Interview Date: November 8, 2001
Interview Location: Westwood, CA USA
Interviewer: Tom Southwick
Collection: Hauser Collection
SOUTHWICK: It’s November 8th, of the year 2001, and we’re with Marc Nathanson in his office in Westwood, in the area of Los Angeles, and this is a part of a series of oral histories for The Cable Center that we’re doing on leaders of the cable television business. I’d like to start, if I can Marc, by asking you a little bit about your family background, where you grew up, your parents, and early education.
NATHANSON: Well, I grew up in Highland Park, Illinois, but I was born in Los Angeles. My father was trying to be a screen writer in 1945 when I was born here, and he was unsuccessful as a screen writer, so he wrote radio soap operas, like Suspense and Norah Drake, and then he went back to Minneapolis where I lived for the first four years of my life or so, and he became an advertising man, which he was for the rest of his life. He was a very good copywriter and headed his own agency eventually that merged into Grey Advertising. So I was raised as the son of an advertising man.
SOUTHWICK: When exactly were you born?
NATHANSON: I was born May 12, 1945 in Los Angeles in Cheviot Hills, but when I was six months old we moved to Minneapolis, and then in 1949, when my dad was with the Toni Company as head of marketing and advertising, it was sold to Gillette and he moved to Chicago where Gillette told him he would continue to run the advertising but he should form his own agency and he did that and formed North Advertising, which the major account was Gillette, and it stayed with Gillette for about 40 years.
SOUTHWICK: And that’s where you grew up? In Chicago?
NATHANSON: I grew up in first Glencoe, and then Highland Park, Illinois, but I think why it’s important is my father was very involved in the media. As a matter of fact, his family was involved in the media if you considered film distribution media. His father was a film distributor. His father’s brother started Famous Players, which was a large Canadian movie theater chain and also started the Odeon chain, which is now part of Cineplex Odeon Theaters. So they were always in the media business, or the entertainment business, so in a way it was in our blood. My brother Greg went into television; I went into cable TV, but we were urged to do that by my father, who started investing in the radio and TV business with Burt Harris and his cousin Irving, who was my father’s best friend, in 1952. So that’s when they bought their first radio station and shortly thereafter – that was in Casper, Wyoming – they bought a television station and they got into cable in the ’60s.
SOUTHWICK: So this was conversation around the dinner table for you.
NATHANSON: Yes. I used to read Broadcasting Magazine and Advertising Age, I can remember vividly reading it when I was twelve years old, maybe before that, but it was just part of our daily magazine weekly reading that we had. So we were raised where media was discussed – radio, television – my father, even though he was an advertising man, as I said, invested on the side in the media business and most of his advertising was on radio and television. As a matter of fact, years ago he used to publish a magazine called Radio Showmanship, which was about how advertisers would use radio. So he went way back with that understanding of the media business, which both my brother and myself were raised on.
SOUTHWICK: Do you remember getting your first television set?
NATHANSON: I remember we had it very early because my father would get them for free from NBC, which of course was owned by RCA, would give gifts every year to the big advertisers on the different networks, and one of the gifts we got, in I think the early, early ’50s, was one of those big console television sets, which was given to him by RCA as a Christmas gift.
SOUTHWICK: And you graduated from high school where?
NATHANSON: Highland Park High.
SOUTHWICK: And what after that?
NATHANSON: And I went to the University of Denver, and I went to the University of Denver not because it was later the home of cable television and The Cable Center; it was because it had a very good radio and television school, and I was looking at that. My brother went to the University of Southern California for the same reason. They also had – they didn’t call it the Mass Communications or whatever the euphemisms are today, but in those days they were called radio and television, so you could major in radio and television and still get an undergraduate degree. So I went to DU, and I started in 1963 and I graduated in 1967.
SOUTHWICK: When you lived in Denver… was that when you went to the first cable show?
NATHANSON: Yes, I went to the first cable show while I was in college.
SOUTHWICK: Your first cable show.
NATHANSON: My first cable convention… which was in Denver,. I actually tried to buy my first cable system in 1966 or ’65. It was really part of a class assignment and you could do it on buying and selling of a cable system, or a radio property, or television property, and I chose cable because I was very interested in cable, and of course I went to Bill Daniels’ office in Cherry Creek. I had an appointment. I put on my only suit that I had at school, and believe it, back then I was very skinny, and I went in for the appointment. When the receptionist saw me she said, “I’m sorry, Mr. Daniels is busy, but another one of the brokers will see you.” So I waited about a half an hour, obviously they were disappointed at this potential buyer, and finally a young broker came out and he tried to sell me Elk City, Oklahoma, a system which I might add has not grown since that time, and his name was Monty Rifkin.
SOUTHWICK: Aaaah. This was not successful?
NATHANSON: Well, no, I didn’t buy it. I was really only doing a paper on how to buy and sell a cable system, but I was playing I was buying it. I didn’t tell Monty Rifkin that I wasn’t serious, but it was part of how to buy and sell a cable system, so I did a paper in undergraduate school on that subject.
SOUTHWICK: Very good. What particularly led you to cable as opposed to broadcast or radio?
NATHANSON: I wasn’t sure – we talked about all the media business and my father also taught at school in media at Columbia College in Chicago and we talked about the whole business. Cable, I thought, would be more growth, because most of the kids in undergraduate school in radio and television wanted to go into television. They wanted to work for the network or else be talent or be a DJ or go into radio, and I had worked on a campus radio station and had a wonderful teacher in Noel Jordan and Harold Mendelssohn, who were all professionals in the business…
SOUTHWICK: This was at DU?
NATHANSON: This was at DU. These were professors in those days. Mendelssohn had been head of research at McCann Erickson, Jordan had been an executive at NBC, and in talking to them and listening to them as they were all talking about, of course, the business as it had been. But when we got talking about the future, nobody was talking very much in those days about cable TV. And as I said, I went as part of a class assignment, or maybe they gave us free passes, or whatever, to a cable convention, and I noticed that most of the people at the cable convention in Denver in ’66 or ’65 were not very sophisticated. They were very nice people and very friendly people. There weren’t a lot of college educated people, or a lot of young people, in those days, in the business. I said, “This is perfect for me.” There’ll be less competition, I won’t have to go fight with all these other students who are much smarter than me, much brighter than me, much better looking and will all go into the networks, and I’ll go into cable TV. I went to graduate school before that, and I did write my master’s thesis on the regulation of cable television and the television industry, so I did some studying and I’d worked over the summer while I was in college. One summer at a CBS station as an ad salesman in San Diego, KFMB TV, which was owned by Augie Meyer at the time, and two summers as a door-to-door salesman in cable TV in Wisconsin, Minnesota (Janesville, International Falls, Prairie du Chien, and so forth) and I learned a lot about the cable business as a door-to-door salesman working with a crew.
SOUTHWICK: Talk a little bit about that, if you will. What did you do?
NATHANSON: Well, it was a summer job and we had really two different jobs. In International Falls and Fort Francis, at that time, the Canadian and the American cable system were one. They were owned by the same person, and later they were separated as you know. We just tried to increase sales to cable both on the American side or the Canadian side of the border. When we went to a smaller town called Viroqua, Wisconsin, the operator in Sparta hired us to do a survey of all the people in town to see if he should build cable to this next town. So, I and a crew worked there and we went door-to-door, and in those days you didn’t do a sample, you interviewed about 80% of the people in town, and they were very friendly in these small towns in Wisconsin – German ancestors, most of them were in that part of Wisconsin – and they’d let you in their house and give you a cup of coffee or whatever and you’d say, “Would you pay four dollars a month to get Minneapolis independents and an educational television station?” In those days there was no PBS, and that would be added to the one station you got off the air from Eau Claire. “Would you pay four dollars a month to get the missing networks and the PBS?” And the answer was universally, “No, we wouldn’t pay four dollars a month.” So after talking to all the people in the town, I reported that information to the operator and he thanked us very much and went on and then built a very successful cable system, to which most of the people subscribed. So it told me something about the public and cable and when it came to money. The public, until they saw cable, until they witnessed it at their neighbors’ homes, were saying, “I’m satisfied with the television I got,” whether that was one station or multiple stations, and we had that same experience when we built Kern County, California, when I was working for Burt Harris. Now, this was later in 1968 and ’69 when I first started in cable, and again, there was a question whether cable would be successful in Bakersfield because they had all three networks. Why would people subscribe to cable? Why would people pay six dollars a month, or whatever it was at that time? And of course, once they saw it, I learned, the public had an insatiable appetite for more entertainment, more information, and I was taught that in the early days of door-to-door selling, by just interacting with the public to see what they liked, and they were reluctant to part with any money for “free television”, but once they saw the wonders of cable, which in those days were just some independents and educational stations, they gladly would part with the four dollars, six dollars, seven dollars, a month.
SOUTHWICK: So you graduated from DU in…?
SOUTHWICK: And then graduate school was at…?
NATHANSON: I got married, went to graduate school, I got a National Science Foundation fellowship, so I got free graduate school, and I got a choice of three schools because the National Science Foundation – in those days, this was in Poly-Sci – gave you the choice of schools where they had funding for their fellowships. One was Minnesota, one was Georgetown, and one was University of California at Santa Barbara, and I visited all three and I decided without question to go to Santa Barbara.
SOUTHWICK: (Laughter) Not a hard choice, I think.
NATHANSON: I just don’t know why. And I had been an intern in Washington, and so I wanted to get out of Washington anyways, so we went out to Santa Barbara and that’s where I went to graduate school. But I did it very rapidly. I essentially doubled up on all my courses, I TA’d and I got out in a year, and I wrote my thesis while I was out of school, because you could do that in those days, and then had to submit it to the committee and have it approved, and that was, as I said, on the regulation of the cable industry in television. And that was an interesting project because I interviewed a lot of interesting people from Newt Minow to people at the NAB to people at the NCTA and so forth, in those days. I got opinions, and of course I came to the conclusion, just as the writer of the document, that cable was artificially being held back by regulation controlled by the networks, essentially, to keep cable out of the top markets. And again, that was another reason I wanted to get into cable because I thought those regulations would eventually be lifted. I didn’t know when, but I thought that it would be a good field to go into.
SOUTHWICK: You had an interest in government and politics, along with this interest in television, I guess from a very early age. How did that start and how did it develop?
NATHANSON: We always came from a political family. My great grandfather, my father’s grandfather, was a politician in Minneapolis. He was sheriff of Hennepin County, which was the county there, which was an elected office. It wasn’t law enforcement. It really had to do with the court system and the jails, and it was elected, and so when the Democratic Farmer Labor Party was in office, he and his six sons and one daughter would have food and when they lost they would starve, so politics was part of their life in those days in Minnesota. And so we were always raised, and people say, “Well, why are you a Democrat?” and I say, “Just because it’s in my blood going back to those days.” My father was active in politics, he ran many political campaigns – Senators Paul Simon’s, Birch Bayh’s, many other people – and so it was natural to go into politics, and that was really my first love. I had worked in the summer as an intern for Gale McGee, the United States Senator from Wyoming. I then, in between graduate school and undergraduate school, I worked about three months as a press aid for him, and then when I went to graduate school, I actually worked part-time for Robert Kennedy as an advance man in Santa Barbara and San Luis Obispo counties as he was running for President. But, my wife got pregnant, I had to earn a living, and politics was not a way to do it, plus Bob Kennedy was assassinated.
SOUTHWICK: Were you there when that happened?
NATHANSON: A group of us were on the way to Chicago to work at the convention. I actually worked the convention and so forth, and so that was a very disappointing and traumatic experience. It also showed that probably politics was not where I wanted to make my living or could afford to make my living, and I wanted to get into cable television at that time, but I couldn’t get a job. I had written and contacted the cable industry at the time, the people… there were no jobs for somebody who’s only experience had been a door-to-door salesman. So I got a job – as I said I’d worked in college both at a research firm called Video Opinions, and also at an advertising agency called Lorie, Lotito and Westcott – so I got a job in a public relations firm in Chicago called Harshe-Rotman and Druck, which I think later merged with Ruder- Finn, and through that I learned PR and advertising, marketing. I was eventually hired by one of the clients and moved to Montreal, Canada, and part of my assignment, which was to market a model city that was designed by Mies van der Rohe I also brought cable television to this island, which was going to have 20,000 inhabitants on it outside of Montreal. It was only five minutes from Montreal, and from I went to the West Coast to work in cable. I had a cousin, Geoff Nathanson, who was working with Burt Harris, who as I said was a partner of my father’s in both radio, television, and later, the cable business, and Geoff left to go work with Miles Rubin in the pay TV business. So there was an opening for a marketing person with Burt’s small cable company called Harriscope cable. It was both broadcasting and cable, but this was just the cable company, so I came out to California in ’69, I think it was. I finished my thesis at the same time, went out to California and went to work for Burt Harris.
SOUTHWICK: Now, you’d known Burt since you were small?
NATHANSON: Since I was a kid. Burt’s cousin, Irving, was my father’s best friend. They were from St. Paul, my father was from Minneapolis, and my father was a business partner of Irving’s and later went to work for Irving, who owned the Toni Company as their head of advertising and marketing. So, there’s a long relationship between the Harris’ and the Nathanson’s, and when we moved to Chicago, we lived next door to the Harris’. This is Irving Harris, not Burt, but Burt would come to visit and for some reason he’d stay at our house, and so I knew Burt since I was a little kid and so forth. So when an opportunity opened up, when Geoff Nathanson left, that gave me an opportunity to move out to California and to do my dream, which was to go into the cable business and I was hired to be the director of marketing of Harriscope, and as I said, we built Kern County, and we already had Palm Springs and Flagstaff and Malibu. Harriscope built the Kern County system, and that was my early baptism into cable. But my first job was when Burt really sent me out to Malibu, which was called Abel Cable at the time, to become the system manager because he felt that I didn’t have any field experience, which I didn’t, other than the door-to-door selling. So I actually managed a cable system for six months, a very small cable system, and I learned that the chief engineer really manages the system and I was to handle the politics and the public and the marketing, but the day to day running of the system, at least in those days – a guy named Steve Streeter was the chief engineer, and he had things pretty well under control, and that was a growing system and a good experience.
SOUTHWICK: What were some of the issues that systems in those days faced? How big was the Malibu system in terms of channels, subscribers, that kind of thing?
NATHANSON: I don’t remember it all. As I said, it was even called Abel Cable, you know, with the old symbols. I remember that it was around 2,000 subscribers. It’s ironic because later my company, Falcon, bought that system and it became a much larger system due to growth, but it was then around 2,000 subscribers. The market was affluent. It was a large, strung-out system along the coast, so there were technical problems, how to get the signal there. I remember negotiating with trailer parks to put the signal in, and that was controversial whether they should put in there own master antenna system or they should go with us, and one was in Paradise Cove and so forth. And those were kind of the issues that you dealt with in those days. They were very mundane, but I’d be surprised if the rates were more than seven dollars a month, or something like that back in those days, and Malibu was always a pricey system because it was hard to get signals in so you could charge more for it because there was limited off-air reception.
SOUTHWICK: So you were retransmitting, basically, the LA stations.
NATHANSON: Oh, that’s all you were doing, essentially. You may have had a crawl screen, or weather scan, or whatever, but it was really transmission of the LA signals. Ironically, they could get some signals from the south, from San Diego, but they couldn’t get all the LA signals and they couldn’t get any UHF signals at all, including the PBS station here in LA, KCET, which was a PBS station.
SOUTHWICK: Now, why would anyone ever leave running the cable system in Malibu, California?
NATHANSON: I left because I told Burt there was no job for me here; they should make Steve Streeter the manager. I had gotten all the trailer parks and all the growth but Steve took care of the day to day management. So it ran with a manager/tech at those times, which made a lot of sense, as a lot of those early cable systems did. And I went to work for Burt. Harriscope Cable was a very small cable company at the time and it grew through a merger. It bought control of a large cable company, which was public, called Cypress Communications, and it was a reverse merger, so the Harriscope people, which were Burt and his backers, mainly Irving and my father, were able to get control of a larger company through merging into a public company, and the Cypress people, which were based in Pacific Palisades, actually came to work for Burt. That was Leon Papernow, who was an old Jerrold Electronics executive, and Harvey Simpson, joined Jerry Green and myself and Burt, and that was really the core of the management team in those days of Cypress Communications, which was the fourth largest cable company in the country. And shortly thereafter, Cypress (when the telephone companies were forced to divest) bought all of United Utilities cable systems. So we were very busy in those early days – 1971, ’72 – in the cable business building that up, and I had actually left marketing somewhere during that time because at a staff meeting the government had changed the rules and in the bottom markets they started opening up the markets 50-100 in those days.
SOUTHWICK: Opening up in what way?
NATHANSON: Allowing cable to be built in those markets. They were unfranchised, they changed the regulation so that cable could go into those markets so you had those much larger markets than we were in historically opened up to cable, but they were franchises and they were bidding and so forth. So I volunteered to run that operation and to become in charge of acquisitions and franchising, and we went out to Illinois and Indiana and Wisconsin, and got franchises. Frank Drendel joined us as an executive in those days; John Muir, and a bunch of other people. We had a very active team that was operating cable systems and also obtaining franchises – Dayton, Ohio; Ft. Wayne, Indiana, which we did not get; Muncie – a whole bunch of areas, and some we got, some we did not get, but we learned the franchising game. Oshkosh, Wisconsin – we beat Warner and got that franchise, so that was part of the growth of this company. We built Canton, Ohio, we bought Columbus, Ohio, part of Columbus, and as I was on the road in 1972, late ’72, Burt called me. I was working the Dayton franchise, which we had pretty well secured. We had lost Springfield, Ohio to those mean people at Continental Cable. Amos Hostetter somehow got that franchise from us, which is a long story. I won’t go into it this time, but we were meeting them in Dayton, or as he says, they never really wanted Dayton, they really only wanted the suburbs, so it depends on what version of history you go back to, and to make a long story short, Burt called and said Irving had sold the company to Steve Ross. Steve Ross had come in with a preemptive bid and was forming Warner Cable, and he had bought TVC, Al Stern’s company, and he then offered to buy Cypress and he gave Irving Harris a price that he wanted. I don’t know what the stock was selling at at that time, but it was like 30 dollars a share, and the stock was 12 dollars a share, so Irving sold the company. Burt wasn’t that keen on it, by the way, but Irving was a controlling shareholder, and of course it had public shareholders, so the company was sold, and I was out of a job. I really went to work for Warner Cable – Burt became the vice-chairman of Warner Cable, but we were really a subsidiary office and there wasn’t a lot to do, and I was quite bored, as was Burt. But that was the early days.
SOUTHWICK: You were here in California?
NATHANSON: We were here in California.
SOUTHWICK: And the headquarters of Warner was in New York.
NATHANSON: Yes, because TVC, had been bought before, so Al Stern was the chairman and CEO of the company, Burt was the vice-chairman, but we were more or less a branch office, and as I said, it wasn’t exciting like when we were building up Cypress, and so Warner… and we had 180,000 subs at the time Cyprus was sold, something like that, and Warner, obviously, was even larger because they bought us and they bought Continental Telephone’s cable systems. But it wasn’t that exciting. I continued to work on the franchises, now for Warner, and eventually Burt came to me and he said he’d been approached by Solomon Brothers, by Tully Friedman, who was the West Coast partner, and they wanted to raise a cable fund to go out and buy cable systems, and start a new cable company, and would Burt do it? So Burt invited myself and Jerry Green, who had been the chief financial office of Harriscope (and then Cypress) to join him. I was the marketing/franchising guy, government bug, and we hired a seasoned cable executive named Chuck Trimble, who had been president of H&B America, as the operating head. And so the four of us went on a road show with Bob Madden, who was head of private placements at Solomon, and tried to raise 40 million dollars. We went to all the different Solomon offices to talk to institutions to form a cable company, but it was essentially a blind pool, and somewhere in the process they came back to us and said, “Oh, it’s going great. We’re going to raise the money.” Now, we weren’t being paid salaries, we were all doing this on the come, on the volunteer, and they said, “But it’s hard to raise a blind pool. We need to buy some cable systems.” So Burt went to Walter Annenberg, who was Ambassador to the court of St. James, through Joe Furst – Gerry Lenfest was working for him at the time – and he arranged to buy his cable systems, which were in Binghamton, NY, and Lancaster, PA, and some other places, so we wouldn’t be a blind pool. Solomon assured us there’d be no problem in raising the money, and a few months later they came to us and said, “We’ve been unsuccessful. We haven’t raised a dime.” Burt had put down the deposit on the systems with his own money, and Annenberg was a real gentleman and gave him back the deposits.
NATHANSON: And they sold the cable systems to someone else, and as Gerry Lenfest said, it’s the best thing that ever happened to him because he bought one of the systems and started as a great entrepreneur. I was out of a job. It had been a failure and we’d been on the road for 6-8 months, whatever it was. I learned a lot about Wall Street from that experience.
SOUTHWICK: I wanted to ask you, before we resume the chronological order, a little bit about the franchising experiences you had. What were the key issues, typically, in a franchising war? If you were a Cypress battling against Continental, let’s say, what would a city council look for?
NATHANSON: I think an interesting story, really, is to tell you about the first franchise we went after. We did a demographic study of the markets of where cable, we thought, would be good based on reception and demographics, and so forth. Strangely enough, we chose Muncie, Indiana as the first market, which was where Lazar did his famous study of Middle America, which was Muncie. So we went to Muncie and in those days we were competing against a lot of companies. Some were local, some were national – I don’t even remember… Cable Comm was one, Time Warner, Stet, through some franchise contractors were, not Time Warner, it was Time, Inc., excuse me, it wasn’t Time Warner yet, was one, a number of companies. What you learned was it was based on merit, but part of the merit was really what you bid you were going to charge as rates because you essentially offered the same channel lineups that you were allowed under the law now. You had the same equipment, there may be some difference, but it was about the same. The technology was about the same in the companies. So the cities decided based on who had the best financial statement, or had the money to build the system; who had the experience of management; local programming was a big issue in those days, local origination programming, what you were going to do. And that was more promises made by the cable companies than actualities. I remember, to digress for a second, later on in Oshkosh, Wisconsin, the way we got the bid was we promised 30 educational stations for public access, that the local school would love it.
NATHANSON: Well, that was part of the bid requirement. We didn’t suggest it, they suggested it, and we agreed to do it. We put a little caveat that they’ve got to used one full-time before the get the second one, and so forth, but that’s how ridiculous some of these promised were, but they weren’t just promises by the cable company, they were part of the RFP, the bid, required you to do this. But anyway, going back to Muncie, we approached it by being a low rate bidder and showing we had the experience. Of course with Burt and the broadcasters we did that, but it was still a political game, which was something I loved, but I was 22, 23, 24 years old at the time. I went to TelePrompTer at 27, so I was about 24, 25 in these days. So we’d go around and we’d have local consultants and lawyers – this was before the rent-a-citizen started, which later we perfected in Dayton and other places – but you went around with lawyers and with consultants and so forth, and I remember Muncie was a very democratic town, old politics, they had a Mayor Cooley, I remember was the mayor’s name to this day, white-hair, and was very powerful in the town. There were one or two Republicans on the council, but five Democrats, and the mayor was a Democrat, and we got the recommendation of the citizen’s committee that they council had appointed to evaluate the bids. The newspaper in town also ranked us as number one. So I thought I was really hot at this, I could win any franchise against any of these companies because we knew how to write them and we knew how to work them. It was kind of up my background because it was both cable and political science, so it was something I thought, oh, I was just great, I was just so perfect to do this, and Burt was going to be so happy. Before the final vote, I was staying at the Holiday Inn near Ball State, there’s a knock on my door, and there was an older man, I’d never seen him before, and he introduces himself, I forget his name now. He says, “I’m head of the United Steelworker’s Union here in town.” I say, “Oh, nice.” “Are you the guy representing the California cable company, Cypress?” “Yeah, I am.” He says, “Well, I’m a friend of the mayor’s. If you want the vote tomorrow night, or tonight, or whenever it was, you have to give me $50,000.” I said, “What!??” He said, “If you want the vote, the mayor wants $50,000, and I’m here to collect it, and this is how I want it.” So being highly moral, highly ethical at that age, I immediately called my boss and said, “I need $50,000.” (LAUGHTER) I don’t think I said that. I said something like, “What do I do?” to Burt, and Burt says, “Are you kidding? We have broadcast license.” You know, Burt was a very honorable cable operator, and broadcaster before that, and knew about all the rules and said, “You tell him absolutely not, and if he does this we’ll turn him over to the district attorney, and this is against the law and it’s bribery and so forth, but go around and make sure you still have the votes on the council.” Because I had all the Democratic votes and all the Republican votes. As I said, we were ranked number one by both the citizen’s group and the newspaper that did an independent ranking. So we go to the council meeting that night or the next night, whenever it was, and I reaffirmed all the votes. The mayor is kind of sitting there, winking, and the final presentation was five minutes, they have a vote, it goes to the fourth ranked company. The fourth ranked company gets the vote, which happened to be an affiliate of Time, Inc. Now, I have no idea if they ever paid a bribe or not. We never pursued it, but we learned a lesson that we were naïve, thinking as outsiders we could understand the politics, and that’s when we – and by the way, many other cable companies – started to have local citizen’s groups that really got 20% of the franchise for helping deliver it, but a bipartisan group who had political influence, both Democrats and Republicans, minorities, all different, and in Dayton we put such a coalition together and that was one of the reasons we were successful. But that’s what it was like. In Springfield, Ohio, which we lost to Continental, it was solely based on rates. We bid $4.00, they bid $4.75, so the council was under pressure to give it to the lowest rated company, which made a lot of sense because you could change your rates. But you were bidding for a year or two that you had to lock in your monthly rates, or whatever it was, and Hostetter, Bud at that time, later Amos, who was one of my great idols, and still is, in the cable industry, was head of the NCTA, or active on the NCTA at that time, and I, from an early age, had been on the NCTA. I chaired their public relations committee when I first was at Cypress, so I’d been active in it and I knew Amos. As I said, he was different than a lot of the cable operators. He was highly sophisticated, highly educated, and someone that we all wanted to emulate. We had Newt Minow representing us at the time, who I interviewed for my thesis, and we had Ethel Booth as an educational consultant on the programming, but essentially that we were rated higher because we had a lower rate, $4.00. Amos had asked me to appear on a panel at a cable convention about six months before, and the topic was how to get rate increases. This was in your existing systems, and this was part of government relations, something I was responsible for, and we talked about how to do this. He, then, at the hearing, played part of that tape, which was really for a different audience. That was for a cable audience and this was before the city council, where it kind of implied… And I was just furious, and they won the franchise, and he said to me afterwards – very nice, he was always lovely to me – he said, “Marc, in franchising it’s like love and war, everything is fair.” So we lost Springfield even though we had bid the lower rate.
SOUTHWICK: You mentioned the Muncie situation and the $50,000. Generally…
NATHANSON: That’s the only time that ever happened.
NATHANSON: Yeah. In all the years, and all the franchises we later got, because we got most of the franchises for the San Fernando Valley, the San Gabriel Valley, I mean that’s a whole later story, but there was politics, and it was rough politics and people in your group and so forth, but it wasn’t out and out bribery as was the case, if it was really true…
SOUTHWICK: Well, maybe the Irving Kahn experience…
NATHANSON: Oh, well, that was before, but I’m saying in my experience in the cable business. But it was plenty tough, the franchising, and politicians, as you know, and I know, make decisions based on political influence and political pressure groups, not necessarily on merit. It’s naïve to think that it’s all based on merit. That’s not how the process works, how laws are made, or how franchises are granted.
SOUTHWICK: Well, part of merit is how the groups that you represent think about something.
NATHANSON: So we became more sophisticated in doing that, and I did that for Cypress and for Warner, but I was unhappy at Warner because you had no direct input, you were just like a field operative, and so Jerry Green had gone to work in New York for TelePrompTer, and I had been building some franchises that my father and Burt owned in Soledad and Gonzales and Altadena, and living and working at home, and it was a very down time in my life because it wasn’t very challenging. We had 3,000 subscribers and that’s all I was doing, but I had been an executive at a big company, and this was quite different. And I got a call from Jack Kent Cooke, who had taken over control of TelePrompTer after Irving Kahn had gone to jail, with Hughes he was able to break his old non-compete contract when he had sold his cable company to TelePrompTer, Cooke had been a great Canadian, and then later, American sports entrepreneur. He had sold his company, but he had a voting agreement with Kahn that he couldn’t vote his shares, when Kahn went to jail it somehow broke that agreement so Cooke and Hughes Aircraft, controlled by Howard Hughes, controlled the company and they took it over when Kahn went to jail. Jack Kent Cooke moved to New York and he was putting a management team together; Bill Bresnan was still there, who had worked for Cooke in the past, but later worked for Kahn at TelePrompTer, and he called me up and asked me to come to New York.
SOUTHWICK: Had you known him personally prior to this or not?
NATHANSON: I did not know him personally prior to this. He knew my father slightly, but it was really through Jerry Green, who he had hired as the CFO, who I had worked with at first Harriscope, and then Cypress. I had come to New York for the interview, and Cooke had me meet him – this was in 1973 – in his hotel, and he was living, at that time, in an apartment in the Waldorf Towers. I remember, for whatever reason, I either came the night before, or whatever it was, I met him at 11:00 and he answered the door in this beautiful, elaborate, really apartment in the Towers, it wasn’t even a suite, it was larger than that, and he was in his pajamas. He sits down and he talks for an hour about himself, what he has done with Lort Thompson in the newspaper business and in the cable business and in the radio business and in the sports business, and so forth and so on, and he says, “Would you want to come work for Jack Kent Cooke?” Didn’t ask me anything about myself, didn’t tell me what it was, what the job was, and so forth. I said, “Well, I’d have to talk to my wife,” I was married and by this time I had two kids, he said, “You have to talk to your wife? Then you’re not the man who would work for Jack Kent Cooke. Good bye.” And that was the end of the interview.
SOUTHWICK: He referred to himself in the third person?
NATHANSON: Yes, always. He never graduated from high school, but he was very articulate, one of the brightest men I know, was self-educated, had a wonderful vocabulary. He had to support his family, is why he dropped out of high school. Anyway, I went back…
SOUTHWICK: So that was it. He just said good bye?
NATHANSON: That was it. And he had sent me a first class ticket and paid for the hotel room, so I mean, it was the most ridiculous thing and I talked to Jerry, and he said, “Well, he’s a little eccentric, and this and that.” So, on Sunday, around midnight, a week later, I got another call from Jack Kent Cooke. He said, “Have you talked to your wife?” I said, “Yeah, I talked to her. She’s from New York, my wife Jane, so she would move back to New York if it was the right opportunity.” He said, “I have a question I want to ask you. Can you get on a plane tomorrow morning and fly to New York?” He sends the ticket, I have nothing to do, so I go to New York and he says, “I have one question for you.” He says, “Are you smart?” This is the great question. Again, we’re in the apartment, he’s in his pajamas. It may be noon. The great question, nothing about my cable background, is this a marketing job, is it government relations, franchising, I have no idea, what the pay, what the salary, what the title. He says, “Are you smart? And I said, “Yeah, I think I’m pretty smart, Mr. Cooke.” He says, “If you’re so smart, how come you’re not a millionaire? I was at your age.” Now, I’m 27 years of age, far from a millionaire, having trouble supporting my family on the money I’m earning from the little cable systems. So I turn and look him in the eye and I say, “Well, I hope to become one working for you Mr. Cooke.” He says, “I like that answer, go report to TelePrompTer over on 46th Street. You’re hired.” Now, I don’t know what I’m hired for, I don’t know my job, I go over to the office of TelePrompTer, which is on 6th Avenue and 46th Street, or between 46th and 47th, and I walk in, and he said to see Bill Bresnan because Raymond Schaffer had come in as the former governor of Pennsylvania who was the acting CEO, but Cooke was going to get rid of him and Bresnan was executive vice-president of operations. I wasn’t sure what my job was or title, and I went in to see Bill, and Bill saw me and he says, “Are you here for…?” We were on a committee together at the NCTA, and he thought it was a committee meeting. He had no idea, and I said, “I think I’ve been hired here.” He said, “To do what?” When I explained how Cooke did things, he then called Bresnan and told him, I’d been hired as the vice-president of marketing and programming of TelePrompTer, the largest cable company in the country, the TCI of its time, or the AT&T of its time, double the size of the next largest company, a company in financial trouble, and I went to work there and that changed my whole career. That separated me from the men and the boys in the cable business, gave me a reputation, gave me high visibility in the industry, and enabled me to later start my own company, but it was very tough work working for Jack Kent Cooke. He was a very difficult boss, you worked 24 hours, you worked 6-7 days a week, he paid you extremely well. I had been making $20,000 working for Burt Harris when I was working at Cypress, and I was paid $75,000 by Jack Kent Cooke, in those days, just to show you how crazy it was. But Cooke was all demanding. He even had on the phones of the executives an override button, that if you were on the telephone and he wanted to talk to you, he would cut off your phone and he would be on the phone talking to you, just cut off whoever you were talking to. You had to have lunch with him everyday.
NATHANSON: Everyday, five days a week, even though we may have worked six or seven days a week, and he would choose the meals. But his idea was not to waste time, and that was time to be with him and he could tell you about the business and you could talk about it for lunch. Plus, he didn’t want the executives going out and eating on his nickel in New York City, which was very expensive, at the Algonquin Hotel, or wherever. So he wanted you to be in his private dining room. The only person he kept from the Irving Kahn days was Irving’s chef, a guy named Alex, a great black cook from Harlem. For some reason, with all the cutbacks that he made – and when I was there, Jimmy Locker who had worked for Cooke on the West Coast, it was part of my assignment to work with him, we had to cut 200 out of 400 people out of the corporate office. So we had to cut whole departments, and people like Frank Biondi were let go. Now, Frank said later he quit beforehand, but I remember he was part of the people that were cut when the departments were cut in those days.
SOUTHWICK: Now, TelePrompTer was in terrible shape. Irving Kahn, who had founded it, went to jail; the stock had gone to…
NATHANSON: And it dropped from 110 to 2, and then the former treasurer before Jerry Green came in accused it of financial irregularities and the FCC was investigating it and the stock was held up, or de-listed, or couldn’t trade, whatever you called it. So the bankers were very unhappy. It had the biggest bank line in the country, 150 million dollars. I remember going to a bank meeting and the Bank of Boston and the Bank of New York, Allan Griffith was the account officer at the Bank of New York, Ira Stepanian, later to become president of the Bank of Boston was the bank, and Cooke stood there, took out his car keys and through it to them. He said, “Do you want to run the company or do you want me to?” to the banks, and he wanted time, and part of it was he had to build up the subscribers and they had to sell off all the businesses that Kahn had put them in that weren’t profitable – Filmation, which was the animation house, Muzak they owned, they had an alarm company in those days; they had a whole research, Hub Schlafly had an R&D lab – and of course I was part of the new regime that came in, and the only carryover, really, was Bill Bresnan, who, because he had worked for Cooke before, he had a good relationship. Of course I love Bill, and he is still a very good friend, but he was in operations and my job was to build up the marketing department and to build up programming.
SOUTHWICK: Did you have to get to a certain number of subscribers in order to meet the bank requirements?
NATHANSON: Cooke would lose… you’re absolutely right… By the end of 1974, Cooke would lose control of the company, by the end of 1974, if we didn’t have a million customers. It was a covenant.
SOUTHWICK: And you went to work for him when?
NATHANSON: In 1973.
SOUTHWICK: Okay, so you had what? 18 months to get to this?
NATHANSON: No, I had about a year. So this is what happened…
SOUTHWICK: How many subscribers did you have?
NATHANSON: 800,000 and some, but we were losing customers. We were in markets all over the country, and as I said, it was kind of chaos in the company. We had Theta Cable which was a problem, Los Angeles; we had Upper Manhattan Cable, which was a problem. Those were our urban systems. We had Peoria, Illinois; Duluth, Minnesota; El Paso, Texas – I could go on and on because I visited all the systems, or all the major systems, and so I had to put a marketing program together that would work. At the same time, Cooke was cutting my budget because the budget had been 6 million dollars a year the previous year, and it was down to 3 million. So it was very difficult times. What we did was we developed an active door-to-door sales campaign and we hired 2,000 salesmen. So you can see the enormous impact of door-to-door sales. We did extensive trades for our media buys, which doubled and tripled the existing media buys, but it was done with trades, with barter. I hired a young kid who had worked for me in Kern County. He was an outside contractor with Market Communications, and then he had gone to Sammons as the head of their marketing and sales.
SOUTHWICK: He had a beard in those days, didn’t he?
NATHANSON: Had a beard, and his name was Jeff Marcus, who became a great entrepreneur in the cable business. So, I was the vice-president of marketing and programming, Jeff was the director of sales, and we put together a team, and we accomplished that goal. We reached a million subscribers before the end of the year. Now, it was very artificial and wrong to do because we would add customers by giving giveaways, by free stuff, just to get numbers on the board, so there was huge churn, but Cooke did not care. He wanted that number reached and was well aware of what we were doing, but we obtained 260,000 customers, or something, in six months, the largest number ever gained by a cable company in those days. It was a huge effort and it was very exciting, very challenging.
SOUTHWICK: Now, the door-to-door teams – would they go from one town to another? Were they sort of like SWAT teams?
NATHANSON: We had SWAT teams. We had them regionalized. We had an enormous infrastructure. A guy named Harvey Johnson, the salesman/manager under Jeff. There was a whole infrastructure; it was like a military operation. Bresnan and the operating people hated it because they were under enormous pressure to get the installs in, but the sales effort was very successful, it was very expensive, but it was all pay based on the sales coming in.
NATHANSON: Commissions – and they made a lot of money, those people, but it was a goal we had to do, and Cooke’s judgment was not to question him, just to get the numbers, and that’s what we worked. There was enormous pressure, but it was very exciting as I said, and we accomplished that goal. As a matter of fact, in ’75, when Russell Karp came into the company – Cooke was supposed to make Jerry Green the president of the company, but he changed his mind and never told Jerry he wanted somebody who was more acceptable to Wall Street, so he brought in Russell Karp, who was executive vice-president of Columbia Pictures at that time, Columbia Industries, a very experienced executive, and I was furious because I was a friend of Jerry’s, and Russell came in and he knew nothing about the cable business and we had turned this company around. Now, Cooke had turned it around and we had worked for Cooke, but essentially, we were all, the group that was there – Dick Sykes, who was the controller, Jerry who was chief financial officer, Barry Simon, who was the legal officer, Bresnan and his people who worked for him, were really the team, with Jeff Marcus and so forth, that turned the company around. Unfortunately, I had to fire Jeff Marcus because Cooke made me. I really think it was over a cost cutting thing because sales were too expensive and so forth, but operations people never like the marketing people so there was always a conflict there. I managed to get along with them because I’d been system manager once in my life for six months at Abel Cable. And Russell Karp comes in, and I really resented Russell. He knew nothing about the business, and as I said, he would ask me a lot of questions and we were still trying to attain goals. I, at the time, was negotiating programming with HBO and there was a series of breakfast meetings that went on for almost a year at the Algonquin Hotel across the street between Jerry Levin and myself, to try to set up a nationwide pay TV company through HBO.
SOUTHWICK: Now, was this before the satellite?
NATHANSON: Satellites were there, and satellites allowed us to interconnect, and we had already via a microwave system had put on some pay TV, but HBO wanted – there were only six people at HBO at the time when I first dealt with them, there were more this time – but they wanted a nationwide to justify the satellite costs when Bob Rosencrans and they did it, and they needed TelePrompTer. Russell Karp came in and he wanted TelePrompTer to do it ourselves. Cooke, obviously, was the decision maker. I’d already been negotiating with Jerry, a very favorable deal…
SOUTHWICK: Excuse me, Karp wanted you to start your own pay television service and have your own satellite?
NATHANSON: Karp came in very late in these negotiations, but he came out of the movie business, he was perfectly prepared to deal with the studios directly, he said, “Why do we need a middleman?” I was convinced the cable companies needed a middleman to do it, and the best middleman was…
NATHANSON: HBO, at this time. And we’d negotiated a long time with this, and Cooke was well aware of all these negotiations. I had to give him a report after every meeting and so forth.
SOUTHWICK: So you were out there negotiating good faith with Jerry Levin…
NATHANSON: Almost ready to sign! Karp comes in, joins the negotiations, and Karp had a different agenda, and in the long run, Cooke sided with me, and it wasn’t that I was right and Russell was wrong, it was due to money. He didn’t want to invest the money to start an infrastructure at that time, even though TelePrompTer was somewhat out of the woods at this time, he still didn’t want to do that. As I said, Russell and I had a very difficult relationship, and at a New Orleans convention – I don’t remember the year, but it was in New Orleans – Russell brought me to his hotel and we were down at the convention and he said, “You don’t like me very much. What have I done to you?” Now, this was an older man, I was a kid, and I just let him have it. “Jerry Green should have been the president, and he didn’t know anything, and this and that.” He was very kind and very nice, and he said, “I understand that. I need to learn the business, I understand, but I think I can help the company with my contacts in Hollywood and Wall Street.” And after that confrontation we became very good friends, even though I left the company six months later, we had a very good relationship and worked together, but we had to have this kind of head to head fight about all my built up resentment, or whatever it was, and I was very stupid and very naïve, and a dumb little kid, but this is all a part of the legend of turning around TelePrompTer at that time, which was critical to the growth of the cable industry, because if TelePrompTer had gone under, I’m not sure the cable industry would be the same, after the whole Irving Kahn situation, but it was successful, later sold to Westinghouse, as you know, and I went into Cooke six months later and told him that I was going to leave the company. He thought I was going to go over to Time, Inc. and work for Jerry Levin, and he said, “If you leave Jack Kent Cooke, I’ll make sure you never work in the cable business again.” That was after two years of working for him, getting tremendous bonuses, doing all the goals he wanted to accomplish – my reward was that he threatened me across the table that I’d never work in the business again. He wasn’t the most loyal person in the world.
SOUTHWICK: But he thought you were betraying him.
NATHANSON: He thought I was betraying him by leaving. And I said, “Jack, you taught me,” and I was only allowed to call him Jack for the last three months, it was always Mr. Cooke, but at one meeting he told me I could call him now Jack because I’d proven myself or something to him, I said, “Jack, you told me there were two types of people in this world – operators and entrepreneurs. I decided I want to be an entrepreneur like you. I want to go back to California and start my own cable company.” He said, “Oh, why didn’t you say that? I’ll invest with you.” He’s the last person I want to have invest with me. Two years was tough enough working for him, even though he was a good teach to me because he was very tough and ruthless and he wasn’t like Burt who was such a nice person, and kind, and a family friend, Jack was purely business and tough, but it also proved to myself that I could be successful, and I was already negotiating to buy my first cable system while I was at TelePrompTer and already sent my wife back to California to buy a house without me even seeing the house. So, I left TelePrompTer in April of 1975 and started Falcon Cable TV in May of 1975.
SOUTHWICK: At this juncture, I think it might be useful to have you talk a little bit, if you will, about the relationship between the cable industry and Wall Street. You worked for Cypress, which was a public company. You were not a business major particularly.
NATHANSON: Not at all.
SOUTHWICK: So I assume you had to kind of self-educate in terms of the relationship between investors and the cable operators, and particularly cable operators and Wall Street. What was that like? What kinds of things did you learn?
NATHANSON: First of all, I never considered myself a financial executive. Fortunately I was around Burt Harris and Jerry Green and Harvey Simpson who were all financial executives, so I really was a marketing executive creative type who had this government relations background, so it worked very well with the financial executives, but I always needed to have people around me who could understand the finance and the numbers. I would do the pitch; I would go and sell the company to Wall Street.
SOUTHWICK: In terms of the concept?
NATHANSON: The concept or whatever we were doing, but it was always having the financial person there to go over numbers and to answer the questions. It was never a strength – I remember Burt sent me to a course at UCLA called accounting for non-accounting executives that I took because it was very important for people to understand it, and I did not have an MBA, I had a master’s in political science, and it was critical. But Wall Street was critical because cable was leveraged. Cable was a cash flow business. An interesting story was that when I went to start my own company, Falcon, and buy my first cable system, I was able to do it because my father still owned the Altadena cable system and the two franchises I had built and sold in Soledad and Gonzales. He had bought out Burt Harris, and he had put those in the company when I started it. My father-in-law, who was in the chemical business – having nothing to do with the cable business – in New York, and who was European, he lived in New York. In those days there were gas shortages, so the chemical companies were making a lot of money and he was a chemical trading company – his name was Fred Falleck – and they had surpluses and the government was coming after the surpluses. So I convinced him, who hated leverage and banks and so forth, to put a million dollars in cash from one of his holding companies so it wouldn’t be taxed as a holding company, but as an active company. My father put in his cable systems, which were appraised at a million dollars, so I started my company with my TelePrompTer experience, by having essentially two million dollars and no bank debt. So to get the bank debt in those days, you go down to the local branch of Security Pacific. You had a relationship with the manager and he would lend you up to his lending limit. In those days, they were very leery of the cable company. Only the larger companies, and the companies we were talking about before – Cypress; Harriscope was a broadcasting company, it was using the credit of the broadcasting to buy cable – they did understand cash flow lending and they didn’t understand leverage, and so it was very difficult at the time to do it. If you consider today, the company I sold had several billion dollars of bank lines, where TelePrompTer, the largest company at its time with a million subscribers, because the company I sold had a million subscribers, Falcon, when it was sold to Charter. TelePrompTer had 150 million dollar bank line, that was it, and it was defaulting on it. Now, of course, rates were a lot different and everything like that, so there were not junk bonds. Mike Miliken and Drexel and the junk bond phenomena that came about revolutionized the cable business, both programming and cable. Companies coming into it, such as Time, Inc. were very important for the status of the industry. Of course, Warner had made a big difference, but it was using its cash from other divisions in order to finance cable because cable was such a capital intensive business that it really took a leap of faith. But what people needed to understand, and I continually would pitch to the banks, we don’t lose customers. Once cable is there, once you offer more signals, once you have that and people sign up, it’s like an insurance policy. They keep paying you month after month after month, and you can count on that and you can pay back debt with that. So that was all part of the sophistication, or lack of sophistication on Wall Street. Thank goodness for the Bank of Boston and the Bank of New York, some banks that specialized in the cable business, because they enabled it. They allowed us to have the financing to build and rebuild these systems. Especially in the era that we’re talking about now. But in 1975, and I remember this very distinctly because we were a very small company. We had bought the Gilroy and Hollister systems when I started Falcon Cable TV in May, and we bought from Frank Caliri and Ben Yasuta, who had built the cable systems, Frank was a TV dealer, and they financed the sale.
SOUTHWICK: They did?
NATHANSON: So it was the sellers in those days who were financing it. There were no banks involved. When we went to buy our second system that Jerrold Electronics and Anixter, now Antec, had brought to us because a cable company had defaulted on their loans to the vendor financing, in this case, which was in San Luis Obispo County and in Sierra Video, which was Tulare County, and they just wanted their financing, vendor financing, to be paid off, so we could pick these up for a small amount of money but we had to have bank lines to do it, and I needed more than the $500,000 bank line that the local branch, right down the block from where we’re sitting today, Security Pacific, could do. So, the local branch manager took me down to the downtown office of Security Pacific and Selby Crotter, or some banker by that name, famous banker at Security Pacific, turned us down for a million dollar loan because he didn’t want to loan on the potential cash flow of San Luis Obispo and the Tulare County systems that we were about to buy. So I thought that was it for my little company. We owned the Altadena cable system with 3,000 subscribers. We owned Soledad and Gonzalez that maybe had 1,500 subscribers and we had bought Gilroy and Hollister, and we had bought, from John Malone, the neighboring town, Morgan Hill, which he sold to me for seven times cash flow. He didn’t even know where it was, but he knew it was next to it and he needed cash at that time, and John was an old friend of mine from the beginning days of when he joined the cable industry, and so we had this little company, and they may have had 8,000 subscribers at that time.
SOUTHWICK: But you couldn’t find money?
NATHANSON: But I couldn’t find money to buy the San Luis Obispo and Tulare County, which I knew was a good deal. I was picking it up for $200 a sub. We just had to improve it and pay off the vendors, that was the only way we could do it. By coincidence, a young account executive of TelePrompTer, who had worked under the lead account guy, who had become president of the bank, his name was Steve Dodge, came into my office – and I knew Steve – in Los Angeles. And to show you how naïve I was at this time, I didn’t know that a bank in Boston could lend money to a company in California. I didn’t understand. I was dealing with the California banks that were turning me down. Steve came in and he said, “How you doing?” I said, “Fine.” He said, “Do you need any money? I can loan money to you.” I said, “You can loan money to me out here in California?” He said, “Oh, sure. We can loan anywhere.” “Well, how do you do it?” “Oh, you use a local bank to collect and lock boxes.” This shows how naïve I was. Anyways, to make a long story short, I was going to ask him for 750 thousand dollars because we didn’t need the million to close the deal, we needed about 750 thousand. So, I’m hesitating whether I should ask for that or what I’d need, or what’s involved, and he looked at our financial statement and he said, “We’ll lend you about six million dollars.” Because they were a cash flow lender. They were lending us at a multiple above cash flow that we would generate from our existing systems plus the acquisitions we were buying.
SOUTHWICK: Whereas the Security Pacific Bank was focusing on what?
NATHANSON: Bottom line profit that you were making, and not future projections of cash flow. There was a different. They later changed, and all the banks, as you know, changed, but in those days they did not. So Steve, who also became a great cable entrepreneur and then radio entrepreneur understood this and was at the bank, and it was under Thompson, the great vice-chairman of the bank who understood the cable industry, and Chad Gifford, who’s now the CEO of Fleet Bank, and they understood the business. He knew me from TelePrompTer days, as I was the marketing guy to them, and they agreed to lend us the money. So besides that initial investment, and by this time, by the way, I owned nothing of my company because it was 50% owned by my father, 50% owned by my father-in-law’s company, and I convinced them to sell me 20% of the company for $20,000, or whatever it was at that time, and the bank loan came in and one of the things that the bank loan put in was that I was running the company or there was a default on it because they knew me from the past. And from that, of course, we went to expand the company. I think Falcon doubled in size every year for the next 15 years. It was all done by bank loans and new partnerships. We’d get a little money or cash flow in the first partnership and then we’d take that and put the excess capital as the seed and then bring in other investors, venture capitalists, the Mutual Insurance Company of New York, Boston Ventures, later Hellman and Friedman, Government of Singapore, AT&T Pension Fund, and they would come in, we’d put in money, they’d put in money, and then we’d leverage it up.
SOUTHWICK: And they’d be limited partners in a limited partnership? So you put up a series of these?
NATHANSON: We had seven or eight of them, and that’s how we got to the million subscribers. I never had a parent company with a lot of money, so I always had to go out and do deals. In one case that I remember so vividly, I can’t remember the year, but Rupert Murdoch was involved in this because Warner Amex owned a bunch of cable systems, but Rupert was coming in and trying to make a hostile takeover, but there was a television station conflict because Steve Ross got Herb Segal to come in from Chris Craft, but Chris Craft owned television stations in some markets where Warner later – and this was Warner Amex at the time – but where Warner owned cable, and you couldn’t own television and cable in the same market. So they had to sell off – Warner – a whole bunch of cable systems. So, we wanted to buy these systems. A lot of these were old Cypress systems.
SOUTHWICK: Also, they were focused on the big cities, weren’t they, and they weren’t that interested in…?
NATHANSON: No, Warner Amex at this time, even though they were in Columbus, that was our old system, and a number of others, they wanted to keep these systems because they were producing a lot of cash flow. They were good systems. They weren’t the big urban systems, but these were systems that were all in the frequency area, the signal area of Chris Craft television stations, so it was Los Angeles, Atlanta, Georgia. Now these were smaller towns, but it was everything they owned in that area.
SOUTHWICK: And they were old Cypress systems that you knew.
NATHANSON: Many of them were. I knew them very well, including Malibu, California, including Lake Arrowhead, Big Bear, anything in the Los Angeles area that Warner Amex owned and so forth. Well, at this time, Drew Lewis was the head of Warner Amex. The former head of the FAA…
SOUTHWICK: Secretary of Transportation.
NATHANSON: Secretary of Transportation I mean, not head of the FAA. Famous for the air controllers, and I didn’t know him at all, and I wanted to buy these systems. But I knew people over there because I had worked there and knew Aaron Fleischman and other people who had been around. I called up Warner Amex and they said, “The systems aren’t for sale. We’re selling them in a deal to a friend of Drew Lewis, Marty Pompadour, and this is how it’s being sold.” I said, “Well, I’d like to bid on them.” “No, we’ve just told you. They’re being sold to Marty Pompadour. We need to do this quickly because we don’t want any problem with the Chris Craft deal with Warner,” and so forth. So, I called a friend of mine, who when we sold to Warner when I was at Cypress, I was on the road, I think I told you, when I got the news. I came back to my desk, was a little depressed that the company was being sold because I was happy to stay with Burt the rest of my life – I was very happy at Cypress – and there was a card on my desk in the office. Somebody had obviously been using my office and doing diligence on the merger while I was in Ohio, and it said, “Vice-president, general counsel of Warner” and on the back it said, “Magwa”. Well, Magwa was an old camp counselor of mine’s name from a camp Jack Pine in Wisconsin where I went ten years as both a camper, and then later, as a counselor, and one of my first counselors was a young 19 year old – I was nine, or whatever – a guy named Marty Payson from New York, from Brooklyn, or whatever, and we became great friends even though I was a camper and he was a counselor, and he later went to law school and became Steve Ross’s right had man, who did all the deals. I had no idea of this, and he knew it because he knew…
SOUTHWICK: He’d done a due diligence.
NATHANSON: And so, Marty, just by coincidence, even though he was only involved in doing the deals, he wasn’t involved in operating, we rekindled our friendship and we stayed in touch. So, I called Marty, who was now executive vice-president and general counsel of Warner and on the board of Warner Amex, and I said, “Marty, I would like to buy these cable systems, but Drew Lewis,” who I never spoke to directly, by the way, only his people, “said they’re being sold to some ABC executive named Marty Pompadour, and I want to buy these systems. I know these systems, these are our kind of systems. Most of them were ones that we owned.” He said, “Put in a bid.” I said, “How do I put in a bid, there’s no…” He said, “Just make an offer and send it to Steve Ross and send it to Robinson, the head of American Express.” So, I knew the subscriber numbers, I knew the systems, but I didn’t have any financial information. I also didn’t have any money, but that was another problem. So, I put in a blind bid of 300-some million dollars to buy these systems that they had to sell. At the time I can’t remember how much that was a subscriber, and Drew Lewis got really pissed, but they had a big board meeting fight about this. It happened to have been the higher number, unbeknownst to me, than Pompadour. So they opened it up to bidding, a formal bidding process with an RFP and so forth. They sure didn’t want us to do it because we were a problem, but we went in and did the diligence, we knew the systems better than anyone else. We got Mutual Insurance Company of New York to put up the equity with us and we ended up buying the systems. The only reason we got it is we agreed that we would transfer the franchises by the end of the year, and if we did not, we would lose the system.
SOUTHWICK: Meaning? Transfer of the franchise – get approval from the local city councils that it would be okay for you to run it?
NATHANSON: Right, and these were like 11 systems, or whatever. But I knew the Malibu people, I knew the California communities, and that was a risk we were prepared to take the other bidders were not. So it assured them they’d get the money whenever they had a problem with this Chris Craft deal, before the end of the year they needed this. So we took all the risk, which is something I’ve never done since or before because you never know about franchise transfers. They can delay them, and maybe there was six months to go, and lo and behold, one city wouldn’t transfer.
SOUTHWICK: Which one?
NATHANSON: Cedartown, Georgia, which was not a prior… it was in the Atlanta market, but it was not…
SOUTHWICK: Something that was a Cypress system?
NATHANSON: Something that I knew and so forth. But we had a guy in our office who had nothing to do with cable, but handled outside investments for me, who was from the neighboring community. He was a very handsome guy, southern, good looking guy, went to Wake Forest. So I sent him to do this. He was sophisticated. He was unsuccessful. They wanted to see me, and it’s December now, the beginning of December. I’ve got to transfer this franchise by the end of the year or I’m going to lose this, and this might have been, I don’t know, 6,000 subscribers. Well, that was too much to lose. The whole deal would have had enormous problems without this system, because I actually would forfeit this 6,000 subs. So I went before the city council – I flew into Atlanta and I drove up by myself to Cedartown, which is outside, but it’s in Polk County, it’s kind of rural. I went in to this town and there is the city council sitting in kind of an auditorium room and there’s nobody else in the room. I find out it’s a meeting only for us, for the city council and myself. There’s one guy in a tie and jacket, the mayor had his cigarettes rolled up in his shirt, one guy was in overalls from the farm, they were on the city council. I walk in in a suit and tie. The first thing the mayor says to me – the city attorney was the guy in the tie and jacket – they say, “Are you one of these lawyers from Warner?” I said, “No, you know I’m Marc Nathanson. I’m the head of the cable company, Falcon, that’s going to buy this. You wanted to see me.” “Well, you look like one of those lawyers from New York.” So right away it’s starting very hostilely. I said, “I don’t understand what the problem is. We’re a qualified cable company; we have an excellent reputation. We submitted letters from all the other cities that we operate in. Why won’t you transfer this franchise? I sent David Quarrels here who’s from the neighboring community to come and talk to you and tell you about this.” They said, “That’s what we want to talk to you about.” I said, “What?” They said, “That David Quarrels. We don’t like him.” I said, “You don’t like David Quarrels? He’s a very nice guy. Why don’t you like him?” They said, “Because we’re in Cedartown,” he’s from whatever this neighboring town is, “they beat us at the 1968 state football championships. We hate them, and we wanted to let you know that.” So I said, “Okay, what do you want?” “We want ESPN on basic.” “Okay, you can have ESPN on basic.” “Okay, we vote to transfer the franchise.” And they transferred the franchises to us, but that’s how crazy the cable business is and the local city councils that were regulating us. It was over that we insulted them by sending not somebody from New York, not somebody from Los Angeles, but we insulted them by sending somebody from a neighboring town that built them in football, and David had played football, unfortunately, so I didn’t know it.
SOUTHWICK: He scored the winning touchdown!
NATHANSON: No, I don’t think he did in this team, but it was one of those crazy situations. So that’s how we grew. We formed new partnerships, we formed partnerships with Warner, and eventually we got into the franchising game, and that was a critical junction for Falcon, and that was in the early 1980s. Falcon was formed in ’75, it was five years later. We decided, as they opened up now the top ten markets in the country for cable, that we would apply for 14 out of 19 franchises.
SOUTHWICK: But before you get into that, could you talk a little bit about your strategy when you acquired a system? You would pay a certain amount of money, and then what would you do?
NATHANSON: Well, the key, as I always said, is to have strong people around me, and Frank Intiso, who had been our chief financial officer, he had been our accountant at Seevman and Seevman, I had convinced to join us in the company, and he eventually became the chief operating officer, and Frank, who has an MBA and a CPA, is an absolute expert at running classic cable systems. He never missed a budget in all the years we worked together. It started in ’78, I think, or ’77, and later Mike Mineri joined us, who had worked with Frank, and we built up a team of people who were very experienced, kind of old-fashioned, Cypress type of operations. So, we knew the cable business. We would see a system – I could go to a town and actually, I say, “smell” the town to know whether it would have growth. Bill Bresnan taught me, go into the washroom of a cable system, if they have a clean washroom, the plant will be clean. Well, I don’t know if that’s true, but there were all these things that you picked up over the years in the cable business, so you knew pretty well what you could do with the system, and remember, you were buying at “x” price, you were going to increase the rates, add services, and project what you were going to do, and we never missed a budget.
SOUTHWICK: And could you add subscribers typically?
SOUTHWICK: You’d go in and market?
NATHANSON: It was all part of it. And you could almost do it on the back of a napkin. It was done with elaborate projections that you had to submit to your banks and to your investors, but we were very good at doing this, and we were operating in 27 states and we knew most of the country. I had operated TelePrompTer systems all over the country, so you just saw where this community fit within your mix, did your projections, and that’s how you determined whether you would buy it. We always bought not on a price per subscriber, but on future cash flow. What we thought we could do with the cash flow under our management. And remember, traditionally, traditionally, not every year, but most of the years from 1975 to 1999 Falcon had the first or second highest operating margins of any cable company in the country. So we could buy a system that had a 40% margin and we could increase it to a 50% margin. That was without changing subscribers. If we could add subscribers it was just gravy to us.
SOUTHWICK: And you would do that by cutting costs?
NATHANSON: Efficient management, de-centralized operations. A lot of this is attributed not to my leadership, but to the team that worked for me, and we had very little turnover in that team in all the years we were together. They just knew the cable business, they knew how to do it, they knew how to operate them, they knew all the issues, and that was part of the business. So we could buy from a Warner Amex and add five or six points to the bottom line just by operating it our way, before adding customers, before doing the other things, and that was just how we did it. And there were other operators like that who were also very good, but that was our specialty. We were not an urban operator like Chuck Dolan, who was somebody I dealt with way back at TelePrompTer, and so forth, and people like that, who I admired, but we were very aggressive marketing. We used all the urban marketing techniques that the other cable companies did, but we had this kind of very strong cash flow mentality that we had developed in these quote classic cable markets. So we increased the cash flows, we increased the subscribers, we increased the rates, it was a winning combination, and in 1980 we decided that how could we compete with the big companies – we had 30, 40, 50 thousand subs at that time in one or two partnerships. So we decided that we would form a new partnership and it would go after the franchises in Los Angeles because I was active in politics in my private life in Los Angeles and we would go after big companies who were much better financed than we were. But our pitch was, if you have a problem here’s my home number, call me, and I knew a lot of the people through other civic activities or boards.
SOUTHWICK: And a lot of the communities in the LA area at that time were beginning to franchise.
NATHANSON: Didn’t have franchises at all. Were beginning to franchise because the market opened up. Remember, Los Angeles had cable in the early days, going back to Theta Cable, but only in the canyons where there was bad reception. In the flat lands, which was the bulk of the Los Angeles basin, they did not have cable. Starting in 1980, they put out RFPs, they opened it up. We, with a Canadian company, had already won the west San Fernando Valley, which was a major franchise, but the Canadians – David Graham’s company – financed that and we were rent-a-citizens. We owned 30% but didn’t put up any money, even though I was president of the company and won the franchise. So we put experience in franchising, we had experience in politics, so we hired some young kids, Craig Erlich, John Kobara, and we put together a franchise team – Milson Cunis – and I ran that team and we said, “Frank, you run the classic systems, the northern California, and I’ll run the franchise effort in southern California.” Now, we needed financing, so we got two big newspaper companies to back us. Donrey, which was owned at the time by another very eccentric but interesting billionaire, Don Reynolds, who has since died, one of the largest newspaper owners in the country from Ft. Smith, Arkansas, owned the Las Vegas newspaper, and Bob Howard down in Oceanside, California, another oil and gas and newspaper magnate, both self-made entrepreneurs, and they were our partners. We formed a new company, I owned 20%, they owned 80%, and they put up all the money, we’d get the franchises. So we went after these 19 markets in Los Angeles area, Pasadena to Riverside, with this new company that we had formed. Frank ran the old company, I was also the CEO of the old company, which we called Falcon Cable TV of northern California. The new company we called Falcon Communications. When the newspaper guys came in, I bought out my father and father-in-law because the Altadena system, which was in Los Angeles, we put into this new Falcon Communications to give us some credibility and so forth, and so that was a successful venture for both of them. They’d been in five years, essentially. And we went after the franchises and we were wildly successful, even though we were fighting against all the big companies at that time, but this localism paid off, and there were of course much different issues. You were building 54-channel systems, you were putting in fiber optics, you were starting to see in the ’80s – ’81, ’82 – the future systems. We built the first fiber optic system west of the Mississippi in Monterey Park, we went into urban areas, ethnic areas, and we were successful in doing it. Sometimes we had local groups, sometimes we did not, but these were major battles that we had to get these franchises, and we won 75% of them.
SOUTHWICK: Okay, we’re talking about the growth and the franchising in southern California.
NATHANSON: So, this was another exciting era of cable. We won 450,000 homes in many of these communities. We actually bought Riverside from some people, but most of them were through franchises. We had a new company, and the manager who had chosen to run the systems, we were having problems. Not in the construction, but in those days, a new element was how fast you’d build, and there were a lot of mistakes made in that, in the operations and the turn on, and so forth. His name was Tom Lafourcade, a good guy, but I had to let him go, and we bought in Chris Derick, another old friend of mine who had been president of a number of cable companies, and we worked together, and Chris came in and it was really Chris who turned around the company, but at the time, and this was maybe ’82, ’83, the company was having some serious problems. It had a 100 million dollar bank line that it was in default on. The partners had put up 30 million dollars and we had to have the partners increase the bank line by another 50 million dollars, and the partners had to guarantee part of it, and they almost walked away from it – the newspaper guys – but we convinced them to stay. Chris Derick came in, we started to turn things around, changed the name of the company, and then four years later, in 1989, CenCom came and offered us 19 times cash flow.
SOUTHWICK: CenCom was a…?
NATHANSON: A cable company run by Jerry Kent and Barry Babcock at that time, and they wanted this franchise, which had 100-some thousand customers and they paid us an enormous price at that time.
SOUTHWICK: 19 times cash flow!
NATHANSON: 19 times cash flow – it was an all time high in cable – because it was a growth area, it still had a lot of growth and it now had a positive cash flow, but it was really in a break even situation, but enormous growth…
SOUTHWICK: And this was for all the southern California systems?
NATHANSON: These were the southern California systems. Remember, this was a separate partnership. I didn’t want to sell. My two partners wanted to sell because they’d each pocket 100 million dollars profit at that time, and a few years before they had nothing. So we sold the company, and right after that the market crashed and the cable prices went down, so they looked very smart. For me, it was the first time I’d made a lot of money in the cable business because I owned this personally and I pocketed the money, but I never wanted to sell. Chris made some money, and we had a very good experience and Chris went off to do other things. Later he came back, which we’ll talk about, to join me in another venture, but anyway, so we had sold the urban company. So, I took my money and I raised new money, and we decided to expand the classic markets, not go into any more of the urban markets because I saw how difficult they were and those were 40% margin businesses, if you were lucky. But in hindsight, it was a mistake. We should have kept it and merged everything as one and we would have had a much more valuable company because we would have been like all the other companies, both urban, suburban, and classic. But we decided to rapidly expand the classic companies, so we then went back in to doubling every year the classic cable company by forming new partnerships, by making acquisitions and we were very aggressive in doing that until we got to a million subscribers. Then we started to consolidate the partnerships, to merge them together. Glenn Jones, some other people, were doing it, even though his were more public partnerships, ours were within institutional investors.
SOUTHWICK: Well, the tax laws had changed, hadn’t they? Changed the way limited partnerships worked?
NATHANSON: Yes, that’s a very good point that I forgot. The tax laws changed so the depreciation wasn’t as good for investors anymore. There were a number of factors, the public markets had turned around. This was in the early ’90s, and we decided to go public, and we were the 10th largest cable company in the country at the time if we consolidated everything together. So we had to work out… because there were conflicts, different investors, and different partnerships, and put them all into one company, and that’s what we were able to do. And just as we were ready to go public and Merrill Lynch was leading it, the Democrats won, I was very happy because I was an old friend of the Clintons. Hilary had been on the board of our cable company, and was our attorney, and we’d bought some systems in Arkansas from Jim Guy Tucker, which later I had to testify about – we did nothing wrong, I might add, but this was all part of it – and Hilary Clinton was our lawyer at the Rose law firm who represented us, and I knew her through my friend, Mickey Kantor, here in town, who later became Secretary of Commerce and Trade Representative, and Hilary went on the board of Falcon, and of course resigned when her husband went to run as President. Kind of a funny story about that – while we were working on buying these systems, classic systems, around Little Rock, we owned all the systems around the city of Little Rock, which we had purchased, some of them from the later governor of Arkansas, Jim Guy Tucker, who borrow money from Madison Savings and Loan – which had nothing to do with us, we paid cash – Bill Marks was his partner, an old TelePrompTer employee. We had bought the systems and Hilary said to me – when I was staying at this hotel one night, long day of negotiations trying to by these systems – “Do you want to come over and have dinner with me and my husband?” Now she’s married to the governor. I knew that, and I knew her husband was Bill Clinton, but I had heard him speak, and he was such a boring speaker, at a convention, the last thing I wanted to work in a cable dinner was to go over and listen to a southern governor, have dinner, and talk about southern politics. I said, “No, I’m going to take a rain check. I’ll have room service.” So, obviously, when Clinton became President or was running, several times he was at our house for political fundraisers for him, and the first time he came to dinner, I told the story exactly like I told it to you, and I said, “Well, thank you for the rain check, Mr. President.” He got a big kick out of it, told Hilary who called me on it, and it was a true story. So anyway, we bought these systems, we were very aggressive in acquisitions and competed with the other cable companies in doing this, continued to maintain our high margins, and with that Merrill Lynch was going to take us public, and we had just started the road show overseas in London and other places, and Clinton had come in…
SOUTHWICK: Your friend wins.
NATHANSON: My friend wins. My later friend, but not friend at that time, Reed Hundt, in the Washington Post, I believe it was, has a story that comes out saying the new chairman of the FCC told someone off the record that they’re going to rollback cable rates by 25%.
SOUTHWICK: And of course the legislation had passed at the end of ’91, right around the election, enabling Reed Hundt to do this.
NATHANSON: The Bush veto was overridden, and the whole story, and of course, all this time I was active on the NCTA and on the executive committee, and met wonderful people and friendships over all the years with cable. I never told this story – when I started my company we were going to merge with Alan Gerry at one time, and Jerry Green, who was killed in a plane crash had a small cable company, so we were going to put that all together. At another time, Leo Hindery and I were going to merge our cable companies together. We’d bought Jack Kent Cooke’s cable properties when he went back into the business through a consortium, Leo and myself. So there were a lot of good stories in between, wonderful friendships over the years, but the main concentration was building one’s own company, and of course we had to kill the public offering, and that was a very dim time. One thing I want to point out to anyone who may listen to this in the future is that cable is up and down, and a lot of people panicked at that time and they sold their cable systems, if you remember, and we had obvious problems like all the others, if our rates would be cut back, and a lot of people… John Kochreich got up at a Kagan conference and said Falcon would be hurt more than the others because we were an all classic cable operator. So we were very rate sensitive because we had 70% saturation. It turned out that the rate increases, which were very negative to the cable industry and artificial in my opinion, never hurt Falcon. The rates stayed the same, but we couldn’t get any rate increases, but we never had major rollbacks as were predicted. We were able to avoid that by all the filings and everything else that you could do, and weathered through it, because again, one of the things you do as professional cable operators is you must deal with government, you must deal with changing government. You can’t control regulation, but you have to learn to deal with it, and we learned to adjust to that.
SOUTHWICK: How did your lenders react at that time? Were they panicked?
NATHANSON: Very negative. Just like the HLTs, the highly leveraged transactions where they panicked. The first to panic are the banks. They lend to you in the good times and in the bad times they run far away, and those were problems we had to manage. But we had long relationships… the Bank of Boston has stayed with me, now it’s Fleet Bank, all that time, from the first loan to ’99 when we sold the company. But my partners also started to panic. After all, they’d been investors, they were running funds with pension fund money, and they didn’t want to do capital expenditures because our cash flows weren’t increasing, they were flat for the first time in the history of the company. For the first time we were not growing, so we weren’t doing acquisitions, even though we had consolidated, and we got in big fights, and I said, “No, we have to rebuild the systems,” because the technology to be competitive with the new technology coming, satellite in this case, is to rebuild your systems and they did not want to do that. They wanted to sell the company. Now, they didn’t have the right to sell the company, but in two years, if I didn’t buy them all out because we didn’t go public, which would have rectified all this, I would have had to buy them out and I wouldn’t have had the money, so they could have forced the liquidation of the whole company. But I wanted to continue to grow, they didn’t want to put money in that would have returns in three or four years, but I knew it was a mistake because there was going to be a differentiation between the rebuilt system and the non-rebuilt system, but it was nothing I could control because they could block the capital expenditures. I could block the sale for two years, and as you know, Leo Hindery went over to TCI, which was similar to TelePrompTer, having some problems at that time that have been well talked about by others, but to make a long story short, one of the things Leo wanted to do – who is one of my best friends and dearest friends in the industry – was to sell off some of their systems and let other people run them. Well, there were a lot of TCI systems near us, particularly in the Pacific Northwest. So I went to see Leo. My old friend, John Malone, was in the next room, who I also saw, but essentially with Leo within one hour we agreed for him to give us all their systems next door to us – everything in Washington and Oregon except for the urban systems, some systems in California, and 300,000 subs and merge them into Falcon, and in turn we would give TCI 46% of Falcon, and part of that was to buy out part of our partners, and we bought out our partners at 8 times cash flow. I would have bought them out 100% but we didn’t have the money, there wasn’t enough, so they kept 30% of their interest, but they agreed that they couldn’t vote, they weren’t on the board, they couldn’t have any control, all these institutional partners we had. So all the decisions would be made by TCI, later AT&T, and ourselves in this, and we were the general partner, we were running it. And that was really a renaissance because we improved the margins of all those systems, we consolidated, and they were all bigger systems than ours. So we had smaller systems next to theirs, but their systems, even though they were classic in nature, were larger. So they had Medford, Oregon, and they had Redding, California, and they had Yakima, Washington, and so forth, and they said, “Well, will you sell the company to us at that price?” I said, “At what price?” They said, ‘At 14 times cash flow.” So, I looked at that and I looked at public, and I said, “Well, Leo probably won’t want to sell.” They had a block that they could prevent any major event, obviously. So I talked to Leo, he said, “At what price?” I told him the price per sub, got a multiple, which was 3,800 a sub, or whatever the number was at that time, and of course Paul wanted to acquire large companies, and that was one of the reasons, and we had this million-some customers, at the time, with the TelePrompTer systems, and the TCI people – Bill Fitzgerald was working on it at the time – all agreed it was a great deal, so we agreed to sell. And so we sold to Charter Communications, the deal closed in November of 1999. Prior to that, and of course I’d known Jerry Kent from the CenComm days, Paul decided to go public and he wanted me to stay with the company, and I did not want to run another cable company. I’d done that for all these years. So I decided that I would do that, but ours was a cash deal, but Paul convinced me to take half cash and half stock, but he would guarantee the floor of the stock, so I would have no risk, as if it was an all cash deal.
SOUTHWICK: Pretty sweet.
NATHANSON: So I agreed to become the vice-chairman of Charter Communications and to be on the executive committee, and it was run by Jerry Kent and his group, and then recently Jerry left and I headed the search committee and Carl Vogel came in as our new president, and it’s been a very wonderful experience. I’ve enjoyed the relationship. Charter is now the third largest company with 7 million customers and I feel like a grandfather. I am a grandfather, I have a grandson who is almost a year old, Andrew Sweiger, and I feel like at Charter like I’m a grandfather. I give advice but I don’t have to change the diapers. So, that’s really the genesis of my cable career to date, is that I’ve been with Charter and been involved with them, and still involved with the cable industry, but not responsible for the day to day operations of the cable company.
SOUTHWICK: Talk a little bit, if you will, about Charter and its vision. Paul Allen, it seems to me, had a theory about taking cable to kind of the next level. How does that work?
NATHANSON: Many people misunderstand somebody like Paul Allen. Paul Allen, for those who do not know, founded Microsoft with Bill Gates. He was really the brains, the engineering behind it, Gates was the marketing guy, they were high school friends, they developed it in college. Paul’s two years older, he’s today 47, I’m 56. But Paul’s a very bright person, very much not just involved in the technology, but very involved, as I still am, in the marketing of it. He’s not very involved in the government relations and the lobbying of the cable industry, which is something that I’m still very involved in, and as you know, I have another job. Clinton appointed me, six years ago, to the board that oversees all U.S. non-military broadcasting: Voice of America, Radio free Europe, radio TV Marti, Radio free Asia, etc. and three years ago I became chairman. So, as a dollar a year job, and a week a month, I’m in Washington running 3,400 people at this independent government agency today, which is in charge of all international broadcasting, which is something I enjoy. I will be replaced by George Bush, but he hasn’t done it because of the Afghan situation right now. He doesn’t want to make a change, but shortly, I hope, because it is taking up a lot of time, they will do that. So between Charter, being the vice-chairman, and the job as being chairman of the Broadcasting Board of Governors, it’s taking up a lot of time. Paul’s vision of Charter is very much that cable companies should provide full services to the consumer, and not just cable services as we traditionally see it, but all kinds of other services from when you turn on the screen, to how you navigate the screen, to what services that you provide, and obviously high-speed modems, digital cable, and that’s one of the reasons Charter has nearly 2 million digital customers and is one of the leaders in bringing high speed modems, and we’re getting customers hand over fist in that area, and it’s a great renaissance for cable. Cable is as exciting today as any period that I’ve ever seen it in my life, even when the stocks are down for one reason or another, I think the industry has enormous potential and can compete with the satellite technology very effectively if they have rebuilt systems and they’re offering these services, and I think there will be more and more services and they will be better and better and more consumer friendly in the future. So I think there’s great growth potential for cable, but it is not a narrow vision. You can’t just be a classic cable operator anymore; you have to offer a wide world of expanded services to the consumers and the lines of conversions will blur between your computer, your cable, your telephone, your modem, the services: video on demand, that you’re going to buy. Charter is very much involved in all of these and has to prove them to be economically successful, but will prove them. The numbers already indicate – and I’m not talking about tests, I’m talking about actual millions of customers who like these services and we’re just rebuilding all of our systems to offer these services throughout the country.
SOUTHWICK: Great! Well, congratulations on being a grandfather on two fronts.
NATHANSON: Yes, thank you.
SOUTHWICK: Anything else? I know there’s a lot of stuff we could have gone into.
NATHANSON: There’s a lot of stories, there are a lot of great people. I’ve always identified with the old timers. I really came in as a first generation of younger cable people, who are now older cable people, but we came in after the Bill Daniels and Bob Magnesses and Gene Schneiders and the engineers and the technicians and so forth. We actually formed – I chaired the 1977 national convention, and I remember – I also chaired the 1999 national convention and they were both in Chicago, so you can see kind of a span of the cable industry from ’77 to ’99 in my mind – and I remember in ’77 we formed a group called the Young Communicators Society because there were a handful of young people in the cable business at that time and we wanted to have a party to get together, and so we formed a committee and a board. It only lasted one convention because we all networked and knew each other, but Jeff Marcus and John Malone, and all these people were part of that group who’d all come in as the second generation to the cable business, and all were great friends. It was the first wave of marketing executives to come in and later run cable companies – Tryg Myhren and others came into that business. So these were very exciting times. I remember when we formed CTAM and we were in Chicago, as others have probably told you about, and I was with that group, I don’t know, 10 of us, who decided we need to do more marketing with better focus and more professionalism in the industry. I remember when we formed the southern California Cable Club, and the Addly, which was an idea to have all the cable companies in Los Angeles interconnect to sell those signals. So I remember very well starting those organizations and building it with my fellow cable operators. I don’t remember really remember now when I was president of the California Cable Association, but it was many years and wonderful relationships with Spencer Kaitz, and before that, Walter Kaitz. So, I think the cable industry was not just about making money, but it was a business where people believed that they were wearing white hats. They were bringing a good service to communities. They loved the communities they were serving. They were very involved in the communities, and people don’t realize that, but they really had a feel for that and for community service. They were also dealing with regulation, often unfair regulation, coming out of Washington by more powerful political groups and the industry grew in spite of it, and it had a pioneering, entrepreneurial spirit, and that’s what I identified with and I relish the years that I have spent in the cable business since ’69, and even prior to that as a door-to-door salesman because it still relates to what does the consumer want, and the consumer has an insatiable appetite for more entertainment and information. Whether it’s Charter, or whether it was the early days of Harriscope Cable, the consumer has not changed. It’s our industry job to fulfill that, and I think we’ve done a pretty good job to do it, but I think the future is even more exciting for the next generation to come along.
SOUTHWICK: Terrific, thank you very much.
NATHANSON: Thank you.
SOUTHWICK: Appreciate it.