In Memoriam
Jack Crosby passed away December 30, 2016.
Interview Date: May 22, 2002
Interviewer: Jim Keller
JIM KELLER: This is a video addendum into the oral history of Jack R. Crosby made on July 30, 1998, at which time we went into a great, great deal of specifics into his overall career in, what, over 50 years — almost 50 years in the cable television business both here in the United States and in Europe and in South America. I guess you could say that Jack is an international entrepreneur, and you would accept that title?
JACK CROSBY: I’d accept that, yeah.
KELLER: I don’t want to go and repeat many of the things that we discussed in his original oral history. But I would suggest to the viewer that when looking at this, they do review what was said on that date in July 1998. Jack, I want to be going into just a few items today but go into it in rather great depth. The first one is going to be your history of financing in the cable television industry. You were in it in the very early stages when it was very difficult to get financing into the systems to a point where everyone was throwing money at you at one time or another. Would you relate the history of financing in your companies?
CROSBY: Sure, Jim. There was no financing, of course, at the outset because we were doing something totally new. And I can recall in Del Rio, Texas, where I started when faced with building a tower out there where we could get little or no signal. The tower itself cost $13,000, and we just had to put that up out of our pocket, a partner of mine and I. He was a rancher as a matter of fact. He didn’t know anything about the cable business, communications business.
KELLER: Well, neither did you at that time.
CROSBY: I didn’t either. That’s the reason we did it, we didn’t know any better, I guess, and — but anyway. And then to the build the system, Jerrold Electronics offered a certain financing package when they sold equipment, which was bordering on usurious interest, you know, but they were the only people that would finance certain equipment cost. And then the rest of it, we just had to go to the bank and —
KELLER: Well, I’m stopping there. Did you take one of the Jerrold deals?
CROSBY: I did not.
KELLER: I didn’t think so.
CROSBY: No. (laughs)
KELLER: Okay. I just…
CROSBY: As far as financing for systems at that time, that was about the only thing. And, of course, that was small measure of the cost of the system because a lot of the cost was labor, as we all know, and so, but that was it. As far as any available financing, that was about it. And so the individual entrepreneur, the corner druggist, the TV serviceman that went into that business back there in that day and time just had to scrounge the money anyway he could. Friends —
KELLER: But you already had a banking relationship though with your bank in Del Rio, did you not?
CROSBY: Oh, right. But there are not many things to do in a town of 10,000 people, so I went on the bank board at the age of 20 — 26 I think it was and so we had a direct relationship with the bank. But, of course, anything we did had to be very personal liability in that regard because we were going in to borrow money for something that, it was just totally an idea at that point in time. And when we took the banker, I’ll never forget, we took the banker out to the bus that we put out at the site where we put the tower up on a spec basis for a month. And we took him out there. Fortunately, it was one of the better days. You could really tell there was a football game going on, and you can almost tell which team had the ball. But the thing was that here were the people that had heard of Milton Berle and Ed Sullivan but they couldn’t see them. And so they realized at that point in time that we couldn’t deliver a very good signal because we couldn’t get a feed from the telephone company on microwave that we needed to get further down the road toward Uvalde where Ben Conroy had built his system about the year previously. And so they knew at that time it was going to be a hazardous proposition at best until we could get better signal, and we had to rely on the FCC to give us permission to get the Common Carrier microwave though.
KELLER: But they couldn’t see the future that if you were able to bring pictures into Del Rio, what it would have meant?
CROSBY: When you mean they, you mean the —
KELLER: The bankers, the bankers, —
CROSBY: — bankers?
KELLER: — yes.
CROSBY: Well, he was a good friend (laughter) fortunately. Now, I would be asking him to take a quantum leap with what we started with, you know, in all candor, so we just… My father loaned me 10,000 bucks. That’s the way we originally we got started, okay? And he thought it was the craziest thing he’d ever done, and that’s the way we started this system.
KELLER: He thought you were throwing it down the rat hole, huh?
CROSBY: And we’d go down the street, and we’d sign up customers, and when you get their $145 deposit, well, it went toward building the next block on down the road. So, you know, we’ve gone from that in the industry in those early days into every degree of sophisticated financing in the world. People such as Bob Hughes who’d been my partner for a number of years, Fred Lieberman, people like that opened the doors to the right kind of financing, our wonderful, good friend —
KELLER: Let’s be more specific. When you say that kind of financing, I’d like to know where it came from, who you went to, and how you got it done.
CROSBY: Alrighty. I think we brought probably the first insurance company into the business, and I can’t give you the date. But Home Life Insurance was the first one to kind of see the light. Our first financing — excuse me, our first financing of any size at all came from an SBIC called Texas Capital located in Georgetown, Texas, just out of Austin. And one of its junior partners and new on the scene was a young man named Bob Hughes. When we approached them about financing — we being Fred Lieberman and I because we had our own little company. We’d put Burlington, Vermont, and Montpelier, Vermont, which Fred had bought, in with Del Rio and a couple of other systems I had, and we formed our partnership.
KELLER: I don’t want to interrupt you but that’s — that has always been a very fascinating part of this industry, how these guys — Fred Lieberman was one of them — many of the other so-called sales engineers of the Jerrold Corporation went out and made these deals with various people. Then, they made their own deal separate from Milt Shapp and separate from the Jerrold Corporation then.
CROSBY: Well, let’s take Fred because he was certainly not typical, and nothing he did was typical, but it is an interesting story. Fred was the top engineer for Jerrold Electronics, okay, when Milton Jerrold Shapp formed the company originally there in Philadelphia. And Fred became his top engineer and also was in marketing as well. Now, Fred was the guy that sent his expense account in one time. He was doing a tower location and Zal Garfield was the financial guy for the Jerrold Electronics. Fred sent his expense account in. It says, “One pair of hiking boots, $45,” and the check came back for the expense account at that particular point in time, and it says that “We don’t pay for hiking boots; we’ve taken them out.” So Fred sent a note back, and he says, “Watch the next expense account, you’ll never find them, but they’re in there.” (laughter) Anyway, I met Fred when we started to build the cable television system. We had already started to build it in Del Rio. He came out and —
KELLER: He’s with Jerrold?
CROSBY: Beg your pardon?
KELLER: He was with Jerrold?
CROSBY: He was with Jerrold. He was their chief engineer, right. And I met him at that point in time and then eventually, he said, yes, that I come in and meet Milt Shapp. And, of course, you’ve gotten all kinds of history on Milt who later became governor of Pennsylvania. I went in and met with Milt, but Fred came to me, and shortly thereafter, Jerrold went public, and Fred bought all the stock that people didn’t want — that had options and didn’t want to buy the stock. He bought their options and made some money. And he was ready to leave Jerrold at that time and so he went out and bought Burlington and Montpelier, Vermont, with the proceeds from his stock sales, from Jerrold’s stock sale. And then he and I talked about getting together and so about a couple of years after that, I said, “Well, Fred, I’ll tell you what we ought to do. You sell me an interest in Burlington and Montpelier.” He said, “No, I’m about to sell Montpelier for enough money to help me build out Burlington because there’s no financing available.” He said, “But I wouldn’t sell it to you because I’m going to sell it for too much money. I want to be your partner but I don’t — I don’t know.” I said, “Just try me, okay.” We went to our accountants, and we said, “How much can Fred keep in this deal? Okay, I’ll buy it. How much can he keep in it, and we’ll start our partnership that way and then re-depreciate the assets, okay.”
KELLER: How many times you do —
CROSBY: There used to be the joke —
KELLER: Oh, my gosh —
CROSBY: — in the industry. Somebody accused me of re-depreciating Del Rio five times, you know, but anyway —
KELLER: That’s probably true. (laughs)
CROSBY: That’s probably true, probably true. Anyway, so they said, “Well, 19 percent” so that’s the way we started our partnership. I bought into the systems in Montpelier and Burlington, okay?
KELLER: You put cash into his operation.
CROSBY: I put cash in the deal. By that time, we’d had some beneficial experiences with the early cable system, and we had an asset there. But we still — so in those — in a short time, we went out and started acquiring franchises and…
KELLER: How did you come up with the money to buy? I know you were in operation in Del Rio, so you probably had some cash flow, but you had to have more than that to get, what, 19 percent of…
CROSBY: Keep me on the track because at that point in time, we went jointly to the SBIC, Texas Capital Corporation, where Bob Hughes was working and told him, “We are — we’ve got a bunch — we’re doing fine, but we’ve got a bunch of franchises, and we can’t build them because we don’t have the capital. So would you-all like to do the financing on it?” And Bob’s mentor and president of the company just said this is the craziest thing he’d ever heard, and they turned it down. So I go back to Del Rio, and Fred goes back to Philadelphia, and about six months later I called Bob Hughes, and we just met that one occasion. I called him, and I said, “You know, I meet in San Antonio, 250 miles from Del Rio, and you come on down about 80 miles from Georgetown. I want to meet you.” And I said, “I caught a little glimmer of understanding in those eyes of yours,” and I said, “Let’s talk about this deal.” He said, “Well, I want to do the deal anyway.” I said, “Well, I got that feeling.” So he came down, we met, and to make a long story short, he convinced his boss that they should finance us. So they went, they put up — in their case, you could put up 20 percent of an SBIC’s capital in any one particular deal so that meant they could put a million eight into our deal, okay. With that million eight, they leveraged it with — they had the banks. The three bank presidents from Austin, Texas, were on their board, and so each one of those banks put a little in — didn’t have much of a lending limit, but they put a little money in any loan on top of the million eight that went into equity from the SBIC standpoint, all right? So we then have another partner, we have SBIC Texas Capital, and we had the three local banks who put up probably maybe a million and a half between the three of them. So we took that commitment and went to Chase and went to a couple of other banks in New York. And the banks did their yeoman work in that regard to try to convince them this was a reasonable thing.
KELLER: Yeah, they wanted to back themselves out of the situation, yeah.
CROSBY: And we basically raised about five million bucks by selling equity and by debt, all right. Within a year and a half, we had far exceeded the capital requirements for that sort of thing. We went down to — we had a franchise for Macon, Georgia, and Macon, Georgia, was a big town — a big town in those days. I think it was probably 150,000 people. No way we could build it under the terms of the agreement we had with the banks at that picture — point in time. I’ll never forget the franchise allocation there in Macon. There were 12 men and 1 lady on the city council, and there was no question, we were just assured that we were going to win this thing 12 to 1, okay, and we lost it 12 to 1. The lady was the only one who voted for us. A little guy who had a drive-in theater down in Florida got the franchise. How he got it? I don’t know. But anyway, he called us within six months and said, “I don’t have any money to build this thing. I don’t know what I’m doing. Why don’t you-all buy this thing?” And we said, “Well, if the city council will allow the transfer, we will.” And so we went down, and sure enough, they want somebody to build it. And we made a deal with him, paid him a little money to go away, and then he’d give us his franchise. And we got to the airport, and I said, “Fred, we ought to call that lady. She isn’t alone on the council, but she’s the only one who voted for us before. Why don’t we call her and tell her we appreciate it, and by the way, we’re going to come build the system?” So we called her from the airport and explained to her that we had gotten the franchise and we appreciate her efforts and we were going to build the system. She said, “Oh, I knew it. I knew you-all were real. I’m going to go down there and tell every one of those men that I was right.” I said, “No, no, no, please, ma’am, just leave it alone. We just want to thank you.” But anyway, so that meant we had to raise a bunch more money, all right? So we took that company and we started — And we needed to buy the SBIC out because they couldn’t go any further.
KELLER: They couldn’t maintain their — you were diluting their interest, and —
CROSBY: We were diluting —
KELLER: — they couldn’t maintain it, I think.
CROSBY: — their interest, and so… Anyway, so they said, “Well, tell you what, only way we’re going to go is you’ve got to take this company over here and finance it, and we’re going to finance your next company.” Now, they’re all private.
KELLER: The SBIC was telling you this?
CROSBY: Same SBIC.
KELLER: Bob Hughes again?
CROSBY: Yeah, same SBIC. So we paid them. We negotiated with them. And for an 18-month run, we paid them their million eight back and a million-and-a-half-dollar profit and then leveraged that million eight again into the next company and start to build another company, both of them private at that time. And we got the insurance companies in about that same time, Home Insurance.
KELLER: You then were doing all the work and all the money coming out of Texas but what was Lieberman doing up there?
CROSBY: Fred, well, he’s running the systems, which is very important, (laughter) very important up there.
KELLER: Okay.
CROSBY: For all his engineering acumen, Fred, in his own way, was a brilliant businessman and brilliant in the financing world, and he had that. We were a good trade-off in that regard. Our personalities were totally different. And Fred, you know, when it came to being in the public companies, Fred was a control shareholder more than I always was, but he always… I had to be the chairman of the public companies, and Fred would stay in the background and get the work done. So that’s kind of the way the relationship went, and it lasted for 40-some-odd years, still partners as far as that’s concerned. So anyway, so then, Wall Street became a little interested and so the first entry we made in the Wall Street scene —
KELLER: How did they become interested?
CROSBY: Well, just a lot of work on our part.
KELLER: Okay. So that you really pushed in then?
CROSBY: Oh, yeah, yeah. Well, this is — if the industry was going to grow, we couldn’t do it with little bits of equity here and a little —
KELLER: What year was —
CROSBY: — bit of equity there.
KELLER: — what roughly the years?
CROSBY: Communications Properties was our first venture I believe into the great and wonderful world of the public marketplace, and that was back in the ’60s. I can’t remember exactly what date but anyway.
KELLER: But Bill Daniels had been approaching the bankers in Wall Street also at that time, —
CROSBY: Oh, yeah.
KELLER: — wasn’t he? And he was making —
CROSBY: Oh, I don’t mean —
KELLER: — throwing up —
CROSBY: — to imply that —
KELLER: No. I’m not talking that, I don’t mean that, but he was working back there also at the same time?
CROSBY: Yeah, and Bill, Bill really broke the barriers when it came down to brass tacks. And we worked very closely with Bill and the industry owes Bill a real debt of gratitude because he got out there and educated Wall Street. And, of course, once they began to realize, Jim, that this business was… The toughest thing they had to get over was the fact that you weren’t really going to break into a profitable position for five years, okay, in those days. You start building one from scratch, all right? It was the toughest thing for them to come to grips with because they’re used to turning their money more quickly. That’s the reason we needed the insurance company and the reason we eventually needed the public money, which was more patient money than we had — we’d be getting, you know? So that was the big, big hurdle to the banking industry was to develop a knowledge of the fact that this was a cash flow business. Now, they came to grips with the fact that it was about the most recession-proof cash flow business that they could lend to because people didn’t get off the cable in those days. There was no satellite service to compete and that sort of thing, so it was a business that developed. We needed 10 years to demonstrate that we had that kind of reliability. But when they began to realize that, then the banks began to come to the fore.
KELLER: And maybe this is in hindsight or in retrospect though, but it still seems to me though that if you could show that you had a thousand customers paying $5 a month that you were getting $5000 a month, $60,000 a year. And at that time, your expenses were 30 percent maybe at the most.
CROSBY: Yeah, but if you were growing, don’t forget, if you were growing, you’re adding a bunch more capital, okay?
KELLER: Yeah.
CROSBY: The faster you grew, the more you need it.
KELLER: But you had a predictable cash flow?
CROSBY: But it took us a while to prove that predictability now don’t forget. Because this was totally, totally a new deal, I mean, and so it took a while to do that. Once we got to that point, then you began to get the insurance companies, which were used to lending longer term and then you began to get the commercial banks in and then Wall Street came in, all right? Now, we did one other thing. In the meantime being impatient by nature, we had a little company that I formed called Genco, general communications and entertainment. I was always proud of Genco because it was a strict start-up. We took Del Rio and Uvalde again and started with them. We went to Tubby Flynn in Tyler and said, “Well, Tubby, why don’t you and Raymond Hesh just swap your stock?” He said, “Well, what’s the stock? How is it going to be traded?” We said, “It’s not going to be traded. It’s private. But you’re going to — we’ll put the systems together, and you’ll be part of that, and eventually we hope to go public with it.” We went to Schneider, to Gene and Richard and got them to put their systems in.
KELLER: That was in Wyoming, isn’t it —
CROSBY: It’s Casper, Wyoming, Casper, Wyoming, and Rawlins I believe it was. And that really was that company later on — well, another iteration there but anyway. That was Genco. We were going to go ahead and start to crack the public market back in the ’60s. Along came a friend of mine with a little New York Stock Exchange oil company, and he said, “You know,” he says, “this oil company is doing real well, but it’s small.” And he said, “They’re pumping $10 million worth of oil and gas out of the ground and getting good cash flow but that they can’t — there’s no growth, no growth. They can’t compete with the majors. Why don’t you take that? Don’t you have that new, little cable television company?” I said, “Yeah.” He said, “Why don’t you take that and merge it into the New York Stock Exchange company, and you’ve got a stock to do something with?” and so we did. Same people that have financed us, Bob Hughes came along and agreed to put some financing into that.
KELLER: This was the Tulsa company? This is —
CROSBY: This was called Livingston Oil Company —
KELLER: Livingston.
CROSBY: — or LVO with the symbol. And I became chairman of that company, and we started to build with that, okay. After about eight — about a year and a half, it became apparent it was a fine situation, a nice stock, but the marketplace was not giving us credit for that stock or for that interest because bear in mind, we actually were a deterrent on their earnings, okay. When we came in, these systems a lot of them, our growth was in new systems and we — the faster we grow, the less profit we were going to have. It’s just going to push that profit off from their standpoint. So it began… We could see it’s going to take a while to do that. We had a good situation, but I said, “Guys, let me go and start another one then, another public company that is just pure play here. And I’m happy with the stock, and we brought good management in here, got Gene Schneider in here, and we just kind of leave that with you.” So Hughes came to me at that point in time and said, “I think I made more money in the business than lending to it, can I join you?” And so he and Conroy and I formed — and Lieberman formed that company, which was Communications Properties. And Communications Properties went public through a little company out of New York called New York Securities, a very small investment bank. And we went public with that.
KELLER: How’d you find them?
CROSBY: Ah, let me think a minute. I met them through a mutual friend. They were coming out of the old Phipps family interest, and they really just started up.
KELLER: Oh, the Denver Phippses?
CROSBY: No — well, yeah, yeah. They’re part of them back in Long Island as well. And so we met them through just mutual friends, and they were interested in taking the thing public. So that was the first public thing we had. And then of course from then on, we, like everybody else, got in the junk bond business. Drexel did a lot of junk bonds for us from that point on and a lot of deals. Leon Black and Milken and those guys were some of the others. And it was a… The industry was an omnivorous (laughs) user of money, and nothing easy about it in there today. Fortunately, the most fortunate thing was that the industry had enough cash flow to service very high interest. There was a fellow that needs to be mentioned here. You know Jim Ackerman?
KELLER: I was going to bring Jim up, so I’m glad you mentioned him.
CROSBY: Jim and we met — Fred and I met him at one of the early conventions, and he had this little company called Economy Finance, which really was a — they financed cars and that sort of thing, very high interest rate, add-on interest. And so we met him at a convention and made a deal with him to borrow a bunch of money for whatever we were building at that time. And then people said, “Oh, gosh, you know the industry is going to outgrow that guy,” says, “You know, he won’t be around long.” Well, each year for about 10 or 15 years, Jim would come, and they were a big booster of the industry. They had loaned a lot of money —
KELLER: He was one of the saviors of the industry in the early days.
CROSBY: We paid him 10 percent add-on interest, okay, (laughs) and so… Anyway people said, “Well, he’s going to go away.” Well, he didn’t and so then, we helped Jim start a thing called the Becker — well, Becker Communications wanted to get in the financing business. So Bob and I helped Jim start up another company, and I’m trying to think of the name of the finance company that we had when Jim left — and we did it Becker. A. G. Becker at that time was a regional brokerage house, and that was one of the first financing arms, and it was kind of a bridge lender.
KELLER: That’s an A lender?
CROSBY: Yes, that’s an A lender. They’d take some equities and high interest rate because that was another step in the progression of how the financing went. Some of the ills of the industry, of course, to go back to the financing when it became in vogue for the banks and the insurance companies to lend and the public market to lend against the business, it became easier to get the money. And that’s when the price started going up. And being a recipient of that myself, I’m not — you know I’m glad they went up. On the other hand, when they went up and when they started leveraging the systems — instead of three times the cash flow, the leverage went up to six or seven. Then some of the ills of the industry from new people coming in, and some of the old guys too, the tendency was to lay as much debt on as you could get on, so you could build faster, so you could acquire more. And when that happened, then it started, it translated itself into higher rates, okay? And I think if you trace back, a lot of the problems that the industry had in Washington as I’ve seen through the years could be attributed to the fact that finally there was enough money out there that they could lay additional debt on. And to make those debt payments, you had to raise the rates.
KELLER: Before we get through with this discussion, I want to go into the amortization of nonspecific assets or intangible assets, which I think is getting the industry again into an awful lot of trouble because of what happened to Entron and some other places.
CROSBY: Right.
KELLER: I do want to talk about that here, but I want to continue on the Ackerman thing.
CROSBY: Yeah. Well, Jim, then we left Economy Finance under good auspices. He and Harold Ewen both left about the same time. Harold, of course, later on went on to CEA as — I think you probably know who Harold is, anyway.
KELLER: Mm-hmm.
CROSBY: So that was a very successful venture, and Jim went on, and after that, he — well, he went out and started buying systems on his own and —
KELLER: Ackerman did?
CROSBY: Yeah.
KELLER: Oh, I wasn’t aware of that, that —
CROSBY: Yeah, yeah. He was from Indianapolis, which is where the company started, and the Schloss family were his original partners. And I think they bought systems in and around there and Florida as well. So he’s another one that’s — the history of the industry. Here’s a guy who started off lending money on cars, and he saw a break in an industry where he could come in with the same kind of interest rates, but he could employ a whole lot more money in this industry, which was growing so rapidly.
KELLER: Remember a guy that worked with him, Gail Oldfather?
CROSBY: Sure, I knew Gail well, oh yeah, yeah.
KELLER: He’s in California now.
CROSBY: Yeah.
KELLER: I’m going to do both Jim and Gail one of these days and —
CROSBY: Yeah, yeah, yeah, Gail is a good guy. He’s good, yeah, mm-hmm.
KELLER: He did well, didn’t he?
CROSBY: Did well, mm-hmm.
KELLER: Did Ackerman ever back a guy by the name of Dick Shively?
CROSBY: I remember Shively’s name. Refresh my memory —
KELLER: Telesis —
CROSBY: I want to know what —
KELLER: Telesis of — in Indianapolis or in Indiana —
CROSBY: I can’t tell you, Jim. I don’t know whether he did or not.
KELLER: There was some speculation that he was getting money from the Teamsters Union —
CROSBY: Oh really?
KELLER: — but there was no one — I can’t back up that story.
CROSBY: To the best of my knowledge Jim, Jim never had any relationship with the Teamsters. Early on, there was some indication that people especially that were looking at this industry because it was a cash industry.
KELLER: A cash cow.
CROSBY: Okay?
KELLER: Uh-huh.
CROSBY: And (laughs) you know that… I’d say the industry did a little self-policing in that regard. And the franchises were not as easy to come by as they thought they might be.
KELLER: Yeah. (laughter) Well, except for a couple of them, but by and large, that’s true.
CROSBY: Yeah, yeah.
KELLER: How did you show your intangible assets to the bankers?
CROSBY: Now, what are you calling intangible assets?
KELLER: The franchise, the value of the franchise, the amortization period of the franchise.
CROSBY: It changed through the years. I mean we’re just subject to the IRS’s interpretation. And we would attempt to amortize the franchise cost as much as we could over the longest period of time that we could. And so, you know, the… We were moving so fast and that it never did really come into a big problem from our standpoint. I mean now we —
KELLER: From your standpoint, I think it’s coming into a little problem with some of the people right now.
CROSBY: Oh, there’s no question about that now, but bear in mind, we’re talking about the first 30 years of the industry now. And you know we were adding fresh depreciation so rapidly in those days that we didn’t pay taxes for years.
KELLER: Oh, no.
CROSBY: And we just ran out and buy another system and started to amortize it, you know if we got to a taxable position.
KELLER: What Malone would say he’d much rather pay interest than taxes.
CROSBY: Oh, yeah. (laughter)
KELLER: It’s a great statement I thought as it… Now, you probably felt the same philosophy.
CROSBY: (laughs) And he demonstrated that.
KELLER: Yes, he did. Yes, he did. (laughter)
CROSBY: But it is interesting how the then the industry got to be one of the darlings of Wall Street, and the banks loved the industry and the predictability of it. And so we made the full cycle.
KELLER: Was it in ’86 when there came the prohibition of a high-leveraged debt when congress passed the HL —
CROSBY: Yeah, I’m trying to —
KELLER: — or the [HLO?] —
CROSBY: — remember what — they had a name for it. What was the name?
KELLER: Oh, I want to say HLO, but that’s not it.
CROSBY: Yeah, yeah.
KELLER: The high leveraged —
CROSBY: Yeah, highly leveraged —
KELLER: — whatever.
CROSBY: — transaction. Well, the banking industry had gotten in such trouble with various different industries that, yeah, they came in, and of course, this industry was a prime target as far as that’s concerned. And I think that’s kind of this period of time in which the industry really started to consolidate itself into the bigger — fewer, bigger financial players.
KELLER: We had been talking about how these smaller companies built their financing up over a period of years. But then at some point, and I would say probably in the late ’70s, early ’80s, some of the larger companies started coming in. I’m going to use an example of Cox Broadcasting, some of the telephone companies, some of the others were starting to come in right now. Did you ever do any deals with them?
CROSBY: Yeah.
KELLER: What companies next?
CROSBY: We did it on this basis, Jim. The industry had so many antagonists at the outset that the telephone companies were concerned about us, the movie theaters were concerned about us, the broadcasters, you name it. And so Fred and I had a little construction company, which was a means to an end, and so we would go to the broadcasters and try to get them in the business, okay? Build a system for them, take an equity interest in it, and move them forward.
KELLER: In their own markets?
CROSBY: In their own market. We went up to the McCulloughs up in Lancaster, Pennsylvania. We went around there, went to Joe Bryant over in Lubbock, Texas, and so forth, and so on. And it was then when we said — our pitch was this. We said, “Now, don’t do this on the defensive basis. This is a business that’s going to make you some money. It’s something you know something about, okay? And instead of fighting to keep this thing out, let’s show you how to be in the business.” And so that was a struggle, it really was, and but — well, one of the first ones we finally convinced, all right, was Cox Broadcasting and Leonard Reinsch —
KELLER: An amazing guy.
CROSBY: Leonard Reinsch was there at the time. Just prior to that by the way, it was kind of interesting — I don’t think this had been chronicled — but we were approached by ABC to sell them what was then Telesystems, which was our private company, and Leonard Goldenson, Ev Erlick. We were asked to come and talk to them about some of our companies, ABC —
KELLER: What year was this?
CROSBY: Oh well, Marty Malarkey was the broker in the deal and so Malarkey and Taylor, and Marty was very close to Ed Rule and Len Goldenson at ABC. And it was going to be a major decision for them to make because they, like everybody else, were fighting. They’re fighting the cable system to a great degree. And so this was going to be a real policy statement if they had, in fact, invested in our little company.
KELLER: The reason I asked is because I went with CBS in ’66 and —
CROSBY: It’s long about then.
KELLER: And they were — they wanted to keep their investments in cable very quiet, so they were investing in Canada mostly. Their first investment then was in the system in San Francisco, but I’m just wondering whether this was about the same time.
CROSBY: It’s about the same time because it was real policy decision. It wasn’t the money; it was a policy decision, and they decided not to go, and not that they didn’t like the investment. They just decided it was politically not correct for them to do it at that time. Okay. So anyway, so we go to Cox. We had built up, oh, the number of connections. We had a little bunch, little systems up in Massachusetts. We called it the Green Mountain group I think it was and so we went. We knew Cox was considering going in the industry, so we went to Leonard Reinsch, Cliff Curtland and started talking. And they had indicated an interest to us that they’d like to talk about maybe making an investment in the business. So we went to them and negotiated with them, very honorable, upright people —
KELLER: Oh, I’m sure.
CROSBY: — just terrific to deal with. And so we made a deal, and we sold them the system. Now, that became Cox Cable Communications on the American Stock Exchange, and they just spun it out. They bought it and then spun it out into a new, little public company, and that was the beginning of Cox’s interest in cable, which we all know what’s happened since then. The last systems that Prime sold was to the Las Vegas system, and we sold it to Cox for, I forget what, $3800 a connection I guess it was. But that was a prime — I mean a concrete example of those people coming into the business and staying in it and operating, as we told them they had to do, on an offensive basis rather than just to keep somebody out of their territory. And one reason for them to do that was because that was not in a broadcasting territory for them, and they could show that they have done this totally independent on the basis of the merits of the investment itself. I don’t know whether that answers your question, but that one referred —
KELLER: Pretty much so. But the first — they tried to stay out of their own markets, their own television markets with the exception of San Diego. And they went into San Diego and then got out of San Diego and then came back in again in when — no, they didn’t — with CBS… No, I’ve got to remember what that was. Time Inc. came in and then bought Cox out, and at that time, Lee Druckman was playing out there also in — which was an interesting —
CROSBY: And the other one then that we concentrated on when we had Communications Properties, we had gotten the license in Philadelphia for a part of Philadelphia where Fred lived of course, and we determined that we could build it. And the other four licensees didn’t build for about 15 years. And so we built that company up, and we’re ready to sell it, Communications Properties, and we were approached — I don’t know whether we approached them or they approached us —
KELLER: Did you hold Philadelphia in CPI?
CROSBY: Yeah, yeah. And Times Mirror was interested in going in the business, okay, and we knew Tom Johnson very well who was Lyndon Johnson’s administrative assistant, a young fella who later ran… He left the White House, and he came back and ran the Dallas Times Herald owned by the Times Mirror people from LA, then went and became the first non-Chandler to become editor of The New York — I mean the LA Times. But Tom wanted them to get in the business, and they were looking for some diversification out of this, the one big market. And so we met with Bob Erburu and sat down and Otis Chandler and sat down, and Fred and I sold them that public company, which they then… That’s when we then started Prime Cable, and that’s the history of that. That was the second major operator that we brought into the business and subsequently then —
KELLER: First being Cox, the second being the —
CROSBY: Times Mirror.
KELLER: — Times Mirror Company.
CROSBY: Times Mirror. Interestingly enough, the best deal that Prime ever made, and made a bunch of good ones, was that they came to us after about a year after we sold — we came and got good relationships with them. And they came back and said, “You know, we have this 50 percent interest in this cable system in Las Vegas and with the newspaper people.
KELLER: Greenspan, Green– whatever.
CROSBY: Yeah, Greenspun.
KELLER: Greenspun.
CROSBY: And said, you know, “We don’t think we’re maximizing it, and we’re getting along all right with them, no problem there both newspaper people.” They said, “Why don’t you buy it, and you can exploit it much better than we?” which is the way we got into that deal.
KELLER: Fifty percent?
CROSBY: Yeah, it was a successful relationship with having sold them something that was worth the money, okay, and they like the business, but they realize that they probably — you know that was a unique situation. You could put all the bells and whistles on that system out there and you —
KELLER: Greenspun was a difficult man to get along with also; we knew that.
CROSBY: Yeah, and of course, that was Prime — in our preparation to do that there, we were not about to do it without a very happy partner, because he was an extremely powerful man out there.
KELLER: He was.
CROSBY: Yeah. His funeral I think had more Hollywood people than anybody. (laughter) Anyhow, so those are two concrete examples of how two major companies in the broadcasting business actually got into the business.
KELLER: With all of your experience that you’ve had from going with your hat in your hand to small bankers in Del Rio, kept playing with the big boys on Wall Street and… Is there any other way you could have done it or would you think of doing it if you had to go through it again?
CROSBY: I don’t know that you could — yeah, that smarter people than we could probably have cut through the chaff a little quicker, but I think it just had to be proven. And how many industries, Jim, can you think of that started in the town of 10,000 people, a billion-dollar industry and then went to the cities? Okay. And so you’re asking city bankers to lend for the boonies. So I just think it had to go through that process, and it was a long and painful process. Let me give you one other financing situation. When we first — Fred and I first had started to go into Europe into Switzerland. That was when we’d sold the company to Cox in 1968, and we had a little money in our pockets, and we’re trying to figure out what we can do to diversify. And Fred’s a real conservative guy, and he says, “You know, let’s look at the Swiss franc.” So we went over and decided the Swiss Franc was a good currency. We took a bunch of money over, and we converted our dollars to Swiss franc, and we started looking for something to buy and — just anything, put our money to work over in Switzerland. And it took us six months to realize that the Swiss don’t sell companies, they keep them. We’re wandering around about to come home, and we’re approached by the PT&T and saying, “Why don’t you-all build a cable television system over” —
KELLER: PT&T is what?
CROSBY: Postal, Telephone, and Telegraph. It’s the equivalent of our FCC over here. I think you may have this already recorded, so —
KELLER: I have some of the Swiss —
CROSBY: — I apologize for that.
KELLER: No, it’s all right.
CROSBY: But the financing of it was kind of interesting. So here we go over, and we went to the Swiss franc — banks who will lend you your money back if they hold on to you in the meantime, we found out. And we went to them, and they thought it was the greatest thing they’d ever heard, okay? Now, they had a little two — they had little Muzak system in Zurich and in Geneva by Rediffusion, and they were holding the license for cable by having that little two-way music deal like Muzak. So anyway, we couldn’t go into the major city, but they — we went over there, and we went to all the banks, and they just laughed at us, just — absolutely laughed at us, so… Fortunately, we had the cash, and we build out of cash. So this is 1968; there was no financing over there. Finally, we got first to Boston, we’d done a lot of business with, and we got Citicorp and got them to come in and put a little debt on after we had operated for four or five years and had a real good cash flow, okay?
KELLER: Mm-hmm.
CROSBY: They weren’t about to do it either when we went over. This is ’68, the industry is how old then, you know? Like —
KELLER: Eighteen years.
CROSBY: — twenty years ago. Oh, anyway, so (laughs) we kept the very successful operation there. We operated for 20 years. Finally, about halfway through it, we put all equity in, and the banks just started to come in. And they’re — yeah —
KELLER: The Swiss banks now?
CROSBY: Citicorp and —
KELLER: Oh, but no Swiss banks?
CROSBY: No, no. No, they still — no, uh-uh. Now, 10 years later after we got in, Swiss banks came to — “Why didn’t you tell us about this thing? You’ve got these — you have foreign banks in there?” We said, “We did, we did, don’t you remember? We were here before.” Anyway, so we go ahead — we go, and Fred goes one day, he says, “We’ve got all this equity tied up so that thing is just flowing cash.” And he says, “You know we got this better debt on it with Citicorp.” He says, “Why don’t you call them and tell them we’re going to draw some of our equity out?” You know the last thing a banker wants you to do is drawing the equity out, okay? I said, “Okay.” So I called, and they said, “Well, you-all have done everything you said you were going to do, you complied.”
KELLER: Were you highly leveraged though with the banks?
CROSBY: No, not big. And he said, “Well, that’s fine.” He says, “You know, this is — ordinarily, we don’t like to see this happen, but this is okay.” So the young man who was in charge of the Tokyo branch — I mean the Hong Kong branch for Citicorp was transferred in the meantime before we were to go. Well, they want to make a big ceremony of handing us our money, so then we had to go over to the traditional luncheon in the executive quarters with the cigars and the port and get our money, okay. So we go over and the head — this young guy as soon as he got there, this is the first thing across his desk in Zurich. He called New York, and he said, “What are we doing? We’re giving these entrepreneurs a bunch of their equity pay?” They said, “Now, calm down, these are people we’ve been doing business with for a long time. We know you’re new on the scene, go through the deal, okay.” So he’s there sitting there at the head of the table, and he’s got a Swiss banker on his side and an Italian over here, and he brings in a young money manager and sits him next to Fred. And all during the meal, he told me, “You know, I — we can do this for you with your money, leave it right here.” So Fred, you had to know him to appreciate. Fred’s sitting there, and he probably had on his tennis clothes, no telling. He’s sitting there, and he’s puffing on his cigar, and he said, “Crosby,” he says, “this young guy sitting here is telling me how much money they can make us off our money.” But he says, “Anybody that would do what we’ve asked them to do here today, I wouldn’t feel right about leaving my money with them.” (laughter) So there it was financing in Europe. Now that was the first financing effort in Europe to the best of our knowledge.
KELLER: Any other countries in Europe that you went to?
CROSBY: We went to almost — We found out that with Swiss engineers, you had instant credibility. It wasn’t the case for an Italian or a French engineer, but we could take those guys, and they were highly respected where we went. So we said after about 10 years, we said, “My gosh, we’re — we need to realize something off of what we got here.” So we went all over. We went to Bern, and the government called us over there and wanted us to build a system for the government. We went to Amsterdam, and the same thing. We went to Vienna and all of them at that point in time, — bear in mind this is in the early ’70s — they wanted to own the systems themselves, and they were looking for somebody to contract to do it, but they weren’t about to issue licenses at that point. Now, the only thing we got pretty far down the line was in Monaco, Monte Carlo. And we went there and laid out a system. The prince kept telling us that he owned Radio Monte Carlo, TV Monte Carlo, but it turned out later on, really, the French government owned it and he had a license. Princess Grace was alive, and she was on the board of 20th Century Fox and knew all about the wonderful world of cable. So she wanted to get those nasty, old antennas out of fairy land in Monaco, and we were playing right along with that, you know? And she was pushing to have it done, and we finally — just after about two years of trying, we couldn’t get a license, so we finally went to Paris to see Mr. Beauchamps who was the president of Sofirad, which was the French radio, television company, government owned, and laid out what we were talking about doing. And we went under the auspices of the MPEA. As a matter of fact, Marc Spiegel, too. And he said, “Well, that sounds like a wonderful idea.” He says, “We — we’d like to be your partner,” said, “You come in about 30 days, and we’ll have this all worked out.” And so 30 days later, Mr. Mitterrand was elected president of France, and he said, “We will own all of the communication systems in the government.” So that was the end of that, and we sold out to a Swiss company about — after about 20 years of operation because we had no… In that particular case, go back to your tax ramifications, we had no more depreciation. We depreciated the systems out, we couldn’t buy anymore, we couldn’t build anymore. I mean the country wasn’t big enough, and we had exhausted our abilities. We looked very hard at the UK marketplace; there was no cable there. Mrs. Thatcher came up with a set of rules, and we went, and we had a partnership, interestingly enough, in the real estate business with the largest contracting firm in the UK, the Wimpey company. We were doing buildings in the US with them and so they called and said, “Shouldn’t we be doing this together?” They said, “You know we’re in the contracting business, we build, and you will operate.” And so we looked very carefully and decided that, hey, it wasn’t going to work at that point in time. Cost to construction is very high. They had the largest incidence of VCRs in the home and were used to that. So anyway, it’s — and we all know the history of the UK and cable.
KELLER: I understand that the reason you went into Switzerland was because of the value of the Swiss franc at that time, and you thought it was a good money deal.
CROSBY: Safe.
KELLER: But why did you then go into Argentina, which was just the opposite?
CROSBY: Just the opposite. Well, Argentina represented — I was asked to go down there to meet a particular gentleman named Sam Liberman. Now, he didn’t spell it quite the same way, L-I-B-E-R, and Fred was L-I-E-B-E-R. I said, “Why do –?” Two cable guys that I barely knew came to see me one day and said, “We want you to go down with Argentina with us,” said, “We’ve been consulting with a fellow down there.” I said, “On what?” and they said, “Cable television.” I said, “I didn’t know they had cable.” They said, “Come, go with us, you need to meet this guy.” He says, “With your propensity for interesting partners, you might — he never had a partner in his life except for his brother Enrique. And he’s a brilliant guy, and one of the world’s great entrepreneurs. He got 10 different businesses, and this is one of the smaller ones.” I went down there, he had 350,000 connections in Buenos Aires, okay, a big system. And it was a stepchild operation, so he needed somebody to come in. He didn’t have to, he can — he could keep financing them, but, he really needed somebody to come in and bring new ideas, bring new financing, so he will not put up all the money. And so I was on the board of Prime and so took it to Prime, and Bob (laughs) hiccupped twice about thinking about going outside the US to begin with, although he’d been into Switzerland. And he said, “No, we can’t do that” and so I went Bud, went to Hostetter. You know the story.
KELLER: Yeah.
CROSBY: And —
KELLER: You mentioned the story in the first oral history but —
CROSBY: Yeah. Okay. So the trick there was how could… We got Bud to come in with a lot of money, all right, and we became partners with Liberman. But there was no financing down there either.
KELLER: Straight cash, huh?
CROSBY: Liberman had been putting up all his — all the cash himself. But he’d committed a couple hundred million dollars to the project to go forward because this is a market you couldn’t believe. Now, you do realize that we couldn’t own anything at that point in time, so this was a very tricky situation. The law said that you or I could not own anything in the communication business, so what we had to do was lend the new capital to Sam’s company based on the valuation of the company. Let’s say we loaned him a hundred million dollars. So we valued it at $200 million, we lend him a hundred million dollars, and we got for that a 50 percent interest in the profits going forward. And the caveat was that if and when Mr. Menem and Mr. Clinton ever signed a treaty authorizing foreign ownership, that our equity — I mean our debt would switch to equity. In the meantime as we added more equity into it, Sam could match us and stay fifty-fifty or he could dilute. So he chose to match us, and we went forward on a fifty-fifty basis. But you know…
KELLER: You still had nothing really to base it on.
CROSBY: — we — if he’d been a crook, (laughs) we would not have enjoyed the experience to tell you the truth. But that was the first US money to go down there, and it went in on a loan basis, all right. We had had a somewhat similar experience years ago with the Escargas down in Mexico so —
KELLER: I was going to say, yeah, I thought that was very similar to the deal in Mexico.
CROSBY: Very similar, uh-huh, so… All right, so then the financing down there, and once again, you’re in a foreign country, they were on the heels of a nine-year upswing. The GDP was the largest in — with the exception of probably Mexico, — the largest in Latin America. Everything was booming. It had come off at 2000 percent inflation less than 10 years before, and they had less inflation than we did when we went down there. And so —
KELLER: Well, that was after the Peróns have already been and there —
CROSBY: The Peróns already —
KELLER: — were things swept out, yeah.
CROSBY: Yeah, that’s right and then Menem had come in, and they’d bitten the bullet and gotten it done. And I think they can again by the way, but it’s going to be very painful, very painful, and so… Anyway, so we did that and then we knew that TCI was there, Time Warner was there, US West was there, foaming at this marketplace, okay?
KELLER: Mm-hmm.
CROSBY: Here’s 29 million people in a country with a thousand cable systems and paying the same rate, by the way, that we were getting over here, which is critical and not any other like that.
KELLER: What’s the rate of exchange though between the peso and the dollar?
CROSBY: Well, one to one.
KELLER: One to one, okay.
CROSBY: They hadn’t established dollarization policy at that point in time, and Menem had said, “Okay, we’re taking the pesos and then we’ve got a dollar. We got our gold in the bank or our dollars in the bank back to peso.”
KELLER: So it was one to one, huh?
CROSBY: One to one, that’s right, which is the reason I liked it —
KELLER: I was going to say that probably would be a good idea. (laughter)
CROSBY: So we were very fortunate because five years later when they signed the treaty, well, wham, our investment, which we’d, added to of course in the meantime, additional cash flow and additional subscribers, but it doubled in value. And that’s when XMUs and TCI and UIH and all of them came rushing in then because you could, at that point in time, own the licenses, and so… But that’s the history of the — no excuse me — on the financing end, tying it back in again for you, is the most we ever got in the way of leverage on that system. We finally got BankBoston, and I don’t remember whether it was Citicorp or who it was, came in and did a joint deal for maybe a couple of hundred million dollars on a three-month cash flow basis.
KELLER: Oh. (laughter)
CROSBY: That’s what they were lending in.
KELLER: You didn’t do any financing with the Argentinian banks then, huh?
CROSBY: No, there’s no such thing. Now — I mean even then, even then. No, they don’t lend for anything like that.
KELLER: Was it because you were Americans or because they just didn’t —
CROSBY: No, no, no, no. The system is not set up as we — as our banking system is. I mean, they’re not in the long-term lending business the banks down there. Of course, the banks now, what there is of them, are owned basically by Spanish banks, most of them.
KELLER: You started out with the small insurance company with, you said, the Home Insurance company. Did you stay with any of the bigger insurance companies over the years with any of their money in it?
CROSBY: Yeah, Teachers, We did a lot of business with Teachers, as I say Home, and of course, the other big companies did a lot of business with the bigger insurance companies, but Teachers and Home were our main ones, yeah.
KELLER: Ever do any financing with Canadian banks?
CROSBY: No — well, that’s not true. Toronto Dominion, which as you know, got to be about, probably the biggest lender. They were in most of our deals. They were in all the Prime lending, leading in many instances, yeah.
KELLER: You found them easy to deal with —
CROSBY: And CIBC also to a lesser degree. Yeah, they were very fine to deal with, very fine.
KELLER: Did you overlook any potential source of financing throughout your years? (laughs)
CROSBY: No.
KELLER: That’s the way it’s beginning to sound.
CROSBY: No. (laughs) Not at all.
KELLER: So you tapped every source there was, huh?
CROSBY: We think so, and anybody we could find to talk to, and as we said earlier, Bill [Daniels] was out there. We were at least helping each other educate the people because that was a big part of the process to begin with. Until you established the fact that we could really produce the kind of cash flow that we said we could, well then that made a difference.
KELLER: There’s something else that — talking about cash flow, there was an interim period right after the advent of pay television and the — even after the satellites went up. When we were starting to take advantage of the revenue from pay television, say 50 percent of a five-dollar bill or whatever it was going to be. But I can remember the banks saying to us, “We — we’re not going to allow you to use this in your cash flow projection in the future to start with.”
CROSBY: Yeah, because they didn’t believe it.
KELLER: They didn’t believe it.
CROSBY: That’s right, (laughs) that’s right.
KELLER: Then it came along and then “Well, we’ll allow you to use a quarter of it, then half of it.” And it was a long time, as I recall, before they would —
CROSBY: Before they gave any credibility to that, yeah, yeah. It really was —
KELLER: That’s amazing —
CROSBY: — it really was.
KELLER: That was actually amazing.
CROSBY: Uh-huh, yeah. Because I think a lot of people, really the early entrepreneurs or even the midway entrepreneurs left the industry because of the difficulty in financing. And then it got very easy. (laughs) And now we got an interesting situation with the broadband systems coming in.
KELLER: Yeah, that’s right. What was your reaction to the Malone deal with AT&T?
CROSBY: In what regard? (laughs)
KELLER: Looking at — well, I know what it was from Malone’s standpoint, but looking at it from the AT&T stockholders’ standpoint.
CROSBY: Yeah, yeah. I’m not enough up on it to criticize Armstrong or know exactly what the national issues —
KELLER: No criticizing, just comment.
CROSBY: Just that the — yeah. I think that they bit off a bigger chunk than they could possibly take care of at that particular point in time. I think they didn’t know the business that they were getting into as well as probably they should have.
KELLER: They had the opportunity to with Leo Hindery though, and they voted him out.
CROSBY: Oh, yeah, yeah. On the surface, looking at it from the outside, this looks like a bad management situation, this decision process, and I’m not privy to any of the inner workings of it. It’s going to be interesting to see how Brian and Bud and all the players can get along. (laughs)
KELLER: Well, I think Bud [Hostetter] and Brian [Roberts] can get along.
CROSBY: Oh, they get along. I don’t mean them, but I mean that they’ve got other players that play in this thing. Well, they’re both very, very fine operators and know what they’re doing. Of course, that from the industry standpoint, I am pleased to see, that this big portion of the industry is in very capable hands. And I’m not poking at Armstrong there, —
KELLER: Well, it’s true. You’re right, you didn’t, the culture’s different —
CROSBY: The culture is totally different, totally different, even going back to the old days, and it’s just always been maintained that way.
KELLER: I know because I was involved with the telephone company at one time with United and it was a total different culture.
CROSBY: Uh-huh yeah.
KELLER: And I could imagine what it would have been like at AT&T.
CROSBY: (laughs)
KELLER: What really, I think, amazed me, and I said it at the time, is these stockholders of AT&T were what I call little old lady stockholders. They were looking for that dividend check every month or every six months or every year, and when all of a sudden they were told they were going to get it, whoo.
CROSBY: Reminds me about a bank one time in Fredericksburg, Texas, and a great German community. And the only problem we had when we bought the bank, getting somebody to borrow any money. You know they deposit, but they wouldn’t borrow any. And so we decided to put the stock in a holding company and want to swap the bank stocks for a holding company stock, and some of the people had the stock for a hundred years. And I sent an accountant of ours named Kuzenberger up to talk to the little lady, a German lady named Mrs. Bassage. She’s about 95 years old. So he went out to see about swapping her stock and so he went up to visit with her at her farm outside of Fredericksburg. And she’s sitting there rocking, and he says — explained who he is, and he’s representing Mr. Crosby who had just bought the Fredericksburg National Bank, and we’d like to explain to her how she could swap her stock in the bank for a holding company stock, tax free. She rocked and she rocked and she rocked, and she said, “You know, I don’t know this fellow Crosby.” And she says, “But he not totally dumb because he sent a named Kuzenberger to talk to me about this.” She said, “But I don’t do it,” (laughs) say, “I don’t do it.” So never did swap, never did swap her stock.
KELLER: But she had stock in your company though, that’s true —
CROSBY: Yeah, that’s right, that’s right. No. I’m just hopeful, as I know you are, that the aftermath of the AT&T situation works out well for the industry.
KELLER: Well, I think once that the Robertses and these guys get a hold of it that they’ll do it. And Julian Brodsky is a financial genius.
CROSBY: Oh, he’s unbelievable. Oh, yeah, no question.
KELLER: And —
CROSBY: We knew Julian way back at the bank, you know? (laughter)
KELLER: And I think he could pull some deals off of that. They’ve often wondered how he does it. But I think with those people involved in it now, that it should become a major, major force in telecommunication.
CROSBY: Yeah, I do too.
KELLER: Jack, we’ve just about exhausted — well, I don’t think you ever exhaust your knowledge of financing but at least for our purposes right now. And I said we were going to take two subjects today: One was the financing, and the other one was your chairmanship of the NCTA in ’67 and ’68. Can you give us a little brief idea of the problems you were facing in there and some of the problems that you faced both internally and externally within the industry?
CROSBY: Yeah. Sixty-eight was the year, you may recall, Jim, when we went to the Supreme Court with the Fortnightly case, which was —
KELLER: Fortnightly.
CROSBY: Fortnightly case, right. And we were opposed in that by the learned attorney Mr. Louis Nizer, and he represented the company.
KELLER: You put learned in quotes, didn’t you, when you —
CROSBY: Yeah, (laughter) yeah. He was a worthy opponent. So we had Strat Smith, of course, representing the industry and — I cannot remember – Bob [Bernard], he was a copyright attorney, and was a very good attorney also representing us for the Supreme Court. But anyway, that was the year that we won that decision that said that basically we didn’t owe a copyright fee for those signals we were just picking out over the air.
KELLER: That was the Supreme Court level at that time?
CROSBY: The Supreme Court level, I’ll never forget —
KELLER: We’d lost — as I recall from Strat, we had lost in the two earlier — the lower courts —
CROSBY: Correct.
KELLER: — and won in the Supreme Court —
CROSBY: And the odds were not good, and our attorneys did a masterful job, and then we had a case. I’ll never forget Nizer. He had just written his book, and I can’t think of the name of it right now, but he really had — from a country boy from Del Rio, Texas, in there in the Supreme Court listening, he looked at me like he talked down to the judge just a little bit, (laughs) and so… Anyway, I was amazed at that, but — so we won that. And then so the next, in short order as chairman of the NCTA, I got Bob Beisswenger who was the then president and chair of Jerrold.
KELLER: Jerrold.
CROSBY: And I’m trying to remember the third and fourth parties. I don’t remember right now. I called up, and I said, “We’re going to have a committee here to meet immediately with the motion picture guys.” And so we got Phillips who was of the law firm of Nizer and Phillips and I forget what the other firm — name for it. Anyway, I got him on the phone and said, “You know, we ought to talk to the motion picture people,” okay?
KELLER: This was your idea?
CROSBY: Yeah, and so — well backed by the board. And so we did, and we met at the Plaza Hotel. I’ll never forget the first meeting. And we said, “Now, look guys, we don’t owe you anything. The highest court in the land says we don’t, okay?” And so there’s no hammer to our head. Now, you know we’re going to be the next theater for you. We’re the next exposure for your product, and we need your product. So let’s work rationally work out a copyright bill that gives us the ability to pay you a reasonable fee for your product down the line and get it all.” And so —
KELLER: Was Jack Valenti at that meeting or had he joined in it at this time?
CROSBY: Jack was not. I had known Jack fairly well.
KELLER: I figured you had —
CROSBY: Jack, he is from Houston, Texas, and he was with Johnson for years, you know? Married his secretary or Johnson’s secretary is his wife, excuse me, and so we had known Jack, and we knew an associate of his named Marc Spiegel who was the motion picture guy in Europe, the MPEA.
KELLER: Was Valenti with the Motion Picture Association at that time or was he –?
CROSBY: I don’t think Jack had actually joined them then. They’d had been there for ages, of course as we know, but I don’t think at that time he’d actually joined them, but he was working with them. Anyway, so we had an entrée. And so we did and, as you know, it only took 10 years to get the copyright bill thrashed out and approved. But that was kind of the beginning of saying, “Look” —
KELLER: And there’s some people even to this day that feel totally opposed to that.
CROSBY: Oh, yeah, oh yeah.
KELLER: That they compromised with —
CROSBY: There was nothing easy about that. And we had this, and we had some donnybrooks in the board meetings in those days just as I’m sure there have been since that time. I’ll never forget one particular instance Irving Kahn who, at that point in time, had TelePrompTer, which represented probably 40 percent of the votes, we’ll say, in the industry, the dues. And did you know Irving fairly well?
KELLER: Well, yes, pretty well.
CROSBY: Irving, yeah, some reason, he called me Jake and so one day —
KELLER: (laughs) He called me Kid. (laughter)
CROSBY: But I called him in turn the living Buddha. Anyway, he — one day he’s sitting there, and I can’t remember the incident at the time, but it was — the vote went against him, okay. Whatever it was, he did not want this to happen. So he slams his notebook together, and he says, “I’m out of here, Jake. I’m out of here, we’re going, okay?” I said, “Fine.” The mighty gavel — as soon he got out of the door, the mighty gavel, and I said, “Ten-minute recess.” I walked out there with my briefcase in the hall, and Irving is standing at the elevator when he had gone out with his briefcase. He said, “Where the hell are you going?” I said, “I’m leaving.” He said, “You got — you’re conducting the board meeting; you can’t leave.” I said, “Look, you’ve got a lot more at stake in this thing than I do. If you can go, I can go, okay?” “Oh, let’s go back in.” But that was — (laughs) if he walked out, we had lost our biggest payee — payer, you know? But anyway, so that was during an interesting time because there were a lot of people on both sides of the copyright issue. And the broadcasters, of course, were playing a big role in that, so it was an interesting time in that regard.
KELLER: Well, had you not made the deal, the industry wouldn’t have become the programming source that it did.
CROSBY: I don’t think so.
KELLER: That it has turned out to be.
CROSBY: No, —
KELLER: In my opinion, that’s true.
CROSBY: Yeah, I don’t know — quite know how I could have, and that’s the point in time that, I mean — when the advent of HBO. Actually, Fred was involved in really the predecessor, PRISM, which was the package that Eddie Schneider put in and Fred Lieberman put together in Philadelphia if you recall.
KELLER: Yes, I do.
CROSBY: They sold a season ticket to the Flyers and the 76ers. When Eddie came to Fred to begin with to talk about it, he says, “You can help me get these cable systems online,” and he said — and Fred said, “Yeah, but I’ll tell you what,” he says, “I think you’ve got a nice package, you’re sold out, but you’re going to have to have some other programming on there to make it a real presentation.” And he said, “What kind?” He said, “Movies” and so that really was the first move in that direction to go ahead and put the right kind of movie package together along with the sports events.
KELLER: Then after you got the tentative agreement with the motion picture people and you brought it back to your board and said, “Hey, here, they’re willing to talk,” what was the internal discussing involved in the — at that time?
CROSBY: Well, they had great fear and trepidation that we were getting in the business with — or not getting into it, but we were aligning ourselves with the business we knew nothing whatsoever about in that regard and then — and a distrust of the Hollywood types. But that’s when — on a personal basis, when I decided I better try not only talk to them from outside the veil but to try to learn something about their business.
KELLER: That’s how you got your association.
CROSBY: And went on the board of Orion. And that was through the bankers, the First National Bank of Boston when they called me up and wanted me to go on the theater — I mean the film company board because they had been lending them money for years. And they said — and this was kind of interesting because here’s the bank that had loaned to both industries saying, “You two guys need to talk more, okay.” I said, “I don’t have any business on that board,” and they said, “Look, they need somebody to talk to them about hardware, and you need to learn something, you and your industry need to learn something about software.”
KELLER: Wise.
CROSBY: Yeah. So that’s the reason that I did that was to go on that board. They were forward-enough-thinking. Krim and Benjamin and those guys, Eric Pleskow, and those people, they’re forward-enough thinking that this was going to be something they needed to know more about and then played to that new character on the scene, so… And Malone, Dolan, and those guys did the same thing. I mean they started to cultivate and learn more about that business, which by the way, is still the only business that is peculiar to the United States. It never has been exportable, the Hollywood game.
KELLER: Did you ever make any investments in the Hollywood scene?
CROSBY: Well, we invested in Orion to a very small degree. HBO put up most of the money, Warburg Pincus at that time Lionel Pincus and John Vogelstein were the two leaders of — you know who Warburg is. They had been on the board and had been very active in 20th Century Fox. They knew the film business and were not scared of it and so they were on the board of Orion. And so that was a good way for me to learn a little bit about the business as well because they had crossed the line. They had financed both cable and film and so they were on the board. The main financing people in the day were HBO, Warburg Pincus, and then Fred and I had a small piece of it and then we later on invested in Imagine Films.
KELLER: And you’re still involved with them out there —
CROSBY: Not really, not really. Imagine, we sold that company, well, five years ago, yes it was, to Universal, and it’s done very well. In fact, they won the Oscar for A Beautiful Mind, Imagine did.
KELLER: Well then, you consider that your term as chairman of the NCTA focused around the copyright question or Fortnightly decision and what you were able to do from there, is that right?
CROSBY: Yup. We talked about the pole line situation. We had Ben Conroy representing us quite adequately in that area.
KELLER: I was on that committee, so I remember very well.
CROSBY: Yeah, yeah. And the industry was going through a bit of housekeeping in that regard. The bigs were getting bigger, and we had to acclimate ourselves to not being just a bunch of little bitty operators anymore.
KELLER: ’68, wasn’t that the year that many of the cable companies first went public, -H&B American, ATC, CPI —
CROSBY: CPI.
KELLER: Wasn’t that ’68, wasn’t that the year?
CROSBY: Yeah. It’s kind of a watershed year.
KELLER: What was the effect of those people going public on the NCTA board? Anything at all?
CROSBY: Well, you could begin to see the advent of the bigs eventually coming in, and this thing had been little bitty guys. The pioneers when it was first picked, how many were they? Eighteen?
KELLER: Sixteen or 12, I thought —
CROSBY: — sixteen —
KELLER: — they were about 20, but we had that discussion before.
CROSBY: Well, whatever it was.
KELLER: Whatever.
CROSBY: Six of them were from our company, you know. You had Tubby Flynn, you had Conroy, you had Crosby, you had two Schneiders and Fred Lieberman. They were all at Genco and so to give you some idea —
KELLER: Was Lieberman one of the first ones that —
CROSBY: (laughs) But he resigned as soon as he got appointed. (laughs)
KELLER: I don’t remember. I don’t even remember seeing him in the pictures.
CROSBY: Fred said, “I’m not going to do that,” he said. (laughs) Fred’s idea of going to the cable convention was to take a paper sack with handles on it and pick up all the literature about the technical aspects of this and go home. And you know he was — did you ever meet him?
KELLER: I never met him.
CROSBY: I’d love — yeah, you could never get him to do this by the way.
KELLER: I’d like to very much, and I’d like to —
CROSBY: But anyway, he… (laughs) He was one of the original members, and they asked him to come in the first meeting, and he said, “I’m not, no, I’m sorry.” (laughs)
KELLER: I didn’t know that because any of the pictures I’ve seen, you never see Fred Lieberman —
CROSBY: No.
KELLER: — I mean just like a ghost somewhere. (laughter) And you probably see him that way too.
CROSBY: Yeah. (laughter) That’s right. Finally got him to quit flying his own jet about a year ago.
KELLER: Oh, gee.
CROSBY: (laughs) He flies his own jet up to New York or Philadelphia to go to Switzerland and then he’d ride in the back end of the commercial flight. (laughs) Different, he’s different.
KELLER: He really was. You know he was the first hippie, bohemian —
CROSBY: Remarkable, one of the world’s great people. (laughs)
KELLER: I got you. Well, you got along with him very well, didn’t you?
CROSBY: Oh yeah. Well, I think we’re so opposite that (laughs) we got along and mutual trust.
KELLER: And you understood each other too. You didn’t have to go into great detail about what you were thinking, from what I’ve heard now, I don’t –
CROSBY: No, that’s right, that’s right. I’ll never forget when we had a big bank meeting one day in Chicago, and Fred was late of course. It was very cold, and he came in with this big, old, black old coat on, and he carried one of those Jerrold briefcases, you remember the square briefcase, looked like a pilot’s briefcase? And he got a cigar in his mouth, and he got this briefcase. And I’m sitting there in this glass-enclosed board meeting with about 18 bankers, and we really needed the money too. And (laughter) I can remember hearing the lady in the outer office say, “You must be Mr. Lieberman; they’re in there.” And so he missed the door, and he came straight into the glass wall, and the cigar went this way. (laughter) He hit it with his head, knocked him back, and the banker said, “Who is that?” I said, “That’s my partner.” (laughter) “He’s breaking the ice.” (laughter) We bought a system in Wausau, Wisconsin one time, and we bought it with the Milwaukee — once again we’re trying to get people into the business — Milwaukee —
KELLER: Consciously, you were trying to bring these people in, the media — other medias — other media?
CROSBY: Yeah and — yeah, and we just thought, they ought to know more about it, they’re — the industry needed fresh capital. No way that people that were in the industry at that time could finance the whole thing. We needed other people in it, okay. And you might as well get the people who were causing this grief. So the Milwaukee Journal they had a television station in Milwaukee and had the newspaper. And so Fred called one day and said, “Is that that system we’re going to buy?” He says, “Let’s let the Journal come in for a piece of it.” I said, “Fine.” And that was about the extent of the conversation. And he called about a month later, and he says, “We’re going to meet in the Pullman Bank in Chicago,” and he said, “We’re going to close the deal. And the Milwaukee people will be there, you ought to meet them, your new partner.” And so I go out, I go up, and we meet. He had all the lawyers, all the bankers, and the Milwaukee Journal people and got down to the closing. And then a lawyer says — our lawyer says, “The Milwaukee Journal understand gets 4840 shares of the new company, the purchaser.” And he said, “But we don’t know how — Mr. Lieberman, we don’t know how much stock to issue to you or how much to Mr. Crosby.” Fred says, “Can we be gone for a minute or two?” They said, “Yeah.” So we went out in the hall, and we came back in after about a minute and sat down. He says, “Well issue 8482 shares to Lieberman and 5440 shares to Crosby, okay,” and so they did.
KELLER: Where did you come up with that number?
CROSBY: As soon as the meeting was over, then the young fellow who ran the Journal came, and he says, “You know, we never met before.” He said, “There’s — I got the distinct impression that you had not cut your deal before the question was asked,” and Fred says, “You think so?” (laughter) And that was right. (laughs)
KELLER: So you based your shares on what they took originally then, did you?
CROSBY: No, no, no, we just hadn’t cut our end of the deal. We’ve been doing this for years and so we just went out and said, “Well, why don’t you take this much and (laughs) I’ll take this much?”
KELLER: But you know how many total shares there were to be involved in it and so many of them, 4000 or —
CROSBY: Oh, yeah. We just cut up —
KELLER: — whatever, what the number came —
CROSBY: — we — what they didn’t get, we were going to get, and we just cut that up and ran in the hall. (laughs) That’s kind of a unique arrangement.
KELLER: Well, I think you have been through many unique arrangements.
CROSBY: You treasure those.
KELLER: I think you’ve been through many of them. So —
CROSBY: (laughs) The trick is to continue to talk after that. (laughter)
KELLER: Jack, we’re going to wrap this thing up. We’ve just about explored everything that I wanted to get to at this time —
CROSBY: All right —
KELLER: — and it’s so nice to get your face on the video and then in —
CROSBY: Well, keep up the good work out there.
KELLER: This has been a video history chat with, in my opinion, the great Jack Crosby who took the time to be able to get himself on video after having this very extensive oral history program earlier on. Again, this oral history is brought to you by a donation from the Gustave Hauser Foundation and from which we are very appreciative. Again, Jack, thanks very much.
CROSBY: Thank you, Jim, enjoyed it.
KELLER: Yeah.
