Interview Date: Monday February 05, 1990
Interview Location: Westwood, CA
Interviewer: Robert Allen
Collection: Penn State Collection
ALLEN: We’re on Tuesday the 6th day of February, 1990, starting the second day of recording with Burt Harris in his office in Westwood. Burt, as we finished up yesterday we started to talk a little bit about Puerto Rico and the experience down there. Then after we finished the recording we talked a little bit about it. It might be very interesting to try to do a complete case history on the Puerto Rico experience starting with when you finished at Warner’s and some of the owners came to you and said, “Would you help us out?” And you said, “I don’t want to.”
HARRIS: Right. Well, why don’t I just run through Puerto Rico as a case history. Greater San Juan, Puerto Rico consists really of five cities. There are approximately a million people in 250,000 to 300,000 homes. Somewhat typical of urban markets, it had a high density of homes per mile. It was served by five off‑air television signals, all in Spanish. It was a Spanish market. One of the stations was educational, or a PBS affiliate, and the other four are commercial stations. The antennas came from several directions so there were some off‑air signal problems. The market had a low economic base. But it, like many other markets, offered some opportunity.
The original franchise holders and operator decided that the market could develop a sufficient number of subscribers to operate profitably because subscribers would like to get some better reception. Some of them would like to hear some English. Some would like to see some more news and maybe some additional sports. Although they were not anticipating importing any signals, they felt they could operate what was really a closed circuit television system on a profitable basis. So that’s what they began to do. They arranged for their financing. By the end of almost two years they had developed about 5,000 subscribers…
ALLEN: Could we put a time frame on where we are?
HARRIS: Yes, they began in 1972. By the end of 1973, a little less than two years of actual operation, they had wired a high density area and developed 5,000 subscribers. Each was paying about five dollars a month. They were offering three channels of closed circuit television which included running movies, some recent sports events from Madison Square Garden, some cartoons and live news. Most of the 5,000 subscribers were not paying their monthly bills at the time. By the end of 1973 the company continued to be insolvent, which was not unusual for cable systems in the process of being developed. But the loans were in default and that’s when they asked whether I would come in and take over the management of the company. I did this really almost as a favor in hindsight.
ALLEN: Who were the principals?
HARRIS: The principals of the company that provided the equity funding were Ray Stark, a successful motion picture producer in Hollywood, and Ed Pauley, who was the head of Pauley Oil Company–probably more known for Pauley Pavilion at UCLA than anything else. They had put up a little over a million dollars as the equity money. Pittsburgh National Bank and Home Life Insurance provided the loans to the company. A man named Leonard Krane was the principal who put the whole deal together. He and his associate George Brownstein, who was the chief engineer and sometimes general manager. This is when I was asked to come in.
ALLEN: Who brought you into the deal?
HARRIS: Home Life Insurance basically asked me if I would come in. The late Jim Straley was the man who really contacted me. Along with Leonard Krane. I had known Leonard Krane who was trying to get into the cable business at one time. Puerto Rico was really Leonard’s second deal with me. He also asked me because he knew he was in trouble with the lenders, and he had hoped that I could help save the company for them.
When I came in and examined it, I learned a number of things, particularly errors that were made in putting it together. The opportunity was there. However, first the company was totally under financed and way over leveraged. Eighty‑five percent of the funds were borrowed at high interest rates and the company could not really succeed on that basis. That was the company itself.
The other problems were that the monthly rate of five dollars was too low. The daily practices of the company and not enforcing disconnect, encouraged people not to pay their bills, because if you learned that your neighbor didn’t pay, and it wasn’t disconnected, why should you pay it? The operation wasn’t as sound as it should be.
Also, there was no signal importation. The only importation really available was in the Virgin Islands. There was a CBS station in St. Thomas and an ABC station in St. Croix. They couldn’t be imported because one of the major owners of the company was also an owner of one of the television stations in San Juan. Under the Federal Communications Commission’s rules, the cable could not import those signals because of the cross ownership. So the company had severe problems all the way through.
I alerted everybody to that and told them I did not think it could succeed on that same basis. Nevertheless, the lenders continued to provide capital and during 1974, I expanded the company, doubling the subscribers to 10,000. I also made sure they were all paying on time. But even so, there was no way for the company to succeed under the way it was set up financially at that time. Either it had to be reorganized or it had to be closed.
By the beginning of 1975, the original investors asked the company to put in the Chapter 11 for reorganization. Without going through all of the detail, the company was reorganized. I reorganized it in such a way that by bringing in new equity capital‑‑mostly mine‑‑restructuring the debt, raising the rates from five dollars to nine dollars per month, and changing the ownership so that the owner that created the problem with the Federal Communications Commission bowed out of the company, we had a chance. We were able to import the signals from St. Croix and St. Thomas, and we changed the system from a closed circuit cable system to a conventional cable system. That turned the company totally around. I knew that it would be successful in time, the same as any other cable system on mainland.
I pointed out to the owners that I felt the company would be successful in time with sufficient capital. Also, that the company would then be converted from a partnership to a corporation which would cause the original owners to recapture all their losses for tax purposes. With that information the owners decided to bow out. They preferred to recapture their taxes immediately and get out of the company, rather than continue to remain with the company. Harris Cable at that time, became the principal owner of the company and the company then set off to develop on a standard basis.
The system was helped by satellite reception which was in effect in 1978 in Puerto Rico. Although we were on the very edge of the satellite footprint, we were able to pick up the early satellite signals of the time. Then the system developed like all of the others. By 1986 we had 108,000 paying subscribers and a very, very successful cable business. The original theories of the promoters, or the original franchise people were correct. The mistakes they made were in the funding of the company because all cable companies lose money as they get started. In addition to funds, the company needed some basics which included how to run the company on a day to day basis–what to import and what to offer the cable subscribers? How much you had to charge in order to be profitable over a period of time? So it was one of the very few cable companies in the country that lost money for the lenders. Home Life Insurance Company and Pittsburgh National Bank lost about two and a half million dollars.
I will say that when I reorganized the company I offered the company to the lenders and told them that if they would put up the equity capital, I would continue to run it and in due time, they’d get all their money back along with their interest. Neither the insurance company nor the bank wanted to be in that kind of a position. The continued loans by the lenders, along with our equity capital, made it possible to further build the system. The lenders had confidence in the system and in the new management, and it proved to be right. I was always sorry the lenders lost their original money on their decision. The facts are it did turn out exactly as I had anticipated. Much greater, as a matter of fact. I never really thought we’d have over thirty or forty thousand subscribers, much less over one hundred thousand.
ALLEN: Did you end up wiring the entire metropolitan area of San Juan or the entire island?
HARRIS: We only wired the five cities that comprise greater San Juan. By the time we decided ourselves that cable was going to be successful on the island, Puerto Rico’s Public Service Commission decided that they would only give one franchise to each company. Therefore as the other markets in Caguas, Macaques, and Ponce and whatnot were developed, they gave each to a different company. That was in 1986 or ’87. They have now gone away from that and they’ve allowed a number of the companies to combine. Now there are probably ten or fifteen cable companies on the whole island.
I’m not as sure about the degree of success in the other outlying areas because rural Puerto Rico still is Spanish speaking. San Juan is much more English.
I think in just looking at that market, what makes that a successful cable business, is the sports events. You don’t really have to know English to enjoy them, even though most of the people from Puerto Rico are bilingual to some degree. They were starved for sports. By bringing in all of the sports from the mainland, they could watch them without having to know English. I think that is the principal reason for the success.
I will say that our cable company was the most dominant factor in providing English to the people of Puerto Rico. Most of the people think of Puerto Rico and they think of New York Puerto Ricans. The facts are that most of the people who went to New York were the poorer, uneducated Puerto Ricans. Puerto Rico itself is a marvelous Commonwealth. Although the economy supposedly is in a lot of trouble, it does really very, very well. There is a split between those who want to become the 51st state and those that want to be independent. Most of the people probably feel that what they presently have as a commonwealth under the United States is the best of all worlds. They get help from all ends. There are more people coming back to Puerto Rico today than leaving. So it’s a fine developing area.
ALLEN: How much time did you have to spend in Puerto Rico during the early days?
HARRIS: I was probably in Puerto Rico every other month for at least five years. I would go down for three or four days at a time. We had a half a dozen managers at that time. Each manager would last a couple of years. As a matter of fact, I remember the first manager I installed. I decided I would hire a Puerto Rican that I felt I could teach the cable business to rather than hiring someone from the United States and teaching them Puerto Rican. I hired a former general manager of the Coca Cola company, Umberto Cuevas. Umberto stayed with me a year and then he left to go to work with the government, which I was very comfortable with. What I found out was that although Umberto spoke good English, most of the people‑‑even though they spoke two languages‑‑did not really understand my innuendos. When I would tell him things that I thought we had to do in the cable business, he always said yes. But I most often found out later that he really didn’t understand me. It was too difficult. When he left, from then on, every manager I hired was brought down from the States. The managers who were there while I was there included Leonard Krane, Umberto Cuevas, Bill Sinkunas, Everett Kochheiser, and John Cardenas. John stayed the longest. He was there about six years. He was followed by the current manager, Pat Laide who came out of Arthur Young & Company.
We had a lot of different managers, but I was very close to the operations. I had a hand in what went on every channel, how we wired, what we did, everything. I was there at the hearings. We had many, many hearings before the Public Service Commission that had to do with rates, service, the franchise operation, and particularly for the several years that the company was under Chapter 11.
We had some marvelous employees. Most of our employees were there a long time. At the height of our construction I think we had over 600 employees. Most of them stayed with us for a long time because jobs are not easy to find. We had two unions that we had to deal with and the unions are very strong in Puerto Rico. We never had a strike that I recall, but we always had union problems. We had to talk and meet with the people. We had an office union and a technical union. So I had all of the complications and problems that you find in any kind of a business and yet as I say the business survived well and went well. Not withstanding all of the problems with good attention to it and good management, we built a very, very strong business.
ALLEN: Did you have any problem with pole rights?
HARRIS: The normal problems, getting on to the poles. The poles in Puerto Rico often look like Christmas trees. First the poles couldn’t fall. They had so many lines going in every direction that it was just not possible for them to fall. The latter half of the construction was almost all underground and we had to cut the streets. We did some construction ourselves but we generally hired independent contractors. They knew how to deal with the city better than we did. How they handled their politics and the inspection, I don’t know. We had to literally cut through the concrete of the streets and bury the lines and hook up the homes.
There were an enormous number of hotels because of the resort area and high-rises. If you’ve ever been to San Juan, you’ll see an enormous number of high-rise condominiums and we wired many, many of them. There was a lot of illegal activity that went along with it. People would have their own routes of their own customers using our lines. We had to constantly go out, particularly to all the condominiums, and disconnect all the illegals that were attached and put them on our system.
In late 1984, we decided to put in an addressable system. One of the early addressable systems. We used Oak equipment. It was not the most secure. Unfortunately when we started building that cable system, we put in a thirty-six channel system. We used Oak equipment when we started installing the addressable system which was just before Oak came up with a more secure system. We were not in a position to change. The two systems were not compatible. Therefore, we used the older Oak system.
In ’84 as I mentioned, we went to addressable. We spent probably five million dollars on addressable equipment which eliminated a great deal of the illegals. Nevertheless there were plenty of illegals as there are all over. That was one of our ongoing services.
The marketing in Puerto Rico was entirely different because we actually went up and down the streets with loudspeakers telling people to come out and see what cable was all about. But it was really a marvelous undertaking. We did everything that we could think of creatively. If we decided to do something, we just went out and did it. If we wanted to put something on, because someone called up and said, “Why don’t you put this on the cable?” we would do it.
There was a plus and minus in the power system in Puerto Rico. The power in Puerto Rico goes out almost everyday, somewhere. In a way it helped us because whenever there was an interruption of the cable service, people blamed the power company, not us. We had to have standby generators all the time to keep our service running.
We did a hub installation so we had headends in five different locations. Eventually we had four different satellite dishes on the nearby mountain. It was just a marvelous system, and it provided a great, great service for the people of Puerto Rico.
ALLEN: Were the five headends redundant or where they all separate?
HARRIS: They were all separate, each one kind of worked as a hub.
ALLEN: You might have four on and one off, or three on and two off.
HARRIS: Well, most of them were on almost all the time. Fortunately we avoided severe weather problems. This last year as you know there was a severe hurricane which I understand tore down about 25 percent of the entire system which is half of the overhead wires.
I found that people paid their bills. Everybody said, “Puerto Rico? Well, you’ll never collect your money.” All of our customers paid the same as they did on our systems on the mainland. It was really a marvelous system and the people were just terrific to work with.
ALLEN: Earlier you told the story of a woman who called and wanted to expand her system?
HARRIS: A woman called and wanted HBO service, and we found she wasn’t a regular subscriber. When we checked further, we found that she had been getting service for a number of years. There was somebody in a Volkswagen with his insignia on his door. He had his own route of serving several hundred subscribers. He was going out collecting three or four dollars a month or five dollars a month from each subscriber. If they were disconnected by our company this guy would come right out and reconnect them. I don’t know how many of those were going on, but it was quite a business.
ALLEN: Is that pretty common in all of cable?
HARRIS: I don’t think it’s common for people to have someone out running their own routes but there’s no question there is a lot of illegal activity everywhere.
There’s a funny thing about cable. Even my friends in Los Angeles seem to brag that they can get free cable service. The cable service installers sometimes are the worst offenders. They will go out and if you slip them some extra money, they’ll connect up all these other services and pocket the money. So the cable company employees are one source of the problem. Other times people move into a new house, and they find it’s already connected. Often we would send out our installer to disconnect, and we’d find that we had people who were malingerers. They would take their list of disconnects, and they would come back and say they disconnected them and never did disconnect them. So there are all kind of things that cable companies do. Now, of course, with an addressable system, you literally can disconnect right from the home office. We had a lot of learning to do in that system as in all others.
The original mistakes which we corrected in that particular system, proved that the premise was right. It just took a lot of time, money and management which is the name of the game in any business at any time. It worked out well. Needless to say, I was extremely fortunate in hindsight in having taken it on. I was fortunate to have found the opportunity to invest in the business itself once I learned about it. It developed to a much, much greater degree than I ever thought would happen. Greater than everybody that was involved including the original owners who kept a small piece after the reorganization. They all made a great deal of money on it. It was a good case study in terms of it being relatively typical. It had all of the things that cable companies needed in terms of construction, in terms of marketing, in terms of service, in terms of importation programming, and what it provided. Now, instead of five television stations, there are I think ten. The market is way overbuilt as a television market. Three or four of those stations are in Chapter 11 because they can’t quite make it and yet the cable company is doing extremely well, and to this day it continues to grow.
ALLEN: At the time you were doing this, you also then were developing Harris Cable Corp.
HARRIS: Having left Warner, Harris Cable in addition to Puerto Rico, took on four properties. The Puerto Rico property which I mentioned. I was also involved in the building of a cable system in the suburbs of Rochester, New York. We had thirteen franchises there that we developed into a cable system and another twelve or thirteen municipalities in and around Hickory, North Carolina. I really wasn’t out trying to build a much larger company. I was involved in helping my former partner, Don Nathanson, who got me into television in the first place. I eventually started him into a separate cable company, which today is Falcon Cable. Don started with a very small system here in Los Angeles. Don and I then built some cable systems up in northern California together.
Don’s son, Marc left TelePrompTer to come back and take charge of Falcon. Marc has built all of the different Falcon companies into one of the larger MSOs today. I’m on the Advisory Board of Directors of a number of Marc’s companies.
I continued to run our television stations along the line. We built a television station in Chicago, Channel 44, which we still operate. I bought KWHY TV, Channel 22, in Los Angeles which we still operate. So I was still running cable companies and television stations on a day to day basis.
I was still very active in the National Cable Television Association and served on many committees. I served as chairman of the NCTA and was active in the SCCA, which is the Southern California Cable Association. Then I belonged to all of the various associations including the NAB.
I once ran for the board of the NAB before I was on the NCTA Board. I don’t remember what year that was. I used to love to play cards. We had a group that used to play poker particularly at the NBC suite when they let us in those early years. I remember leaving a poker game the night before the voting of the NAB about 3:00 in the morning. I told all my friends to be sure to get out and vote. And the next day was the voting, and I found that I lost by two votes. When I went back to the poker game I found that it had never broken up. It continued right on through and none of my good friends had ever gone to vote. I was very embarrassed and saddened and said that I would never run again for the Board seat even though people told me that it’s not unlikely to lose the first year. They told me I should run again the next year. I never ran again for the NAB Board, but decided I would run for the NCTA Board. I wonder had I been active in the NAB would I have really steered more into the broadcasting rather than to cable. That’s another one of those forks in the road that sometimes you don’t have much control over.
ALLEN: If the poker game had broken up on time or in time?
HARRIS: Who knows what might have happened? I guess I should mention in 1979, or maybe it was the beginning of 1980, there was a company formed by four of the motion picture companies and Getty Oil. 20th Century Fox, MCA, Columbia Pictures, Paramount and Getty Oil decided that they were going to form a program network that would mostly use their own movies, and it would compete with Home Box Office and Showtime. They formed that company at the end of 1979. The motion picture companies did not have a good rapport with the cable industry. The cable industry looked upon those companies as holding back product and wanting more money from the cable industry. So they were kind of at odds. They called that company Premiere.
They were looking for a chief executive to run it. The company was run by a board of directors. Each of the companies had two members of their company on the board of directors. The directors included Rich Frank and Mel Harris from Paramount. Larry Hilford from Columbia. John Dolgen from Columbia. Tom Wertheimer and Bob Hadl from MCA and Stu Evey and Dan Burke from Getty. Steve Roberts and Larry Harris from 20th. Many of those people, of course, are extremely active today. Tom Wertheimer is a very important executive of MCA today. John Dolgen left Columbia after Coca Cola and heads up 20th Century Fox as a television operation or production operation. Rich Frank is a major executive at Disney today. Mel Harris is the president at Paramount. So they were not the number one people from each of the companies, but they were the twos and threes.
They were looking for a chief executive, but with their poor rapport with the cable people, they didn’t know what to do. Apparently somebody suggested my name to them, and I remember I had a call from a friend of mine who was a producer at Paramount who I used to play golf with. He called me in Chicago and asked me if I had heard of Premiere and I said I had. He asked me if I would be interested in talking to them about the possibility of becoming the chief executive officer. I remember I really laughed at him and said, “Are you kidding? I wouldn’t give up my own business to go work for somebody else.” Nevertheless when I got back to Los Angeles my ego was massaged enough and peaked enough that I thought I ought to at least talk to them. And I did. I met with Stu Evey and there was an executive search firm headed by Bob Fell that was also involved at that time looking for somebody.
I had a good reputation fortunately in the cable industry and a name that they thought would get them further ahead very quickly with the cable operators, if I was willing to take this position.
To make a long story short, I asked if they would let me be a partner, and of course, they wouldn’t let me do that. They said in effect they would treat me as a partner which was encouraging. My businesses were well organized and well run and I had talked to my associates at the time and they had no objection if I wanted to do it. I felt that if I took that job on, my own company would suffer only in growth, not in operation. I felt I had efficient people operating the company that it could continue to operate soundly. I just wouldn’t be acquiring or growing as Harris Cable if I did that.
I decided to do it and took on the job as Chairman and Chief Executive Officer. At the same time, it was recommended that I consider hiring Chris Derick as the president and COO of the company. Chris had been the CEO of Viacom and had just resigned. Chris had become president and COO of Premiere. Chris did come into it. We spent the next six months talking to all of the attorneys to ask them about the rumors that the anti‑trust problem would doom us because the companies were proposing to give all of their motion pictures to Premiere and keep them exclusively for nine months. All of the attorneys told me that they felt that yes we may eventually be attacked by the anti‑trust people but by that time the company would have been off and running and we wouldn’t have any problems. So we began to fill the company, hiring people and moving forward as strongly as possible to launch the service on January 1, 1981.
Sure enough as we got down to the time, an injunction was sought by the Justice Department against the company on anti‑trust grounds. We went to New York where we had six of the biggest law firms in the country. Each of the companies had one law firm and Premiere had its own. We went to court with about fifty lawyers of ours, I remember. I’ll never forget that. I’ve never been involved in that kind of lawsuit. To make a long story short, the injunction was in fact, put in place. We appealed it. Even during the appeal the owners of the company said that we should go forward full blast. I remember they said, “If we get stopped, we want them to have to stop a speeding passenger train not a slow freight train.
During this period, I went to Washington and talked with the Assistant Attorney General about the problem. It seemed to me that if we were prepared to make some changes we could have probably made it. In hindsight, if we had waited another four months until President Reagan’s administration came in I think we wouldn’t have been stopped. But the companies did not want to do that. And we lost the appeal and with the loss of the appeal, the companies decided to just throw in the towel.
I remember meeting with the head of Gulf and Western which owned Paramount at the time. Charlie Bludhorn‑‑he’s not living anymore‑‑told me that it would never work. He felt that these companies would never get along together. He said there’s no chance of these four companies ever getting along together. In addition, the companies were having problems. It wasn’t much after that when Columbia was sold to Coca Cola. 20th was sold and Getty was sold. But it was an absolutely fascinating opportunity. As I say, it massaged my ego.
When I finally settled everybody’s contract and everybody went home, I remember calling the board and saying, “I’m turning over what’s left to Getty to watch it.” As it turned out we spent about $14 million in a few months time. Because of the sale of one transponder, which we sold for eleven million dollars, and the other transponder that the company had put together in the short period of time, no money was really lost by any of those companies. I was happy to see this.
I just went back to my own company which was still there and felt I was somewhat fortunate. My own company was starting to suffer, and not only because of management I guess. You tend to think that everything goes along, but it was suffering to some degree even with my own managers because Premiere had agreed that I could spend 20 percent of my time on my own business‑‑80 percent on theirs. Of course, what I ended up doing was spending 100 percent on theirs and whatever extra time I could find, was on my own. It was really one of those interesting experiences in life. I was flattered, of course, that they said I’m the man that ought to do it. The challenge was superb. It wasn’t really the money and I didn’t resent the time. I really was flattered that here was a great challenge of building a new business. I had built a number of businesses in my lifetime and here was going to be a good one.
Of course, the thought of all these motion picture companies which I always put on pedestals, was a bit overwhelming. They believed in me which gave me access to those companies and to their people. The people I revered, that I’ve put way up on top. Suddenly these are the same people I was doing business with.
ALLEN: A long way from producing wrestling shows.
HARRIS: A long way from producing wrestling shows. That’s true. That was the experience with Premiere.
ALLEN: Harris Cable was building systems from scratch, but you weren’t buying existing systems.
HARRIS: That’s correct. These systems were all built from scratch. That meant going in and getting the franchise from the municipality, determining the kind of system to build, what equipment to use, and how to market it. Every cable market is a little different. There are no two alike. Because you have to decide what the air signals should be. I guess ultimately, maybe they are all the same. Ultimately those people who get their signals from off air broadcasts, would like to expand their reception in terms of quality and quantity. Particularly quantity.
There’s an insatiable appetite for the number of signals that people like to get. Whether they watch them all or not, the idea that they can get them is probably more important than what they do get. They may only watch one, two, three, or five signals out of fifty, but they have the other fifty available and they’re all on the dial. Many people do watch something different.
In narrowcasting, the person that wants to watch the one channel that provides something that someone else doesn’t, keeps people subscribing. Once they have cable, it is unlikely that they disconnect. First of all their antenna is gone. That’s another serious problem. Once they have cable, and they’re used to it, you just don’t give it up. It’s just a better form of providing more programming.
ALLEN: I’d like to go back to something you talked about earlier, when you went about getting those thirteen franchises in the Rochester, New York area did you have a strategy for securing franchises? How did you approach the municipalities?
HARRIS: Most often of course, a group of Council people were aware of cable, although I must say that going back historically, they really were totally unaware of what cable television was. The strategy normally was to point out that the residents of the city would be given something additional that they did not have, so they were securing something for their constituents with something that they really wanted. Most of these cities saw cable as an opportunity to gain some fees for their coffers. All cities look for ways of getting some extra money. So immediately when you offer the city two, three or five percent of your revenue, they suddenly see a revenue stream that they didn’t otherwise have. So they were eager to really bring in a cable system.
Some of them however, were far, far more demanding than others. Often in getting a franchise, you had to make promises, which I found that were not appropriate for people going into business but politically speaking you had to do it.
End of Tape 3, Side A
ALLEN: One more question, Burt, on the technical side. Did your company do anything from an engineering standpoint that was adopted by the industry as you went along or were you pretty much buying engineering from other companies?
HARRIS: I don’t think so. I don’t think we ever did anything from the engineering side. Many years ago the industry used to hold the California Show, which turned into the Western Show, at the Del Coronado Hotel. I think it started in the early ’60s, probably when Walter Kaitz used to head it with his wife, Idell and their children. Boy, there were just a half a dozen exhibitors. Jerrold was the prime exhibitor at all of those conventions. There never was a convention dinner that wasn’t a Jerrold dinner. Jerrold always had the dinner and everybody went to it. That was it.
ALLEN: Were you a charter member of the California Association?
HARRIS: No, I’m sure I was not. Although I was active in the California Association, it was never to the degree of the National. I got involved in the National in 1970. I never really got active in the National before that. I got interested in 1970, went on the board of the NCTA about that same time, became the head of the NCTA in 1976. I ran for the chairmanship in ’74. That was a very interesting time because I remember I was asked if I would run for chairman in 1976 and somebody else was running.
HARRIS: Yes, ’74. It was only about two weeks before the voting. I didn’t have a long campaign, but I remember we went through that whole thing, and it was really knock down, drag out, with a lot of vote counting. The night before the vote, I remember my supporters added it all up, and they said I won by one vote. The next day was the election and I lost by one vote.
ALLEN: Who won?
HARRIS: Bruce Lovett. Then Rex Bradley, and then I was elected in 1976. Robert Schmidt was the president of the NCTA at the time.
In my term the Copyright Bill was passed. Actually the ACE awards were started the year I was chairman. They weren’t called ACE awards. HBO had decided to give Bette Midler the award for the best program of the year which was really the forerunner of the ACE awards. The next year they started the ACE awards.
ALLEN: What was it that motivated you to get active in 1970 with NCTA? Was there an issue that was strong?
HARRIS: No, not at all. The NCTA Board tried to encourage Cypress to join the NCTA. We hadn’t joined. Bill Bresnan was the chairman at that time. Anyway, Cypress joined, and it was just an ego trip I guess. If you’re going to be involved, get active. You almost had to show the flag if you were a public company. You had to show that your company was important, that it was in the forefront. We really had to get involved in the National scope. You get caught up in what you’re really doing. There wasn’t really anything that I would say that I had to do. It wasn’t that I wasn’t interested. I was vitally interested in what was happening. In all of the legislation and all of the lobbying and everything that had to get done. I remember, when I was chairman and lobbying in Washington that year, I was so dejected at seeing the way government made the laws. I remember I was talking to Don Anderson who was with the NCTA at the time and Don reminded me by saying, “Burt, there’s a saying around Washington that says ‘He who likes the law, or sausage, should not watch it being made’.” I never forgot that, because it really was something. I was active and served on lots of committees. When I finished the six years on the Board, I figured that was enough.
ALLEN: What were the issues that you were lobbying?
HARRIS: We had the Copyright Bill, of course, which had been pending for six years. Copyright was very critical. The question of rate regulation was really important. All of the cable companies were bogged down in rate regulation. As you know in the cable industry, in order to get a rate increase, you really had to go through a big turmoil in every city. You had to do all of your politicking. Even when you got it all done, by the time you did it, it often took you so long you should have raised it a lot more. In addition the cities were asking fees, and they were asking for a lot of things, which the industry really felt was wrong. They were asking cable companies to give access channels, government channels, and do a certain amount of programming.
I was totally adverse to cable companies doing origination. I felt it was something that was costly and totally unimportant. It didn’t mean much to the city. The broadcasters were doing it anyway. I said to do some local production that nobody looked at was really a sin. I was always against it. I also always looked at the cable business as a public utility. Most of my friends said, “For God’s sakes, don’t ever say that because then the next thing you know we’ll be into rate regulation and the most you’ll be able to make is 10%.” I used to say, “If I can make 10% every year, I’ll be very happy.” So the question of calling it a public utility is something the industry didn’t want.
What we wanted was to get the regulation away from the cities, so that we weren’t forced to do all of the extraneous things which I didn’t think had a lot to do with the cable business and yet could keep the cable business as a solid business.
I always thought cable was an arm of the broadcaster. The broadcasters and cable companies used to fight back and forth. Over half of the cable companies were owned by broadcasters. Yet, the broadcaster generally would never say anything. They hung back. They were very, very quiet. So the cable operators alone had to do it.
I guess the reason I wanted to be chairman was to prove that a broadcaster could head the cable industry. Most of the cable operators thought I was a broadcaster and most of the broadcasters thought I was a cable operator. That was just the way they were. I just wanted to prove that it would work. I think it worked well.
Dick Wiley was the chairman of the FCC at the time. Several times he said publicly that if I told him something, he could believe it because he knew I was both a broadcaster and a cable operator. Therefore, I think I made more brownie points for the cable industry by being both a broadcaster and a cable operator because I could really speak from both sides of it.
The argument between the broadcaster and the cable operators for years went on and on and on. We owned the cable system and the television station in Bakersfield. We ran the cable system. We had the management contract. Although the managers of the TV stations and the cable system walking down the street may have competed, beyond that, I never found it a problem. They’d fight each other where it was important to fight. I never thought the cable operators hurt the broadcasters as much as they have claimed. I really believe that cable was recirculating broadcast signals. That was their job.
ALLEN: It wasn’t until program origination that they became a major factor?
HARRIS: Until satellites came. When satellites came along and allowed systems to carry “programs,” not just stations, then a huge difference developed. The broadcasters were fairly fat from making a lot of money, and they really let cable run away. They also let independent stations develop. Of all the things the networks should have been in, one is CNN. They’d sit at the affiliate meetings and say, Ted Turner could never do that. He’s not going be successful. He can’t afford it. They really were too fat. I remember the president of our broadcast group, Jack Rosenthal saying, “Listen to these guys. It’s actually ridiculous.” Of course they really let them run away. They just got too fat and happy.
Going back to your technical question. We really didn’t do anything of great innovation. The companies whether they were AMECO or Oak or Jerrold or whoever, they were just constantly trying to upgrade their electronics. The same thing with the cable manufacturers themselves. I remember when Frank Drendel‑‑who used to be my vice‑president when we sold and merged into Warner‑‑decided he would go back to work for Continental and Comm/Scope who manufactured cable. I remember when he decided he wanted to buy Comm/Scope, and he had it almost put together. He asked us if we’d come in with him. I never liked hardware businesses. I didn’t go in with him and he always laughs at me and says that a $100,000 investment is worth $5 million or $10 million now. Because he eventually built it up very well. Frank has done extremely well with that business.
ALLEN: What about from a marketing standpoint? Did you consider that you were pushing out in the marketing area?
HARRIS: I think we were innovative. I think we did a lot of things. We did tiering, which a lot of people didn’t do. We did a lot of creative marketing things in terms of how do you get new subscribers and what you do. Although I suppose most companies were innovative when they really went out. But we were like a founder. We really went out to do our own thing as most cable companies did. You could pick up something from somebody else.
There were marketing companies. We used them like everybody else. They’d come in and do big pitches. I don’t think there was anything that we didn’t try to get the subscribers. That included hooking them up and free hookups and whatnot. I don’t think we were any more innovative necessarily than any other cable company. Nor do I think we were less innovative. We were aggressive. I think we always said that we thought that 80 percent of the homes would eventually have cable. What we really had to learn was that most homes have poor broadcast signals. The cable industry had a slogan that said we gave better signals than broadcasters which was untrue. I always said we only gave a better signal when you didn’t get a good signal. That was the truth. You didn’t really have to snow the people when you were going to get a franchise. The facts are that when you received a good broadcast signal it was the best. All that a cable operator could do is maintain that by amplifying it.
But the other facts were that probably 85 percent of the subscribers got less than a good signal, either with man-made interference or natural obstacles. So if you gave a subscriber a good cable signal it was probably better than they normally received, because most people did not get a clear signal. So to that degree we had a chance of giving them something.
I said before that originally we thought that cable would only work where there was no television. Then we got into the one TV station markets. I remember thinking very hard when we went into two station markets. It’s likely that Bakersfield was the first three station city in the country wired for cable. When we wired Bakersfield we were taking a huge chance everybody said because there were three TV stations serving Bakersfield. What do they need more for?
Of course, we brought in nine from Los Angeles, three which were repeat. ABC, NBC, and CBS were repeated because they were already there. And six independents. We used to take surveys all the time. My board used to say, survey this and survey that. My own feeling was just a gut feeling of whether something would work or wouldn’t work. You could go out and survey whether a cable system would work and ask would you buy it or won’t you buy it. Everybody tells you yes, we’ll buy it. It gives you some backup but you really need to have the gut feeling of whether it would work.
Did you want to talk more about Technology?
ALLEN: A couple more marketing things first. When you first got into the cable business there was still a high hook‑on fee. The hundred dollars or so charge. How did you rationalize internally within the company and to yourself to go to the low fee?
HARRIS: Well first, you needed the money. Most of the cable operators didn’t have any money. They had to charge the $100. We were using our broadcasting cash to get into the cable business. We just looked at it as a logical business and said, let’s get the subscribers. We’ll invest the money to get them on. That’s really what it came down to. We got down to $19 for a connection and when we’d have a “special” that if you’d subscribe, we wouldn’t even charge that. We recognized early on, if we could afford to invest in a subscriber, we’d get it back. I think it was mostly business judgment and having the cash, that was very important in order to be able to do that.
In Palm Springs, for example, that was a resort- type town. We sold annual contracts in Palm Springs. Written contracts and they paid for nine months and didn’t pay for three months because the summer we said was free. It was like nine dollars a month for nine months and free for three. Which averaged around seven dollars a month. Subscribers literally signed a one year contract in order to do that.
We learned a lot of new things in Palm Springs. We had more hotels in Palm Springs than probably any other cable market. We had to have special deals for hotels. Then we had to come up and tie them to occupancy. Should they pay for all the rooms when we wired the hotel or should they pay for just rooms when they were occupied. We did a lot of innovative things in Palm Springs that eventually we used in other places. Every city had some hotels. Nothing like Palm Springs.
In Puerto Rico a lot of what we did I had learned years back when we were in Lake Arrowhead. Whenever you go into a place that was very seasonal you had to do something different. I did some work in Lake George, New York in cable systems. That was ’76. We did do a lot of marketing innovation.
When we went to conventions we heard other people’s ideas, but the one thing about those, was that they were early hands on ideas that we had to test. You went to listen and to see. Almost always it was our own innovative hands on of standing around and seeing how did we get subscribers.
Some cable companies weren’t really active. I remember when we owned the Flagstaff, Arizona system. Statistically we were serving more subscribers than there were homes. We had 101% of the homes hooked up. That just can’t be. There was not a television station in town, and the homes were all on the system. Our manager used to be just a public relations man. He would just go around talking to the Rotary Clubs in the city and making sure the city council was happy because everybody in town was hooked up. We didn’t have any marketing problems. All we had to do was try to get our rates raised. We had no origination, we just imported signal. That was it. We had nothing off a satellite in those days. So we just brought in Phoenix and that was it. That was an easy, easy business. In the other places where we really had to be a little thoughtful and figure how do you get subscribers. How do you work the homes. As I say, I don’t think that we were any more innovative than anybody else. Maybe I’d like to think so, but I doubt it.
ALLEN: Who were some of the other cable companies that you thought were being innovative instead of just sitting there waiting for things to happen?
HARRIS: Well, of course, you had American which was Jack Kent Cooke. You had H&B. This was before Warner tried to be very unique. By the time 1970 came along, the bigger companies were really trying to push into it. Time Inc. was in the business. ATC and Warner and Storer, and there were more of the larger companies who tried to run businesses much more than a Mom and Pop type of operation. There were a lot of the original founder people, Bill Daniels, Gene Schneider, Ed Allen, Amos Hostetter, George Barco. They were all “from the beginning” people. They were out in the street, doing what they really had to do. Whether they were any more successful than anybody else, I don’t know.
I mentioned that I was a believer in pay television almost before I got into cable. The man that ran my cable business, our cable systems while we were in both broadcasting cable, was Geoffrey Nathanson. When we merged with Cypress, Geoffrey left to start a company called Optical Systems, which was one of the first pay television stations in the country. He manufactured his own box. His company operated in San Diego and Santa Barbara with Cox. Cox was big in those days as they are today. He was starting the same time Chuck Dolan and Jerry Levin were starting with HBO. Of course, Jerry and Chuck sold out to Time Inc. and Geoffrey eventually went out of business. He had put too much money into hardware to try to make it work.
Funny, I remember when STV was coming along, in the late ’60s. Ike Blonder of Blonder-Tongue and Sol Segal of Globe had developed decoder boxes. I went back to see their equipment. They had $400 or $500 addressable boxes. HBO had started offering programs on the monthly fee. I remember saying to Ike and Sol, “You’re not going to be in this business because it’s already started by the month. It should be pay-per-view, but it’s not. As long as HBO started that way, you’ve got to come off with a $100 box that does it by the month. Not a $500 box that does it by the play. Otherwise you won’t last.” Eventually they had to get around to do that. I was originally frustrated with HBO because pay television as I had envisioned it was supposed to be the theater in the home. I had originally thought that pay television would be just taking the same thing that’s in the theater and putting it in the home. I thought they could get day and date. We had envisioned that we were going to run a double feature three nights a week. Then we’d change the bill and go three more nights. That’s what pay television was. The plus of it for the consumer was that you didn’t have to go out of your home. You didn’t have to get a baby sitter. You could get the same exact thing at home that you got in the theater and pay the same thing, only it would be a little less because instead of one person, maybe one admission for five dollars you’d have four people watching it. That’s what I thought.
When HBO came along and they started their reruns, it really aggravated me because I said, “All you’ve done is made a television channel out of it that is uninterrupted by commercials. But it’s just a television channel of new or old movies and you’re selling it by the month. That is not the way to do it. You really ought to do it the other way. Of course, they could not get day and date from the stations, so I don’t know whether they were right or wrong. At least they made a big business out of it. Now they’re going back to pay-per-view again.
Originally when it was getting started, many of the small cable companies wouldn’t put in HBO. And it was interesting. We said, “You’ll make more money.” I remembered that when it came up at the NCTA and we said, “Look here is a way to make more money. Put in HBO.” Many, many cable companies were set. They were satisfied. They weren’t worried about it. They didn’t know much about the technical aspect of it. They were saying, “Is it going to work,” and “you have to put another box in and everything else?” But it was not easy for HBO to come in and say, “Hey, here’s a way that you’re going to make a lot more money.” Geoff Nathanson was the first person to get new movies from the movie companies. The movie companies would not give the programming to the cable companies. You may or may not remember, Palm Springs was the first pay movie system. Paramount went into Palm Springs and put a pay cable system in. And it didn’t work. They sold the system to Carl Lesserman. Carl sold it to H&B. H&B sold it to us. It was originally a pay system. The original pay system had started in Texas, and failed. It failed because they didn’t have “new” movies. They had “old” movies. Geoff was one of the first people to get the movie companies to get newer movies. As I recall Gordon Stulberg, who headed 20th Century Fox and Lew Wasserman at MCA were the first who finally gave Optical Systems some newer movies. And HBO got some of them, too. That’s what it took. The original ones didn’t have product. They didn’t fail because of the idea. They failed because of the product availability.
ALLEN: They failed because they had the right idea at the wrong time.
HARRIS: Wrong time, exactly.
ALLEN: Did you as an MSO buy into HBO right in the beginning?
HARRIS: We signed on very early to HBO as I recall. I knew the Time Inc. people very well. I knew Jerry Levin. We made a deal with HBO in Rochester, New York. I built Rochester in … well that’s part of the next story. We came on with HBO as I recall, very early on.
ALLEN: When did that start?
HARRIS: Well, it must have been about 1970 or 1971 when it first started. That’s when they first started getting into some systems. It wasn’t of real importance probably until ’75 or ’76. When I left Warner in ’73, I mentioned that I had been approached by Time Inc. and that fell apart. After that I was approached by Salomon Brothers. They again asked me if I would build a new cable company. They said they would give me $40 million to build a new cable company. I asked a few people because it didn’t sound right. They said, “Well, if Salomon Brothers says it, they’re going to do it.” So I went to them and I asked them what they wanted from me. They said, “We’d like you to get a good management team and that’s all.” I said, “You don’t want any cable systems?” They said, “No–no cable systems.” So I put a team together that consisted of Chuck Trimble, he was going to be the operations manager. He was the ex‑president of H&B American. Marc Nathanson who is now the head of Falcon Communication, was the vice president of marketing. Jerry Greene who was my former financial head, was the head of finance. So the four of us were the team. We started out doing a “dog and pony” show, around the end of 1972. We were calling on insurance companies and banks to raise the $40 million. We did that for a few months.
You might recall that in ’73, the market started heading down badly. We were out calling on these people and Salomon Brothers kept saying, “Well, we’ve got $2 million here, $6 million there, and I kept saying I don’t hear any money. They once said to me, “Listen, Burt, you know the cable business, but we know the finance business. You just do your thing. We’ll raise you the money, don’t worry about it.” So we kept going out on those calls. Every time I kept saying I don’t hear anything at all. I don’t know what’s going on. Finally after three or four months, they said, “Burt, do you think you could get a deal. Maybe we need a deal.” I said, “Well, I’ll see what I can do.” In a matter of weeks, I had made a deal to buy Walter Annenberg’s properties in Lebanon, Pennsylvania and Binghamton, New York for seven and a half million dollars. He had to have the purchase closed by May for tax reasons. Salomon came down and said, “Don’t worry about the money; we’re putting up the money for this deal. We’ll buy it and that’s it.”
I remember I gave Annenberg $250,000 of earnest money of my own, and we went back on the road. We had to close by the 25th of May and April was moving along. Salomon said, “We have this much and this much” and I kept saying, “I don’t see any money.” We kept getting closer and closer. It was about two or three weeks before we had to close. I finally sat down with Salomon Brothers and I said, “Listen, no more games. We have to close this deal in two or three more weeks. Where’s the money?” And they got back to me and said, “We don’t have any money.” I guess we don’t know the venture capital business.” I said, “I’m sure sorry you’re learning on me.”
I was dumb, I should have just bought the cable systems. I didn’t buy them. In fact, the First National Bank of Chicago called me and said, “Listen, Burt, I know you’ve got a problem with that deal. You need seven and a half million dollars. We’ll give it to you.” I said, “That’s not enough. That’ll buy them, but it won’t run them. We better just kill this deal.” So we never got the approval from New York State. I got my money back and that was the end of Salomon. I remember I went back to them and I said, “Listen, I have a $20,000 legal bill from buying the Annenberg property, how about your paying half of it?” They said, “No, we’re not paying anything.” Two or three of the Salomon Brothers people called me and said, “Burt you’ve got to sue them, you can’t let them do this.” I said, “No, I don’t normally sue anybody.” That was the end of it.
We broke up the company and Marc Nathanson and Jerry Greene went to work at TelePrompTer as vice presidents and Chuck Trimble went to work for the California School District. If you remember in ’73, everything was just falling apart. And meanwhile I had been on the outside, and I looked at some franchises in Rochester, New York. Frank Drendel had asked me if I was interested in a franchise in Hickory, North Carolina where he lived. I went back to Warner, and I said, “Look our deal is totally dead. I can get these deals. Would you like them for Warner? Because I’m still being paid by you, if you want them you can have them.” They looked at them and, as I say everything was down. They said, “We don’t want to touch them.” Then I just sat down and said, “That’s crazy. These are going to be good businesses.” So I said, “I’m going take them myself.” I then took on Rochester and set up a company there with local people, and I took on Hickory and set up a company there. That was STV in ’73. That brings me to Puerto Rico in 1973 when the banks called me and said they were having their problems and I ran down there and I looked at that I also offered that to Warner. I said, “I can make that deal too” and they didn’t want to. That’s when I decided to take on Rochester and Hickory and manage Puerto Rico so we did that as well. Those were all just hands on businesses.
ALLEN: So you built Hickory and suburban Rochester, but in Puerto Rico you took over an existing then operation.
HARRIS: Practically. Puerto Rico had 100 miles of plant when I took it over. When we sold it, we had over 1,500 miles of plant. We had 5,000 subscribers when we started. When we sold it we had 108,000 subscribers. So Puerto Rico, although when I arrived there was something in place, we practically built it by hand, mile by mile. When I went to Hickory, Frank said, “Burt, I think I can get a franchise. I live there.” George Hutton who was the largest shareholder of Centel lived there. His father owned the Hickory telephone company which merged in and formed Centel‑‑Jim Bowman at Superior Cable which owned Comm/Scope‑‑lived there also. So they were our partners. I went to Hickory and there were only fifty homes to a mile. I said, “Where are the houses?” Then you kind of spread the bushes and say, “There’s one. There’s one back here.” Frank said, “I’m not sure you can build a cable system here.” So I said, “Let me see the television signals.” There was a local television station in Hickory but it was a religious station. So I said, “Where do you get your television signals?” George said, “We get them from Charlotte, Bristol and from Greensville. So I said, “Let me see what the signals look like?” They showed us Charlotte and the signal looked very good. I said, “Let me see CBS.” All of a sudden he said, “Ok,” he pushed the button and it went click, click. I said, “What’s happening?” He said, “Every house in Hickory has a rotor. Wait just a second.” In about thirty seconds there it was. A very good signal. So I said, “The television signals are pretty good here.” We can see two ABCs, two CBSs, and three NBCs. I said, “We’re going to build a cable system here.” They said, “Why?” I said, “Because people aren’t going to be willing to wait thirty seconds to get another channel. It may take us a while.” Frank always felt he didn’t want to promote me into it. Anyway, we built that cable system right from scratch, and it took us about eight years. It became a fine, fine cable system. I’m sorry we sold it I must say. The system has 25,000 subscribers now. We built a brand new building before we sold it which is really a marvelous building. It’s a marvelous town. We had two different managers, but it we started absolutely from scratch.
End of Tape 3, Side B
ALLEN: When you were negotiating franchises in the Rochester area did you work with all thirteen municipalities at one time or was it one at a time?
HARRIS: No. As a matter of fact, I got into Rochester because the original five franchises‑‑not the city of Rochester‑‑were already in hand by a group of Rochesterians. And I made an agreement and became partners of those local people. This was not uncommon. Very often you use local people. You use their political influence to help get the franchise. There is normally even to this day, one franchise granted in a community, although there really could be more. Almost all grant one franchise. Therefore to get the franchise if there was competition, local people were involved in the ownership of the system. They often got the franchise. So originally, on the first five franchises we used our local people. Then we got the other eight or nine franchises using their help and our own strategy. We knew what we had to do and what we would have to promise.
As far as the city of Rochester is concerned, we felt we would be able to get the franchise, as well. I mentioned earlier when we got to the Bakersfield franchise and that there were politics involved in that. In the city of Rochester, we decided to bid for the city itself. It turned out that we were the only bidder, and we still didn’t get the franchise. Now that’s hard to believe. We used our local people and unfortunately these local people lived in the suburbs. They probably had as many enemies in the city politics as they had friends. We were leery in those days of about how to fund the franchise, and I was always leery about telling cities something that was too much promotion. I would try to tell them the truth and sometimes you tell them the truth that if you don’t have all your funding together, but you’ll get it or whatever, and they are leery. We were the only bidder. The city didn’t give us the franchise. They received a letter at that time from ATC saying that they would like to bid if they reopened the bidding. Sure enough the city reopened the bidding and ATC got the franchise.
I’ll never forget that. I thought you never really know when you do your politicking. We did a lot of work on the Rochester franchise, worked with their consultants we talked to the people and told them what we would do and the cities often give you some direction. The fees they want, how many channels they want you to put on, what they want you to do for free in terms of government access, community access, school educational access, how much local origination they want to do. Some of the cities get very, very greedy. It probably is what led to the Cable Act in Congress that finally took even the rate regulation away from the city. If the city had a certain number of television stations, a certain amount of television service, you could elect to pay the city a higher fee and then work with the federal government. The Federal Communications Commission took control of the regulation.
Almost all the cable companies moved into that direction because the cities became very, very greedy. Every time you were seeking a franchise, you had to study it carefully, understand it, know the politics of the city, and know who your competitors were and what they were going to promise. You just really had to do your homework to get that franchise. Then when you got it, you had to go out and do what you said you were going to do.
Very often, cable companies promised anything to get the franchise. Then by the time they built the system they didn’t do what they promised. Particularly in the early days. Recognizing that many of the city council people would be changed so even the people they promised were no longer there. They could get the franchise because there were only so many franchises. The industry recognized that once they were issued and gone, there were no more franchises. Therefore, if there’ll only be one in a city, get the franchise then do what you had to do later. So the cities were leery of a lot of the cable companies and rightfully so. The cable companies also were leery of the cities.
It is easy to look back in hindsight and say how great the cable industry was. But without satellite reception the cable industry would never have developed to the degree of today. Of course, if you look at it philosophically, if there were enough frequencies originally so that there could be as many television stations around today you may have not have the cable industry. Certainly to the degree that it is today. You find in South America and some other countries where cable has been slow to come along, that there are other forms of broadcast‑‑subscription television, satellite direct home broadcast, which may in fact, eventually stifle the final growth of cable television in some of those countries.
ALLEN: The Rochester build was in the mid‑late ’70s.
HARRIS: Correct. It was in the ’70s.
ALLEN: What did you promise then in the way of a service at that time?
HARRIS: At that time we promised them a 36 channel service, not a 50 channel service. We gave them access channels which some of them used and some didn’t use. We filled the channels. We had a system that took character generated information and divided it up. We put sports scores on one channel, and we put the weather on another channel. We put local Rochester stories on another. All the channels got filled up with this data which probably few if any people ever watched. But we filled the channels. We had the local television stations and all we could import off of the satellite. We also imported by microwave signals from New York City. New York City was a long microwave hop.
The people in Rochester had at that time four television signals locally, ABC, NBC, CBS and PBS. Eventually they had two independent stations as well. But we brought in the sports from New York City which was important to the local people. We also brought in whatever satellite service we could bring in time, of course. Now, you can fill up fifty channels with signals off the air, but there weren’t that many in the early ’70s. Each time a new satellite service began they would offer us a free signal. There were many religious channels that came on. We took just about everything that was available that we could put on from the satellite service. In Rochester, and in many, many other large cities, there are some very onerous suburban communities.
In Los Angeles, I know that Beverly Hills is a very difficult market. We had one, the city of Brighton. I think it only had 800 homes, but they had a cable television committee, and it was as difficult dealing with them as it was with New York City. They thought they were New York City, I think. This happens in many markets, where a very small affluent community becomes difficult because no matter what you import, it’s not enough. Most of them would like their own channel. They picture themselves as having their own television station and doing all this local origination. Unfortunately they like the cable companies to do it for them. That’s just like running a whole television station for a few homes. Fortunately, this has waned.
In the early years of cable television, particularly in the big cities, the demands for local origination at the expense of the cable company were enormous. We had to combat that over and over and over again. It was the reason we had to keep our politics clean and our public relations very, very strong. It took the FCC to keep the politics away as much as possible from the local cable systems.
Of course, the people expected the cable system to provide service like the telephone company. The cable company wasn’t giving the level of service of the telephone company. First it didn’t have the equipment. The industry hadn’t been sophisticated in developing equipment. The cable system didn’t charge as much so it couldn’t afford to do the service. It couldn’t connect and disconnect to keep the signals constant. If an amplifier would go out so that your signal would go out, particularly in the middle of a Super Bowl game or something, you can imagine the frustration. The cable company did not have somebody out there in two seconds to put the new amplifier in or a new tube or whatever.
The cable industry has grown enormously over the last 40 years. Most people don’t really realize it, but cable started almost instantaneously with the first television stations because of the service it was providing. But today, it still isn’t fully completed. It has grown to a point that it is now almost accepted as a public utility. It isn’t really an absolute in terms of requirement. But practically speaking, if you take down your antenna, and you put in cable and then you give up cable and you don’t have your antenna, you have lost television. I would say television is indeed a public utility service.
ALLEN: Did you have any interesting experiences with community access channels on your systems as contrasted to the government and education?
HARRIS: Not really. I always remembered New York City. They had a community access channel and the city really wouldn’t let the cable company do anything about it. Anybody could program and they had some, what you might call soft pornography. They had everything. The cable would get complaints, but the cable company had absolutely nothing to do with it. The city said that’s our channel and we’ll do with it what we please. We never really had much of that.
In Hickory I know we had a local channel that we did just marvelously well with local sports events like kid’s baseball. We sold advertising and we ran almost a local television station. I always envisioned in a major city like San Juan, or New York, or Rochester, that when it got big enough, there would be little difference in running a television station and a local cable channel. It’s just a question if it’s transmitted over the air and the size of your universe.
This past year when we sold the Rochester cable system to Time Inc. which owned the city system, they started what they call a local television station on the cable system. The only difference is that they serve 60 percent of the homes whereas a local independent station would serve 100 percent of the homes, practically speaking. They serve less so their universe was less. But the fact is they also could operate cheaper because they don’t have a transmitter to service and to operate. For all practical purposes people at home see the same thing. Time is getting a lot of heat from the broadcast industry saying that operating the local television station is inappropriate or whatever because suddenly they are selling advertising on an absolute even basis. I planned on doing that in Puerto Rico before we sold the system. I always felt you could offer a local television station because it’s the same. They are all identical.
The access that we offered we never really had any problems. People would come in, mostly with video tapes. We would provide studio space or whatever. Those people who wanted to come in and offer live access attracted the audiences that were extremely small. People seemed to think that everybody wanted to see what you’re going to do, if you’re going to run a home movie or whatever you had planned.
We often offered access to the schools but the schools didn’t use it. That was true even with our television stations. We would beg most of the schools to produce a half hour once a week, or once a month and give them the time, but it was very, very difficult to get them involved. It’s too costly in terms of time and money. It’s time consuming. Neither the schools nor the government generally took advantage, to this day, of the opportunity afforded by a cable company who gives them channel space and tells them to utilize it. C‑SPAN, of course, started doing that.
City councils have the same problem. If you’re going to put their meetings on the air, most of the time, the audience is going to be very small. If they are a whole channel, if you divided the value of your cable system, giving equal value to every channel, because for all practical purposes each channel is an integral part of it, you’d be putting certainly a very high value on a very low audience.
Nevertheless, together it all provides something. We never had many problems. It, too, is part of the innovation of management. Again, it’s the challenge and the excitement of saying here is the most powerful medium, television, and that you can reach into people’s homes.
I find it kind of a dichotomy. The Federal Communications Commission does not allow you to own two television signals in the same market. Yet, you can own fifty cable channels and program them the same way. I’ve never really understood why the FCC hasn’t done away with that. The reason I suppose is that the airwaves belong to the public, and there’s only so much frequency. Therefore, they felt that you should only have access to one frequency, which makes sense. But on the other hand, if you’re worrying about control of the public which is what they say the reason basically is, a cable company can talk with 50 different voices. That’s perfectly legal today.
ALLEN: As you look back now on the years and the cycles that you’ve gone through in the cable industry, what has been the role of the FCC at various times in terms of both positive and negative influence on your own cable companies as well as the cable industry totally?
HARRIS: Well, originally of course, the FCC had very little input because the franchises were granted by the communities. As I recall the reason you needed a franchise, was you crossed public streets and alleys. If you wanted to go on to private property, you didn’t need a franchise. If you had a way of getting across streets and alleys, you didn’t need the franchise. Therefore, it was the municipality’s responsibility. The FCC only came into the picture when microwaves licenses to be used or when you needed frequency to do things in the cable system whether it was to microwave or satellite receive or whatever. So the FCC was really in the background rather than in the foreground of the early days of cable.
I didn’t see that the FCC did a lot of hindering in the early parts of the years. In fact, in the early parts of the development of the industry I thought the FCC was generally cooperative. The cable industry, of course, did a marvelous job of lobbying to try to get what it needed through the Congress and through the FCC. I never really found that there was a great deal of opposition that hindered us.
It’s easy to look back and think the cable industry was an absolute. It really wasn’t. The FCC came into play greatly because of the opposition from the broadcasting industry. It had to do with nonduplication and syndicated exclusivity rules. The broadcasters were constantly trying to hold down the cable growth. That’s probably where most of the lobbying came in.
The cable industry did a much better job of lobbying than the broadcasters. As I mentioned, much of the cable industry, probably half of it, was owned by broadcasters. But they were quiet. They really didn’t want to disturb their broadcasting friends, so they really didn’t make as much noise as they could. The Commission meanwhile, the FCC, was trying to handle it as best they could. The cable industry did a better job in lobbying the Congress and lobbying the FCC about not stifling the growth of cable.
ALLEN: That’s interesting because the cable industry at this point was populated heavily by very small operations.
HARRIS: They were all in the rural areas. The broadcasting industry was in the big markets and weren’t being disturbed. The big cities which were the bulk of the broadcasting industry didn’t really see the cable industry as much more than a rural operation. The small broadcasters were the complainers and the big ones tried to pacify them.
When the broadcasters talked about the cable industry which was going to hurt the broadcast industry, I don’t really think the big ones‑‑none of the big broadcasters‑‑saw the cable industry as much of a threat, at least in big cities. So they gave their tacit support to the little guys but they really weren’t out there hard hitting with the FCC.
Some of the networks were. As I mentioned ABC really did a big job of trying to oppose. NBC was in the cable business in a small but a real way in the United States, and CBS had a huge investment in Canada. Until CBS had to divest of that ownership, they were possibly the largest cable operator in the United States operating anywhere in the world. The broadcasters let the cable industry move ahead. I think, therefore, the FCC really ended up favoring the cable industry.
I really tried to play down the middle of the road because we had both broadcasting and cable interests and in some areas in the same cities. We had a television station in Billings, Montana along with part of the ownership along with TCI of the cable system. In Bakersfield we were in the cable business as well as the broadcasting side. I thought they both could be live and both could operate profitably doing their own thing.
Even though the FCC may have gone overboard in deregulation that has occurred since the beginning of 1987, particularly regarding the rates, I think the FCC is going to get more active again. Probably the legislature is going to force the FCC to take other steps to go back and re‑regulate some of the things that they did in the past.
ALLEN: So in your perception the FCC was really a positive force in the development of cable.
HARRIS: Yes, I think so. It took a lot of pushing by the NCTA but I think the FCC really was a very positive action on the development of the cable industry to date.
ALLEN: Let’s go back to Harris Cable. We’ve kind of started there and digressed a bit. Through the mid‑late ’70s and on into the early ’80s, you were heavily involved with the development of Harris Cable.
HARRIS: Yes, although I was as much broadcast‑involved as I was in cable. I probably had a much greater investment posture in broadcasting, but it didn’t take as much of my attention. Television broadcasting was pretty standard, and it ran the gamut. It didn’t take my personal attention like the cable business did. The cable businesses, because we were really growing, really took my day to day attention.
In Harris Cable, both in the organizations that treated it, the programming aspects of doing it, the satellite aspects that went along with it, and the literally wiring up and getting subscribers day by day, took probably 80% of my time. I guess 20 percent of my time had to go to the attention of the broadcast business.
ALLEN: You began to sell off some of the Harris Cable properties in the early ’80s.
HARRIS: Well, we did sell Rochester in ’83, or ’84.
ALLEN: And Puerto Rico?
HARRIS: We decided in 1985 and in early 1986 that we would liquidate most of all of our companies. It was kind of a hard decision but it came about because of a number of factors. I had partners in all of these different ventures, minority partners generally who for years had never taken any money out of the business. And as many of them said, “Well, we’d rather have our money at this stage of our life, than double it ten years from now.”
In addition the capital gains tax came to an end at the end of ’86. Therefore, we felt that if we were going to do any liquidating, the time to do it was during 1986.
I myself looked at it, and recognized that I have some enormous estate problems coming up. I had always kept almost all of my assets working in my own businesses. I never really had much of an outside investment portfolio. I recognized at that time that I was 64, not 34, which I thought I was every time I’d look in a mirror. Some of my friends started dying, and I started talking to my estate planners. I realized that things are going to a close one day. I decided it was better for me to liquidate most of our things while I was alive rather than leaving my wife or estate to have to deal with partners. Nor did I want to deal with my associates’ beneficiaries. I felt that the ideal time to sell was at that time.
By the end of 1986, we disposed of all except one of our radio stations, all of our television properties‑‑except our Chicago and Los Angeles stations‑‑and all of our cable systems. That was the end of my cable career in terms of day to day handling. I have stayed on the Falcon Communications Advisory Boards and have a lot of investments in the cable industry through public companies. I have a sizable investment in a small cable system on the Isle of Jersey off the coast of France.
ALLEN: How did you get involved in the cable system on the Isle of Jersey?
HARRIS: Well, a classmate of a young cousin of mine in a generation lower than me, moved to England a number of years ago and his present wife is a resident of St. Helier, Jersey. So Peter has a home in Jersey. Peter decided that he would like to buy the small cable system in St. Helier. He asked if I would like to become an investor active with him in that cable system and become a director. I said okay. I did some bidding on some franchises with Peter in England this past year.
ALLEN: So you really cycled through the business and now you’re in the third time.
HARRIS: Yes, I guess you just can’t help that. You just keep going back into these areas. To some degree I’m semi‑retired although I am very active in the two television stations. Also I’ve gotten very active in investments because suddenly I found an enormous amount of liquid assets that have to be employed.
ALLEN: Your decision in 1986 was not in any way a statement about your confidence in the future of the cable industry, it was just a desire to put your own financial house in order.
HARRIS: Exactly. I strongly believe that the cable industry for the next ten years is very, very solid. I don’t see anything on the horizon that’s going to materially impact it. I think that there will be a strong development in DBS coming down the line and many, many people along with having their cable connection and their VCR, will have a dish as well that will pick up some satellites. But the cable industry, as I see it, performs a great service for television. As long as you have that wire into the home, I don’t see anything causing cable to have much of a crisis over the next ten years.
I do think fortunately or unfortunately that a lot of the cable industry has become a financial business today rather than a cable business. The buying and selling of cable systems and the funding of them has become a business itself. In many of the cable buys, I think the companies are going to be in trouble. They’re not going to be able to fund them the way they should. But the cable systems are not going to go away. They’re going to be there if some of the companies have to reorganize or whatever they have to do. That’s not the cable industry, that’s the financial portion.
The rates are constantly going to increase 4 or 5 percent a year or whatever inflation rises. It will become automatic.
There will be some other program services, I think, offered, but not to the degree of the past ten years. I don’t see a huge growth in new program services. In fact there might even be some that go out because I’m not sure that the subsidies will be there when these cable companies flatten out, and many of them have.
Now the owners are looking for ways of making more money, like a telephone company. Other than raising rates, they are going to have to look at their whole operation and decide do they need all fifty channels. If a channel costs them $50,000 or $100,000 a year to carry, and it doesn’t have a great deal of audience, they’re going to look at saying should they drop that channel or should they continue to carry it. That’s not an easy decision, but there could come a time when some channels disappear because they just aren’t attractive enough to enough people.
I think the cable industry is extremely sound. It’s, as I said, much like a public utility that’s going to be around for many, many years. It’s a very sound, solid investment I believe for the owners of the companies.
ALLEN: Cable began as a way of getting a television broadcast station signal in an inaccessible area.
ALLEN: The next real movement in it was to bring in signals that were not broadcast, but closed circuit signals.
ALLEN: Do you see a third service or a set of services coming in that will augment the revenue that will be needed beyond these two services to keep the cable operator profitable?
HARRIS: I really don’t. There are things like pay per view with the different structuring of subscribers. We’ve talked for many years about cable systems providing other things like power monitoring for utility companies and other things like that, but they haven’t come along. Certainly it’s possible for a two-way cable which has also been talked about for years. The technology really hasn’t done it, nor have the economics.
Certainly tying cable to computers could, somewhere down the line, get on stream using the cable system. It’s complicated because I perceived telephone companies moving into fiber optics. Once the telephone companies have fiber optics in place, they of course can offer the same video service that the cable company can. Those politics are going to play hot and heavy for a long time.
Can a telephone company do it or not do it? I’ve never been fearful of the telephone companies. Maybe that’s being naive. If they would have come in they could have driven us out of business. I tend to think that the telephone companies who no longer have been able to do much expansion because the telephone is everywhere, will probably buy the cable companies. Maybe then combined into one wire, if you wish, one fiber optic wire will be all the services mixed together. Will that happen? I don’t know. I tend to believe it will happen to some degree.
So then the answer to your question, “Is cable literally providing these services or who is providing them?” The question is can a cable provide more service? Whether it’s telephone’s fiber optics line, or a cable line. I do believe so, and I think it will come through the computer. It’s just a matter of who owns them. There could also be overwiring, and if some of the areas of the cable company are not doing their job, some mavericks can overbuild, and eventually that leads to mergers again. It’s a little bit of “green mail,” I guess if you want to call it that. Of forcing them to come up to par.
ALLEN: Could the telephone company be considered to be overbuilding a cable system if they go in with a fiber optic line and not buy the cable system, but just begin to offer additional services?
HARRIS: Well, today the law is that a telephone company can’t offer cable service in the same community it offers telephone service. So telephone company A can go into area B and telephone company B can go into area A and literally go into that business, as I see it. So you might see not overbuilding but certainly competitive services down the line. That’s probably the biggest potential threat to the industry.
If you talk about the industry–if you talk about somebody providing the service to somebody–if you talk about who owns it, that’s a different political arena. I tend to think that the whole industry will grow. The question is, “Who owns it?” and how the competition is there. That’s another whole field. But I think there will be more service in the home through wires no matter who offers it down the line. And as I say, mostly it will probably be based on a computer, some two way system using a computer. The basic principle of offering the program will be pretty standard for ten years, I think.
ALLEN: You mentioned earlier that you think some of the channels that are filling up a 50 channel system, now may not survive. What then does DBS have to offer if there isn’t enough programming to fill 50 channels of cable?
HARRIS: Nothing. I’ve had that discussion with Stanley Hubbard of Hubbard Communication, who is planning a full DBS service. I said, “You know, just because the technology is there, doesn’t mean you’ve got something.” But the public and a lot of the cable people overlooked it in the early days. The public doesn’t care how it gets a signal. Whether it gets it by broadcast channel, by VCR, by cable television, or by DBS. All they know is they want to turn on the television set, pay the money if they have to and get the programming.
In Japan they’ve been selling 50,000 little flat dishes a month. If a DBS system is in effect, in other words, the satellites are offering programs and if you have a dish you can get a signal. Then if the Super Bowl were put on DBS as the distribution method to get to the home, instead of broadcast signal or cable signal, and sufficient time were there, hundreds of thousands, millions of dishes, would be installed to get the Super Bowl. Therefore it’s just a question of the program being available.
There could be the time that ABC, NBC, and CBS no longer use affiliates. They’re up on the satellite, and they feed the networks right to the home. Why do they need the affiliate at all? How you get from point A to point B is another question. They would only do that if the whole country were universally available, and that doesn’t happen because of time zones. If it ever were the fact that 90 percent of the homes had a dish on them, and they could be reached on a cable system, I guarantee that in the back rooms of the networks, somebody’s going to sit down and say, “Why should we have to pay our affiliates? Let’s just go up on the satellite and do this.”
It may never happen, just because of the logistics. But the answer to your question is, if something is put on one type of distribution system that somebody wants to see and they can see it for a reasonable installation, they’re going to buy it.
For example, you could put on an MMDS service. If you took eight channels, like Stanley Hubbard has, and you offered somebody eight channels including an AB switch so you’d get all your local channels, plus you can get CNN, ESPN, HBO, Showtime, and a couple of other channels for ten dollars instead of twenty dollars, people will buy it. They’ll say, I don’t need the 50. I never watch them anyway.
Most people wouldn’t give up their cable. I must say, emotionally, once you have these fifty, even if you don’t watch them, it’s a very tough thing to do to give them up.
If you put MMDS in South America, and or you put it in before cable is built, cable won’t come along. Because if you can give them eight channels, there may be 50 up there, and someone will package them in groups of eight. Take this one or they might give them a menu. In fact, there is someone who is saying let’s just make everything available and put a price on every channel. I often thought the most logical way is to put a price on every channel and each customer takes what they want.
That’s not good for the cable industry. The cable industry wants to sell as much as they can sell in a bulk package. But from a logistics standpoint, if you said, this one costs ten cents, and this one costs ten dollars, and this one’s a quarter, you want to see an ABC station ‑ that’s fifty cents. I remember once saying to Leonard Goldenson, maybe if you put ABC on the cable, people would pay ten or twenty dollars a month just to see ABC. Maybe you’d make more money than you are the other way. I remember his saying, “Do you really think so?” I said, “Yes, I really think so.”
That was right at the time that ABC had tested the system that they offered during the night. They ran movies at night, scrambled, and you had a decoder and a VCR that taped it. You could see the movie at your own time. It seemed like such a terrible idea to me. I think ABC lost $30 million on the test. You find every so often someone going off on a deep end of doing something that just doesn’t seem logical. Maybe if it works, you look back and say, “Well, I guess they were smarter than I was.”
The long answer to your question is, that if you put some kind of programming through that distribution system that is not available somewhere else, and somebody wants it, they will start buying the service.
If you can put enough programming on to get enough people to view it, you then have a business. It becomes an alternative distribution means to VHF and UHF broadcasting, cable television, C‑Band, MMDS, VCR recorders, etc. Those are all just different ways of getting the signal into your set. Today many of them are sound businesses. Some of them are struggling.
ALLEN: And at some point in time there will be so many that they won’t all survive.
HARRIS: No, well they won’t. MDS never did make it. And MMDS, what they call wireless cable is trying to make it. There is no question that some of these services might not survive. Certainly a lot of newspapers have folded over fifty years.
End of Tape 4, Side A