Interview Date:Tuesday October 03, 2000
Interview Location: Santa Monica, CA
Interviewer: Elizabeth Glass
Collection: Hauser Collection
GLASS: I'm Elisabeth Glass from Santa Monica, California. This is October 3, 2000, and we're here to interview Frank Biondi. This oral history is made possible as gift from the Hauser Foundation.
Frank, can you tell us a little bit about your early years, your background, where you grew up.
BIONDI: I was born in New York City, Manhattan. My dad was with the Bell Laboratories, which in 1945, when I was born (we left in '48) was on West Street – now an artist's cooperative called the WestBeth. In the late '40's, they started building new world headquarters out in New Jersey. So in '48 we moved and I grew up in north Jersey – Livingston, New Jersey, went to local schools, played a lot of baseball, did well in school, went to Princeton, and after Princeton I went on to Harvard Business School.
GLASS: What did you major in at Princeton?
BIONDI: In Princeton, I majored in Psychology with probably as many credits in Economics. I just didn't want to write a thesis in economics so the degree is probably technically in psychology, but the credit weighting is about equal. At Harvard, though you don't technically major in the business school, the emphasis was much more finance. This was in the middle of the Vietnam War in '68. I got out, and the war was winding down. Lyndon Johnson had just said he was not going to run again, and I went to Wall Street where I spent approximately two years in investment banking from June, 1968 to about October, 1970. I worked at two firms – the predecessor of Prudential Securities-Bache and Company, which I didn't stay at very long because they essentially misrepresented the job; what they were doing and where they were going to go with investment banking. Then I started with a small firm called Carter, Berlind and Weill, the Weill being Sandy Weill now chairman of CitiGroup. Two weeks after I got there it became Cogan, Berlind, Weill and Levitt, Arthur Levitt being the head of the Securities and Exchange Commission. It was a great start-up 200 person firm when I got there. About a year into it, I became involved with a cable television company. It was a company called TVC Communications run by Al Stern. They were about to build the first urban system which was, if memory serves me correctly, was either Dayton or Toledo, Ohio ... Akron – Akron, Ohio. And it was a great controversy as to whether you could actually, in 1969, successfully build an urban cable system that depended on signal reception entirely. We raised some money for them, and then about five months later, we purchased the firm called Hayden Stone, which had another cable company client - LVO Cable which was the cable arm of Livingston Oil which ultimately became Gene Schneider's company. That's where I first got introduced to cable television.
GLASS: That was as an investment banker?
BIONDI: As an investment banker.
GLASS: Do you think having a career strictly in finance or investment banking?
BIONDI: No, actually I thought a lot about media, but in those days, you could not actually do network jobs. People like CBS, who were the only people hiring, seriously, when I was coming out of business school, either put you in ad sales, of which there were very few jobs because those were supposedly very high-profile, really high compensation jobs, being a network ad salesman, or they put you in the accounting department, which I had no interest in whatsoever. So I decided I'd do investment banking, with no real preconception about being in an industry or trying to find a media niche or a deal making niche in the investment banking business. In the end, that's what I didn't like about the investment banking business was that there was no specialization.
In those days, there were no media departments. There were no sale and lease-backs. There was no mortgage backed finance. You were just a generalist. You'd work on an industrial spring company one month, a toy company the next month, a cable company the next month. As much fun as it was - learning about new companies - the frustration was that you couldn't get any expertise in any. You never had enough time. So it was enormously intellectually frustrating. You were supposed to be the expert, but you only had thirty days to become an expert. It's literally quite impossible.
At roughly that point in time, I decided to go off and, in effect, consult to a number of partners of the firm who had left as a result of the merger with this much larger firm, Hayden Stone. A number of them were doing things in the media business, one of whom was an African-American lawyer who had bought control of the Amsterdam News and WLIB and WBLS which now are part of the core of something called Inner City Broadcasting that Percy Sutton had started.
This lawyer, Clarence Jones, had really provided the financing for Percy, a large part of the financing, for him to acquire what is now WBLS. And he wanted to add a third leg which was the Apollo Theater. Most of us advised him heavily against doing this because the Apollo was severely run down physically. This was not that long after the riots, and Harlem was not what it is today. It was not exactly a territory where a lot of people were wandering up on Saturday nights unless you lived there.
GLASS: This was 1969?
BIONDI: This was 1969, 1970. Nevertheless, CitiBank, who had had great success in financing Don Pels in LIN Broadcasting, had expressed great interest in doing the same for an African-American Media Group. They were backing Clarence. I was doing essentially the investment banking work for them until one night; they went up, unannounced, on a Saturday night, the two bankers, to see Stevie Wonder at the Apollo Theater – with their dates. They stayed for two shows. The Apollo seats about 2,300 people so 4,600 potential seats. There were like 300 people in two shows. Of course that convinced them that there was no prayer – that the Apollo could ever have a renaissance. So they came back and said, "We'll back you in publishing, we'll back you in radio and television, but no theater." Clarence knew better. He wouldn't accept the help. He never raised the money, never closed, lost the newspaper, and lost the radio stations.
Of course he couldn't pay me. So he said, "My wife works at TelePrompTer, and I know they're looking around for a financial guy," because Irving Kahn had just gone to jail. He had just lost the proxy fight, as he was going to jail – to Jack Kent Cooke. He had merged TelePrompTer with H & B American which was Cooke's company. And now Cooke technically controlled TelePrompTer which was very high flying stock, a real media darling. But then Cooke had a massive heart attack, and he was incapacitated. So the company was essentially being run by a law firm in New York, Shea, Gould, Climenko, and Kramer – Shea of Shea Stadium fame.
I went in to see a partner of that firm under Clarence's recommendation, and this guy said to me with a smile on his face (his name was Bernie Fischman), he said, "I just want you to know that I take Clarence's recommendation of a financial man about the same as my recommendation of neuro-surgeons, and I come from a family of rabbis," laughing. I kidded, "So you know him?" Then we kicked it around. To make a long story short, he said, "Look, we need some help. I'd like you to do a project."
So he hired me essentially for a year to do a consulting project to try to determine why TelePrompTer did not sell, on a per share basis, for as high a price as American Television and Communications, now Time Warner Cable. The answer in very simple terms was, ATC had more subscribers per share outstanding than TelePrompTer did. There were a lot of other subjective reasons. But I spent enormous amount of time learning return on assets for the different ... every company was roughly going public. This was now '72. Even some that ultimately pulled their registrations ... had filed. So there was a tremendous amount of information available.
The interest in the cable business was really beginning to pick up. About that time, one of Irving Kahn's dreams, which was a portable earth station, ... A guy named Hub Schlafly, who was head of technology, had actually built and they were taking it to the convention in '73, as I recall. Carl Albert did the first live satellite telecast to the NCTA Convention. It may have been in Vegas. It was either Anaheim or Vegas. It was quite an event. TelePrompTer was, in fact, the leader in the category. They were the biggest cable company, big time stock valuation. And all of a sudden the stock began to fall.
What we discovered was that it was, to put in a very simple text, a vast lack of disclosure of capitalizing expenses. The company had basically $70 million in revenues, they reported $16 million in pre-tax income, but they didn't disclose that they were capitalizing $30 million of expenses a year. Had they capitalized half of that, they would have had no earnings. But the point was that they didn't disclose it. The investors didn't really get to understand that. A new chief financial officer had come in, new controller had come in. I was working on mergers and acquisitions, capital budgeting. We all collectively realized there was a problem. The company ultimately pulled its listing – well actually didn't pull it – it amended its listing application with the New York Stock Exchange to disclose some of this capitalization which was the first disclosure.
But then, ultimately, the SEC stepped in, and stock was suspended from trading for 100 days, plus or minus 10 days. That's almost unheard of today. But these were the days when TCI traded at the legendary 1. It got down to 1 1/8 thereabouts. TelePrompTer traded at 2 and change at the low. This was at the, really at the nadir of the cable industry's valuation on Wall Street back in '73.
So needless to say, we were all out of jobs, even though we had discovered all of this. The messenger is rarely accepted with open arms. The company was totally reorganized. New management was brought in. The company was ultimately sold about 4 – 5 years later to Group W, which then, ultimately, was broken up and sold off in pieces. But the good news was, I met my wife there. She was in franchising. We both left at roughly the same time. She wound up at ABC News, where she had essentially come from two jobs removed. I went over to Children's Television Workshop.
GLASS: What did you do there?
BIONDI: The Ford Foundation brokered it. Ford had given the Workshop about $6 million as a grant to build an endowment. They had chosen to invest the lion's share of it in cable television and radio. Actually they were pretty good choices, in hind sight. I was going to work on the cable side. Of course in the interim, by the time I got there, the board of directors of the Workshop were so freaked out by what was happening with the public companies in the cable industry that they thought the cable business was going in the toilet. So they backed off. They actually got rid of one investment which was in the suburbs of Dayton with Bud Hostetter at Continental. But they were unable to get rid of Oceanic Cablevision, thank goodness, because they make $30 - $40 million when they sold it to ATC. There I was with a job that didn't exist. So I actually started doing business affairs and treasury work for CTW essentially a television production company. They produced Sesame Street and Electric Company.
GLASS: So this is your entrée into the content side?
BIONDI: Basically, yes.
GLASS: At the time you left TelePrompTer, you probably had a number of different options. Why did you select Children's Television Workshop? What drove you to content?
BIONDI: It's interesting. I didn't go so much because it was content because I thought I was going to be working on cable. What drove me over there was a non-profit, well capitalized non-profit, no shareholders, didn't have chairmen who had been indicted and gone to jail, didn't have proxy fights, didn't have stock that was going to be suspended in trading. It just seemed like a nice, safe harbor with people I knew – Joan Cooney, other people working over there. It was, and I think still is in many respects, a very tiffany operation. They've done something remarkable in the programming business and here we were trying to make sure it was institutionalized – that they'd have enough money of their own that they would never be threatened by the vagaries of funding. They were still getting quite a bit of money from the Office of Education to fund Sesame Street and Electric Company. So it seemed like a terrific place to go.
Lo and behold, as soon as I got there, the reason I went over, in terms of job, was gone. Now at the same time, about a year prior to that, my wife's best friend started dating a young lawyer named Michael Fuchs who fancied himself, among other things, as a good tennis player. I play a lot of tennis, so we became fast friends on the tennis court. Michael was at Marshall Bratter, which is now a defunct law firm, as an associate. He had left roughly at the same time I did, to go to Dino De Laurentiis. He later went from Dino to the William Morris Agency.
So I spent the next 4 ½ years at the Workshop, '74 – '78. Michael went over to HBO in late '76. This is after I met Nick Nicholas, while I was at TelePrompTer – he was Assistant Treasurer for non-publishing activities at Time, Inc. One of the things that he was financially responsible for was Manhattan Cable. Time had decided to get out of the cable business – one of the great ironies. They'd sold all of their systems. Before ATC, Time owned cable systems. They'd sold them to, I believe, to Cox, some to ATC. But there was one system they couldn't sell – Manhattan Cable – because it was just bleeding red ink.
So I had a call one Sunday night from Bernie Fischman from Shea Gould. He said, "Tomorrow morning, 34th floor of the Time, Inc. building, you're going to meet a guy named Nicholas J. Nicholas. His instructions are to give you whatever you need. We own TelePrompTer with Hughes Aircraft – Northern Manhattan. We're going to buy Southern Manhattan. There's a small problem. The city's not anxious to have one franchisee in Manhattan, but we'll get over that hump." Actually this led to how we discovered the capitalization problem at TelePrompTer. The systems are identical in size and almost identical in subscriber count. They were identical in fee structure. They both had HBO. Sterling Manhattan Cable, which is what it was called in those days – Southern Manhattan – was losing $2 million a year, and Northern Manhattan was making $2 million a year. It was really driving Time, Inc. crazy that we were making money and they were losing money.
Dick Galkin, another old name in the cable business, was the general manager of Sterling Manhattan. I knew Dick. He was just pulling his hair out. He was letting everybody go trying to overcome this loss. So one of the things they gave me was their income statement. Time did their income statements in an unusual manner. They'd show the expenses, gross expenses. Then they had a line that said, "less capitalized property, plant and equipment," - what was being capitalized into the asset base, a construction program. So it turned out that we actually had the same economics. We were just capitalizing ... I went back to out assistant controller, who was a controller of Northern Manhattan, and said, "Could you do Northern Manhattan on the same basis?" He said, "Sure." A day later he gave it to me.
It turned out the revenues were identical, but we were capitalizing $4 million more in expenses than they were – just more aggressive capitalization. So we were making $2 million more. We had $4 million less expense. We were making $2 million more. I said, "I know the accounting theory on this." He said, "Sure, sure. You know the idea is when we're building we quite properly allocate some of the expenses to property, plant and equipment." I said, "Great. What happens when we stop?" He said, "Well, we'll have to stop capitalizing." I said, "So how much are we capitalizing up there?" "About $8 - $10 million a year." I said, "What's our total payroll up there?" He said, "Four." I said, "So we're capitalizing everybody who works for the system?" He said, "Well, I guess that's one way to look at it." So I said, "Could we do this for the whole company? Are we doing this in the whole company?" He said, "Well, a different variation of it." But that's how we discovered that TelePrompTer was capitalizing more than they were disclosing.
At the same time it made us realize that, yes indeed, we could buy Southern Manhattan. We were now comfortable with the economics – as long as we were able to account for it in a way that was consistent and we were comfortable. Of course the city of New York wouldn't let us buy Southern Manhattan. In the end, Time, itself, wound up staying in. They ultimately kept putting money in, more and more money. Chuck Dolan was squeezed out. Part of what Chuck got as a going away present was the right to buy the major cluster in Long Island that Time was never going to build. They owned the franchises – Hempstead – but they weren't going to build them because the prevailing theory was that the only way you could make Hempstead a good cable franchise was to hire a flock of pigeons, put aluminum foil on their wings, and ask them to fly in front of the Empire State Building, because the signal goes "ZZOOOM – right into Hemstead. It's a perfect line of sight.
Chuck proved everybody wrong. He actually ... That was, and probably still remains, the heart of Cablevision – that Hempstead franchise. But that's another side bar of the failure to sell Manhattan Cable resulted in Chuck winding up with what's now Cablevision, which he has built into a great company. So that's where I met Nick Nicholas, who then went from Manhattan Cable, after he stabilized it and they were able to raise rates. It started to look like a pale image of what it's become today – a very robust, urban cable system. Nick was transferred up to help Jerry Levin at this little division of Sterling Manhattan that was now a full division of Time Inc. called Home Box Office.
Nick called me when I was at the Workshop to offer the job of head of movie acquisition. I thought this was really a silly job, to be honest with you, because you paid $.30 - $.40 a movie. It sounded like an accountant's job. So I turned him down. They were mystified. How could I do that? Then they had called one other time for another job. I just felt partially, that those jobs weren't interesting enough, and I really had to stay in one job longer than two years. So now Michael was over at HBO, and he had gone through a full calendar year of '77. In '78 he started talking to me about coming over. By then, I'd been there 4 ½, almost 5 years, and I said, "Sure. Let's do it." So I went over to run the Special Planning. It was really budgeting for original programming which had a grand budget of $11 million in 1978, $8.5 million for original programming and $3 million for sports.
GLASS: What was Michael doing then?
BIONDI: Michael was head of original programming.
GLASS: Who else was at HBO at that time?
BIONDI: Seth Abraham was there. I think Ross Greenberg was there by then. Dave Meister was down in sports. In original programming, Sheila Nevins had just come on about several months after I did. Iris Dugaw was there. Tony Cox ran, actually he didn't run, but he was head of sales and marketing. Jim Heyworth was head of affiliate relations, sales and marketing. Austin Furst was head of programming. Jerry and Nick were CEO and Chair respectively. In the middle of this, Jim Shepley, who was the CEO of Time, Inc. decides he's retiring.
Lo and behold, Dick Munro, the dark horse, head of the video group, is named new CEO. Then we're betting on who's going to become the new head of the video group. Of course, you could have gotten long, good odds that Nick Nicholas was going to be it. Lo and behold, Dick chose Jerry. Then Nick became, I think, head of planning and then CFO of Time, Inc. But they both left the video group at that time. So there was Jim Heyworth who moved up to become CEO of HBO, Austin became an EVP, Michael moved up to become head of all programming, Austin, shortly thereafter, went over to run Time Life Films, and Tony Cox moved up to run sales and marketing. I moved up to become essentially head of administration for programming which spent almost all the money in the company. Then probably in 1981, if my memory serves me correctly, I became Executive Vice President for Administration, which sort of... There was Tony, sales and marketing, I was administration, and Michael was programming. We all reported to Jim Heyworth.
GLASS: So this is late '70's, the team that helped grow HBO into the colossal that it became, was now in place. Did anyone have any idea what was to come?
BIONDI: I think that's what sort of made HBO interesting. I think the answer is yes, but not everybody. There were a lot of people like Michael who originally focused on, "This is my programming job. This is great. I get to buy movies. I can make movies. I can do original programming. I can do some boxing and Inside the NFL." It was terrific. He was essentially focused on doing different and highly entertaining programming. Then Tony's side of the world was focused on building brand, advertising, affiliate support, building a sales organization. Everybody was just breathing easily that they finally broke even. The first five years of HBO they lost money. It was quarter to quarter in the mid-'70's as to whether Time was going to keep funding this losing operation. Finally, it got to break even.
Literally, I walked in the door, the Monday morning I walked in the door in October, 1978, TelePrompTer announced (they were 10% of HBO's base, like 2.2 million subscribers) that they were leaving to buy half their Showtime and were going to convert all their HBO subscribers to Showtime. So you can imagine – it was like "Whoa" – unheard of. So when I got there the floor was literally empty. It was like a neutron bomb had gone off. It was 9:30 on a Monday morning and there wasn't one soul on the floor. There was this one other young woman sitting there. It turned out she was hired that same day. She ultimately became my secretary. But she was a floater. But everybody was upstairs in a company meeting. Of course they had forgotten there were lots of new employees showing up.
So it became apparent to me that what was happening was that HBO was growing at a relatively predictable rate, just rolling out our systems. It was getting operators to launch it. And we had very good metrics on what the big cable companies were doing, what their plans were. So you could literally look at the launch schedule and do some yields, which you were getting pretty good at doing, and you could estimate what your base was going to grow at in terms of subscribers.
There were some differential in the churn rates, but they were beginning to settle down at 3.5 - 4% a month. Our base actually probably moved. The move rate within our base was probably about 2.5 – 3% as a sort of younger demo in those days that bounced around. So it became pretty apparent that if the industry was going to be able to keep its momentum up, we were going to go from 2 to 4 million subs. It turned out we went something like 2 to 4.4 to 7.8 on up into 12 –14 million. You could project out modest rate increases. HBO didn't raise rates for five years. You could project the revenues, and if you could lock up your expenses up front, you could increase your margins quite dramatically. What we did is to go out bought forward lots of product.
GLASS: Where were you getting product from then?
BIONDI: Studios. And we were prebuying very heavily from the producers which did not endear us to the studio system, but it certainly brought the studio systems to the table much more readily.
GLASS: How did the studios look upon HBO in those early days, back in the late '70's?
BIONDI: In the late '70's I think they really viewed it as something that wasn't permanent, that wasn't going to be a roaring success. It was something that could really be taken advantage of. It was a modest, ancillary stream of income. I remember that we did a deal with Paramount in 1979 where we were going to pay them, I think, $25 million for about 3 – 4 years worth of product plus an enormous amount of library. Barry Diller was running Paramount. At the last minute he stepped in and said, "We are not going to do that deal. I need another 10%." He threw in the Godfather and a few other things. The point was that it was such a good deal that, if it had been for only one year, it would have been a good deal, much less for ... HBO is still playing product off from that deal.
The third exhibition window is playing some of that product. The studios really felt had, because that was just one of many deals where we had started going from variable instead of paying them $.25 - $.40 an A movie. We started doing flat deals – paid them $3 million a movie, $500,000 a movie. Or we paid them $50 million for 30 movies that year.
GLASS: Were you one of the architects of the original output system?
BIONDI: You always bought a studio's output. What I really spent a lot of time on doing was changing the economics from variable to fixed - in other words, paying flat dollar pricing and then, as we began to get into it, ... The first two years I was there, HBO would have been an environment where they had exclusive affiliation agreements. So Showtime couldn't get in on the system.
Ironically, Irving Kahn, who had come out of jail, bought a series of systems around Camden, New Jersey. He didn't want to affiliate exclusively and he threatened to sue us – a pretty good lawsuit. So we changed our affiliation agreements without actually going to court. Having said all that, we changed it so easily because the programming on HBO was exactly the same as it was on Showtime, except we had more exclusive product. We had original programming and we had our prebuys. Everybody had all the studio movies, except for the prebuys exclusive. So our concept was, what good is it going to do Showtime? We already have 90% of the universe. Why would anybody buy Showtime on top of HBO? They might be isolated a couple of percentage points that Showtime might have incentive to drop HBO just for the money.
Lo and behold, a regional sales executive for Showtime in Thibodaux, Louisiana, convinced the system manager to offer Showtime on top of HBO – and we laughed. It was late '79, early '80. About 45% - 50% of the HBO subscribers took Showtime as well. We were just absolutely stunned. And that was the first insight – at least I had – I think we all had, into the fact that there was a big component of the audience who could afford to pay for convenience and actually wanted the convenience. We always thought the repeats were somewhat of a negative with the audience. Well, it turns out now, the audience didn't use HBO the way we thought it did. It was a drop-in. We programmed the big movie on Sunday night at 8:00. If you're busy, you can only get it again on Tuesday in prime time. But if you had Showtime, you had two more shots at prime time or three more shots at prime time.
GLASS: Well, let's talk about scheduling for a moment.
BIONDI: The idea of pay TV I think was driven, largely, by a belief that people were willing to pay for watching movies, uninterrupted by commercials. It turned out, lo and behold, that was the case. Back in 1972 when I was at TelePrompTer, one of the things any major cable company did was run models on pay TV. If there were 100 people like myself in the world doing that, my bet is that 99% of them were doing a pay-per-view model. All of the experiments had been quarters and boxes in Hartford and having tickets eaten by a box down in Florida – somehow getting 10,000,000 households, one movie, $4 that we split 50-50 with Hollywood – it's a $20 million night. That dream, two or three times a month, lo and behold, it's a big business. Two guys, Alan Greenstad of Channel 100 out here in LA, and Jerry Levin ran a subscription model. They probably ran it because they were convinced, correctly so, that it was just too expensive and too technically complicated to do pay-per-view.
Lo and behold, here we are in 2000 and we're still saying the same thing. Needless to say, the subscription model proved to be quite powerful even though the economics of getting it distributed until the satellite came into being limited it to a regional service. HBO was essentially in the greater metropolitan area of New York. It wasn't a 24-hour service. With the advent of original programming, another added dimension came in which was sort of unrestricted content. You could use language that you couldn't use on commercially supported television content. Obviously you had R-rated movies. You didn't have X-rated movies. But you could have R-rated original programming, or the equivalent of R-rated original programming. And that added a whole new dimension.
More people liked it than not, thank goodness. But there were clearly, in the early days of pay, there was a resistant group because the content wasn't censored ala network television, for content. There were no standards and practices in the broadcast network sense. Obviously we had standards and practices, but we didn't have a department called that. Then the whole concept of how you schedule a network – now remember it wasn't a 24-hour network until The Movie Channel went to 24 hours, surprising us all, - with great acceptance in the early '80's. I think we signed on at 5:00 PM eastern and went until about 2:00 AM. So you had a finite number of movies.
Hollywood was only making available probably 140 – 150 new movies a year. Very few of those were actually "A" quality movies when you got right down to it. 20 of them were "A" quality. This meant that there were probably an average of 2 "A" movies a month that you could use as anchor. We developed – it was actually developed before I was there – we just refined it a little bit – for 24 hours and the addition of Cinemax and other multiplexes – was that you pick anchor spots: Sunday night at 8:00 went for one "A" movie. Next Sunday night or two Sunday nights later, the second "A" movie, your other "B" movies would go in on the Saturday nights. The repeat schedules were layered in. But your schedule became a function of how much product you had available. I think we had something like 40 or 50 original programs a year, 24 sporting events, 140 original movies, and probably 200 library titles. When you throw that mix into 18 or 24 hours, you come up with probably 7 exhibitions per title per burst. You might have 1, 2, or 3 bursts for each title over an 18-month to maybe as long as 3 windows over 15 years. So the scheduling became part art, as it always is, but part necessity. You had so many hours to fill and you only had so much product. You had to limit the repeats, and you couldn't play R-rated product before 8:00 PM, which was another limitation. It sounds complicated, but you gradually built decision rules.
We had a board in what was called the War Room, which literally had every month – all the programming that was available for every month, maybe for two years. There were lots of holes out in the end of the second year, a lot of TBDs, but nevertheless, because of our lead time with movie production, we pretty much knew which studio would have which movie. We just didn't know how it was going to do until it got into theatrical release. That worked really well with one channel. We were able to schedule a terrific service. Then when Showtime demonstrated that multi-pay was possible and all of a sudden it caught fire with the cable industry, we had to do something defensive. So we came up with what was and is still called Cinemax. Cinemax was, in house, described as a flanker brand, a defensive brand. It was really something to blunt Showtime as a second choice or The Movie Channel as a second choice, and did a very good job of it. We could price it aggressively. But we programmed it in a complimentary way which meant with the beginning we promised we wouldn't have any of the same movies on both service the same month. In fact, we tried to put 90 days, 120 days, sometimes 6 months. This meant we had to go and buy a lot of product that we didn't already own. And we did.
We found ourselves doing business with Viacom of all people. They owned a lot of "B" theatrical pictures that we didn't buy anyway because they were going to Showtime, usually exclusively. We were able to piece together, with libraries and independents, a service. It didn't have that much muscle. Then there were, ... then there got to be ... then because David Meister, if my memory serves me, was the early head of Cinemax. David would start lobbying, "Well, HBO doesn't need that "A" title. Let us have it." And of course we'd say, "Hey, look, please." And those debates would go back and forth. Gradually, I think every programming regime has a slightly different take on it, but by and large, there was a give and take between what premiered on HBO and what premiered on Cinemax. Since Cinemax was all movies in those days, it was only a movie conversation.
GLASS: Was the public accepting of the changes between the broadcast networks and what you were doing? Was that difficult for them to ...?
BIONDI: Well, it's an interesting question. Even today, only about 30% - 35% of the cable audience, which is about 70% of the broadcast audience – so call it 30% of the total audience – takes any kind of pay TV. You sort of have to ask yourself, "Why?" It's probably 10% - 15% of a content problem, and some percentage is stealing it. The balance, in my estimation – just makes a judgment that it's not worth the money. So our problem was less one of acceptance. The people who had the service liked the service. It's gotten nothing but better over the years. I think all the pay networks have gotten nothing but better. The original programming is better. It's winning awards. It really is a significant place in their programming universe as opposed to a minor place 20 years ago. But I think people compartmentalize it pretty easily. "This is more grown-up entertainment. This is no commercials." And it works fine. They go to the networks for what the networks do well – live events, sitcoms. Now dramas are coming back.
GLASS: In 1983, you became the president and CEO of HBO. Can you talk about that?
BIONDI: I probably can't talk about it as well as say, Jerry Levin, might be able to talk about it. But HBO, in '83, was probably $700 million - $800 million revenue business doing $100+ million in EBITDA, up from break-even only a few years before that. We had done a lot of things – first exclusive deal with Columbia Pictures. We started Tri-Star with Columbia and CBS. We started launching Silver Screen Partners. We had done a lot of prebuys. We'd done the first commercial satellite sale and lease-back with Hughes Aircraft, Galaxy One. We built a new uplink facility out on Long Island. I mean there were just a lot of things happening. Here you had Michael focused on programming. That's what he cared about. Tony only focused... For whatever reasons, Jim Heyworth was in a very, sort of, conservative mode. When all of us, Tony, Michael and myself, really felt that it was time to keep the pedal to the metal. And it became a bone of contention in management. I think Jerry picked it out, in the end. He decided he needed to make a change. And he did. He chose me. You'd have to ask him his particular reasons. I didn't go into a lot of detail with him.
I think both Tony and Michael had issues with it, to varying degrees. But it happened. Jim went, sort of, into a limbo, in corporate. And we continued to grow until early '84. We didn't understand why we stopped growing at the time. There were essentially two reasons to me in hindsight. First of all, cable dereg was in Congress but hadn't happened. So all the cable operators were holding back their construction, waiting for deregulation so they could do it under deregulation. And something called the VCR had started to happen. It was still small, but it was the two combined that began to slow HBO's growth.
Then there were other things happening in the video group. TV Cable weekly, which was not literally not in the video group, but there was subscription television and there was teletext. Then ATC began to really miss their capital budgets, big time. So there began to become a lot of pressure on Jerry in the late '83 – '84 time period. Lo and behold, in mid-'84, Jerry was replaced by Nick as head of the video group which started a process of literally, everybody who ran a division in that group, was no longer there within a year. Tryg, myself, Austin Furst – gone. Nick brought in his own people. So there was just about a two year period of time where I went of president and CEO to chairman and CEO to gone.
GLASS: In the meantime, you had built up a relationship with Columbia.
BIONDI: Well, we had done a lot of business with Columbia. We had done two very big deals – the first exclusive pay output deal and then Columbia Tri Star deal which turned out to be a pretty controversial deal. Tri Star actually turned out to work had Time held on to it. The symmetry of the deal was that we knew it was going to be an expensive licensing deal because we had to keep it from going to Showtime. We didn't want Fox and Columbia and ABC owning Showtime with Viacom. So it was an expensive deal, but it was going to be paid for, in the end, by the value created at Tri Star. Unfortunately, Time sold Tri Star after I left. They sold down their interests before it was sold for big money to Sony. But, hindsight is perfect. It happened to be what I'd thought would happen going in, and that had always been my position.
But anyway, after I left, a lot of people called, Fay Vincent, one of them, who was running Columbia Pictures at the time. They had just sold to Coca Cola. I knew Fay a bit and we hit it off. He said, "We're now owned by Coca Cola, and Coke wants to make the entertainment business a lot bigger. Would you come over and help us do that? I don't want to be any more specific because I really don't know. I think we want to go out and buy companies. I don't have it on the radar screen, but we've got the capital and we need to do it." So after sifting through the opportunities, I figured, hey, this is Coke. It's a nice company. I knew Fay. He's a good guy. Still is a good guy. And I went over there.
We wound up essentially doing what he had said in advance. We bought Norman Lear and Jerry Perenchio's company, Embassy Communications. Then we bought Merv Griffin's company which produced Wheel of Fortune and Jeopardy. Those two companies are still the largest profit centers in Sony which subsequently bought Coke's position in the entertainment group. We started Castle Rock, with Alan Horn, Rob Reiner, Andy Scheinman, Marty Shafer, and Glenn Codnich as a television company. It turned out to be a very successful film company coming out of the box – Harry Met Sally. Then they finally got a television show – the Jerry Seinfeld Show, which is still the biggest and most successful television show ever even though Wheel of Fortune and Jeopardy are close, financially, even though they don't have quite the same renown. But they have been on the air for a long, long time and they make a lot of money.
I stayed there for just about three years. A guy I had met when we formed Tri Star who was a theater owner, named Sumner Redstone, called me one July '87, Friday night. It was unusual that I'd be there late on a Friday night in July, but... He said, "You know, I just bought this company, Viacom. I'd like to talk to you about running the company." I said, "I'd like to talk to you too, but it's probably rhetorical because I'm moving in a week, to California. We had bought a house. The kids were in school out here. He said, "I get up at 4:00 AM. I'm at the Carlysle. Any time after 4:00 you come. You stay as long as you want, and if we can work it out, we'll work it out."
So he worked it out. So I decided to stay. We put the family totally in reverse. We had a house out here, no house back there in New York. The kids had to get back in school. But it worked. So that's how I wound up going to Viacom. It wasn't so much geography. It was just a better job. I was coming to California because Coke – it took them 2 ½ years to figure out – but that all the executives were in New York and all the assets were in California. Fay didn't want to move. Dick Gallup, president of Columbia Pictures in New York, at the time we didn't know it, had a fatal brain tumor. He knew it. So he couldn't move. And I was the guy who ran television. So I was coming out here to run the television business, which at that time was the largest U.S. television business.
GLASS: And you stayed in New York?
BIONDI: Stayed in New York.
GLASS: And what did you do there?
BIONDI: Viacom was pretty much what it is today minus CBS and Paramount. They had a television division. It had a radio division. It produced TV shows. It had MTV and Showtime and Nickelodeon on VH1 and... What am I missing? Some other important division. It was in multiple businesses – syndication was their other business. It just seemed like a terrific opportunity. It was highly leveraged. Sumner had borrowed a lot of money. But the businesses were good growth businesses. One of the great ironies is the banks were putting ... Oh, the cable division was the other thing. Banks were putting tremendous pressure on us to sell the programming assets which were Showtime and the MTV networks. Sumner's a lot of things. One of them is that he's stubborn and tenacious. He wasn't going to sell. He just knew in his bones - and I certainly agreed with him – thought that those were going to be very, very valuable assets. This was a time when... It's easy to think of these as behemoths today. They make $1.2 billion in EBITDA. They're a giant. 13 years prior, the whole company billed $900 million in revenue. An EBITDA of $150 - $200 range in that range. And Nickelodeon was losing money, and MTV was making $8 - $10 million a year EBITDA. We were right. They turned out to be terrific assets. We changed a few people around. We put Tom Freston in to run the MTV networks. He's still there. That was really a terrific choice. Tony Cox came over to run Showtime. Henry Schleiff came over to run Entertainment. John Goddard stayed in cable. Neil Braun came over a little bit later. Ed Horowitz came over from HBO after ... One of the last things we did when I was at HBO was we were negotiating with Viacom to put up high powered satellite called "Crimson".
When Nick came in, he killed it because it was clearly not something the cable industry like a lot. What surprised me was Time kept the satellite and still tried to launch the service. Of course they just lost $100+ million. They needed someone to blame. They blamed Ed, who was the architect of the idea, even though he had long since lost control of the destiny of the product. So he was out. Eddie is basically, and still is probably, the best satellite guy in the world. We needed him for both technology and satellite. So he came over and played a real important role there for many, many years. So we gradually put together a team that made it work. Then that team had some turnover. Henry left, but Tom was still there. Gerry Laybourne left eventually to go to Disney and now at Oxygen. Tony, unfortunately, passed away. Matt Blank, who had come over, has really done a fabulous job for them running Showtime.
In early '93, we started talking to Paramount as well as NBC about a friendly acquisition. We actually got very close to buying the NBC network, but at exactly the time NBC was warming up, Martin Davis, chairman of Paramount who has since passed away, came to Sumner and said, "I want to do a deal." We didn't realize at the time that he had caught wind of the fact that Barry Diller, who was at QVC, was thinking of making a bid as well. So Sumner and Martin worked out a friendly deal that became a hostile deal because QVC overbid the friendly deal. That went on for a long time, and the price basically went from about $68 a share to $88 a share. It appeared to be a very expensive acquisition of Paramount.
In the end, it turned out to be a pretty terrific acquisition or Viacom although there was a two year period of time where it was really shaky. Part of it was Blockbuster. We also bought Blockbuster back-to-back with Paramount, largely to get the cash flow to support the debt structure we had incurred to buy Paramount. In the process, the Paramount senior team – Martin Davis, Stanley Jaffe – left. We hired Jonathan Dolgen who joined Sherry Lansing, who are still there. Wayne Huizinga, Steve Berrard came with Blockbuster. They ultimately left. I ultimately left in '96.
GLASS: Would you say late '80's is when a lot of the vertical integration was set up and came into the industry?
BIONDI: I think certainly the seeds started to come together in the late '80's. I think what a lot of people missed in the early days, in terms of those who have now vertically integrated, was the strength of the basic cable network as an industry group. I remember when Time became a one-third partner in USA Networks. It was highly debated. I remember Michael actually voting against it – Michael Fuchs. Everybody, in and outside of Time, thought pay was the real locomotive. Why did you need to be in the basic business? Pay TV was going to be the dominant force in cable networking. Well, that turned out to be wrong. They're still great businesses, but the basic cable networks really exploded. Time missed it. They ultimately got back in by buying Turner.
Viacom was, in some respects, lucky enough to have Herb Seigal force Steve Ross not to sell Warner Amex Cable to Viacom. Instead, they substituted the MTV networks, which turned out to be a hell of a trade, even though the cable networks have done just fine. Those basic cable networks plus those they've started – TV Land, VH1 – really turned out to be enormously valuable assets – Comedy Central. Even John Malone, who I think in the early days thought the way he'd play basic cable networking was to get the best rate in the business. No one realized that the networks themselves would become, even with low rates to TCI, enormous economic engines. He recovered through Liberty which has terrific assets in the basic cable networking business today.
But a lot of people didn't realize that until it was almost too late. Obviously some of them actually did miss the boat. But that began to plant the seeds of creators of product wanting to be vertically integrated into the distribution of product, television distribution of product. Now there's satellite or cable. News Corp has done it largely through satellite. Others have done it, Time Warner, largely through cable. But, yes, that's ... I always viewed those programming pieces because you couldn't own networks in those days for practical purposes – broadcast networks. So there wasn't any great need or ability to fulfill a dream of vertically integrated program producer with the program distribution arm. Once the cable networks filled that gap, then everybody rushed in. Now the broadcast networks would, in fact, become part of that as well. ABC went to Disney, CBS to Viacom, Fox to Fox.
GLASS: Do you see any problems with so much power being concentrated?
BIONDI: There are always issues. I just think you have to be more vigilant. I don't think it's inherently a problem. If you don't watch it, it doesn't matter how many - there can be 20 players - they're going to abuse it. I just think you have to stay vigilant on it. There's going to be other ways to get it. One of the nice things about technology is that those places are not going to be the only place to get your programming. I think the internet is going to make it a much more interesting game. It's going to take some time.
GLASS: When you left Viacom, you then went over to Universal.
GLASS: Can you tell us about that experience?
BIONDI: It was pretty straight-forward. Literally, I think Sumner came in my office about 3:30 on ... I don't even remember what day of the week it was anymore. He said, "I want to make a change. I always wanted to run my own company. It's been great. I'll be great." It hit the tape about 4:00 right after the market closed and about 4:05 I got a call from Edgar Bronfman, CEO of Seagrams, who was our partner in USA Networks. We had spent some time talking about what we could do with USA Networks. Actually the talks got relatively heated toward the end and resulted in a lawsuit that Universal ultimately prevailed in. Viacom contends they didn't lose but they did, in fact, settle and sell their half of USA Networks. He said, "Would you consider coming over here? I need a CEO for Universal Studios."
Universal was in the film business which Paramount was. They were in the music business in a small way. Viacom had MTV, but they really didn't have a label. They were in the television business which I had done now a lot in the broadcast television business going back to Coca Cola television and then Viacom and then Paramount television. It all reported in. And theme parks, which we had a small theme park group at Paramount and Universal had a more robust, fewer number of parks, but a bigger business. It seemed like just a natural fit, almost too good to be true. The one change was going to be that it was out here in LA, which was fine.
So we moved out here. I moved out here in '96 and the family came out in '97. We found a house. The kids ultimately got out of college and came out here and found lives and jobs and love it out here. I stayed there just under three years. I can'' really tell you what precipitated it in any real fashion except that Edgar really wanted to run his own business. It was one of these situations ... It was much like Sumner had said the same thing – "Look, I want to do it. I want to be more hands on." That is an issue that you run into when you deal with owners. It's their prerogative whether they're public companies or not. You just sort of roll with it.
GLASS: You've had 30 years of experience between the cable side, the network side, and then also working with large entities, conglomerates. What's your favorite part of all of that? What did you really enjoy the most?
BIONDI: I think I'll give you two different answers on that. I think the cable business is the best business. It's the most predictable. It's got the best cash flows. In some respects, because of all that, it may be the least interesting day-to-day. There are dynamic changes that come in, going from 12 channels to 20 to 36 to digital to satellites, multiplexing, deregulation, reregulation, deregulation. All of that is part of the business. By far the most fun, organizationally, was HBO. It was just, sort of a place in time, where you had the coincidence of almost everybody being the same age, roughly 28 – 40 years old.
In fact, two of my Princeton baseball teammates and a third classmate were at HBO just by serendipity – John Redpath was the general counsel, Bob Bedell who was head of marketing. Redpath was a relief pitcher. I was a pitcher-outfielder. Bedell was a catcher. Then Rich Thomas was also in our class. There were four of us there just serendipitously – all from the same college class. Some had gone to law school, some had had other jobs. I went to business school. This was now – we graduated in '66 – this was now almost 12 years later that we had come together at the same place. There were lots of stories like that. It was just a tremendous amount of energy.
We found ourselves growing so fast that we couldn't even train people. We were just hiring people with strong "gray matter". We figured we'd just throw them in, let them sink or swim. The good swimmers ultimately became the big name stars. A lot of those folks are actually still there and remain good friends. A lot of them have moved on to do other things, most of them quite successfully. I mean it was just a unique coincidence of a tremendous growth curve with a lot of people who, I think, really wanted to work in the broadcasting business and couldn't get jobs. The networks had sort of leveled off. Their margins were under pressure. They really weren't hiring.
There was this whole generation that was shut out of the programming business. HBO was really the first new programming entity to hit this country basically since broadcasting, broadcast networks. There was a whole generation that just started up. What really surprised us, because we wound up doing a lot of deals with the CBS's of the world and the studios, was that most cases, we had them outgunned. Certainly in number of people, but we were early adopters to ... I like to think I converted - or we converted – the movie business to computers.
The first deal we did with Columbia, they were in the room with three of them. We had six people, four of whom were working on computers and running models. Jon Dolgen said to himself ... I mean, he's told me this. We're good friends. He said, "I said to myself, 'Never again.'" And he went straight to Harvard Business School and hired people, brought in computers, brought in analysis, brought in "gray matter". It gradually spread. That's not to say everybody in the movie industry was slow. They weren't. It's just that they're real talent was not focused on this narrow little piece of the business called pay TV. But our vision turned out to be true – that it was going to become a big part of the business.
GLASS: Have you, in your vast experience, ever seen that HBO talent pool replicated, that class you were with in the early '80's, so many talented people who have all gone on to amazing careers?
BIONDI: I'd say there's one subset that comes close and that was the MTV Networks. Although they were a very different group of personalities and they were going at a very different segment of the entertainment space – music and kids – they really had, sort of, the talent and the spirit. It sort of captured ... It was a "them against the world" type of attitude which was very much a part of HBO's feeling because the studios were against them and the cable operators didn't ... They sort of had this love/hate with cable operators as well. There was this balance of power that was very uneasy between the two. But I think, largely because I didn't grow up in MTV ... I can only view it through the prism, and it looked and felt very much the same type of organization and energy levels. In my career, where I literally worked day-to-day, I haven't seen another group like that HBO group. I'd be really surprised if I do again.
GLASS: Now that we're at the beginning of the dot.com era and the next wave of technology introducing films to the home using different media – and you're involved in that – do you think that you'll see that again, this replication of this young, eager group who can't get into the pay networks because now they're all established?
BIONDI: Well, you see images of it, and some are not so pale images. AOL, Microsoft although it's gigantic relative to even HBO today, has that same kind of spirit, energy, sort of unified face. People want to work at Microsoft. They want to work at AOL. They've built teams. There are probably organizations that will evolve into that. It's a little early. And one of the differences, quite honestly, is that the capital markets have been so strong, that it's been rewarding entrepreneurial activities as opposed to organizational activities. So you have 1,000 little specks of light as opposed to one fire. In the analogy, HBO was a fire, just gathering more energy. I'm sure AOL and Microsoft felt the same way about themselves in their history. Here you've got a lot of little organizations sprouting up. Some may take hold and turn into really robust organizations.
But what I see as an investor are really the early stages of that. It's very hard. You can see elements of things in people and elements of things in organizations that remind you of a time and a place. But they're partial. They're not the whole package yet. If they were the whole package, they'd be multi-billion dollar companies. They wouldn't be venture investments.
GLASS: You're currently chairman and CEO of Waterview Partners.
BIONDI: It's senior managing director.
GLASS: Okay. Can you tell us about the genesis of this company? What brought you to where you are now? I think of this as like... Your history at HBO, 30 years ago, something that is the dawn of a new era in distribution. Can you tell us what you're doing?
BIONDI: Sure. The genesis is actually really circular. An old colleague and now partner, Rick Reiss, who I met at my second investment banking job... He was in research, and I was in banking. We've remained friends over the years. He went into money management and has been doing that 25 – 26 years quite successfully. When I left Viacom, he came and said, "I've always wanted to do private investing, side-by-side." His funds are all invested in public equities. "But I don't want to do it unless I have somebody who knows the space and has the time. You have both." I said, "You know, it's tempting. But this Universal job just seems too good to be true." It's sort of like putting on a blue suit after you've been wearing a gray suit. It wasn't that hard. So that came and ended, and I'd stayed in touch with Rick. He said, "Do you want to try it again?" I said, "Let me think about it." I concluded that it might be a lot of fun. He's in New York and I'm here and we added a third partner, Gus Oliver, who does administration, but he's heavily involved in the investing as well. We decided that we were going to be a media fund. Rick's background is in leisure time and media as an investor. I mean, he's made a lot of money in cable and wireless and all the traditional great media growth stories over the last 25 years. We'd invest in private media deals.
Early on we made a decision that we were going to allocate a portion of the portfolio, ultimately we decided 20%, to internet media as opposed to the 80% that was in older, traditional media. It's a quarter of a billion dollar fund and our positions in old media range from $3 – $30 million. In new media/internet we wanted to average about $1.5 million probably in 30 – 40 positions. We were going to spread the bets very wide because we just felt it was way too early to pick one company or one segment and bet $5 - $10 million a pop on a start-up. And we've done that.
And yes indeed, most of what we've done are in companies in various pieces of a puzzle that I believe will evolve into full-fledged distribution of rich media – television shows, movies, shorts, home videos, whatever – through the internet. You'll be able to get Seinfeld on demand, HBO on demand. You want to see all four Sopranos on October 1, if you want to pay for it, you'll be able to get it. If you're a bachelor, you want CBS on demand, you're not going to get that Pampers ad. You'll get an ad for a product that appeals to you from P&G. Or if you have kids, you're going to get Happy Meals ad, instead of a breakfast ad more likely, from McDonalds. All of that is coming together where you're getting not only targeted programming, but you're getting targeted advertising combined together into a very, very powerful medium call multi-media. It really is the dream of multi-media delivery.
There's a lot of skepticism. There's a lot of fear. There's a lot of money being risked, and not all of it is going to be successfully rewarding. There are going to be a lot of mistakes. There are going to be a lot of fits and starts. The internet is no really yet geared to deliver that. I think a lot of people blithely assume this is all going to happen for everybody, whereas the evidence are there are probably 25 – 30 million HBO homes. It's because of economics. Those economics ... That's going to be the universe that's the first adopters, the HBO universe, for a lack of a better way of describing it.
There are 25-30 million up-scale households in this country that can afford anything and will pay for it in the media world. Those are going to be the people with the high-speed pipes and lots of memory and going to get all the targeted media. That's great. That's pretty much the audience that advertisers are really after anyway, to begin with. They control vast amount of disposable income in this country, whether they're male or female, however you break down the demographics in those households. If price points don't come down, you'll see that or you'll have slower imitations. You'll have dial up service or DSL that costs $20 a month instead of $40 or $50 or $100 a month for on-demand services. All of that – you can see the pieces. You can see the players. The irony is it's the old media that's the most difficult to predict their behavior.
GLASS: Why is that?
BIONDI: Because they're acting like, quite predictably, the "haves" and they're protecting what they have. They're protecting their business model. They're afraid they're going to get stolen blind. Yes, in fact Napster, in their mind, has stolen them blind. We don't know what the court is going to say. Maybe they'll agree with old media or maybe they'll say that Napster's just fine. What Napster has proved to me is that two things about the music business model are just dead wrong. There's a big demand for single and old singles, and obviously if it's free, you can get 30 million people within less than 12 months to sign up. If you made the price $3 a month, would it be 20 million? Would it be 18 million? I don't know. But it would be less. What old media has to realize is that the public is basically ... the consumer is not going to be denied. It's not a technological issues. It's a consumer demand issue that's being delivered through technology. To the extent that they ignore their consumer, they're going to do it at great peril.
GLASS: So you think that for the dot.com world to be successful, the services should be subscription?
BIONDI: Oh, I think there will be a combination. I think there will be "per event". There will be subscription. You'll be able to sort of mitigate the cost of the subscription or per event if you're willing to take targeted advertising. Or in some cases, you can pay nothing if you're willing to take a lot of advertising.
GLASS: You're an executive of 30 years of cable and entertainment media history. Are you now working with people who are in their 20s and 30s who are just starting out?
BIONDI: Yes, lots – probably more 30s than 20s, but there are certainly some 20s. It's interesting because there are lots of advantages of being entrepreneurial and having lots of capital and being out on your own. There are a lot of disadvantages. Organizations do provide mentoring and learning curves and experience. That's part of what they do. It may be frustrating. Because they do that, they do it slowly or they do it more slowly than maybe most people want to move.
So you get this combination of tremendous energy, entrepreneurial energy, lots of mistakes, probably not as seasoned management set as you'd like, and probably not as much attention to detail or people management as you might like. They're more focused on the outside world because that's where the action is. That's where the investors are, that's where the money is, that's where the consumer is, that's where the publicity is. So you get this very interesting trade-off where 20 years ago I was in one or two organizations that had a lot of organizational energy and terrific growth curves. Here it's much more individual or much smaller organizations that are trying to capture that but coming at it from a distinctly different perspective and discipline.
GLASS: Do dot.com entrepreneurs have lessons to learn from the cable history? Is there anything that you think would benefit them?
BIONDI: I think the lessons of cable's history that I would say not only dot commers but anybody can look at are sort of the inevitability of a consumer friendly technology. Maybe not even that well executed. It's still hard to find people who are singing the praises of their cable companies. But they do sign up for the service. It's relatively simple. It's relatively reliable, if not absolutely reliable. And it's just spread through America. Now it's taken, depending on when you really think the counting started, but let's say 1970, I remember there were 8 million subscribers in '72. We're now up to probably 75 – 80 million, particularly if you include satellite services, we're well over 80.
It's going to happen. It's going to happen on the internet. It's not going to take 30 years. It's probably going to take more like 11, 12, 13. There's still logistics to be solved. But a lot of the internet logistics are handled over the counter. You buy a computer. It has a modem in it, has software, has a receiver. You don't have to get hooked up, per se. You can just go on line and download the services or download the rich media you're looking for. And there will be smart agents that work for you, and there will be smart agents that work for the media companies that do the transactions and protect the copyrighted material. That's all happening. This is all mumble-jumble to 99% of the people in the world today. They don't know what digital rights management is. They don't know what rich media is. But they're going to, because their kids do.
GLASS: What about interactive television? Do you believe in that? Do you think that will come along in time?
BIONDI: I think that if you look at what goes on in video games, and you assume that you don't totally outgrow that, that it's not just an age-based phenomena, and if you can get the latency out of the television system so that it's as fast as the platform based games, yes, there should be a big market place. Now you're probably getting to games of chance, games of skill. Everybody's looking at that. Everything we've talked about in terms of doing rich media, certainly works, probably much better, for games of chance. It's just a question of, "Do you want to interact with a board that says, 'Here's the question. Can you answer it?'" Or is there a host or hostess talking to you saying the same thing in real time. I'm not a big believer in what I've seen so far, but I do think there's evidence there that ...
It's not television as I think about television. I think of television, one of the great beauties of television, is that it's passive, it's escapist. It's relaxing. You don't have to think a lot about most television, for most people. Therein lies one of its great inherent strengths. I've always argued that probably the two technological advances in television are the simplest – the remote control and the VCR. Forget about digitization and what has really changed people's ... Those two items. In 1984, could you conceive of driving down to a store that's in some strip mall and going in, looking at a selection of 5,000 video tapes, renting it for $3, taking it home, watching it, stopping it, rewinding it, bringing it back. People bring you a business plan like that, you say, "That's so consumer unfriendly. Are you kidding me? It will never happen." Hey, it's the largest component of the movie business today by a lot – not by a little, but by a lot! That's why I don't think Blockbuster or Hollywood Video or their cousins and sisters or brothers are going away. For everybody who has rich media on demand, there's still going to be 70 – 90 million people who would much rather spend $1.99 or $2.50 renting a video, mid-week because they can afford it.
GLASS: You've used the term rich media a few times. What do you mean by that?
BIONDI: Rich media is just generic for big files – movies, television shows, something longer than a four-minute video clip.
GLASS: Do you have any other thoughts you'd like to include in this about your history in cable and then future of the entertainment industry?
BIONDI: Any other thoughts? To me it's just sort of, I don't know what the right word is. It's somewhere between symmetrical or has a symmetry. All of these are coming together, all the wire-based technologies are coming together and now being overlaid by wireless. 15 –20 years ago, even though there were people like the media lab at MIT who were the only people talking about the convergence of computer, telephone and television, it's happening.
What's really interesting is that I always thought the companies I worked with, HBO, the cable companies, the studios, would be the leaders. And, in fact, they're the brakes. They're slowing it down. They're the most resistant to this because it's human nature. Uncertainty is a very uncomfortable state. Where those three circles intersect, there's a lot of uncertainty today. How do I know my products not going to be stolen? How do I know I'm not going to be Napsterized? How do I know if I'm the person who makes the decision to go into that new media and if I'm wrong will I still have a career, much less a job? So there's an enormous amount of uncertainty. I guess if I'd thought about it, I would have been able to predict it, but I didn't think about it. I was just caught up in the momentum of it. I've always believed it was going to happen. I just assumed. Most of my colleagues shared those beliefs.
Clearly not all of them do, even if they understand it. I had one studio head say to me, "Frank, my fondest decision (he's 56) is that I can retire before I have to make a decision on this." He said, "It's that troubling." In some respects, that sums it up for everybody. Like any distribution of human beings, there are some that are more aggressive and some more conservative. Most of them are in that middle to conservative side of the pack in terms of adopting a new media, for a lot of reasons that have nothing to do with technology, everything to do with organizational behavior and human nature in organizations.
GLASS: The only constant in this business is change and no one can predict the future.
BIONDI: The last thing I'll say: It's always been the most exciting thing about the business, to me, is the change and if you can find out what underpins that change. For example, the greatest insight for me was consumer choice. I'll still argue to you that's the driving force behind every change in the media. It's not the invention of the technology, but the adoption of the technology role in giving the consumer more choice. The remote control – why? Because you just click through... You can watch two movies, two ball games simultaneously if you're good enough, three if you're really good. The VCR, time shift, direct save, you name it, multi-pay, multiplexing. All of those are emulating "what I want when I want it". Now we're actually at the threshold of actually being able to deliver, at a price, but deliver "what I want when I want it". Now all we have to do is convince the rights holders to allow that to happen and maybe we'll have that brave new world.
GLASS: Do you think that will be the greatest challenge going forward?
BIONDI: It certainly is the greatest deal challenge. I'm not dismissing the technology issues. There are a lot of them. The nice thing is, I think, everybody believes they're going to get solved. It's just that no one has, the group as a whole, doesn't have a unique solution in mind. There are people who want to solve it wirelessly. People want to solve it through the wire – DSL, cable modem. You name it – there's a different solution. The irony is that it's going to be a little bit of all of that.
There's a lot of incompatibility, not only in the delivery systems but in the players. You've got Windows, you've got Real, you've got the Apple player. They're all different standards. There are probably ... god knows how many coding formats there are today. There are probably 30 –40 relatively well-used coding formats to deliver media, depending on the line you're going across, depending on the player that's being used, depending on the speed of your computer. It's really interesting. Those standards have to come down. But I don't think you're going to come to one simple standard. That's one of the beauties of the system. When we almost went with a high definition solution in '87, it would have been all wrong. Fortunately, the committee in the government was smart enough to dump it and go with a system now that's not even universally embraced. But we do, in fact, have digital television coming, for better or for worse.
GLASS: As predicted so many years ago – and now it's finally coming.
GLASS: Thank you very much for your time and your thoughts...
BIONDI: Not at all.
GLASS: ... and all your contributions to the industry too.
BIONDI: Hopefully they'll be ongoing.