Interview Date: May 31, 2019
Interview Location: Denver, CO USA – The Cable Center
Interviewer: Stewart Schley
Collection: Cable Center Oral History Project
Stewart Schley: Greetings. Welcome, and I guess I can say “Hola” today in recognition in the fact that for this episode of the Cable Center’s Hauser Oral History Series, we are talking to one of the instrumental figures in the development of what we used to “cable” internationally—you now call it “TV and Broadband,” I think, on your website.
Mike Fries: That’s right.
Schley: It is really my pleasure to be talking for the next hour with Michael Fries, who’s the chief executive officer of Liberty Global. And I know from talking to Mike, you wouldn’t characterize your business as a “team sport,” but really as an individual, you’ve had an undoubted deep impact on the development of this business.
Fries: Well, thank you. Thirty years is a long time.
Schley: Thirty years is a long time. So thanks for sitting down with us. This is sort of a look back and also a look forward, but I want to start with the former. And take us back, Mike, to a moment in time where a cardboard desk was instrumental in your professional development. What and where was the desk, and why did it matter?
Fries: That’s a great story. Anyhow, I grew up in LA, one of eight kids, and I was the only one to leave town of the eight kids. And I went back East to school. I was there on the East Coast for ten years, and five of those years I was working in the investment banking business. And I met all the cable guys in Denver, because there are many. And this is the 80s where cable television was really starting to heat up in terms of consolidation and financing. I met the guys who were selling United Cable and United Artists-TCI and one of John’s many rollups. And they had agreed with John to let them take some international assets that had been sort of orphan assets that the merged company didn’t really need because they were domestic focused. They hired our firm to raise capital because these guys had no money. It was a guy named Gene Schneider, you may know. Mark Schneider, Bill Elsner. Shortly after working for them for four or five months as their banker, they asked me to join. So I jumped in my car and I got to Denver. I was the fifth employee, and there wasn’t much in the way of furniture. It was either my computer desk or my desk, we were in transition. It was a startup. I took a 70% pay cut and I said, “You know, there’s something about this cable business”—again this is 1989-90—“that is intriguing.” I figured if it didn’t work, I would just keep going back home to California, just over the hills…
Schley: Headed west.
Fries: But here we are today.
Schley: The John you refer to is John Malone, sort of the industry patriarch.
Fries: Of course.
Schley: And the man behind a lot of seminal deals of this industry. I always wanted to ask you about this. You made sort of a glib reference but there was a lot of risk you were taking on nonetheless, right?
Fries: Yes. I mean, personally, sure. I was young and I was ambitious. I had gotten my business school degree and I didn’t see myself long-term in New York City. I figured 1) this was a great industry, and 2) a great group of guys. And gals. The industry is full, as you know, of incredible people. Incredible entrepreneurs, incredible pioneers. Incredible risk-takers. The opportunity to work with them exceeded my expectations by far. By Gene Schneider, by John Malone, you know, all the great entrepreneurs this industry has benefited from. A lot of them were in Denver. So it was risky, but I was excited.
Schley: But it’s telling, I think, that Gene Schneider and his brother weren’t ready to give it up at that point. They still saw opportunity.
Fries: I’ve never met anybody more unique than Gene Schneider. He was an incredible mentor for me. By example more than, you know, he wasn’t leaning in to nurture talent how he operated. He was a very old-school guy, but great integrity, incredible financial skills and a great risk-taker. When he sold United Cable/United Artists back to John, he remained chairman of it for a while. But his son and others said, “Hey, we’ve been doing these cool things internationally. They’re just going to be orphaned. Nobody’s going to do anything. Why don’t we take them out?” So John said at the time, “Here you go. I’m busy in the US. You guys figure it out.” And the beauty of it is, John jumped right back in with us. He started investing alongside us straightaway and we’ll get to, I’m sure, the genealogy of the company as he starts getting more involved. But from the get-go, he saw the opportunity right away and started investing with us.
Schley: And then, Mike, what was your view? Because I don’t think that the international model truly replicated what you were familiar with domestically. Were there differences in tenor or makeup?
Fries: Back then, neither industry was very mature. Basically the entire global cable sector, if you could define one, was about the deal. You build out homes inexpensively. You put thirty channels on, you take a rate increase every year, you add a few channels every year. It was a traditional video business. 100% of the revenue. The logic of the business, United National Holdings, which we started, was pretty simple. People outside the US probably want to watch MTV. And they love CNN, especially after the Gulf War. So these satellite channels and cable channels became really terrific entrée into markets that were dying for more television. Because we know one thing: everybody loves television. And we’ll get to how it’s evolved and changed over time.
But the premise was simple. People all around the world want television, number one. Number two, if you build these networks, they will pay dividends for decades. And that has been the case.
Schley: Where were these orphan systems originally?
Fries: Norway. Israel. There was a small—they weren’t even really systems. They were contracts or licenses or partnerships. Sweden. Malta. Some really small countries that I just sort of, you know…and for the very first ten years, through the 90s, we were an amalgamation of small companies. Because we didn’t have the capital base or the team to go out and build the great businesses we own today. It took time. But it was a bit of a land grab in the 90s.
Schley: I envision these sort of, pardon the phrase, ramshackle cable systems that were probably not very technologically sophisticated at the time.
Fries: It depends. So we were building them from scratch; they looked like any cable system in America. But if we were acquiring them, they could be of any sort of quality. So one of the transactions that I think will go down in history as perhaps one of the most unique things we ever did, is right when the Berlin Wall fell down. Nimrod Kovacs and I jumped on an airplane and went to Hungary. And this was literally as the country was just opening up. And we rented a car and drove to every city in Hungary.
Schley: No kidding.
Fries: And in thirteen of them, which were most of them, we convinced the Communist mayors, formerly Communist mayors—newly capitalist economies—to privatize their cable networks, which were of mediocre quality, like twenty-cent ARPUs. And we kind of combined them all together and today, the business, we bought them out over time. It’s a thriving Internet/broadband/digital television platform that generates hundreds of millions of revenue and it’s an incredible story. But it started just like that from knocking on the doors of these cities saying, hey, you might have something here.
Schley: You literally answered a question I had, which is once you landed the plan—I guess it helped that Nimrod, your colleague, was Hungarian, right? He spoke the language, but they were the equivalent of franchises, if you will, that cities controlled—
Fries: These were municipal systems back in the time—and this is not different than the U.S. A lot of what cable’s origins emanate from is retransmission of television.
Schley: Over-the-air television.
Fries: Over-the-air television. So in these cities, this was a simple, cheap way of getting television into the large MDUs that represented these huge housing blocs. Then they would just continue down the street. So it was a retransmission system of maybe eight, nine channels, Russian channels, Czech channels. No satellite TV, no MTV, no CNN. Until we got there. So there was a fundamental basis for the business. There was connectivity into the homes. But there was not much there in terms of content.
Schley: And your responsibility was development? You were out there—
Fries: Chief development officer. My job was to flag—I’ve probably visited—I joked to my kids the other day, we found an app, I think in up to 70 countries. And 40 of them we ended up putting money in. So at one point or another. But I have been all over the world, and back in the 90s, with any land grab, people who are winners are folks who don’t stop moving. And we had a great pedigree. Remember, we all came from the U.S.—
Schley: You knew what you were doing. I get it.
Fries: Listen, the best story, it’s a longer story. We had, I think, great credibility, we had enough capital to show up with legitimate capabilities and interest. And everybody immediately saw the opportunity. It wasn’t difficult to convince them. But we had to out-maneuver a lot of bigger companies. So in Hungary we had to out-maneuver Time Warner, US West. We ended up bringing them all in to our deal, but we had to out-maneuver them.
Schley: They had similar designs.
Schley: Where did you find managers to run these cable systems?
Fries: So, in the early days, we really were a great outlet for US executives. So we had dozens and dozens of expats. And almost all of our cable systems were managed by Americans. For example, in Hungary, we brought in a guy named Gene Musselman, who then went on to be my COO in Europe. We brought in Bob Layton, who ran HBO-Hungary for us from Time Warner. So we brought in a number of executives from the US, but over time, of course, over time, over decades, there’s great talent locally. But in the initial stages, it was a pretty unique skill set that we couldn’t find abroad.
Schley: Presumably you had a desk by this point…
Fries: I never saw it much.
Schley: You were traveling. How were the underlying economics beginning to formulate? Was it painful? Were the numbers working? What did you experience?
Fries: It was actually not painful at all. Because our industry, there are three or four variables that matter. How much does it cost me to either buy the business or build out the homes? That’s a cost per home, a multiple EBITDA. How many customers can I grow or add to the network over time, and what kind of rates can I charge?
Schley: What will they pay you?
Fries: And then you generate cash flow. Now today it’s meaningfully more sophisticated. Back in the day, 100% of our revenue was video. Today it’s less than a third, right?
Fries: And if you think about this industry—to get to one of the things I love saying the most, which is we have been counted out as an industry every seven, eight years.
Schley: More than once.
Fries: Yet today, after really fifty years, the industry is thriving and why is that? One, there’s a few reasons. One of course is the entrepreneurial energy and innovation that we thrive on. Secondly, it’s the network. But look at how we’ve evolved. Video went from analog to digital to DVRs to on-demand to aggregation of OTT. Voice services went from just traditional voice services to B2B voice services; now we’re in the mobile business. Data went from always-on 512K to a MG to 10MG to 100MG to 1Gig. Now we’re looking—I was at a CableLabs meeting yesterday; we’re on to 10Gig. B2B services have evolved dramatically. So the industry has re-invented itself, continued to evolve and is much bigger, more complex, more nuanced, more credible than it ever was when we started.
Schley: It seems like it would be hard because you do—you’re a busy person to look back over that progression and sort of be wowed by what this industry has done.
Fries: I’m blown away, and I’m thrilled for the part that we’ve played in it, because we’ve been a little bit ahead of the US traditionally. We certainly launched triple-play services before they did, we certainly launched mobile services before they did.
Fries: We got to 100 MG before they did. But the US market has caught up dramatically, and is a fantastic market in many, many ways.
But I would say internationally, we were a little bit ahead in terms of competition, dealing with the regulatory environments, challenging broadcast relationships and political issues, managing different technologies, different technology type competitors. So it’s been a dance.
Schley: If we could isolate on one of those, the relationship, the yin and yang between satellite television and wire-line cable was different, I think in Europe.
Fries: Not much satellite in Europe. Or Latin America for that matter. The only place we really made money with satellite was in Australia. We ended up selling it to Rupert Murdoch and NewsCorp ten years ago. But satellite is a challenged technology. We all know that. I’m not saying it because I’m a cable guy. It’s just inevitably, in this day and age, if it’s not paired with broadband, it’s essentially dead. If it is paired with broadband or mobile, it’s limping. But I don’t think it exists in the future.
Schley: So even though you at the time were selling one-way video at relatively low RPU, the cash flow is being generated—
Fries: No problem.
Schley: You grew the business. You raised more capital. Just take us through that progression that time, because you were still United International at this point?
Fries: Through the 90s we were United International Holdings—a really catchy name.
Fries: …it just rolls off your tongue. I was at the time running the Asia-Pacific region, developing businesses around there in the late 90s because we’d divided the world up. Then I got called back to Denver in 1998 by Gene, who said, “I need a president and COO. I need you here.” And through those 90s, again, it was a land grab. And in Europe and Latin America and Asia-Pacific, we were just building relationships, getting smart. Some businesses worked, some didn’t. We exited in some cases, we invested heavily in others. We brought partners in where we could. But as we grew and had our own sources of capital, we could start running these companies the way they run in the U.S. Owned and operated, consolidated. No partners. Reasonable leverage.
Schley: Some scale. Efficiency.
Fries: Some scale. Then of course, we like many others stepped into the Internet bubble and it burst all around us. So our path to this point was not a straight line. We grew materially in the 90s, John actually came in and bought out one of our private equity partners in 1997 and became a very large shareholder in the company again. This was after his deal with AT&T. Thankfully, he did. He became a very large shareholder, very important influence and an investor for us. Then we hit the wall. Which was for me, a life-changing experience.
Schley: This was late 90s?
Fries: Well, the Internet bubble burst in 2000-2001. So we went into it on a rocket ship. We were going nowhere but up. Everything was overvalued. The businesses we were buying required lots of capital and we kind of ran out of capital. When the spigot was turned off, we had some challenges in Europe, particularly in Europe. Thank god we had John on board, because John at the time was extremely supportive and it’s a subject of an entirely different and longer interview to tell you how we got from there to here. But needless to say, his support—financial, strategic—was the difference maker.
Schley: Even probably to some extent psychological or emotional support.
Fries: No question.
Schley: This is not a person prone to panic, I guess.
Fries: Yes, correct. His wisdom, I would say, and calm was absolutely critical for us in that period of time. But also his intelligence, his willingness to take risk with capital, made the difference.
Schley: Mike, why did cable, which heretofore had sort of been regarded as recession-proof and sort of predictable in terms of cash flow generation, etc. Why was cable affected by the Internet?
Fries: Great question. So it wasn’t directly, meaning there were no industrial reasons for what we experienced. It was purely balance sheet. So what happened is as the Internet bubble was building and growing, capital was flowing into anything that sounded or looked like technology in media. We changed our name to UnitedGlobalCom. We liked that name better than United International Holdings. It was also trendy in a way; it captured our global space and our communications benefit or strategy. So we were able to make acquisitions with relatively inexpensive capital flowing to us largely in the form of debt really easily. But the problem is many of these acquisitions required us to continue to have access to capital. Markets shut down. It’s like running out of gas. You’re trying to get from here to there but the tank is empty and no one is putting gas in your tank so you’re just stopped. It wasn’t necessarily consumer-driven.
Schley: I get it. It’s a markets thing. Did you feel a sense of legit worry at that time as a CEO, as an executive…?
Fries: I wasn’t yet CEO. I was president and COO and I think “worry” is an understatement. I would say this was for me in my life—and I’ve been through a lot—a game-changing inflection point, right? I went from being worth a lot to personally nothing. We went for—our stock went down to 80 cents. Now I worked at the parent company—UnitedGlobalCom; itself never went bankrupt. Our subsidiary in Europe was struggling, and I had to basically take over everything because Gene needed my help and we needed to change management in Europe. But John was great. He went in and bought some of our bonds, he went and bought a piece of our balance sheet, our capital structure in Europe. Then he handed it back to us at the parent. We used that leverage to re-negotiate the terms of their bondholders. And long story short, because it’s an awfully complex series of cases, 2004, we came out of it brilliantly. And that’s when I became a CEO. And Gene, John bought the rest of Gene’s stock. And then we had one more move to make.
Schley: Which was…
Fries: To put John’s remaining international cable stuff, of which there was just a couple things, into us and call that Liberty Global.
Schley: Hence was born—
Fries: Liberty Global. Liberty Media International had a couple assets, Japan being the largest. And we put all the companies together—one big operating MSO called Liberty Global, which I ran—this is 2005 so I guess that’s been fourteen years.
Schley: And the capital markets recovered. But it wasn’t all gloom and doom on the operations side. In fact, you guys sort of coined a term that has become very prevalent in the industry: the triple-play. That really was sort of a UIH or Liberty—
Fries: No, we invented it. We were always much more innovative and progressive, I would say, knowing that these networks had incredible—
Schley: They could do a lot.
Fries: Incredible potential. And initially it was digital TV and then it was voice, came before broadband. And then broadband—
Schley: Voice preceded broadband.
Fries: Absolutely. We were putting voice services in in the early 90s. And so—because voice is a pretty simple technology, not difficult. But broadband changed the game. And thankfully it is a product that has nowhere to go but up for the next number of decades as far as I can see.
Schley: Well, today, if I can just flash forward, you guys have I think more than 21 million subscribers, but something like 45 million subscriptions.
Fries: It’s complicated which group you want to add to, but until we exit, we are in the process of re-balancing our footprint. So one thing that makes us unique, different from say Comcast or other big cable operators is we have always been willing to re-shuffle the deck. So we exited Norway and Sweden and France back in the early 2000s, put that money into—or mid-2000s—put that money into Switzerland. We exited Japan and Australia, took $6 billion out of those markets, put that money into Germany and other markets. Now we’re in the process, bittersweet, of exiting six countries for $30 billion to Vodaphone, and we’ll have $15 billion of cash. Now the $15 billion of cash is going to be really exciting to deploy. But we pair that with remaining businesses that do in the aggregate about $7 billion of EBDITA, and have 43 million in video and broadband subs. So we’re left in about six countries in Europe that are collectively sizable. And then we spun the Latin American business out, which I chair, and is still part of the Liberty family in that sense. So we’re agile. This is a Malone trait that we’re not empire builders. I mean, I’m not going to pass this on—
Schley: It’s a great point.
Fries: We’re actually asset builders, capital allocators and incredible operators, but we’re also willing to re-balance our businesses in the context that we’re in at the moment.
Schley: How do you know? You talk about this re-shuffling. When is the right time to re-shuffle?
Fries: Great question. So I’ll give you an example in these latest deals. Because of convergence in Europe—something we may talk about—the combination of cable and mobile assets in Europe is the golden ticket.
Schley: Cable and—?
Fries: And mobile. So mobile operators in Europe, of which there are too many, are in need of fixed broadband connectivity and video expertise.
Schley: Which you happen to have.
Fries: Which we have. And where we didn’t see the opportunity to be national, we were willing to enable a national challenger with our assets. At multiples that were record high—12 times, 11 times. So for us it was almost—if we can’t get scale, if I can’t own every cable system on this table, but I can only own a third of them, I’m not so sure I want to be in that market. The U.S. is very different. In this country you can only own a third; just archaic and crazy.
Schley: You’re capped. Right.
Fries: Not capped in Europe. Not capped anywhere else in the world.
Schley: Talk about—I don’t know when it was that the word “Horizon” first came out on the horizon for Liberty Global. But can you talk about that project and what it had to say about the world?
Fries: So one of the things that I said earlier that sets us apart, I think as an industry, but also as a company is being able to look out. Seven, eight years is what we did in this instance, and say, we understand where consumers are going. What did the cable industry do well? We had great customers, we had a lot of customers. We have an incredible network. We had the ability to innovate. What were we terrible at? Our user experience was terrible. We were unable to take television off the TV onto your cellphone. We were not able to bring consumers into the next generation of video experiences. So we saw that early on. So did Comcast. In fact, we used the same software stack as Comcast in our video product. Horizon is like an X1 equivalent. We had Horizon and X1 next to each other. They’re almost identical. And what we understood early on was if you give consumers a great user experience, if you give them access to their content on all their devices, if you don’t make them pay for it in terms of their experiences off the television set, if you make it look the same and seamless, you’re going to hold on to more customers. And I’ll be damned, it worked. I mean, it was a decision we made together with Balan [Nair]. It would cost us more than we thought it was going to cost, but you see today companies like Cox or Shaw, who are now dependent on Comcast for their version of Horizon.
Schley: For that stack.
Fries: Because everybody realizes if I don’t have voice control remote, if I can’t say, “Play Netflix,” if I can’t go to YouTube clips on the TV, if I can’t store, forward, record and watch all my content on my mobile phone and my iPad from my cable operator, I’m probably not going to be a cable customer. And that innovation for us was a game changer and will be a game changer until TV becomes an app. And no longer there is a need for a box. But I don’t know exactly when that is. But that’s coming to us.
Schley: And I know you know Reed Hastings, the co-founder of Netflix, but you didn’t regard Netflix so much from a defensive posture as an opportunity posture.
Fries: I found they were more friend than foe to us. It’s almost obvious really because one, where we put Netflix on the box, we integrate that experience into the home UI. Customers pay us more, watch more TV, are happier, churn less, it’s all good. And why is that? Because Netflix makes great shows. People want to watch those shows. So why wouldn’t we put them on the box next to BBC or ITV or other…they’re the third-rated channel in the UK. And it’s a win-win for us and Netflix. Our customers churn less, and their Netflix customers on our box churn less.
Schley: That’s interesting.
Fries: Our customers churn less. So it’s a win-win. I think it’s much more disruptive to the content industry. This is where people have big question marks.
Schley: It’s almost like you’ve revitalized the video side, which was not decaying, but moribund for a little while maybe.
Fries: In the U.S. market, cable operators are losing 1-2% of customers per year, which is distressing. I understand that. More the content guys than the cable guys—
Schley: Because they’re losing access to the viewer.
Fries: They’re losing access to the customer, the viewer. But the real challenge with video today is in the satellite business here in America. These are the platforms that are losing hundreds of thousands of customers every quarter.
Schley: Much higher rate of loss.
Fries: Much higher rate of loss. The other thing I would say quickly is in Europe, we still have good margin in the video business.
Schley: Go figure.
Fries: There was a time when video was the only margin we had in the world. And for the U.S. guys, it shrunk materially. When all the networks are charging you $3-4.00 a month to have ABC, CBS, NBC, Fox, your content costs are 35-45-50 bucks. There’s no margin in the video business in America, but in Europe we still have quite a bit of margin. It’s worth hanging on to these customers.
Schley: Good places to be. I wanted to ask you a question about—you’ve traveled, how many countries? 70?
Schley: And had to meet a lot of different people in a lot of different places. This is kind of a big question, so I apologize for the grandeur of it. How is your view of sort of essential humanity been shaped by your business occupation?
Fries: Great question. I would say, in some instances, I have been calmed and I would say very positive about humanity. I think there’s more we share in common than difference. And that makes you feel good. You’re in some part of the world where for all intents and purposes should be 180 degrees the other direction. Actually, they want and need and react to the same things. You know, connectivity, great experiences, terrific customer service. And I think, you know—so from our product point of view, from our industry point of view, I’ve been, I would say, emboldened by the commonality of humanity. Now on the other hand, I’ve seen the best and worst of politics, macroeconomic developments. Authoritarian regimes. We’ve had countries tax us arbitrarily overnight. We’ve dealt with our fair share of corrupt competitors. I would say when you get into the trenches, right, when it’s muddy and dirty. But when you get your head above it and you look out on the fields, it’s pretty flat as Thomas Friedman has said many, many times. It’s pretty flat.
The other thing I would say is—and this is going to sound like I’m a patriot—I am a patriot—America is an incredible place. You wouldn’t know that if you watch television today. Either news channel. You would only hear about the negatives from both sides of our political democracy. But in reality, we have an incredible quality of life in this country.
Schley: We do.
Fries: And until you’ve traveled to 70 countries, you don’t appreciate it. And I’m not making a political comment, more of just a cultural comment, a macro-comment, that we are so lucky to live here, so lucky, I think.
Schley: One of our great exports is content, right? Is entertainment or information content. You guys have made big investments in being a content owner or partner as well as being an operator of physical distribution.
Fries: I think “big” is a relative term. I would say we’ve been more tactical, so unlike Comcast, which bought NBC Universal in this country, or AT&T, which bought Time Warner, you’re seeing big vertical integration. We’ve been more tactical vertical integration where we’re buying sports channels, developing—we do own some free to air broadcasters in Ireland. So much more tactical because there are no Time Warners or Disneys in Europe or Latin America for that matter. America has incredible scale.
Schley: Scale of content.
Fries: Everything else is quite fragmented outside America.
Schley: Why are you making those admittedly tactical investments in content, though? What’s the strategic…
Fries: It’s a combination of things. I think in some instances it’s defensive a little bit. If there’s going to be great sports content, we don’t want to be blocked from it. In other cases, it’s offensive. We know that our customers love our branded version of sports. Like in Holland for example, Ziggo Sport is like the fifth highest rated channel in the country. We sponsor Ajax, which of course was close to the champions league final, which is a soccer team. So I think it’s a real positive branding benefits and consumer benefits to owning content as well as having control where you think you need it.
Schley: I wanted to piggyback on the humanity question. You have been as active as anyone in the Colorado community, perhaps even nationally, on sort of the civic front and the contributory front. Starting when? When did you sort of feel the yen to engage on kind of a civic level in your life?
Fries: That’s a great question. Listen, on a personal basis, it’s the right thing to do. On a corporate basis, it’s good for business. And more importantly perhaps, it’s a real energy booster for your employees and your culture. So I embrace it on all three levels. Meaning, it’s the right thing to do. So in our corporate world, we are bridging the digital divide for less fortunate that don’t have access to Internet or devices.
Schley: With lower cost, affordable services…?
Fries: For sure. Yes. We are investing in education platforms. Whatever we can do to drive a greater awareness of our product, but also bridging that divide that exists in all communities.
Schley: It’s a benevolent role but you’re attached to as a corporate sponsor.
Fries: I’m personally much more interested in education in particular and culture. I think those two go hand in hand. Education obviously is one of the most important things we can do as a society. Educate our young and give them all the opportunities we know that education brings. And I think culturally, especially in a place like Denver, we punch way above our weight. This is one of the coolest towns on the planet. So I embrace my support of the museums I’ve involved in or chair. Any opportunity to build the cultural life of this town.
Schley: We appreciate it.
Fries: I think it’s good all across the board. Good for you, it’s the right thing to do, it’s good for your business if you do it right, and your employees are totally engaged and that’s what they come to expect, too.
Schley: Right. Because I’ve asked you this before but it’s interesting to me that as an international company with interests in Central and Western Europe, the Netherlands, the UK, you’re based here in Denver.
Fries: Great question. But if you saw a map of our operations in 1998, we were in Latin America, Europe, Asia and Denver was as central as anyplace.
Schley: Time zone-wise. Travel-wise.
Fries: But the truth of the matter is all companies are virtual today. And if I were to be based in Miami or Santiago, Chile, or Tokyo or London, I’m not with everybody at that moment. Now here when we got more concentrated, I’m spending more time in Europe, I’m there often once every week or so or couple weeks at least. And that time I spend is critical, but also I’m sitting every morning in a Cisco TelePresence room where everybody looks like they’re—just like you and I. If this were a teleconference, it would feel very much the same.
It’s a virtual world. I think leadership comes in many forms. And I think strength of management is built on many things. And in our case, you know, it’s transparency, and trust. And we rally around certain values. So for us it’s agility. It’s being limitless in our expectation and ambition. It’s what we call being straight up, no B.S. Gene Schneider’s school of communication. And it’s being united, seeing the common benefits of working together. So those values run deep and the DNA runs deep. I’ll move to the next question in a second, but when we bring people back to Denver or I get a chance to bring John into the operations, people understand the history. And we stand on the shoulders of giants—
Schley: Here in Denver.
Fries: Absolutely. They’re all enshrined in this building. And that is something I don’t only respect, but I think is a great source of energy in our company. And the more I can reveal that for our employees, the more I can help them understand that we’re in this business because of the desire, the risk-taking, the brilliance of the people who came ahead of us. We’re sort of just carrying that legacy forward. Denver’s an awfully good place to tell that story.
Schley: OK. And you’ve talked about—in terms of keeping people on the same page, one thing you said interesting to me a couple years ago was that your manager in pick-a-market understands and appreciates what’s going on elsewhere in your company. Because there is this common realization.
Fries: I mean, look at how Comcast is operated, and operated very well. There’s not a lot of difference between Miami and Boston and it’s the same product. Now they’ll have differences in some respects, but it’s more or less the same product. When we operate in Brussels, in Amsterdam, in the city of London, in Zurich, in Vienna, it’s actually some pretty big differences. They don’t watch the same television, they’re watching different broadcasts, they don’t speak the same language. So the more I can bring them the things that we do share—strategies, product development tactics, technology decisions, roadmaps, financing and treasury decisions—those are things, anything we can scale up is going to help us grow. And so anything we can pull out of the countries to scale up and do centrally, ultimately—
Schley: You’re leveraging.
Fries: Leverages our broader platform.
Schley: Mike, you mentioned you grew up with a large houseful of siblings in the Los Angeles area. Your dad was a pretty prominent producer and distributor of television programming. They made movies of the week and—did you grow up in a house where there were scripts lying around the kitchen table?
Schley: Really? Seriously?
Fries: Yes. My dad every night would be sitting in his bed after dinner reading scripts. Every night. I am the only sibling who is not in that business. Or didn’t try to get in that business. And that’s not because it’s not a great business. It’s just that as a fourth son and the sixth kid, I’m the product of tribal love but parental neglect. You know, which one are you? What sport do you play? I remember applying to college on the dining room table filling out an application with whiteout and a ballpoint pen. “My view of the world”—and my mom, “What are you doing?” I said, “I’m applying to college.” She goes, “OK. Good luck with that.” So it’s a different time and I think the industry is fantastic. I think my dad’s career was epic—it is epic. And he’s at 90, still thinks he’s a mogul. But the truth is, going away and leaving LA and getting educated on the East Coast, getting into the financial industry first, into the media industry immediately thereafter—it was a game changer for me.
Schley: The references you made to Malone, to Schneider, to Gene Musselman, to a lot of people you’ve worked with, I hear this at this table a bit—that people believe or perceive there’s a special quality of entrepreneurism, pioneering risk-taking nature to cable. I always wonder, is that just because they work in the cable industry and that’s what they know? Comment on that. Is there a legit sense there?
Fries: I think it’s a little bit of both. Because if it were only one of those things, then that implies the individuals wouldn’t be successful in other industries. Because they would.
Schley: Fair enough.
Fries: But cable brings out the best. Why is that?
Schley: Yes, why is that?
Fries: Unlike a lot of industries, you have to be looking out five years, ten years. When you put billions of dollars of fiber, or coax, or technology in the ground, on poles, it’s not hit or miss. You’re making big decisions. Multibillion dollar decisions that will have ten-year paybacks. To do that, you have to be able to finance, tell the story, understand consumers. I’ve never been in an industry that’s actually more exciting. It’s a technology business, it’s a media business for sure, it’s a consumer-dependent business, it’s incredibly supportive of and in need of financial markets. It’s got all kinds of M&A heat and light and activity which is cool and fun and crazy. It’s inside of an ecosystem where integration is happening vertically, horizontally, all the time. It’s enabling all the amazing things we love and do. Do you think Google would exist if we didn’t give them broadband service out quickly and fast and at super speed? Would Netflix be around? I don’t think so. So it’s enabling incredible user experiences. And there’s a kind of a history to it that’s unique. I think it brings together—let me say it differently. You need to be really, really good to succeed in this industry. There are other industries where you don’t need to be good at everything.
Schley: I agree with that.
Fries: But you need to be a good capital allocator, a good fundraiser, a good balance sheet manager, yes; great technologists, great innovators and product developers, yes. Great consumer interface companies. I mean, Google doesn’t really know who its consumers are. We’re knocking on their doors, for crissake. In their home.
Schley: Very direct, right.
Fries: Yes. So you really need to have, I think, a much broader set of skills, capabilities, to succeed in this space.
Schley: Other people—since we’re at the Cable Center and we’re talking in a history interview—that have been particularly influential in your career. I get that Malone is probably right up there at the top of the list. And Mr. Schneider for sure.
Fries: Well, let me talk about John first. As I said, he’s been involved in my career every step of the way for almost thirty years now, in varying degrees of engagement. But of course the big turning point was the 2000 timeframe where he engaged heavily and promoted me and gave me the shot to run this company for the last fourteen years. I’ve never met anybody who’s smarter, better at what he does, and what I think his particular brilliance is not simply that he’s super-intelligent—which he is—has a great understanding of our industry and the pieces of our industry that work—scale, collaboration, technology products. But he understands how to create value. And his unique contribution is, I think, that he’s let these companies grow separately. Right? The world is full of conglomerates. He is the ultimate anti-conglomerate. He doesn’t believe in businesses working together. He says, “If you’re going to attack that vertical, let me put a special management team unique and dedicated to that vertical.”
Schley: Focused on that.
Fries: “Go get it.” That’s how he’s going to create value for himself and for shareholders. I think he’s 100% right. And that’s really served him well. And when he does that, you know, he absolutely empowers you. He’s an incredible partner. You couldn’t ask for somebody, I think, more impactful.
Schley: I’m not asking you to name names, but riding on that thought, sometimes I think that the theory of synergy around vertical integration is a little bit overblown in the media business. Do you buy into that?
Fries: Well, I think it depends. Vertical integration between content and distribution is dangerous. Sometimes it can work brilliantly, other times it cannot. But I think we’re moving in both directions now. Vertical integration and what we call convergence. Convergence is happening across technologies driven by connectivity.
Schley: It’s a great point.
Fries: And driven by scale. Fragmentation is the enemy of convergence. The reason the U.S. market is slow to converge, fixed and mobile, is because it’s fragmented, right? AT&T doesn’t have a national footprint on the fixed side. Comcast has a partitioned footprint on the fixed side. But yet mobile is national. As in Europe almost everybody is national. We own all the cable systems in every country.
Schley: Both the wireline and the wireless…
Fries: We got into mobile because we saw mobile guys getting into fixed. And we had to compete. And we know that connectivity needs to be seamless in the future.
So I’d say convergence is here to stay. Vertical integration is situational. And it works sometimes and it doesn’t in others. It really depends on the owner, the asset and the strategy.
Schley: It’s the inevitable question one asks at this sort of a meeting. What do you see happening personally, professionally and with the company, because you talk about these long-term horizons that you guys look at. Let’s pick a moment in time. Seven years from now, what are you thinking about right now about making your investments and how they’re going to pay back?
Fries: Personally I’ve just renewed my contract for five years. So I’m in, I’m all in, and I’ve actually never been more excited. Part of that is of course is having the optionality and the opportunity that $15 billion in cash creates for you…
Schley: You can do a lot of things.
Fries: …to do some really interesting things. Part of it is I love the team I have. And I love the business we’re in, and I can’t think of a better environment and group to work with. So I’m all in for the next five years. Having said that, I will tell you that we’re up for some considerable change. And all of it to me seems navigable. We can absolutely, if we make the right choices in five years’ time, if I’m sitting here with you again, we will be more successful than we were five years ago. As we have been every five years along the way. Because as I said—I’ll give you a few reasons why. Number one: consumption of broadband is going nowhere but up. 30-40% a year. I’ve never known a product in my life that grows 30-40% a year, every year. And that is our business. Our ability to provide 1Gig, 10Gig, 100Gig efficiently and inexpensively is incredible. And connectivity is the core business.
Secondly, I think video is going to be a bumpy road for everybody. And we’re going to go through a cycle of too many OTT direct-to-consumer opportunity where aggregation, facilitation, whatever you want to call it, of content experiences, whether it’s a box or an app, someone is going to have to do that. Why not us? We could possibly do that. B2B opportunities. There’s so much revenue to be, I think, realized in this space. And the other thing that’s interesting is industries that are tangential to our industry. Look at what’s happening today with infrastructure, with tower companies, with the ability to—I think there’s all sorts of interesting things happening around us. But it’s going to be scary and there’s going to be winners and losers. This is a tough thing. For the longest time, it was only winners in our industry. Just go look at the Cable Hall of Fame recipients. Winners in every sector of our industry.
Schley: Predictable paths …
Fries: Going forward, it’s going to be tough. Who has a lifeboat? Right? Disney just built itself a lifeboat. If they’re successful beyond their wildest dreams with this new direct-to-consumer product, what percent of the revenue do you think it will represent?
Schley: DTC, probably a large—
Schley: Even the theme parks, and everything else, it’s still way bigger.
Fries: 10%. So my point is, they build themselves a lifeboat and in the event that traditional business starts to suffer from a lack of inertia or go the wrong direction, they can put more resources into direct-to-consumer. But if they hit the 90 million subs at six bucks or seven bucks, just do the math. It’s 10-11% of their revenue today. So it’s a hedge. And if you have the ability to build a lifeboat and I think some programmers do, others will not, you really have a shot.
Schley: OK. And are you building a lifeboat?
Fries: Yes, well, we think we have this cash, that’s a bit of a lifeboat. We’re going to be very smart with how we allocate it. I think the cable industry is in essence, a ship. It’s not really sinking. If anything it’s actually rising because the consumption of broadband is such a tailwind to what we do that I think we just have to be smart about capital allocation, what markets we choose and then managing the other pieces around that. Video, mobile, and B2B. Managing those revenue streams in a way that’s margin creating.
Schley: If you’re a young person—there’s been an issue in this industry at least domestically about is it still considered cool to people who graduate from Stanford in the tech group want to go work for a cable company? From what you’re saying, there’s tremendous opportunity in the convergence layer of this industry. What would be a lure for somebody to come and work…?
Fries: I think it depends on where they’re starting. So if they’re a finance person or a marketing person or a product developer or a technologist. If you’re a technologist, it’s awfully cool. I was just at CableLabs yesterday. The stuff that they are demoing and building up there for the benefit of a global industry is world class. If you’re a technologist/PhD, you want to be at CableLabs. I’ll be honest with you, because you can impact an industry. Not just a company.
Schley: You’re talking about futuristic media incarnations…?
Fries: Stuff I can’t even talk about.
Schley: Holograms and…?
Fries: I can’t talk about it, it’s that secret. But it’s cool stuff. They have rock stars up there. So I think if you’re a technologist, yes. There’s plenty happening to be excited about. If you’re a programmer or a content person, I think you have choices. Because we are an aggregator and likely to be an aggregator for a long period of time. If you’re a finance person or an ops person, no bigger challenge in life, I think. We are heavily dependent on capital markets. We are really sophisticated on tax and Treasury stuff. And then importantly, there’s no industry that’s going to benefit greater from digitization in the consumer experience than ours. We’ve been in the industry a long time. We are still in the dark ages. We have an amazing upside from digital in terms of improving consumer experiences at every step of the food chain.
Schley: Right. And this all has implications for the capital side as well, right? Because you may get more efficient and more productive in terms of EDITDA going forward as your cost centers ease a little bit. You just used the word “rock star,” and I can’t conclude this interview without asking you to share your life onstage.
Fries: I almost made it.
Schley: All right. I’m opening it up. What do you do?
Fries: Oh listen, I have a lot of hobbies. I find that—I’m 56; I have things I love to do, whether it’s mountain bike race or heli-ski or be with my kids or when they were growing up, coaching them in soccer and sports. I’ve got a lot of things I love to do and I’m going to hang on to those things. It keeps me young. And one of the things that I tried out, because I’d kind of never done it before, about seven or eight years ago, was singing. So I joined a bunch of other CEOs and we formed a rock band and we raise money for charity. We raise about seven million bucks for charity. We don’t charge, we’re not that good—
Schley: You’re pretty good.
Fries: If you had a couple of local beers, had a couple beers, we’re going to sound really good. But it’s fun. It’s ridiculous really that we do it but at the end of the day, you need outlets. And I think creativity exists in all of us, and it’s what makes great CEOs personally. Having some level of creativity, whether it might come out mathematically or in leadership or in dealmaking. And it’s been a thrill for me to actually try that out and be reasonably good at it.
Schley: What’s an example of a rave-up song that kind of always gets them going on the crowd? Because you have a pretty large—
Fries: My wife likes the song I do from Billy Idol—“Rebel Yell.”
Schley: “Rebel Yell” is a great song.
Fries: She thinks I do it better than him.
Schley: I was hoping you would say “Living on a Prayer,” but I’ll take Billy Idol…
Fries: Anything Bon Jovi works. You know the words to every song we play because we’re just not that good. We have to play rock songs that everybody knows and loves to make it work.
Schley: Stevie called it the world’s biggest frat party at some point—sort of like that.
Fries: Something like that.
Schley: Just a final subject. That was good. Thank you for touching on that. Final subject: because you did mention Google in periphery. As this disruption does occur, both in video and in communications at large, what we call the “FAANG” companies—Facebook, Apple, Amazon, Google—are they your friends, are they your foes, where does the relationship go?
Fries: It’s incredible. Look, what’s most incredible is the global scale that these companies have achieved. I mean, over $3 trillion in market cap. Put those five together, it’s like sixteen Disneys or something. So they are massive global organizations. And I think for that they deserve an incredible amount of credit. I think in many ways it was a joint effort because without broadband and connectivity they don’t exist. But nonetheless, these are great companies, brilliant companies. I sit on the advisory board of YouTube and it’s an honor for me to listen to how they think about these questions and the challenges and the opportunities they face. Now on the other hand, I will tell you that each of them, for different reasons, is at a very important inflection point in their development, largely having to do with the fact that they’ve grown really fast, really large, really fast, and consumers and politicians are reacting to that growth. In Europe, those companies are not loved by regulators and politicians. And even by some in industry because they’re viewed as not paying enough tax or maybe skirting taxes in the case of Apple. They don’t really employ a lot of people. And they disrupt a traditional businesses. They don’t give back. I mean, there’s all these questions. And they have privacy concerns.
Schley: The GDRP response to that?
Fries: And privacy has been sort of the train wreck we’ve been waiting for, whether it was Cambridge Analytica or whether it was sadly, some of the things that happen on YouTube that they’re trying to control or whether it’s the fact that Google is so successful in search and has 90% of searches. You can be a victim of your own success and I think for each of them, it appears to me they’re starting to address this proactively. And maybe self-regulate or maybe ask to be regulated. I don’t believe they’re going to be broken up. I think they’re all just incredible brands, incredible companies that have helped us, each of us, in measurable ways. But there’s an existential crisis that they’re approaching here in terms of how they become self-reflective in an honest way, in a vulnerable way. And how they set themselves up for the next ten or twenty years of growth unfettered without continued political or regulatory challenges or consumer backlash. It’s going to be really interesting to watch. You know, as we see—
Schley: But Mike, from a video perspective, I think people sort of had an initial kneejerk, oh, the fact that Google was in the video business, or Facebook or Apple or Amazon. Bad news for the cable guys.
Fries: Listen, you have to define OTT video. I can give you six definitions of it, OK? It’s a virtual MVPD like Sling TV or—
Schley: A bundler of channels.
Fries: DirecTV now. It can be a direct-to-consumer product like CBS Online. Or HBO GO.
Schley: What Disney’s about to do.
Fries: It could be a product like Netflix, which is very unique and clear and knows exactly what it is. Or Hulu. It’s a number of things. It could be Prime Video, which is really like an amenity.
Schley: A membership bonus.
Fries: It’s like a chocolate on your pillow at night at the hotel. And it’s great. So I think everybody—to me the definition of video is evolving and fragmenting, and all of them require what? Connectivity, aggregation simplification, billing, and these are things we’ve always done. I was talking to an analyst the other day and he goes, “Aren’t you worried about going from an aggregator to a facilitator?” I said, “We’ve only ever been a facilitator. We’ve only ever been a facilitator of content consumption.”
Schley: Right. Helping to get from point A to point B.
Fries: Getting those experiences in the homes and hands of people every day.
Schley: That’s an interesting semantic divide between those two. So there is a role for companies like yours in what I will call “the convenience scene of over-the-top television.”
Fries: I think so. Now I will tell you that not all are innovating quickly enough. So you have to have leaned in to things like X1 and we have with Horizon 4. Or you need to partner with Google on a new Android box. Or you need to do a deal with Apple and let that be your box. But there needs to be a platform you’re presenting to consumers and it has to be smart, sophisticated, and really good. And we’ve invested hundreds of millions in doing it as have Comcast and others and you need to really make some moves. You can’t just let it happen.
Schley: Passively sit by. Well, we do hope that when this five-year contract is up—
Fries: I’ll come back and talk.
Schley: You re-up and let’s make a date, right, to get back to this table. But this has been a terrific conversation both forward-looking and tracing the journey so far.
Fries: My pleasure. I really enjoyed it. I enjoyed it as well.
Schley: Really appreciate it.
Fries: Thanks to the Cable Center.
Schley: Indeed. Thanks to the Cable Center. And for this episode of the Cable Center’s Hauser Oral History Series, with Mike Fries, I’m Stewart Schley.
END OF INTERVIEW