Interview Date: November 18, 1999
Interviewer: Jim Keller
Interview location: Philadelphia, PA
Collection: Hauser Collection
KELLER: This is the oral history of Julian Brodsky. This oral history, dated November 18, 1999, is funded by a grant from The Gustave Hauser Foundation and is part of the oral history program of The National Cable Center and Museum. The interviewer is Jim Keller. We’ll talk about the success of Comcast and the continuing progress of the company, which you have now built into the 3rd largest cable company in the country. And I just heard today, the 10th largest communications company in the world?
BRODSKY: I heard that today, also.
KELLER: The first time you heard that. Tell us how Comcast got started.
BRODSKY: Well, Comcast got started as a result of Ralph Roberts exiting the belt business. Ralph was the principal shareholder and controlled the Pioneer Belt and Suspender Company and in the late ‘50s and early ‘60s, he noted a trend toward sans a belt, trousers that didn’t need a belt. He said, “This doesn’t look like a good time to be in the belt business.” So in the true American manner, he sold out to the number 1 belt manufacturer in the United States, the Hickock Manufacturing Company. He was then left with a small toiletries, men’s toiletries business, and a portfolio of securities and a desire to do something entrepreneurial. He spent a couple of years looking at business opportunities. He had been lent to Ralph and Pioneer as a CPA, specializing in mergers and acquisitions to help with the sale of the belt company and after the sale I maintained Ralph as a client, who was not a particularly complicated or large client, but I had a personal affinity for Ralph and it was a lot of fun. It was fun watching him look at various industries. In 1963, he ran into Dan Aaron on the street. Dan Aaron had been the head of Jerrold’s MSO operation. He ran their cable systems, which was arguably the largest MSO in the country, in the late ‘50s. He had seen what Bill Daniels was doing in the West, and decided that looked pretty good and very exciting. He was going to become the Bill Daniels of the East and open a brokerage business.
KELLER: What year was that?
BRODSKY: That must have been ’62, ’63, somewhere in there. His partner was Pete Musser, the founder of Scientific and Safeguard Industries and Pete owned the system in Tupelo, Mississippi, and that was Dan’s first, and probably only, listing. So Pete and Dan are walking down the street one day and they see Ralph coming from the other direction and Dan said, “Maybe we have our pigeon.” So, Ralph had looked at some of Bruce Merrill’s systems and a few other things and he kind of liked the cable business but hadn’t figured out the right way to go into it. Ralph is not one to go into anything which he didn’t have expert partners. So when Dan made the proposition and Ralph looked at the property and some unbooked franchises came with it in Mississippi and he kind of liked what he saw. I was very excited about it. I had visited my first cable system in 1959 as a practicing CPA and tax practitioner, converting C corp. cable operators to S corp. companies and I was just fascinated by the dynamics and the tax attributes and the high fixed low variable costs of cable systems. I thought it was a neat business. I had never heard of it, having come from the city. So Ralph says to Dan eventually, “Yes, I do want to do this, but I’m only doing this on one condition. That you come along and you help me build a national cable television company.” Ralph, who’s irresistible, you just don’t say no to Ralph when he brings you a pitch, Dan leaped on board and when I saw what was happening, I went into Ralph and kind of startled him and said, “I just resigned today. You’re not doing this without me.” So it was the three of us and Ralph did not quite know what to make of it, but I assured him it would cost nothing, I’d save him everything on accounting fees. That’s how we started in November of 1963 in Tupelo, Mississippi, with 1,200 subscribers and two unbuilt cable franchises.
KELLER: The system had already been built, or a portion of it?
BRODSKY: The Tupelo system had been built. We had franchises in West Point and Laurel, Mississippi and later that year we got the unbuilt franchise for Meridian, Mississippi.
KELLER: You had some great times in getting the franchises down there too, as I understand it.
BRODSKY: Well, it’s a funny story on the Meridian franchise. It was going to be decided by a referendum among the contending parties and in those days, alcohol was illegal in Mississippi, although prevalent. All the finest restaurants were combination drinking establishments and casinos and that’s where all the social events took place. If you went out for dinner for a nice night, you went to one of these clubs. This was called the Queen of Clubs, we were having dinner there outside of Meridian and as fate would have it, there was a craps table at the Queen of Clubs and Ralph, who engages in conversation with everyone, gets into a conversation with the fellow next to him on the table and the fellow says, “Well, what are you doing here in Meridian?” And he says, “Well, I’m here to try to deal with the winner of the election and get the cable franchise. I have a deal with so and so and we’re meeting tomorrow and are going to sign the papers and hope to be in the cable business here in Meridian.” In the laconic way that some southerners have, the fellow’s name was, I think, Donovan Reedy, it turns out he’s a CPA, he says, “Wrong guy.” Ralph says, “What do you mean wrong guy?” He says, “I just counted the ballots, I certify the election and it’s so and so.” And Ralph says, “Oh, really? How do I find so and so?” “Well, he lives over there.” Ralph was there in a heartbeat and the guy didn’t know he’d won and Ralph struck a deal with him right then and there and we got the franchise for Meridian, Mississippi, which was the 2nd largest city in Mississippi.
KELLER: Do you remember what kind of deal he struck with him?
BRODSKY: Oh, nothing that was terribly unusual for the time, probably.
KELLER: Did he give him 20%?
BRODSKY: It was a little less than that in those days. You hadn’t quite gotten to the 20% level, that came a few years later in the late ‘60s, early ‘70s. It was probably a 10% carried interest, something like that.
KELLER: And then you continued along the acquisition trail?
KELLER: Mainly with unbuilt franchises or did you buy existing systems?
BRODSKY: It was a combination. We did a lot of both. We had some unbuilt franchises in the Philadelphia area. We bought a partially built franchise in Sarasota, Florida. This was a unique situation in several ways. In those days of course, what we were selling was single carriage and you started out, your first market criteria was that there could be no television signal in town and then as those towns got built out, the cable operators would settle for a town that could not get two of the three networks and then they kind of disappeared, and maybe you could make a living selling one network in the town and you started to go after those franchises. But we looked at Sarasota, Florida as a possibility. Sarasota, Florida got NBC and CBS just fine all the time, got ABC fine about half the time. The question before the house was, can you make a living on half a network. The ten other cable operators who had looked at it before we did, came to the conclusion you could not. This was not enough to sell, and it was a retirement community with conservative people on limited finances and it would be a very difficult situation. It was further complicated, this was an existing system, it only covered a portion of the franchise area and it had 11 miles of plant, not on poles. The guy who had gotten the franchise had a condition put in there that it had to be underground for the most part, the greatest percentage of it, and he did this because he was missing a leg and couldn’t climb poles. But also, he wasn’t terribly well financed and his idea of underground was lay it on the ground and brush a few leaves or some grass or something like that and he had these 11 miles kind of lying around. Terrible plant, it really didn’t lay well, it clearly had to be all ripped out and rebuilt and nobody wanted this system. We just agonized for the longest time as to whether we should do this and Dan Aaron finally said, “I’ll think of something. We’ll do something on the air. We’ll find something else that people like.” I’ll never forget – he bought, I think it was 35 B movies. He got the whole thing for maybe two or three thousand dollars to play for a year and we had it on one of these old film chains with the mirror, one of the films came in and went out onto a Vidi-com camera and they were terrible. They were really bad movies. It was called the Sarasota Film Festival and Dan’s promoting this thing and this and that and after about a month or two, we wanted to use the channel for something else, all of us were begging, the whole staff, “Dan, please take this thing off, it’s horrible.” We didn’t have a lot to sell on this system and this was an important part. We finally talked him into pulling the plug. Not one phone call to see what had happened! So we did that, and another interesting thing that happened right along the same time is that we competed for and won the franchise in Venice, Florida, just down the road from Sarasota and one of the losers in the franchising fight was GTE, the local telephone company. In those days, telephone companies could own cable systems and they were sore losers. They would not let us up on the poles. Just north of us in Bradenton, the same situation happened and I don’t know whether the operator was Dick Leghorn or Sam Booth, but they eventually sued them on anti-trust grounds and won a big decision because GTV would not let them up on the poles. But Dan was not the litigious type. Dan was a businessman, thought everything should be settled on business terms. We have this franchise and it’s a wonderful little community in Venice, Florida and they won’t let us on the poles and Dan and I are walking around outside our little offices, “Oh, what are we going to do?” And Dan’s pawing around with his foot and he’s looking down at the sand and he says, “I want to bury the son of a bitch.” And in that case, he built the first 100% underground system in the United States. This was direct burial of cable.
KELLER: In the sand.
BRODSKY: In the sand.
KELLER: With a low water table.
BRODSKY: With the water table coming up and down, the whole thing. It was a wonderfully successful system. It worked out beautifully! That’s the way cable was – it was a series of improvisations.
KELLER: The last time we talked, we talked about how you financed each one of these systems and one of the things you mentioned was that each project stood on its own and you financed each one on its own merits. How did you go about doing that?
BRODSKY: Well, it was strictly project financing of each subsidiary. We really refined that in later years but one, in some ways it was easier. It was simpler financing than doing some sort of parent company credit. We probably ended up paying a few bucks more than if we had done some sort of unified credit, but we had the acid test of a third party reviewing the viability of the situation and making a credit decision to lend into that project and it was a more subtle thing. It’s one thing for me or some treasury type to show up and tell the general manager of a system, “Look, you ought to pay down this inter-company loan so I can repay our bank loan. Your story touches my heart, we’re both on the same team here,” than having some cold-hearted, steely-eyed banker showing up who has a loan to that system and talking to general managers saying, “Now tell me again how you’re going to pay me back next year.” So it was a self-fulfilling prophecy for a free cash flow generation.
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KELLER: In our first interview, which as I said in the opening was on audiotape only, you said that you used all kinds of methods of financing, starting off even with an economy finance, which was a substantial rate over and above the prime at that point and added on considerably.
BRODSKY: We never actually did that, Jim. There was this current state of the art in financing when we entered the business. There were companies like Economy Finance and others, ABC, we called them the mezzanine, the intermediate term lenders, who would lend to build the cable system, give the working capital to the operator, put up all the money at rates that were pretty tough. It was called prime plus five, prime plus six, and of course prime is higher than [???], so these were pretty stiff interest rates. The terms of the loans were unrealistically short, which forced the operator to either sell or renegotiate, probably on disadvantageous terms to extend the loan, but having said that, these finance companies probably created more millionaires in the early days of cable by providing the wherewithal for cable systems to be built. I cant think of how many acquisitions we made where at the closing table, the first check was drawn to some finance company. We didn’t think that was economically possible or necessary for us to do, or the right thing to do and we started from day one with commercial bank financing with six year loans.
KELLER: Now you had some relationships with banks in Philadelphia?
BRODSKY: Yes, this was all done by Philadelphia banks and one of the long term strengths of Comcast, even into the 1980’s, was that we maintained relationships with non-money center banks, particularly in Philadelphia and Dallas. So whenever we had a large deal, say we were dealing with some New York bank, who are 400 pound gorillas and used to having their way, we always had a counterbalancing force in that we would always do at least half or more of the loan from Philadelphia and other regional banks.
KELLER: Why Dallas?
BRODSKY: Because that’s where the Republic Bank was located and Phyllis Regans, who then became First Interstate and then Nations Bank, she’s still one of our main lenders and they were very aggressive. We had a wonderful relationship and there were a couple of others, First National Bank of Dallas. It just was one of the hotbeds of cable lending.
KELLER: And in those days did they waive the principle payment for three years, five years, six years?
BRODSKY: Well, you’d usually try to structure it as, if you’re in a construction situation or even an acquisition where you had some rebuilder expansion to do, as a revolver for 18 months to three years if you could, that would be a good thing and then it would transfer into a term loan for the balance of the commitment.
KELLER: Tell me about the banks that came in and you were able to roll over the loans from one period to another. As an example, you might start out with a five year loan, were you able to then pay that off over a period of time?
BRODSKY: Absolutely. It turns out in reality, the longest term financing to the cable industry, a five to ten year bank loan, forever got rolled over because as long as interest was being met and reasonable ratios were being maintained, the banks were very happy to extend these loans indefinitely.
KELLER: You also had other methods of financing at that point. Did you do secondary financing and so on?
BRODSKY: Well, you know, we quickly came to the conclusion that six year bank loans really were not the best vehicle for cable television financing. There was a crying need for long term, fixed rate, reasonably priced debt. That, translated into English, means insurance companies. So we started to approach insurance companies and in 1965 or ’66, I believe, Comcast did the first or second insurance company loan ever gotten for the industry and what was nice about it, we did a combination of banks and insurance companies where the banks would take the shorter maturities up to five or six years and the insurance companies would be very happy to get interest only during that period and then they’d start advertising through the seventh year onward and it was just the perfect vehicle for cable television financing. The other great thing, what always attracted me to cable, was the tax attributes of cable.
KELLER: That was going to be my next question.
BRODSKY: It had high capital expenditures. You build a cable system and it had predictable start up losses that had to happen that were fully deductible. In those days there was the investment tax credit, which was a function of capital expenditures being made and all these things for the most part would go to waste in a stand alone cable system. So here we are with this very valuable economic thing called the tax benefits and how do we leverage it. So it was one scheme upon another.
KELLER: But you didn’t opt, then, to lump them all together with a corporate guarantee at that point?
BRODSKY: Well, we couldn’t use them at the total either. There was no corporation that was paying taxes in our scheme of things. We were all cable systems. So it was just going to waste. So we worked upon various things to transfer the tax benefits, leasing, the use of limited partnerships, the famous safe harbor lease provisions passed by Congress, which just spelled it out so easily as to how to do it, it was the intent of it, and industrial revenue bonds. Just so many things that were based upon, and later, just recently, the use of LLCs to accomplish that.
KELLER: Limited Liability Corporations, you’re talking about.
KELLER: Which of those alternatives did you use the most of in the early years?
BRODSKY: In 1965, I wrote a paper and it circulated among our group, saying I thought – I’d seen limited partnerships in action in the world of real estate – that these were such a perfect financing vehicle for cable television. You get the capital, make them limited partners, give them tax benefits, a modest amount of the upside. The general partner, the operator, would take the lion’s share of the upside and everybody’s very happy under those circumstances. It would just work out for everyone and we did a number of them. Perhaps not as many, as for instance Glenn Jones would have done in public partnerships but we did several significant ones.
KELLER: They weren’t all public, but there were private partnerships also, that you were involved in?
BRODSKY: Well, the first one was totally private, the second one was a public – a 1933 Act, the last one filed, a blind pool called Comcast Cable Investors, a real funny story on that one. We were selling $5,000 units and Shearson Lehman was the underwriter and it was just a blind pool to go out and buy cable systems. Not one identified property and in those days, Ralph and I did the road shows and one of the stops on the road show was at the Drake Hotel in Chicago and I forget what the big ballroom was called, The Acorn Room, I think it was called, and there were 400-500 people there. It was advertised in the papers and there was a seminar on cable television and we’re several weeks into the road show and we’re pretty polished in the stakes of the game and Ralph’s a pretty slick salesman. He sold a lot of belts in his day. So we’re up there, we’re doing our act on the tax benefits. The tax benefit, in this case, was a one to one write off because of the way it was structured. It was structured as a limited partnership, a public limited partnership, you could get a one to one write off and we were on a very tight schedule. You’d go from one meeting to another, so as we were finishing our pitch and we were running to the door to get the car to go to Northbrook, or Milwaukee, or who knows where the next stop is, a woman comes running up to Ralph out of the audience and says, “Oh, Mr. Roberts, that was the most wonderful story I ever heard. I’m a school teacher, I’m going to put my life savings into this.” I said, “Don’t do it! Don’t do it!” Of course, she should have because it was enormously successful. It was the most spectacularly successful public partnership. People got the one to one write off, we stuffed three cable systems into this partnership. Enormous amount of returns, I forget what a $5,000 unit got, it must have been $20,000 or something like that in six or seven years. It was just wonderful. The next one we did was a Reg D offering, I think it was the largest limited partnership done in its time for a large cable system acquisition in Baltimore County, Maryland and that was the most successful limited partnership ever sold.
KELLER: What year was that?
BRODSKY: We sold that in 1984.
KELLER: When did you hook up and how did it come about that you took on the partner with the Philadelphia Tribune?
BRODSKY: The Philadelphia Bulletin?
KELLER: The Philadelphia Bulletin. I’m sorry.
BRODSKY: We had no money in those days and we had gotten, and they had gotten, we had gotten some franchises in suburban Philadelphia and in those days the Philadelphia franchise had been broken into six parts and we had gotten one and the Philadelphia Bulletin had gotten one. Their arch rival, the Philadelphia Inquirer had gotten one and a bunch of other people. They were desperate for these Philadelphia suburban franchises. They’d already been built, no one could have built them. At the same time, we had these two systems in Sarasota and Venice, Florida and no capital with which to build them or bury them, as the case may be, and so we said, to them, “Well, sure, let’s do a joint venture. Since you’re putting up all the money, you’ll be a 60% partner and we’ll be the 40% partner, we’ll run it for a fee and that sort of thing.” And so the Philadelphia suburban franchise was not ready for primetime yet because of the various regulatory hurdles that the FCC had put into place regarding the importation of distant signals.
KELLER: In effect, the freeze at that point?
BRODSKY: Yes, it was right during that ’68, ’69 period. So we built Florida with them and that’s how we all got started and then one day in 1969, Major McLaine, who was the principal shareholder of the Philadelphia Bulletin, who at the same time we had trained all their executives in the cable business, they had made some wonderful acquisitions. They had bought Levittown, Pennsylvania; Salem, New Jersey, and most importantly, the cable system in Santa Barbara, California, which was a nice start of a cable empire. The Major gets out of bed, must have gotten out of the wrong side of bed…
KELLER: Now did they buy those on their own?
BRODSKY: On their own – without us. We consulted, we were training their people and they built up their own MSO organization while this was happening and the Major says, “Sell everything with the newspaper.” And they were in a bunch of other industries and they exited the cable business just as values were going up. Of course, the newspaper went bankrupt a few years later and they were out of the cable business and irony of ironies, Storer purchased the Sarasota and Venice systems.
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KELLER: We talked about a number of methods that you utilized in financing. You mentioned some others too, the first time we talked.
BRODSKY: Well, yes, we always felt that we had to find unique ways of financing to get new sources of capital because cable was so capital intensive and there were so many companies that it was easy to tap out any particular channel of capital. For instance, we looked at the field of industrial revenue bonds. Now what was so unique about industrial revenue bonds – it’s nominally issued by a municipal state or county authority and if issued properly, interest received in the hands of the holder is free of federal income tax and in some cases they’re free of state income tax, while at the same time the payment of that interest is deductible by the issuer. That seemed like a great thing for cable television except nobody had ever done it and we worked with various underwriting houses and we had trouble with bond council issuing an opinion that this was inappropriate use because it had never been done. It seemed pretty clear from the law that it was. So after five years of work, in 1978 we finally convinced an investment banking firm and a prestigious bond council firm that this was a good thing to do and just to complicate matters, we did it as a public offering rather than just as a private placement to someone and it was an enormous success. The proceeds were to build one of the suburban Philadelphia systems. We quickly followed, within two years, did six additional industrial revenue bond issues all for the construction and extension of cable systems. In fact, it did several great things for us. Bond holders were used to longer terms than either banks or insurance companies and of course our financing costs, the interest rate was about 50-60% less than what would otherwise be the case under conventional financing. So this was a great boon to us, a great new source of capital. And one of our underwriters thought that in the early ‘80s, maybe ’79, ’80, ’81, in around there, that there might be a source of capital in Europe. So we went to Europe with Shearson Lehman and Morgan Grenfell, the large English banking house, and did the first cable deals in Euro dollars and again, this was a new audience, very receptive to our story and these issues were great successes.
KELLER: And you were still in partnership with the Bulletin?
BRODSKY: The Bulletin was not a corporate partnership. It was a specific project partnership for Sarasota and Venice and for these Philadelphia suburban systems. It was not a mega-partnership.
KELLER: And so how long did that last? And you said that they Major came in one day and…
BRODSKY: At the time of the sale of Sarasota, which was February ’70.
KELLER: You seem to have acquired a very sentimental attachment to Sarasota.
BRODSKY: Well, first of all, it was such a gamble with those 2 ½ networks booming in there and building it was tricky and difficult and it was the largest project we had ever undertaken to that point and unless you’ve driven in from St. Armand’s Key to Sarasota, across Sarasota Bay in the morning, it is so beautiful, you had to fall in love with it. Dan Aaron likes to say, when we do our marketing studies about this, he just stood at Long Boat Key after a round of tennis and looked at the sunset and said, “This place needs a cable system.”
KELLER: And you put it in.
KELLER: And then when the Bulletin decided to opt out of the business, that required you to sell at that time. Is that correct?
KELLER: And you did so, and to Storer.
KELLER: How did that come back again to become a factor or a chip in the overall story?
BRODSKY: Well, I think sometimes we and other people over-romanticize that aspect of it. The latter Storer transaction so dwarfed Sarasota in its sentimentality it was nice to think that but really it was not a real life factor.
KELLER: What was it? You keep saying that one of the reasons that you wanted to get into the Storer deal was because of Sarasota.
BRODSKY: Not true. Not true.
KELLER: Not true. Just a myth?
BRODSKY: It’s just myth. It’s a lovely myth.
KELLER: A Brodsky myth.
BRODSKY: And why dispel it? But it was a funny little story. At the closing when we sold Sarasota to Storer, the closing took place at the Storer offices in Miami and I think Peter Storer’s father was there, George Storer, who’s still chairman of something and we were sitting around, it was bedtime in the closing process and Ralph says to the older Mr. Storer, “Gee, it breaks our heart to sell this system. Our partner the Bulletin is getting out of the cable business and we don’t have the wherewithal to buy this, but boy, I sure someday would like to buy it back from you.” Mr. Storer said, “Son,” this is somebody calling Ralph “son”, “we never sell anything.” End of that story.
KELLER: And they were forced after awhile, because of the economics of their other business, to sell their cable properties.
BRODSKY: Well, it was a strange and torturous path that that company had to take.
KELLER: Do you want to get into your participation in that strange and torturous task?
BRODSKY: Well, yes. Storer was a very interesting company. It was a wonderful New York stock exchange company. Pioneers and very successful broadcasters in radio and television, started in Ohio, and it was doing very nicely. I guess the first bad thing that happened to them is they decided to go into the airline business and purchase Northeast Airline, yellowbirds, if anyone remembers those. Every dollar they made, I forget how much it was, but it was almost to the dollar that they made in all their broadcasting activities, they lost in the airline business and I remember one time the cable convention was someplace, I’d gotten friendly with the chief financial officer, Arno Muller, and Arno would say to me, “Julian, don’t ever buy an airline.” I said, “Arno, you have my word for it. I’m never going to buy an airline!” It was just dehabilitating to them. But they decided to go into the cable television business. They bought some properties in California and when they bought Sarasota and Venice, it was their first purchase east of the Mississippi, they put into place a dedicated management team to cable that was successful in franchising, successful in acquisitions and started to build up a very impressive cable operation. They seem to have had a certain amount of either trouble or bad luck in hitting their numbers as far as Wall Street was concerned. They couldn’t seem to get a consistent pattern of projections. I don’t know why they felt compelled to make these projections in the first place, I never understood that aspect of financial PR, it seems to me you only lose when you make a financial projection. If you make it, it runs as expected; if you miss it, you’re a bad person. So Comcast has had a policy of not making financial projections for analysts or the public or anybody except ourselves. So they were always getting into trouble and the stock would have a roller coaster, big ups, big downs, which was tough. So eventually, in early 1985, a dissident stockholder group emerged headed by Constant & Associates, who I think were professional dissident stockholders. And they urged the management, who had no sophisticated takeover defenses, to sell the company or liquidate parts of it because they’re much more valuable in the eyes of these dissident shareholders than the price at which the stock was trading.
KELLER: Do you think they wanted the television stations more so than the cable systems?
BRODSKY: They didn’t want anything themselves, they wanted it to be sold. They wanted the cash or stock or something good. They just said, “This company’s not being run right. You’ve underperformed on utilization of these assets. Now do something about it.” In pursuing that, they mounted a proxy fight to take control of the board of directors of Storer. Storer responded with some of the typical but ineffective defenses of the day: a recapitalization plan, PR, this and that, but it became clear that these were in serious danger of not working. So the thing that was prevalent also, in these situations during that part of the 1980’s, was the emergence of the “white knight”, a funny name for the types of companies that performed these roles. The white knight role, in theory, was to ride to the rescue of this embattled company by these terrible dissident shareholders and then I’m not sure where it all ends, but they buy the company, I think, is where it ends. So KKR shows up, who were one of the prominent white knights of the era, an established leverage buyout firm.
KELLER: Kravits…? I can’t remember the others.
BRODSKY: Kohlberg, Kravis & Roberts. Jerry Kolberg, Harry Kravits and George Roberts, and their pitch was we’re here as management, you’re going to be part of the buyout, you’re going to continue to run the company, we’re going to give value to all the shareholders, and everybody wins. They’ve done that very successfully, particularly when they have a lot of faith in the managements. Sometimes they’d sell off pieces of the assets.
KELLER: You say they had faith in the management but nobody else did, or at least the Constant people did not.
BRODSKY:I didn’t quite say that.
KELLER: Okay, clarify
BRODSKY: I said they’d had success in the past when they’d had faith in managements. I don’t know, I don’t think they knew the management but they saw a lot of value in the assets. It’s hard to tell, I’ll get to why because I don’t know but there were some indices, although they did keep on a lot of the people at the top management, people below Terry Lee and Peter Storer. So the board of directors, in April of 1985, adopt a plan for KKR to lead the leverage buyout of the company. The way it was structured, and in the news release there was a breakup fee to KKR and remember, this was long before the finer development of Delaware law as to what exactly are the fiduciary responsibilities of directors in these situations. So it became clear to us and to our advisors that Storer would probably have to entertain superior officers. So Ralph wants to know the answer, so he picks up the phone and he calls Peter Storer.
KELLER: Why would he want to get into it?
BRODSKY: Ralph at Comcast? I don’t know. We looked at it and said, “My God, it’s a steal!” KKR is getting this for something, depending on how you value the TV stations, even with a conservative value of TV stations this was a bargain and these cable systems are worth a lot more than this purchase price.
KELLER: He wasn’t the least bit concerned about getting into a bidding war with KKR?
BRODSKY: Oh, sure. That type of thing gives you concern, but that doesn’t mean you don’t do it.
KELLER: That’s true.
BRODSKY: Depends on your courage.
KELLER: You did make the decision then to make a bid for Storer?
BRODSKY: Not just yet. We were at this stage just investigating the facts. So, Ralph calls Peter Storer and Peter says, “Yes, we’re obligated to entertain superior offers. We can’t solicit them; I can’t encourage you to do that. Do whatever you think you’ve got to do. Have a nice day.” It was a very friendly conversation. So we come back and I’m thinking the day I heard this, this can be done. Especially in the mid-80’s mentality that was going on where there was almost unlimited debt capacity, but this was tricky. This was almost 2.2 billion, 2.1 billion, 2.4 billion, depending upon how it would turn out after you had fired all your salvos in the war that was sure to come. It was going to be very tricky, particularly when there was about a billion dollars worth of value in the TV stations and what do you do with that? But we devised a plan in conjunction with Merrill Lynch that was revolutionary for the time. It involved our putting up 200 million dollars, which we barely had, our going out and raising 900 million dollars of good senior bank debt from our banking friends, all of whom by the way, were being intimidated by KKR not to do it or also their good banking friends. It was a tough world. And then the most extraordinary thing: Merrill Lynch would guarantee in excess of 1.2 billion dollars of funds from their own balance sheet, which had never really been done before on Wall Street and to this day, the then vice-chairman of Merrill Lynch, Ken Miller, has framed the commitment letter to Comcast from Merrill Lynch as this is the letter that changed Wall Street. Now, you know, why would Merrill Lynch do this? It was so extraordinary. They took the risk of disposition of the TV stations, which was part of our plan; they took the risk of bridging a junk bond issue, which is risking your own balance sheet, it would probably happen, but not without risk.
KELLER: Well, apparently this deal was so good that they were willing to do it.
BRODSKY: Well, that’s what nice guys would think but the real reason, I think, Merrill Lynch did it was it was envious of the way KKR and its close ally, Drexel Burnham, were dominating the M&A, LBO and junk bond markets and Merrill Lynch thought that this was an appropriate franchise for them, that the Storer situation and Comcast, as its pony, was a good way to try to stop this juggernaut that had been going on for awhile.
KELLER: Was there a condition that Merrill Lynch would get warrants, or they would get equity, or anything within the system itself in the deal?
BRODSKY: Well, not anything in the system but there was a lot of compensation, a lot of elements of compensation. I don’t remember whether there were warrants or not, but there was an incentive compensation clause that would have dwarfed anything else and with the sale of the TV stations, we got the first 900 million dollars, the first 950, maybe it was, and they got something like 50% of everything over 950, and the systems went for a billion three. That itself would have been the largest investment banking fee of all time. They would have gotten 50% of the excess between 950 and a billion three, plus all the other fees for the bridge loan, for the client and M&A fees, so there was a lot in it for Merrill Lynch.
KELLER: Then would they serve as the brokers for the television systems too? Because they knew you wanted to get rid of those.
BRODSKY: Oh sure.
KELLER: So they did have considerable incentive.
BRODSKY: Oh, yeah. And then the worst part of it was, we thrashed around in the bushes for 30 or 40 days, there were all kinds of rumors that we were coming, we received all kinds of entreaties from emissaries of KKR and Drexel to stay out of it, but what did we know? We’re the 16th largest cable system in the United States, a non-entity, a non-factor. We always had played a little larger in the cable industry than we were. Dan Aaron had been chairman of NCTA during the 1970’s, Ralph and I served on a lot of committees, made a lot of speeches.
KELLER: Give us that ratio. How many subscribers did you have at that time?
BRODSKY: They had 500,000 subscribers.
KELLER: 500,000. Storer had a million two?
BRODSKY: A million five, probably a million six. We were so far down there, I mean, we’re nice guys from Philadelphia but not a factor in the cable business. So here we were taking on all the big boys – KKR, Drexel and some of the leading Wall Street law firms. We had five advisors; we had Steve Volk from Sherman Sterling and Merrill as our principle advisors and we prepared to do battle. We then lost a series of offers, the back and forth’s. We realized we had to wear KKR out because we were playing with 90 cent dollars. They were the incumbent, they were favored by the company and its board of directors so in any equal bid, they win. So we had to have a superior bid and it went back and forth. TCI was with us in the very beginning of the process, they dropped out at about 70 bucks a share, they weren’t willing to go higher. So we were by ourselves from April on.
KELLER: And by this time you’d forced the price up.
BRODSKY: Yeah, it ended up, I don’t know, we were at 94 bucks and KKR was at 92 bucks and the final, final thing at the end of July went to the Storer board of directors. Ralph and I were convinced that the properties were worth a minimum of $110 a share, probably worth more even with the break up fee that had to be paid to KKR if we were successful. But at $94 or wherever we were, we ran out of money and Merrill Lynch ran out of courage and that was our best and final offer under the circumstances.
KELLER: How much of that 94 had you anticipated would be returned with the sale of the television stations?
BRODSKY: I don’t have a per share basis, but we assumed 950 million dollars was the working subset you have on rebuilt shares. It was a gross financing problem at that point, not a per share issue.
KELLER: But that was the value you put on the cable systems alone?
BRODSKY: No, that was for the whole company, which included the TV stations. And there was an assumption of debt, so it was more than the share price.
KELLER: I see.
BRODSKY: For outstanding bonds back then.
KELLER: How much debt was to be assumed in that project, do you remember?
BRODSKY: I don’t remember because it’s kind of irrelevant. We would replace the debt. It had to be a two plus billion dollar financing.
KELLER: And you were also willing to take on then that additional debt?
BRODSKY: Well, we would pay it off. If it was reasonably priced we’d keep it, if not it was one big financing package. The senior debt to the banks was the same as bank debt. If it was junior to the banks, it was the same as the subordinated debt we were issuing, so it was all fudgeable. The existing debt was really an irrelevancy in the equation.
KELLER: Was the cash flow able to pay off those debts?
BRODSKY: Well, it was a little dicey. It was close, assuming the 950 for the several TV stations. On the most conservative assumptions, some of our lenders banks, the senior lenders, insisted that if we didn’t meet certain covenants that we would have asset sales perhaps up to 3 million dollars to bring those ratios into line. We always felt we could maintain those covenants, meet those projections and never have to do that. Obviously, you’ll never know who was right, but we think we probably would have made it through without any asset sales.
KELLER: Except the television stations.
BRODSKY: Oh, yes. And it’s funny, you know, we were told after we had lost, Ralph and Peter Storer had a nice heart to heart conversation and Ralph had, during the process, told Peter our entire plan which we eventually told the board of directors, was to sell the TV stations and he had offered Peter Storer, in effect, lifetime employment with Comcast or the Storer division of Comcast. We would fashion it to his needs and Peter Storer said that two of the reasons the board turned down our offer and accepted KKR was 1) KKR said they would hold the company together and 2) felt management in the LBO situation, I guess translated means Peter Storer, would have a more secure future with KKR then with Comcast. The last one kind of shocked us because if Ralph tells somebody something’s going to happen, it happens. And then of course the facts played out as follows: within 30 days of closing, KKR puts the TV stations up for sale and has Steve Ratner of Morgan Stanley sell them for a billion three, which was phenomenal and Peter Storer and KKR went their separate ways within 60 days. So for the two reasons, maybe there were some economic or tax issues to why we didn’t get it, but the two reasons that Peter Storer explained to us both turned out to be invalid assumptions on the part of the Storer board and Peter Storer. And we looked at each other, Ralph and I, and said, “Is it really true?” As Leo Durocher, manager of the New York baseball giants said, “Nice guys finish last.” Were we too much of a boy scout, should we have been more cynical in our approach to the board and to the company rather than just putting our plans out as best we knew them? Is that one of the reasons? I think it partly may have been, part of the reason that we lost the deal.
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KELLER: So Peter Storer bought this scenario as portrayed to him by KKR and that was the reason that you felt that they won that deal, is that correct?
BRODSKY: Sure. KKR was the best at doing this. If you remember, for instance, barbarians at the gate was the big fight for RJR that KKR eventually won, they would show and demonstrate to the target’s management, through the testimony of current KKR owned companies, how good it was for management to stay with an LBO firm like KKR.
KELLER: As we were changing the tape, you mentioned that they could show, under certain circumstances, where they did keep the management of the companies that they took over.
BRODSKY: Oh, sure. Many times.
KELLER: For long term?
BRODSKY: Well, long term in the LBO world is not terribly long term. That is one of the issues as to what happens to a company when they’re bought by an LBO firm.
KELLER: And that’s something Congress was looking at very shortly after.
BRODSKY: Well, they were looking at it… Yeah, I guess so. Because of the short term interests being served that there were perhaps inordinate layoffs. Having said that, I think all in all, LBO firms were a great tonic to the health of American corporations. It got a lot of the inertia and self satisfaction out of the way, made companies focus more on creating additional shareholder value and the responsibilities for superior performance for the shareholders. So in some ways, that was a great spring tonic for corporate America.
KELLER: One other question before we go into the subsequent Storer operation. Were you at all concerned that you were the only one bucking KKR at that time? That somebody else hadn’t come in and jumped into the battle?
BRODSKY: That did not concern us. It concerned us taking on a project of that magnitude when we were as small as we were. You don’t stay in the cable business unless you have a good shot of entrepreneurial spirit, willing to take risks, willing to go down paths no one has gone, it’s just the nature of the type of people who built this wonderful industry.
KELLER: And you felt the ‘80s, with all of the alternatives for financing, were a great impetus for the business itself.
BRODSKY: It was the greatest thing that ever happened to Comcast and the cable business.
KELLER: All the cable business?
BRODSKY: Right. TCI, they used Drexel Burnham, we never did. We used Merrill and Morgan for our junk debt. That’s why we spelled our junk “J-U-N-Q-U-E”. We had these high grade firms issuing it. It clearly made TCI, with all the financings they did with big companies like MCI, were totally a creature of Turner, totally creatures of the high yield market.
KELLER: And yet the developer of it, Milken, ended up in jail for a lot of it.
BRODSKY: Well, we were never a client of Drexel and I barely knew Mike Milken. I only met him once on the second Storer transaction, where KKR had hired Drexel Burnham to get the necessary bond holder consents to a transaction. It was incredible, I ran into him in a parking lot in Beverly Hills outside of their offices, where we doing a little road show in conjunction with getting those bond holder consents and even though Drexel had never handled a single Comcast issue, he was able to recite for me the history – this was out in the parking lot – the history of every Comcast issue, who had bought it initially, essentially in broad terms who had changed hands and who owned it now.
BRODSKY: That was impressive. And again, I only read half of The Predator’s Ball. I never finished Connie Bruck’s whole book about Mike Milken and the first half of the book is to describe how he started with an investment theory of investing in “fallen angels”, railroad bonds, if you will, because even though they were rated low investment grade, the risk was not proportionate to the incremental return compared to government, so therefore they were a wonderful buy. That started out as an investment philosophy. He turned that philosophy on its ear and then developed a theory that this was a marvelous way to have capital formation for young and emerging companies, that they could enter these markets, pay these higher interest rates, which in effect gave them equity. I remember I used to have breakfast every six months with Leon Black, who was head of M&A for Drexel, we just knew each other over the years and he’d make me a pitch that we should use Drexel’s services and I didn’t quite understand the dynamics of junk bonds. This was ’80, ’81, ’82, maybe, and I said, “Gee, Leon, it’s so expensive. I can deal with the banks.” And he said, “You don’t understand, Julian. It is not expensive debt, it is very cheap equity.” And he was right and that’s how it worked. When we saw the first of the LBOs, internal LBOs, that for instance John Kluge did at Metro Media and how it was all debt and it was a Drexel deal, it was an epiphany. I said, “Oh my God, look at what can be done!”
KELLER: That transaction, having been completed, you did gain some very valuable “good guy” points, didn’t you?
BRODSKY: Well, I like to say the inflection point for Comcast, the single most important event was the failure in the Storer transaction because what it did was show that a little company in Philadelphia, that was the 16th largest cable operator, could mount a two plus billion dollar attack on a major corporation, take on KKR and Drexel, give a good account of itself and come damn near close to doing it. The proof of that came less than a month later. At that time, Westinghouse, through Group W Cable, had 2 million subscribers and for whatever reason, Mr. Danforth, the chairman and CEO of Westinghouse decided to get out of the cable business and put the systems up for sale.
KELLER: Now this was even larger than Storer?
BRODSKY: Larger than Storer. This was 2 million subs, 2 million one, versus a million and a half for Storer. I was still exhausted from the whole Storer fight. I was in Washington attending some NCTA tax committee meeting and my good friend, Stewart Blair, who was vice-president of corporate development at TCI was also on the committee and we were arriving in a cab on the way to the committee meeting and we’re talking about the rumor at that time of Group W getting out of the cable business. He said, “What do you think? Do you think it’s going to happen?” “Yeah, I think it’s going to happen, it looks good.” He says, “Are you going to be interested?” I just shrugged, “It’s kind of big. I don’t know. We’ll obviously take a look at it.” He said, “Why don’t we partner on it. You guys would be great partners.” And this is the number one cable operator talking to number 16 cable operator and we’re friendly, so I said, “Stewart, what are you talking about? Why would you want us as a partner?” He said, “Because what you did in Storer, you’re the last people we want to see coming down the alley the other way if we’re going after this deal.” I said, “That’s very nice, Stewart. Let me go back to the shop and talk to Ralph. We’ll see how it goes.” So the next day, I’m back in the office and I’m about to tell Ralph this story and Ralph says, “You’ll never guess what happened yesterday. I got a call from Nick Nicholas”, the then president of Time Inc., “and he would like to partner with us in going after the Group W Cable system if they come on the market! What do you think of that?” I said, “I think it’s a riot because TCI want to do the same thing.” And he and I looked at each other – a three-way deal, which is exactly what happened and it turned out to be one of the most successful M&A transactions in the history of cable television, where the three most likely buyers got together and because of the constraints that Westinghouse had put upon itself, they insisted upon only dealing with one buyer and we had signed, what became a pattern for the industry, our “forsake all others” agreement, where we agreed not to – if one person drops out they were out, they couldn’t come back in by themselves. And they needed a certainty of closing buy the 2nd quarter of 1986. Those were pretty tough terms for their advisors to deliver a transaction. At the end of the day, we were the only people who could do it for them. So it turned out very well for us and that was a direct result – the only reason, you’ve got to remember – TCI was number one, Time Inc. was number two… number 16. Not exactly a natural invitee to that party.
KELLER: And then you divided up the Westinghouse properties, is that correct?
BRODSKY: Yes, you see, in those days, the general utilities doctrine was still around which allowed for the dissolution of the properties in a tax free manner, tax efficient manner, at closing. And so we bought those systems and it was an asset purchase, which was wonderful, we got tax bases for everything and we dissolved it pursuant to general utilities right at the closing in June of ’86. We picked up in excess of 500,000 subscribers. We literally doubled the size of Comcast with that transaction.
KELLER: It then became really a three-way buyout rather than a consortium buyout?
BRODSKY: Well, yes. In forum you had to put it together. We did kind of a unique financing in that too, we had to keep it together a little bit and I think we got a billion eight of the billion nine or two billion dollar price from a group of banks led by Chase. Extraordinary financing! And we kind of promised that we’d be out of it by the following April because that was a lot of leverage for a group of cable systems.
BRODSKY: And the we were out of it by February. It was boom, boom, boom. Just picture book perfect and we learned how well the three companies could work together to make all this happen. There was no back biting, no politics, the three people running the process – it was Dave O’Hare, Stewart Blair, myself – set up rules as to how we would govern and get things done and it was very simple, the first person who spoke, nobody could speak after that. So whoever got there first made a decision.
KELLER: And then you used the same triumvirate then to go back to try to pick up Storer from KKR, is that correct?
BRODSKY: Yes, we did.
KELLER: How did that develop?
BRODSKY: That happened, I guess, in late ’87, early ’88. It was clear that KKR could not sustain the cash position and cash flow attributes of Storer Communications. They had put so much debt on it and the properties weren’t performing all that well and just looking at the public numbers, with the public bonds out there, everybody could see what was going on. They would have to sell and they initiated a process and hired an advisor and started the usual stuff. Well, there weren’t too many people around who could do that. TCI and we knew we wanted it; Time Inc. thought maybe they wanted it and so we were still together and we went in for a series of offers and we used to draw straws as to who would be the spokesman to KKR. We kept getting thrown out for too low a price. Also, we bet on how short the meeting would be, they were never very long. It never got past any common ground for price but we started to get a little closer but it kept falling apart on other issues and eventually Time Inc. dropped out. We didn’t quite know why, it turned out they were in the process of talking to Warner, about a Time Warner merger so they had to kind of back away from this, but TCI and we were very enthused about going forward.
KELLER: You’d already done your homework on this some years before that.
BRODSKY: Well, we knew the property. It started somehow the whole thing was degenerating and in December, January, February timeframe, ’87, ’88, and then things started appearing in the press. Henry Kravis started saying bad things about John Malone, but John had the best quote of all. In talking about the Storer properties and KKR he says, “The problem with Henry is he has what he thinks is the best good piece of real estate in Florida, but what he doesn’t know is that it’s a toxic waste site.” And this was printed in the Wall Street Journal, the New York Times, so things cease and it is deal. It just so happened that KKR’s advisor in this matter was Steve Ratner, who was also our advisor on many occasions. We had a fine relationship and Steve and I would talk and say, “This deal has to happen and they’ve got to sell. We want to buy.” But Henry and John had just about burnt every bridge between them. A personal animosity had developed, which is a tough atmosphere in which to do business. So we agreed that we had to let it cool down a little bit and he would let me know when the right time was to try to resume it again.
KELLER: What constituted the right time?
BRODSKY: Well, when tempers and emotions had, and of course they had to meet the next week’s payroll or something. They needed cash. Sometime in April, Steve gives me a call and says, “It might be the right time to approach KKR about this.” So I called John and I said, “John, we got the word. Do you want to proceed? Should we go after this?” He says, “Look, Julian. Now we know what we want to pay for it. If you can get it for that, it’s fine. You have total representation of us. Get it done. But I’ll tell you one thing, I’m not coming to meet with that man and those people. Enough’s enough. You go do it, I’m just afraid I’ll lose my cool.” I said, “Fine.” I tell Steve, “Yeah, let’s go over and see them.” So he and I go over and meet with Henry Kravtiz, Paul Raether and Ted Adman. We talk about it and we’re pretty close on the economics this time. They want what we’re willing to pay so it looked like the deal would go through. And they said, “Look, it’s you and TCI buying it, but if we’re going to get this done,” this is KKR speaking, “we’re going to have to deal with you, Julian. We will NOT deal with TCI and John. Otherwise it’s not going to happen.” I said, “Oh, gee, they’re my partner. I don’t know if I can do that or not.” And then it came together very quickly. We got a deal put into place but this was much more complicated. By this time, general utilities had been repealed and our only hope for a tax efficient distribution was under section 355 in the Internal Revenue code, which means we had to hold the properties together for five years with both shareholders having an undivided interest in the whole. So even though we intended to split the management of the systems fifty-fifty, we’d get a group of systems to manage and TCI would get a group of systems to manage, everything that happened in the TCI managed system, 50% was Comcast’s nickel and vice-versa. Everything we did was 50% for the benefit of TCI, which made for a lot of looking and finger pointing. That was a tough way to operate for five years and we did it through a board of directors because I had a lot of friends and had a lot of experience with TCI, the TCI folks thought it would be best that perhaps I be chairman of the board the first few years.
KELLER: Who were the directors, do you remember?
BRODSKY: Well, J.C. Sparkman was the principle guy. I’m trying to think who else from Storer was there, Bob Lewis, eventually Larry Rohmrohl, I think may have been one of the directors. On our side was Larry Smith, Bob Clasen.
KELLER: Who was president of your operating company at that time?
BRODSKY: Cable division, yes. He was J.C.’s counterpart, but there was a lot of friction between the operating people and it was tricky. We had to do budgets, for instance. People would come in with capital expenditures of a couple of hundred million dollars and all we had was 75 million dollars to spend and I’d have to sit there and work with these folks to tell the TCI people you’ve got to reduce it. Of course, they had to be sure I was treating the Comcast people the same way. But it worked very well because despite how difficult it was we had a need under the bond indenture for two independent directors, two former Storer officers, Ken Bagwell and Ken Loshier, were the independent directors. Every time it looked like the partners were at loggerheads, they might have to cast the deciding vote, they went to the men’s room. We never saw them when it came to that sort of thing. But it worked well and we got it done.
KELLER: But you were able to pull it off for five years.
BRODSKY: We pulled it off and we were still friends at the end of it with everyone. We had a little bit of a tough negotiation of the evaluations at the end, but it wasn’t too bad.
KELLER: How did you evaluate them if one company out-performed the other in the systems that they were managing? Was there an adjustment there?
BRODSKY: You had to pay up for your own good performance, in effect. It was an interesting negotiation. There’s no more fun in the world than negotiation with John Malone. He’s so smart, so facile, so interesting to listen too. You should have to pay a price of admission to do that.
KELLER: When you were able to split the company then, after the five years from purchase date, how many subscribers did that add to your customer base?
BRODSKY: We got a million. Again, we doubled the size of our company through that.
KELLER: With one transaction, huh?
BRODSKY: It’s a funny thing during the 1980’s. We started in 1980 with 250,000 subscribers. We built and bought cable systems opening up one every six months from our franchising efforts from ’79 through ’81. The period ’80 through ’84 we went from 250,000 to 500,00 subscribers with that activity. We did the Group W transaction, we got 526,000 subscribers, we doubled. In 1988, we got the Storer transaction, a million subs, we doubled again.
KELLER: As of today, how many do you have?
BRODSKY: 8.1 million. It dwarfs it all. It seems that everything we did in the ‘80s is trivialized with what’s happened in the ‘90s.
KELLER: What has happened in the ‘90s? In a broad overview.
BRODSKY: Well, several things. We had a highly successful management transition. It’s the story of American business where the first generation creates a great company and the second generation blows it. We were lucky beyond description having Brian Roberts, 1) the only one of Ralph’s five children who was at all interested in the business and he started to work with me when he was 7 years old coming in on Saturdays, punching coupon books for a quarter a day. I remember when he asked for a raise I didn’t give it to him and he learned a valuable business lesson. He started working for the company right out of school. Both Ralph and I wanted him to work at some third party place, maybe an investment banking house or some other cable operator and get some idea of the world, and Ralph was significantly older than Brian, he was fourth down in the kids, so Brian, brilliant kid that he is, put such a guilt trip on Ralph and said, “We don’t have that many years together and don’t you love me and why can’t I come work for you?” We looked at each other and said, “All right, it will work.” It was clear that if he had any modicum of talent he was going to be president of the company. Well, it turns out he had more than a modicum of talent, he turned out to be spectacular and Ralph and I looked at each other and say, “It’s a miracle that we ever pulled this off. And slowly Brian has put in his whole team and it’s working and we’ve gone to much greater heights under Brian than any place we’d ever been.
KELLER: Now somewhere along the line, you got into the programming business too, didn’t you?
BRODSKY: Well, yes. We were slower than most. I can remember, for instance, at the time of the Turner bailout, which was led by John Malone and Stewart Blair, when Turner had overpaid for the MGM film library and it was ready to be taken over by Kurt Kekorian or go broke and the cable industry was putting together a 625 million dollar bailout. So TCI, and I guess United to a degree, called a meeting of all the cable operators to see who would contribute to the fund and we got invited and it was a very spirited meeting, Ted was there, and should we do it or not do it. We didn’t have a lot of money in those days, I can’t remember what year it was, maybe ’86, ’87, and we said to him afterward, “Look, we’ll be good citizens but we cannot put up the 75 million dollars you want us to put up because every buck we have is going into the ground for distribution plant. We believe in distribution. We believe in buying and building cable systems. That’s what our role in life is. So we’ll put up 5 million dollars.” It’s a shame we didn’t, those 75 million dollar investors collected billions upon billions for their investment. So, we missed it there. I remember the day that we were offered Discovery, arguably my worst personal business decision. Bob Clasen and I sat together and we had a choice of equity or some different kind of distribution deal and again, we were coveting every nickel we had to plow into distribution so we turned down the opportunity to be a significant shareholder in the Discovery channel and that was just our mentality. And all our advisors, particularly Felix Rothe and the Lazars, said you must get more content. You are content lacking, you have an imbalance. You’re never sure whether content will be king or whether distribution will be king. As fate would have it, we had a marvelous, what I call balance of terror, where both sides desperately needed each other and everybody succeeded. So we slowly got into content, the biggest thing being our being involved with the formation and foundation of QVC.
KELLER: Tell us about that one.
BRODSKY: Well, there’s a fellow by the name of Joe Seigel, who had founded the Franklin mint and he was under a non-compete with Warner, who had bought the Franklin mint and his non-compete was about to run out and he didn’t know Ralph from around town, he had been sent in, by of all people, remember Pete Musser, the fellow who owned the cable system that we bought in 1963? Well, Safeguard Scientific had come a long way, become very successful and Joe Seigel had talked to Pete about what to do and he sent Joe in to see Ralph. Now Ralph had been looking at Home Shopping Network, which had been on the air for a period of time at that time and seemed to be doing pretty well, but it was what we considered to be a schlock operation. Nothing that looked very good, and so Ralph says to Joe, “Look at this. What do you think?” And Joe says, “Oh, I could do this so much better. I would do this, this and this.” A million things come sprouting out of his mouth about gaining the confidence of the customer and this and that. Ralph says, “Well, why don’t we do it? We’ll get Pete to back us.” And so we and Safeguard, together with Joe Seigel and a few other investors formed QVC and our role was to help Joe Seigel get distribution. So Ralph and I would pick up the phone and start dialing our friends in the cable industry offering them equity for distribution.
KELLER: But you threw your subscribers in, right?
BRODSKY: Oh, yeah. We made the first commitment of subscribers and cash and also along the way, whenever they got a little low on cash, Safeguard and Comcast would give bridge loans to QVC and miracle of miracles – Joe Siegel’s one of the great entrepreneurs of American business – in less than six months he went public before he was in business, during that summer, he created all the infrastructure to go on the air in November and have the warehouse and the systems and everything up and running to start delivering product and having the QVC format, never sacrificing the concept of customer service, quality, honesty, he posted shipping and handling right on the screen from the first day and with HSN you needed to be James Bond to figure out what the shipping and handling was when you placed an order. So that was an enormous success.
KELLER: Julian, I know you have to leave to give a lecture for the launch of the Julian A. Brodsky Executive-in-Residence Program for the Magness Institute of The Cable Center. This oral history was made possible by a gift from The Hauser Foundation Oral and Video History Project of The Cable Center Oral and Video History Program. Thank you, Julian.