Interview Date: November 15, 2000
Interviewer: Joel Fleming
Abstract
Larry Flinn describes the evolution of his career from a small investment in 1965 to acquisition and buildup of the United Video Satellite Group. He explains the issue of plant obsolescence, the decision to switch from microwave transmission to satellite, and the developments of an uplink to WGN with distribution to millions of customers, as well as highly successful digital program guides. He analyzes the fierce competition, starting in the 1990’s, for delivery of telephone, Internet and cable services.
Interview Transcript
JOEL FLEMING: My name is Joel Fleming. I’m in Greenwich, Connecticut and the date is November 15, 2000. This is an historic date because 8 days ago we had a presidential election and as of this date, we have no idea who won the election. I’m here on the behest of The Cable Center in Denver, Colorado and the other historic part of this is that I’m going to be talking to Lawrence Flinn Jr., a true pioneer in this business of cable television, a business that has managed to move and mature without ever becoming melancholy or mundane. It’s the business of cable communications, and this is Larry Flinn from Greenwich, Connecticut. Larry, how are you?
LARRY FLINN: I’m doing fine, Joel.
FLEMING: Good. We’ve known each other perhaps for 30 years.
FLINN: Going back to what –1965.
FLEMING: That’s over 30 and neither one of us has changed. That’s amazing. I’d like to find out more about Larry Flinn. Where were you born?
FLINN: I was born in North Carolina in Durham in 1935.
FLEMING: And grew up there too?
FLINN: No. My father was a student and as soon as … I guess I was a little infant … my father was a student over in Germany and my mother and I and my two brothers – at that time my older brother and I– went over there with them. Then just before the war came on, we got out of Germany and came back to the U.S.
FLEMING: Could you speak German?
FLINN: Yes.
FLEMING: And still can?
FLINN: For a while that was the only language I could speak.
FLEMING: Oh, incredible.
FLINN: No, I forgot it within two weeks after I got back.
FLEMING: Yes. I think unless you are continually immersed in a culture, it’s difficult. So when you came back, where did you live?
FLINN: Lived in East Hampton, New York most of the time and New York City.
FLEMING: Where did you go to school, high school, etc?
FLINN: High school I went to a boarding school called Hotchkiss in Lakeville, Connecticut.
FLEMING: And was your father in the service in Germany?
FLINN: Yes. He got killed in World War II.
FLEMING: Oh, is that right? I never knew that. Then you and your mother and your brother lived in the New York area?
FLINN: Yes, the New York area.
FLEMING: Where did you go to college then?
FLINN: I went to Yale, and I got an MBA after being in the service at …
FLEMING: You were in the service?
FLINN: Yes.
FLEMING: On whose side? No – in what branch.
FLINN: I was in the Army National Guard. A plan they called the 6 months program where you went active duty for 6 months and 5 ½ years of reserves. Actually, eventually I switched to something called Strategic Intelligence so I was in that, and then I got out. Anyhow, after my 6 months, I went to Graduate School of Business at Columbia University and got an MBA there.
FLEMING: Would you recommend anyone today, graduating from college, that they go get their Masters?
FLINN: Get an MBA?
FLEMING: Yes.
FLINN: Oh, I think that it was very useful to me because I was a Liberal Arts major, and I didn’t know too much about what makes business tick. So I thought it was very good in terms of learning what a balance sheet, income statement are about, about things like credit, security analysis, marketing, statistics. There are whole bunch of subjects that were very useful in decision-making.
FLEMING: Bottom line. Yes. What was your first job after college?
FLINN: I worked at Morgan Stanley Investment Banking firm in downtown New York as a young investment banker.
FLEMING: Trace your jobs up to when you got involved in cable television.
FLINN: My personal goal at Morgan Stanley was to do one of every kind of deal that they do – equity, debt, IPO’s, mergers, and so forth. Then I wanted to get into venture capital. Eventually I wanted to be an entrepreneur and build up my own company. So after three years during which I never had a date during the week at Morgan Stanley because they were working me so hard, I went to work for a venture capital company and came across cable television. I first made a small investment. I think it was a $30,000 investment. I didn’t have a lot of money.
FLEMING: This is your own personal money.
FLINN: It was my personal money on a side investment. I was working there. It was called the Bogden Company in New York City. I was earning 125% a year on my side investment in a cable system in Waynesville, North Carolina. So I said, “This has got to be a good thing.” So I found a larger investment opportunity through Daniels Associates. Bill Daniels introduced a lot of people, as you know, to the cable business. The opportunity was in Vestal, New York, a suburb of Binghamton. It required about a $250,000 investment plus I was able to leverage it on top of that, an equal amount.
FLEMING: I’m going to assume that there are young people studying cable in the years to come that might not know what a leveraged investment might be.
FLINN: Leverage is simply the amount of debt that you can add to your equity investment. There’s cash flow in the cable TV industry generating EBITA.
FLEMING: And your definition of cash flow?
FLINN: EBITDA or cash flow is earnings before depreciation, interest and taxes.
FLEMING: Originally the cable business was built on the concept of cash flow – money you put in your pocket.
FLINN: The cash flow and the cable business never got in your pocket. It always went to service debt. So the only time you ever got any money in your pocket was if you sold out.
FLEMING: But the one thing, in the old days, people used to talk about getting 50% – 70% cash flow, based on your definition.
FLINN: Cash flow margins.
FLEMING: Yes.
FLINN: Right. Well, I’ve even seen higher than that in some little cable systems that don’t require a lot of maintenance. I saw one, I think, one time that was at an 80% operating margin before home office expense.
FLEMING: There aren’t many businesses like that.
FLINN: There are quite a few, actually, like radio and some record music business and things like that. In the media there are a lot of pretty high margin businesses.
FLEMING: But that’s a pretty good business. It certainly was a great business.
FLINN: Yes.
FLEMING: So the first operation you started was …
FLINN: Was in the suburb of Binghamton, New York, in Vestal. It turned out I gave my venture capital company an opportunity to invest in it, but they were distracted by other larger fish to fry. So I decided I’d take the plunge. I had about $250,000 and that’s what I spent on this one cable system. I thought I wouldn’t have to move there, but the manager was hired away before I got back from the closing, which was in Elmira, New York nearby. So I suddenly had this little cable office, cable system that I bought, not knowing anything about the electronics or nitty-gritty of what made it work. It was sort of funny because we had a 300-pound secretary, a chief technician who wanted to seduce all the customers’ wives, and one installer.
FLEMING: Three people?
FLINN: Three people – that was it.
FLEMING: How many subscribers?
FLINN: I think we had 2,000. They were served by a vacuum tube type system, which was called Spencer Kennedy Labs – SKL – that was supposedly the “Cadillac” at the time. It was very unstable. This guy, the chief technician, Shorty, would climb up, and he’d be throwing down these expensive tubes. He didn’t check to see if they were worn out or not – that would ground it – putting in new ones to try and make these amplifiers run properly. It was quite a job to keep it going properly, and I think we basically got bailed out by the invention of the transistor.
FLEMING: And then, I assume, you built up the business.
FLINN: Yes. I built that up from 2,000 subscribers to, within three years, 25,000 subscribers in up-state New York.
FLEMING: That’s incredible.
FLINN: At that point, it was a regulated industry. I decided that there was just too much at stake here to have my rates regulated by New York State Cable Commission arbitrarily and also by the cities that were arbitrary most of the time about regulating our rates. So I had an offer to sell out to Newhouse for the grand sum of $300 per subscriber – which I did do. I ended up with a princely sum, and I was ready to immigrate to Australia and become a vintner (producer of grapes) and make wine.
FLEMING: You felt it was time to sell out?
FLINN: I thought it was time to sell out, yes. I had started with $250,000, and I was going to be making, after paying off my debts and Uncle Sam about $5,500,000.
FLEMING: That’s okay.
FLINN: Yes. It was too much for me so I sold out. But I kept some other systems that I had developed in Texas and in Maine.
FLEMING: I see. I would bet, knowing how the industry is, that some of those employees you had back then hired, might still be there in what is now the combined Binghamton-Vestal operation.
FLINN: The installer ended up being the general manager of the Binghamton area system for Newhouse.
FLEMING: That’s Jim Streavy.
FLINN: Jim Streavy – right.
FLEMING: I think he’s retired now and just, coincidentally, my son now runs the operation of Binghamton-Vestal for Time Warner. So all the world spins around.
FLINN: It’s a small world.
FLEMING: If you were starting out all over again, would you do anything different getting into the cable industry?
FLINN: No. Just to continue, I went over to Australia and learned that if I made $19,000, I’d be in the 90% bracket. So my wife didn’t like the idea of being in Australia anyhow. We took the next plane back, and I kept the Maine and Texas systems. To make a long story short, I developed United Video Cablevision, Inc. and ended up being, I think, the 50th largest operator in the United States.
FLEMING: Were you in partnership with anyone?
FLINN: No. I was pretty much the sole owner except for management that had some equity interest.
FLEMING: You mentioned your wife. Just tell us a little bit about her, where you met.
FLINN: She’s an artist. We met at Morgan Stanley. She’s one of the few girls that I got to see during those three long years at Morgan Stanley! Then we got together just when I was getting in the cable business. In fact, I’ll tell you an amusing story. When I was courting her, there was a boxing match between Mohammed Ali and Sonny Liston, I think. No it wasn’t Liston.
FLEMING: It could have been.
FLINN: Anyhow, whoever it was, we had rented the Holiday Inn in Binghamton (where there was no cable available) with about 50 television sets around the room, and we were charging everybody who wanted to come in there, $12 with free beer in between rounds. Maybe it was $20. The guy – I think it was Liston – got knocked out in the first round.
FLEMING: Yes, that was Liston.
FLINN: Was that Liston?
FLEMING: Yes.
FLINN: So with my partner in this, the owner of that Holiday Inn, we headed down to the cellar and locked the door with money. My wife wondered what kind of a shady business I was in.
FLEMING: Subsequently, you’ve had how many children?
FLINN: We’ve had three kids.
FLEMING: Oh great. What’s their age now?
FLINN: They are 34, 32, and 29.
FLEMING: And you get along splendidly with every one of them.
FLINN: Absolutely.
FLEMING: What might have been, besides the story you told about remarkable Sonny Liston incident, what was one wonderful experience you had in the cable television business, whether it be a bad experience or a good experience?
FLINN: How about an interesting experience?
FLEMING: An interesting experience.
FLINN: I would say one interesting experience I had was when we were (I called my company up there in Binghamton, New York Pioneer Cablevision) pioneering away. I bought the cable system across the river in Endicott, New York. One New Year’s Eve (we had suck outs in those days) we had this long area where the cable went across these barren fields – no houses or roads – across a river to Endicott on the other side. Three of us, the chief tech, Shorty, and Jim Streavy and I went out with a ladder across this field trying to check every single splice on the way. We’d climb up in the middle of New Year’s Eve and take each connector apart and look and see if there was a pullout. That was definitely an interesting experience for me in pioneering cable systems. Thank God they eventually came up with a splice that grabbed the center conductor so that it couldn’t pull out.
FLEMING: When you got in the business, way back in 1965, did you ever envision something like HBO or pay-per-view or telephony, high-speed data transmission, satellite service? Let’s take them one at a time. Did you envision HBO where you have unedited, non-commercial movies?
FLINN: When I was going in to the business, I think the main thing that made the business model work for those entrepreneurs that were doing it at the time, was to bring in distant signals. The Binghamton area was under-served, enough under-served, and had a lot of UHF signals, which were difficult to receive because of mountainous terrain and even trees.
FLEMING: So the customers couldn’t get off-the-air good reception.
FLINN: Right – of the three networks plus PBS. So we really didn’t need HBO. But when HBO came, it was microwaved to upstate New York before it went on satellite. It was definitely a real bonus to us in terms of having product to sell. It generated additional cash flow.
FLEMING: So subscribers not only got the local signals in better condition, but also they received, via microwave, independent stations including WPIX and WOR out of New York, as well as HBO.
FLINN: That’s correct.
FLEMING: And that’s the way you built up from 2,000 to 25,000 subscribers I guess.
FLINN: Warren Fribley’s Eastern Microwave brought us WPIX, WOR and HBO. There was another…
FLEMING: WNEW, I think it might have been.
FLINN: Could have been.
FLEMING: It’s hard to figure out today that you had to bring in those systems when we now have a satellite.
FLINN: It was my company that eventually up-linked. My satellite communications company, United Video Satellite Group, in 1977 up-linked WPIX in New York, WGN in Chicago, KTVT in Dallas and KTLA in Los Angeles. So we were the people that helped out a lot of cable operators around the country by giving them additional programming at a very affordable price.
FLEMING: By up-link you mean you shot the signal from the local station up to the satellite and then down into the cable system that you were serving?
FLINN: Correct.
FLEMING: And you charged cable systems by the subscriber?
FLINN: We typically charged them $.10 per subscriber.
FLEMING: Is that the same fee that exists today do you think?
FLINN: I’ve been out of the business since 1965 but I doubt that they’ve raised the price very much (said tongue-in-cheek).
FLEMING: Well it was then a dynamic business, and now it is evolving into different things. Pay-per-view –- was that ever talked about when you were first in the business?
FLINN: No. It wasn’t technologically feasible.
FLEMING: I’m going to ask later, but telephony through cable – do you think that eventually cable companies can serve the telephone needs of people down the streets?
FLINN: I think that there’s no question of telephone services. It isn’t the big deal that it once was. It’s going to be a rather mundane service going forward. There will even be telephone on the Internet. I think the Internet in going to become increasingly important in everyday lives of average citizens in the U.S. including having telephone over the Internet. It’s already possible. The technology has been perfected, as you know.
FLEMING: Of course the cable system has gotten in on the very ground floor in the interconnection for high speed data transmission.
FLINN: Right. And they’re also delivering local telephone service in the AT&T Systems, for example, and Cox Systems. They’re delivering regular local and long distance phone service on the cable plant.
FLEMING: I understand that the data transmission is a very good business for the cable operators today. That’s another angle of cable television in the United States.
FLINN: Absolutely. It goes for a good price. It goes for $30 – $40 a month.
FLEMING: Right. And the speed at which the person sitting in their home can get on line is much faster than the telephone – the normal telephone lines.
FLINN: Normal telephone lines.
FLEMING: Right.
FLINN: DSL lines have their advantages too.
FLEMING: Do you remember what the rate was that you charged the customer for your initial service?
FLINN: In the ’60s?
FLEMING: Yes.
FLINN: Yes. $5.95 a month.
FLEMING: It’s more today. What’s your own bill today? Do you know?
FLINN: I think it’s probably $45 – depends which house, right. But it’s about $40 a month.
FLEMING: Well, I hate to interject myself in here, but with HBO services, Showtime, Movie Channel, and 3 sets, I pay $60 and that’s not an abnormal charge in today’s universe.
FLINN: That’s before you or your children do a zillion pay-per-views.
FLEMING: That’s right. What do you think of mergers? It’s a business of mergers today – Time Warner, AOL. Even more interesting, when the big cable operators begin to buy all the smaller ones. Is that a good thing or a bad thing for cable?
FLINN: I think what happened to the cable industry was technological change, aside from the fact that all the initial cable operators got old and wanted to sell out anyhow. But the technological change that was going on in this country was such that the cable client, cable operators, needed to consolidate to face the competition from other media, specifically satellite competition and also with regard to telephone company competition. It requires deep pockets, a lot of research. There was too much at stake for the average cable entrepreneur. Also, there are a lot of over-builds today where people with very deep pockets go in and over-build.
FLEMING: Explain over-build.
FLINN: An over-build is when say I was operating in Binghamton, New York and another company got a franchise for Binghamton, New York and came in and started offering traditional cable service plus internet access plus pay-per-view and telephone service.
FLEMING: Put up their own lines.
FLINN: Yes. So if that happens, then neither company is going to make any money. In fact, cable itself, as you pointed out, is not an industry that has ever been able to bring profit down to the bottom line. There’s always been too much obsolescence causing too much depreciation in plants needing to rebuild. So no cable operator of any note was ever able to make any money in terms of a net profit after taxes.
FLEMING: So it takes a giant like Time Warner to merge with others to get the deep pockets or give them the deep pockets to be competitive.
FLINN: Sure.
FLEMING: The way it’s going, are we going to end up with one cable operator in all of the United States?
FLINN: Right now the FCC prohibits anyone operator from serving more than a third of the subscribers in the U.S. I’m sure if nature took its course and the political restraints were aside, there probably would only be one cable company – and there might be only one telephone company.
FLEMING: Is that good or bad? Speaking of the telephone company, keep in mind that this November, 2000, what’s up with AT&T?
FLINN: I inherited a lot of AT&T stock as a result of my satellite company, United Video Satellite Group, merging with TCI and TCI Liberty Media. So I got some AT&T stock when TCI merged with AT&T. There’s no good news with AT&T.
FLEMING: No. The past 12 months it probably went from $60 down to where it is today – $20.
FLINN: Yes. All those years of working so hard building up value to see it deteriorate is not fun.
FLEMING: I think my mother died in time because she had AT&T stock when it was the stock of all widows in the United States.
FLINN: Hopefully the estate sold it.
FLEMING: The estate did. There wasn’t much, I have to say that.
FLINN: Anyhow, AT&T is being split into four different pieces.
FLEMING: Yes. You might explain. Some youngster 25 years from now, dressed differently from you and me today, might be listening and say, “What ever happened to AT&T?” So what’s the scoop?
FLINN: There’s going to be the traditional consumer division, which is the retail long distance telephone business. There’s the business services division, which is providing data transmission and voice transmission services for businesses on a world-wide basis. That includes Concert, which is a joint venture with British Telecom. Then there is the cable television division, which consists of the former Media One and former Telecommunications, Inc., presently the country’s largest cable system named AT&T Broadband. That will be in it. From my point of view, I think that will be good to see that separate because right now AT&T is just valued on its earnings which is putting no value on the cable companies. So the cable company will then be valued traditionally on an EBITA basis. I think that will give the stock a “push” or at least the total valuation a “push”. And the last division is the AT&T Wireless, which is the wireless telephone business which is growing like a weed that has recently been spun out of AT&T.
FLEMING: But that split, or the announcement of the split, has not improved the status of the stock.
FLINN: No, no. It did for a little bit. IT went from about $25 to $29. Now it’s at $22.
FLEMING: That’s an interesting account. For people 50 years ago, AT&T was the prize. Now, despite the aggressive management, etc., they’re in hot water.
FLINN: They say that within five years, that everybody will be giving away long distance and that right now, the long distance business is generating something like $8 billion per year in profits for AT&T. That will all be history.
FLEMING: What a change. Speaking of changes, what do you foresee as opportunity, business opportunities for the cable companies in the future? Is there anything else out there?
FLINN: Internet traffic is providing access to the Internet for customers is probably the most exciting thing for them. I think they’re going to have more and more competition from DBS, which provides signals directly to homeowners by satellite. The Internet business is certainly going to bail them out to some extent. Also, digital service and instantaneous pay-per-view on demand will help.
FLEMING: Speaking of DBS, if you were trying to convince a neighbor not to go on DBS but rather stick with cable, how would you do it?
FLINN: To convince who?
FLEMING: Say a neighbor, a friend.
FLINN: Convince them to stay with cable and not go to DBS?
FLEMING: Yes.
FLINN: Well, for one thing, on cable you get free service calls, and you might have to wait a week or two before the DBS fellow is going to come around. He’d then take the unit out and ship it into the factory or something. So you could be without pictures for a couple of weeks.
FLEMING: How about the local channels? Does DBS normally deliver the local channels?
FLINN: Well, they are headed in that direction now – in the big cities they are. They just were authorized to deliver the local channels. They’re doing that in the larger metro areas, and they’re going to be eventually doing it in the cities from number 50 – 100 in size. Certainly in more rural areas, they won’t be able to get the local channels. I guess they won’t be able to get them if they’re far enough away from municipal area. They’ll be able to get some network signals and PBS so they won’t be that disadvantaged. I could give you examples of towns where cable serves rural areas, and they get lots of different signals from different metro areas. I think those customers are very happy and not going to switching to satellite.
FLEMING: But there’s bound to be some effect, and I know there is, from the traditional cable system where PBS is selling their product. People out of natural curiosity want to switch over. They’ve heard more about the dish. They’ve heard they can get 12 NFL games on a Sunday and stuff like that. So it’s bound to have some effect on cable operators.
FLINN: Sure. And it hurts because you need all the revenue you can get in the cable system. As I understand it, nationally the typical system has maybe 10% penetration by satellite. Of course, some people like me – I have both.
FLEMING: Yes. There’s a growing trend to have both services, in some cases merely to get the local signals as well as the satellite signals. In your long history of cable television you not only ran into having herded people into the Holiday Inn for a short fight, but also I’m sure you had some bitter discussions or great discussions with the people who were granting you rate increases and granting you franchise extensions – the administrators of the town or the politicians who ran the town. Do you recall any particularly vivid, cantankerous get-togethers you had with those good folks?
FLINN: I think the one that I remember the most was, … In fact, this inspired me to sell my New York cable systems. It was the mayor of a town called Cooperstown, New York where I bought the cable system. I said, “If I rebuild this cable system, will you allow me to have a rate increase of $9.95?” The rate was then something like $4.95. And they said yes. But I didn’t have a contract. So I rebuilt the cable system, and they said, “We’ll just give you an extra dollar.” I needed the cash flow to support the interest on the money I’d borrowed to rebuild the cable plant.
FLEMING: Several years later, I was with a group that went up to Cooperstown to try to get a little more money out of them. I forget the rate. What happened is that they put us through hoops to try to get this rate. Finally one guy in the audience stood up and said, “Give them the goddamn rate increase. They do a good job.” The meeting was ended and they voted to approve it. But that was the kind of thing. You had to go to the municipalities to get the rate increase, and you’re subject to the whims of 5 or 7 people – very difficult times in cable and a very good reason to get out of it.
FLINN: In most of our cable systems in the 70’s and 80’s when we were still regulated before we got deregulated, we got what they called cost of living adjustments. Literally all of the municipalities we served would give us that. So we had a small increase keeping up with inflation every year, and that worked out okay.
FLEMING: Out of the many people that you’ve met in your cable television or allied field, is there any one person that stands out in your mind that impressed you the most or did the most for either you or the cable television industry?
FLINN: John Malone’s had a big effect in my life. As I said, I sold out my satellite company to him.
FLEMING: John Malone being?
FLINN: The head of Telecommunications, Inc. I sold out my satellite company which turned out to be the bulk of what I was able to build up in terms of net worth. He did an excellent job of building up Liberty Media as well as TCI’s cable plant: I think he’s a very impressive fellow in the cable industry.
FLEMING: We’ve talked a lot about cable television, but I know primarily most of your life has been spent in the adjunct of cable television namely the satellite business. How did you get in that? After you sold the Vestal System and a couple of bucks, how did you get into that?
FLINN: After I sold the Binghamton area systems, I still had cable systems in Texas and Maine. I started franchising and buying more cable systems and eventually we had 250,000 subscribers. We were the largest cable operators in the state of Maine. We had about 30 headends with 30,000 subscribers.
FLEMING: Headends being?
FLINN: A headend is a location where you collect signals from both satellite and off-air, usually on a high hill or a tall tower. Then you process those signals and send them out over the cable plant down the hill or down the tower into town serving customers with those signals. Subscribers get tapped off the main plant. Anyhow, we had systems in Westchester County (suburban New York), Maine, Massachusetts, Ohio, Colorado, Texas and New Mexico. Most of them were suburban or rural. I had developed reasonably good management and eventually very good management so that starting in 1976, I was looking around for new acquisitions all the time with the cable company. We did a combination of acquisitions and obtaining new franchises. We had several people on my staff whose job was just to go around and apply for franchises around the country. In the state of Maine alone, we had something like 39 cable television systems with about 30,000 subscribers so it was pretty rural. The average size was something like 1,000 subscribers. But we were still effective, and we were able to operate with 50% cash flow in rural markets because one technician could serve more than one cable system effectively. We operated in eight states. Starting in about 1975, I got distracted from the cable television business. I bought, in a leverage buyout, a company called United Video, Inc. that served municipalities’ cable systems with big city signals from Illinois down to Texas. I think that we served about 2,000,000 subscribers. After Ted Turner uplinked WTBS, our biggest business was distributing WGN in Chicago, which was very popular in the Midwest. So we applied for permission to uplink WGN. Of course, we obtained a compulsory license, which meant we didn’t have to get permission from WGN. That was a quirk in the telecommunications law at the time. So when we got permission, a couple of other guys got permission at the same time, but we just got up there first and started marketing it before anybody else. Eventually we had over 60,000,000 homes in cable systems in the USA that watched WGN over cable.
FLEMING: How many years did it take to accumulate the 60,000,000?
FLINN: That’s about what they are at today. We were at 55,000,000 by…. Say we uplinked it in 1977, maybe by 1998. We were in over 10,000,000 homes the first year. So it was a very popular service because it had services like Chicago major league basketball, the White Sox, and the Cubs. So it was sort of a sporting station with a lot of games. So that was our first thing in satellite. We followed that up by uplinking independent stations from New York, Dallas and Los Angeles so we had a package of four independent television stations to market. So that worked rather well for us. Eventually pretty much all of that traffic went to satellite that originally was on the terrestrial microwave service. I think I paid something like $5.5 million and ended up selling the terrestrial microwave for about $100,000. We didn’t mind because we were making a lot more money selling millions and millions of subscribers with independent stations over our satellite.
FLEMING: But back to basics. You didn’t need permission from WGN so how did you get the signal up there?
FLINN: We picked up the signal off the air in the suburbs outside of Chicago. We had it uplinked to a satellite. We bought some land outside of Chicago, and we had what eventually became our uplinking center where we provided other communication services to other companies besides our own.
FLEMING: Who owned the satellite?
FLINN: There were different companies for the satellites we used but it was either Hughes or GE.
FLEMING: And you paid so much per signal that you put up there?
FLINN: Yes. We rented what’s called a transponder. It was like a TV station in the sky. The satellite would have anywhere from 12 – 24 of these transponders. Originally there was just one satellite that served the cable television industry – services like HBO, Showtime, WTBS Superstation. And then other services started coming along – CNN (Cable News Network), ESPN, and all these new network services went up in the first satellite. So that really revolutionized the cable business and gave cable product so that cable could then invade the bigger cities with these new services like CNN and ESPN that people wanted to see but couldn’t get off air.
FLEMING: It was truly a revolutionary point in the history of cable television.
FLINN: Sure.
FLEMING: What prompted you to do all these things?
FLINN: Well, I just was an entrepreneur and was looking for new opportunities all the time. I liked the idea of a satellite communications business because it wasn’t so capital intensive. If I could ramble on a little bit about some of these other services we developed, you can see why I thought it was more fun than just running cable systems that we were still running. The next product that we came up with was – there was nothing but paper guides for cable subscribers at that time in the late ’70s. There was nothing on a TV set that would tell you what’s going on in terms of programs. So we developed an alpha-numeric program guide that would scroll through and tell you what programs were on the cable system at the various time slots. In those days, cable systems carried typically 13 channels, and we could deliver our program guide customized for each cable system by telephone, which we did.
FLEMING: What do you mean by telephone?
FLINN: We could deliver it customized for an individual cable television system because cable systems don’t all carry the exact same channels, and TV stations are carried on different cable channel numbers. So we had to have a computer that formatted the guide for each individual cable system on a customized basis. And we could deliver that by telephone. Later we delivered it by satellite just as effectively. So we went to satellite on that service as well. About 1982, we then added a video on the top half of the screen promoting what was coming up on television. For example, we could say, “Such and such a show is coming up on Pay-Per-View,” or watch specific movies on HBO, basically promoting HBO. So it was the video on top of the screen that was promoting the cable system product that cable operators wanted to sell incrementally to their subscribers. Plus it was a very good service. You didn’t have to have a paper guide to find out what was going on. Of course, now our Prevue Channel Service has become a digital product with all kinds of ability to do screening, show you what sports are coming up over the next week, and tell you the themes of movies. An incredible amount of information on the digital guide is available today. United Video, which is now called Gemstar, is serving basically 100% of the cable industry with program guides. So that was a great success, which now serves over 60 million homes!
FLEMING: It’s so interesting. I wondered what advice would you give in the telecommunications business to someone coming out of college, a 21-year old youngster, man or woman? Would you advise him to get in the telecommunications business?
FLINN: Well, I think it’s an interesting field. I think that the Internet business and the television business are merging. I think that, if you’re an artistic kind of person, you might want to be more like an announcer or something like that. But if you’re a financial person, it might not matter. If you’re a programming-oriented person, going into the computer area is very interesting. Then there are still cable systems. People still need to run cable systems like your son’s running Binghamton and Syracuse. I just think that what’s going on in the delivery of the internet and what’s going on in terms of delivery of new services over the internet is extremely dynamic and exciting. I personally would go into that today if I were going to start out as an entrepreneur.
FLEMING: I think it takes a certain kind of person to be an entrepreneur because everyone gets out of high school or college saying, “I want to be rich.” They don’t appreciate the work and the gamble or gambles that it takes to do well in any field. Do you have any advice for that young person?
FLINN: One of the nice things that I thought about cable television is that people viewed it as highly risky, but I never did. In fact, it was a mini-monopoly because nobody, if you had a franchise, was going to come in and push you out of that town as long as you were providing reasonably good service there. I think today things are much riskier because somebody else could be coming into that town. There are widespread overbuilds going on in the east coast and the west coast.
FLEMING: What’s the most successful thing you did in the field of telecommunications?
FLINN: Well, thank you for asking. The most incredibly successful thing that we did happened at United Video in the early 90’s. We were selling to cable systems our independent television stations that we had available by satellite. So we said to ourselves, “Well, there’s a lot of people, about 2,500,000 homes, that have these large satellite dishes that are looking to receive programming. Why can’t we sell our programs to those guys too?” So all the cable industry started selling to them. Programmers would have a little division that would sell directly to what were called C-Band dishes. They were typically in rural areas. So we started selling those signals to them, and that was working fine. Then we got permission to sell other people’s signals like WTBS and ESPN. Pretty soon, we were offering packages of services. We had about one-third of the industry – about 700,000 homes were getting our packages of programs. Then we finally got permission from HBO to sell HBO as well. So we had Showtime, HBO. We were literally delivering the full universe of all cable television signals to the C-Band homeowners. We got our subscriber count up to about 1,000,000 and our cash flow at our satellite company just soared. Then we went public and that was a big success. Our cash flow was hundreds of millions of dollars in that company largely as a result of servicing the subscribers with programming packages. We then merged our C-Band business with Netlink, a TCI company that was doing the same thing. They had about 1,000,000 subscribers. We ended up running the merged C-Band business, so we had 2,000,000 subscribers, and we were cash flowing about $600,000,000 a year out of that. So that was a very successful joint venture, and we had no capital expense at all. So it was a wonderful investment. It was a great way to sort of really build the company up, and then I sold out.
FLEMING: And I’m sure you had no failures.
FLINN: Absolutely not. No.
FLEMING: I’m not going to ask about that.
FLINN: We had a suck out. I told you about that.
FLEMING: That’s right on the river. What was it – the Allegheny?
FLINN: Susquehanna.
FLEMING: But, in that sense, we’ve been talking to a man who, if he wore a badge, it would be “Entrepreneur” and then underneath it ” … Success”. This is Larry Flinn who has been involved in both the cable business, the satellite business, the whatever business, and done very well in them all. He’s a man who to admire, and we’re doing this for The Cable Center in Denver, Colorado. At this point, it is the year 2000, the month is November. And Larry, the last question. Who’s going to win the presidency, Gore or Bush?”
FLINN: Well that’s a tough call. I’m not going to predict.
FLEMING: I think it should be decided on a coin flip. Anyway, it’s been a pleasure.
FLINN: Thank you, Joel.
