Interview Date: June 6, 2000
Interviewer: Tom Southwick
Abstract
Alan Gerry describes his start in the cable business and the building of his company, Cablevision Industries. He talks about introducing local programming in the early years, the move to high-powered microwave, and the growth of programming through satellite distribution. Gerry discusses the challenges engendered by the 1984 and 1992 Cable Acts, and the effects of both fiber optic technology and digital compression on reliability of service. He reflects on the competition from direct TV and telephone companies and the need for merger, and concludes with comments on NCTA, Ted Turner, John Malone and others.
Interview Transcript
TOM SOUTHWICK: It’s June 6, 2000 and my name is Tom Southwick. This is a part of a series of oral histories and video histories of the builders of the cable television business. We’re in Liberty, New York at the headquarters of Alan Gerry who played a key role in building the cable television business over more than four decades. Mr. Gerry, thank you for having us today. I wonder if we could start by asking you a little bit about your family background, your parents, where they came from, what you know about that. Tell us a little bit about the history of your family.
ALAN GERRY: Thank you, Tom. First of all, we’ll start off with everyone calls me Alan around here. So you may as well call me Alan, too.
SOUTHWICK: Very good. Thank you.
GERRY: You always have in the past. As far as the business or my life up here, our family moved up here in the early 30’s when I was an infant. My dad and mom were both born overseas, in Russia. They came here as children. They met in New York City. They worked in the garment factory down in the lower east side. That’s where they met. My mother, I believe, was 17 or 18 years old at the time she met my dad. He used to come courting her. He lived in Brooklyn. She lived in the Bronx. He used to rent a horse and buggy, if you believe it, and drive it over the Brooklyn Bridge to come see my mother on Saturdays or Sundays and take her for buggy rides. So that’s how it started. When they got married and the family started coming along – I have two brothers, one older, one younger – we moved up here to Sullivan County. That was back in the early 30’s, 1931, 1932, something like that. I grew up here and went to school here. We lived here until about 1941. I think we moved to New York City in 1941. It was very, very hard economic times. We moved there right before World War II.
SOUTHWICK: When were you born?
GERRY: I was born in 1929.
SOUTHWICK: The date?
GERRY: Christmas Eve.
SOUTHWICK: Very good.
GERRY: Just made the holiday. My mother tells me they were singing Christmas carols outside the window when she was in labor. So that’s what I must have heard when I first came into this world – Christmas carols.
SOUTHWICK: Good start.
GERRY: We lived in the city for two or three years during the early part of the war. In 1945, 1946, in that area, I left high school. I was going to graduate that June. I left in April and joined the Marine Corps. They had a special program that I was anxious to get into, an electronics program. I went into the service. The war ended shortly after that. When that was over, I came back to Sullivan County and did odds jobs, did what kids did then when they got out of the service. I went in when I was 17 years old and I came out about 19. I drove a truck. I worked on a chicken ranch. I did construction.
SOUTHWICK: What did your dad do?
GERRY: My dad, at that time, worked for a large food wholesaler in New York City. He was a salesman. He was in charge of selling all of the exotic sea products. He knew where all the lobster and shrimp beds were all over the world. His job was buying them and supplying them to the upper scale customers – the Waldorfs, the shipping lines, later the airlines when they started serving upscale meals. That’s what my father did. Incidentally, he wanted very badly that I join him working in that company. He said I’d start packing tomatoes, and I’d work my way up. It didn’t sound very appealing to me.
SOUTHWICK: Were you interested in electronics, you mentioned that, as a young man or a boy?
GERRY: Yes, from the beginning. I used to fix lamps. I used to build lighting systems in the house. I’d wire up the garage and put light bulbs in the garage. I put electricity in the garage. Later on, I started fixing radios. When I got older and went in the Marine Corps, they did aptitude tests and I wound up in a radio and electronics program in the Marine Corps. When I got out, after coming back here and sort of bumming around for a year or two, I did the GI bill at that time. I went to school in New York City at Delahaney Institute, and I studied electronics there. Basically it was when TV was first starting to break onto the scene. At that time it might have had two or maybe three channels on out of Manhattan, and they were on part time. They weren’t on full time. As part of the course, you’d build radios, and you’d build an FM radio – build it right from the chassis up. Then in the more advanced courses, you’d build a television set – everything. You created the channel selector. You built the channel selector our of switches. You knew how every component in that television set worked. At the end of the course, you had an AM radio, an FM radio, and a television set. You didn’t have any cabinet on it, but it was a television set. You really learned the fundamentals from the ground up, at that point. During the period of time I went to school down there, I went to school for five hours a day. Classes started at, I believe, 8:00 and by 1:00 I was through. In the afternoon I used to put up antennas for the radio and television dealers down there. In those days there wasn’t a WalMart. There was no Whiz. They were the mom and pop radio and appliance stores. Almost every block in the city had a radio and television repair place. They got into television. I worked for a company whose job it was to put the antennas up and deliver the television sets from the mom and pop store to the consumer. I was the guy that put the antenna up.
SOUTHWICK: So you’d go up on the rooftop and attach it and make sure it pointed the right way.
GERRY: Attach it onto the walls up there and point it the right way and try to get rid of what they called ghosts in those days. It was multi-reflection. Being down in the city, the signal used to bounce around the buildings. We’d have to trap the antenna to get the most acceptable picture with the least amount of ghosts. You clean up Channel 2, then Channel 5 would have a ghost. You’d go back to Channel 5 and clean that up and then Channel 2 would have a ghost again. Those types of things. You learned a lot of tricks about how antennas work and how signal was transmitted. I did that for almost three years while I was going to television school. When I got out, I came back to Liberty, came up here and started a repair business. I put an ad in the paper that I was in the television repair business, and that phone started ringing.
SOUTHWICK: What did it say – the ad?
GERRY: It said, “Got a TV problem? Call Alan Gerry – 1955” That was it. The telephone number was 1955. And the phone started ringing, and it never stopped ringing since. A little later on, I got a dealership for Fada. The name of the television set was Fada. It was named after Frank A. D’Angelis, I think his name was. He was a sort of an inventor type of guy. He went into the television business, and he produced a television set. Then we had the CBS franchise. CBS used to make television sets, if you don’t remember.
SOUTHWICK: I didn’t know that.
GERRY: That was before you were born. We got a franchise to sell, to distribute CBS television sets – actually to retail CBS televisions.
SOUTHWICK: Did you have a store front or were you operating out of your house?
GERRY: I started the business operating out of the basement of my home. I had built a home, got a GI loan, 4 ½% mortgage on the house. The government used to guarantee them. I had a place in the basement where I was able to bring TV sets in. I had a shop set up down there with a bench and repair equipment – oscilloscopes, meters, and all the other things that you needed – parts and pieces. That’s where I started the business.
SOUTHWICK: What hours were you open?
GERRY: We were open all the time.
SOUTHWICK: 24 hours a day, 7 days a week.
GERRY: Anytime someone called or someone used to drive up in the driveway with a broken television set in the back of their pickup truck. They’d help me lug it into the cellar and stand there and watch me while I fixed it. I got telephone calls – and this is important for later on when we talk about getting into the cable business – invariably during supper. I’d finish dinner. About 7:30, 8:00 I’d go back out on the road for 3 – 4 hours, work very, very often till 10:30, 11:00 p.m. repairing TV sets so I’d have a clean agenda for the next day. I used to put up antennas in the morning and do the service calls in the afternoon. I started by myself, and I had a couple of part-time fellows helping me. Then I hired my first, full-time employee. That was early 50’s – 1953, 1954.
SOUTHWICK: How big was Liberty then? What kind of a town was it?
GERRY: The village itself was a community of about 4,500 – 5,000 people. It was located in Sullivan County. Sullivan County had about 60,000 people. It had another 3 – 4 towns in it about the same size. That’s primarily the area that I started with. The area here is quite mountainous. Unless you were fortunate to live on the right side of the mountain, the side facing New York City, you didn’t get any television signal. So in order to sell television sets in the early days, we got very, very creative by topping off a very, very high tree and hanging antennas up there. Then later on, we developed the skill of putting up steel towers. We put up towers as high as 160′ to pull in television channels. At that time, the sponsor, the owner of the tower, had so much money in it, he’d ask his neighbors if they’d want to hook up to the tower. They’d chip in and give him, some of them, $50 a year, $100 a year. Then it got to be maybe $2 a month, something like that. We were the guys who put the towers up, put the distribution box in there, and ran the lines so all the neighbors could enjoy television. There was always one neighbor down the road who was too far away and he didn’t get any reception. He couldn’t join the club. So at the time that we got into the cable business up here, I had a lot of these systems scattered around that served 5 families, 10 families, 20 families, scattered all around. They were ideal spots that we wanted to wire up initially with the cable system so that we could get in there and pick up all those subscribers.
SOUTHWICK: You already had wires into the home.
GERRY: They were tickled pink to get rid of the towers and all the wires and all the service calls and the intermittent service they got from trying to pick up signals off the air. They already had the wires in the home. What we had was open wire. It was called Gonset line. It was two copper wires, spaced with 1 ½” piece of poly every 12″ to keep the wires apart. You could run ½ mile of that stuff without an amplifier between it. When we built our system, we did it, of course, with coax. We turned our first system on …
SOUTHWICK: Before we get into that, how did you learn about cable TV?
GERRY: I guess the story’s been out there for awhile. But I was up on top of a tower in the village of Liberty changing the tubes in an amplifier. The tower was on top of the Liberty Motel. It was relatively small tower, an 80′ tower. When I got down – it was in February, a very cold day – there was a fellow in a green Chevrolet sitting there who introduced himself. His name was Fred Green. He was a sales rep from Jerrold Electronics out of Philadelphia. He had been traveling through Liberty, coming from upstate, and saw this guy on top of a tower on a cold February day. He thought he’d stop in and find out why there was no cable in Liberty. This was in 1954, maybe early 1955. He asked me if I’d like to have a cup of coffee, and I said, “Yes.” He introduced himself. We went up to one of the coffee shops and he asked me why there wasn’t any cable in Liberty. This sounds kind of ridiculous to tell the story. In that period of time, I said, “What’s cable?” It just was not well-known at that time in the early 50’s. He explained where he was from and all the rest of that. To make a long story short, he invited me to come down to New York City where they had a sales office. He introduced me to a guy by the name of Walter Goodman who was the head honcho out of Philadelphia. They gave me a short dissertation on cable TV and how it worked and how they could help me get into the cable business. At that time they’d provide franchising help. They would provide engineering. They’d provide financing. They’d help you finance not only the amplifiers and things that they built, but the cable that we were buying at that time from Times Wire Cable over in Wallingsford, Connecticut. So, long story short, we met with them a couple of times, and I asked them how much money I’d need to get into this thing. They had maps of the village. They said, “Well, we can get you started for about $20,000 – $25,000.” For that money you got a headend, a 5-channel headend and maybe enough money to build 3-4 miles of cable plant. I went out and saw a bunch of the merchants in town and told them my story. Five or six of them thought it was a good idea, and they put money in. We formed a company.
SOUTHWICK: So you didn’t want to take the Jerrold deal then.
GERRY: Well, we had to have $20,000 – $25,000 worth of cash getting in.
SOUTHWICK: Oh, I see they wanted you to put up the money.
GERRY: That’s right. And then they would give us the rest of the money to buy the trucks, the cable, the headend and all that other stuff. But to get started, we needed $20,000 – $25,000. So we raised something like $12,000 or $15,000. Then our local bank loaned us another $10,000. Then Gerrold financed the rest of it. I think we must have had $50,000 or $60,000 into the deal by the time we got the cable system up and operating. I’m a little bit fuzzy about that but it was right in that area. That was in the winter of ’56 – ’57. We turned it on in February, 1957. We had five channels – and that was the state-of-the-art – on at any given time. We had seven channels up at the headend, but the capability of the amplifiers was only five channels.
SOUTHWICK: And these were all broadcast stations out of New York that you were picking up?
GERRY: They were all broadcast stations, yes. They were Channel 2, Channel 4, Channel 5, I believe Channel 7, Channel 9, Channel 11. There was one more. We picked up Channel 12 from Binghamton from the other direction so that was the seven channels. At any given time, we’d have five of them on there. Then we’d put a set of timers up there so that at a certain time on a Sunday afternoon, we’d switch one channel off and put Channel 11 on so we’d have the ballgames. The Yankees were playing on Channel 11.
SOUTHWICK: How did you decide? The Yankees are an obvious choice.
GERRY: We listened to what our subscribers had to say, what they wanted. Invariably, someone got ticked off at us. I can remember one Sunday afternoon, I was mowing my lawn up there at the house, and this old gal came up. She must has been -Mrs. Blatchley her name was – she must have been 60 some odd years old. Her husband was a prison guard, a very quiet man. He drove her up. She got out of the car and came over to me, and she bawled me out for taking Channel 5 off the air. A wrestler that she used to like to watch, was on that afternoon. We took him off and we put the Yankees on. Those were the problems that you had in the early days.
SOUTHWICK: So, in effect, you were changing channels for the whole town.
GERRY: Oh, yes. The system, the state-of-the-art at that time, the amplifiers that Jerrold Electronics built, at that time were only 5 channel capability. Then they went to 12 channels several years later. We redesigned the system and changed the amplifiers. We took the 5-channel amplifiers out and put in a 12-channel amplifier. We were able to expand the channel capability. When we did that, we still had two blank channels left because there just wasn’t enough programming out there to fill them up.
SOUTHWICK: You mentioned the franchise. Was it difficult explaining this to the city? Is it a city council?
GERRY: It was the village board. Basically, I went in, and I spoke to the mayor. I told him what I wanted to do. He said, “Well, come to the meeting next Monday and tell the rest of the fellows what it is and what you want.” Basically, we needed a permit or a license to do business. When I got done telling my story, they looked around at each other and said, “It sounds crazy to us, but if he wants to do it, we’re all in favor of giving Alan a license to run the cable in Liberty.” Aye, hit the hammer, done. That was it – no public hearings, no franchise. It was a resolution. With that, I was able to go to the telephone company and negotiate a pole attachment agreement. Those were the two critical things – getting the permit from the village and then going to the telephone company and getting a license. They were tough even in those days.
SOUTHWICK: This was New York Telephone Bell?
GERRY: New York Telephone, yes. I still remember the fellow’s name – Mr. Aurelea. This was in 1955, 1956. Very, very tough. We had to get an insurance policy, a liability policy, and all the rest of that stuff – sign a bond, put up a few thousand bucks for the bond as security and all kinds of other things. But we were able to get on the poles.
SOUTHWICK: And they charged you a monthly fee for the poles?
GERRY: Yes. Back then, that’s the one thing that stayed pretty constant all through the years – the pole rental charge. I think back then it was $3 dollars a year, something like that.
SOUTHWICK: Per pole?
GERRY: Yes, per pole. And then we had to do the make-ready to allow us to have enough room to get on there. That was relatively expensive. We spent a lot of money getting make-ready done. We started up near the headend so that we built the headend. While we were building the headend, the telephone company was making ready on the poles for the cable so we were able to be right behind them to hang our cable. We had subscribers hooked up, the ones that were closest to the headend, 3 – 4 miles down the road. They were getting pictures before the whole system was turned on. We used that approach pretty much right on until the end. We always tried to get the systems built in a hurry and get the cash flow running.
SOUTHWICK: Get some paying subscribers as quickly as possible?
GERRY: Yes, exactly.
SOUTHWICK: What did you charge? Was there an installation fee?
GERRY: Back in those days, it was $130 installation and it was $3.50 a month and you got five channels. If you wanted an extra outlet, it was $1.50.
SOUTHWICK: What kind of response did you get? Were people eager for it or was it tough to sell?
GERRY: My brother had a photo shop downtown. When we announced that we were opening up, there were lines outside the photo shop. There must have been 100 people lined up. I was inside with an old, beat-up Underwood typewriter, typing out the contract. We used to have a contract in those days, a 2-sided page, all the things you can do and what you can’t do and what happens if you don’t pay your bill. It was very onerous. People didn’t even read it. They just wanted the reception. They came in the photo shop and they saw 8 – 10 television sets out there that we had on there, some with duplicate channels. But every one had a picture. It was quite an exciting thing for people to come in – in a community where they had no reception – and see 8 – 10 screens lit up with really great quality, great quality. We had a wonderful sight for our antenna on the outside of Liberty. We were fortunate enough to find a great spot and were able to buy the top of the mountain, a place called Ravona Hill. We put the headend up there. That’s how it got started. People were tickled pink. Interestingly enough, the plan was if we could get cable out to all of these streets and outlying areas around the village, I’d sell a lot of television sets. That was the plan. Because you don’t make a whole lot of money at $3.50 a month. But if I could sell a television set and make $50 – $60 profit on them, which is about what you used to make in those days, and you sold a couple of hundred television sets, that’s real money. That was, sort of, the underlying purpose of it. Of course, after the first 5 –6 years, you realize that the real business is building that recurring revenue that comes in every month when you send out your cable bill and building more services. When 12 channels became state-of-the-art, we rebuilt the system where everything was 12 channels. Then we went to 20 channels years later and started bringing the cable into other communities in the county. Some of the communities had no reception. Others had sort of mom and pop cable systems out there, and reception was pretty rough in some of those areas. One fellow had a sign painting business, and he was in the cable business. Another fellow, his family sold appliances in Monticello, and they got in the cable business. But over the first 15 – 18 years, we acquired probably 80 – 90% of the cable systems, 100% eventually, of all the cable systems in the county. In those days, you could buy a cable system for $300 a subscriber. To a lot of these folks, if it was a side business like the fellow in the sign painting business, that was a big bonanza. He picked himself up $150,000 – $200,000 for his cable company. That was a big bonanza. So we went out and, during that first ten years, the people who helped us get started, the early investors, all were bought out. I bought all of them out over that first ten years. So at the end of the ten years it was myself, and my dad had a little piece. He stayed in with me.
SOUTHWICK: How long did it take before you became profitable? Is that the right way to describe it after you started building a system and started signing up subscribers?
GERRY: In those days, the accounting was very simplistic – money in, money out. We were always borrowing money, wherever we could get it, because there was always another mile of cable, or 10 miles or 20 miles, or a town across the border in Orange County that had no cable. So we went down there and started franchising. We’d have lines of credit in the early days from Jerrold Electronics, and then mostly from the banks.
SOUTHWICK: So the objective really wasn’t to have profits. It was to have enough cash flow so you could borrow more money and build more systems.
GERRY: To build the business. It was a passion that you developed. The big guys out there had 30,000-40,000 subscribers. When I first went to electronics school that Jerrold held in Philadelphia, about the time we turned our system on in 1956/57, the largest cable operator in the country was John Walson.
SOUTHWICK: In Pennsylvania.
GERRY: Yes. And he was there with two or three of his people, his engineers, his technicians. He was “the man.” He was there. He had 12,000 – 13,000 subscribers. You had little systems all over the place with 1500 – 1800 subscribers, 3200 subscribers. That was the business in those days. It was just getting started. The big towns had no cable because people felt, “Why do we need it? We have all the networks off the air. We’ve got a couple of educational channels, maybe one or two independents. We don’t need cable here.” There were no satellites. There was no HBO. There was no cable-originated programming. It was all networks. So it was all these little communities – the people that were getting in the business in those days were the people in the little communities who had money. And who had money? The funeral director, a lot of funeral directors in the cable business back in those days; the guys who had a drug store – they always had money; automobile dealers and the fellows in the insurance business – those were most of the people that we saw later on that we bought their companies out in the 50’s and 60’s.
SOUTHWICK: Alan, tell me a little bit about how …. Was it Cablevision Industries in those days? Was that the name of the company?
GERRY: No. We called ourselves Liberty Video for a lack of another name. That’s what we started with.
SOUTHWICK: How long did that last?
GERRY: Right into the 60’s. Then when we started branching out, getting out of the Sullivan County area, we wanted a more generic name so that people didn’t identify us from a little town of Liberty. We came up with the name Cablevision Industries and it seemed to click. The people started calling us CVI. The trades picked it up right away, and that was the logo – the big CVI. When we went out to franchise in the suburbs of Boston of all places… and the fact that we were doing business at that time in Pennsylvania, New York, and a few licenses early on in Massachusetts, so we were a multi-state operator. CVI had a nice logo, good presentation, good references, great letters of recommendations from the mayors and the county government from different places. We started doing local origination during those early years. We thought that was something that was important. We would give the people an opportunity to see things that they couldn’t possibly see over television which was news – what went on in their own home town. That was a very key thing when we went in to the other communities. When we went in competitively with other cable operators, LO (local origination) at that time was nothing that anyone wanted to have a whole lot to do with because it cost money, and you couldn’t make any money with it. In the early days, we were one of the first people selling advertising. We started getting close to breaking even with it, but it was such a powerful marketing tool. It was very, very helpful in franchising in communities where there were two or three other operators wanting to get the same franchise. We’d make a presentation; and then we’d have a film we’d show, a video, of our LO capabilities, of what we’ve done; and then a video, a talking head of the mayor of Canton, Massachusetts or the selectman from Fair Haven or one of the other communities that we had actually gone in and done what we told them we’d do. It was a very interesting time that a lot of people would come in and make a lot of promises, get the franchise, get it built half-way through, sell it to someone, and off they’d go to do it again. We were the ones that made the commitment. We’d build them out. We’d build them out on time. Everything we said we’d do, we did. And we had the local officials to attest to that – on film. It was very, very helpful to be able to go out and get these new franchises. We had a very interesting guy that we had developed. He was a high school teacher. He’d be able to go into a town, all by himself, and go to the library, find out all about the history of the community, take pictures of the early days of the community, and weave it into a ten minute film on the community – very much like they do on the History Channel, a biography, close-ups of a picture or a close-up and go away and then maybe another fade in on another and then a really good story coming out – a live video interspace. We’d come up with these wonderful little vignettes on the community. And we used to blow these other people away because we’d come in with this, and it showed a greater interest on our company than these other applications that they got from some of the big companies. We used to call them hired guns. They’d hire the people just to go out to try to get the franchise for them – United Artist, TCI, General Electric. But we were there, and I invariably would do the presentation because it was very important for us. I would commit, you know, “You have my word …” and so on. And I’d make these personal commitments. We never let anyone down. I can tell you, Tom, that all the years that we’ve done this thing, we always built the franchise on time. We never asked for an extension for the turn on date. Invariably we would beat the turn on date. It helped us build a reputation of very serious cable operators that would do what they promised to do. It was very, very important – the quality of our product had to be right up there. We were among the first people, if not the first people, that created 24-hour answering services so you could always call the cable company. The cable company’s phones were never not answered – very important. We got a reputation of great service. We built quality plant. We were also one of the first people that specialized in training the customer service reps. Most cable companies, whoever was nearest the phone, would pick it up – a bookkeeper, a technician, maybe an operator. We had what we called CSRs – customer service reps. We were one of the first outfits that trained these people and bonused them up for sales. How many second sets did you sell? Did you sell any pay services? They got money, bonuses, for selling a new subscriber a second set, maybe a third set, one, two or three pay services, a sports package. We recognized very, very early that you go in, and you sell the best package you can at the time that they walk in the door pick up the phone. I used to tell the kids, “When you go out to a store and you buy a new suit, the guy doesn’t sell you the jacket and hope you come back for a pair of pants later on, and then maybe you’ll buy a shirt in a month or two. You sell them everything. You sell them an outfit. You sell them a tie, the shoes, the whole nine yards. Sell them a package. Maybe discount it a little bit – if you buy everything together.” And it worked. We got them very, very much enthused. We had people that did nothing from our company, when we got started, but go around to the different cable offices and keep training and re-training the customer service reps. We also developed reporting packages. We had it for all of the key areas for customer service, for technical, for new subscriptions, for trouble calls. We had a report that we used to get at the end of each week from every system – how many new subscribers came on, how many did you lose, what was the average revenue per new subscriber, how many trouble calls, what was the percentage of trouble calls per subscriber. Every single week we got those back at corporate, and they wound up on my desk. Other people got them too, but I had copies. And I used to look at those things every single week. If there was somebody started falling off, …. Let’s say their backlogs started to creep, 300 – 400 people waiting to get on to cable. And that used to happen. They were supposed to call up corporate, and we’d send out extra crews or get contractors to get that down so no one had to wait more than 2 – 3 days. People get tired of waiting and say, “Never mind.” So we had systems that we put together in those times. They were manual systems. Today everything is computerized. The point is, we knew we exactly what went on in every one of those communities. Even back in those days when we started to have 20 – 30 systems, that’s a lot of stuff to track. These people were off on their own. They’re hundreds of miles away in Massachusetts, Pennsylvania, later on in the middle Atlantic states. The ability to maintain the reputation for quality pictures, next to no service calls …. because we felt that if you had a lot of service calls, people would say, “Cable isn’t worth it,” and they’d drop off and all that other stuff. I know in the way beginning, we used to have these preventive maintenance programs where we had people measuring or shooting trouble or measuring signal levels on the line on a consistent basis, out on the trunk lines. So if the signal started to creep down, we’d know about it way before the customer could see it and get out there. “Well, an amplifier is starting to fail. Fix it before it goes out.” So we got a reputation for running very, very clean systems, great quality, good customer service. I think a lot of it came from during the days when I got started in the early 50’s fixing TV sets and selling them.
SOUTHWICK: Same mentality.
GERRY: In those days you had 8 – 9 guys running around here with a pickup truck or a van and a tool box fixing television sets. I went out at night. They would not be without reception, made sure that happened. The other thing we used to do back in those days – whatever the manufacturer’s guarantee was, we’d double it. You bought a picture tube from a guy down the road, one year guarantee on the picture tube, we’d give him 2 years; 90 days on parts and service, we’d give him 180 days. We just wanted the people to be satisfied. We wanted, hopefully, that they’d come back, and they’d buy another TV set or maybe …. In those days we had a dealership with RCA/Whirlpool and GE. We used to sell washers and dryers and freezers and refrigerators and all that other good stuff. It really built a very, very complete business where the customers had a lot of confidence in you because you did what you told them you were going to do. And we took that whole mentality into the cable business which, in the early years, people weren’t doing. There were a lot of guys in the early years, Tom, that would be in the franchising business. They’d collect franchises. It was a very, very good business. You could go out, in those days, and build a cable system for $200 per subscriber. Later on it became $400 – $500. But even at $400 – $500 you could turn around and sell the system for $1,000 a sub. Great business turning and churning. A lot of people made a lot of money back in those days. But it did leave, in many instances, a bad taste in the communities.
SOUTHWICK: The tax laws also prompted a lot of guys to sell out, didn’t they? You could depreciate your plant over a certain amount of time and then if somebody else bought the plant, they could start the depreciation cycle over again.
GERRY: Yes, if you bought assets. If you bought stock it wasn’t as …
SOUTHWICK: Right.
GERRY: But if you bought assets – if someone had a dollar into it, and you decided you were going to buy it for $2 and you put it on the books at $2 and then you start depreciating at $2 not the $1 – it was a very, very good business if you incorporated the intelligent use of the tax laws in the U.S. It was a great tax shelter. It was a great tax defer. You eventually will pay tax. When the tax man caught up with us is when we merged with Time Warner. We had to pay some taxes on the cash portion. But even then, …
SOUTHWICK: That’s a lot of years before you had to pay.
GERRY: That’s a lot of years so you have the use of those dollars for a lot of years.
SOUTHWICK: As you began to expand, was this concurrent with beginning to use microwave to transmit the signals farther away from New York City? When did you start using microwaves?
GERRY: The microwave story is an interesting one. It happened in our life at the beginning of the 60’s when we had several cable systems in Sullivan County where we’re in now. Then we went into the neighboring community into Orange County. Now Orange County is over the mountain range which is on the southeast side of the geography up here, facing New York City. So the communities there were some of the early communities that got free, off-the-air reception from the city. But to get some of the other channels, …. At that particular point, HBO was coming out, some satellite services were coming out. We went in, and we aggressively started to franchise in Orange County. One of the things we promised them is that we were going to deliver a 35-channel package which was kind of unheard of in those days, because where are you going to get 35 channels? We acquired this receiving site up on top of Wurtsboro Mountain Ridge, and we put up a 160′, 180′ tower. We were pulling channels in from Phildaelphia, from New York City, from some of the upstate communities, from some upstate Pennsylvania communities – Scranton, Wilksbury, as well as satellite channels in those days which were just starting to come out. The plan was that we were going to pull all of these channels into this master antenna system – this master antenna receiving area on top of Wurtsboro Mountain – and then microwave them out to all these communities up and down the Hudson, up into Sullivan County, down to the border of New York and Pennsylvania. We had systems, in that time, in Port Jervis, New York, right on the Pennsylvania border. We were applying for the franchise in the city of Middletown, the town of Wallkill, all those many, many communities in Orange County. We had systems in the village of Wall, the town of Montgomery, and several of the other towns there, plus a bunch of other systems up in Sullivan County. So with the single microwave location, we’d be able to go out and tie together something close to 60,000 – 70,000 subscribers passing over 100,000 homes with one headend. Big time – we felt like we were in the big time. And we built a microwave distribution system up there. Two things, Tom: first of all, we were very, very proud of the fact that it was one of the first ones of its type up in the northeast, Hughes High Gain Microwave System. It cost a lot of money. Those channels, I think, cost a lot of money. I think it cost us something in the area of $12,000 – $15,000 per channel to put this stuff up there. Then it all was combined into a single dish that put the signal – let’s say out to Saugerties, New York or down to Middletown or down to Port Jervis. Down in Port Jervis, you put up one dish to receive all that – no big fancy headend – one dish, process it, put it right in the cable, and then off you went to serve thousands of homes down there. So it was a very efficient way to tie a lot of small communities together because we did not have the muscle, in those days, to go out and franchise in the cities that had 100,000 homes. All the big boys were in there. We just didn’t have the muscle to get in there. We didn’t have the financial …. Those cities wanted public companies, people who have millions of dollars, hundreds of millions of dollars worth of asset value to their company. They wouldn’t look at a little puny guy like us or some of the other smaller operators. So we took those secondary markets and tied them together.
End of Tape 1, Side A
Start of Tape 1, Side B
GERRY: We did the same thing in Massachusetts when we built the system up there. We found a site up in Foxboro, and we couldn’t buy it but we rented the land up there. Again, we built a great big tower and a big, high-powered microwave receiving and transmitting facility up there. We tied 12 – 14 communities together up there, and again put together 50,000 – 60,000 homes with one delivery, one transmitting facility up there. And it worked out very, very well. We’d be able to go into some of these little communities and give them a more efficient package because we had this big facility 18 – 20 miles away that we could just beam all this stuff into. Some of these other people that were trying to franchise up there, didn’t have that advantage. They’d have to build a single facility just to serve 3,000 – 4,000 subscriber where we were serving 60,000 – 70,000 subscribers. The overhead on the whole was broken up into 60,000 – 70,000 subscribers rather than having to put all that investment in there for 3,000 – 4,000. Anyway, it helped us very, very much. We did another one of those things down in Philadelphia. We were able to join forces with a fellow that had a franchise for 25% of the city of Philadelphia but couldn’t get it financed. He had a partner. TCI was going to partner up. Sixty days before the deadline came where he had to start or lose his franchise, TCI packed out because there was a big deal going on. They bought Westinghouse or some big deal was going on there. We found out about it. One of the brokers brought that deal to us. We spent a Saturday morning looking around down there. We said, “Gee, this is great. Look at all these homes.” So we shook hands, and we made a deal with him. We made a partnership with him – that was Jim Wade. Tom, this is something kind of weird, and I’m still kind of a little bit proud of. We were the last company to get started there. All of the other companies had started building their cable systems. We were the last to get started. We were the first to finish.
SOUTHWICK: Wow.
GERRY: We went cash flow positive in that system in nine months, nine months. We brought in the best people we had in from New England, from upstate New York, our best people to go in there to keep people. Then we brought contractors in as well. We built that system in a hurry. We did a joint venture with Comcast, and we used their tower. I think we hung some of our microwave stuff on their tower and some joint venture we did using the headend. We took some of their feed, and they took some of our feed. That’s when I first got friendly with Ralph and Julian and Brian.
SOUTHWICK: Roberts, yes.
GERRY: Yes. So we used that high-powered microwave technique again there. So that became our hallmark for awhile. Shortly after that, we heard about this fiber optics thing. So we got very, very much involved in finding out how that worked. And that was really the key to change a lot of things in the cable business.
SOUTHWICK: Before we get on to that, there are a couple of other interesting things. You grew almost entirely by franchising rather than acquisition. Is that correct?
GERRY: In the early days, it was much less expensive to build a subscriber than to buy one. At a point in time when you owned these subscribers and someone else owned the ones next door on the left and someone else owned other subscribers on the right, it was more efficient for you to buy them, aggregate them, close down the headends, close down the office feed, have everything out of your system. The economics were such that, in some of those systems, we were getting a 2 – 3 year payback out of. We’d buy them. We’d have our money back in 2 – 3 years because they were poorly run. They had little or no pay. We bought systems with no pay service. The people that owned them would say, “Well, we’re thinking about that HBO, but it’s awfully expensive. We have to buy that box, you know. We have no converters in our system, and we have to buy those boxes, and we don’t want these boxes.” It was that type of thing. So we’d go in. We’d rebuild the systems if it was an old fashioned system. If it was a 12-channel system or a 20-channel system, we’d rebuild it to the next capability. We’d add channels. Then we’d re-market everything – we’d take a basic service of 12 channels, then we converted to a basic service of 20 channels – people were tickled to pay another $2 – $3 a month because they were getting all the extra channels. Then we’d sell them a couple of channels of HBO or Cinemax or Showtime or the Movie Channel or things like, or some sports services. In those days, we put a converter in, with or without a remote control because most of the sets in those days didn’t have remote controls. So they’d pay an extra $2 – $3 for a remote control. So we’d convert a $6 – $8 a month subscriber to an $18 – $24 a month subscriber, give him a whole lot more service, and we never mandated that they had to take it. It was always an elective thing. It was remarkable what we could do. In one system up in Pennsylvania, we doubled the cash flow from when we closed in April to when we turned on the new services in September – we doubled the cash flow in six months. It was amazing. Those are the type of things we were doing, and it was really very opportunistic for us. It was a lot of fun. It was very, very challenging. We then started to see the advantage of getting lines of credit so if something came up for sale, we’d have the money to buy it or we could aggressively go after someone. We could say, “You know, we’re right down the road here, and it would make sense if we could do this.”
SOUTHWICK: And we can write a check today.
GERRY: Exactly. I used to keep the checkbook in my pocket.
SOUTHWICK: Really?
GERRY: Yes. I’d lay the checkbook on the table and then talk.
SOUTHWICK: But you’re unusual in that you never went public. You never did private placements of equity.
GERRY: Let me tell you how that worked. In our own way, even in the early days, we were doing things that weren’t done before. And we were relatively successful at it. I know both of the local banks here loaned me up to their legal limit, both of them. They couldn’t legally lend me any more money. So they’d call up someone that they knew up in Binghamton or Syracuse and say, “We’ve doing business with this fellow since he’s been selling television sets. He always makes his commitment. We’re all out of lines for him. Let me send him up here and talk with him.” So I’d go up there to see them. It would be invariably in communities that we got franchises with up there, up in Seneca Falls or Geneva, New York, those Finger Lakes communities up along in there. We used to be able to go up there and as long as I’d guarantee the note personally, they’d lend me all the money I needed for the project, up to their legal limit. They were small banks, $200,000 – $250,000 legal limit. It got to the point that we needed more money. We kept going to the industry functions, to the NCTA, and all the other stuff, and I got friendly with the people from Daniels, way early, way, way early in the game. One of Bill’s people, _______, took us to John Hancock Insurance Company up in Boston where we told our story. We got $5.2 million loan up there.
SOUTHWICK: When was that, roughly?
GERRY: That was probably in the early to mid 70’s, right in there. And that paid a whole bunch of bank debt, and it gave us $1.5 million left for operating capital. This sort of opened up my eyes. Then we met some people from Paine Weber, Ian Gilcrest, who was working for Paine Weber at that time. He said, “Alan, what you need to do is get into one of the money center banks.” I said, “What’s a money center bank?” He explained all that to me, and we wound up with a very, very good line of credit with the Bank of New York. That consolidated a lot of the other stuff that we had into a single loan and gave us extra money to go out and do deals and build cable systems, do some acquisitions and things like that. We were still private, still have to guarantee everything. I never minded. Not in my worst day, did I ever think the business was going to go broke or I couldn’t pay my bills. I knew our business cold. I knew how many subscribers we had. I knew what they were paying. I knew our cash flow. I knew our capital expenditure budget for the year. I knew what kind of increases we were getting. I knew when our rate increases were programmed and all the rest of that stuff. I just knew, I just felt, maybe it was fool-hearty, but I just felt that we were not going to fail. We were going to get this thing done. We started hiring some very good people because we basically ran the company with technicians like myself and some bookkeepers, kids you could hire and teach them how to be installers. Then we started going after some really good engineering people. I had some key people. We probably turned our crew over in the 40 years I was in business, probably I can identify 3 or maybe 3 ½ times we turned the crew over.
SOUTHWICK: I wanted to ask you a little bit about the advent first of HBO and when you became aware of HBO and began to carry it in some of your systems, and then the development of satellite television. If you could talk a little bit about that.
GERRY: In the early days, when Time Inc. came around peddling HBO, they cycled tapes around. If you wanted HBO, they’d deliver you a tape, and you’d have HBO for that evening. Later on, they’d microwave it up to you through a feed out of Scranton. Eastern Microwave had this microwave, the delivery system up here in the northeast. They’d deliver independent television signals to you. They were the logical choice of using their microwave systems to deliver HBO in the early days. They had Les Read, really great guy. We’re good friends. I’ve known Les for probably 25 years.
SOUTHWICK: One of the great voices.
GERRY: Great voice. Great, on-air personality. He’d come up here and say, “You’ve got to have HBO, Alan.” “Gee, I don’t know. Our people are paying $7 – $7.50 a month now. If we put HBO on, it’s going to be over $10, and everyone knows no one pays over $10 for cable.” That was the industry concern. Long story short, we tried it out, and we launched it. We would up ….
SOUTHWICK: Where did you first launch it?
GERRY: Here in Liberty. We wound up with 11% – 12% of the subscribers taking it. I was disappointed. I thought I’d get 20%, and I spoke to Les. He said, “No, that’s good. Because in a few months, you’ll have 13% – 14%, then you’ll have 15% – 16%, and next year you’ll have 20%.” It was a grind, grind. The issues in the early days was that they repeated their stuff, their programming, too much. You’d see the same thing 4 – 5 times a week. People would drop off. It wasn’t worth it. But they developed their programming in just an outstanding manner over the years. It’s become such a strong foundation for the cable industry.
SOUTHWICK: Did that coincide with the introduction of converters into the system at Liberty?
GERRY: No. When we introduced HBO, we trapped the whole system on Channel 3. The way we did it, we went out … And at that time I don’t know how many homes we had passed, maybe 3,000 – 4,000 homes in the village of Liberty. We went out and physically put where a multi-tap was, we’d disconnect the RG 59 and screw this little trap in and then put it back up again.
SOUTHWICK: And that blocked out the channel.
GERRY: That blocked out HBO. What we basically did, I think what we did, we had a free preview so everyone got it. Then they had to sign up by a certain date or the trapping procedure started. We’d trap you out if you didn’t hook up. No converters. HBO is still on Channel 3 in this system here 40 years later, 43 years later. That’s how we did it in the beginning. Then later on, when we went to 20 – 30 channels, 36 channels, everyone had a converter. There were subscribers that, up until ten years ago or so, were still trapped out.
SOUTHWICK: And no need for a converter.
GERRY: No.
SOUTHWICK: How did the advent of satellite distribution change the business from your perspective?
GERRY: What happened, over a period of years, we started getting the availability of so much programming that we never had before. We’d be able to market like we’d never marketed before. We’d have sports packages, and we’d have specialty channels and all of the early channels that first came on, USA Network, super channels, then the news channel, TBS. It just opened up the whole world. People started to say, “You know, …” people like school teachers were notoriously not cable subscribers “Garbage. We don’t need that.” But we started getting great educational channels on, then getting the news channels on, then much later on A& E, the History Channel, Lifetime, E! and a lot of this other stuff that came on. When MTV came out, a whole bunch of people got on to cable that never got it before because their kids wanted their MTV. It was really important to them. It did change the complexion of the business where it was no longer a 30% penetration business in the off-the-air communities. It became a 50% business. Then when we did our merger with Time Warner 4 ½ years ago, I cannot tell you how many of the systems that we had were over 80% – 90% penetration. We went in there, and we marketed the dickens out of that service.
SOUTHWICK: Where was your first dish? Where did that go? Where did you first introduce satellite?
GERRY: The first dish that we had was up here in Liberty. Then shortly after that, we put a conical dish up on the Wurtsboro headend where we had the microwave there. Do you know what a conical dish is?
SOUTHWICK: No.
GERRY: It looks like a horn of plenty. It’s one of these great big things that …
SOUTHWICK: Cornucopia.
GERRY: Yes. They made it in a place down in Florida, 1,100 miles away. I remember because we had to pay $1 a mile to get it delivered on a flat-bed truck so it was $1,100. We had to have that type of dish up there on the Wurtsboro Mountain because there was so many signals going up there, so much terrestrial information flowing through up at that high point, that they felt that the only way we were going to be able to receive any of the satellite dishes was to have a conical antenna because it was very directional. You could take that thing – it was a mammoth thing, mammoth …. I don’t know where that thing is today because I know later on, with the types of normal dishes that they make and the directivity of the equipment on them, we added dishes to other satellites, and we experienced none of that interference that the engineers warned us against. But we had to put that up there. The first dish was here. It just became common to put the dishes in every place. We were doing acquisitions during that period of time, and people who were in the cable business, like the system up in Sayer, Pennsylvania, that had no dish. Here it was 4 – 5 years into the satellite launch period, and they had no dish. We put a dish up there, and that’s the systems that we doubled the cash flow in nine months.
SOUTHWICK: Did you run into this period, in the late 70’s as satellites began, where the issue of rate increases began to hamper your grown in any way? Or were you able to work that out with most of the city councils?
GERRY: No. We worked it out because in those days we had tiers. We left the basic 12-channel people alone. They might wind up with a $ .50 or $1 rate increase every 2 – 3 years or something. But the people who wanted the service, the additional channels, that would be a separate tier. They’d pay, let’s say, $5 extra for another twelve channels and then maybe another $3 four or five other channels that were high cost channels like a sports package or something like that. There was a lot of tiering going on at that time. At that time we started with all of the new subscribers. We’d package it. We wouldn’t sell from the bottom up, we’d sell from the top down. For only $31.50 you get this and this plus a second set, plus two remote controls, all of the things plus two movie channels, Disney for the kids, this and that. People were much more apt to buy it at that point when they’re first calling up than when you try, once you’ve sold them a $12 – $15 service – the old people –to up-grade them to a new service. Very, very difficult. But if you had just moved into town and you were a new subscriber and you called us up, we’d sell it from the top down. That’s part of that customer service training that I told you we spent a lot of time on, a lot of time on.
SOUTHWICK: The turnover in these communities, I think, is relatively small, isn’t it – vs. Los Angeles?
GERRY: Very, very low turnover. Most of the people, interestingly enough, own their own homes. They’re very stable. Most of these upstate communities are very, very stable. Where you get a lot of churn, …. When we went out to the west coast, we bought a system in the west valley of Los Angeles that was owned by a Canadian newspaper group. They were great newspaper people, but they were poor cable operators. And was there churn in that system. They tried to build a subscriber base, giving everything away for nothing. If you got an offer to get hooked up to the cable for nothing and maybe 1 – 2 months free, you’d place very, very little value on that thing. So when you were ready to leave, you wouldn’t even bother calling up the cable company you’re leaving. So we had a lot of churn. There are thousands and thousands of these garden apartments out there.
SOUTHWICK: But that wasn’t an issue for you around here?
GERRY: No. It was an issue out there. We learned to deal with it by just creating a cost to get on. We’d give them a free month of HBO or a free month of a big package or something, but that had to commit. They had to pay something to get on there.
SOUTHWICK: Were there regulatory issues, pole attachment comes to mind, tax issues, franchise renewal that were part of your daily headaches?
GERRY: There was always a headache. There was always a regulatory issue, and there still is always regulatory issues in the business. I don’t say we were the first, but I think we were perhaps among the first or the first for the size we were, to have full-time government relations folks.
SOUTHWICK: Really.
GERRY: Yes.
SOUTHWICK: When did you start that?
GERRY: Back in the late 70’s. We took the franchising people, when franchising started slowing up, and we converted them to government relations people.
SOUTHWICK: At all the levels – state, local, and federal?
GERRY: Here’s what we did. First of all, we trained the managers very, very thoroughly so that they knew how to deal with the local municipalities. Beyond a certain level of issues, you had to call corporate. We had a government relations team there. We’d fly out and do whatever we’d have to do. Then as our company got bigger, we’d have a government relations person, let’s say, in the southeast. We’d have another one in the middle Atlantic states. We’d have another one up in the northeast, up in the New England states. We’d have one out there in California because that place was a hot bed of regulatory issues out there in L.A. So we had 4 – 5 people out in the field. Then we had one fellow with a staff, small staff, right here at corporate. Those people would report in to him. He knew if it was a really hot issue, that he felt uncomfortable with, he’d call me. Then we’d say, “We will,” “we won’t,” go out to see him, “offer “them this,” “hold your ground,” this and that. Then we developed, also during that period of time, excellent legal counsel. We were, again, one of the smaller operators but we always had great legal people. I don’t want to repeat myself, but we never lost a franchise. We never were denied a renewal. We were never, ever denied a rate increase – never in 40 years! Never! We always made sure we did our homework and there was a good reason for the rate increase. We had split decisions. A couple of times, they denied it to us and said, “Come back and fix this,” or “Give us a certain service that we haven’t got and we’ll give it to you,” or “We’ll give it to you on condition.” But we never, never got it. We had to go away and wait till next year or two years.
SOUTHWICK: It wasn’t like California where they just absolutely denied.
GERRY: No. We never had that because we always did our homework. We made sure that we were sensitive to the needs of the community and to the local regulatory people. The other thing we did, and I’ll just throw this in because maybe it shows you how cock-eyed we think, we never allowed the system managers to mail the franchise payment to the community. They had to make an appointment. They had to appear at a council meeting, make a little speech, and “Here you are, Mr. Mayor. Last year it was $42,000. This year it’s $57,000. Thank you.” (Claps) We used to get standing ovations like that. So we made it a point to make it an event. And they knew that we were serious. We used to tell them, “We’re partners here. You run the city. We run the cable company. We service the same people. We’re partners. We’re going to make this thing work. You have a complaint, tell us.”
SOUTHWICK: Did you get involved in the NCTA efforts on things like copyright and pole attachment?
GERRY: Late in my career, I would say, I became a board member at the NCTA. Incidentally, it shows you how well-known I was in those days, I had to run three times before I was elected. I got very much involved once I got down there. We were short personnel. We didn’t have luxuries of belonging to state and …. We belonged to the state organization. I was the president of the New York State Cable Television Association for several years way back. But when I got involved with the NCTA was in the 80’s. I got involved. I got on some committees. I got very interested in the lobbying issues because we were all painted with the same brush, and I thought that was unfair. I spent a lot of time down there walking those halls of congress, meeting with these people.
SOUTHWICK: This was in the late 80’s?
GERRY: Yes.
SOUTHWICK: Before we get into that, tell me a little bit about the advent of the 1984 Cable Act and what that meant for your business and how it changed the industry, in particular Cablevision Industries.
GERRY: That’s probably one of the biggest mistakes the industry made.
SOUTHWICK: Really?
GERRY: Biggest mistake. Because they were offered a deal, back then, …
SOUTHWICK: The NCTA was?
GERRY: Yes. And they turned it down.
SOUTHWICK: By the …?
GERRY: They were offered a deal by the government. They were going to allow us to raise our rates, not to exceed x%, every year. There were some other caveats that we had to do, and it couldn’t go more than, I think, 5% or something like that. I thought it was a reasonable thing. At a $20 number in there, grossed up, I think our average rates at that point were right around …. We could have gotten $1 – $1.50 a year or something like that. I’m not sure. I don’t recall. I thought it was something that we could very, very well live with. We had people say to us, guys in the business, “We’re going to turn it down.” “Why?” “Because the president is on our side.” Now, who was in office at that particular time? Was it the Reagan White House?
SOUTHWICK: Well, ’84 it was Reagan.
GERRY: Yes. “… and he’ll veto it. If they try to do this, he’ll veto it.” Well, they passed it. They nailed us on the rates. They froze our rates. They rolled our rates back.
SOUTHWICK: But that was in ’92.
GERRY: That was in ’92. Yes. ’92 was when Gore was in there Clinton. But this was before that in ’94. We had a deal …
SOUTHWICK: I’m talking about 1984 which was the deregulation of rates and the …
GERRY: Oh, okay. Excuse me.
SOUTHWICK: … kind of guaranteeing franchising.
GERRY: That opened up everything. We can go in there and raise our rates when we wanted to raise them and put on programming that we felt was appropriate and could sell and gave us all this flexibility. It also gave us tremendous credibility with the financial community.
SOUTHWICK: How did that change the way you financed your growth?
GERRY: That was the period of time where we went in, and we reorganized the business. We formed a holding company, CVI. Then we formed five operating divisions, and each one of them was able to go to the banks and borrow money independently.
SOUTHWICK: Oh really.
GERRY: It didn’t even have to be guaranteed by the parent company. It was against the assets of that region. Then we would take the holding company and go to the high yield market and raise junk bond debt at the holding company. So if you took the high yield junk bond debt and the low cost at the banks that we were getting – because we did not leverage up down here – we were only maybe five times leveraged up at the holding company, we were another five times leveraged up there. So collectively, we were ten times leveraged. We had ten times leverage on the company, eleven times at one year, a lot of leverage. But down at the operating level, at the regional levels, we’d go to the banks. We were only 4 ½ – 5 ½ times leveraged down there, so we got excellent rates. So as a result of that, we had lots of availability of borrowing capability. We had very, very good rates. There was a period of time there we had the second lowest cost of debt in the industry. The only one who was borrowing cheaper than we were, less expensively, was TCI. We had better rates that all the other guys because of the structure of what we had over there. At that particular point …
SOUTHWICK: How did you come to put that in place? Were there people that suggested that to you?
GERRY: We started hiring some very, very good people. One of our lending officers, …. You know Roco Camizo?
SOUTHWICK: Sure.
GERRY: We first met Roco when he was at Chase Manhattan. He was brand new, right out of Columbia. The next time we ran in to him, he was a senior lending officer at the Royal Bank of Canada. He and I worked out a deal how to lend us money when we were building cable systems up in Massachusetts because we had no cash flow. What do you lend against? We lent against homes passed. At the end of each month, we’d tell him, “Well, we passed another 3,000 homes,” and he’d give us whatever it was, $400 a home or something like that, up till the end of a year where we had to have cash flow of certain amount per subscriber. He was a very, very innovative guy. He and I became very good friends. He wound up coming to work for us. During the period of time when Roco came in, that was the time we restructured the company with the holding company. Then we went after the high yield market. We were one of the first small companies that got substantial out a high yield bond through Morgan Stanley, because they were doing junk bonds with all the big boys. We were a relatively small company at that time. I think we were under 100,000 subscribers when we went out to get our first bond.
SOUTHWICK: Which was roughly when?
GERRY: It was in the 80’s. I have a list here someplace. I can tell you exactly what year it was. But we were able to go out. Where deals were going for 12% – 16% interest in those days, we came off the road show, and we were so over-subscribed that we did our deal at 11.25%. We were triple-subscribed for what we wanted. We wanted $100 million, and we got appetite out there, orders for over 300. So we took 125 and we negotiated a rate of 11.25% which is a very, very hot rate at that particular time, the cost of money and all that other stuff. And right after that, two or three other cable companies, even bigger than ours, went to Morgan Stanley. They wanted the same kind of deal. We had great covenants in it, great covenants. So we stayed with Morgan, and we did three other bonds. The last one we did, we never had to walk away from our desks here in Liberty. We did it over the phone and in 24 hours, it was way over-subscribed. That one, I think, was 9.25%. That was the last one we did. These were all done at the holding company. We had the flexibility to do whatever we wanted to do with that money as long as we paid it back. We then lent it to the subsidiaries. Then we’d combine that money, it was like equity, into the subsidiaries. They could take that money and then borrow enough outside money to take that equity plus outside money and do an acquisition.
SOUTHWICK: Wow.
GERRY: Then the last big acquisition that we did was also, I think, a good piece of financing. It was when we bought Wimetco. We had about 590,000 subscribers. We bought Wimetco. They had 307,000 subscribers. We did that deal by assuming all of their debt. So we put on 307,000 subscribers, we took their debt with us, horribly expensive debt, and we didn’t give them a quarter. We didn’t write a check for $.05. We took on their debt, and we got their systems. We combined them so now we had 900,000 subscribers.
SOUTHWICK: Were there equity holders in Wimetco? What happened to them?
GERRY: They owned other systems which they kept. They owned Atlanta. So the whole system had a lot of debt on it.
SOUTHWICK: So they got rid of all their debt to you and kept a few systems.
GERRY: All their to us and they kept some systems, debt-free, or relatively debt-free. We got all of these systems. First thing we did was to refinance the company in 90 – 120 days, had terribly high expensive debt – they were doing business with General Electric Credit Corporation – very high debt. So we took them in, we assumed some of their bonds that they had, and we refinanced the company with our own banks, got much lower debt. We had great financing arrangements. We used to borrow a percentage off of Lyborg. We’d go out and get fixed contracts so the rates wouldn’t go up any higher. We’d buy certainty in the cost of money by buying contracts, fixing the rates. It was a great opportunity because it got us near 1,000,000 subscribers. Then within the next year with growth in our own company and growth in Wimetco, we had over 1,000,000 subscribers. Then we started to get all kinds of offers. We were buying HBO less expensively because we had 1,000,000 subscribers now. They had different price ranges once you hit certain levels. With the other programming people, we renegotiated our cost of programming for everybody. We started buying converters less expensively, we made better deals on literally everything we purchased because we were one of the 1,000,000 subscriber companies.
SOUTHWICK: So it became cheaper to run the Wimetco Systems as well as your own systems.
GERRY: Exactly. The whole thing flowed right down to subscriber 1. That enabled us to get on the Top 10 List at that time. That was supposed to be a very prestigious place, one of the top 10 operators in the country. We felt very, very proud. Here we were, leveraged ourselves all the way up, to be one of the 10 top operators. Then we started getting a lot of, …. It’s funny the way the business works. Size is so important. They started coming along and making specials deal with you, then introducing a new program. “If you would take it on, we’ll give you a special deal perhaps with a very, very low rate or nothing for the first year. Take it. You start paying for the second.” There were all kinds of economic opportunities for us to start growing our cash flow. You know that cash flow is the life blood of this industry. If you grow your cash flow or have substantial cash flow, you can borrow against it and leverage against it. It was just a turning point for us at that particular point. We had money coming in from our high yield efforts, the bank loans we always had. When we did our deal with Time Warner, we had unused bank lines of close to $750,000,000 or something like that that we didn’t use.
SOUTHWICK: Wow.
GERRY: One of the tings that we were doing when Roco came in, …. We had another fellow, became the vice chairman here, Rod Cornelius, a very, very bright guy. He was an accountant that we brought aboard and over the fourteen years, …. Very, very bright. One of the best deal-makers out there. We were able to get these great lending arrangements going with the banks. It was a great story when we’d have to go out on the road to sell a junk bond or even go out and do a deal. There was a period of time there, Tom, back in the 80’s, when we were doing a couple of deals a month. We bought systems from Tribune Company. We bought systems from Westinghouse which had just acquired TelePrompTer. We bought some systems from TelePrompTer before they sold to Westinghouse. We bought systems from TCI. We bought systems from all sorts of independents, from newspaper companies.
End of Tape 1, Side B
Start of Tape 2, Side A
SOUTHWICK: Let’s talk a little bit, Alan, if we could, about what happened to the industry in the 80’s after the passage of the ’84 act. Things looked great. New programming was coming along. You had the ability to raise rates without getting permission from the city councils. The industry expanded like crazy. Then it began to run into some problems. How did that happen? How did it go from being kind of the golden boy in Washington to, all of a sudden by the end of the 80’s, kind of in the dog house?
GERRY: From my view, I think several things happened where the guys really stepped on their toes. One, very, very early on, you had people that were just coming into the business. They were traders. They came in, they bought systems, they put limited partnerships together. There was a lot of tax advantages at one particular time when you could structure a company where the investors took the losses, and they really didn’t care anything about service. They got a bad reputation. They bought a system down in Tennessee where the average rate might have been $6 – $8, something like that. They went in there. They jam a $5 rate increase, $5 on the customer’s bill. They didn’t improve the service, didn’t add any channels, couldn’t answer the phones. In some cases they cut staff. It was just not acceptable. In one particular case that I’m familiar with down there, the director of operations for the company, when he was interviewed by the newspapers, in effect told them to mind their own business, it was his systems, he was going to run them the way he wanted to, and if he decided he was going to have to raise the rates ,then the people were just going to have to pay for it. This is before the satellite, before direct TV and all the rest of that stuff. That’s when Al Gore who was running for the senate at that time, got involved and saw the …. That’s when he became an enemy of cable because he figured all the cable companies were that way. That was one of the examples of many instances like that. That was on that level. On the other level, I think that some of the fellows that did very, very well at that time got a little bit heady. I think that we weren’t watching how the press described us. We became the cable mafia, the big parties that were going on out in Denver, and it was like we became elitists. There was a lot of resentment. I don’t think we did enough, we’re doing it now. We’ve turned that thing around quite some many years ago. But I think there were people that didn’t carry their success well. People in Washington, whether it be envy or whether it be vindictiveness or jealously or just that they felt that they had to do something for the people that they represented – in areas like Tennessee where rates were going out off the page and the people were not getting good service – they started to react. Nothing is going to get someone in Washington, a legislator down there, more active than starting to get letters and telephone calls. And they were getting plenty of them. There were some incidents where some of the larger cable companies made some promises, some hand-shake deals, that they backed out on.
SOUTHWICK: With the …
GERRY: With the government, with the legislators, the people in the Commerce Committee and people like that. There was a lot of bad blood developed at that particular point.
SOUTHWICK: And the broadcasters were upset as well with a “must carry” situation.
GERRY: There were a whole plethora of issues at that particular point. Some of the guys, … we talked about Amos Hostetter, about Continental. Those guys were always good operators. They were always very, very responsive. They were very active in the NCTA. They were good lobbyists. But there again, there were people out there that were jealous of them. I can say this because I was there, and I heard it, and I was in the man’s presence – our congressman from Massachusetts, Markey. He was very, very jealous of the success of the cable guys. And I spent a lot of time lobbying him and trying to get him turned. He was just a very, very difficult guy to deal with. And he hurt us during the period of time that he was in charge of that committee that oversaw the cable industry. I think it was a period of time that, call it inexperience or call it the headiness of the day or we could do no wrong, President Reagan won’t sign that bill, and all the rest of that stuff …. President Reagan wasn’t going to be there forever. His veto of that piece of legislation that was very helpful to us was overturned. We lived to see rereg come back. I can remember the day that they signed that, that President Clinton and Al Gore were down there. I went to the signing of that thing.
SOUTHWICK: Did you really?
GERRY: Yes. It was held in the Library of Congress. It was a great big to-do here. You could feel the …. It was euphoria on one end because all these people won. They beat the cable guys.
SOUTHWICK: The consumer groups, the broadcasters, all the enemies.
GERRY: Yes. But the cable guys were down there. You just knew, you could see the way their jaws were set, that they really had their work cut out for them. Our company, at that particular point, to give you an example of what happened to the business, was in the midst of a complete, total rebuild of all of our systems in the state of New York. We had made that commitment to the New York State Cable Commission. It was one of the strongest regulatory bodies in the United States – the New York Cable Commission – one of the first and one of the strongest, long-lasting. I believe they’re still up there. I don’t think they have the power that they had at one time. But we had a commitment on franchise renewals. They would agree to renew all of our franchises. If you had a cable franchise and the local community gave you a renewal, that wasn’t enough. You had to take it to Albany and get them to stamp it: “If you want a renewal, you will rebuild everything to 60 channels,” I believe it was at that time. These tiny little systems – everything. We were in the middle of that thing, the cable rereg happened:
A.they froze our rates;
B.they rolled them back once;
C.they rolled them back twice.
And here we were in the midst of this rebuild, and we made commitments to the bank that we’ll pay this thing back because here was our business plan. The State Cable Commission had approved it. The rates were going to go up $X a year for the next 4 – 5 years during this period of time where all this money was going to be put into the state for the rebuild and the two-way and the converters and all this other happy stuff that they wanted there. So we were in a very, very tough situation. Right around that period of time, we ran into this highly leveraged transaction regulation that came out that they told the banks, “We don’t want you to lend any money.” The Feds were telling them to highly leveraged companies. So here we are. We have the rate roll-back, we can’t borrow any more money. It was a very, very tight and uncomfortable position to be in. We started doing business with the Canadian banks at that time. We went up to the Royal Bank of Canada, there was another bank up there, Ian Crow’s bank, and there was another one up there. So we borrowed as much money we needed from off-shore banks. We were borrowing money from banks in Japan, banks in France, banks in ….
SOUTHWICK: Because they were not subject to the HLT rules.
GERRY: Yes. So we got through that thing. In answer to your question – how did we get into trouble – I think that the industry could have done a better job. The leadership in the industry could have done a better job. Fortunately, I think there was a giant turn-around. There was a different mentality being developed at that period of time. The guys realized that if they want to stay in this business, that they better start to conduct themselves a whole lot better. Companies were putting in government relations people. They were putting in PR campaigns. They were starting to contribute to the local charities and all this other stuff in making the cable company more part of the community. And a lot of guys got out at that period of time. You know what happened there. A tremendous amount of people started getting out. So it created opportunities for the fellows that stayed in. They were able to buy some of the cable systems or merge them or things of that nature. I think it’s something you see. Listen, it happened over the last year or so with Bill Gates. Why is Bill Gates in so much trouble?
SOUTHWICK: Yes. He’s taken over John Malone’s role as the “evil” man.
GERRY: That’s right. Thank goodness.
SOUTHWICK: I’m sure John Malone is happy with that.
GERRY: Yes, yes. But that’s something else. You know, the government is always looking for a new industry that is succeeding – how can they go in and either regulate them or cut them down in size or tell them how to run their business or get in their pocket somehow or other.
SOUTHWICK: You went down and lobbied, you mentioned Congressman Markey, but also Reed Hunt who was the FCC Commissioner.
GERRY: We spent a lot of time with Reed Hunt.
SOUTHWICK: Could you tell me a little bit about that experience, because he had to implement the ’92 Act.
GERRY: Yes, yes. We got to know Reed Hunt. He checked us out, and he told us that he thought we were good operators and the regulatory, the punitive things that they had to do was really not based against the good operators. “There’s a lot of bad people out there,” he said, “and we have to bring them in line.” He had his own philosophies. Interestingly enough, Tom, they didn’t understand the cable business, not their smartest guys down there. We told them so. And we also volunteered. I said, “Send some people up. Let us show you how we run. Let us show what cash flow is made up, and let us show you what happens to the money that we take in from the subscriber.” And he did. He sent people up here. We had some training sessions for them. We went down there. We met with some of their staff. He was very, very open. I can say that I didn’t love what was going on down there, but we certainly survived the period of time that he was down there. We had excellent, excellent relationships with his people. We did because we reached out. We made it our business to go see him, to find out what was going on down there. We got to the point where we had good access from him. And it got to the point, also, that he used to call here every so often. If something was going on, he would kind of maybe disguise it a little bit. He was jammed up and what would I think or what would our chief financial officer think. And we were able to …. I don’t say we influenced the guy, but I think we helped him form opinions. And it was important. There were other fellows in the business that took the same position. And other guys dug their heals in. My good friend, John Malone, publicly announced, “Shoot Reed Hunt.” It was all over. He should be shot. That was a toughie. That was a toughie.
SOUTHWICK: Absolutely.
GERRY: Then we also went after Vice President Gore. I made it my business to find out who knew him that I knew and got in. I spoke with him on several occasions.
SOUTHWICK: What was your impression and how did that go?
GERRY: I think that his whole thought process on the cable television business was formed on the experiences that he had down in Tennessee. His parents lived in one of the communities that we served, that we bought from Wimetco.
SOUTHWICK: Oh really.
GERRY: And I reminded him that that was our community. I said, “You ask your mother and dad, Vice President Gore, what they think of Hoco Cable Company.” I made sure we checked the signal out. It was all good, and all that other stuff. But it was. We ran a good, good show down there. And he became … he flipped. He is not the enemy of cable that he was. We got letters from him, and we’ve had …. Up in the office I’ll show you a picture of him with he and I when I was pointing my finger at him, something like that. He became a good guy. I think he helped us a lot. Does he love cable? No. I don’t know anyone that loves cable. It’s like saying, “I love Bill Gates. I love to pay him these fees for Windows and all that other stuff.”
SOUTHWICK: But he doesn’t have the passion to squash the industry that he used to have.
GERRY: No. No he hasn’t got that passion. No. Remember when he called John Malone Darth Vader, part of the cable mafia and all the rest of that stuff? There’s bitter blood, and I think it’s still there between he and Dr. John.
SOUTHWICK: A couple of other things happened at this time technologically. Particularly, I wonder if you could talk a little bit about two of the big ones – the development of fiber optics and digital compression. How did that impact your business?
GERRY: The first experience we had with fiber optics was after we acquired the cable system from the Canadian newspaper publishers out in the west valley, out in California. That system, interestingly enough, had high powered microwave out there. But the plant was so bad. The system was going out on a constant basis. During any given week, the system was out several times. We, I believe, were the first people to do a 100% deployment of fiber optic trunk line in a cable system out there on the west coast.
SOUTHWICK: This was late 80’s?
GERRY: This was in the mid-80’s. A Japanese company bought a cable plant down in North Carolina, and they were spinning fiber optic cable down there. We went down there, saw the cable being made. They did a whole dog-and-pony show for us, how you splice fiber optics, and all that other stuff. It was just amazing what happened to the signal quality in a cable plant when your cable was delivered through fiber optics – the purity of the picture, the clarity of the picture, the reliability of the service, the getting rid of all the active electronics that you could get rid of – in that period of time and that process. I really think it came in the knick of time because cable did not have a good reputation for reliability, for service, for client relationships, for customer relationships. Shortly after that period of time, it wasn’t too far after that, the NCTA went on this reliability campaign and the on-time guarantee where you pay them $20 if you don’t show up within the time that they tell you.
SOUTHWICK: Right – to fix the problem.
GERRY: It was notorious in our business where people, fortunately not in our company, would take a service call, say they’d be there tomorrow, and tomorrow would come and tomorrow would go. The day after would come, call up again. “Oh, weren’t they there?” or “Let me find out.” People were outraged. Again, it was part of the turn-around process that had to go on in the business at that time for us to get to be counted as an industry that could deliver a product and be relied on.
SOUTHWICK: And later, in the early 90’s, this digital compression came along which also changed the way the business worked.
GERRY: The digital boxes and the satisfaction level of the digital boxes is outstanding. The effects that the launching of digital boxes have had in the cable companies that are seriously going after the launching and the reprogramming of their channel line-up using digital has been very, very gratifying.
SOUTHWICK: And this allowed you to add more channels without upgrading, rebuilding the plant.
GERRY: Exactly. You could take a 60-channel system that delivered perhaps all of the basics on 40 channels. Then you could deliver who knows how many channels, 5 to 1, or whatever, on the rest of the channels. You could deliver another 80 – 100 channels on the rest of the 20 channel conventional band. It changed the face of the industry. Fortunately enough, it came at a time when the competition from the direct TV people started to rear their heads.
SOUTHWICK: Did that have an impact on your company? Did you see any loss of subscribers to the …?
GERRY: No. We used to measure, any time we lost a subscriber and we knew they went to digital, to a box, to direct TV, we recorded it. We used to have those numbers every single week from every single system. We used to watch it very, very carefully. Then we’d also have buy-backs where we’d buy the people’s dish back, particularly if it came right before we had a rebuild going on. We were building, at that time, 80-channel systems and doing a lot of conversions to 80 channels.
SOUTHWICK: So we’ll offer you more channels and we’ll buy your dish back?
GERRY: And you have the local channels. That was before they could deliver local channels. In cases like here in Orange County, in this Wurtsboro district, the Orange/Sullivan/Ulster district over here, we have a very, very popular local news channel on every night. And you can’t get that from the direct satellite. A lot of people that have gone to direct satellite for sports packages still keep our cable because of the importance of the local news. We also cover all the sports teams and all of the high schools that play each other – football, basketball, baseball.
SOUTHWICK: I’ve always thought that was the great strength of cable because I came from newspapers where the local newspaper had a monopoly on that coverage and that’s what kept them in business despite USA Today and the New York Times.
GERRY: Exactly.
SOUTHWICK: For forty-some years, you resisted, I assume, many, many offers to sell your company. Why did you not ever want to sell out and what made you change when you finally did decide?
GERRY: Well, I suppose it was an evolution or several things started to come into convergence at the same time. We shook hands with Time Warner probably 18 – 20 months before the deal closed. So I was in the business, at that time, 38 years. At that time, when we made the decision, the phone companies were the big threat. Then right on the heels of that came the direct TV people. So we saw our ability to continue growing starting to flatten out. We were still pretty-well leveraged up. We were about 7.5 times at that time, way down from 11 times. I thought I was getting into good, green country. But we were still 7.2 times leveraged up.
SOUTHWICK: And that’s a cash flow?
GERRY: Yes, that’s a cash flow. I thought two things had to happen. We had to go public to get some money in here and bring our debt down and give us some more flexibility (I didn’t have to own the whole company) or we had to merge. We had to get a partner. We started to talk to Time Warner. We knew them a long time. We share a lot of markets with them, and we got to know the management. I know Jerry Levin. We go back some 20-some odd years when we first got involved with HBO with Time Warner. That’s when I met Jerry because he was involved with the HBO product at that time. There was some talk then about making an investment in our company. We’d still run it, but they’d own 20%. It was a very attractive offer. But in going though all of the numbers, what would happen if …
SOUTHWICK: Can I ask you how that happened? Did you pick up the phone and call Jerry Levin one day and say, “Gee …”?
GERRY: No. I think what happened there …. I was very friendly with Joe Collins. Joe was the president of their cable division. He said, “Al, why don’t you sell the company to me?” I said, “Joe, I don’t want to sell the company. I like the company.” “We could give you a heck of an offer. Let me make an investment.” That type of thing. We had very, very well organized managers meetings on a yearly basis. We’d take all the system managers out to New Mexico, down to Florida or North Carolina or someplace else to these really great management conference areas. We had these great, great 3-day management sessions. One of the times, Joe was invited to be the guest speaker. That night he said, “We’ll really do a really good deal with you.” I said, “Why don’t you put something on paper.” So that’s how it started. Then we got a phone call after he had gotten some … He wanted to see some financials and things like that. He came up with a very, very good offer, a very, very good offer at the time. So I said, “Well, let me think about it.” That’s when they were in this expansion kick. I think they only had, at that time, 5,000,000 subscribers or something like that. They did the deal with ____ channels. And they did a deal with some Houston Industries. They bought Houston Industries. They bought another company in the Carolinas someplace. Anyway, that was sort of the history of it. Then Jerry came up here. He came up to this building with a couple of his heavy weights and he sat down. And I started thinking about the time I’d been in the business. I can’t stay here forever. I don’t know how to renew myself so I can’t stay here forever. And I just thought my youngest child, my son. He always knew from the time he was a little boy that he was going to run the company one day. He was, at that particular point, just starting his first or second year at college. I just felt it was better economically and life style-wise if I merged with a company I was really happy with. I knew that the subscribers would be taken care of, the career CVI people would be taken care of, and there would be more opportunities for them being part of Time Warner than I could ever give them. I can’t give them stock options and all that other stuff. We had all kinds of private deals. We had profit-sharing and all kinds of things, but no way could I replicate the organization that Time Warner had. And I just thought, with the changing of the industry, the consolidation that people were starting to talk about, …. We were one of the early ones that made a deal. I made the decision, and I never looked back. I never looked back. Do I miss it? Yes, I miss it. It’s a great, great business, great people. Some of my best friends are still in the business, relationships I’ve formed, the involvement. I cannot think of a better way that anyone could have grown a company or lived in this country, and I’ve said this to you before, and grown up in America and been part of this industry from its infancy and growing with it. I just felt that all the stars were lined up the right spot – good company, very good price at the time. Of course prices went crazy since, but so did our stock. We got paid mostly in stock. So we did okay in that department.
SOUTHWICK: You remain involved. What is your relationship now in terms of Time Warner? You’re a major shareholder.
GERRY: I think we’re the second largest private stockholder in the company. Ted’s first, then we come. I think that’s the way it works at this point. Then there were a couple of the big funds that owned more than I do, but they were big funds made up of thousands of people. I don’t know where we’ll shake out on the AOL. We’ll be one of the major stockholders there. Ted’s ahead of me, and I don’t know who’s … I think I’ll own more stock in the company than any of the guys at AOL. It doesn’t make me live any differently or anything like that, but we’ll be major shareholders. They’ve been very good. They’ve been very responsive. We’ve had a separate meeting with them – “tell us about your company” and this and that and the other thing. We’re very comfortable with those folks. We’re still involved. I get involved with things with the NCTA, a limited amount of lobbying. We still are very, very much involved in the cable pack. I was very close with Decker right up to the end. I’m sort of getting away from that because it’s a new crowd in there now, new people, new ownership, new interests. You have to know when you’ve run the race and won and get off the track and let somebody else run.
SOUTHWICK: I know the feeling. Now I’d like to ask you about some of the people you’ve been involved with over the years and have you give me your impressions of them. Maybe we can start off with one of the most colorful – Ted Turner. When did you first meet him and under what circumstances and what has been your relationship over the years?
GERRY: I met Ted back in the 80’s through my involvement with NCTA. We became friendly. We served on some committees and things together. I can’t sit here and tell you I’m his bosom buddy or anything like that. We sort of have different life styles. But he’s become a good friend. He’s very, very accessible if something comes up and we need to talk about anything, whether it’s Time Warner business or anything else. I can pick up the phone. He calls me back. We’ve spent private time together at different periods in our lives. He’s a very, very unique individual and very, very bright. He’s as close to genius as you can get. He’s got a unique personality as you know. He’s one of a kind. He’s a great guy. I think he’s played a tremendous role in the industry in doing what he did with TBS and leveraging off from that and to do it through the creation of all these other channels that he’s put together.
SOUTHWICK: What did you think of CNN when you first heard of it? Did you think it would work?
GERRY: I think it was just wonderful.
SOUTHWICK: Did you really?
GERRY: Yes, I did. I’ve always been a news junky, and to have a place you could just always get news was wonderful. Of course, it’s expanded tremendously.
SOUTHWICK: Did you think it was viable? Did you think it could be pulled off, a 24-hour news channel?
GERRY: I think that I, I believe, I can’t remember where I was at the time when Pearl Harbor was bombed or something like that, but I can tell you that I always thought, from the beginning, it was a very, very good idea and that it was possible. We needed programming at that time in the industry and what a great addition to have in your cable line-up a good news channel. We never even thought that there were going to be news bureaus all over the world and that you could watch wars going on or coronations or whatever the other things, the tragedies – a famous person died or something. There was CNN at the funeral or there at the important things that happened any place in the world.
SOUTHWICK: Another person, John Malone. What’s your bond or bill at TCI?
GERRY: I met John Malone way, way back.
SOUTHWICK: When he was with Jerrold?
GERRY: I might have met him at Jerrold, but I don’t recall. I remember, in the early days at the NCTA conventions, I used to meet John out there, and he was always accessible. I’d come up and introduce myself and talk about things. We bought some systems from him along the line, from TCI, partnerships that didn’t work out between he and the partners or for whatever reason. I got to know him a little bit better at that time. Then when I started serving on the NCTA board, I used to see him on a regular basis several times a year, listening to him at the meetings and after hours or having drinks in the evening and just rambling on about the industry about things. He’s with doubt one of the brightest guys that I’ve ever met in a wide area. He’s not one of the greatest operators, but he’s one of the greatest deal guys. He’s very, very smart financially. I’ve learned a lot from him, a lot from him. He was always willing to open up. When things were going on, we used to talk about things. I always tried to be the listener. I didn’t want to talk a whole lot when I was around John Malone. It’s time to listen. And he’s been always very, very available, even after he’s …. I guess the last time I spent any quality time with John was right before Leo came aboard. I was out in Denver and I called him up and told him I was going to be out there in a few days. “Yeah, come on over.” We spent three hours together in his office.
SOUTHWICK: Is he a tough deal maker?
GERRY: Oh, yes.
SOUTHWICK: Is it hard to do a deal with him?
GERRY: Well, I don’t think he’s hard to a deal with. I think he’ll try to get the last ounce of flesh off of a deal before he turns it over to you. We tried to do a deal on some stuff that he had out on the west coast and, in retrospect, I probably should have done it. It was very, very highly priced. It was cable systems that were probably worth 10.5 – 11 times. He wanted 13 times for them because he knew I wanted them. They were right next door to where we operated. I should have done a deal. I should have co-ventured the deal with him rather than just _____ because they would have been much more advantageous to me to be his partner and get me nose under the tent so maybe we could have done other deals. But it didn’t work out. But we’re still friends. He’s sent me some great letters over the years, and John doesn’t write a lot of good-guy letters. But he’s sent me some nice notes that I treasure. He’s a good guy. I like him a lot.
SOUTHWICK: Jerry Levin.
GERRY: I’m afraid that you’ll ask me about a few guys, and you won’t ask me about the rest of them. I hope I’m never going to leave anybody out.
SOUTHWICK: Well, this is my list.
GERRY: This is your list. Okay, so I’m safe there. Jerry’s a very, very smart guy. You talk about a visionary. I don’t know if you heard the story, but ten years before they did the deal with Turner, Jerry had recommended that Time Inc. buy Turner – ten years before. At the announcement, the press conference to announce the deal, he related that story to the press at that time. He still had a copy of the note.. I forget if Dick Munroe was in charge, …
SOUTHWICK: Yes.
GERRY: … at that particular point, of the company, and he recommended that Time Inc. merge with Turner because their interests were so aligned. Time Inc had all of the content that Turner would need in developing his …. And I guess he had his eye on that situation for a long time. Jerry’s a very bright guy. He’s a visionary. He sees the world differently, I think, than anybody else out there. He sees the convergence of all these things that has built Time Warner right up to the point that the AOL deal was announced. The shocker to me was that a company like AOL would buy Time Warner rather than the other way around. But you have to be realistic and understand what’s happened to the world. We’re living in a digital world. There was no way Time Warner could take advantage of becoming a digital company and a digital network and have it done in a short period of time other than going out and buying a company like AOL or being acquired. I think that Jerry was smart enough, and I don’t think he let his ego get in the way. It’s better. AOL/Time Warner will be a better company than AOL by itself or Time Warner by itself. The synergies are such, and the interesting thing is that I do think the management is such, that they will get along very, very well. There’s probably not going to room for everybody. There’s probably going to have to be a few bulls let out of the pasture because there’s a lot of strong personalities in there. But I think what will remain, will remain a very, very unique set of assets that has a tremendous amount of potential to continue growing.
SOUTHWICK: John Rigas. And I ask you that because I think his story is similar to yours, a small town, not too far from here, started out as a theater owner. Are there parallels?
GERRY: John Rigas is one of my favorite guys in the world. I’ve know John probably 25 years. We met when we were franchising against each other up in western New York. His systems are right across the border in Pennsylvania. I met him when his brother was still in the business with him and his oldest son. His brother and oldest son were franchising in western New York in a town called Canandaigua, New York. That was one of the first cable systems that was franchising after the New York State Cable Commission came into existence and froze all the cable franchises in New York State for two years while they rewrote the laws. That’s where I met the Rigases, in the early 70’s. I’ve got the greatest respect for John and his family and the boys. They’ve just done one, hell of a job. They still are a major stockholder in the company. They’re not down to a little, single-digit ownership or anything. They’re very serious about the business. That’s one family that I would bet will own and run and control that company way into the next generation. They’re so serious about that company, and that business and what they’ve built and what they’ve accomplished. They’re smart operators. They’re hard-working people. They’re risk takers of the greatest degree a risk taker can be and still survive.
SOUTHWICK: And with deep, local roots as you have.
GERRY: Very, very deep, local roots. I’m very fond of John and his boys and the family. I know John’s wife, know his daughter. They’re good people. They are what this business is – was all about. They’re a very rare commodity. There’s he, there’s the Robertses and the Dolans. I don’t think there’s a lot of others.
SOUTHWICK: Not too many other left.
GERRY: No, no.
SOUTHWICK: That’s what built it, those kinds of folds.
GERRY: No question.
SOUTHWICK: And one other guy because I know you have some feelings about him, and that’s Decker Anstrom and way he transformed the NCTA.
GERRY: I met Decker when he was the right-hand man of Jim Mooney. Decker has always had his own special, special “Decker way.” He’s a great thinker. He’s very pragmatic guy. He’s a consensus builder. He doesn’t try to bully his way into anything. He never shoves people around. He’s one of the few, probably the only person that I know, that could have gone in after Jim Mooney left and gone in and done the repair work that needed to be done. Jim was put in a very, very difficult position. He and I have had a lot of talks about this. “This MSO wanted to do it this way and that MSO wanted to do it the other way.” And here he’s caught. He’s getting phone calls from both these guys – move it this way, move it that way. I think that Decker had the ability to come in after a very, very difficult period and bring many of the operators to the same thought process. He could also go out and speak to the congressional aides, the senatorial assistants, the members of Congress and the Senate and explain things and make commitments and bring integrity back to the business. There was a lot of separation in thought. As I described a little earlier, we did ourselves a lot of damage. We didn’t make our commitments. We weren’t good citizens in many instances. And I think during this whole transition period, we actually reinvented ourselves, and I think we did it very, very successfully. I don’t think it could have been done anywhere near as effectively and as timely without Decker Anstrom. As an individual, he’s a joy to know. He’s “feel good” after sitting down and spending some time with Decker Anstrom. I’m a big fan of his, I admire him tremendously, and I’m delighted that he has had a chance to bite off a little piece of the American dream. He’s with a great company, and I’ve heard he has a great deal out there. I hope he’ll be able to enjoy some of the fruits that a lot of the others of us have already picked.
SOUTHWICK: Terrific. Thank you very much.
GERRY: That’s it?
SOUTHWICK: It is indeed.
GERRY: It’s been a pleasure.
SOUTHWICK: Thank you from me as well.
GERRY: Come back in forty years. We’ll do it again.
SOUTHWICK: Thank you, Alan.
End of Tape 2, Side A
