immediately to build West Point and Laurel and very quickly, probably December…a funny little story with this one. We heard about the franchising going on in Meridian, Mississippi, which is the second largest city in Mississippi after Jackson, and that is literally midway between Tupelo and Laurel, much bigger than either Tupelo or Laurel. And we got word as to who was the shoe-in for winning the franchise and Ralph and I made a deal with this guy. So while we were down there, it was going to be decided by referendum. In those days it was weird. It was a vote of the citizenry to decide who was going to get the cable company. So this guy thought he was wired in, it was a done deal, what do we know about the city politics although we did have a lieutenant governor on our board of directors, literally. A wonderful man, Carol Garton.

So Ralph goes down there. In those days, Mississippi was a dry state and to get any kind of decent meal, you had to go to an illegal club, which also had gambling. It was a very civilized way. Everyone, the judges the mayor, the police who wanted to get a meal, you went out to a club just outside of town where you had good food and a casino. So Ralph and Dan were out there the night of the election, waiting for this guy to win the franchise, and they go out to dinner with the local lawyer, takes them out to the place. And after dinner they all wander over to craps table and were passing the time gambling. So Ralph, who will talk to everyone, strikes up a conversation with a guy next to him, what are you doing…my name is…who was a CPA in town. The CPA asked Ralph “What are you doing here in town?” “I’m here to work on the cable franchise. Make a deal.” And the guy says, “With whom are you dealing?” And Ralph said Joe Smith. And the guy without looking up said, “Wrong guy.” He said, “What do you mean?” He says, “He didn’t win.” “Well how do you know about this?” He said “I’m the CPA, I counted the votes.” He said, “Well who won?” “Rod Goodley won.” “Oh, really, who’s Rod?” “A local trucking guy.” So Ralph at dawn is on Rod Goodley’s doorstep and they make a deal with Rod Goodley. Cable was fun in those days. And that was our largest franchise. Again, a fascinating story – maybe you remember how marketing was done in those days. The way it worked is, and this is the way we opened Laurel and West Point. You built out the whole system, and then you had a grand opening. The total publicity for the grand opening was a full page ad paid by the supplier, usually Jerrold Electronics, saying Welcome Laurel Community Antenna to Laurel. Come to the armory Saturday and Sunday and see the wonders of Memphis television or New Orleans television. You get a couple of dealers to set up booths in the armory, you wire the armory, and the dealers would sell TV sets and we would sell cable subscriptions and if you’re lucky, you got the traditional opening saturation percentage of about 25% which the formula in the old days were 25, 10, 10 and then you finish at 50-55%. Something like that over three or four or five years. And nobody did marketing, that was it. That’s the way Dan would traditionally open systems, and everybody did.

KELLER: We all did.

BRODSKY: We did it that way. So it was a funny thing in the Meridian franchise. Our competition who lost, one of the guys was an insurance person who was very bitter, would have like to have seen the franchise forfeited so they wrote a pretty tough clause about completion. We had not only to build the system totally, within one year of the awarding of the franchise, but we had to provide service to 90% of the applicants. You always had applicants, you didn’t wire the whole town, you try to skim a little bit off the top, better demographics, because it was expensive. That was a very tricky thing, even to build in one year was tricky in those days, and then this 90% of the applicants was really problematic. And to put teeth into it, they had to post a hundred thousand dollar bond and because we weren’t the most credit worthy outfit they had ever seen, they required the bond be secured by 125,000 dollars of collateral. Stocks, bonds, real stuff. And 125,000 dollars in 1963 was real money. Comcast, our cable operation was capitalized in total for all of Mississippi for about 250,000 dollars. Our law firm literally put up the collateral for us, a Philadelphia law firm. They were so confident that – the Meridian City Council – that this would be forfeited that they allocated the money to buy voting machines the following year. So Dan in his genius…how am I going to deal with this thing? He said I’ve got to really keep down the number of applicants, and whoever’s an applicant has to be connected and we have to get this built. So instead of being visible, as you normally are and make a little buzz, whatever you can… newspaper, Dan took space in the only high rise in Meridian. No signs, no nothing. Put the construction people outside of the town in the woods somewhere. No marked trucks. He was building the system and he said “Here’s how we’re going to do it.” I think it was the first time in the United States that cable was marketed this way, exactly this way. There were other things, variations of it. We’re going to devise a direct mail piece. And we’re going to mail it out block by block, as we finish construction to just those places that are done and we can do this. And they were going to say “Here’s cable and the nice kids are coming.” And they hired and trained a group of college kids to be door to door sales people, right to those blocks a week or so after the direct mail piece was received. And by using that technique throughout the whole town we were getting 100% of the operatives, because it was really hard to apply. And did a spectacular job which had several results. 1) We got the release of the bond, because we fulfilled the obligation and got a commendation from the city council for completing the construction so fast and in such a professional manner. 2) We ended up with over 45% saturation. So Dan said hey, this is a good marketing technique. Born of necessity. It was development of a technique that Dan refined and replicated on how to market cable television. So Meridian got off to a roaring start. Comcast had a couple of other businesses at that time.

KELLER: Had it become Comcast by this time?

BRODSKY: No, 1969. In 1965 we bought a company called IEC, International Equity Corporation, with a company called Starcast Corporation of America. And Joe Roberts had looked at that for the Muzak Corporation, which at that point was owned by Jack Rather, also a cable figure, who owned the Disneyland Hotel and the Lassie series and that sort of thing, who didn’t want it and Joe said “Do you mind if I show it to my brother?” And he said no. Ralph looked at it again. Joe had been on the board of International Equity Corporation, and Joe was two years older than Ralph, always wanted to work together, and this was the opportunity so if we bought Starcast Corporation of America, Joe would come on board and run it. And we followed it quickly by several Muzak acquisitions and eventually became the largest Muzak franchisee in the company. Joe ran the Starcast and the Muzak end of things and Dan ran the cable end of things, and the four of us running the company.

KELLER: Had you put Muzak on the cable systems at that time?

BRODSKY: No. Ralph always dreamt there should be a way to sell music into the homes. Cable perhaps was the vehicle for that. We never really ever did it.

KELLER: Some companies did it in the early days. Not very successfully.

BRODSKY: We did it on background of some of the channels and we did it in hotels, and things like that, but it was tricky. First of all we worked the Muzak franchise in the towns where we had cable systems. So it exactly worked like that although we knew the guys and Muzak tended to be successful in larger markets, and cable tended to be successful in smaller markets. Certainly in the ’60s. So it wasn’t quite the time for them to come together, until much later. And so we had these three arms of the business. Meanwhile cable, we had done some other things. In the mid ’60s we received franchises for some suburban Philadelphia communities and one of the half a dozen inter rations of the Philadelphia franchising process received a portion of the city of Philadelphia, never built, caused by external factors. And most importantly, before the partnership with the Philadelphia Bulletin, which was arguably maybe then the dominant newspaper in Philadelphia. It had always been the Inquirer and the Bulletin. The famous catch phrase you saw on all the billboards was that in Philadelphia, nearly everyone reads the Bulletin. So they had insurance interests, broadcast interests, at one point they had owned the CBS television outlet, channel 10, in Philadelphia, sold to CBS for what was a ridiculously low price, when they decided to exit the television business. They were the Muzak franchisee in Philadelphia. And we kind of knew them around. Our best mutual friend was the Philadelphia National Bank and its vice chairman Jack McDowell who was financing both of us and came to us and said “Look, the Bulletin would like to get into the cable business. Why don’t you talk to them.” They had known Dan, before the Journal, Dan was a financial writer at the Philadelphia Bulletin, so that was part of the story. And we struck a deal with them for various things. They would be a six percent partner, we’d be a 40 percent partner and do the work and train their people in the cable business. So one of the first things we did, we had arrangements for their Philadelphia franchises and our Philadelphia franchises if they ever got built. But before that happened, we were made aware of an opportunity to purchase a kind of rag tag little cable system, but more importantly a franchise for Sarasota, Florida. This was a system consisting of eleven miles of theoretically underground plant, a lot of this was laying on the ground, owned by a fellow who had a damaged leg and could not climb poles, so he put the system underground. It didn’t play very well or very often, had less than two hundred subscribers. He wanted 10,000 dollars to get out of the business. We went down and looked at it, and this was probably ’65 or ’66, and in those days still it was totally reception business. The cable industry was getting a little more adventuresome and going into markets, perhaps had one or two networks.

KELLER: That was a top 100 market?

BRODSKY: In Sarasota, they got two Tampa signals terrifically, rabbit ears. And the ABC came in very good about half the time. It came out of Largo, Florida that was a little farther north, and we stood around and said can you make a living marketing half a channel? In Tupelo we brought three networks in from Memphis and a cherry picker finally set up shop in northern Mississippi, had one channel, no network came in all the time. So those were the types of markets which we were used to. Everybody in the industry looked at Sarasota, no one wanted any part of it. And Dan said at that point is probably when we had our epiphany. We had two epiphanies, that was one them and the other…

KELLER: And what year was this?

BRODSKY: 1966. This business is going to be bigger than reception someday; there should be things we can do to bring people other than broadcast television. Going back to Tupelo, Tupelo was a three channel system when we bought it. It didn’t carry three channels – it had a three channel capacity. So the cherry picker opens in Northern Mississippi and we couldn’t afford a rebuild. We had to do an electronic upgrade. So the electronic upgrade…we were going to five channel capacity. Going to move the amplifiers around, squeeze a couple channels. “Dan, we have three channels, all we need is four. Are we wasting money going to five channels?” Imagine how naïve this conversation sounds today. I was a bean counter and every nickel was important. Dan said number one, it doesn’t make any difference if it’s four or five, and besides I have a feeling we can use channels. So what does Dan do with this fourth channel, pioneer that he was, a visionary, he sets up…first of all he was going to put on a goldfish bowl and play music. Then he got a brighter idea, a transparent aquarium. He talks to Telemation out in Salt Lake City and they built him a diorama, and he mounts a videocam, a very cheap video camera on a post that rotated 180 degrees and in the diorama he had a clock, a thermometer, a wind gauge, and rain gauge, a barometer and at the end of it was a place to put in a placard…the first one was Eat at Joe’s Diner, which cost Joe’s Diner ten dollars a month, could have been the first local advertising that I knew of, and he played background music behind this thing, and he had a time weather channel. And then Telemation turned into a bit of a business for awhile.

KELLER: So Dan was the initiator of that?

BRODSKY: I think so. With cable there’re always such bright guys, always something going on. You’re never sure who did what when. But it’s sure as hell the first time I ever saw it. And it was great. We used that fourth channel for that. But going back to Sarasota, while we’re contemplating our naval as to whether this could ever be a viable market for cable, and Dan tried to talk us into it, somebody else, some speculator in Dallas bought it for 10,000 dollars and so we decided we still wanted it so we had to pay this guy 30,000 dollars, which seemed to us egregious. So I went down to Dallas to pick up all the physical aspects…it was one carton of records about two feet by a foot and a half and about 20 inches high, and that was it. A list of customers, a couple of contracts, and was located on Pineapple Avenue in Sarasota, and the headend was in the building and there was a self supporting 60-70 foot tower on the roof of this building in downtown Sarasota, and this wire laying around town and that was it. So we convinced the Bulletin to come in with us and build a modern 12 channel system in Sarasota. At that point, the transistor amplifiers were finally coming out, and we didn’t need those SCA 2,300 tube amplifiers anymore and we were going to build. At the same time, we got involved in franchising in Venice, Florida 20 or 30 miles south of Sarasota. And it was a big franchise fight, big for those days, not big by franchise awards standards as they developed later. But one of the applicants was General Telephone Electronics, GTE, the local telco. And they were sore losers. They were truculent. And they wouldn’t let us up on the poles. We won. This was the same action, by the way…Dan was not a litigious guy, Dan was a businessman. He hated lawyers, hated lawsuits, litigating lawyers. He always thought there was a business solution to the problems other than litigation. While Dick Leghorn who faced the same problem up in Manatee County, the next county north of us, won an enormous anti-trust suit against GTE on the same issue during the same period of time. Dick was one of our first customers in Sarasota. He had a lovely home on Bird Key. We’d often meet with him and talk about cable and life and his view of the world which I always thought was enlightening and valuable to me, talking to Dick Leghorn. But in any event, we’re sitting there. Dan is trying to figure out what to do now that the telephone company’s not going to allow us up on the poles, Dan is looking at the ground and pawing around, and he says look, this stuff is all sand. I bet we can bury this son of a bitch, we can bury this cable system. And as a result I think we built the first one hundred percent totally underground cable system in the United States. We got with Jerrold, our biggest problem was driving under the driveways and stuff. We got around those with pipe and that sort of this.

KELLER: You also had a very low water table that you had to contend with.

BRODSKY: Yes, but Venice is still there, still playing. They rebuilt a few times, and so we built this thing and we had the double whammy of trying to market the service, fighting significant over the air competition from these broadcasting rules out of Tampa.

KELLER: Had you estimated the additional cost of going underground?

BRODSKY: Oh sure. It was maybe 40% more in construction, but there was a quick payback and no pole rentals and literally lower maintenance costs. It was easy to maintain no breaks in wires. The system was just easier to handle once it was built. In planning for it, you just had to overcapitalize it a little bit in the beginning, more than offset by lower operating costs over time. So it was not a bad idea. There had been a lot of other partially underground systems in the United States. So underground construction wasn’t unheard of. This was just the whole shooting match was underground. Other places utilities were starting to go underground, you had to go wherever they were in the towns in which you were building and operating. So when we did a cost it was always 10 percent underground and 15 percent underground when you were figuring out what it cost to build a cable system. So it was not an unknown characteristic at that time. So we build Sarasota and Venice. Dan was still struggling with what to offer people that was not broadcast television. And we had limited funds. All cable operations in those days were nickel and dime operations, you didn’t have a bunch of capital to fool around with, so Danny gets this idea I think for five or ten thousand dollars, bought 35 B movies. Is there something less than B? These were really bad movies. Thirty five unlimited playwrights, and he’s going to have the Sarasota Film Festival. He has a channel dedicated to films for the film buff, and here’s something we can show. Again, we get a film chain with mirrors and the cheap video card at the end of the film chain. And no text, no announcer, no nothing. He just played these 35 movies, 24 hours a day, forever. And they were terrible.

But then, he said look, I’ve got to give these people something, other than this half ABC channel out of Tampa. It was a double whammy, it was a retirement community and in the ’60s we don’t have the generational view of cable that we have today. People were not in the mood, particularly retirees, to make fixed commitments to spend money. The toughest sale was going door to door in Mississippi, and the hardest sell…I used to go to the retirement communities, knock on doors and try to sell cable to a retiree.

KELLER: In the ’60s that was our major marketing problem, how were we going to sell to these elderly people.

BRODSKY: Our view then, I remember talking to our accountants in the ’70s when we were so bullish on cable, said it’s a generational issue, just a matter of time, all these people go. The young people grow up who grew up with cable, and sooner or later cable will be a way of life. So you’ve just got to wait it out but that didn’t help when you had to pay the bank interest every month. So we played these movies, and all of us hated them. We said, Dan, take these damn things off. Finally we talked Dan into stopping it after maybe two months, this stuff. Deadly. And we pulled the plug, and not one phone call. Nothing! A total non-event. But that was Dan’s mind though. That could have been HBO, that could have been something else.

KELLER: Did you have a PBS station?

BRODSKY: I don’t think so. Maybe, a couple eventually popped up.

KELLER: But at that time you don’t know…

BRODSKY: I don’t know. No one paid much attention to PBS. We carried them of course, but you didn’t depend on them for viewers particularly in the cable business. Unfortunately, to finish the Sarasota saga, for the moment, in ’69 or ’70 the principle shareholder of the Philadelphia Bulletin, one Major McClain, got up one day, must have gotten up on the wrong side of the bed. And he said “Sell everything but the newspaper.” He had an insurance company. And these guys, we had trained their people, a cadre of cable people, they followed us all around, somebody followed me around, somebody followed Dan around, somebody followed our engineers around. And they had hired Mac Ferguson who was an experienced engineer out of Jerrold was their chief engineer and he knew the cable business. And at that point they put together an interesting portfolio. Not only were they the majority shareholders in our west Florida operations of Sarasota and Venice and we had some other franchises. That was very promising, great growth. They had unbuilt franchises in the Philadelphia area. They had Levittown, Pennsylvania, Salem, New Jersey, and they owned Santa Barbara, California.

KELLER: I guess I do remember that.

BRODSKY: So that’s a hell of a start if you’re going to be in the cable business. They sold it all. It killed us. One of the things that was wrong in Sarasota, we had a right of first refusal but that would have put a chilling effect on any process or enterprise. We always prided ourselves in being good partners. So not only do we waive our right of first refusal. Dan took over the laboring war of selling the system. And so eventually it was sold to Storer. Jim Hall had been running Sarasota and Venice for us at that time went on and eventually we became the head of Storer’s cable operations. But I remember we went to the closing which was in Storer’s offices in Miami and George Storer was still alive then I guess, and he and Ralph got in a conversation and Ralph was saying “Gee, it really hurts us, we love this system. This was the first system that Storer bought east of the Mississippi actually.

END OF TAPE 1, SIDE A

START OF TAPE 1, SIDE B

BRODSKY: We were in Miami where Ralph and George Storer were speaking at the closing of the sale of the Sarasota system to Storer. Ralph mentioned how much he liked it and hoped some day he might be able to buy it back. And George Storer said “Son, I’ve never sold anything.” And more on Storer later.

KELLER: So we’re in the year 1969 now, and the Bulletin had just sold…

BRODSKY: And it was just at this time, there was a bit of a bull market happening in ’68 or early ’69 that we legally formed Comcast Corporation, by putting together various subsidiaries of International Equity Corporation, principally the Muzak Division, the Storcast Division, and our cable operations which at that time consisted of the Mississippi operations, maybe 20,000 subs or so, unbuilt franchises in suburban Philadelphia, the Philadelphia franchise, and the management contract for Sarasota which was in the process of being sold, even as we were forming it. Unfortunately, the air went out of the bull market, that’s a mixed metaphor, and the IPO was put on hold for a couple of years, but life went on. Perhaps at this time, we’d like to talk a little about how cable systems were financed.

KELLER: Or how you particularly financed them.

BRODSKY: Yeah, and in the early ’60s and through the ’60s ’cause there were some dramatic changes, some of which we were involved with. In the late ’50s and early ’60s, there were two principle sources of financing. First was what we called the pots and pans paper or vendor financing led by Jerrold, particularly Cy Pomerantz where they would supply financing and even a little bit of working capital for cable operators to help them build systems. And many of today’s multi-millionaires and billionaires got their start because Jerrold Electronics provided them with vendor financing. Another source of capital in that time were the finance companies, particularly an outfit in Indianapolis called Economy Finance where Jim Ackerman was a principle. We always viewed…we viewed them as a lender of last resort, because their rates were perhaps four to five hundred basis points above prime, and maybe even more with other fees involved. But they provided the money, they had faith in an operator and God knows how many cable systems were built. I can remember during many acquisitions, during the late ’60s, the first check that was drawn if we were the acquirer, was to pay off the Economy Finance loan. So while it was expensive, they supplied the money, got many a cable operator started in the business and served a real need and purpose in the development of this industry.

Both of these methods seemed a little too expensive, short term and not right for us. So from the very beginning, in the purchase of Tupelo and our first three or four financings we used bank financing. Which we were not great credits, but it was perhaps one and a half over prime.

KELLER: Were you using the local banks?

BRODSKY: We used Philadelphia National Bank exclusively until 1971. It was the only bank that we used. And while Economy Finance made four or five year loans we got a six or seven year loan on pretty good terms in those days, two years interest only, revolving credits to build the cable systems. Pretty sophisticated stuff for its time.

KELLER: You’d proven that you had the cash flow at that point to be able to do it.

BRODSKY: Yeah. But this was all construction. These were all separate financings. One of the hallmarks, even to this day of Comcast, rightly or wrongly, and I’ve had debates with many a financial officer over this one has been project financing, rather than corporate financing. Every one of our deals were stand alone financing and it served two purposes. 1) It had the litmus test of passing the third party scrutiny on the viability of any given project. As long as we kept those projects viable and serviced the debt of that project, in all likelihood we were building a totally viable corporation at the top and 2) if I brought some cold blooded steely eyed banker in to discuss the cash flow prospects of some general manager, and this banker was looking for specific payments next year, it’s a lot different than if I or some treasury person would say “Gee, why don’t you pay down your inter company balance so I can pay”….but that’s an abstract concept. Paying a banker the amount due next year is a very real concept.

KELLER: My point was, though, you had demonstrated through your other systems that there was the cash flow.

BRODSKY: Oh yeah, we were among those missionaries preaching the cash flow story and convincing the world one bank at a time that cable was a viable business and we were lucky that Philadelphia here we had the Fidelity Bank which had financed a lot of Jerrold pots and pans paper and then did some direct financing of cable systems. They were right up the street from the Philadelphia National Bank. Philadelphia in those days was a bit of a cable center. We had Jerrold here, we had Telesystems here, we had Safeguard here, we were here. So there was a lot of cable activity, much more than in Denver in those days. Of course, all the Pennsylvania pioneers, in the mid ’60s there were more cable systems in Pennsylvania than any other state, did most of their banking in Philadelphia. So it was just natural the Philadelphia banks would step up and do this. However, it became very clear at least to me, after a year or two of this, that we really needed the key to what I thought was required for cable television financing and that is long term fixed rate reasonably priced debt. But of course we had no access to the public debt markets in those days and there was only one place to go to solve that problem, and that was the insurance companies. The insurance companies had not made any cable loans at that point. In 1965 we decided for financing purposes, maybe we’d combine Mississippi and try to get an insurance company to do it. And I worked long and hard on consolidated projections, realistic capital expenditures, which cable operators were infamous in those days for understating in financing projections. And we took this proposal into the Home Life Insurance Company whose chief lending officer was a fellow by the name of Robert Gibbert, again another visionary who was thinking about making cable loans. He had made other types of loans and he loved recurring income. High based low variable cost businesses where once you reach break even, you have a feast or famine type of business, a substantial cash flow would develop quickly. He was not adverse for Home Life to take warrants in a situation in return for relatively low interest rates. So that sounded perfect to me. So we devised these cash flow projections, and one of the tools I use for which I think gave Comcast firepower way in excess of any other cable operator, was I figured a way for us to have access to computers. This is 1965, 1966. I leased a TTY 33 teletype that was used in Western Union offices. And I subscribed to GE’s time sharing services. There were no screens or anything on teletypes. It’s just a teletype. Goes clickety, click, click and you get your output and paper tape, you do your input and punch paper tape, through a paper tape reader. And I devised models for cable projections, all externally driven so I just had to feed in data and get out a model. This thing cost like 16 dollars an hour which was extraordinarily expensive, so I wasn’t in the mood for a lot of variations or for making mistakes. So I was the only person in the cable business getting computer cash flow projections in the early and mid ’60s.

KELLER: When you said that most cable operators underestimated their cash flow…

BRODSKY: No, no, the Cap X – capital expenditures. There’s no such thing as maintenance for the banks and stuff. That wasn’t the case. And that’s where most of the guys got in trouble. Generating cash flow they got interested in the amount of Cap X it took to maintain the plant, to expand the plant, to do the line extensions etc. and replace the vehicles and what have you. So we kind of got thrown out. Joe Roberts knew this fellow Gibbert, and made the introduction and Ralph, Joe and I and Dan went there. We traveled all over Wall Street with every insurance, every investment banking house, this idea we wanted long term debt. And so Bob Gibbert threw us out, nice meeting you guys, goodbye, goodbye. We get a call about a week later he says “Over the weekend I read your presentation and looked at your projections, and I liked what I saw. Why don’t you come on back in.” We went back in and we got the first long term loan, we got a 12 year loan from the Home Life Insurance Company. They took the last six years, Philadelphia Bank took the first six years. It was perfect. Everybody was happy. And we got warrants for ten percent of our Mississippi operations. We had Jerrold as a small shareholder in our Mississippi operations. You’re going to regret giving those warrants. Nothing is as valuable as equity. We got a six percent loan. It was unheard of. We got a low rate loan, fixed rate long term so that was the price we paid. And then Home Life financed a lot of our operations, our Muzak operation, gave us working capital. Until Bob Gibbert died, they were involved in all of our operations.

So the key to the cable finance – there were two keys. One is to get long term fixed rate limited priced debt, and the other one which was always at the heart of what went on in cable TV finance was the utilization in the most efficient manner of the tax benefits that would come out of cable television. I had mentioned earlier about the Sub chapter S as the way to form an entity and I spent a lot of my time trying to think about how to utilize these tax benefits. It was further complicated by the notion at the time that companies, particularly public companies were supposed to report a profit. And that the world was earnings sensitive. As I mentioned, in ’69 we had formed Comcast with the intention of going public, so I was concerned about how to maintain a growing earnings record, ’cause that was like motherhood and apple pie, certainly to someone educated during the 1950s at the Wharton School, University of Pennsylvania. So I had that concept on one side and I had these unutilized tax benefits because we were not a tax payer, we were a start up company, generating enormous start up losses. In those days there was the investment tax credit, which is direct reduction in income taxes based upon the capital expenditures made. We had very large depreciation allowances, and the term of acquisitions we had amortization deductions for the amortization of intangible franchises and customer lists and what have you. And they were being wasted. So I thought about how do we go about doing all of this and also raise money. I remembered from my public accounting days and from other friends, the use of limited partnerships in the real estate business where if properly structured in terms of how the debt was put on these books, equity owners were literally able to get bases in excess of the amount they invested. And because cable television lent itself to high degrees of leverage, this would allow an investor to get deductions two, three times the amount that was invested. Now with tax rates in those days, being in excess of 50%, literally it was a cash flow positive investment from a tax viewpoint, even during the periods of start up and losses. I said somehow this was made for cable television.

As a matter of fact, before the Bulletin came along, I developed a long piece internally and then showed it around Wall Street a little bit, about how to utilize limited partnerships for the finance of cable television. I tried to make it a little too elegant. I tried to cover every eventuality and make it so fair to both the investor and to the operator, it got so complex, it died of its own weight. So then I reverted and looked at the real estate models. And said well look, there’s dozens of these things being done, maybe hundreds around the United States, why should this model just work for cable television. It was the typical limited partnership model where the investors got the tax benefits, they got the economics, they got their money back and there was a share of the economics between the general partner and the limited partner, and everybody was happy.

KELLER: They were doing it in the oil and gas business, in the cattle business and trucking business.

BRODSKY: Sure. So we did our first one I guess in the late ’60s on a private basis, we had gotten a franchise for Hartford County, Maryland. And the person from whom we got it was a client of Dow, Lotus and Albertson, the communications law firm in Washington as were we. They were very important to us in the early days. Tom Wilson, Jack Matthews and later on of course Lenny Baxton, Dick Bronstein. But then they still are our communications counsel. So I broached them with this idea of a limited partnership. They loved it and they became the principle investors as did the partners in the Maryland cable system in Hartford County, Maryland. We used a technique well, twice more in public and then we may have used private ones here and there.

KELLER: Were they a corporation at that time or were they a partnership? How did they invest in the limited partnership?

BRODSKY: Individually. ‘Cause limited partner is no problem as an individual. General partner was a corporation. A subsidiary of ours was the general partner.

KELLER: But the company or firm itself did not invest.

BRODSKY: No. We didn’t use the partner’s investment. It wasn’t all the partners, it was maybe ten, that sort of thing. And that was a wonderful success. We eventually rolled that up into Comcast stock in a tax efficient manner, and everyone was very happy.

KELLER: Had you at this point gone into an IPO?

BRODSKY: No. This was before the IPO. We rolled it up probably in conjunction with the IPO to straighten out the balance sheet. We were registrations this entire period so we were kind of limited. From ’69 to ’72, we actually went public in June of ’72 and March of ’69 is when we filed the first IPO…….statement. I think in cleaning up the balance sheet and getting ready for the IPO is when we rolled it off, maybe a year or two after that. But something like that. I followed it with two other limited partnerships. And again, the purpose was not only to optimize the tax benefits by getting capital formation by giving other people these tax benefits. We were still in the earnings mode. And so every time we had a major acquisition, that would prove dilative in an earnings sense, we’d throw it off balance sheet by forming a limited partnership. We had a lot of boxes in debt, it was very rich with this technique. The next one we did was Comcast Cable Investors.

KELLER: Were you internally selling these limited partnerships?

BRODSKY: The first one. I’m getting to that now. The one in Maryland we did internally. The next two were very large and we used Shearson Lehman to do them. And these next two partners were still legend within the Shearson Lehman system. They were the most profitable limited partnerships ever sold in the Shearson Lehman organization. They lost many of our partnerships because we made a lot of money. The first was Comcast Cable Investors which was a blind pool limited partnership where we went out and sold 5,000 dollar units.

KELLER: Without a specific project?

BRODSKY: Without a specific project. This was in ’82 and in those days Ralph and I did all the roadshows, we didn’t have much of a treasury organization. I think Bernie Gallagher had just joined us a year or two before that as our first professional treasurer. I was still treasurer then, was the vice president. It was heavily promoted and there were maybe five companies and dozens and dozens of presentations. Bernie did a few of them, or Bernie and I. Got so sick and tired of our role that we switched roles, I’ll be you, you be me this week, and then I did one. One was a cure for cancer, one was some sort of satellite, one was a barge and one was a gas venture or something. I used to go to the guy with the barge, there’s no moving parts on a barge, that’s why it’s so good. I did better than you today. Why don’t I be you today? We never did that but I’d tell them.

KELLER: We did a lot of that at Jones.

BRODSKY: Oh sure. You guys perfected it. Glenn and I had lots of discussions about who actually devised the technique for cable television using limited partnerships. And I’ll stay by my facts. So we were pitching this blind pool. Comcast Cable Investors. And Shearson rented the Oak Room at the Drake Hotel in Chicago. He must have had three or four hundred people in there. And Ralph and I were making this pitch, and then we’re getting off the stage, jumping into a car, and go up to Oakbrook or somewhere north and do it again in some hotel in suburban Chicago. So we were finishing the pitch…Ralph’s a pretty good salesman. I was very energetic on cable in those days, explaining all the tax benefits and everything. So as we were heading out the side door of the Drake Hotel in Chicago, a woman comes rushing up and I said “Oh, Mr. Roberts, that was the most wonderful presentation, I’m a school teacher I want to put all my savings into this.” Don’t do it, don’t do it, it’s just speculative. Course if she had done it, she would have made out wonderfully. And so we went around.

The other one was a Reg D and of course it was a public limited partnership. You only get a one to one tax write off, because there was no way to structure debt to give basis to the limited partners. The other one we did was a Reg D, it was a sophisticated much larger deal to finance, and you may remember this, we beat out Jones to purchase the Cal Tech, a small public company that had a cable system in suburban Baltimore. Glenn and I often joke about they were in a motel room across the street, while we had the board and we swooped down and kept the board in session literally while we signed our deal. And the Jones people were going to wait till the next morning and get it done. We laughed about that one a lot too. And this one was set up, this is classic. I think there were a hundred twenty thousand dollar units we sold them in. But there were five payments of 40,000 each over five years, and we’re giving deductions about two and a half times to one, and so you were putting up 40,000, getting an 80 or 90,000 deduction every year. The salesman had to learn one line. “Listen Doc, you’re never in this deal.” That was the whole sales pitch. They could memorize that line, the brokers. And it was a Shearson deal, so we had the whole Shearson Lehman system selling this one. And the story on this one was these investors were getting these two to one tax deductions or so, and never in a deal. Before the fifth payment came due we rolled it up after four years, so the guys never made the fifth payment. They put up a hundred or so thousand dollars, get 200 thousand or so deductions. We gave them each a check for 119,000 dollars. They couldn’t believe it, it was so good. When you rolled it up into Comcast, in ’88, whenever we did it.

So again, some of the other devices we used to maximize this concept was, I worked for five years on trying to issue an industrial development bond for cable television operation. The question was whether a cable television operation fit under the definition of allowable activities for industrial revenue bonds. And the reason we wanted to do this was an industrial revenue bond was issued by either a city, a county or a state to an authority. Never had the full faith and credit of the authority. Only had the project to sustain it from a credit viewpoint, but if it met all these criteria, the interest received by the holder of these bonds was exempt for federal income tax purposes and in some places for state income tax purposes. And fully deductible by the issuer. So clearly, this was a win-win situation from the viewpoint of the cable operator in that because it was tax free in the hands of the owner, you’d pay a much lower interest rate. Normally sixty, sixty five percent of what the tax law rate would be. And these were long term bonds, which fit my earlier criteria of fixed rate, long term and certainly was reasonably priced. So I worked with a couple of investment banking firms for almost five years and could never get a bond counsel to say this really fit the criteria. So finally in ’78 I guess it was, we found a firm in New Jersey, a very large, reputable, bond counsel firm. As much municipal work as anybody in the country who studies, I think we can do this for our client, an underwriter, we’d be willing to issue an opinion that the interest is indeed tax free in the hands of the holder. And that’s all I needed. I did seven of them in a year and a half in New Jersey, Pennsylvania and Michigan. Public ones, private ones, every way, shape and form. And finally the law changed in about ’82, ’83 and Internal Revenue Service…we were the baby thrown out with the bath water. What happened were a lot of questionable activities, particularly porno movie theaters and what not were starting to use industrial revenue bonds to build theaters, and they threw out the entertainment category as being appropriate for industrial revenue bonds and cable was one….

KELLER: Was that the first step toward the infamous ’86 tax act?

BRODSKY: Yeah. And at the same time, Congress did another strange thing. They were trying to encourage capital expenditures. And Congress said “Look at all these companies, these start up companies, building manufacturing plants, a lot of capital expenditures, they can’t use their tax benefits. Why don’t we figure a way for them to sell them. And they created the safe harbor leases. And said “Gee, that looks good. I got capital expenditures. I think we can do something here.” So I studied it, and got together with the General Electric Capital Corporation. And I said “This is more than just……………this should be a capital formation device in total concept. And we devised a way to use the safe harbor rules to provide funding for the construction, total construction of cable systems, with a bank letter of credit facing it. Oh, footnote…going back to the industrial revenue bonds, one of those bonds I issued for the building of Cable Systems Suburban Philadelphia was the first Triple A bond ever issued by a cable company in that we got one of these companies that insured debt to issue this PMIA, or some name like that. So we issued an insured industrial revenue bond that literally had a Triple A rating. And the savings and interest more than paid for the premium to get this Triple A bond.

KELLER: Are you saying then than even after you went public, you were still funding on a project by project basis?

BRODSKY: Absolutely. We still do it today. We changed around a little bit, we issued cable bonds last year, but there is still a lot of project financing out there. But coming back to the safe harbor lease, We did this with GE and they were thrilled. It was really a ground breaking, imaginative financing. Matter of fact, a fellow whose name you may know, Gary Wendt, who’s involved in a very famous divorce case up in Connecticut, was running a couple divisions of GECC in those days, and they were merging, and he invited me and the GECC account guy who did this deal to address them as the most imaginative deal they had done in that year, in many years. So we followed this up with a whole….we used them everywhere. Almost all of our bank financings were done in safe harbor leases, transferring the tax benefits to someone getting paid for them. And integrating them with a financing.

KELLER: As each of these projects was being financed individually, were you giving a corporate guarantee to these projects from Comcast?

BRODSKY: Generally not. We fought that. No. Sometimes we had to give corporate guarantees on franchises and what not to gauge performance, sometimes on pole line agreements.

KELLER: That was all cosmetic though?

BRODSKY: Yeah, but you had to do that. For the life and death issues, no. What would happen if one of them got in trouble, would we ever let it sink? I think if it meant the difference between the survival and non survival of Comcast, we would. Thank God, we never, ever had that issue. It never came to that. And it probably cost us a hundred fifty basis points overall in our financing, cause we didn’t give those corporate guarantees. It was a way of life for us. We chose that path. We did it that way. So what happens in our great democracy, who’s buying these safe harbor leases. It was General Electric, Ford, IBM. And one day in ’83,’84 Congress says “Look what we did in “80, ’82. And look what happened, it’s actually working and that’s terrible. Because these other people are not paying taxes.” And so they repealed it. And so we went onto the next thing. Went over to Europe and saw the first Euro dollar deal bond for cable and we find the insurance company Paradyme in 1976 when we purchased Flint, Michigan. Went to John Hancock and got them to do a sixteen year cable loan. Unheard of. Twelve was the longest. Much more importantly, it was ten years interest only. No principle was due until the eleventh year. So that was again a landmark thing in franchising. We franchised the city of Philadelphia. Those were the days of the rent a citizen, of course in Philadelphia we didn’t have to rent any citizens, we were citizens, rent us. But we wanted to do something. There was a great deal of emphasis on locals, even though we were a local company and we decided that the applicant would be 20% owned by Philadelphians, before a subsidiary of Comcast could be the applicant. You gauge Butcher and Singer, a local firm in town here who had taken us public to sell this 20%, and the criteria was you were to sell it to people who either lived in Philadelphia, worked in Philadelphia with an emphasis on women and minorities. Part of the way you franchised in those days.

KELLER: I remember. On your project by project financing which is interesting in itself, didn’t this enormously complicate your accounting function and your reporting function especially after you went public?

BRODSKY: No, they were for the most part wholly owned? So that simplified the consolidation accounting. Clearly, the banks imposed restrictions with regard to related party transactions and management fees and the like and these were all spelled out well in advance. Our lenders got very comfortable with them. We scrupulously followed, there were very few related parties, just the management fee.

KELLER: Internally though, you were still operating…

BRODSKY: It was invisible internally. The way we set up our MIS and our accounting operations, even with a limited partnership, which was clearly a different capital structure than the public company. Different ownership and everything else. There was an agreed to management contract. That was the only transaction between the limited partners and Comcast. The banks, there was project financing at that level also. But internally, it was just another cable system.

KELLER: Did you charge your limited partners a management fee and did you also allocate corporate expenditures to a portion of it?

BRODSKY: No, it was just spelled out in the prospectus, the management fee covered everything. We have a philosophy here of loving thy partner. And of bending over backwards to be fair and we attracted a lot of money to ourselves, because of that particular style.

KELLER: Obviously.

BRODSKY: We always try to be the prettiest girl at the dance.

KELLER: I think you’ve proven to be that.

BRODSKY: It’s put us in good stead over the years. With the Bulletin, we gave up our right of first refusal to sell Sarasota for them and I don’t think Dan Aaron has ever sued anybody as a businessman. We just don’t do things like that.

KELLER: Obviously then to acquire the confidence of Disney, Microsoft, Sprint, all these others you’re in partnerships with, you had to have some….

BRODSKY: We’ve done probably more partnerships with TCI than anyone else.

KELLER: I wasn’t aware of that.

BRODSKY: Oh yeah, at Time Warner. And Cox, we’ve done …… of deals with Cox, and Newhouse, Continental. We’ve done a lot of joint ventures.

KELLER: And in each case did you have a buy and sell agreement?

BRODSKY: Sometimes yes, sometimes no. Not always. Sometimes you just let fate take its course. Like when we were partners with TCI of Liberty and QVC and it’ll just take its course. So just to finish up this Philadelphia story, cause it was typical of how Comcast looks at things. Had to make this piece of paper attractive to people. So, we were in the middle of a franchise. We had a provision in it, cost us eight. Seven dollars a share we’re selling this thing for. We said if we didn’t get the franchise, we’d give you back your money, plus a percent interest, from two years from the date of the IPO. So that was one safeguard. We gave the investor absolute ….back to Comcast. And all these secured by in place letters of credit. Right there from day one.

KELLER: Did take that extra step.

BRODSKY: Yeah, to put back Comcast for two years or three years or four years at six dollars a share. So your downside was limited to one dollar. And we write all this up in this prospectus. I remember sitting with our law firm and we’re getting ready to file the S1 with the FCC. And our securities lawyers say What concern if we file this with the FCC? I don’t know what they’re going to call this. I don’t know if this is a common stock. I don’t know what this thing is. But it was so popular. And during this process…

KELLER: Selling to locals?

BRODSKY: Yes. Selling to a local firm. This was Byrne Gallagher, our finest hour.

KELLER: So you had a Pennsylvania offering, was that it?

BRODSKY: No, it was federal, but we only marketed it locally. We told the others “we don’t want this to go to your fat cat clients. We don’t want to see a lot of mainline things. This is limited to 1,000 shares, and this and that.” So we get ready. It’s all clear, its all marketed, we’re getting ready to close. The day we were closing Byrne Gallagher comes up, who is now the president of Century Communications says “I smell a rat in this one.” What do you mean? “I don’t trust those guys at Butcher. I want to see the tickets.” Bring them in.” So nobody ever does this. We want to see every single order for the shares. Got a big box. Byrne said “What is this?” A few thousand shares Bryn Mawr, Ardmore….and Byrne just throws the box up in the air, and says “We’re not closing.” We have people demanding the stock, that fit our criteria, and you sold this to your rich clients. This is not what we want. And you want to take two days to remarket this thing. And we got…we went to churches, we went to all over the city selling this thing, trying to explain to people who never made investments really, why this is something you should put 700 dollars into, that sort of thing, or 1,400 dollars.

KELLER: It was a stroke of genius when it came to working the city council.

BRODSKY: They loved it. United tried a similar thing I think with the Denver franchise, they may have done it after the fact.

KELLER: I did it in Nashville but it turned out to be a disaster.

BRODSKY: This was spectacularly successful. We had a board, it was directed…I’ve got to tell you about the roll over of this company. Many years later. We went out for seven dollars a share and we got the franchise. We built it and it was wonderful. We bought another franchise from Philadelphia from Heritage, TCI and so we had half the city, four quadrants originally. So we had half of Philadelphia which we still have. So it comes time to roll this thing up. We had been buying the shares. The public’s down to about 9%. Had a wonderful board, a lot of city activists. One of our board members is Sister Francesca, a nun who is president of Holy Family College here in Philadelphia, which is quite a business enterprise. So it comes time for the roll up. We were going to have all the independent directors in the hall to evaluate the roll up. And the checker is going to be Sister Francesca. Who the hell’s going to sue a nun? And she’s a pretty good business person, very popular, runs a big college out here in northeast Philadelphia. So they hired their own lawyer, they hired their own investment banker and the whole thing. And we make a big offer. Remember seven bucks, the stocks traded like 60, we offered 90 dollars a share. Who could complain? Barry Gabelli had some shares around there, so he made some complaints. Some of the media Mafia smelled what was going on in New York and these guys…..they’re all friends. Barry Gabelli had personally owned a bunch of those Maryland limited partnership units. So he loved us anyway.

KELLER: But he didn’t buy any here though, did he?

BRODSKY: It wasn’t the Philadelphia stuff, it was publicly traded, afterward in the secondary market. It was zero institutional buyers. Barry was very big in Catholic charities, so their investment advisors come to the conclusion that it was a fair offer……..but she wrote, her report was ten pages handwritten on foolscap , and I defy from the fanciest law firms and the fanciest in New York from the independent committee was any better reasoned or any less articulate that what she prepared. She was just wonderful. How she met with the lawyers and maybe some bankers and prepared this long report to the board. Then she made her final recommendation. That was the end of the Philadelphia saga.

KELLER: Was it finally sold at, rolled over at what price?

BRODSKY: Ninety two fifty, ninety five dollars, something like that.

KELLER: At what point had the construction been completed?

BRODSKY: Oh yeah. Many years into it. This was, The IKO was ’84 and this was ’95, so it was eleven years later. Ten years later, something like that.

KELLER: So they’d had it in it for a number of years?

BRODSKY: Oh yeah, we’d had board meetings and everything. Comcast Cable of Philadelphia, something like that.

KELLER: Had you used that in any other place other than Philadelphia.

BRODSKY: No, we had local investors. We were very active in the franchising wars…

KELLER: You just couldn’t do business unless you did.

BRODSKY: Yeah, in the ’60s and ’70s we were 0 for 20 in Massachusetts.

END TAPE 1, SIDE B

START OF TAPE 2, SIDE A

BRODSKY: Let’s take a moment and review some of the landmarks in the history of Comcast, and what was going on over a period of time.

KELLER: Those that you have not already…

BRODSKY: A couple of them I want to talk about because they’re very important.

KELLER: You used the term watershed earlier.

BRODSKY: We’ll get to those. During the 1970s, there were two large acquisitions that helped redefine Comcast. In 1971 we purchased Westmoreland Cable Company. Large as the rest of Comcast at that time, in western Pennsylvania, outside of Pittsburgh, headquartered in New Kensington, Pennsylvania. And the owners were concerned about competition to cable from broadcast and the fact that they had nine unbuilt franchises, and they weren’t sure they could raise the capital to build them. This looked like the perfect opportunity for us because we could average out the cost of buying with the lower cost of building and that was always an ideal situation to buy something that had unbuilt franchises and then lower your average cost through construction and direct marketing. So this was right in that period when we had filed the registration statement, had not yet gone public, we had to talk these shareholders into taking a portion of the consideration in shares that we said were worth seven dollars, they thought were worth four dollars and I’m sure they put it on the tax return at two dollars. And a large portion of the purchase price were those shares. The cash portion of the price was about two million dollars. The shares were about 250,000 shares which today must be worth hundreds of millions of dollars, nine stock splits later. And many of those people, we see those shares still hold them which turned out to be a wise move. The next large acquisition and almost the exact same profile….

KELLER: Could you give us some of the cities that those franchises served?

BRODSKY: Well, cities may be overstated. New Kensington, Pennsylvania, Arnold, Lower Burrell,

KELLER: Classic markets?

BRODSKY: Not exactly. These were twenty miles from Pittsburgh. So it was a good deal. But in those days HBO was just starting, it wasn’t ready. It was ’71, there were a couple of independent services, sports services, a couple local, regional things. There were some hills. So yeah, it was more classic than not. Although it was very close to Pittsburgh. There were some hills involved. The next one was Flint, Michigan, owned by Ted Lamb, a famous labor lawyer in Toledo, Ohio. Again he had five franchises and five unbuilt franchises around Flint and this was one of those telephone lease back systems that were allowed in the early ’70s. And the telephone company had just been made to divest of this. It was a terrible system. It was an aerodyne electric system which had a lot of trouble playing and had to be literally torn down and rebuilt. And we were able to make a pretty good buy. And again this was 19,000 subscribers and I think all of Comcast at that point was probably 40,000 or 50,000 subscribers. And again, it came with unbuilt franchises, and we used some of the imaginative financing techniques I described earlier to get that one done and build out the remaining things. So that was a large acquisition. And then starting in ’78 the real franchising wars started in earnest. Franchising was a pretty casual process, prior to that. You went in with a two or three page presentation, and you got a franchise. And so we heard that St. Clair Shores an affluent suburb of Detroit was going to go under franchise. And we had come to the conclusion, ’cause HBO had just gone up on the satellite in ’75, ’76, that HBO made the wiring of the suburbs entirely viable. We had something to sell with reasonable density we figured we could get 30 or 40% penetration and half those people took HBO, seems like modest assumptions today, but we were terrified of off the air signals in those days. That would create a viable system.

KELLER: Question about that. In your projections and your performance, how did you look at pay television revenue and how soon did the banks finally realize that there was going to be a substantial amount of additional revenue coming in? Because they didn’t allow us to use it.

BRODSKY: We would always use it. Whether they knocked it out because their credit committee was up to them. I don’t think we got full credit probably until ’79 or ’80. Somewhere in there. And different banks viewed it different ways. It was clear to us by ’77…

KELLER: Were the banks were skeptical?

BRODSKY: By ’77 that HBO was a viable and valuable addition that we could make a living in the suburbs and the cities from selling HBO. There was no CNN then. ESPN was a joke. HBO was the real thing. So we entered into the franchise wars. We went up to St. Clair Shores and we went into our usual three pay free stations in a glassine sleeve and our jaws hit the floor when we saw Cox there, with a multimedia presentation, senior executives, whiz bang proposals, so we said “Hey, there’s something going on.” And so we ended up creating a franchising group. Abe Patlove came to work on it. Ed McGuire, we got into the swing of things.

KELLER: That’s what I did at ATC.

BRODSKY: We probably ran into you in Erie and other places.

KELLER: Erie, yes.

BRODSKY: We were in the same crowd. We’d go from city to city. I was always thought that Jack Gault was as tough a competitor as you ever run into in franchising. He took no prisoners.

KELLER: Worked with Jack. Jack did most of the east and I did part of the west. Bruce Lovett was also with us.

BRODSKY: Yes, I remember Bruce running them here and there. And Mahoney and Kay Koplovitz, Bill Koplovitz for UA.

KELLER: And the newspaper out of Virginia.

BRODSKY: Telecable. Barney Olfield was a tough competitor. So we entered into that and we were rather successful, successful to a point that where we started 1980, say with 250,000 subscribers, we were building and opening a cable system every six months through ’80 to ’84. We had a couple small acquisitions, the Merlin acquisition that I described earlier. But the big thing that happened to us, at that point we were probably between the 16th and 20th largest cable operator, we always paid a little big in our size. Dan Aaron was chairman of NCTA, in ’77. Ralph and I served on important committees at NCTA, and I was always on the finance committee and panels. I was on Kagan’s first panel in 1972 when leasing vs. owning cable systems.

Probably the most important financial thing, the most important landmark in this company is a deal that never happened. And that was our attempt in 1985 to buy Storer. What had happened was, an New York firm called Conistan Associates took a position at Storer, had a proxy fight, and Storer brought in KKR as a white knight. But in effect put the company into play. And we called Storer, that was Peter Storer was running the show, and said “Gee, we read your announcement, and if we read it correctly the board of directors is entertaining offers. Well, it said that, we have to do that. We could give a deal to KKR but of course, if you want to do something, do something. And this was in excess of two billion dollars. We didn’t have a lot of money, but we devised a plan, and the stars were kind of lined up for it to happen. Merrill Lynch was envious of the way things were going with KKR and with Mike Milkin at Drexel, in that Merrill thinks everything is their franchise. They do 20% of the world’s business in financial markets. But KKR was taking their M&A franchise, and Milkin and Drexel were taking their junk bond, what should have been their junk bond franchise, even though Milkin created the concept and the idea of using it as a form of efficient capital formation. We had never been a client of Drexel, though I was an enormous fan of Milkin and Drexel, intellectually from the early ’80s. I had seen what they did for………..Metromedia and Turner and MCI and all these other things in brilliant use of less than invest in great debt to raise what was not going to be expensive debt, but cheap equity. I tried to talk Ralph into an LBO in ’83,’84, but he preferred to sleep at night.

But in any event, we had Sherman Sterling as our lawyers, very friendly with Merrill and they introduced us to Ken Miller at Merrell. And we devised a scheme that if we would put up 200 million, Comcast could raise 200 million dollars, and we could get our banks to put up 900 million dollars, Merrill Lynch would put up a billion one. It was unheard of. In those days people did not use their balance sheets that way. Ken Miller framed the commitment letter to us saying “This is the letter to change Wall Street.” We went out with the Bank of Montreal, and got 900 million dollars. We got the 200 million dollars, Merrill came up with the 1.1 and worked 35 days straight, lived in a hotel room in New York 20 hours a day, with the lawyers at Sherman Sterling and Merrill Lynch which was very complicated. They were back stop TV stations and we framed this offer that we surfaced in July of 1985. It set off a bitter price war and tactical war and press war. The ’80s were full of stories like this. Everyday you hear….. these corporate takeover battles. It was the entertainment section of the newspapers in the 1980s. And eventually, we lost. I think we lost because we were Boy Scouts, a little naïve.

KELLER: But you maintained your integrity?

BRODSKY: Yep. We did that. And lost the deal. We made our pitch to the board of Storer and did our advisors, kind of rigged situation with the advisors anyway, ’cause they were all in favor of the KTR deal. And we knew we were paying 96 dollars, KTR had the inside track. Our offer had to be significantly better, and equal offer, ties, we loose. But we talked to Peter Storer, and Ralph was totally a man of his word, said “You’ve got a job for life, we’ll keep the name for that division. Whatever you want to do. We just want to own it.” But we’d have to sell the TV stations, and Peter Storer, we were told didn’t believe Ralph would keep him on forever. And wanted to keep the company together. Because KKR said they would keep the TV stations, keep the company as the heritage of Storer.

KELLER: Your interest in it goes back to the early Tampa days?

BRODSKY: Sarasota, sure. This was always the crown jewel of what Storer had. It was the West Florida operation. So we lost it. The close thing was July 30, the Storer board met, and we lost that …..a few days afterward. But we lost the deal. Aside from the economics, which our economics were slightly better that KTR not enough to be decisive was that Peter Storer’s conviction that we would not keep him and that KKR would keep the TV stations. Of course KKR fired him within 30 days and sold the same TV stations within the same 30 days. Hired…….and disposed of our money. That’s why I say we were Boy Scouts. There were other ways we could have been bought. So I think we lost as much because of those two issues as anything else. But in any event, we’re still the sixteenth or twentieth cable operator in the states, but we had a hell of a lot of credibility. Within weeks, rumors started right after that in August of 1985, rumors started to circulate that Group W was going to get out of the cable business. And they were then the third largest cable operator, company in subs. I was on a blue ribbon tax committee, something to do with the ’86 act, but it was in committee and stuff until NCTA put together a quick group to advise the lobbyists on what was important to us in the form of taxation. And Stuart Blair from TCI was on that committee. He was doing deals for TCI in those days. He was the corporate development guy. And we were friends but Stuart was my calling officer. He was the Chase Manhattan Bank. So our relationship goes all the way back to the seventies. And so we were sharing a cab. We were coming to or from the airport. And we starting talking about the Group W getting out of cable business and boy, wouldn’t they be nice systems to have. And Westinghouse probably had a strange agenda, this might be a real opportunity for someone of this scale. And Seward says” I’d like to do this with you. This is TCI. So I got over impressed and I said “Why’s that.” ” Because after what you guys did on Storer, you’re the last people we want to meet coming down the alley the other way on this deal.” I said “Well, sure it sounds good to me, I mean this is a big thing, some of them we really like in Group W, the Palm Beach ones, and some of the other ones, some New Jersey ones. Yeah, I think I’ll go talk to Ralph. I think we like you guys at TCI, some things with you and John , and Bob and I were old friends. So I come back. I walk into Ralph’s office and prior to saying a word he says “You’ll never guess what happened today.” I said “What’s that?” He said “Nick Nicholas called from ATC and he was trying to make it up for it.”

KELLER: In ’85?

BRODSKY: Yeah. Deal was made in ’77. It was still a little separate from Time, Inc. Maybe they were still operating, I’ll tell you why later. He says “Why don’t we go after Group W together.” Isn’t that funny. I was a store player today. He said “Why don’t we partner with TCI and go after Group W together.” Ralph said “Sounds like a two way deal with me.” So we put together the three companies. And it was clearly the most successful consortium ever put together in the cable business. The tactics were well conceived, well organized, organized the process, we had a troika of Stuart Blair, Dave O’Hara and myself to negotiate the deal, get it done, the due diligence. Westinghouse had a strange agenda where they only wanted one buyer and had a closing of a cash deal by June of 1986, ’cause they had a write off they wanted to take then, and they had a recorded gain at the same time. So we got these things. It was right before cable prices changed. We got in there at under 1,000 dollars a sub. And then we subdivided part of it to junior partners in Century, Daniels, and Hauser to little pieces here and there. And Poperacovich, who was absolutely brilliant. It was a pleasure to be ….. by him. He was great. He was very helpful, and he did a very great job for Daniels in taking care of their interests. They got a few systems out of this thing. And that went through, and our share was 520,000 subs. Which is exactly the size of Comcast at the time. So we more than doubled our size in one transaction, and the enabling act being able to make this….. was the fact that we showed such credibility in going after Storer. And that put us into the larger leagues, we moved up seventh largest, sixth largest cable operator after that transaction, from 16th. We showed that we were good partners and TCI particularly appreciated the way we worked with them, actually we had a fabulous relationship with Time Warner, and everybody involved there.

KELLER: You’ve had relationships with cable companies, you’ve had relationship with the newspaper, which involved some television stations, but you’ve never had a deal with the telephone company, have you?

BRODSKY: We just made one. With Bell……and we did. We were partners with US West in the UK. And things changed at the water’s edge, with our deals Dick McCormick and Dick Callahan, for Birmingham and London in the UK. So in that regard, not only was an economical acquisition, Group W had an entirely different way of viewing the cable business and cable operators so while they were running their 500,000 subscribers with1,500 employees, we were running our 500,000 subscribers with 900 employees, and at that point Bob Clasen was president of our cable division. Dan Aaron had been diagnosed with Parkinson’s Disease in the early ’80s, and let us know that he wanted to slow down and turn over day to day operations to someone else, and after the search, Bob Clasen would run Rogers US Operations, joined us as president of our cable division. And he had a young fellow by the name of Brian Roberts on his staff. And one of the first jobs Brian gained a fair amount of attention within the company, had been out in the field in Flint, Michigan, Westmoreland, Pennsylvania, Trenton, New Jersey was that he worked on the transition for the Group W Systems come in and part of the plan was to reduce the work force from 1,500 to 1,200 before they became Comcast systems in conjunction with the Group W people. And he did a completed job on that. Showed that he had potential. So we went on, through the late 1980s buying systems in Ft. Wayne and Indianapolis and what not, having finished 1986, when we closed the Group W channel with 500,000 subscribers, we then had a second shot at Storer. KKR had done a leveraged buyout, had a lot of debt, clearly couldn’t be serviced. They sold off a few systems here and there from Storer’s California operations and other places. But the systems came on the market. And again, the same three companies got together to go after Storer, we were so successful at how we had done Group W, we thought we’d try it again. Unfortunately or fortunately in the middle of the process, the Time Inc. Warner discussions became serious and Time dropped out of the process, leaving it to TCI and Comcast.

We got pretty close to price, maybe a couple hundred million apart and we thought the gap could be closed, but for some reason or other, some type of animosity developed between John Malone and Henry Cravis. And it degenerated to the point where they started making comments in the press about each other, as the deal was cratering, maybe for business reasons, maybe for other reasons. I guess this was in early ’88. Late ’87. But I thought John got the best one liner in. But it really upset

Cravis. I think it was in the Wall Street Journal where John said in describing KKR and the Storer properties that “Henry realizes that he probably has the last piece of real estate left in Florida. What he doesn’t realize is that it’s a toxic waste site.” And of course that was inflammatory. And the things collapsed. Steve Ratner who I think then was still at Morgan Stanley, was our accountant, represented Morgan Stanley, and we had done a lot of banking with him while he was with Morgan Stanley. He financed a good part of the junk debt we issued for the Group W acquisition. Way it worked was we issued junk debt to the public at the Comcast level, took that, that was equity for the project financing at the subsidiary level. So it was literally 100% debt. I believe in debt a lot. But he represented KKR in disposing of the cable properties that were very close, we all regretted that it had fallen apart. And he said “I guess it’s a matter of time, you guys are the buyer for this. You get the size, the sub, terribly complex deal with Milkin bonds, this was a typical KKR Drexel deal of the ’80s, so complex that I think some woman got fired, or went to jail because she had gotten some warrants on the Storer deal. She ran a mutual fund that should have gone to debt. It was those days, and it was so complex, the capital structure store by the time KKR and Drexel had finished with him he had to somehow buy this. So we all agreed that a couple of months had to go by, and Steve would call me every few weeks and say “Not yet”. This that. And he called me in the middle of April and says “I think maybe it’s time.” I say, “yeah I can see, another interest payment is coming due.” And so I called John and, said I think they want to talk. John and I agreed on the range of values that we’d be willing to do a transaction. “But look Julian, he says you go do it. I’m not going to have anything to do with it. I will not talk to that man, it’s just impossible, it would just be counter productive. You’ve done a lot of deals. Feel free, you can call, you just go in there as Comcast and say we’re in the deal but you bear the laboring or you go do it.” So I’m on a Kagan panel, and in the middle Ratner called and he says it’s time, pick me up after the panel. We’ll go over to KKR. And we go on over and it’s Henry Cravis and Paul Rager and Ted Amman, we take care of partners over there. And he said “Look Julian, I’m sure we can reach an agreement on price. I’ve got to tell you, we want to deal only with you. We’re not to talk to the load at TCI. “But he’s my partner. What do you mean?” Let me see what I can do. So it worked out perfectly in that regard, and for a mere billion and a half more than we had offered two years prior…

KELLER: Then you did split the company?

BRODSKY: Well it was very tricky. We lucked out in Group W in that the General Utilities doctrine was still around. Under General Utilities if you bought something you break them up at once in a tax free distribution. General Utilities repealed right after Group W, so we had to have an Internal Revenue Code 355, our hold together scenario for five years. And believe me, you gotta be good partners to do this. So we had to have a separate public bonds. So we had a skeleton staff left in Miami, Just to do administrative tasks. We were able to split up the management of the cable systems 50-50, we took half the systems, TCI took half the systems to run. But on the 355, we’re running it for the mutual benefit of each other. There was undivided economic interests. They couldn’t run theirs for their benefit and ours…that would be a death wish tax wise. So we knew which systems we were going to get at the end of the day. That was ok under the tax law. But the economics had to be totally unified during the five year period. Now this company had only a finite amount of resources.

KELLER: I often wondered why it stayed together so long.

BRODSKY: It had to. And I was chairman, because I got along better with everybody. We had Bob Clasen and his group on one side and J.C. Sparkman and his group on the other, and they did not necessarily get along. I always got along with J.C. I knew J.C. back in his Jerrold days and we were both same style. There were people whose weapons in business are the stiletto and there are people like me and J.C. whose weapons are the sledgehammer. And there’s no conniving, no deceit. You just say your position and that’s that. So J.C. and I were always able to get along. And I would moderate when Larry Smith or Bob Clasen would get upset. And there were a couple of guys…Larry Carlton was pretty good guy, he was younger, he was on the board and Art Lee. That was the crowd, the board members J.C. Sparkman, Art Lee and Larry Carlton. They’re tough guys. We’re tough guys. And we did well. We did very well. I’ll tell you just how well we did. And I had to moderate the budgets. We had two independent board members, Ken Bagwell and Ken Mosier, former officers of Storer but they didn’t get between us. Whenever it got to a showdown, they went to the men’s room. We had to work it out. Make them benefits and this and that, you know all the stuff.

But we only had a finite amount of money, and we had to have budgets and capital expenditures and there wasn’t enough money for all the capital expenditures everybody wanted, and no one was willing to put more money into this strange animal we had, so we had a wonderful bank loan. That was it. So I had to sit there and tell my guys, I always bent over backwards to be a little nicer to TCI than to our people. And then we’d sit down, Bob Clasen, J.C. and I and kind of work it all out. And we did this for four and a half years. And it was wonderful. All things considered, we broke it up and everybody got their systems, got a clean tax ruling on it at the end of the day. We were so meticulous as to how we conducted the business under the tax rules, that everybody was happy. J.C. and I did have our first and only fight, and that is along the way, we had Mike Callen as the president of Storer. He had been the controller, wasn’t the CFO. But he was a good guy, he counted all the public stuff and all the paper work and he ran the headquarters, they got a computer system there. Doing things, we used them for the systems we were managing. We used the Miami and MIS computer system. And we were a big fan of Mike’s, and midway through the five year period we offered him a job as the senior guy here. J.C. went berserk. Literally, he screamed at me, how could I do something, how could I just damage the partnership. I said J.C. I hear every word you’re saying, and I appreciate your frustration, but in my heart, I know you really wanted to hire him. He looked at me with a little twinkle there, he really was pissed. Guys gotta look out for his future and that sort of thing, and we didn’t wound him. Everything was still covered. He took care of the same things he took care of before down there. Everything worked out fine. But that’s the one and only fight we, it had nothing to do with the business. And so then we broke that up eventually in ’92, we split it and again, it was an enormously successful partnership. And I think we were part of what rightly or wrongly changed John’s view of cable operations.

KELLER: I would hope that would be the case.

BRODSKY: You know, ’cause J.C. would get blood out of stone. John said make money, and J.C. would somehow do it. But you paid a price for that. And I think what happened was I think over at UA, Stuart with a different technique, and TCI was the majority shareholder over there, was getting better operating results than TCI was getting. And I think that had some effect on…it was a different style. I don’t think there was any right or wrong to it.

KELLER: Very different.

BRODSKY: And then we in our 500,000 subs, we got half the business and they got half the business. We each got 800,000 subs out of Storer, almost a million. We started with the same amount of subs. They started with four or five million more cash flow than we did, in their piles. After the five year period, we had 50,000 more subs than the TCI pile. We had 30 million dollars more cash flow than the TCI cash pile and we had spent 4o million dollars less than Cap X during that five year period. Those are dramatic numbers. John looked at that. We had to pay for them to get them, because we bought the systems out, we paid for our own success, but that’s life.

KELLER: You had happy franchises, the cities were happy, the customers were happy.

BRODSKY: We had a different way of doing things. We structured our systems differently, different kind of regional setup, we gave a different amount of authority to the field. We were much more decentralized than TCI. Just a different way of doing things. We had different marketing techniques.

KELLER: What is your speculation as to why John decided then that he didn’t want to hold on to the Storer systems, but wanted to spin them off.

BRODSKY: He didn’t spin them off.

KELLER: Spin them off into Intermediate Partners, and Leo Hindery’s former outfit.

BRODSKY: Then, right away?

KELLER: No, not right away, just very recently, within the last year or so.

BRODSKY: Louisville.

KELLER: Kentucky.

BRODSKY: That was owned by TKR. It was another ownership interest in there. They were all owned by TCI and I think it was just a regional play with Intermedia. The Storer systems, the Kentucky system had franchising labor problems, disproportionate to the rest of Storer if I remember properly. I think there were a couple of places, Jaycor, a couple other places. So that was…we doubled our size again, so that we finished 1990, but when ’90 came around there were 2 million subscribers, and they were up in third or fourth among the cable operators, and we had a nice little race between Continental, Cox and ourselves as to who would be in third place. And then of course, the fighting moment came in 1990, when Brian was made president, and then Comcast changed. We had the transition from Ralph and me, Dan at that point had retired. By the way, Dan had the greatest metaphor at his retirement dinner, to describe the management at Comcast. He said “Normally in business, the operating guys have all these ideas for doing this and doing that and the financial guys are the restraint, to hold them back. At Comcast it was just the opposite, we had this wild man Julian here, and maybe we could compare managing Comcast to driving a car. There was Julian with his foot on the gas pedal, right to the floor, trying to make us go as fast and grow as much as we can. Reckless, speeding along a million miles an hour, and there am I, Dan Aaron with my foot on the brake, trying to slow him down and control things, and there’s Ralph, calmly both hands firmly on the wheel. Dan is quite the articulate guy, in doing things. And while we continue to do other financing innovations. We got calipers to direct 250 million dollars directly into a cable acquisition of private market values, did some innovative stuff in the UK, and on and on. But solely over that period of time in the transition we turned over all of our direct reports to Brian and to his direct reports.

KELLER: Is the Microsoft investment directly into Comcast?

BRODSKY: Yes, you know the classic story on that one. CableLabs sends out embassies of their executive committee which are the CEOs of the large cable operators, Malone, Joe Collins, Jim Robbins, Brian, Bill Schlier and that sort of thing. One year they go to Japan to see the consumer electronics manufacturer, another year they go over to Europe to see Hobson and Simmons and this sort of people, so this time last year in the spring of ’97 they’re going to visit Silicon Valley. And they call Intel and Netscape and the others and end up in Microsoft outside of Seattle. And there, in the discussion, Gates is lecturing the cable guys about why aren’t you guy upgrading your plant if you’re going be part of this information super highway and the internet, you need to upgrade a plant. And Brian looks at him and says “What are you talking about? We are upgrading our plant.” And Bill said what do you mean, John stopped the capital expenditures. Because Gate’s view of the cable industry was TCI centered. The only guy he ever talked to in detail was John Malone. When John cut back on the capital expenditures, you remember that period, they just stopped everything and were going to not upgrade their plants as soon as the rest of us. That was Gate’s impression of the cable uses. Go around the room and ask all these other fellows Brian says to Gates, what they’ve done in upgrades. And of course Cox, Time Warner, Continental and Comcast were all way, way down the road in building 750 MHz plants. And Gate’s mind was blown at that point. At that point he said “Cable is clearly going to be the way to go.” So he got very excited about everything, and at dinner that night, everyone’s sitting around and Brian had a table with Gates, says “You know Bill, you really ought to ally yourself with this industry, and buy five to ten percent of everyone around this room.” Gates nodding back and forth the way he does, says—he thought it was a joke—says “how much would that cost?” An so everybody gets out their napkins, I don’t know, five, ten billion dollars. “Well, very interesting. Ha, ha, ha, goodnight, goodnight” that’s the end of the evening. Three or four days later we get a phone call from the chief financial officer, Greg Mathay, he was treasurer of corporate development or something at the time, said “Bill would like to continue the conversation you started the other night.” What conversation? About investing. Oh. OK. So we flew out there, and made a deal in a matter of weeks, I think it was three weeks from beginning to end in doing the deal and they put a billion dollars into Comcast.

KELLER: I saw a report on how it was done.

BRODSKY: Yes. Two sheets of paper, essentially based on the stock was trading at 17 dollars when the conversation started. They asked about the Microsoft discount. We explained to them the Comcast premium. They bought it at 20 dollars and 29 cents a share, 50% premium over what the stock was trading, prior to the announcement.

KELLER: Then you floated a new issue didn’t you?

BRODSKY: No, this was loose stock, we just issued them stock. They bought a preferred and common stock five hundred million dollars each. They had very little rights. Very little strings. Three strings on their viewpoint. The only real legal right they have is we have a right to terminate our exclusive arrangement with that home after three years, one of which has already expired at that point. And we gave them the right to make that decision. All that does is it may terminate the exclusivity, it does not necessarily terminate our affiliate relationship with that home. So we can do anything we want, they have nothing to say. What we do with our data business at that point, other than we may or may not have a legal exclusive arrangement with that home.

KELLER: Is the billion allocated directly to the data business?

BRODSKY: No, it’s allocated to the bank. It’s right there—the general funds of the corporation. The other thing was they have a right to appoint a board observer. We had offered Gates personally a board seat. And he said “I don’t serve on boards” isn’t that the silliest waste, I should sit around listening to reports, approving minutes.” Well, talk once a quarter and decide what we’re going to do together. And then we have an obligation to look at whatever is developing for broadband, not necessarily an obligation to buy. And they gave us in turn a most favored nation’s clause if anything developed for broadband. But that’s all in form. In reality, we have a half a dozen projects we’re working, they’d like to think no more about. They’re working on things we’d like them to be thinking about. So in a formal basis it’s small working groups, and the relationship has been a very happy, as much as the stock has gone up, 60-70% since they made their investment, a very profitable relationship from their viewpoint.

KELLER: Are you a Beta test field for them too?

BRODSKY: Well, we could be. We’re willing to be. We’re doing a few things like that. But it’s all informal. That’s the way the best kind of business is done. The other relationship that developed last year was the Disney relationship. The way that worked was that E! Entertainment was owned at 58% by Time Warner and managed by Time Warner. Four cable operators had ten and a fraction percent each of E! The shareholders agreement provided for a shotgun relationship that after five years, Time Warner put a number on the table, which they would either buy out the forty percent or sell their 58% of E! Within the cable group, there’s another agreement that has the ground rules as to how do you react.

END TAPE 2, SIDE A

START TAPE 2, SIDE B

BRODSKY: We didn’t want to buy it for that number. It was a big number and Bryan and I kind of gained it out after taking the temperature of where most of it was. It was Liberty, Cox and Continental were the same TCI, same good group. The other cable operators. We figured that no one – we had to make it valid internally for instance to buy, sell and you were bound by that. You went out and stated all kinds of rules to what happened. We figured out that nobody would put a buy in. And the way the strange rules worked is if you put a buy in, and you were the only person with a buy, or all the buys, anyone who buys in could terminate the buy within 30 days and go back to sell. So we figured out that if we put a buy in and nobody else put a buy in among the other cable operators, we would have an absolutely free option for thirty days to buy or sell. And we did it, that’s the way it turned out. So it was a very tight timetable. We didn’t want to put up 200 some million dollars. We didn’t know that much about E! and all that comedy. We didn’t want to put up all our money, we wanted a partner. So we decided to hold a beauty contest and we gave ourselves ten days to complete the process. Everything had to be in place and done. There wasn’t a lot of time to fool around. So we hired an investment banker, Solomon Brothers to help us make phone calls and set up meetings. We set up three identical data rooms at Davis Polk, our law firm in New York on three different floors over a weekend. And we had people come in Friday, Saturday and Sunday. Then all weekend in these data rooms, we had Bob Wright from NBC in the data room on Friday night from nine to midnight. We had Disney in one room. We engendered serious interest from NBC, CBS, Disney, ABC and Fox and some others. So one of those four was really going to be the buyer. The CBS people were terrific, they were a little slower than the rest of the crowd getting up to gear and getting into it. We got very competitive bids from Fox and ABC. NBC was a little bit off the mark in their bid and we had simultaneous negotiations going – Brian leading one team, I leading the other on different floors of the same law firm. We get together every so often. We both show up in the other group’s team. We keep everybody happy and that sort of thing. Then when Eisner showed up to conduct the negotiation personally, Ralph joined in the process and we made our deal with Eisner. And again, it’s 41.49, we’re to 51.00, we run it, Disney has never done anything like that. All the issues had to go, should it be 50-50 and what happens if Disney buys us out. That was just a non issue.

KELLER: Was this your first programming venture?

BRODSKY: Oh, no. We were part of the Turner bailout, we were in the viewers choice, we had out to life Speedvision.

KELLER: First management of programming?

BRODSKY: Except QVC. The Sports Channel was almost simultaneous to give us a regional sports channel here in Philadelphia. A traditional cable channel, yeah.

KELLER: Do you look to go into more of the programming ventures?

BRODSKY: We’d like to. Yeah. We’d like to leverage E! and QVC. Might be worth a minute before we could talk about the QVC story a little bit.

KELLER: Before you do and I know we’re getting tight on time, it’s been said that there have been three eras in cable. One, was from 1948 to 1972 with the advent of satellite. Secondly, the satellite era from ’72 to roughly ’92. After ’92 would be the digital age of cable. Would you generally agree with that as the three eras of cable television up to this point?

BRODSKY: Yeah, sort of. I think these guys had it a little better. Cablevision Magazine and Southward Sponsor. They didn’t do it by decades but the dark ages of the mid 1970’s, yeah it was clearly when cable was a reception business. Then going to offer things other than broadcast television, satellite or something else. But that really happened before the satellite, but not successfully. We were doing locally generated programming. A lot of microwave stuff. The technology’s irrelevant. It’s a question of offering people things they could not otherwise receive. That has been what our business has always been about.

KELLER: It also fostered the growth of the other programming businesses. CNN’s and ESPN’s.

BRODSKY: In other words, I remember looking at – this may just strengthen your point. Ralph and I were down in Pensacola, Florida and it was up for sale. This was in the early ’80’s, late ’70’s and it was 110 degrees in the summer’s heat. We couldn’t get a cab so we hitchhiked in a pickup truck from the airport into town, no chauffeured limousines. We banged on doors all day. We loved the system. It was clear to us there was so much signal in Pensacola that to make it work we had to bring in Channel 17 out of Atlanta; Turner’s station from Atlanta which was on an elaborate microwave network at the time. It would cost $750,000 dollars to extend that microwave network to Pensacola. That $750,000 tipped the scales to make it uneconomic acquisition. There was talk at that time that Ted Turner was trying to get his station up on a satellite. We called all the communications lawyers and said, “No way. Not gonna happen.” That’s not going to solve our problem then. We still have nothing to sell. HBO is not up on the satellite yet and we passed on it. Cox bought it on the assumption that Turner would be successful. We talked about it afterward. They assumed he would get up on the satellite. They couldn’t spend the $750,000 dollars on it either for the microwave extension. And they were right, we were wrong, we missed on a great opportunity. Maybe HBO on the satellite was clearly the defining moment in our business. I look at it a little differently through the ability to raise money and the availability of money in two different periods and Comcast has always been fortunate during the darkest era of the mid ’70’s, during the HLT period, we always had funds. Our banks were always there. There has never been a project that didn’t happen because of the lack of capital in the entire almost 40 years that we’ve been around.

KELLER: Did you ever pitch a project that you couldn’t get financing for?

BRODSKY: No.

KELLER: Other than the little mistake you were just talking about, did you ever make a major mistake?

BRODSKY: Oh, sure. Not participating more greatly in the Turner buyout, not emphasizing a more balanced approach to programming versus distribution in the ’70’s and ’80’s, every single cable system we passed on, we should have bought. Every single one, because the business got better and better. Those sorts of things. Exploiting internet possibilities a little earlier. I spend most of my time now working on data and internet investments made about a dozen or so made by the company so far, but not getting the portal business two years ago, before these valuations came to be what seems to be unreasonable. They may turn out to be reasonable.

KELLER: Are you continuing on your international acquisitions?

BRODSKY: No, not so much. We have some cellular stuff in Brazil, QVC has some very successful operations in UK and Germany and starting in Japan. But in cable we’ve just withdrawn from the UK. The industry consolidated a little too fast around us and we were really too small. We had to get bigger or get out. We decided to throw our lot with MTL and try to get bigger and see what happens there. So at the moment we have no international aspirations regarding cable. I don’t know if that’s a permanent condition, there’s just so much going on in the United States right now.

KELLER: So you’re focusing now on the development of data?

BRODSKY: Data, digital and telephony.

KELLER: Do you have experiments in telephony?

BRODSKY: A few, it’s not as high on our agenda as others. We’ve constructed our upgrade so that we can deal with switched circuit telephony if Cox and US West prove these are indeed viable things to do, we can move in weeks or months notice to make that transition. Right now, on paper, IP telephony seems to be a better business model, but several years away. We’ve got plenty to do in the data and digital worlds right now. I’m exploiting those technologies for new revenue sources which we are very excited about. We think they’re great and we’re working on that.

I did want to tell you the QVC story before we break. Comcast and Ralph, particularly, were instrumental in the original formation of QVC. The founder was a fellow by the name of Joe Segal, an interesting entrepreneur who has been written about many times. He founded among other things, the Franklin Mint that we hold out to Warner somewhere along the line. The Franklin Mint sells collectibles, it’s a very large mail order direct marketing operation. His non compete with Warner was coming to an end. He had some ideas, was there anything in cable he should be doing, this and that. He came to talk to Ralph about it. Home Shopping Network had just started up and Ralph was looking at it and saying, “That’s a great idea, I don’t like the way these guys are doing it though. I think it could be done better.” He talked to Joe and showed him and Jose said, “I would do this, this and this.” Joe had a million ideas. The world is funny how it turns in small circles. Joe got us this principle backer to get started, Pete Musser at Safeguard from whom we had bought our first cable system 30 years before that. We still remained friends in Philadelphia, we’re very close to Pete and the Safeguard people. We’re in several internet investments jointly with them. Then Ralph and I joined in and our job would be to introduce Joe to the cable community. We told him he has to give out equity and try to get up to ten million subscribers. So Joe Segal, in a matter of months, put together and entire organization, studios. Had an IPO before he actually got started, valued the company at something like 100 million dollars and in six months was on the air. Was doing a respectable volume, was making money with a year or two. Got up 20-30 million subs rather quickly and went on. But Joe does not like to stay with the business very long. He keeps telling us he wants to retire and this and that. While all this was happening, Barry Diller left Fox and was looking around for something to do. Barry has a good friend in Diana Von Furstenberg who has a clothing line. She’s a designer. And she was selling things on QVC and told Barry how in a matter of hours she sold thousands, more than she could sell in a year through stores, and what a marvelous medium this was. Meanwhile, Barry had been talking to John Malone about Barry’s things and everyone and he and Brian got into a dialogue and Brian along with John Malone were instrumental in bringing Barry Diller to QVC. He was given really a free hand but Barry always wanted a larger stage upon which to play, a network studio, something and he viewed QVC as an interesting electronic marketing tool, a medium, a currency to get into larger and better things, while trying to exploit and leverage all the great things about QVC. We’ll never know whether all his initiatives would have been great or ungreat. A lot of them didn’t make any money in the shorter haul, before he left but he got us in the UK, which did bring national visibility to QVC, because of the type of person he is and his reputation. But in all this, he makes a deal with Titsch at CBS for CBS to acquire QVC and then Barry would run the combined companies named CBS. He had the tacit approval of TCI and Time Warner who were the other large QVC shareholders. We, the cable guys in QVC, would receive non-voting shares that had no real role in management of the board, because the cost ownership rules that existed regarding limitations on ownership between networks and cable systems. We felt that this was not in our best interest or the best interest of QVC for the ultimate realization of the value within QVC. We wanted to be more active on the board. When Barry came in we —— control between TCI, Comcast and Barry Diller. We controlled QVC and we wanted to exploit that situation. So we told Barry what happened and Barry said, “If you don’t like it, pay more.” He really did underestimate Ralph and that’s a bad thing to do. So we devised a plan where we would top the offer. We topped it in the form and we really couldn’t talk to TCI or Time Warner, because they had thrown a lot totally with Barry and they said if it happens, they would vote their shares for him, that sort of thing. So it’s tacit approval. So we just came out of the bushes. Lobbed one in, a taxable transaction, 37 dollars a transaction, 37 dollars a share, most people were valuing 44 dollars a share. Most people were valuing the CBS offer at 33, 34, 35 dollars a share. But it was a lot of paper, not so much cash, but it was taxable.

KELLER: Is it a difficult thing to put a price on?

BRODSKY: Well, we knew how to value QVC. But it was a taxable transaction which is death in TCI ville. We had a pool as to now long it would take us to hear from TCI, because they would end up paying 300 million dollars in taxes if we were successful. So we hear from them, “Well, we’d just as soon stay in if you guys are going to do it.” That was a done deal. We just topped it and Barry left. A lot richer for it, and of course he got his wonderful world with USA and MCA and we got a wonderful asset in QVC to balance our programming and distribution ratios. I think we’re going to have to wind this up.

KELLER: I very much appreciate it. This has been a rewarding morning for me.

BRODSKY: It’s a shame. There are a half a dozen other stories we never got to.

KELLER: I’m sure there are. We could probably go on for days and not get it all.

BRODSKY: For me to have been involved in cable, and particularly with Dan Aaron and Ralph Roberts for forty years and seen what this business has become, from a reception service to a dynamic entertainment and communications medium and then at Comcast to have the absolute joy and the miracle of having Brian Roberts develop into a viable, marvelous, literally leader of our industry has been a second serendipity. To have a second generation actually come through and take over the business.

KELLER: In my opening statement, I used the term that applies to you – a financial wizard. I think that there is no question after going through this almost three hours of conversation that that was truly, truly and apt description of you and I very much appreciate it.

BRODSKY: Thank you, Jim. This was fun.