Interview Date: November 1, 2002
Interviewer: Gerry Yutkin
Abstract
Jim Cownie describes the pre-satellite years of Heritage Cable, franchising problems, and expansion mostly through acquisitions, including other industries. He discusses with Jerry Yutkin the “rent-a-citizen” approach to involving local investors. He talks about the importance of his partnership with Jim Hoak, as well as the reasons for the company’s sale to TCI. He emphasizes the advent of satellite technology in building a large and successful business. Cownie describes relationships with investment bankers from the earliest days. He mentions a short-lived venture called Meredith Cablevision. He discusses issues between programmers and operators, and comments on challenges for the industry. He concludes with reflections about various figures including Ted Turner, John Malone, and Brian Roberts, and the importance of C-SPAN.
Interview Transcript
GERRY YUTKIN: Hi, I’m Gerry Yutkin, and this oral and video history is under the grant of the Hauser Oral and Video History Project of The Cable Television Center in Denver, Colorado, which is affiliated with the University of Denver. We’re here in Des Moines, Iowa, talking to a long-time friend, an old friend, Jim Cownie, who was the co-founder, is still the co-founder of Heritage Communications, and past president. Nice to be with you. It’s nice to see you after a long time, and we go back a long time. Tell me about how you got into the cable television business something like 30-some years ago.
JIM COWNIE: Let’s see, I was 26 years old. 58 minus 26 – about 30, 32 years ago.
YUTKIN: When nobody was in it.
COWNIE: That’s right. We got into about seven years too early as it turned out. It was 1970; satellites were invented about seven years later and that’s when the cable television industry became a business. Before that it was a good way to lose money. But in any case, my good friend from high school, Jim Hoak, had returned from helping an FCC commissioner as a legal assistant to Des Moines as a lawyer. I was a broken down municipal bond buy doing quite a bit of work with that law firm, Jim Hoak’s law firm, and we always wanted to do something together, and we happened to be going to lunch one day, I looked at a newspaper that indicated that Cox Cable had filed for a cable TV franchise in Des Moines. So we felt – again, I think we were 26 – that it was time to make our move if that was what we were going to do, and in fact, went out and talked to about 150 people about investing in this cable TV deal. At the time – we were absolutely wrong – but at the time, we thought Des Moines, being a second 50 market, market number 67 was going to have good rules from the FCC in terms of the number of distant signals that that market could import. That was very important in those days before satellites. Turned out we did not get those rules, and it was a very difficult first several years for Heritage Communications.
YUTKIN: Go back a little bit in terms of getting the rules. At that point you had how many off-air signals?
COWNIE: We had one public television station and three networks, so there were four channels but there were not independent channels in Des Moines. When we built the system we were able to import independent television stations from Minneapolis and Kansas City.
YUTKIN: Microwave?
COWNIE: How? By building microwave towers every twenty miles in the dead of winter. Art Hutsler was our chief engineer; he’s a saint. He used explosives to do the excavation, to pour the concrete because we had to get those distant signals in order to sell anybody. As it turned out we couldn’t sell enough people to really operate on a break even basis, but through good fortune satellites were invented and we were off and running.
YUTKIN: You didn’t just wake up one day and say, well, let’s do this. You say you went and talked to a group of investors and you got some backing. Was there competition to get the franchise? Cox was applying, you were applying – was anybody else applying at the time?
COWNIE: Absolutely! Sure, I hope it’s an interesting story: we met Tom Dowden, who was Cox’s franchising person, and Tom had gone around town and heard that there were these local guys who were interested in the franchise, so he and we met and ultimately merged our effort. At the time, Jim was going to remain a lawyer and I was going to remain a bond guy and we were going to hire management to build and own part of the Des Moines cable system, and that’s how we happened to go down to Atlanta, meet Henry Harris, who at the time was the head of Cox, and had a wonderful day and made a deal with Cox to be our partner. They were going to be our 20% partner. Again, at the time, now we’re talking about the early ’70s, these markets the size o Des Moines were not being built. Those that were being attempted were not working, so Cox got cold feet on going ahead with the Des Moines franchise, and we wanted to go ahead because through these early investors we had a little money in our pocket, enough money to move ahead. We’d purchased a couple of small cable systems in the Midwest and we actually had a little cable company. Jim quit his law firm and I quit my bond business, and we were fully committed to this thing.
YUTKIN: When you say “a little money,” what kind of money was it in those days?
COWNIE: My dad loaned me $25,000, and Jim’s dad loaned him a little more than that, and Jim’s dad put some money in the deal, and we raised a million dollars from outside investors, so we ended up with upwards of a million dollars to begin.
YUTKIN: What did you get for a million dollars in investor money?
COWNIE: Well, we had a company without any operations, and we had, as I mentioned, in the background an impatient partner in the business, Cox. They were impatient to not do anything, and we were impatient to move forward.
YUTKIN: But you had some money from them.
COWNIE: We had some money from them, but we decided we’d go buy a cable system. So down to Creston, Iowa, Jim Hoak and I drove an hour and a half from Des Moines, age probably 28. We didn’t know how to spell cable TV even though Jim is a brilliant person and had a lot of background at the FCC, and J. Howard Brown was the owner of the 2,500 subscriber Creston, Iowa system, and we got there a little early and we thought we’d do a little due diligence on our own. So, I was driving, and I drove right to the tower site and got out of the car, Jim got out of the car, we looked up at the tower and kicked the tower, it looked pretty good and on to the office we went where Mr. Brown met us. “Jim Cownie. Jim Hoak. How do you do, Howard?” “Fellas, happy to have you here. Let’s spend a couple hours together. I’d like to show you the cable system. Let’s start at the headend, in the tower.” Well, we got in his truck and we went to the opposite side of town to the cable TV tower. Jim and I had been at the railroad microwave tower in downtown Creston, didn’t know the difference. I still might not. But that was our first effort at due diligence, and we ended up buying that system, Baraboo, Wisconsin; Wilmer, Minnesota; Bronson, Minnesota; the circus, Wisconsin Dells; this and that. So we had this operation with all these small money losing entities without the cable TV franchise that we really got in business to get, which was Des Moines, our home town.
YUTKIN: They were all twelve channel systems?
COWNIE: Yeah, basically. Twelve channels, twenty channels, yeah.
YUTKIN: And they were all losing money?
COWNIE: Sure. But we had enough money; we had a wonderful board of directors and a good following even then on Wall Street that we were able to raise a lot of money over the years, and enough money to survive. So when we finally went for the Des Moines cable TV franchise and we had 800 shareholders or so, we had commitments, we thought, from the requisite number of Des Moines city council people all things being equal – if it’s locally owned, we’re going to give you young guys the benefit of the doubt and give you your hometown cable TV franchise. It turned out we didn’t get the franchise, they voted against us. A real smart lawyer, who was savvier than we, at city hall, had a few people who were closer to the city council than our 800 people collectively, and the vote was four to three against us. Now the winner of the franchise was Athena, which was Gulf & Western, Paramount, and we were just defeated. So were prepared to liquidate the company.
YUTKIN: And when was this? ’72?
COWNIE: This would have been probably ’73 or 4, probably ’74. Our tails were between our legs. We went to our board – we were a public company from the beginning, as I intimated – and suggested to our board that we would present to them a plan of liquidation as soon as possible, and we were sorry that we failed. A wonderful board member by the name of Jim Cooney, now deceased – C-O-O-N-E-Y – a fellow who used to work at the law firm that Jim worked at, said, “Wait a minute, men. I don’t want to hear anything about that. This is not right, this is not fair. I want you guys to present to us a plan of victory, not defeat.” We went back to work and we discovered an obscure law that allowed us to file petitions with the Des Moines city council to force the Des Moines city council to let the voters vote on our franchise, not just the Athena franchise.
YUTKIN: Was that a city law or a state law?
COWNIE: It was a city law. Whatever it was, it was an obscure law. I think it was a city law, and we had a friendly mayor who had the ability, statutorily, to determine the date of our referendum, and he determined that it should be on the same date as the referendum to approve the Athena franchise. So we went out, all of our friends in our hometown, and we sought and received the number of signatures we needed in each of the 99 precincts – it was a gargantuan task – and presented these petitions on a timely basis, the mayor set the vote, the referenda occurred, 99 precincts. We won in 99 and lost in 0. Athena lost in 98 and won in one. So the mandate clearly was for the locally owned hometown franchise, an embarrassment to the city council, and it still refused to give us the franchise. Long story short, Jim and I went to New York, met with the number two guy at Gulf and Western, Jim Jettleson, wide-eyed young kids, and made a deal to sell 20% of the company to Athena.
YUTKIN: So they had 20%.
COWNIE: They inherited 20%, we returned to Des Moines, declared victory for the city council. “City council, you were right. Their construction expertise was so compelling that we’re bringing them in to help us build the system,” and everybody was happy.
YUTKIN: And they withdrew their request for a franchise?
COWNIE: Yes, they had 20%; they saved face and agreed to buy 20% of the operation. Just to skip ahead quickly here, later on as things continued to deteriorate in the cable business, we called for their capital. They defaulted on the capital call, and we inherited their 20% back by default, and we bought Cox out somewhere along the line because they were, as I said, not willing to risk money in this environment, the pre-satellite environment, and we had 100% of what we sought out to get originally.
YUTKIN: And nobody else had competed with you?
COWNIE: No, in those days, Gerry, in those days you could walk in… We had 300 franchises! “If you guys are crazy enough to take ’em, you got it. We’ve got four television stations, there’s no way!” And it worked. So we took the franchises and we were just so fortunate that at the time that it was time to deliver on our promises satellite technology, in large part because of the generosity of the cable TV industry – there was a consortium, if you’ll recall, that invested in the technology associated with satellites that was successful – and all of the sudden satellites were there, and you could efficiently deliver programming. HBO, ESPN, MTV, all of that happened because of satellites and our little company, which was so under-capitalized and over-committed in 1977 was in a position to grow because we had an accounting department and a marketing department and an engineering department and this and that, and we had a ball for ten years, just had a ball.
YUTKIN: So you got the franchise settled in, what? ’73, ’74, and then what did you have to do? Did you have to get your first subscriber on by a particular time?
COWNIE: No, it went on and on and on. I’m not sure. Then it was difficult, but we went ahead and we built some suburbs of Des Moines and we built as much of Des Moines as we could. We had a wonderful financing package that allowed us a certain amount of flexibility, and we had enough relationship with our local politician so there was a measure of patience and we were able to pretty much do what we said we would do and everybody was happy.
YUTKIN: And you kept the other franchises?
COWNIE: Yeah.
YUTKIN: And did you keep those for a long time?
COWNIE: Forever.
YUTKIN: Creston?
COWNIE: Forever.
YUTKIN: You kept that until you sold.
COWNIE: Forever.
YUTKIN: That’s the first one – was that your good luck charm?
COWNIE: Yes, J. Howard Brown. He ended up inventing a self-propelled golf cart after that and probably made more money on that than he did selling us the cable system.
YUTKIN: The reason I question you about whether that was a city law or a state law is because we met in 1978 during the franchising for Council Bluffs, Iowa, and if I recall what had happened was there was a competitive bid going on for Council Bluffs, and I believe there had been a state law that the city council could award a franchise, but the state law required a referendum on each award. So the city could endorse two or three or four companies – that is the voters could endorse two or three or four – but then the council could award one or two. We got involved, when I was with ATC, the parent of AOL Time Warner, in those days, we had an award and we got something like a plurality but not a majority. So the law mandated that we go back and have individual elections for each company that applied. ATC dissolved their partnership with their existing local partner and then forged a relationship with Heritage. And then there was… each company that applied had an individual referendum, and that’s how we got going together and I thought that had to do with a state law.
COWNIE: I think you’re right.
YUTKIN: It was a mess!
COWNIE: It was a mess. My recollection of Council Bluffs is a little different. It is a state law, but what normally happens is that the city council chooses a prospective franchisee, submits that name to the voters, the referendum occurs and if it’s approved, it’s approved. If it isn’t, they start over. My recollection of Council Bluffs – it was a little embarrassing to me – is I was in charge of franchising for our little company at the time and my heart was never in it because we were in competition with the big guys like you who had the departments that could crank out these applications that were magnificent Hollywood productions, and we didn’t really think that way in Des Moines, Iowa.
YUTKIN: Looking from the outside it may have appeared that way to you, but on the inside it wasn’t quite like that.
COWNIE: It was pretty impressive, but I remember running a bluff with your company because as you were considering your first effort, your company and our company were having discussions about joint venturing and we were bragging about how strong we were in the state of Iowa. We really weren’t, but we were trying to represent to you out-of-state people how strong we were politically, and up until the 11th hour I thought that I was going to get a phone call from Fred Dressler or Mike McCruddin or Monty Rifkin, “Yeah, we’re going to go 50/50,” or whatever. I would have gone 90/10, because I had represented to you guys that we had this monster application ready to go and all they had to do was hit the button to print it and to get the film and all that, we were ready to get in the car with our contingent of franchising experts and compete. We hadn’t done anything. The call never came. The call never came! I waited for days. It was a matter of credibility then. We had to apply. We had to show up or you people would have known that I was bluffing. So our controller, Arlen Van Wilko, another saint, and I stayed up all night and patched together a little black and white application for the Council Bluffs cable TV franchise. And I went over to Council Bluffs all by myself and presented, against you and others, for the franchise and lost, and you won, and you had your referendum, as you suggested, and you lost. And then, we had your attention and then the phone call came and that’s how we happened to go 50/50 joint venture in what was one of the cutest names in the industry, we called it American Heritage, remember? American Heritage Cablevision. That was the story of Council Bluffs.
YUTKIN: And that was in, I think, 1978.
COWNIE: Okay.
YUTKIN: My view from inside ATC, well, I thought, you know, these guys were local and they really were well-connected and had a lot of experience and they had the Des Moines franchise, and they were at that time probably the biggest operator in Iowa, if not in the Midwest.
COWNIE: Why didn’t you call? We could have saved all that trouble.
YUTKIN: I didn’t know you then! And then it was operated as a joint venture…
COWNIE: Correct.
YUTKIN: And one of the most important aspects of that was to deliver so that it would appear to the folks across the river in Omaha that we knew how to build and operate cable television systems because the Omaha franchise was to be awarded, I think, about two or three years later in 1981.
COWNIE: I think that’s right.
YUTKIN: But we did not continue the partnership between American Heritage, that is ATC and Heritage. Everybody decided to go it alone; there were other players – Cox, United, CableComm, and I think that Heritage had probably the most unique method of involving local partners in the cable television franchising business. They used to call them rent-a-citizens, and companies would go in, affiliate with two or three or four or five local powerhouses, sometimes political, sometimes what I called blue-ribbon grand jury type people, above and beyond reproach, and everything in between. But Heritage went in with a different plan and created a lot of problems for some people later on. How did you see it, and tell us about it.
COWNIE: Well, really, it’s almost embarrassing because we repeated the same mistake we made in Des Moines. It was a reverse rent-a-citizen strategy in that we rented ourselves as a management company to the citizens, and the quest was what should the ownership be, how many citizens, how many shareholders should be involved. In the case of that effort, which we called Omaha Telecommunications, Inc., OTI – I still have memorabilia upstairs from that effort – we allowed 800 people to participate on a subscription basis, and if we made a certain amount of progress those people were expected to fund 10% of their investment, a little more progress, another 10%, a little more progress, another 10%, and we got to the point where we had a very credible application and did go up against the entities you just mentioned, and sure enough the same thing happened to us in Omaha that happened to us in Des Moines. The company that in fact won, which was Cox Cable – a good company – had a small number of people who were closer to the political situation than our 800 people were. We had 800 silk-stocking, wonderful people who really didn’t know their way around city hall. Cox had orchestrated its efforts so that it had a few people who did know their way around city hall and with those people came credibility for the Cox effort, and that’s when I first met Bob Wright. He made the presentation for Cox and then went on to GE, and almost succeeded Jack Welch as head of GE, but he did a good job. That was… help me, Gerry, it was their answer to Qube – I forget the name of it, but it was some fancy two-way technology that they were touting. It never happened.
YUTKIN: Yeah, and I remember the phrase was “When it’s technologically and economically feasible.”
COWNIE: Yes!
YUTKIN: I think everybody used that.
COWNIE: Exactly.
YUTKIN: Do you have any idea how much your individual 800 people had put in by the time they lost?
COWNIE: In those days, an effort would cost $150,000-200,000 to most all the way through the franchising process.
YUTKIN: But they came up with it, the 800 people?
COWNIE: Sure.
YUTKIN: When they lost they were disappointed.
COWNIE: Well, they were upset with their city council, exactly, as we were in Des Moines. I’ve learned subsequent to that that there were political repercussions in Omaha directed at the people who our people felt were responsible for that injustice.
YUTKIN: I used to hear stories of people going door to door trying to get people to vote against any incumbents who were on the city council at the time. There was a great deal of viciousness, vindictiveness, anger, and it wound up being a pretty terrible thing even for the Cox local partners. I think the point was with some of the cable operators when they would have local partners, the local partners did not really put any money into it. Or if they did, it was a very small amount of money. It was primarily their prestige and their contacts and so on. And then when it was time to sell out x number of years later they were going to become wealthy people, and I think that people were angry about it, and especially with your 800 folks who had put in whatever they had put in.
COWNIE: Real money.
YUTKIN: And they got nothing for it, and they felt that it was a political process, but that was a very interesting time. That was in the early ’80s when the franchising process was just taking off.
COWNIE: It was the gold rush because cable started in the tiny towns and slowly moved to the medium sized towns, and nothing happened in the large towns until satellite technology allowed programming to be developed. But as programming was developed, especially pay television programming, cable was perceived to be viable everywhere, so it was a gold rush and these large companies with great expertise managed franchising efforts all around the country. I was never comfortable with it myself. We were out of our league, but it was a gold rush and those companies that did the over-promising – when feasible, and whatever – are the ones that served their shareholders best, I think.
YUTKIN: Was Omaha the toughest franchising that you did? Was that the toughest city?
COWNIE: Well, we lost it. And maybe it was the toughest in that we worked the hardest and lost there. But we were unsuccessful in St. Paul, Minnesota in a joint venture with ATC. We were unsuccessful in a number of places because frankly our heart wasn’t in it. We were a better acquirer of troubled cable properties than we were franchisers of new, big, urban markets, and that’s how we developed our company.
YUTKIN: Okay, so you were not really into the big time franchising business, you were more acquirers?
COWNIE: We were acquirers, and we did a lot of franchising around Iowa, a lot of fun, met a lot of people, but in those days – this was now back to the pre-satellite days – it was a simple matter. I remember going to Red Oak, Iowa, a county seat town, Montgomery County, Iowa, hiring a wonderful lawyer to represent us, a former city attorney, and I think Jim Hoak and I were together, and we hadn’t made a presentation, we hadn’t submitted an application other than a model ordinance for a cable TV franchise, and our lawyer, John Bowie, walked in the council chambers, the council was meeting, and said, “Jim, Jim come over here. Just pull those chairs right over here.” So the three of us pulled our chairs up to the council table and we started to talk a little bit about cable TV and why it might be good for the city of Red Oak. One of the council members raised his hand, “Gentlemen, if Mr. Bowie thinks it’s okay, than I think it’s okay with the city council. Am I speaking for a majority?” They said yes, so, “I move that we give this franchise to these young guys,” and that’s how it was in the state of Iowa.
YUTKIN: And then did you start construction on all these right away?
COWNIE: We built the Red Oak cable system and had such a horrible response that it’s the only incident where we thought about scrapping the cable system. We were going to take it off the poles and sell it for scrap. We sold 10% of the population cable TV. The city council was right, we were wrong. But again, good fortune, satellites developed and all the sudden we had a good business.
YUTKIN: So you were in the right place at the right time.
COWNIE: It was totally good luck!
YUTKIN: Do you remember what it cost you to build a mile of plant in those days?
COWNIE: It was so inexpensive.
YUTKIN: Did you do it yourself?
COWNIE: Yeah! We built a couple of systems internally, just with people who worked with us. Nothing, you know, a few thousand dollars a mile.
YUTKIN: But a few thousand dollars in those days was a lot of money.
COWNIE: Especially when only 10% of the population responded. But it all worked out great. Great fun.
YUTKIN: So timing and location is kind of important too.
COWNIE: Location was important for us. We had a foundation. Jim Hoak, my partner, was the CEO of the company, I was sort of the COO of the company, and Jim was brilliant and acquisitive and aggressive, and I was none of those things. I was the guy who said, “Hey, we had problems with our last three deals. Let’s get those things under control before we think about our next deal,” and Jim won just about all of the arguments and we were always on to the next deal. But again, luckily, between 1977 and 1987 one could do no wrong in the cable TV business. The tide kept rising, values kept rising, so the more you acquired, regardless of how well or poorly one managed those properties, the values kept rising, so Heritage built a lot of value for its shareholders at that time.
YUTKIN: What was your first experience outside of Iowa, other than those first few systems that you bought at the very beginning, Baraboo and some of the others? What was your big venture outside? Was it San Jose?
COWNIE: No, I’ll tell you a couple. The funny one was we were so unsuccessful financially that we had a bunch of tax credits that were going to expire, and those were assets because they could be used to offset tax liability. So we needed to buy a company that was profitable, a tax paying company, and we went up to St. Paul, Minnesota and bought a business in the commercial display business, a trade show exhibit business, and that was our first real acquisition outside of our field of expertise, if you could call it that. That led to acquiring four or five more of those companies, and we ended up acquiring a bunch of manufacturing companies. We ended up acquiring a bunch of television stations and radio stations and outdoor advertising operations through acquisition of Rollins Corporation down in Atlanta. As I mentioned, we did a lot in that ten year period – Dallas, Texas; San Jose; Wilmington, through Rollins.
YUTKIN: But those were cable.
COWNIE: Those were cable, but these other manufacturing things obviously weren’t. So a lot of our company, virtually all of our value in terms of our share price came from our perception, as our Wall Street perception, as a cable television company, but frankly a lot of our cash flow came from these other entities. It was a pretty smart business thing.
YUTKIN: Was San Jose though the largest system that you bought? Was that the first large cable system that you acquired?
COWNIE: My timing is wrong – I can’t remember when we did San Jose versus Dallas, but those were the two largest stand alone operations we purchased, yeah. I do believe San Jose was first.
YUTKIN: And did you buy that from Gill?
COWNIE: Yeah, Al Gilliland.
YUTKIN: And how many subscribers, do you remember, at the time?
COWNIE: I think we ended up with 120,000, or something like that. It was a big system. It was a great system, and I credit a guy by the name of Russ Calkins, who was beating the bushes for good acquisitions for us, with that opportunity. And Dallas worked out terrifically well, even though it was a very difficult market to operate in.
YUTKIN: Why?
COWNIE: Dual cable. Dallas had its expectations built way up by the franchisee, Warner Amex at the time. Drew Lewis was in charge of the company, former secretary of transportation, and he wanted to clean the portfolio up, so Warner Amex put the system on the market, we ended up buying it because we thought there was a lot of upside, but the upside was very, very hard to capture, it was such a difficult environment.
YUTKIN: And expensive?
COWNIE: We bought the system for, I think we paid 125 million dollars for it.
YUTKIN: When? What year?
COWNIE: I can’t remember. It would have been ’84? And we sold it actually before our main transaction to TCI for I think 200+ million dollars, so we did capture some upside, but it was more the tide rising, values rising in cable TV, than any great management job on our part.
YUTKIN: I’m still curious about the Iowa guys, the Midwest guys, the smaller operations. By the early ’80s, how big was Des Moines? How many subs did you have then?
COWNIE: Early ’80s in Des Moines? Early ’80s I’m going to say Des Moines was about 45,000 subscribers.
YUTKIN: Okay, and then all of the sudden you’re jumping into these other big city operations. Did you have any trepidation about that, worried about it?
COWNIE: We did a lot not so much in the early ’80s, Gerry, as the mid-80s, 1985-1986. We were growing rapidly and the bigger a company gets the more it can afford to hire brain power, and we felt pretty comfortable. 1986, which was the year before we sold our company to TCI, we were the second largest banking customer to Goldman Sachs, second to Ford Motor Company. So we were doing a lot of business. It was hard but we had airplanes and young, ambitious, hard-working people and we were everywhere. We were the same size – I’ll tip my hat to Brian Roberts here at Comcast – at the time we sold our company we were a mirror image of Comcast. Now Comcast, everybody knows what’s happened.
YUTKIN: Yes, well, at this point, we’re recording this in November of 2002, it appears that Comcast is going to be buying AT&T Broadband. That’ll be the largest cable operator that anybody ever could conceive of.
COWNIE: Right. Congratulations Brian. You’re a good boy.
YUTKIN: Tell me about the circumstances about why you decided to sell. Did you not think that you wanted to continue, to compete, it was just the prices weren’t going up? Why did you decide to sell?
COWNIE: A very complicated question.
YUTKIN: Heritage was the 9th largest at that point?
COWNIE: I think we were. You’d have to ask Jim Hoak that question certainly also, he and I had different motivations, but the fact is when we started at age 26 with my small contribution from my dad…
YUTKIN: Did you ever pay him back?
COWNIE: As a matter of fact I did. That’s a good question.
YUTKIN: Did you give him a little interest there.
COWNIE: I don’t know; I hope I did. We’ll see. Anyway, as I said, Jim was the CEO and I was the COO. He enjoyed the navigation of the ship more than I enjoyed running the boilers, I think. Because our company grew so much and it put so little money in at the beginning, found ourselves diluted down to a level where we were really vulnerable. I think Jim owned a couple percent of the company, I may have owned 1% or three and one, or two and a half and one, or whatever it was, and we were at that time, again the late ’80s, we were the most vulnerable public cable company. There was a perception that an unfriendly bidder, in fact one or two did rattle sabers, was going to come in and take the company over which didn’t sit well with Jim or me. So we decided that things were pretty good and that’s the time to make a move like we made, and we became very proactive and allowed a couple of companies to take a look at us, and John Malone came in and blew our socks off and bought the company.
YUTKIN: And this was when?
COWNIE: ’87.
YUTKIN: But you continued to stay with the company?
COWNIE: We made a deal with John. He wanted us to run the company for five years, and it was a great deal for John and it was a great deal for our employees because John’s John and very simple, very fair, and said if you guys grow the value of the company I’ll share it with you to some extent over that five year period, and it was easy in our business to measure value – cash flow times some multiple, less debt or whatever, and we then proceeded to try to do that, and it became very simple. Jim and I took the percent that John had allocated and allocated it out to 120 people who worked for Heritage and it put everybody on the same team more than we ever had been. We had never had a team problem, but all of the sudden we were wonderfully directed.
YUTKIN: Upside growth.
COWNIE: Wonderfully directed and it just worked out beautifully for TCI and it worked out beautifully for Heritage. We, in fact, terminated that five year deal a year and a half early because everybody wanted to and we all sent our separate ways. We, in fact, kept some operations with the help of TCI that became successful companies later on, namely Heritage Media, another public company that moved to Dallas, ultimately sold to News Corp., Rupert Murdoch, and some other operations that we still operate.
YUTKIN: You still have some?
COWNIE: Um-hmm.
YUTKIN: And what are they?
COWNIE: Not cable. Stuff that TCI didn’t want. They couldn’t have the Heritage Media assets because of cross-ownership problems at the time. That was TV and radio, etc., and they didn’t want to have some of the manufacturing. So we ended up, with the help of some outside investors, taking that off their hands, if you will, and we in fact still own it.
YUTKIN: To what do you attribute the success of Heritage? Partnership? Certainly the people. Timing, location? You started out sort of in the middle of the country, extraordinary growth. The fact that you took the growth and went out of the cable industry? Why were you guys so successful when so many others starting out in the same way were not?
COWNIE: Well, I have to say first of all…
YUTKIN: Is that a fair question?
COWNIE: I think it’s a great question. It’s a flattering question.
YUTKIN: Well, you were.
COWNIE: I have to say for about the fourth time that we were very lucky, and in my opinion, if it were not for satellite technology there wouldn’t be a Cable Center.
YUTKIN: Yeah, but the satellite came for everybody.
COWNIE: I know that, but it did come for us, and we certainly didn’t know anything about satellites in 1970 when we started the company so it was very fortuitous that satellite technology developed. Now, having said that, what made Heritage okay?
YUTKIN: Different from anybody else. Heritage was on the map as a national company.
COWNIE: It was a good company. We had smart people, and Jim Hoak is brilliant. We hired smart people and we worked hard and we had a culture of give and take where we argued constructively, but often, about this and that, and we tried to make good decisions, and I think by and large we made good decisions because it was very much a democratic process and we were able to argue through the alternatives that ultimately would have been bad. So that worked out okay. I found it also Gerry very interesting that we were so well received on Wall Street, and I think that Wall Street is not used to the Midwestern culture. They’re not used to straightforwardness. Wall Street’s not used to people who under-promise and over-perform. They’re used to a slicker person who behaves differently, and we had wonderful sponsorship from investment bankers from day one, Goldman Sachs being the most notable. We never had problems raising money.
YUTKIN: Was that Jim Hoak, you?
COWNIE: We had a number of people. I used Dave Lundquist as our chief financial officer, I certainly used Jim Hoak who loved that part of the business, and they did appreciate our operating side because ultimately if you don’t deliver what the pro forma suggests, the sophisticated financial guys are going to get run out of town, so it was a combination.
YUTKIN: Did you ever think about doing anything overseas?
COWNIE: I was lazy and a little bit afraid. We had an opportunity to work with a very prestigious London company. In fact, they chose us over anybody, they came to us and said we want you to be our partner, the Labro Group. That was one battle I won, and it was partially out of timidity, partially out of laziness, partially out of lack of confidence, partially out of the fact that I thought we had too much work to do domestically, but looking back I think maybe that was a pretty good battle to win because a lot of money’s been lost overseas.
YUTKIN: Especially in the U.K.
COWNIE: Yeah.
YUTKIN: You’ve been out of the business now for ten years?
COWNIE: Well, I got back into it. After we terminated our three and a half year period with TCI, I was out in Colorado vacationing and some of our management team had moved to Dallas to take on this Heritage Media responsibility. Others had remained in Des Moines, good people, and I called John Malone and I said, “John, what do you think? We’ve got these good people. Should we tee it up again?” They had a history of sponsoring affiliates – Bill, any number of them, Gerry Lenfest.
YUTKIN: Bill Bresnan?
COWNIE: Bill Bresnan, yeah. I said, “If you want me to keep our group together and be our partner, you can decide how much you want to own and we’d be happy to work with you.” I said I do need a quick answer. I want to either move or not move on this. He said let’s do it, over the phone. So back to Des Moines I came and started to plan on that. As were breaking down the old company we were building up the new one.
YUTKIN: ’90?
COWNIE: ’90. It would have been ’91-’92, something like that. Some things happened that were unfortunate, miscommunications between some of our people and some of TCI’s people as the negotiation was developing, and the deal fell apart. It left a bitter taste in my mouth, but it did fall apart and I returned home again and happened to be socializing with a friend of mine who ran Meredith Corporation at the time. They’re just down the street here, wonderful person, wonderful company, and I told him about this deal. Meredith Corporation at the time had a lot of cash flow that needed to be spent somewhere. They had magazines, a real estate operation, and at the time, television. They used to have radio, too, but now just television. But they needed something like this, so we made a deal with Meredith. We had a wonderful few years with Meredith, a company called New Heritage Associates. We operated under the name of Meredith Cablevision with their logo, and we did some business in the upper Midwest, and that’s when re-regulation occurred, Gerry, and that’s when the Bell operating companies were talking about spending hundreds of millions of dollars, or tens of billions of dollars to compete with cable, and we felt, as a management team, that we weren’t going to be able to get large enough quick enough to compete with those Bell operating companies. So we went down the street to our friends at Meredith and we told them, “Fellows, we got you in this deal. We think we ought to get you out,” and we got out. They made a little money, we made a little money, but it was probably the biggest business mistake of my life. It was again motivated by timidity, sometimes that works, sometimes it doesn’t, but none of the onerous things that I anticipated from re-regulation or the Bell operating companies in fact occurred, and we would have had a great company and made a lot of money and had a lot of fun for our friends up the street, and I’ve apologized many times, facetiously, to them. But such is life.
YUTKIN: But now you’re out.
COWNIE: Now I’m out of the cable business.
YUTKIN: And you’ve been out since this was…
COWNIE: Mid-90s, yeah.
YUTKIN: Miss it?
COWNIE: I miss the people immensely. I do not miss going to bed worried about the same issues that I worried about every year for 20+ years.
YUTKIN: Such as?
COWNIE: Such as obsolescence, such as direct broadcast satellite, such as every time I drove down the street I’d see lashing wire that needed to be redone and I’d worry about it. Every time I’d see a port that wasn’t connected I’d say we’ve got a marketing problem, why didn’t that house become a customer. I worried about those things. I worried about them constantly. So that I do not miss whatsoever. I’ve had a lot of fun with my post-cable life. I miss immensely the people who I was honored to be able to work side-by-side with in the cable business, not just with Heritage but in the industry.
YUTKIN: Would you say it’s an entirely different business now?
COWNIE: I don’t know enough about it. But it’s over my head now. I have children, or a child in the business now who keeps me informed, but I think it’s quite different. I know the people are different, and I think it’s a more sophisticated business in terms of technology and packaging and pricing. You remember how simple it was. It was kind of compelling for a simple minded guy like me.
YUTKIN: I think one of the first things we did, and I’m not sure if it was in Council Bluffs or it was another ATC system, before HBO had launched Cinemas and before Showtime had launched The Movie Channel, we put together a package that turned out to be the best selling package at the time of special basic, and HBO and Showtime. You couldn’t do anything like that anymore because we were already starting to become tools of the programmers, and the programmers were exhibiting more and more control. Do you think the same is true now? Worse? Better? More?
COWNIE: Worse, better, more?
YUTKIN: You can’t take anything off. If you’re a cable operator you can’t take anything off.
COWNIE: Let me go back. The aberration was this, as I recall. We had little basic programming. Satellites came, HBO was the big deal. People bought cable to get HBO, and we took advantage of that. They bought cable to get HBO. Then, after many years of basic programming development, the equation shifted and people bought cable, I guess they were more interested in the basic side than the pay-TV side. Now I don’t know how it is. There are so many options out there that I’m not sure if the programmer’s in the driver seat or if the operator is in the driver’s seat. I kind of think… I’d rather be on the programming side right now. Why? Because I wouldn’t have to worry every night about that direct broadcast satellite competitor. I just read this morning that Charter, a good company, has fewer subscribers today than it had three months ago. Why? Because of erosion caused by direct broadcast satellite. My relative in the business, my daughter Trish, takes care of one account for HBO, EchoStar. EchoStar is a wonderful company and they sell a lot of HBO product, but it’s a formidable competitor for traditional cable.
YUTKIN: What about interactivity? We didn’t do too much in the ’80s. We talked about it, we knew that it was coming, we knew it was going to be a big deal, and that was really before the internet. You got out before that really became a major issue.
COWNIE: We had to talk about it. When technically feasible and when financially feasible. We had to talk about it. A lot of lofty thinkers experimented with it. Hundreds of billions of dollars were lost on it. But I think it’s all driven now by high-speed data and really it’s moot. The internet handles it. But I think cable is the medium of choice now. We can offer video, we can offer voice, we can offer data. For awhile I think we can compete with everybody out there, and I hope we’re smart enough to always be able to do that.
YUTKIN: You played a role outside of just Heritage, and you were involved with the NCTA and the formation of CSPAN. Tell us about that, and did you consider yourself to be an outsider compared to all these other large MSOs?
COWNIE: Initially absolutely! I remember the first trip I took. HBO used to host a wonderful Super Bowl trip, and I remember Patty, my wife, and I going to somewhere in the Caribbean, and ran into Vicky Myhren, Tryg Myhren’s wonderful wife, and she was so nice to us. In fact, I’m not sure Patty was with me, but she kind of put me under her wing and introduced me around. But absolutely, it took years, not years, but awhile to become comfortable, but ultimately that would be my fondest memory of my 20+ years in the cable business. I was able to meet wonderful, bright people from all over the country and fight some battles together, and we fought real battles. We had a real trade association.
YUTKIN: Let me ask you about that because the NCTA was the organization of the large cable operators and CATA was the organization of the small cable operators. The small operators, I guess there was some friction between the two because sometimes the interests of the larger operators were not quite in sync with the smaller operators. You wound up being a very active part and chairman of the NCTA. Were you drawn between, as you were growing, between the goals of the NCTA and CATA as you were starting out in terms of a smaller regional operation? Did you ever find a conflict there?
COWNIE: I never found a conflict. In fact, I found it silly that such a perceived conflict existed, and I worked really hard as a young member of the NCTA before I became an officer or whatever to encourage other medium sized companies and small companies to join the NCTA. I never really saw a reason not to. I thought we were stronger with one voice and I remember the friction that you are referencing, but I never paid much attention to it. In terms of other conflict, there was conflict between programmers and operators, and I have a vivid recollection of Terry McGuirk, as a member of the NCTA board, carrying a lot of water for the programmers, principally the Turner interests, but including other programmers, in a peacemakers role, and he did a masterful job at a young age of playing that role and keeping programmers and operators together.
YUTKIN: Tell us more about that and the conflict.
COWNIE: The operator didn’t want to pay as much as the programmers wanted him to pay, or it to pay, for the product. In the old days, early, earliest days of satellite technology, the ESPN Rasmusson brothers would run around in their red sports coats…
YUTKIN: Who’s this?
COWNIE: The Rasmussons founded ESPN, and all of the sudden there was this sports channel of Bristol, Connecticut that was willing to pay ten cents a subscriber if we, the operator, would put ESPN on our cable system. So you have to understand that things changed and instead of getting ten cents we were pretty soon being asked to pay 30 cents. So there was need for a peacemaker like Terry McGuirk to explain to us operators the economics of programming so that we didn’t feel like we were being victimized, and that was the conflict. It continues, it continues.
YUTKIN: Because the ultimate control that the operator has is to take the programming service off.
COWNIE: Right, and then the programmers go directly to the people, full-page ads in the local newspaper to try and sell.
YUTKIN: Did you ever do that? Did Heritage ever take anything off?
COWNIE: I don’t remember any big flap like that, Gerry. I think we always worried about every penny we spent on programming, but I don’t remember ever having to do that. We had a magnificent relationship with our vendors. It’s another thing I remember most vividly.
YUTKIN: Programmers?
COWNIE: All vendors, especially programmers. I think we were the second or third HBO affiliate, and we always enjoyed a great relationship with HBO.
YUTKIN: Never fought about price?
COWNIE: If we did it was very professional and relatively amicable, and always resolved.
YUTKIN: I remember once in one of my old systems we had to take off Off Track Betting on a system in New York State because nobody was watching it, but there were about 35 people who watched it constantly and for years afterwards every time you had to go to a council meeting we had 25 people demanding that they put back on Off Track Betting. So even though the operator had the ultimate control over that, how much control did it really have?
COWNIE: It’s not complete, for sure.
YUTKIN: What do you think about the future relationship between satellites and broadband, and cable TV?
COWNIE: And cable TV? Again, I’ve gone to bed worrying about this for a long time.
YUTKIN: Now you don’t care.
COWNIE: Well, I certainly care, but I don’t lose sleep over it like I used to. What do I think about it? I’m a conservative person, I kind of assume the worst, and in that context I think the satellites have certain advantages. Now, stir in data, stir in high-speed internet access and I think right now we are the medium of choice, but things can change in a hurry. I’ll tell you, and then I’ll go back to your previous question, I remember a funny story. I remember a story, at least. Ted Turner was always wonderful to our company, visited Des Moines many times. I had a lot of fun hunting with him here and there, a very busy guy but he was always willing to come help us promote this or that, and we had a vice-president of programming who was a very careful negotiator, God love him, he saved a lot of money for our shareholders, but he was unable to negotiate this final element to this multi-million dollar contract with the Turner organization, a big contract. I’m sure it was 50 million dollars if you looked at it over a long period of time. Well, Ted came to Des Moines to help us do something. We had dinner downtown and I had invited this individual to join us. So we had this wonderful dinner and cocktails before, and we were having an after-dinner glass of wine or whatever, and Ted’s kicking back and kind of enjoying himself. He has a hard time relaxing but he was sort of relaxing, and all of the sudden I see my marketing friend pull his chair up to Ted and said, “Ted, there’s something I’d like to talk to you about,” again, the denominator here is a hundred million dollars and numerator’s ten thousand, and my friend engaged Ted on this ten thousand dollar issue. It’s the last thing he wanted to think about at 11:15 at night, wasn’t familiar with the issue, didn’t care about the issue, just wanted to get to bed, and by God, he stood up and said, “I didn’t come here to talk about ten thousand dollar issues. Thank you for the evening,” and to bed he went. And we made friends the next morning, but…
YUTKIN: What happened with the ten thousand dollars?
COWNIE: I have no idea.
YUTKIN: What happened to your programmer?
COWNIE: He’s a wonderful guy, and I love him – marketing person – and I think he learned a lesson.
YUTKIN: Was Turner the most unique character that you met in all the years?
COWNIE: Turner?
YUTKIN: Yep.
COWNIE: Unique is a good word, yeah – eccentric, brilliant, probably in terms of high-profile, I would say so. But you’ve got to put John Malone in there in terms of raw brain power.
YUTKIN: Highly different personalities.
COWNIE: Yeah, entirely, I mean politically and attitudinally. But who do I remember the most? Brian Roberts, a colorful young guy. I met Brian when he was 28 years old at a golf tournament in Houston. We were partners, we won it, we’ve been good friends every since. I always have respected Brian’s brain power and love his relationship with his father. So he’s a guy who I’ll always remember in the cable business, but I can go on and on, Gerry. I was the oldest of the second generation. The first generation, let’s say, John Saeman, Bill Daniels, it even goes back further, but the John Saeman group, a great group of guys, Bob Hughes, etc., Doug Dittrick, this was the first generation. Magness goes even back further, but of the guys who were active in fighting these battles and building the industry, they were the first generation. Then we had this other group. Now, Brian Roberts was the youngest of the second generation. I was the oldest of the second generation, and we generations would get together once a year for gold outings and the first generation, the old guys, would always beat the young guys, still do.
YUTKIN: Now because you let them, right?
COWNIE: Are you kidding? They’re just better. But Tim Nehr, Amos Hostetter, Billy Grumbles at HBO, Terry McGuirk, Steve Davidson, Andy Armstrong – good guys. You ask what I miss, the interaction with these guys. Bobby Miron was one of my best friends at Newhouse, and now has moved on with the joint venture, but a great guy, great guy.
YUTKIN: CSPAN?
COWNIE: Jim Hoak was more involved at the beginning with CSPAN. Jim was a history and government student, loved CSPAN, and I think was one of the initial board members. I did serve on the board for awhile and loved it. I think Brian Lamb is a very special person. You remind me of him as you conduct this interview.
YUTKIN: Thank you.
COWNIE: You’re very welcome. And I think CSPAN is something the cable business will always be proud of.
YUTKIN: Didn’t cost that much money.
COWNIE: Well, I guess not, but coincidentally, I thought about that just a couple of days ago. I wonder what it’s worth. You’ve got to look at opportunity cost. Look at the channel space it has, look at the viewership it has, look what it could be worth if it was to be commercialized a little bit.
YUTKIN: But it’s not generating any revenue.
COWNIE: But it could be if it weren’t pure, and the industry, under Brian’s leadership, has elected to keep it pure. If a more commercial approach were taken to CSPAN it would be worth billions of dollars and I think it’s a credit to the cable industry that it has been allowed to stay pure.
YUTKIN: So then you’re in favor, I mean you think that’s the right thing.
COWNIE: Absolutely, absolutely.
YUTKIN: Because if it would become commercial it would be just like…
COWNIE: It’s something that we as an industry have done well.
YUTKIN: Could it do more good?
COWNIE: I don’t know how.
YUTKIN: It’s just kind of laying things out now.
COWNIE: Yeah, I think it’s refreshingly honest. I certainly couldn’t criticize it editorially, and I can’t criticize the industry for supporting it. I think it’s been an immense success story, and it’s one that we don’t brag about and I think that’s good on our part that we don’t. We don’t threaten Congress with this or that if they…
YUTKIN: We’ll show what you do.
COWNIE: Yeah. I guess that’s an implied threat.
YUTKIN: Cable’s answer to public broadcasting.
COWNIE: Okay, I’m okay with public broadcasting but I think CSPAN’s more focused and I think more impactful.
YUTKIN: So you don’t think that there’s going to be a time when we’ll see commercials on CSPAN?
COWNIE: Not while Brian Lamb’s alive. I hope not. CSPAN has had a great history. If you look at the chairmen of CSPAN, I can’t come forward to current times, but Jack Frazee did a fantastic job. That’s how he cut his teeth in the cable TV industry. Jim Whitson at Sammons, terrific job, totally committed to CSPAN. And when guys like that get excited they can influence other people and that’s why CSPAN built the circulation it was able to build even when shelf space was precious.
YUTKIN: And now it’s got a couple of channels.
COWNIE: Yeah, I’ll say. It’s doing fine.
YUTKIN: I’ve got friends who set their alarm to it at 5:30 in the morning.
COWNIE: Tell them to get a life.
YUTKIN: Well, that’s later on in the day. It’s great, it’s very interesting stuff.
COWNIE: Future for Jim Cownie? I’m 58 years old, a bunch of kids.
YUTKIN: Do you have grandchildren?
COWNIE: Bunch of grandkids.
YUTKIN: You like Des Moines?
COWNIE: Love Des Moines. I will always stay in Des Moines.
YUTKIN: You’ve got a list an arm’s length in terms of your duties and accomplishments here.
COWNIE: I like Des Moines. It’s a mid-sized town that one can…
YUTKIN: What’s the population?
COWNIE: Call it 400,000, 500,000.
YUTKIN: Surrounding.
COWNIE: Grew up here, my wife, Patty, and I grew up here, been here forever, we love the people. We travel whenever we want to travel, volunteer a lot, and have a lot of kids here and activities here. We know the rest of the country, and to a lesser extent the rest of the world, but this is home and couldn’t be happier.
YUTKIN: What’s the industry going to be like in ten years? 2012.
COWNIE: Boy, I wish I knew. I wish I knew. I don’t know what it’s going to be like. I really don’t. I think the satellite guys are going to be in business, and stronger. If technology isn’t developed that allows the satellite guys to offer high-speed data any better than it now can cable will probably be still in a good position if not the favored position, and I think telephone will settle down so that the over capacity situation we’ve had over the past five years will work itself out and maybe we’ll have a fairly peaceful coexistence.
YUTKIN: Well, it used to be a lot worse twenty years ago. If you were trying to get some construction done, depending on the telephone company and depending on which manager operated in a particular area you could wait for six months before they’d help you out.
COWNIE: Sweet justice, Gerry. When U.S. West was formed, the local corporate boards were disbanded, but in place of the local boards they put some advisory boards together. I was asked to serve on the Iowa advisory board, and I said to the individual who asked me, “My gosh, that’s going to be awkward. I’m a cable TV guy, don’t you think that’s going to be awkward?” He said, “Let’s try it.”
YUTKIN: And?
COWNIE: I lasted one meeting. Just a different way of looking at things. I had to resign. Just too much conflict.
YUTKIN: Conflict philosophically or conflict bureaucratically.
COWNIE: Well, they spin things, what the competitive marketplace should look like. This is twelve, thirteen years ago, but it was the old days when we had a hard time getting make ready done and pole attachments agreed to and things like that. It was the old days. Things are better now.
YUTKIN: I’m glad you didn’t say the good old days. There were some things good about it, but the present is good and the future is better.
COWNIE: I just hope the people who are privileged to be in the chairs that you were in and I was in then are having as much fun as we had, and if they are, appreciate it because special times.
YUTKIN: Did we appreciate it then? Certainly in hindsight we did.
COWNIE: In hindsight for sure. I think we appreciated, I know I appreciated it a lot because it was very exciting for this Midwestern boy to do, but probably not enough. We were so busy! You have to slow down to appreciate it.
YUTKIN: One of the things I learned in the Council Bluffs franchise, everybody was bidding on when they would complete the builds when they were trying to get franchises. We bid – I don’t know if it was your idea or whose idea it was – we bid on when we would get our first subscriber on, and it was Labor Day, I think, 1979, and we had somebody out from Denver at 2:00 in the morning hooking the headend to the subscriber next door, and we fulfilled it and we got them on, I think, two hours late, and from that point on, at least the cable franchise in Council Bluffs was on its way.
COWNIE: Yeah, good.
YUTKIN: We had a lot of very good times. Thank you for spending time. Anything we forgot about?
COWNIE: Probably a thousand things, but let me say thanks to Gus for sponsoring this program. I think it’s a good idea and kind of fun.
YUTKIN: Thank you very much for taking the time, and again, this is for the Hauser Oral and Video History Project of The National Cable Television Center and Museum in Denver, Colorado. Thank you, Jim Cownie for being with us today.
COWNIE: Gerry, my pleasure. Great fun.
