Interview Date: February 9, 2001
Interviewer: Jim Keller
Abstract
Ed Hewson describes his start in cable through his work at King Broadcasting Company, explains the company’s concern about cable moving into their markets, and the issue of cross-ownership. He names cable operators in the Northwest, the move to acquisition from franchising, and discusses expansion. He discusses the situation in Seattle, distant signal importation, and the tensions within King between the cable division and the broadcasting division, particularly regarding cash flow. He details the sale of King and the subsequent history of acquisitions of the assets. Hewson affirms that he stayed out of conflicts between broadcasters and cable operators generally; explains his attempt, as president of the Northwest Cable Communications Association, to broaden the definition of cable; and addresses the issue of copyright. He goes on to talk about his purchase of programming from the National Cable Television Cooperative (NCTC), political donations, and relations with the telephone companies. He also considers the services the cable industry might abandon to offer other services. He concludes with discussion about his investment in fiber in his own systems, comments on where the industry might be going, and what he might do differently.
Interview Transcript
JIM KELLER: This is the oral history of Edward H. Hewson, Jr., commonly referred to by his friends as “Hack” Hewson, Jr. He is past president of the Northwest Cable Communications Association, past president of some of the new ventures of King Corporation, the Bullitt family. He is currently the president of Coastal Communications, which is a cable television system, on the west coast of Washington, and has been involved in the cable television industry in the northwest for almost 40 years. Ed probably is as well qualified to talk about the development of and continuing operations of cable television in the Northwest than almost anyone that I know of.
This oral history is brought to you through the benefit of the Gustave Hauser Foundation and is part of the Oral History Program of the National Cable Television Center and Museum.
Ed, where should we start? Talk a little bit about your background before you got into cable.
ED HEWSON: Jim, I grew up in New Jersey, played ice hockey and soccer in college. Actually, I played ice hockey in high school with Bud Hostetter, otherwise known as Amos. I went to Williams College. From there, I was a fighter pilot in the Air Force.
KELLER: Is that prior to the time you went to B School?
HEWSON: Prior to the time I went to B School. I was spoiled. I got to fly the then world’s fastest plane, the F 106. I met a really cute girl who was a ski racer. She laughed at me skiing. She actually lived here in Sun Valley for a year. I invited her out in front of her boyfriend, took her out for 30 straight days, proposed to her, got married in three or four months. We have three terrific children.
KELLER: Typical fighter pilot approach, huh?
HEWSON: Typical fighter pilot. I didn’t have time. Before I met her I was stationed in Spokane. I was a Geiger Tiger. We used to take off, fly over Priest Lake, where we now have a home way up in northern Idaho, scream over a place called Linger Longer Lodge, pull up, do some rolls, went back to the base, jump in a convertible, put a boat behind the convertible. Everybody put their flight jacket on – three or four guys. We’d rip back up there, go in a bar and look for girls. If the owner saw us, we’d deny that we had just done that, but we always told the ladies. It was wonderful. The government spent a lot of money for us to have a good time. But then I got married and we had quite a few accidents in the squadron that were not pilot error. We had a terrific bunch of pilots. Some guys got killed. I got out, was lucky enough to get into Harvard Business School. I was the “poor Willy”. Every class, every section has to have a “poor Willy” that the professor can point to. I was the guy who always had the obvious wrong answer. But somehow I got out of there.
KELLER: You know what they call a guy that’s the last person in an MBA class, don’t you?
HEWSON: What?
KELLER: A master of business.
HEWSON: A master of business, that’s right. Yes. We had the guy with the worst grades, I think, became a millionaire first out of my class. He didn’t have time to study. From there I was hired by Boeing, but I didn’t like Boeing. King Broadcasting Company had approached me to come to work for them. I went to work at King for the munificent salary, in those days, of $9,600 a year, without stock options.
KELLER: What year was this?
HEWSON: 1963. I was the first business manager of a new magazine they started called Seattle Magazine. But I could see that I was a little more to the right, and they were a little more to the left on the magazine staff. So I quit, and Stim Bullitt who was a wonderful guy…
KELLER: The Bullitt family owned King.
HEWSON: The Bullitt family owned King. It was King Broadcasting Company. So he got me to come stay with the company. I had quit. I said “No more. This isn’t going to make money.”
KELLER: Couldn’t handle the liberal, huh?
HEWSON: Yes, exactly. They weren’t really liberal. Mrs. Bullitt, his mother, was a very nice lady and a very bright lady. She’d started the company, starting with King Radio, then King TV.
KELLER: Were those both in Seattle?
HEWSON: They were in Seattle. Then she got a television station in Portland, networks affiliates both – NBC. Then she got a KREM TV in Spokane, Washington which was ABC, then a Boise station – KTVB, Channel 7 in Boise, an NBC affiliate. Then we got another TV station in Hawaii. I think it was KHNO. It was an independent Channel 13, primarily sports. Back to Mrs. Bullitt. She is a terrific lady.
KELLER: What was her full name?
HEWSON: Dorothy Bullitt. If you had a business question, you talked to her, and she’d just say, “Ed, just do what’s right.” What was right to Mrs. Bullitt – she was generous. They said she was so tight with her money sometimes that when it snowed in Portland, she’d remember that there were chains hanging on the back of a door up at the TV transmitter up on the heights. But she gave land to the state of Oregon to build educational transmitters on, and whatever. Anyway, a great lady, good family. So I went from the magazine to helping get the company diversified. The first thing that we did, really, was to try to get in the cable business. King had backed out of some cable deals before. I believe they had negotiated a purchase in Pendleton, Oregon, originally and had backed out of that, and some other stuff.
KELLER: Where did the idea of getting into cable come from?
HEWSON: Well, I wasn’t the first person to think of it. But it came as a defensive idea by broadcasters. They wanted to control their markets, and they were afraid that the cable companies ultimately could deny them access to homes. So the way to get into it was to get in where people could not receive broadcasting at the time. That extended their signal. In those days, I think, each viewer was worth … Something called the Sidon Report – I think it was the William Sidon – said that each home watching a TV set was worth $60 – $70 a year. So the idea was to extend the signal and to control the fact that you have it.
KELLER: Well at that time you were prohibited from owning a cable system in your own television market.
HEWSON: Not true. Not true. I’ll get into that in just a moment.
KELLER: I hope you would.
HEWSON: But we went from buying from Fred Goddard and Bill Schiller. We bought Montesano, Elma, McCleary and Westport, Washington which I think was …
KELLER: For the record, those are all prominent names in cable television in the Northwest.
HEWSON: Schiller and Fred Goddard are. Bill Schiller. Good people. Fred Goddard, for example, had been a partner of Homer Bergman for, I think, $375,000 for initially 1,000 or 1,200 customers which we built up from there. Then we purchased from Dean DeVoe in Los Angeles. We bought a system in the Tujunga/Sun Valley area. Then we bought Ellensburg, Washington from perhaps John Saeman. It might have been his first sale for Daniels.
We grew from there. But at the same time we met with Homer Bergren. It was Homer’s idea initially that he could have a much bigger, better business if, rather than fighting with broadcasters, if he melted with us in Seattle. So we purchased the three TV stations – King, Cairo and Como purchased an interest in Seattle. We called it Master Cable Television. Teleview Systems, Homer people, owned 28% and I think we each owned 24%.
KELLER: These were all in the shaded areas of Seattle?
HEWSON: They operated only in the shaded areas. At King, we had already previously made a shadow-map. Their television transmitters were all on Queen Anne hill. If you radiated those signals out with all the hills – like Rome with seven hills. Or it used to be until they took one down to do something – fill the mud flats. Then you could see where the shadow areas were. You could predict that, in areas like West Seattle along the water, you’d have everybody that had television set needed you. Whereas, in other areas as you got up and it got lighter and lighter, then you’d have lower and lower penetration. Finally we didn’t believe anybody that could see a TV station would buy the signal.
KELLER: At that time it was true.
HEWSON: At that time it was true, except that right next to the towers they might have terrible reception because of bouncing signals.
KELLER: They had the same problem in San Francisco.
HEWSON: Right. So now what was the question you asked me?
KELLER: Whose idea was it to get into cable television?
HEWSON: You went beyond. You had a different question, which I was going to get back to.
KELLER: Oh, we were going into whether or not a television broadcaster could operate a cable television system within his own [??] area.
HEWSON: Here we were all operating. We bought this master. A man named Dougal James MacKenzie, a good guy, ran it.
KELLER: You bought what, please?
HEWSON: The system in Seattle. MacKenzie ran it. Homer Bergman looked over his shoulder, and he had other systems around there. He had system in Everett and wherever. He used to have meetings on a boat, his boat. They had to sit on his boat. Homer didn’t drink. He’s rumored to have made a lot of money during World War II playing poker. Because he didn’t drink, he would bring home money. He bought a lot of land on Mercer Island. (this is the rumor – I don’t know if it’s true) during WW II which then was developed for a lot of money later. But Homer didn’t drink. And he’d have meetings on his boat. The guys wanted to jump off because all he had was warm beer. He just didn’t appreciate it. That was Homer. He used to come in a meeting and we wore a pork-pie kind of a hat, he’d sit down, put his hat on the table, and he was ready to go. He was ready to d3eal.
Before we were prohibited from owning in our own markets, we were working on that. Then we made a deal.
KELLER: Before the prohibition came out.
HEWSON: Before prohibition. So there we were building a system in Seattle. We bought a system from a man by the name of Defraidas, in parts of Portland, Oregon and Kingdon. Jim Defraidas. That was run by a man by the name of Carroll Sailing who was an old time engineer, still alive, great smart guy. So we had a cable system going in Portland, wherever, again where the hills were – Portland like Oswego. In order to get signal across the freeway, Carroll Sailing put a piece of fish line across the highway, ran it across with a fish line, he pulled something else across, because you couldn’t get a highway permit. Ultimately, somehow, we ended up with a piece of cable going across the north/south Interstate 5 to serve another part. So we had those. Then the three broadcasters, together, not those three – but in Spokane – KREM, our TV station, Channel 2, Channel 4, and Channel 6. One guys name was Wayne McNulty. I don’t remember who ran the other one anymore. But we applied for a franchise in Spokane. Then we also applied for a franchise in Sand Point, Idaho and some other franchises.
KELLER: Cox got Spokane didn’t they?
HEWSON: Cox finally got Spokane…
KELLER: ‘Cause we were involved in that also.
HEWSON: But Cox, I don’t think, was the first to get Spokane. I don’t know who got Spokane originally. But we had it locked up, as broadcasters. They had all the politics. Then the FCC came through with an edict that cross-ownership – you couldn’t own TV and cable in the same market.
KELLER: But did you have to divest? I don’t recall.
HEWSON: We did not have to divest, but it killed our franchise for the city of Spokane and you couldn’t really acquire others within your market. So we sold Portland to TCI, and that’s been a wonderful market for them, I think. Portland has also been a pretty liberal-thinking bureaucrats in the city of Portland.
KELLER: Portland was a very difficult build because they started to build right in the time when you couldn’t import any signals into Portland. At that time there wasn’t much other programming. They had a very difficult time.
HEWSON: Right.
KELLER: Liberty bought … started really developing Portland.
HEWSON: Liberty and then was it Century Cable across the river?
KELLER: I don’t remember. I do remember Liberty. It was a difficult time that they had – Carolyn Chambers and that bunch.
HEWSON: Carolyn came outside of Portland. She wasn’t in Portland. She was near Portland.
KELLER: I think she was, but I’m not sure of that.
HEWSON: A guy that owns Bend, Oregon – or did own Bend, Oregon – ran the cable site for her and her broadcasting. She had broadcasting. Her husband had died prematurely.
KELLER: He was in the broadcasting business too, wasn’t’ he?
HEWSON: I don’t know. He was in a lot of things. And I think she was on one of the regional Federal Reserve Bank boards – a bright lady.
KELLER: Very much so.
HEWSON: Very bright. Scott’s a wonderful kid. I’m going to call him a kid. My wife called him a kid because we knew him when he was a kid. I think they sold out, didn’t they?
KELLER: I think Carolyn’s still operating right now.
HEWSON: Still operating?
KELLER: But I don’t know what.
HEWSON: I think she sold Edmonds, Washington.
KELLER: She sold some of the other things in the San Francisco Bay area and other things like that.
HEWSON: Right. But we had to divest.
KELLER: Or you did not have to divest?
HEWSON: We did not have to divest, but we couldn’t grow. So one of the main purposes of our being in the cable business was to protect our broadcasting empire.
KELLER: You had the same problem the telephone companies had when they were prohibited from operating in their own exchanges.
HEWSON: Exactly! So we had the same problems. Fortunately, we had profitable systems. We were negotiating to buy, in about 1970, …. Stim Bullitt, who was always about 15 years ahead of everybody, said, “Downtown Seattle is valuable, and I’m going to buy some land as I can where I can get a good price.” We had some other ventures that hadn’t worked out for him which I hadn’t been involved in. One was King Screen Productions. He liked to do things right, like his mother. So they, in effect, bought him out, tossed him out – bought him out – and as part of the purchase price he got some of our cable systems. We had one in Long View/Kelso in partnership with the London Daily News, all the Montesano stuff, and I don’t know what else he got. But he had about a 25% interest in the company.
KELLER: Cross ownership also applied to newspapers, did it not?
HEWSON: Newspapers too. There’s an interesting one. Dick Evanson – there’s a name for you – was our partner. He started a company – I can’t remember the name of his company any more. Jim Hirschfield had at one time worked for Dick Evanson.
KELLER: I think they were in something together at one time or other.
HEWSON: He owned it. He had married a lady by the name of Kaela. He married, I believe, the daughter of Norton Klapp’s third wife.
KELLER: (Laughter)
HEWSON: Norton Clapp was the chairman of Weyerhauser.
KELLER: Good marriage.
HEWSON: Dick Evanson’s father had been head of the Teamsters Union in Portland – Kaela Henry, okay. Anyway, Evanson was a pretty sharp operator. He had a lot of the young people working for him – I don’t remember who all they are now -who went into the cable business on their own in places. But he was our partner in Longview/Kelso. We went to city council meetings. He’s fighting. The London Daily News wanted a franchise for the town. And we wanted a franchise for the town, and Evanson wanted a franchise for the town. So then we partnered with Evanson. We went out and sat in a bar some place, I suppose, and hammered it out. We made an agreement with him. He then later, because two operators in a single town double over cabling – anywhere we went, they went. Didn’t make any sense. So then we negotiated with John McClellan to make a merger of that. And we did. His father, incidentally, John McClellan’s father, who had the first dollar he ever made on the wall, was a really old man. He would sneak in next to a curtain. We knew he was there. He was listening on the other side.
KELLER: I’ll be darned.
HEWSON: That was terrific. It was American business and the West at its best. They’re very decent people. Each person tries his best.
KELLER: So then after the cross-ownership rules came in, you just concentrated then in the areas that you already had in Portland, Seattle, not Spokane because you dropped out of the franchise battle after that.
HEWSON: We dropped out of all of that and went about trying to acquire systems outside of that area. One system …
KELLER: Tujunga came in at that time?
HEWSON: No. Tujunga came in 1966-67. Early on. That was one of our first acquisitions.
KELLER: But not in your own back yard though.
HEWSON: No Tujunga wasn’t. LA wasn’t out back yard.
KELLER: That’s what I’m saying. You’d indicated, though, that your full intent was to save their own market, but you bought outside your market very early on.
HEWSON: Well, we wanted to make money too. But the first thought about why would you get into cable television was to enhance your own signal where you could. But then where you saw a business opportunities outside of that, we said, “Hey, we’ve got to make a business.” And you want to buy things when they’re priced – you shoot ducks when the ducks are flying. Tujunga was flying so we shot Tujunga. Golly, where else …But we started buying after the cross-ownership outside of those markets.
KELLER: What other markets did you buy?
HEWSON: We were in Newhall, Valencia area of Los Angeles (which we developed in partnership with the Newhall Land & Farming Company. We were in Lake Elsinore. A large part of Lake Elsinore was in a partnership with another major builder. We bought out Gordon Rock in Lodi. Then we ended up with Lodi, Placerville, Jackson, Sutter Creek, Angel Camp, San Andreas, a whole bunch of beautiful little towns up there.
KELLER: Amadore County.
HEWSON: Amador County.
KELLER: The hold of Zinfandel.
HEWSON: We bought Mammoth Mountain, that area up in Mammoth Mountain from a buddy of the guy who was on the US ski team that developed Mammoth Mountain. Guy’s name that sold it was Worta and his son, Dan Worta, stayed and worked for us. I said we bought Tujunga from Dean Devoe – I’m pretty sure that’s who it was.
KELLER: Yes it was.
HEWSON: We bought chunks of Minneapolis/St. Paul from Gus Hauser.
KELLER: When was this?
HEWSON: That would have been about 1989 maybe.
KELLER: Much later than ???
HEWSON: Much later.
KELLER: Because that was a real battle in Minneapolis.
HEWSON: Oh, Minneapolis turned out to a be pretty exciting battle, with regulators and prices and must-carry. You had to spend a lot of money on doing local origination. But we ended up with St. Croix, Stillwater, Golden Valley – about 18 – 19 communities around Minneapolis.
KELLER: I didn’t realize that King was up in that area.
HEWSON: Well, we didn’t realize we were until we were, you know. We got there, and we paid a large … paid Gus very well. Gus is very good at selling and a very bright man.
KELLER: Yes he is. Doctor.
HEWSON: What else did we own? Anyway we ended up at the end with about 250,000 customers. But Dorothy Bullitt died. Her two daughters, Harriet and Patsy, decided for a variety of reasons, that they wanted to sell out. They had given … I think they owned about 70% of the company at the end. The company had been very good with stock, giving stock to people as compensation. They’d promised most of their money to environmental causes, and have done so.
KELLER: Can you focus back on the Seattle problem or the area of Seattle. I remember it as really a microcosm of all that was wrong with federal regulation of the cable television industry in the 70’s and 80’s when the major market – the top 100 markets – were prohibited from bringing in signals from other markets. However, there were certain areas of Seattle, shadowed areas, that you were operating in that couldn’t receive even the local signals. Do you remember how that conflict developed or do you remember anything about it at all?
HEWSON: What do I remember about it? I remember urging King not to request non-duplication protection, said that it would be better off with your being friends of the cable operators rather than fighting them. We had somebody, Carroll Sailing would be one, who would go to cable conventions and just talk to operators and find out how it was going, what they could do to help.
KELLER: Did you ever give them a direct feed from your control room?
HEWSON: No, not that I’m aware of – not within Seattle. We may have done it much later, but that wouldn’t have worried about it much later. You said, “all that battling”. It was obvious broadcasters didn’t want distant signals coming in. Particularly, they did not want …
KELLER: The cable operators did though.
HEWSON: The cable operators did because they were dying. A lot of cable operators put a lot of money up, put a lot of plant up in the sunshine and had nothing. Unless people were getting some strange reflections…. They did not subscribe in droves. So in Seattle, you could drive for miles and hardly see a drop. When you saw a drop you wondered who the fool was that had bought cable television.
KELLER: This is important, again, for the record, because it was in that period of the mis-regulation of the FCC of the cable industry, in the late 70’s – early 80’s, that prohibited the development of the industry.
HEWSON: It really squelched the development for some time. Then we had people who wanted to bring in distant independents. You could see why broadcasters didn’t want anybody to come in because everything cut market share. At one point, King might have 50% market share. We were the dominant station in the market. Other times Como was the dominant station. I don’t think Cairo ever was. But there were distant independents that started to feature things – Atlanta particularly. How could you bring it in? There wasn’t much you could bring in to Seattle that had been value over land. But when things went up on a satellite, then WGN in Chicago was attractive.
KELLER: Cubs baseball.
HEWSON: It was because of baseball.
KELLER: It was before you had baseball in Seattle.
HEWSON: Well we had baseball. Then we lost baseball. My wife just found the stub for the first ticket for the first not Mariners but Seattle Pilots game which I went to with a man in the cable industry named Ferris Perry.
KELLER: I remember Ferris very well.
HEWSON: Ferris is, or was, with High Speed Access. I’ve called him a couple of times in Denver.
KELLER: Is he in Denver now?
HEWSON: I have his phone number.
KELLER: I’d like to have that.
HEWSON: I don’t have it with me, but I have it at home. He was, I think, a major operator/sales manager or something for them.
KELLER: He was probably one of the premier manufacturer salesman in the cable industry for a lot of years.
HEWSON: Exactly.
KELLER: He knows a lot of what happened, and where a lot of the skeletons are buried in that story.
HEWSON: He took me and Tom Boles, my vice president of engineering, to the first game.
KELLER: What year was that?
HEWSON: Golly – I don’t know. ’68? 70? It was pretty early on. I think he took us because he was selling, helping Jack Pruzan at the Pruzan Company.
KELLER: Yes, he was with them for a while.
HEWSON: I think he was with Pruzan. Jack Pruzan – there was another person that we could talk for a moment.
KELLER: The next question is going to be about the internal workings of King Broadcasting. You were primarily a broadcaster who was in the cable television business. Now there must have been some internal conflicts between those of you who ran the cable operation and the broadcasters.
HEWSON: Well, there were. But can I first tell you about Jack Pruzan?
KELLER: Yes, if you’d like.
HEWSON: Jack Pruzan was an important distributor to the cable industry. Then they were purchased by Anixter – bought them out, whatever. Jack Pruzan, every year, had a salmon fishing trip to Westport. Every year he would invite his best customers, and we’d go to Westport. He’d pay for everything you could eat and everything you could drink. Guys would stay up practically all night and then get out on this ship going up and down. About 10:00 AM, if things were boring, Jack would lean over, and he would pull out the biggest salami sandwich you ever saw – greasy, messy. And he’d start to eat it. Guys were puking over the sides. It was horrible. I had never gotten seasick in my life. Somebody puked on my tennis shoes, and I got seasick – the only time in my life. But he was a good guy. His son, Herb, took over and ran the business. That’s my story.
Now, back. You want to know about conflicts between …
KELLER: Between the broadcasting interests and the cable interests within King Broadcasting itself.
HEWSON: Yes. Obviously there were conflicts because as a cable operator, I wanted to make all the bucks I could, generate all the cash flow I could. And I wanted my friends to also, who were in the cable business.
KELLER: You were president of the cable division
HEWSON: President of the cable division, first vice president, then president of it. The broadcasters looked at us as sort of “nuts and bolts” people. We were relegated to servants. They called us originally cable antenna television (CAT). We were their antennas. It was their signal, and that’s all you could have. You really didn’t need to build any place. You didn’t need to come up in the sunshine. You didn’t need to provide more entertainment than they could provide. They didn’t want everybody’s butt glued to a seat watching King, Cairo, Como, Channel 11, 13, and even the educational – KSPS I think it was. That’s in Seattle. So we had internal fights. They were very touchy things. It would be pretty hard for me to come in and say, “I want to start importing …” It’s okay for me to import. Now King into Ellensburg, all right?
KELLER: Because you were helping them there.
HEWSON: Because we were helping ourselves there. But the guys in Yakima, KIMA, they didn’t want us bringing those in. They wanted to be protected. But nobody in Ellensburg wanted to be thought of as associated with Yakima over the hills with the Indians. They wanted to be tuned in to the big city.
KELLER: Did any of your other broadcasters in places like Yakima ever put any pressure on the broadcasters not to carry their signals in these other systems?
HEWSON: I didn’t get that directly. No. I didn’t get pressure through King or through somebody. But where I did get pressure was, “You don’t really want to bring in a lot of stuff to divide up our signal more,” and “Heck, you’re a shareholder in King. You don’t want to hurt yourself, do you?” Cairo and Como were far more protective of their territory. In particular, a man named Bill Warren, who had married into the Fisher Flour Mills family, owned KOMO and a station in Portland – he was our partner. He did not really want a master TV cable in Seattle to thrive too well. He didn’t want us to import things.
KELLER: Well how could they justify the amount of capital that was required to build the cable if they didn’t want to do anything with it?
HEWSON: They’re making more money on the broadcast side…
KELLER: At that time.
HEWSON: … -at that time – then they ever were in cable. I just remember Bill coming to meetings and he was deaf. He wouldn’t hear what you said. Then when he heard what you said, he would sort of treat you like a flunky sometimes. I guess he had personal problems. I don’t know. But it didn’t make … King … We were kind of the good guys. A guy that I actually worked for at King initially in cable was named Jay Wright who had been with NBC.
KELLER: Went with Cox, then for a while, too, didn’t he at one time?
HEWSON: I don’t know if he worked for Cox. But he had been head of special secret inventions during World War II, and he was a Mormon from Salt Lake. But, Jay and I, when we traveled, I don’t want to say. But he just a very nice guy and an extremely bright man. So we would try and calm down Bill Warren. Lloyd Cuney was running the Como side. He was much more of a salesman – I mean the Cairo side. Cairo was owned by the Mormon church. So there were probably things they wanted to import into Seattle, but not others.
There really wasn’t a huge conflict except that we were second class citizens when it came to spending for equipment, when it came to making acquisitions or whatever.
KELLER: When you were in budget meetings, and you had X number of capital expenditure dollars for the broadcasting company, how much of that would go to the broadcasters and how much would go to cable – of that capital fund?
HEWSON: That’s a good test. We got our share. But we could always… It was interesting because knew how to financially justify a return on investment.
KELLER: It’s natural for …
HEWSON: In fact, I was originally paid a salary plus a percentage of growth of operating income. I think it was like 5% increase. Whatever I got above my initial thing, less a deduction for interest on capital investment or acquisitions – whatever – which we would attribute something to, I got 5% of the increase in operating income for a while. They started looking at that and the broadcasters got a little nervous.
KELLER: You were starting to make more money that they were.
HEWSON: I was almost able to afford a car like they could and a house like they could. But we could always justify ours. If you could justify it, you could always get the money. Dorothy Bullitt didn’t believe in borrowing for a long time. She had been through the depression. Her husband had died right after they had built a major building downtown in Seattle. She didn’t have any tenants. So she went to New York pretending she was renting something in order to find the money and how to fill up her new commercial building – the 1411 Building, I think it was called. Then that worked for her.
KELLER: What did the board say to you when you came for $X million to buy a Lodi or a Tujunga or some other place like that, knowing full well that they’re going to take whatever money that could be coming their way and putting it into something else?
HEWSON: “What was the return on investment?” That was it.
KELLER: You could always show a return.
HEWSON: Come in. Show a return on investment. Take Lodi. Show that it had so many customers. It was generating so much cash flow. We’re going to put in, every year, we’re going to put in so much capital investment. In those days remember, 330 for example, was a very nice plant.
KELLER: Oh, yes.
HEWSON: So if we could justify it, they would buy it.
KELLER: You had that good of a board over there.
HEWSON: Had that good a board. But they were not interested in really building and selling, so they did not want to borrow money because of Dorothy’s experiences. They were pretty conservative. But they would buy it if you could prove that it fit.
KELLER: Didn’t the broadcasting people sometimes say, “Well, we’re making all of this money. All you’re doing is throwing it into cable.”?
HEWSON: Yes, they did. Exactly. They said, “We’re throwing off all this money and you’re putting it into cable television.” And they said, “Yes, but you’ve go to lay off your bets.” We invest in radio. Sometimes it was profitable, sometimes it wasn’t. Television – it was profitable. Cable we proved was profitable all along. I’d forgotten all about some of that. We did buy broadcast stations for an awfully lot of money.
KELLER: Still at the same time?
HEWSON: At the same time. We bought radios stations. We bought Gene Autry’s stations in San Francisco – KSFO. But they had the Oakland baseball team on. Gene Autry’s picture disappeared from the front hall of KSFO on the day that the closing was going on. It was part of the purchase.
KELLER: You went head up against Cronn, then, in San Francisco?
HEWSON: We went up against Cronn in San Francisco. I didn’t. Cronn also had cable operations. I think they sort of were fighting with a newspaper and television side. Isn’t there a newspaper?
KELLER: They had both the newspaper, television station, and cable systems out in the east bank.
HEWSON: Right. We had pretty honest fighting. King was a very ethical … They treated people very ethically. I felt like I was a second class citizen with some of the other broadcasters. But as you grew in stature, they started to buy you drinks. That’s the way it works.
KELLER: You’re contributing then to their stocks.
HEWSON: We were contributing to the value of their stock.
KELLER: At what point did your revenue and your cash flow equal and then top that coming from the broadcasters?
HEWSON: In the last several years of the company we equaled it and then the year we sold the company, 1992, I think cable had about 60% of the cash flow of the whole company, and it was a sizable cash flow. Of course I didn’t want to sell the cable business, although I got money out of it. But I thought we sold at the wrong time.
KELLER: What year – you said ’92?
HEWSON: ’92.
KELLER: Tough, tough year.
HEWSON: Yes it was a tough year. We sold to Providence Journal who had been financed by … It was Jack Clifford seemed to be heading it up.
KELLER: Maybe that was before Tryg went in there.
HEWSON: And then … Tryg was there too, I think.
KELLER: He was president of the cable company, then became president of the journal company after that.
HEWSON: He did. Okay. They were 80% financed by some leverage buyout company in New York, and I believe within two years had spun the company apart again, doubled their money or better, and then that was again sold to the broadcast side to Beelow. The cable stop fall became part of Bud Hostetter’s …What was Bud Hostetter’s
KELLER: Continental.
HEWSON: Continental became part of something else.
KELLER: MediaOne.
HEWSON: MediaOne. And parts of that now have been split off to Falcon and split off here and there.
KELLER: Most of it went to AT&T.
HEWSON: AT&T. But we had terrific properties in California. The Los Angeles property was great. In fact we had all great properties, good people.
KELLER: Who would mediate or arbitrate between you on the cable side and the broadcasters when it came to whatever difficulties you might have had, either in philosophy or for dollars.
HEWSON: Well, Ansel Paine who is president of the company. He loved broadcasting. But he also loved making money. He’s a brilliant guy and he would mediate. We didn’t have … Almost had a fist fight once, but …
KELLER: I didn’t mean to imply that, but there is going to be some differences between the broadcaster and cable operator.
HEWSON: There were hug differences. It all depends. I don’t know of any dumb people that worked for us. Smart people don’t fight as much, I don’t think. Stim Bullitt, of course, …
KELLER: He was chairman?
HEWSON: His mother was chairman, he was president up until 1970. Then after that, Ansel Paine became president, and he mediated pretty well. His heart was in broadcasting, but he could see where the true religion was in making money. There was no really big …
KELLER: While we’re still on the internal workings of King Broadcasting, you had mentioned earlier before we began taping, that you never joined the NCTA. However, the broadcasters were members of the NAB. Did they, then, as members of the NAB appear before Congress, FCC, or any of the other sub-committees during the conflicts between broadcasters and cable operators in the 70’s and 80’s?
HEWSON: We really never got into that fray – no.
KELLER: So you stayed out of it on both sides.
HEWSON: Stayed out of it. I appeared before some hearing on something back in Washington, DC. I don’t remember what it was, frankly. But everyone was worried. There were lawyers prompting you and telling you what you should or shouldn’t say and everything else. I just said, “It’s going to be me and say what I think.” That kind of terrified them. But I don’t remember what the subject was now. I think it had something to do with copyrights.
We never, to my knowledge, King ever requested non-duplication protection. But on the other hand, …
KELLER: Many stations didn’t.
HEWSON: Many stations didn’t.
KELLER: It wasn’t to their advantage in the long run, and many of them recognized it.
HEWSON: But on the other hand, they would not join … They were trying to figure out what the financial rewards of joining NCTA were. As time went on, as a small operator looking at NCTA, became dominated by some very large operators who didn’t always have the same goals as we did. Might have been a good decision. NCTA, at one time, was very expensive.
KELLER: Yes it was. In fact I think it still is.
HEWSON: Still is. But we belonged to all the state and regional associations. But they did belong to NABA.
KELLER: You didn’t get into any of the squabbles that went on in the Congress or FCC.
HEWSON: No. I never got involved in it., never knew about them participating. And I think we pretty well squelched individual managers who might want to participate.
KELLER: If that is the case, and this is a good segue how did you become president of the Northwest Cable Communications Association, knowing in effect, that you were, in effect, a broadcaster?
HEWSON: Golly. Well, you know, being president of an organization entails a lot of work, entails having a secretary. It entails having worked your way up through the various committees or whatever.
KELLER: Why would you want to put yourself in that position, knowing your situation within the company itself?
HEWSON: You know, I didn’t seek the position. The position sought me. It was my turn. And people said, “Who’s going to do it next?” They turned around, and I tried to get out of the room, and they said, “Hewson!” So, if you’re president, you do what a president needs to do for the organization.
KELLER: Tell me what you did while you were president, some of the problems you faced.
HEWSON: The problems we faced … It was really a transition from thinking of ourselves as an antenna service to being a communications service. A lot of cable operators thought of themselves as pretty limited in what they were going to do in technology. I just argued that we were really becoming a broader, much broader than just providing local signals and we should call ourselves a “communications association.”
KELLER: Was this after the advent of the satellite signals?
HEWSON: Satellite came in ’75, but that was coming. People had things such as HBO, didn’t they, just before satellite?
KELLER: In some areas where they were fed by microwave, but mostly on the East coast.
HEWSON: But you could see that it was coming. And you also knew that being an antenna service was not enough to justify all that stuff up in the sunshine. We didn’t know what else we were going to provide. We talked about burglar alarms. We talked about telephone – which in those days was really terribly impractical – and other services. But mainly we talked about how we can get people to spend more than $6 a month..
KELLER: That’s right.
HEWSON: And it was broadening the definition of our business.
KELLER: The reason that many of the old time cable operators never really latched on to that concept was because they were still going on the basis that they were a reception service because they didn’t want to pay copyright.
HEWSON: Yes.
KELLER: And they argued and finally won that in the Supreme Court. Because they were only a reception service, they didn’t have to pay copyright.
HEWSON: Right. They did not provide a performance.
KELLER: Right – until they started to come around in the fact that then they had to make a deal with the Hollywood movie makers, and then they started to pay copyright. A lot of people argued against that too.
HEWSON: Well today you have ASCAP and BMI starting to hit on operators saying, “There must be another performance here that we can get paid for.”
KELLER: That’s right.
HEWSON: I don’t know where that’s heading. I know that at King Broadcasting, these auditors would show up, and they hated them. They’d want to see all the play sheets for the radio stations. They’d try and prove there was more than one performance and they should get paid for it and get some negotiated percentage of revenue.
KELLER: The cable industry made the deal for a copyright tribunal, where the money went into that. Then the tribunal distributed it from their point.
HEWSON: Right.
KELLER: It saved an awfully lot of problems.
HEWSON: Saved a lot of problems because if you had to deal with each individual performance, it would have been impossible – for both sides it would have been impossible.
KELLER: Yes it would have.
HEWSON: And they’re getting money where they didn’t get money before.
KELLER: But that is where the concept of a communications service or performance differed from the old time operators that were only a reception service.
HEWSON: Right.
KELLER: That happened in your stand with the association.
HEWSON: If you want to get into pure discussion of copyrights and what really should be paid or not and should they keep getting extended and when do heirs or heirs of heirs … they are getting paid little pieces of copyright on things that were written many, many years ago. The purpose of a copyright is to encourage the artist for an initial period to make their work available to the public. It’s grown beyond that.
KELLER: Oh, yes. There are people arguing today that the cable industry is paying copyright more than once.
HEWSON: We are.
KELLER: And still are very, very upset about it right now too, and there’s nothing that can be done.
HEWSON: For example, with my little system we carried DMX. Well, they’ve got to be paying for the right to use the music. I could argue that we’re just renting a box and passing on the fees. In fact, I’m going to argue that if that comes up! Right?
KELLER: As president of the association and as long as you were on the board of the association, what other matters came up?
HEWSON: I don’t remember what came before. They were probably pretty mundane – pole contact agreements, fair stuff.
KELLER: Oh, yes, against the telephone companies.
HEWSON: Against the phone companies. In the Northwest, the PUDs have the right to set any pole rate they want. They were …
KELLER: PUD is Public Utilities Department?
HEWSON: Public Utilities Districts such as in Everet they could charge anything they wanted. They were specifically exempted from oversight by a bill I think Warren Magnusson got passed – or Jackson got a bill passed – creating public … and exempting them from oversight. So they were totally uncontrolled, could do what they want, and they could drive you out of business.
KELLER: Well, they wanted to get into the business themselves at one time.
HEWSON: They wanted to get in the business themselves. If they couldn’t do that, they wanted you to make a huge capital investment and just be one nostril above water the whole time, and they would suck up the rest. It’s pretty much what the programmers would like today. Take somebody like ESPN. As a consolidation happens and ESPN certainly doesn’t deserve whatever it is now, the $1.15 or $1.25 per month. Their market share is about 1 share. If you paid everybody for a 1 share, it would cost you $125 a month for programming. Well, it’s not there. But that’s their theory. Or that’s the idea.
KELLER: Take them off and see what happens.
HEWSON: You take them off – that’s what they say – take them off and see what happens. I just looked at the small cable operators list of carriage and only 88% carried them. Big operators make other deals. You don’t know what ancillary deals, ones that can sell advertising, what advertising they can get, what things are, what gets deferred. There are all kinds of hidden rolling things.
KELLER: John Malone was a master of that.
HEWSON: He was a master of that. And if you tried to get a favored-nations clause, it wouldn’t work if you were like me – a little guy today.
KELLER: You operate through Pandzik’s organization.
HEWSON: We buy most of our programming through Mike Pandzik. That’s pretty effective. I’ve forgotten – we have about 6 – 10 million cable customers, but I don’t think ESPN, ABC whoever owns it, I don’t believe they have a master’s agreement with them.
KELLER: What’s Mike’s company’s name?
HEWSON: It’s the Cable Coop. [National Cable Television Cooperative]. They’ve done a masterful job of negotiating.
KELLER: Mike’s done a nice job.
HEWSON: With King, we belonged to a different group of 8-9 operators. It was amazing at the programming deals that actually flew around, if you could bring something to a programmer and join the big leagues and were sworn not to talk about it, which I was.
KELLER: There were all kinds of deals.
HEWSON: We had a guy in New York who negotiated everything for us.
KELLER: Again, that was one of the advantage, I think, of being affiliated with the broadcasters. You had certain benefits, knowledge, information that some of the other operators did not have.
HEWSON: The broadcast industry went back so far and had so much history of different things and how they developed, that you could go ask somebody, “Hey, what about this?” And they could background you very thoroughly on copyrights or ASCAP or how to deal with the FCC, why Washington attorneys make so much money – that type of thing – how to deal with politicians, why you don’t make donations to political campaigns. King Broadcasting did not make donations to political campaigns.
KELLER: Not even in time?
HEWSON: Not even in time. We tried to treat all politicians fairly, even though we were Democrats. Individuals might contribute individually to somebody. But basically, you figured that once you make a donation to one side, it’s an escalating game. You never want to let the camel’s nose under the tent. A long time ago, there were people who sold stuff in the cable industry and would offer to kick back 5%. I’m not going to name any names. But they’d offer to kick back 5%. If anybody ever took them up on that deal, they were blackmailed forever. You were always buying something. So I instructed my people never to do that. Big Tommy Moore, at Texas …
KELLER: … Tower Company?
HEWSON: I don’t know.
KELLER: Fort Worth Tower.
HEWSON: Yes, I think that sort of comes around as a thought.
KELLER: We don’t use towers any more. How did you get along with the telephone companies in the Seattle area?
HEWSON: We had a lot of them. Well, I got along with them fine.
KELLER: Before they were prohibited from charging outrageous prices by the FCC?
HEWSON: The telephone companies lived … You have to understand the economics of telephone companies. They live on two things. First of all, they live on public opinion so they have to maintain good appearance. And the other thing they live on is making capital investments for which they can borrow money cheaper than the return. So if a telephone company gets 14-15% guaranteed return on investment, they can borrow money at 6%. Then it’s to their benefit to constantly keep throwing plant up in the air, to keep innovating, whatever they do. Where we would have a fight with them as a cable operator would be that we’d be doing a common trench and they would want to get overhead of 120-130% on top of the capital cost for things.
KELLER: I know.
HEWSON: And you say, “No.” But tied in with a broadcaster with a cable business, they’d be a little (what was then Northwest Bell) scared of beating us up because they wanted people to really think that they provided excellent public service.
KELLER: That’s the first time I’ve heard that from a broadcaster. That’s interesting.
HEWSON: They didn’t scare us. On the other hand, they could borrow money. You never want to fight with somebody who owns a newspaper because they buy their ink by the barrel. The headlines are all people read anyway. With a television set, the quick little blurbs on a TV news are all somebody hears anyway. I don’t think telephone companies want bad press. Look what’s happened to AT&T. They’re getting bad press. Since they’re getting bad press, in some ways their cable companies … Although I think AT&T Broadband has great potential, the stock is way down. But …
KELLER: Mike Armstrong predicted that in Chicago when he said what he was going to do.
HEWSON: Did he?
KELLER: Yes. It’s a little old lady’s stock – people that had it for their retirement funds for so long and now they’re not getting those.
HEWSON: Exactly. I was at a college in Oregon – I’ve forgotten which one – on a panel of three. It was the phone company versus the cable business versus somebody else. We were having discussions on … A man who was on our board dragged me into this. He was on their board too. So they were having discussions about whether telephone should be allowed in the cable business. When I got up I said, “Well, the fact is that the cable guys are pretty much off the wall. We’re a lot more in promotion. We step forward and take risks. Risk is an anathema to phone company. You go by the book. In fact, you have 16 –17 books … even as a vice president you’ll pull down a book to see what you’re allowed to do and go forward. So you would never be able to keep up with these cable guys because they’re really like quicksilver.”
KELLER: Hindery found that out when he went back with AT&T.
HEWSON: Yes. And they’re going to find out, also, you make your money on your guaranteed return on investment. The more capital dollars you could put in, you get 13% – 15% guaranteed return on investment, so you’re encourage to keep putting in capital.
KELLER: So many of their newer investments, though, are not regulated.
HEWSON: Right. But the regulated ones, in those days, … So if you get into cable, you’re going to lose money first. If you lose money and it really turns out badly, your bond rating is going to drop from AAA to AA to A. Interest rates are going to go up. You’re going to make less money. Your widows and orphans aren’t going to get their dividends, and there’s going to be hell to pay.
KELLER: You never faced that same problem in King Broadcasting, who also had an excellent credit rating – getting into cable. But you never borrowed in the early days.
HEWSON: We didn’t borrow in the early days. We didn’t really borrow money until we built about an $18 million corporate headquarters in Seattle. We borrowed money to buy Hauser’s properties in Minnesota. But our goal was to pay it off as soon as we got it, eat well, sleep well, and enough’s enough.
KELLER: Who did you go to for financing?
HEWSON: Gee, who financed us? We went around to a lot people. We hired somebody local to check around. I think first Boston negotiated some debt instruments for us.
KELLER: Were you ever able to get any money out of the Seattle banks?
HEWSON: I think initially, occasionally, we had a line of credit, but nothing big. Dorothy Bullitt had been on the board of …. Her husband had been one of the founders of the principal Seattle banks, so we would go to them if we needed if we needed $1 million here or $1 million there. He also had been one of the founders of Safeco Insurance Company, got a lot of stock for $ .25. We had $80 – $90 million of Safeco stock on the books at one time. So we started selling it or giving it as dividends to stockholders instead of cash. We were a very liquid company.
KELLER: I guess you were. So you never had to really worry about credit rating.
HEWSON: We never, never worried.
KELLER: Because you had a comparable situation with the telephone companies, if indeed you had to go out to borrow large sums.
HEWSON: Yes, exactly. Dorothy would, in her younger days, didn’t have any trouble borrowing. That’s just how it was. King is a very well-known company in the Northwest.
KELLER: I’m going to make a statement and you tell me whether you disagree with it or whether you agree with it or where. The statement is this: “Broadcasters never knew really what business they were in any more than the newspapers knew what business they are in. Broadcasters still feel that they’re in the transmitter business. Newspapers still feel they’re in the printing business.” True or false?
HEWSON: For King Broadcasting, that’s a false statement. The business we were in was to render a valuable public service …
KELLER: … through the transmitter.
HEWSON: Our company policy was to render a valuable public service and to do it well enough so that we were entitled to be paid for it. For King, this was not necessarily through a transmitter. It might be through King Screen Productions, a Seattle magazine. We did …
KELLER: All communications businesses.
HEWSON: All communications business – Northwest Mobile Television which then became National mobile Television. If you render a valuable public service, you can get paid for it, but you’ve got to provide the service first.
KELLER: The reason I ask is that this question has come up in debates time and time again. It came up first of all when broadcasters refused to give us a direct feed from their studio to our headend – which always seemed to me to make an awfully lot of sense, especially for the use in some areas. Why they would need a transmitter, now especially that cable is getting up into the high 70-80% penetration within these markets, why they want to continue to operate the transmitter.
HEWSON: Why you’d continue to operate a transmitter?
KELLER: That’s a rhetorical question.
HEWSON: The question ‘why would you?’, but if you only have … Let’s say today that the old Sidon … If you’re only getting 70-80% and the old Sidon report said, early and before inflation, viewers home was worth $60 a year and now maybe it’s worth $250 a year. So if you’re hitting 5 million homes and you went on the fiber optics only to the different cable companies, now you’re leaving 20% of the homes out. First of all you have a huge public outcry from the people that don’t subscribe to cable. But you also are losing 1 million homes. One million homes times $220 or whatever – that’s a lot to leave on the table.
KELLER: You’re right – in the position that King was in Seattle. But if you were a UHF broadcaster at that time, when you probably weren’t picking up 100% of the sets in the Seattle area ..
HEWSON: No. You’re picking up very few sets in the Seattle area. You had to have these funny little things that you put on the set that kind of looked like bow ties. You put a bow tie on your antenna and you try to receive an impossible channel to receive. People could get killed up on a roof by the time you twist things around.
KELLER: The old rotors.
HEWSON: Yes.
KELLER: Okay. It’s a statement that you disagree with, at least from King’s standpoint.
HEWSON: I would assume today that since AT&T Cable, for example, has fiber lines that are being extended in every direction from Seattle, …
KELLER: … and independent Internet companies too.
HEWSON: And independent Internet companies too. I would assume that they’re taking direct feeds.
KELLER: Oh, I’m sure some of them are.
HEWSON: I’m sure that King would be one of the first to do it and Cairo would do it. Komo today probably does too. All the independents probably do it. Bernie Blair, with his …
KELLER: … in addition to operator transmitter.
HEWSON: Yes. I know that at Ocean Shores, a little system I own, we microwave from Capitol Peak to Aberdeen, Aberdeen to Ocean Shores. But we just built a 26.5 mile fiber line into Aberdeen and we put that up to connect AT&T out there. Ultimately, we think the broadcaster will be receiving the broadcasters that way rather than via over the air to Capitol Peak and microwave.
KELLER: I’m going to throw another statement out to you. “There will be a day (and I’m not saying whether I agree with this or disagree with this, but just for the sake of discussion) when the cable operator may very well give away the local broadcasting signals in lieu of charging for them today as they do, and making revenue on all the other services that they’re providing.”
HEWSON: It could be. I’m a financial person. I’m trying to think of …
KELLER: That’s why I asked.
HEWSON: It would happen in different places, you know. If satellites today are charging $5.99 for 5 broadcast signals, or $4.99 for four broadcast signals, (which they are) you might be willing to, in order to get that via satellite, of course, they’re not probably going to give it away. They have a lot of cost. I can see cable giving …
KELLER: They fought for that right to carry the local signals.
HEWSON: Yes, but then they fought for the right not to carry all of them. I can see cable giving away the local broadcast as a marketing thing, as a public service.
KELLER: Right. That’s my point – or the point that I first heard it from.
HEWSON: If must-carry goes away, which it could, …
KELLER: … could very well.
HEWSON: … it’s possible that cable will get paid to carry the local broadcasters.
KELLER: The networks realize that they made a mistake on that years ago.
HEWSON: That’s right. And the broadcasters have fought to retain their network fees, but they’re going away, slowly but surely – like slipping into an ant line nest, right?
KELLER: Yes, yes.
HEWSON: So, yes. But cable might, ultimately, give away 3everything they carry if there were other services which I don’t …
KELLER: … video services.
HEWSON: They might give away video services or at least …
KELLER: That would be a natural extension of that argument.
HEWSON: Yes. They’d give away more and more in order to be able to render other services.
KELLER: Data transmission service.
HEWSON: Data transmission is … Certainly broadband, high speed access is becoming very important. Although people today might live with 28 ,800 mps service. I think that’s …. I’m not an engineer. But I know when I go to AOL, and I only get 28.8, I get pretty bored. I got to At Home, and I’m getting 600,000 (on my son. -our kids all have better stuff than we do, of course), I’m pretty excited about it.
KELLER: You build fiber optical lines in your system out on the west coast of Washington right now. What’s the capacity there for Internet service?
HEWSON: Our capacity is unlimited. You’re carrying …
KELLER: How fast is it?
HEWSON: Well, our beginning is about 600,000. For $39.95, a customer using High Speed Access Corporation, for which we receive a goodly share of the revenue, gets Paul Allen’s whatever, you know, … He owns most of that stock. Anyway, a customer there gets at least 600,000 mps per whatever, so the service is virtually transparent, two-way, and they’re very happy with it. We have about 10% penetration today, and that’s as good as I know of. We have about another 10% of people who use us for phone who aren’t in front of cable, but they call in to use us as an ISP because we’re much better.
KELLER: How would you negotiate with Qwest if they came in with a request for you to carry them – their DSL service?
HEWSON: Right now I saw where somebody was going to receive 65% of the settlement that … Is it AT&T that’s negotiating as part of the … No, it’s not AT&T. Time Warner and AOL is part of that. I saw that some major …
KELLER: They’re required to do that for the merger to go through.
HEWSON: … some major high speed access provider has been guaranteed carriage and return for 65% of the revenue, I think was the number. So our deal right now with High Speed Access Corporation is 50%. Well, I’d start off by asking for 65%. But I’ll carry anybody. I don’t mind.
KELLER: Okay. That answers my question. I agree.
HEWSON: The more I carry, the more my customers like it, the better the competitor I’m going to be with the satellite guys. As a matter of fact, if I can get enough of that revenue, then I can start giving away on the one side so that I get more homes. We really don’t mind, we actually don’t care if we’re getting $40 a month for Internet service and we’re getting to keep $20. We don’t have to pay copyright fees. We don’t have to pay all those other things. We’re doing just as well or better than we are running a cable company.
KELLER: You can become a common carrier, too, if you’re not careful. There’s the other side of that question.
HEWSON: But the other side of the coin is that I could borrow money really cheaply and expand the service all over, right!
KELLER: And put up with the regulation.
HEWSON: Put up with regulation, hire a lot more people.
KELLER: There’s another thing that we talked about earlier. One of the reasons you’re investing is heavily into fiber right now. This, of course, is a land line type of approach as opposed to satellite.
HEWSON: Right.
KELLER: You feel very strongly that there’s always going to be a need for land lines.
HEWSON: I guess I’m one of the few. I’m either a sucker or smart. But we’re one of the … What is it? During the war, they had the Last Man Out Club got to drink the bottle of brandy and found out it didn’t taste good after all that time. Well, we hope that it still tastes good. But we haven’t sold out yet, because we believe – hey, the business is fun – but we believe that providing fiber optic backbone and a good broadband service, there are going to continue to be more and more needs for what you call a land line, a hard line service…
KELLER: For lack of a better term right now.
HEWSON: … to people’s homes. I don’t think copper wire is it.
KELLER: Everybody agrees with that.
HEWSON: And so I think I can fight off the satellite guys. ‘Course they’re fighting amongst one another right now. But I think if we have enough services coming along where the customer has a really secure in-and-out to their home or their business, that we’ll be able to continue to make a good return and render a valuable public service.
KELLER: That was going to be my next question. Trying to separate your investment in fiber, that portion of it which would be dedicated to other than the delivery of television signals and radio signals, how would your return on investments stack up with what you’re getting from delivering video signals on the cable right now. Can you make that distinction? I’m not sure you can, but I’m wondering whether you could or not.
HEWSON: If you have a single tenant use of fiber, like we just put in 36 fibers between Ocean Shores and Aberdeen. If you have a single tenant taking four of those fibers for – I’m trying to think.
KELLER: X number of dollars. It doesn’t make any difference.
HEWSON: Let’s say that it’s a pretty good business. So your cash flow… There’s almost no maintenance to fiber. It’s buried. So it’s all cash flow. So let’s say your cash flow provides a return in about seven years – cash on cash after depreciation which may or may not be real in this instance …
KELLER: But no dividends.
HEWSON: Probably taxes. No dividends. You have a return, say, in seven years.
KELLER: The return OF investment.
HEWSON: Return of your investment in seven years. And you still have it. With the case of a phone company, where we put it in, we still have 32 channels. If we get other people to take it or use it ourselves, we probably require four fibers.
KELLER: Are you looking into any uses of it for yourself?
HEWSON: Yes. We’re going to eliminate a microwave link. We have another phone company that, for some reason, wants to use it to provide or complete a ring somehow so they have it going to separate sources of phone conversations instead of the one they have today. Fiber is just wonderful stuff.
KELLER: Ed, to wrap this up, and we’ve been going for considerably over an hour right now, what do you see in the future for the telecommunications business. I know you’ve given it thought.
HEWSON: What do I see? Well, this is why I’m still in it. What do I see as the future of it? I think telecommunications, as aw hole, broadband including fiber, has just got marvelous potential. There’s always another use for it. I’ve been in the business now for 34 years. In fact, I retired but I’m still in the business, for heaven sake. Every couple of years, something else comes along which the public craves. A lot of the things are stupid and, to me, still haven’t happened. This interactive television hasn’t worked. Meter reading is working, right? Computers – it is working. You are going to be able to educate an awfully lot of children better, even in more remote sites because of this. Those children are going to grow up, and it’s going to be Internet access, for example, is going to be 100% for any child who has a decent shot at an education. So they’re going to grow up and be using adults as well. Look at cell phones. I mean, we invested in the cell phone business a long time ago, sold out again, made a $10 million investment and sold it for $80 million 3-4 years later. Cell phones, of course, have come back to be very common. My wife just grabbed my cell phone. She said, “You don’t need this, dear.” What’s she doing? She’s in Sun Valley shopping with a cell phone. Everybody … So these things are going to keep coming along. I’m not sure that we’ll ever do phone. I don’t know that it will ever make sense to do some things that you would call a phone on cable. It’s such a common business.
KELLER: There are going to be easier ways of switching coming up too, new ways of doing it.
HEWSON: Yes.
KELLER: If, right now, your average per subscriber revenue is, I would estimate, between $50 and $60 a year.
HEWSON: Mine isn’t.
KELLER: I’m saying most of the industry that I’ve seen is getting somewhere around there.
HEWSON: Per subscriber revenue or profit?
KELLER: Revenue.
HEWSON: Is between $50 and $60 a month?
KELLER: Yes.
HEWSON: Okay.
KELLER: Where do you see that in ten years?
HEWSON: Damned if I know. I read what other people say, and they see $150, $200. It all depends on technology. Really, if you have people want to stream video, streaming video, okay. I don’t know how much money you can make on streaming video. I don’t know where Pay-Per-View is going. How about instant access to any movie, any time, rather than only the … It keeps growing and keeps growing. That revenue keeps going up. Then there’s digital. We put in digital down in Ocean Shores. We have already 10 or 15 … We put it in six months ago and it’s gone out the door pretty fast. Heck, I don’t see it stopping.
KELLER: Would you like to be starting all over again?
HEWSON: Yes. I have some other ideas. You know, if I start all over again though, I might start by just building fiber plant and providing basic service – whatever that is – for cheap amount of money.
KELLER: Depending on where you were.
HEWSON: Depending on where you were.
KELLER: Maybe out on the coast you’d be able to do that. But then in Seattle would you be able to do that?
HEWSON: The funny thing is that when you view television today – and right here in Sun Valley you have access to 61 – 7 = 54 channels. You quickly don’t watch most of them. Isn’t that true?
KELLER: Yes.
HEWSON: You could probably pick 10 channels to satisfy 97% of your viewing.
KELLER: As a marketer, I think I could beat you if I were selling 70 whether they used them or not.
HEWSON: I know that. But I don’t want to pay the programming fees.
KELLER: I understand.
HEWSON: You asked if I would start all over again, I said I might start all over again with fiber, with simple fare. I might start all over again and just Internet access and let things plays its way out…
KELLER: Which some companies are doing right now.
HEWSON: … and then maybe introduce simple fare. But I wouldn’t be afraid to invest what I’ve done back into the business. It’s a great business. Nice people. And you know one of the neatest things about the business, believe it or not, is as a small operator, there are big operators who can really afford to experiment. The only thing a pioneer gets, we used to say, is an arrow in the ass. All right? So let somebody else get that. Sit back. Then do it right, starting the first time. You have a pretty good chance of making money.
KELLER: That’s always been the attitude of the cable industry. They’ve never done, except for the CableLabs right now what they’re doing there, they’ve never done their own development of equipment or technology.
HEWSON: Yes.
KELLER: Suppliers always did.
HEWSON: Right. If I were a kid getting out of graduate school again, without any money, I probably would have followed the course I have. If I had some money, I would have started up by building a cable system again.
KELLER: You wouldn’t go into broadcasting?
HEWSON: No, I wouldn’t go into broadcasting.
KELLER: I think we’re going to end this right here. It’s been a great pleasure. We’ve been going some time. I think you’ve given us an awfully lot to think about. Hopefully some of the scholars coming back in years from now, looking at your interview, will have some things that they won’t be able to find any place else.
HEWSON: All right. I wanted to just put in a promo, though, for my son, Ed III’s business which I’m the biggest investor right now, or family is. It’s called Promo Path. We’re making disks, CD ROMs, which are segregated into a whole bunch of different little segments. You send them out to select people to get people to hyperlink to Internet sites to promote Internet sites. What he’s doing is basically putting different art venues on …
KELLER: Sophisticated advertising.
HEWSON: Very sophisticated advertising to hit higher income people, certainly people who have the ability to use that with a TV set. I think it’s, hopefully aside from cable, it’ll be a very good business.
KELLER: I wish you well. When we end this now, Ed, we are here in Sun Valley at the annual meeting of the Sawtooth Cable Professionals who gather here once a year to discuss their past and the future of our industry. The date is February 9, 2001. This again is made possible by a donation from the Gustav Hauser Foundation as a part of the Cable Television Center and Museum’s Oral History Program. Thanks again, Ed. I appreciate it.
HEWSON: You betcha.
KELLER: Been a lot of fun.
