Interview Date: August 1999
Interview Location: New York, NY USA
Interviewer: Steve Nelson
Collection: Hauser Collection
NELSON: This is the Hauser Foundation’s Oral and Video History Program for The National Cable Television Center and Museum, and we’re talking today with Scott Kurnit, Chairman and CEO of About.com. Scott, you’re actually a long-time cable guy, but first just give me a little bit of background on who you are and where you came from.
KURNIT: Cable roots that start from birth. My father owned an ad agency, mother a headhunter in the agency business, so the early days of television was very important in our household. Both my brothers are in the business. I started filmmaking when I was 13-years old. I made my first film and just kept going and cable was the natural extension to all of that.
NELSON: So you went to college, I presume?
KURNIT: When I went off to school, actually it was interesting, my final paper in college was titled – this was a full-year kind of project – The Media’s Myth: Serving the Public Interest, and its concept, and this was back a long time ago, in ’76, was the story in Springfield, Massachusetts about how newspapers versus television stations reported the story of cable coming to Springfield, Massachusetts and having it reported it differently based on whether cable was going to be a negative impact to them or positive, and the television stations reported negatively. I did an analysis of their editorials, their news coverage, and the newspapers reported it positively because they figured that it would diminish the power of the broadcast stations by having more video voices in the market, and so that was my senior paper, actually, in college.
NELSON: Okay, so you got out of college and you’re kind of eying the cable business. Where did you go from there?
KURNIT: I got out of college and found the local public television where I was the director, producer and program director, and then I got hired by John Lack who was running Qube, before Warner Amex, the programming arm of Warner Cable, what became MTV, Nickelodeon and The Movie Channel, and John hired me at 25-years old to be the program director of Qube. I was the fourth one in a year and a half. Qube was incredibly inventive and also burned through a lot of people pretty quickly, and somehow I ended up staying within Warner and Qube for about seven years.
NELSON: Well, we all know that Qube didn’t succeed. It was an experiment in interactive television. Why was that, in your view?
KURNIT: I actually do think Qube succeeded, both as an experiment in interactive and as a laboratory, which is really what it was for Warner Cable. Qube, in some ways, created some of the greatest value in the cable industry because it’s there that we spawned both MTV and Nickelodeon. There was a project that we had called Sight on Sound, which was six hours of video clips strung together – no one knew what video clips were at the time – which is what became MTV, and Pinwheel, which was one of the early, early program blocks on Nickelodeon, was produced in the Qube studios and became a big piece of Nickelodeon. So, from an investment standpoint, Qube, ironically, was a fantastic investment. From the pure interactive side, Viewer’s Choice, now called In Demand as of just a month ago, was spawned as one of Qube’s nine pay-per-view channels, actually ten pay-per-view channels, but number nine on the list was Viewer’s Choice and it was structured to be Viewer’s Choice where, because Qube was an interactive system, the viewer’s had a choice of which of the five movies would you like to see next, thus Viewer’s Choice. Then they were visible on a pay-per-view basis, and then I guess, coupled with that is you get down to the core interactivity, which is push a button and should be take the program in this direction or in that direction – actually, very popular. It was, from my perspective, major changes way upstairs at Warner with Atari that had one year made a billion dollars and the next year lost a billion dollars that forced the company, quite appropriately, to cut back on things that just weren’t making money right then, and while Qube was incredibly innovative and people really did like it as subscribers, you just couldn’t afford to continue to run a laboratory when the parent company was cash constrained.
NELSON: Talk about some of your colleagues at Qube in those days who’ve gone onto other things, for better or worse.
KURNIT: The cable business is really made up of Qube graduates just about all over the place. There are just so many of them. Vivian Horner, who really started Nickelodeon in those early days as part of Warner Amex; Gus Hauser, who really with Steve Ross, was the vision behind Qube, which was an incredible vision, obviously off to Hauser Communications creating enormous value in cable systems. The people that were associated with Qube, because it was the laboratory, Bob Pittman of MTV, and then tremendous success throughout his career to his current spot as the real driving force now with Steve Case at AOL. So, tremendous numbers of people had gone through the system and gone off to other things. Tom Neva, who worked for me ultimately at Showtime, was head of research in Cincinnati and Tom, then, became a driving force in BSKYB’s pay-per-view businesses. Madge Rubenstein, who went to continue as one of the real drivers in the pay-per-view business and worked in Time Warner systems, I mean we could just go on. The numbers of people…
NELSON: The list goes on.
KURNIT: The list is enormous because Qube, as a laboratory, attracted people who were really keen on innovation, and the cable industry has always prospered by being innovative and Qube, in a lot of ways, was probably the earliest, most innovative thing the cable industry did, so it attracted the kind of talent that then went off to create program networks. Steve Bornstein, who was the executive producer at the time over at OSU, Ohio State University, and we did college football games together, and Steve went off to, obviously, huge success running ESPN, the ABC Television Network, and now in charge of the Go interactive business. It just goes on; it was an amazing, amazing time in the cable industry.
NELSON: But it ended. It pulled the plug, essentially.
KURNIT: I guess the remnants of it, in terms of the pure interactivity, it definitely is, and I suspect that there are pieces of Qube terminals or Qube equipment, which is the first two-way plant, which is now being utilized essentially for internet delivery through the system, really lends a lot of itself to the early Qube days, but the Qube box with five buttons on it and a message light and kind of core, low-level first generation interactive – gone. Was it the forerunner for a lot of the things that are on the internet and high-speed cable internet access? Absolutely, and then coupled, obviously, with MTV, Nickelodeon, Viewer’s Choice, just created an enormous wealth of concepts and wealth in the cable industry.
NELSON: So the “Qubies” sort of spread to the four points of the country, the globe. Scott Kurnit, where did he go?
KURNIT: What’s interesting is that I’ve spent a lot of time replicating Qube in other markets. I got hired in Columbus, spent a year and a half in Columbus building Qube and then it was time to replicate Qube into a half a dozen other markets, so I went back to New York from Columbus and we replicated Qube then into Cincinnati, Dallas, St. Louis, Chicago, Pittsburgh, which was a tremendous opportunity for Warner to win cable franchises because it had this completely unique technology and programming system, so Warner was one of the key leaders, if not THE leader, in the franchise wars.
NELSON: And you think that really was a powerful…?
KURNIT: Oh, to a large extent, because if you’re on a city council and you saw twenty different cable companies, or guys with money, or guys who wanted to be in the cable business, you saw this one that had the promise of more than interactivity, but probably as importantly, innovation and high technology. You said, “You know what? I like the way these guys think.” If I’m the mayor or the city council in Dallas, I think I’d like to have the more innovative of the cable companies, and whether Qube is right or whether it’s something else, the fact that these guys have the wherewithal or the guts to go try something like that, if I’m in Dallas or Cincinnati, I think that I would like to have a cable system that is more innovative than otherwise. So I got involved as we spread into those other half dozen markets, then personally I took responsibility for ad sales, and then Viewer’s Choice, as a pay-per-view network, grew out of Qube because we satellite-linked our own systems and then did that as a joint venture with Viacom because Viacom and Warner, at the time, were ventured together in Showtime and The Movie Channel. So that deal had it that pay-per-view, if it ever happened, would happen together, and then kind of gracefully moved over to Showtime – a joint venture of Warner and Viacom at the time – and then Warner, when it made its decision about well, we have to sell some assets for financial reasons, Steve Ross made the decision “I’m going to sell my programming assets and keep my cable assets,” and kept the systems, and MTV and Nickelodeon moved over to Viacom and I was already there. Viacom and Showtime became the sole owner of Viewer’s Choice, and then after a couple of years MSOs said, “Hey, we’d like in,” and we negotiated to partner with MSOs and studios to create at the time seven or eight partners in Viewer’s Choice. Immediately after the creation of that I went and started Showtime Event Television, which was the event programming arm – concerts and boxing matches and pay-per-view events that were fed into Viewer’s Choice and then also distributed generally through the cable industry. Then, Prodigy, where I went, which we were starting to explore in the cable industry what did interactive mean, what about these proprietary online services, is there something interesting here? To me there was something interesting and that interest, obviously, is what has grown into the internet, which I think is the most interesting medium since the dawn of the printing press. As interesting as cable is, I’ve got to give the internet a checkmark even above cable.
NELSON: Well, we won’t go back to the dawn of the printing press, but let’s just sort of back up a little bit and pick up what you were doing at Showtime when you first got there.
KURNIT: First up, we took the pay-per-view group out of Warner Cable and said, “Let’s now grow this into a national program service.” So we took the team of a dozen of us or so and we kind of moved over to Showtime, working for Neil Ostram, who was chairman of Showtime at the time, and said, “Okay, let’s get this up on satellite, let’s feed the Warner system, let’s feed some Viacom systems, and now let’s go get the rest of the country on board.”
NELSON: So it was not on satellite at that point? Or just about?
KURNIT: We were just about going on satellite, so we went on satellite to feed our own systems. At the same time, the business plan was all about going out and getting affiliates. There was a race – Jeffrey Reese, who coincidentally is one of the founders of Showtime, had his own pay-per-view network, and we had announced it at about the same time. Actually, I guess they had announced it a little bit earlier and much to Jeffrey’s displeasure, even a dozen years later, we launched our network a day ahead of his, which I will confess was for bragging rights, but we were the world’s first pay-per-view network, and those kinds of milestones live forever. Viewer’s Choice went head to head with Request and we were 1) creating an industry because pay-per-view really was nascent, and 2) we were fighting like cats and dogs. We have subsequently become very good friends, but in those early days it was “I’ve got to be bigger, I’ve got to have more deals with the studios, I had to have more cable partners, I have to have better buy rates,” and in most of those cases we, I think, were the winners, but it was neck and neck. It was a tough fight. It was probably, for me, the most competitive, the first time I was involved in something as rough and tough competitive as that, and that made us both better.
NELSON: Because it was so head to head?
KURNIT: We both wanted to be the leaders in the business, we launched a day apart, and we fought for everything. We fought for the product; we fought for the conceptual underpinnings of what was going, we hoped, to be an industry; we fought for the customers, both at the cable operator level and the endpoint customer in their home seeing “Watch television differently. We want four bucks. Watch a movie before you can see it on Showtime or HBO.”
NELSON: Well, talk about customers because at that point in time, HBO and Showtime had really begun to take off, but that was a new thing. Cable was a transmission service and suddenly, “Oh, you want us to pay for this movie service.” Now you guys are coming along and saying, “Oh, well, we want you to pay for movies not once a month, but every time you watch something.” What was the initial public reaction to that?
KURNIT: Well, we had learned at Qube, where pay-per-view really did get its modern day start because pay-per-view’s been around forever. In Hartford, Connecticut, literally, you dropped tokens in a box on top of your television set to get pay-per-view in the early days of television, but Qube was the modern day revival of pay-per-view and so the pay-per-view industry today really owes its gratitude to those 30,000 customers in Columbus, Ohio who were guinea pigs for all forms of interactivity. We were looking for the technical solutions to make it easier for consumers, but early on, consumers who liked it, loved it, the fact that you could get a movie. When it first started in Columbus, we were ahead of the video window. Home video wasn’t out there, and you had the pay services and you then had pay-per-view, which was a window, six months prior, to pay television. So it was really the first time out of the theater that you got to see a movie, so the buy rates were incredible. They were better than they are today. Then video came in and we still had a lead over video. Video was introduced with about a two month post pay-per-view lead time, whereas today, the video industry, unfortunately, is winning in the window war of getting movies sooner.
NELSON: When did that flip? Hollywood looked out and decided one day that the video store was a bigger revenue source, obviously.
KURNIT: It started to flip shortly after we launched the national service because the video industry woke up and said, “Whoa! We have a competitor.” So the video industry went to Hollywood and said, “Wait a second, we are giving you far more revenue than this new medium is,” and Hollywood said, “Well, but we want the new medium to be supported,” and the video industry said, “Yeah, but we’re supporting you now,” and the video industry, the VSDA, through its lobbying efforts, won. Really, we saw the windows bounce back and forth on occasion. The studio would drop a movie in before video or simultaneous to try and capture attention in the pay-per-view business, and we’re continuing to see that.
NELSON: I assume that because people talked about getting that window issue resolved, so here you had a situation where it didn’t exist. What would happen once the video stores got the window lead but they would drop this movie on you once in awhile and say, “Here, you guys can have a crack at this”?
KURNIT: If you think about the movie business of windows, which is a brilliant lock on the part of the movie industry of going from theatrical to airline to video to pay-per-view, all the way down into second run syndication, to have pay-per-view simultaneously with the video window is not bad. It’s not there yet, but ultimately pay-per-view will be easier than video. Here we sit in 1999 with TiVo and Replay exciting the world. In lots of ways it’s “Give me the movie. Let me use my TiVo or Replay or what devices come behind it to start and stop and give me that kind of convenience.” So, pay-per-view wins in its current form on the convenience of I don’t have to go pick it up, I don’t have to return it. It loses today on its ability to pause, stop, rewind, and watch it again, at least within a window. The pay-per-view industry has done things like pay-per-day, which we actually did at Qube a zillion years ago as one of the flavors of pay-per-view to counteract that, but I think the two businesses are going to live nicely. The DBS business, I think, has for the moment beaten the cable business in terms of pay-per-view based on the number of channels and ordering convenience, but I’m impressed with the where the cable industry is right now in terms of catching up and bringing together Viewer’s Choice and Request in a merger and putting a lot of force behind one brand. I think we’re going to see a very bright future in pay-per whether that’s for programming in cable or certainly on the internet, as well.
NELSON: So in terms of pay-per getting away from the movies, you started Showtime Event Television. Let’s talk about the genesis of that, your role in it, and how that got going.
KURNIT: We negotiated for quite some time with cable operators to merge Viewer’s Choice with Pay-Per-View Network, which was begin run by Jim Heyworth at the time, and it was our view that we would do better as Showtime being in the original programming business where we owned all the rights. In the movie business, we sat there between the studios and the cable operators carving – we thought, we hoped – 20%. It was looking more like 10%, not that that was terrible, it just didn’t have the opportunity for runaway upside as you would like to have in a business. So what we did was we took a seat on what became Viewer’s Choice – it was PPVN folded in with Viewer’s Choice – Viewer’s Choice, the surviving brand, which was a reconstituted or restructured entity that had a whole lot of people sitting around the table looking to grow it in terms of partners and we immediately started with a preferred programming deal with Viewer’s Choice for our original programming. So, some of our team went off to the new venture, some of the team stayed back, we hired some new people and I had the good fortune of being able to create my second start-up inside a company, a second shot at being an “intrepreneur” inside a company. We created Showtime Event Television. Our first events were we did boxing, we did the final concert of the Rolling Stone’s Steel Wheels tour, we did the first rock concert out of the Soviet Union, we partnered with ABC and did college football, we consulted with NBC on the triple cast, Grateful Dead concerts on New Year’s Eve. It was a real interesting array of programming across music to sports, NASCAR races on pay-per-view, inventing and looking for profitable franchises, found them. We see today that wrestling and boxing continue to dominate. Our first distribution deal with the World Wrestling Federation – I remember on December 28th or so on an incredibly icy, cold day driving up to Stamford to the WWF and making the pitch to Vince McMahon – again, this is a hundred years ago – “we should be your distributors” and we were. We became their exclusive/preferred distributor into the pay-per-view industry, really brought “wrestle-mania”, as their lead distributor, into the marketplace. So, it was great to see the kinds of properties that today are doing great like wrestling, like the fact that ABC’s college football is now pretty much a mainstay, now being distributed quite properly by ESPN. We were very comfortable to work with people to make our money, in some cases teach them the business. ESPN, clearly, in the cable business, and we knew eventually we were going to lose that deal, but we were growing the category, we were making money for the year or two that we had that deal and then we figured that we would introduce new distributors to the market, and that was okay.
NELSON: Well, the football thing also I guess you could say led to what you see now, primarily on Direct TV, and that is season ticket type things, how to market games.
KURNIT: Our motto was, and the beauty of pay-per-view was that it used numerous channels flexibly in a cable system, and it did so in a way, from a rights standpoint, that allowed for tremendous flexibility. So whether it was movies with an early window or whether it was packaged football games so that you could have three different games at that time, because we had to struggle to find channel capacity on systems, but my God! Three different games at a time, at the time, was revolutionary. Now we’re moving toward every game, and with the internet and open distribution, all video at any time and any form is about to be transmitted across both cable wires and competing wires, or satellites.
NELSON: And what about the rights issues that those raise? Everything everywhere all the time.
KURNIT: I think it started in Columbus with some of the most interesting rights issues that I saw. We were broadcasting Ohio State games live in Columbus and got huge numbers. Ohio State in Columbus, Ohio, there is nothing like it. It is religion to the point where literally all the streets two hours before game time were turned one way towards the stadium – I mean it – and one way away from the stadium after the game. We just got great numbers and we did that in partnership with Ohio State University who televised, and we televised. We had to buy out, because of NCAA rules, we had to buy all the seats in – I forget where it was – the three surrounding schools because there were no local TV rights coverage. We said, “Wait, this isn’t local TV. This is pay-per-view; it’s really an extension of the stadium.” We went to court on this and the NCAA said, “No, if you want to do this on a negotiated basis, you have to make sure that you have not impacted through your television coverage, even though limited, the other schools.” So we literally bought the seats as an expense of doing this television program, and you continue to see that, whether it was in the video business or whether it was – I remember when we did the Rolling Stones concert, Ticketmaster was the exclusive ticket provider for the Steel Wheels tour, so we had an obligation in our deal with the promoters that we had to include Ticketmaster for ordering. I would say to the Ticketmaster guys, who are real smart, Fred Rosen at Ticketmaster, I said, “The cable operators all have ordering systems. It really isn’t technically possible for you to be the intervening ticket taker, and besides, the cable operators really aren’t wild about giving you a dollar or two per ticket.” In any event, the invention and the relationship with third parties that pay-per-view, especially, brought forward were and continue to be fascinating.
NELSON: And just carrying you forward at SET, what was the final reason you moved on? It seemed like it was a booming era, you were really developing all the sports rights stuff right in the middle of all this stuff.
KURNIT: While running Showtime Event Television, I was also very involved – because by definition pay-per-view at the time was really some of the most interactive television existing in the cable business. You had to do something to get something, thus interactive. So we were exploring all kinds of things and I was always fascinated with AOL and Prodigy, and I got a call one day that…
NELSON: Not the AOL we know today. Let’s make this clear.
KURNIT: No, no. AOL and Prodigy 1) were awful, and 2) were really small. But I got a call that said, “How would you like to think about Prodigy?” I said, “Listen, I’m a Prodigy subscriber and I don’t think so. I like AOL, but…” They said, “Come see it.” So, based on what I was doing at Viacom at the time, I said, “Well, I’ll go learn about this.” Well, I got there and I said, “There’s something really interesting here.” It was just at the beginning of the first level of convergence – this is back in ’94-’95 – and we all thought that cable and computers in some fashion were going to converge. We didn’t really know how. I was intrigued by that. I’ve always been intrigued and the cable industry always afforded the opportunity to step out into the complete unknown.
NELSON: I might add, in terms of your interest in computers, there was a time, maybe around there, you were still at SET and I interviewed you in your office for something The Cable Channel ran, and you had a Mac and a PC, and I was thinking then, what is this guy up to? Either that or he’s schizophrenic!
KURNIT: Yeah, even today… I always felt the need to know what the other one was doing. I was a Mac user, and whether I liked it or not, all these PC users with Windows 3.1 were around, which was awful in comparison to the Mac, but I needed to do it, but I wasn’t going to give up my Mac. At Prodigy, which was half owned by IBM, I walked in there with my Macintosh Duo and it was like “What are you doing with a non-IBM-compatible PC here?” I carried my Duo around with pride for my entire time there because part of what we needed to do was break out of some pretty provincial thinking. I looked at the online business as being the beginning of the convergence of cable, and I looked and I said, “Well, wait a second. There’s a screen, there’s a power cord out of the box, you put your hand on top and it’s warm – it’s TV!” And it is TV, it just has been bad TV. It’s still bad TV, but ultimately delivered to a PC, it’s going to be good TV, and the device, whether it’s a digital set-top to a 25 inch screen, or whether it’s a Pentium chip or Celeron chip inside your PC it’s going to be the same. The difference is one’s very personal because you’re doing it yourself on a small screen and one is kind of group (thing) because you’re doing it on a bigger screen, and I saw that then just because I was involved in cable with its diversity of programming and I was involved and interested, as both a subscriber to AOL and Prodigy while I was in the cable business. As much as I loved Showtime, loved what I was doing, loved the people – and we stayed incredibly close to the cable industry because I knew that I was going to a business that was going to be somewhat distant to cable, but eventually these two businesses were precisely together and we’re seeing that.
NELSON: So you didn’t really feel like you were leaving cable so much as going out into another route back?
KURNIT: I didn’t feel like I was leaving. And part of why Prodigy wanted me was they liked that I had the cable piece. We showed up, I think right after I got there, it was like, “Get the booth – we’re going to the Western Show!” We did high-speed internet access way before its time with Cox in San Diego, my God, five or six years ago. It was tough to do.
NELSON: I was going to say, how the heck did you do that?
KURNIT: We had 200 subscribers and we had all the same issues that came back from my early Qube days, and that was return path wasn’t clean, and at Qube we had bridger gate controllers that did it, figuring the technology that would allow it to be a truly two-way path. The guys at Cox were fantastic, they also innovative, and they were early innovators, too, at Cox. While we were out there winning franchises with Qube, Bob Wright had created Indax, so we all of the sudden saw this competitor looking over our shoulder as we went to franchise meetings with Cox showing up with Indax. I think San Diego actually was one of their early Indax markets, so it was only fitting. They had built some of the two-way plant for that and when we came along in my next life to be able to put computers over cable it was very appropriate.
NELSON: So talk a little bit more about what happened at Prodigy.
KURNIT: Well, Prodigy had been around for a long time and spent a lot of money. It was being run by two parents who at the moment I went there – I’ll actually never forget as long as I live – Tony Cox, who I loved dearly, through across the table at me, in only Tony’s fashion, Forbes Fortune of that week, and on the cover of Fortune was…
NELSON: Is this as you’re exiting Showtime?
KURNIT: This is as he’s telling me I shouldn’t exit – he throws this magazine across the table and he goes, “Look at this.” And on the cover were three dinosaurs – I have saved this cover – three dinosaurs of American business: General Motors, and Prodigy’s two parents – IBM and Sears. Tony says, “You’re crazy!” I said, “Oh, come on, it’s going to be fun. I know a lot of people; how badly can I get hurt? I’m going to learn a lot.” And he wished me well and I went, but it’s true. At the time, Prodigy was being run by two of the three dinosaurs of American business, and Lou Gershner had just come in and I was excited by Gershner. He, coincidentally, was involved with Warner Amex in the early days – so it really does come full-circle – when he was at American Express. I had great confidence in what he meant and what he could do. The reality was that Prodigy was so small compared to the issues he dealt with, or had to deal with at IBM that it just couldn’t get on his radar screen in the short-term and ultimately Sears and IBM decided to part ways and they ultimately sold the company. It was great experience for me and I think for the cable industry because while we were there we 1) did make it profitable – this was a company that had burnt over a billion dollars – 2) we did take a lead over AOL and CompuServe to the web by six months. So those were very satisfying, to be profitable, have the lead over the other companies to the web, but the company wasn’t prepared to make the web its future. Interestingly, this very week, Prodigy is shutting down its old, water-cooled mainframe based proprietary service and it’s all now a web-based company. What I had hoped for was that literally five years ago that we would admit that a water-based, water-cooled mainframe system just wasn’t the future and that small servers and distributed computing, internet protocol as the communications platform would win the day. It just had to! I learned that out of the broadcast and cable business, and that is that an open production system and open lines of distribution have to win over a closed proprietary system. It has to, and that’s why Windows won over the Mac.
NELSON: IBM knows that perfectly well. I mean, look at the PC, what happened. 90% of the market.
KURNIT: Right, right, right. So, in that market place it was a frustration that the board wouldn’t go to the neck, and it was about two weeks after a presentation to the board where I just pitched really hard, net, net, net, I got approached to go run MCI’s internet business, and working with Vint Cerf, who was the father of the internet, and the chance to work with Vint who truly, literally, co-wrote TCPIP, the underlying protocol that is the genius that connects every computer to every other computer.
NELSON: And makes the web possible as we know it.
KURNIT: And makes the web possible – you just couldn’t turn that down. MCI, at the time – and it’s interesting that today’s the day that WorldCom, MCI, and Sprint, in a 129 billion dollar deal they’re getting together – they were a rock’em sock’em company and it was just an opportunity you couldn’t pass by, to run the internet business for the company that had the guy who invented the internet, who was going to work for me. How do you turn that down? It was great.
NELSON: But it didn’t last long. Their commitment obviously wasn’t there.
KURNIT: No, it didn’t. Well, what happened was… MCI, a great company – three weeks after I got there, the announcement, which was in the works before I got there, was that MCI was combining its internet businesses with News Corp., so here I was, all of the sudden, about to enter my fourth joint venture in life, and joint ventures are not the easiest or most successful long-term business models, and News Corp., great company, and MCI, great company, had very different needs. That was probably the second time that convergence was being really talked about and MCI said, “We need to be connected to an entertainment company.” Well, in reality that’s not how it turned out. MCI ultimately got connected to WorldCom to Sprint, so it’s really all distribution, all path way, and entertainment companies are very different animals, and it took a couple of weeks really, or before I started to look at these two companies and say, “You guys are not going to get along. This is not a marriage made in heaven,” and ultimately they went their own ways. They kind of partnered in the internet, partnered in DBS, successfully gained a license to a DBS bird and ultimately parted ways on that as well. A valiant effort, it could have been really interesting, but has the problems of very different kinds of cultures and very different needs for their companies. The year that I spent there, we created a fabulous product in I-Guide, which became TV Guide online, which also in today’s paper – I guess it’s an interesting day – TV Guide in a 9+ billion dollar deal combines with Gemstar, which also, interestingly – it shows the power of the cable industry – is a throwback because I was involved in Star Sight. I wrote Star Sight’s first marketing plan at Viacom because Viacom was the big, first corporate investor in Star Sight, which they merged with Gemstar, which today merges with TV Guide. So, it’s all related.
NELSON: Round and round and round. So, MCI and News Corp., you let them go their ways, and now you’re finally at the point where after all these “intrepreneurships” you finally become a true entrepreneur.
KURNIT: Yeah, MCI and News Corp. went their way. MCI wanted me to run their relationship with Microsoft, which wasn’t particularly interesting because again, I saw two very different kinds of companies trying to do things and ultimately that partnership didn’t deliver anything. So, before that I said, “I think it’s time for me to do my own,” and three and a half years ago I started About.com at my kitchen table.
NELSON: Then called The Mining Company.
KURNIT: We founded it as The Mining Company and today we are the fastest growing website in the top 25. So, it’s worked, it’s great.
NELSON: And is this, in your view, an entertainment business given all your background?
KURNIT: Interestingly, our one-liner on the business, and it comes back to the cable business, we are 650 vertical niches, each run by an identifiable person. So I go back to the dream of the 500 channel cable universe of five, six, seven years ago. In our case, each one of our 650 channels is a distinct property, each one covering a specific area, so there are 500 interest areas in the world. What we’ve seen in the cable business is that we’ve tended to see HBO and Showtime multi-plex and the Discovery Channel create line extensions rather than completely new kinds of properties, but in our case, because of the internet, they were all distinctive, and then putting a human face at the top of each site really again comes out of my television background which says, “If we can identify talent, much like you see on the best programs – whether it’s Biography or whether it’s the Nightly News on NBC – where we can have Tom Brokaw, or we can have Martha Stewart at the helm of each of our 650 channels, we have a marketing advantage that’s enormous. So much so that this very weekend we’re bringing all of our guides together for the first convention. They’re all coming together in Las Vegas and the personification of our niches comes to the fore, but it’s very cable based in terms of content, information, entertainment, people, high targeting, great CPMs that happen in our niches better than just about anywhere on the net, which grows out of my experience running ad sales at Warner Cable, they ability to know “Wow! What you can sell a Nickelodeon or an MTV for versus the general sell at a broadcast network.” So, the ability to have a big network structure and the ability to have the targeted niches comes out of cable. The other thing that comes out of cable for me very much is the TCI/Liberty structure. About.com is a network that has tremendous traffic; it’s the 15th largest website on the planet, so it has traffic circulating through the network. Across that network are the 650 sites that aggregate to 40 channels that we are now developing into businesses in their own right, very much like TCI with a huge distribution platform and Liberty as the investors in the programming properties. So we are granted today a baby version of TCI/Liberty or AT&T Cable, but very much the model. The brilliant models and the brilliant leaders of the cable industry – the Hausers, the Malones, the Hostetters – to have had the experience to work with and be around the best, great corporate leaders who are also so innovative, because it’s such an innovative industry, has just been great education.
NELSON: Have you got anything else? You talked about video ultimately being everywhere. Talk about where that’s going to fit in, in terms of convergence, cable, the internet becoming more of a video-centric medium.
KURNIT: It’s interesting that cable demonstrated to all of us what niche-ness can do and the fact that there are targeted audiences, and there are dollars to support those targets. That wasn’t believed by a lot of people, back when it was chicken-noodle news instead of CNN people just didn’t believe that you could create the quality or that you’d have the revenue base to be able to create the quality. I think that as we’re seeing on the internet, people are starting to realize, you know what? There are dollars to support the medium, both in terms of production and marketing, to create even great niche-ness than we’ve seen in the cable business. Now, in the cable business there are limits on distribution because there are just so many cable channels. We saw the12 channel, the 30 channel, and then up to obviously the 70 and even 100+ channel systems, but still limits on distribution, and that doesn’t exist on the net. We then look at the net and say, “Not as robust a platform by any means,” especially if you’re looking at twisted pair 28.8 modems versus high-speed cable modems or DSL, but once we get to TCPIP or packet protocol in general that allows large amounts of data to transverse the network, and it’s clear, as I learned a long time ago in my production days editing digital video tape, it’s just zeroes and ones, and whether those zeroes and ones are delivering text, audio or pictures, it’s capable and we’re now seeing that. So, we now get to this medium that has no barriers to distribution, literally unlimited channels, the ability to put anything on it in zero and one form, which is every kind of communication that we’ve ever seen or, I believe, will ever see because zeroes and ones can truly represent anything. You now have a medium that explodes with the potential of not even a zillion channels, the unlimited channel environment. So, now it’s an issue of is there a large enough audience to view something so that the economics of producing the content, which might just be a camera locked on the Long Island Expressway, which doesn’t have lots of production costs but has value, especially with your wireless interconnection in your car to see what’s happening on Exit 33 in front of you, we really are looking at a world where all video, whether it’s high quality produced videos like an HBO original movie or whether it is a camera just positioned down in Times Square transverses this medium. And with high-speed cable and the fact that some would argue that the cost of distribution is moving to zero as we lay fiber – and when you think about what you can put from a fiber standpoint on your finger or on the head of a pin – we are getting to the point of unlimited distribution, unlimited capability of the distribution of zeroes and ones, or the production of zeroes and ones; inexpensive production, $100 and $200 cameras are even getting cheaper, and you start to realize that video will be everywhere. Now, the high quality video that the cable industry and the movie industry before it is known for runs the risk that it actually lowers in quality because we’ve now really splintered the audience. That person that’s watching Exit 33 on the Long Island Expressway for 30 seconds isn’t watching something that’s been well produced. The Weather Channel – I would say most in the industry, and I happen to be married to a woman who’s a Weather Channel watcher, not just to say what to wear today or what’s on, but to watch – and we’re going to see more of that in terms of the sophistication and news feeds and C-SPAN 27 that rolls out of this business, and that’s just an unbelievable opportunity for everybody involved in what is a complete convergence of the cable industry, the online industry and the internet. Within the next five to ten years there will be no difference at all between these two industries. It’s just not possible for there to be any difference.
NELSON: Are there any barriers to that happening, slower or faster or better or worse?
KURNIT: I think the barriers to the complete melding of the platforms has more to do with the business models than it does to do with the technologies over time. The cable industry has enjoyed a special place in being the sole proprietor of what transverses its wires. On the internet, which really grew out of a telecomm model that anything gets to go on the wires, nobody tells you what call you can make or what you can say on your phone call. It’s just anything goes at any time and there seems pretty much to be room for everybody to make the calls they seem to feel the need to make at any time. The cable industry’s got to work and is working hard to figure out how it holds on to its edge, how it justifies the pretty extensive capital expenditures required to build out while the pressure from the ADSLs and DBSs of the world, which tend to be a little more open, at least the ADSLs or the telco based systems, but I’m pretty confident that these industries will… not only the technologies, but the business models, which is by definition an openness that the cable industry hasn’t seen yet. But the cable industry’s going to do fine. It’s a little scary for the cable industry to go to a marketplace where they don’t get to dictate to a programmer when you get on and what channel you get on and how well you get promoted. They need to start to think more about, well, I have a marketing relationship with my customers and I will provide value added services to companies, like internet companies, by packaging and promoting because I already have customer relationships. So, I think that the assets within the cable industry are enormous and will continue to be valuable for – I’d say forever, but forever is a little long in this space.
NELSON: So the telco model though is open network and they’re getting pennies on… every time you pick up the phone somebody’s making money off of it – MCI, Sprint, whatever they are now. Is there a cable model that starts to move toward that that says, okay – and I hate to use the term “open access”, that’s kind of a loaded one, but a more open cable system but where there is money to be made on every time something moves around in it?
KURNIT: Sure. I think the fact that an MCI or a Sprint or an AT&T can make money on a completely open network demonstrates that, and have enormously valuable market caps tells you that, yeah, sure, there’s absolutely room to take a toll on data, whether it’s a movie or an email message transversing through the physical plant. That’s a very different model and just as the cable industry has had to adapt before – it’s had to adjust to DBS, which it has and is doing by adding more channels and providing better customer service, it’s no longer the monopoly provider that it was at one time – it’s going to have to think differently as the space opens up. We are destined for open networks in the cable business and I know there are some in the cable industry that don’t like to hear that, so this tape may end up on the shelf, but the reality is openness ultimately wins over closed. If you think about, whether it is the Palm Pilot, which is one of the neatest devices created in the last five or ten years, chooses to license its core operating system to Visor to compete with it. That’s their recognition, unlike the Macintosh which wasn’t willing to do it, that if you just look at previous businesses, the ones that win are the ones that become inclusive, and the more inclusive you can become while being careful to make sure that you understand the business model, that you understand that you are licensing platform properly or that your technical infrastructure or your customer relationship is superior, is going to give you what you need to be successful long-term. The greatest risk to the cable industry is that it hold on to the proprietary model too long and DSL or DBS with a telephone return path takes the day and captures customers. We’re seeing it now. I am now given the choice of Bell Atlantic and Roadrunner, from Time Warner, which one should I take? As a customer I won’t say in these vaulted halls which one has the lead for me, but there’s a battle going on. There are two industries right now that have customer relationships. We’ll see others that develop those relationships as well, but there’s no question that at the end of the day, whenever that may come, that openness has to win in distribution systems.
NELSON: Is there anything, looking back in your career, that you see how that can evolve, you see that model as viable. The cable industry itself is going to draw from its own experience, as you’ve drawn on your experience in cable a lot, as opposed to saying, “Well, we have to throw up our hands and move into some completely alien territory.”
KURNIT: Well, I don’t think radical move is necessary. I think that it’s an evolution. I don’t think the cable industry has to say, “Okay, it’s now a wide-open playing field.” I remember that as I ran programming for Warner Cable and we had public access channels in the very early days, we were not keen on having public access channels or commercial access channels even more so. The fear that we had was that HBO would knock on the door and say, “You know that commercial access channel you have? I want to lease it.” And we did everything we could to make sure it would be leased in small blocks and that it would be available to people in the community to use because we ran the risk in those new models that instead of taking our $3.50 or $4.50 license fee on each HBO or Showtime subscription that they could use our own physical plant and bypass us and have a direct customer relationship, which is in their interest but not in our interest as a cable operator. So, it was interesting to go from cable operator to being a programmer. As a cable operator I don’t want that, as a programmer you want to get to the end customer. So I think there are lots of lessons. I think that every head of a cable company has been through those access issues in terms of public access, commercial access. I think that anyone who does just the least bit of studying of the computer industry in terms of making some comparisons of Microsoft versus Apple, and you see it over and over again with examples. So I think technology distribution… the fact that the phone companies do survive, that they do well. I think that the cable industry looks at the phone companies and says, “Well, it’s just commodity and I’m nervous about getting commoditized,” but the reality is that while competitive, that the brands become important – Sprint, a solid brand – that brand value, which the cable companies really haven’t spent enough time building their brand as the local distribution… it’s still “the cable company” to the average consumer and the cable companies should accelerate brand building. The best operators have done that because ultimately brand customer relationship, especially in a world where the zeroes and ones move pretty freely in an open architecture, who you’re paying your bill to and who answers your question when you call is going to become really even more important than it is today.
NELSON: I think that’s a good note to end on. Always end with the customer, that’s what I say.
