Interview Date: Thursday July 30, 1998
Interview Location: Denver, CO
Interviewer: Jim Keller
Collection: Penn State Collection
Note: Jack Crosby passed away December 30, 2016.
KELLER:: This is the oral history of Jack R. Crosby from Del Rio, Texas, entrepreneur, financier, venture capitalist, cable pioneer, philanthropist, and chairman of the National Cable Television Association in 1967 and '68. Jack has been involved in many businesses over the course of his career, including of course being a major factor in the development of cable television. Jack served on the NCTA board from 1960 through 1968, an era of conflict and development, an era when many of the issues that were to face us in the future developed and many of which were resolved.
We are taking this oral history at the offices of The Cable Center, 2200 S. Josephine St., Denver, Colorado on July 30, 1998. Jack, tell us a little bit about yourself, your early days, where you grew up, how you got started in business and we'll go from there.
CROSBY: OK. Started in Del Rio, Texas right on the Mexican border, the Rio Grande River, and in 1954 I was working for my father in a hardware-appliance store and it was very difficult to sell television sets in those days in Del Rio, Texas because we had no television.
KELLER:: So you were another one of those who wanted to sell television sets but couldn't?
CROSBY: That's right. So we actually heard about a rancher friend up in Ozona, Texas who had built a very tall tower, about a 450 foot tower and he was trying to get television from about 150 miles away. So we went up to his ranch and took a look at it and you could tell there was a football game going on but you couldn't tell which team had the ball, there was about that much snow. So went back to Del Rio and called a tower manufacturer, one Tommy Moore from Oklahoma City, and said "Tommy, what would you charge us to put up a 450 foot tower, put some antennas on it in Del Rio, Texas?" He said "What for?" I said, "Well, to see if we can get television." He said "No use putting it up. I can tell you you won't get it anyway, you'll need to go to the expense of putting it up and taking it back down, cause you won't get it 255 miles away." And I said, "I really didn't ask you for an engineering opinion, I'm going to repeat the question – What would you charge to put it up?" He said, "Well, it'd be about $13,000 dollars." And I said, "Good, now what would you charge to put it up, leave it there for 30 days and take it back down?" and he said "Well you know it's mostly labor and that would cost you about $10,000 dollars." I said, "OK, you got a deal. You put it up." So we scrounged together the $10,000 dollars and we knew we were covered. We put it up; put an old bus out at the site, biggest thing to happen in Del Rio in a long time to build a 450 foot metal tower. So we put a bus out there and a fellow in the bus. In those days, basically you only had two networks, NBC and CBS in San Antonio. So we put a field strength meter there and a television set and a fellow to look at them, and I'd go out four or five times a day and look at it and it was pretty bad. We could hear Ed Sullivan and Milton Berle's voices and so we knew we had something, but it wasn't really viewable but people seemed to want it. I'd always say it was my Scotch nature that kept me from paying the $10,000 dollars, so I went out and borrowed the $13,000 and we started the cable system there. And in those days, as you may recall, we had an 8% excise tax, of course we wanted to make as much of the money back quickly as we could so we charged $135 installation fee plus the 8% plus nine dollars a month to watch two very bad channels of snow.
KELLER:: Jack, you mentioned in those very early days that you were able to borrow the money. On what terms were you able to borrow it, on what basis?
CROSBY: (Laughter) My dad was able to "go the note" with me, and we borrowed the money at the local, very friendly bank and a part of that, let me say was a character loan, I'd suppose you'd say. In addition, the banker desperately wanted television. That was the other collateral. So we made a deal with Jerrold Electronics to build the system and proceeded to do exactly that and that was an interesting time. We went to AT&T immediately and asked them for a microwave link going back toward San Antonio to get signals that we could watch.
KELLER:: Who was advising you from an engineering standpoint at that time?
CROSBY: Actually, Fred Lieberman who was with Jerrold Electronics at the time and Fred was kind of our patron saint at that moment and he was advising me. So we got a quote from AT&T and if we hooked up everybody in town we couldn't have paid the line haul for the microwave. So we applied almost immediately, knowing that this was going to be a tough sell, we applied almost immediately to the FCC for a common carrier license. In those days, nobody had a private license. It took about a year and a half and we got one of the very first owner's licenses to bring two channels two hops close to San Antonio.
KELLER:: It wasn't CARS?
CROSBY: No, and my poor wife JoAnn, I would take the irate phone calls during the day from all the people who were watching the snow and JoAnn would take the calls at night and she would go something like this, "Oh, Mrs. Smith, oh, you're watching it or trying to watch it, well don't watch it, it hurts your eyes. Well, now listen, we don't want you to be upset, I know you're trying to watch the wrestling. But no, Jack's not here. He's out at the tower trying to make it better. Let me tell you, we don't want you to be upset. Let me get your telephone number and your address and I'll make sure that they disconnect you tomorrow. Oh, you don't want it to be disconnected, oh, you just want it to be better. OK, well I'll tell Jack that." So this went on for a year and a half. Pretty bad television.
KELLER:: This was before you go microwave?
CROSBY: Yes, then about a year and a half later, we were successful in starting a thing called Southwest Texas Microwave, our transmission company to serve our own system and a couple of systems down river that we were helping to finance.
KELLER:: You were a common carrier, so you had to have additional customers than just yourself. You used the term CARS. Was that a cable antenna relay system?
CROSBY: Yes. So actually you're not correct Jim. That first system was not a CARS system. I don't know whether it was the first, second or third, but it was one of the very first common carrier systems of that kind to serve cable television. We knew that in due course to hold those licenses we would have to have and told the Commission that we would go out and seek other customers as well. Bear in mind, there were no other systems at that point in time in that area. The next system we built was down in Eagle Pass, Texas which was about 60 miles down the river and some local people got the license, came to us and wanted us to finance the thing. Which was kind of an interesting experience because the telephone company at that time was very reluctant, you may recall, no you're not old enough, but anyway, the telephone company was very reluctant to have us attach to the pole systems, okay? So in Eagle Pass, Texas, we ran ahead on with Southwestern Bell and asked them to give us a contract to build a cable system down there to attach to their poles. And they said, "Well, let us think about it. We'll talk to St. Louis and so come back next week." So we came back the next week and they said, "Here's what we want you to do. I looked at it and shoved it back across the table, and they said, "You're not going to sign that contract?" and I said "No. I can't afford to pay you ten dollars for pole attachment" and at that time they'd even stuck something in there that looked like an option to buy, if and when they were ever given permission. And so they said, "What are you going to do?" I said, "Well, I don't know." And so about two weeks later we got a call from the telephone company office, in Uvalde, and our foreman tells us they're unloading a bunch of poles, little bitty poles, off of the railroad cars down there and said "you wouldn't be building a pole system?" I said, "Gosh, you think we'd be crazy enough to do that?" Which we did, and we put them in the ground for nine dollars apiece and then we owned them. The city was anxious to have it done and I think that went a long way toward indicating to the telephone company that somebody would be crazy enough to put the poles in, if in fact you couldn't reach a proper combination.
KELLER:: And then you did get a reasonable contract with Southwestern Bell?
CROSBY: Next time. Not there. We owned the pole system there. We never had a problem with them after that.
KELLER:: This was after Uvalde had been built. Was Ben able to get a contract with them?
CROSBY: Ben Conroy got a reasonable contract there. We got a reasonable contract in Del Rio. One of the reasons that we got favorable contracts back there in those days... my grandfather and his two older brothers had come out from Virginia at the turn of the century. He was 19 years old and they built the telephone system starting in San Angelo, Texas on down to the Rio Grande Valley. He, being the youngest of the three, went to the wilder country and he built the telephone system in Del Rio. So the three brothers, Rust brothers, owned the telephone systems from San Angelo down. The year after I returned from the University of Texas to Del Rio, we sold all the telephone companies. We sold everything to Bell. Bell kept the toll line, which at one time was the longest, I think, independently owned toll line. It served a lot of jack rabbits, not many paying customers. But it was a toll system, so Bell kept the toll system and sold the local exchanges to General Telephone and that became General Telephone of the Southwest. So we had a longstanding relationship. I used to take the top executives of Southwestern Bell hunting and we had a good relationship with them but they were scared of us at that time, as you well remember. We got contracts and Ben got a good contract in Uvalde at about the same time. We built the Uvalde and Del Rio systems almost simultaneously.
KELLER:: But you had viewed the Uvalde system before deciding to go ahead in Del Rio?
CROSBY: We looked at the Uvalde system actually in 1954, I think they were built at the same time. That's my recollection. Ben came down from Vermont.
KELLER:: What system did you view then before starting?
CROSBY: We didn't view any systems. We looked at the tower location.
KELLER:: It was just a tower at that point?
CROSBY: Yes, and Ben and his father had committed to Jerrold to go ahead and build the system in Uvalde. We knew that was the case, but we really hadn't viewed the system.
KELLER:: I have read Ben's oral history, and he had some reservations about being forced into a contract with Jerrold. Were you in a similar position?
CROSBY: They were about the only people around at that point in time, and I went up and met Milt Shapp, met Fred Lieberman and as a matter of fact, it was right after we built the system and just turned it on that I got a call one day. It was Sunday, in Del Rio, from this fellow and he said, "Are you Jack Crosby?" and I said, "Yeah" and he said "I'm Fred Lieberman." He said, "I'm from Philadelphia and I work for Jerrold Electronics. I'm coming out to see you." I said, "Where are you?" He said, "I'm in Del Rio, Texas." I said, "You're coming out to see me?" He said, "I've got a rental car, tell me how to get there." This guy comes to the door – do you remember Fred?
CROSBY: Doesn't say howdy or anything else. I opened the door, he walked straight over to the television set, turned it on and he said, "Boy, this is awful." He said, "Did we build this system?" I said, "Yeah." He said, "Are you suing us?" I said, "Not yet, Fred." That was my introduction to Fred Lieberman, later he and I became partners and have been for 40 years. But Fred came down to view the system.
KELLER:: Even after you had microwave he came down to view...?
CROSBY: This was long before microwave. The system was being built.
KELLER:: You built it with two strip amplifiers at each location?
CROSBY: Yes, exactly.
KELLER:: Then where did you go after that, Jack?
CROSBY: We started building other systems, we did Eagle Pass. Fred and I had long talked about getting together and so when Jerrold went public, Fred borrowed the money, bought all the options he could find and he made some money. He borrowed the money to buy Burlington and Montpelier, Vermont, the cable systems up there. So he left Jerrold and bought those systems and he said "We need to get together. We ought to have our systems together and build a company together." So basically, he bought those two systems and they were charging $3.95 a month and he said, "I think we can go ahead and put a 12-channel system in that area and start to charge a little more money per month. We ought to put some things together." And so we developed a partnership and by that time we had built some more systems, he had more systems. I said, "Well Fred, it seems like the first thing to do, I'll buy one of your systems." He said, "Well, I'm going to sell Montpelier, Vermont but I'm going to get too much money for it." I said, "Well, that's my problem to determine if I want to buy it for too much money. We'll buy part of it, and you own the rest of it , and we'll be partners together." And so I called in and I think the price was $130,000 dollars.
KELLER:: How many subscribers did they have?
CROSBY: Actually I don't remember to tell you the truth. There were less than 10,000. I said, "Fred, tell me something. I'm going to the bank. I need to tell them about this system and I've never been to Montpelier, Vermont." He said, "Well, when the leaves start to turn it's the most beautiful sight you ever saw." I said, "Well, he'll be impressed with that. Tell me something about the system." He said, "You don't have to worry about them going into a depression up there because they've been in one all their lives." So that was our first venture together and we went on from there to build a series of partnerships.
KELLER:: Was that company called Telesystems?
CROSBY: No, ours was called West Tex Cable and that system was called Green River Television, I think it was. We put the two of them together and I'm trying to remember, in 1955 to '62 we did our investing together and Fred... we founded Telesystems in 1962 so we put those assets in 1962 Telesystems for the purpose of making additional cable investments in Telesystems.
KELLER:: Prior to that each one was standing on its own?
CROSBY: Each was standing on its own.
KELLER:: Each was financed individually and so on?
CROSBY: Yeah. Bob Hughes was working for a company called Texas Capital Corporation, one of the first SBIC's and we got our early financing from Texas Capital Corporation who put together a small group of venture capital money, a small piece of it. Then with Chase Bank and First National Bank of Dallas was our first financing package for Telesystems. We turned around and in, well in '58 we built the system in Eagle Pass and put it in there.
KELLER:: In '62 then you formed Telesystems with the financing from First National Bank of Dallas and Texas Capital. What kind of terms were they offering at that time?
CROSBY: It was equity basically. We were selling equity in the systems and keeping part of the equity ourselves and putting up some of the money. But the terms we were paying were several points over prime.
KELLER:: Plus warrants or equity?
CROSBY: Yes. There was venture capital money and they owned a piece of the deal. We went back to them after two years and said, look guys, we've gotten franchises for places like Macon, Georgia and all kinds of places across the country and we've outgrown you so we need to pay you off and go get some better financing. They said, we don't want to. This is doing very well. So basically, we made a deal to pay them off but to rotate them into the next deal that we did which was the Tulsa deal. They became equity holders in that as well and we gave them the original money back plus a big profit and then they rode along with the next turn of the wheel.
KELLER:: You were still using Jerrold equipment through all of this?
CROSBY: We were using Jerrold equipment.
KELLER:: Did you ever get into a financing deal with Jerrold at any time along the way?
CROSBY: No, we never used financing from the equipment manufacturers. We did it through the banks and the venture groups.
KELLER:: This was one of the very early venture capital groups in cable.
CROSBY: It was and actually we got home life insurance in the deal. During the early days, Jim Ackerman, who you recall, Jim Ackerman was working for Economy Finance in Indianapolis. They were a car finance company and a mortgage finance company and we first met Jim early on, before he got into this business and we started encouraging him to take a look at it. I'll never forget, because Jim was charging add on interest which counted up into the twenties when you got right down to brass tacks. Every year he'd come to the convention and people would say, well he's not going to be around next year because it's going to be much easier to finance but he did it for about 20 years and we were the first ones to use Jim's financing. And then we formed a little company later on with Becker who Jim had joined, A.G. Becker, and we formed a finance company with Jim to start to lend money separately and apart from Economy Finance when he left there.
KELLER:: That explains many things about how he got involved in venture capital and then how Jim Ackerman with Economy Finance got involved. Was he still doing deals with you?
CROSBY: He was still doing deals with us and Jim also introduced us through his lending to the insurance companies. He introduced us to Home Life and to Hancock and I think we put on some of the early loans with the insurance companies. It took a lot of selling to get the insurance companies to understand the business and yet when they began to understand the very solid cash flow that this business could develop, they were very intrigued with it. But it took a long time to get them to make the first loans.
KELLER:: When do you feel that the major financial institutions really felt that cable was a business?
CROSBY: I think probably the year I was chairman of the NCTA and we won the Fortnightly case. We beat Louis Neiser in the Supreme Court and I think that brought a degree of solidity to the business.
KELLER:: We have to define the Fortnightly case. That was a copyright issue?
CROSBY: Yes. That was the case that said we didn't owe a copyright fee for the programs that were over the air that we just happened to pick up and put on the cable. The day after we won that case, I appointed Bob Beisswinger to a 2 man committee and we called the six motion picture companies together and said we'll meet you in New York two weeks from now and they sent a representative. We sat down and we led off by saying, "Fellas, we don't owe you a thing. The highest court in the land says we don't owe you anything. We're going to be the next theater. So let's talk about what we can pay you for all your product." That was the beginning of the discussions on the copyright deal, which as you know took another ten years to put together.
KELLER:: That was difficult to achieve too because there were some people who never believed we should have paid copyright up to the day that it was required to.
CROSBY: We got permission of course from the board to go ahead and proceed and have those discussions.
KELLER:: Would you talk a little bit about that? I know the copyright issue was a major discussion point at the time that you were on the board in the early '60's and chairman in 1968. What were the various sides of that issue?
CROSBY: As you said, there was a constituency in the ranks of the cable operators that said just don't pay it. Do not pay it period and let's just fight it out. And the other side of the coin was that people said, "This business is someday going to be a content business. It's a hardware business today, but it's going to be a content business down the line. The Irving Kahns of the world – if you pull out some of Irving's speeches from 30 years ago, the same thing we're looking at today. The great wired world is here today and so a lot of people thought we had to develop additional programming to put over the wire. So those were the two camps. Of course a lot of people still had the attitude that this was a small business. I think the first major city franchise that I know of being built, Fred and I in Telesystems got a permit to build a portion of Philadelphia. Philadelphia, in its infinite wisdom, divided the city into four geographical areas, if you'll remember. Gave the best one to The Inquirer, the second best one to The Bulletin, the third best to Jerrold Electronics and the fourth worst to Fred and I because we had a little office at the east of Pennsylvania, right above Easton Road in Philadelphia and we had the worst part of town. We had the Schuylkill River to Broad Street area, Little Italy. And so we were the first to build when you had 10 or 12 over the air signals. At that point in time, you darn sure knew you had to have additional programming.
KELLER:: Did you bring Fred Ford in as president of the Association?
CROSBY: Yes. I was on the committee to pick the new chairman, and we brought Fred on.
KELLER:: I call your attention to the convention in Miami 1966. Fred Ford is the president of the association. He made a speech in Miami in which he said the industry should be ready to give up its right to programming for the ability to get distant signals. Do you remember that?
CROSBY: Yep. I remember that.
KELLER:: What was the board's reaction to that?
CROSBY: The board's reaction was no. I don't recall a majority. But Fred was there three years, I guess it was. It was an interesting time. Bear in mind where he came from to begin with. He was chairman of the FCC. So he brought a lot of those feelings into the association, and I think Fred in all conscience thought that was the way to grow the industry.
KELLER:: I think that was probably true, because we were locked out from distant signals at that time.
CROSBY: That's right. But I think there were enough people who, let's face it Jim, so many rugged entrepreneurs got out of this business when it began to look like it was going to be heavily regulated, and I don't blame them at all. They said tough luck, the government told us how to run our business. And I think from my standpoint, I've come up through the telephone business, and seen a heavily regulated business make some money. And so we decided that this was a business to stay in and to try to help style the regulation. So I think Fred, in all good conscience felt that way. But fortunately, it didn't carry the day.
KELLER:: You remember that. So many other people who were on the board seem to have forgotten that it had ever occurred, that somebody actually made that proposal.
CROSBY: That was an interesting point there.
KELLER:: I can remember the hall when he made that statement and half of them were almost cheering and the other half had gas. And you say it was '66 also was when they introduced the first pioneers. It was the first Pioneer Dinner. There was an interesting story about that. Twenty-one of them weren't there?
CROSBY: I can almost name them. Al Ricci, the Barcos, Kupenski, Al Malin, Clements, Strat Smith and Frank Thompson. Frank was my vice chairman and we kept trying to get Frank elected chairman, as you may recall. He was a bit vocal at the commission. Brilliant, bright guy.
KELLER:: Frank was never known not to be vocal.
CROSBY: Standing there kicking. Never was chairman.
KELLER:: In any event, there were sixteen or twenty-one, I thought it was twenty-one, but it could have been less than that.
CROSBY: I think that was probably right.
KELLER:: You said you were associated with a bunch of them.
CROSBY: Well, there were six of us of whatever it was, sixteen or twenty-one, in the original group. We had just at that time put together a company called Genco. We had a fair success in starting companies. The toughest thing we had to do was think of new names for companies and Genco stood for general communications and entertainment. Ben Conroy and I decided to take Del Rio and Uvalde and put them together in a little company and then go out and try to get other people to come in with their companies, hopefully merge in, and develop a company large enough to go after the public marketplace for financing. So we did that and started this thing called Genco. We went to Gene and Richard Schneider and talked them into putting Casper systems that they had into the company for and equity interest. We went to Tubby Flynn and Raymond Hesh from Tyler, Texas which was one of the largest systems at that time, about 60,000 connections. We bought that system from Tubby and Raymond and Tubby went on the board and that was the beginning of Genco. Six of the original pioneers were in our company; Ben Conroy, Gene Schneider, Richard Schneider, Fred Lieberman, myself and Tubby Flynn were all in the same company at that point in time.
KELLER:: So you picked up all the early old timers and put them all together with their expertise.
CROSBY: Yeah, and then we merged that company after about a year and a half and it was getting up to a reasonable size. I got a call from a friend of mine who said, "We have this little New York Stock Exchange oil company in Tulsa, Oklahoma." He was my ex-college roommate and he said, "I represent the company. They do pretty well at exploration and production, but decided they can't reinvest their cash flow in the oil business. Guess the measures come out on the return. They're looking for a growth area. Why don't you bring your little cable company in and merge it into the oil company. They're looking for someone to be chairman of the company and move it forward. You know a little bit about the oil business. Why don't you merge it in and then try to build a major company." Well this company was a small company, but it was on the New York Stock Exchange, named for Mr. Julius Livingston and it was called Livingston Oil. So we merged Genco for stock into Livingston Oil, took control of the public company and the only large block of stock was owned by Baron Heine Von Tyssen of the Tyssen Iron Works in Germany, a very, very large industrial company. So we flew over to Zurich and bought him out and bought his stock and that gave us a large controlling interest in the company, the cable guys. And so I became chairman of that company.
KELLER:: Who was financing at this time?
CROSBY: At that time Bob Hughes was working for a fellow that had this company called Texas Capital. Texas Capital, that's the way we were able to buy one of the other things, was to promise them they could go into our next deal. And so we brought them in as financiers. They came in and Grogran Lord who was Bob Hughes's boss and I went on the board of the oil company. I became chairman of the board. Inside of about a year, year and a half, it was apparent to us that the company was probably not going to move as rapidly in the cable television business as we wanted and we thought time was wasting.
KELLER:: You still had directors on the oil side?
CROSBY: Nice guys, very nice guys. And so I went in with a proposition one day to build a cable system in Midland, Texas. We had gotten two local gentleman out there and one of them was president of the Chamber of Commerce, the other a very responsible businessman, and told them that if they ever got a license to build a cable system in Midland, a town of about 80,000 people, that we'd come in with the money and we'd build it. And so they had called about a week before the board meeting at Livingston Oil...
KELLER:: Who called, Jack?
CROSBY: John Younger and Decker Dawson, who were Midland citizens, called and said, "Jack, we got the permit to build Midland."
KELLER:: What year was this?
CROSBY: 1967. They said, "Are you ready to do that, have you got the money ready?" And I said, "I've merged into this other company now, let me call you back." Went in and started talking about building a system in Midland, Texas and our oil partners looked into it and said, "You mean we don't get any cash flow for six years?" I said, "Yes, that's right. That's the nature of the business you've invested in here and after that time, it starts to come back." I could tell they were uncomfortable.
KELLER:: Was this the term of your financing at that time – six years or was that just the time it took to turn profits?
CROSBY: That was to turn a profitable cash flow, building it from scratch. And so anyway, I said, "Hang on." I walked out of the board meeting and called Fred in Florida. I said, "Fred, I think we're about to start another company and build Midland, Texas." He said, "What for? You must have promised to do it." I said, "That's right." So I walked in and I said, "Guys, we've got great management here. We got the Schneider boys here and we've got great management and we want to build something. We've got a license to build Tulsa, Oklahoma where we're situated. I'm going to adios and keep the stock, I believe in what you're doing but I've got to move a little faster." So I went out and formed another company.
KELLER:: You kept your stock in Livingston Oil?
CROSBY: Yep. And Gene at that time moved back down to Tulsa and that later became United Video. So then Bob Hughes came to me and he said, "You know I think I can make more money investing in this business and being in it than lending to it." I said, "Probably so." So he says, "I know you're forming a new company, Communications Properties", and we made a deal to buy Del Rio and Uvalde back out again.
KELLER:: I remember that – how many times they kept selling it back and forth to each other. Who's going to buy it next?
CROSBY: Those were great days. We formed Communications Properties and Hughes came in as a vice president and we took Del Rio and started over with them, then eventually built that company up to four or five hundred thousand connections and sold it to the Times Mirror. But Fred and I were the major shareholders. In the meantime, in 1967...
KELLER:: Jack, before you go into that, you mentioned in passing, briefly, that you had a Tulsa franchise. Livingston Oil actually built Tulsa and it was a real drag for a lot of people, wasn't it, because it was one of the first major markets to be built.
CROSBY: Sammy was down there running it. He was a really good operator. It was one of the first major markets as we talked about, and it was not easy. Nothing easy about it. But he did a good job slugging it out and stayed in there making a success out of it. Like Philadelphia, it was an aberration in those days - it was tough building the major markets.
KELLER:: Was this still in the late '60's?
CROSBY: Early '70's I think it was actually built.
KELLER:: Who was the manager in Tulsa at that time?
CROSBY: I think Savage. A very good manager. But most of that construction came after I left, and June was the supervisor then. But Fred and I had an early approach to this business. We had so many antagonists to this business as you well know. The television broadcasters, the motion picture theater operators, the motion picture owners, you name it, and everybody thought we were going to hurt their business so they were fighting us on the Hill. So Fred and I developed an attitude. We had a little company called Telesystems in the construction business as well. As so we took the attitude that we need to get some of these people in the business. So we went out to Lubbock, Texas for instance and Joe Bryant had the CBS affiliate and we said, "Joe, somebody's coming in here to build a system. Let's go ahead and build it. You get the license and we'll come in as your partners and we'll build the system." And so we did a lot of that.
KELLER:: How many of those did you do? That's an interesting era.
CROSBY: Lancaster, Pennsylvania, for instance. What was the family's name? McCullough. They were very, very strong and good people in the media business. They had the newspapers and the television station, a little bit of everything and we talked them into doing business. And then what we did was we built up a thing with Telesystems and we had systems up in the New England area, Massachusetts and Vermont. And so Cox Broadcasting at that time was looking at the industry and trying to decide whether to come in or not. So in 1967 I think it was, we sold about 70 or 80 thousand connections to Cox and that became Cox Cable Communications.
KELLER:: Another broadcaster?
CROSBY: And so we sold them that company and that was the beginning of Cox Cable Communications which was listed on the American Stock Exchange. Cox Broadcasting was listed on the New York Stock Exchange and there was a subsidiary there. At that point in time we decided that this was great fun but we ought to take some of the ill gotten gains and diversify them. And so we had cash that we made from that thing. We went over to Switzerland and decided that the Swiss franc was a good currency. So we started looking for a business to buy in Switzerland, Fred and I and we found that after about six months that the Swiss don't sell companies, they keep them. Lo and behold, we were contacted by the PT&T, postal telephone and telegraph after we paddled around for about six months. And they came to us and said, "Why don't you build a cable television system over here. We understand you're trying to invest in Switzerland." "Well, we're aliens" and they said, "Yeah." We said, "You won't let us own anything." They said, "No, no, no – this is Switzerland. You put the money up, you stand the risk, we have checked you out and found out you know what you're doing about cable television and you know what you're doing about microwave, getting the signal over the Alps from Geneva and that sort of thing, so we think you'd be ideal to build these things and why don't you go ahead and do it. At that time, the only competition over there was – there were no U.S. companies in Europe. The only competition was a company called rediffusion, which was not (feedback on tape). ... it was a Swiss company. We said they grandfathered in by their admission to cable franchises in Geneva and the two larger cities. So we went over and started to build it. Got permission, hired all Swiss nationals and we built our first system in Lucerne and we got an office in Zurich and then built systems in Arou, Schaffhausen...
KELLER:: Did the Swiss finance you in this venture?
CROSBY: The Swiss wouldn't finance anything. Partially we went over with the money. We did it all with equity. We went to the Swiss banks in 1967-68 and said here's what we're going to do. They laughed pleasantly and said "We'd be glad to put your money in the bank and let you take it out." But they certainly weren't into lending any money. So it took about two years before we had anything other than equity, and we brought Citicorp in and we brought First National Bank of Boston in. And immediately on bringing them in, the Swiss banks came and said, "Why didn't you tell us about this?" We said, "We did." And then they all wanted to get into the act as well. So we operated those systems for twenty years and we finally wound up with no depreciation left after that period of time. Switzerland was a small country, so we couldn't build past a certain point; there were no more things to build. So we ran out of appreciation, we had no interest to pay because we'd paid all the money back that we'd put in to begin with.
KELLER:: You were starting to pay taxes?
CROSBY: Not only that. Fred and I owned 97% of the US company, which owned 95% of the Swiss company. And we had a personal holding company and we continued with it. We desperately tried in that ten year period there to expand and we found out you could take a Swiss engineer anyplace and he had instant credibility. Wasn't necessarily the case with a Frenchman or an Italian, but the Swiss had that kind of clout around the world. So we said this is ideal. We'd take our Swiss company and we'd start to build Europe. And so we went to Bonn, we went to Vienna, we went to Amsterdam, and found that all of those countries were happy to have us as consultants, but they really didn't want us to own anything. Bear in mind, this was back in the early '70's.
KELLER:: All communications were owned by the government or controlled by the government.
CROSBY: That's right, except for the Swiss. So we spent about three years, two years in Monaco and the princess was alive at that time and was on the board of 20th Century Fox and knew all about cable. So she was very encouraging, but they couldn't get permission - Radio Monte Carlo - from the French government to build the system. So we built everything underground in Switzerland and each brick coming up out of the street had to go back in and look like it had been there for 200 years. Very costly construction. But it was like owning a bond. People would say in those days, aren't you worried about being in a foreign country and I said, "Look, owning a franchise or license from a canton in Switzerland is a heck of a lot better than owning one in Allentown, PA. So we had a good experience over there and eventually sold it to a Swiss industrial company. Carl Williams had a small interest in it. He and Al Stern had recently started to build it and then didn't and we bought their licenses and worked from there.
KELLER:: What did you do after you took the Swiss company out of Switzerland? Did you build elsewhere?
CROSBY: Yeah. Well, actually we were still in business over here. At that time we had built up Communications Properties.
KELLER:: Were there other systems other than what we have talked about?
CROSBY: Midland, Texas. We started it off with the Midland system.
KELLER:: That's the one that caused the rupture between...
CROSBY: That's right. But it was not a rupture. We had too many investments. One was a public company and in due course we took Communications Properties as a public company as well and I was chairman of that. We formed Communications Properties in 1969 actually. It was financed by a little company called New York Securities which is a very small brokerage firm in New York and we sold Fred and interest in it. And once again, by the time we got up to about four or five hundred thousand connections, we decided that it was time to go ahead and sell it. We never really felt that we had the expertise, the inclination to build an enormous company. If we had some skills it was taking the small situation, growing it up to a certain size and then turning. Anyway, we were looking once again for someone who would strategically come in the business and help the business move forward, so we sold it to the Times Mirror Company.
KELLER:: Another media company?
CROSBY: Another media company. Otis Chandler was phasing out at the time. Bob Riboux was the chairman just prior to Tom Johnson, an old friend of ours coming on as editor. Tom had just moved in there as a matter of fact. Tom we had known from early Austin days when he was an administrative assistant to Lyndon Johnson in the White House.
KELLER:: You never built Austin though.
CROSBY: The minute I moved from Del Rio to Austin, packed my briefcase, moved up there, people said Crosby's going into business with Johnson. No we never had an interest in the Austin system. Pat Nugent, who was married to Lucy at the time, worked for us for a while, learned the business before joining the family again.
KELLER:: How did LBJ company and Midwest Video, George Morrell ever get hooked up?
CROSBY: I suppose you could call it a shotgun wedding. They were certainly going to get the license there if he wanted it. Midwest Video at that time, George Morrell was very closely allied with Senator McClellan and Senator Fulbright and was very helpful to the industry in getting some legislation done properly and it was a combination of powers that went together. Johnny Campbell at that time from Mineral Wells had his equipment company and Johnny came in and got a license as well and they both started building. It was a very interesting time at that point in time. We were helpful in getting J. O'Neil, and old friend of ours to come in and sit on the board. He was the swing vote on the board between Midwest Video and the Johnson family. They in due course bought Johnny Campbell's company.
END OF TAPE 1 SIDE A
START OF TAPE 1 SIDE B
CROSBY: But it was an interesting time. Once again there were powerful forces coming into the industry.
KELLER:: And no one can say that Austin wasn't politically motivated in every aspect of its business?
CROSBY: Lyndon always had the only VHF channel.
KELLER:: Kept it that way for years.
CROSBY: He kept it that way for a long time, that's right. After we sold Communications Properties, Bob Hughes wanted to venture out on his own and I helped Bob form Prime Cable which you know the history of.
KELLER:: No, I don't. We'll get that. We need to interview Bob. What year did Prime Cable get started?
CROSBY: 1979, I think that is correct. In 1986, Prime had 800,000 subscribers so then we started selling those and as you know we bought the system in Atlanta.
KELLER:: Did you have an interest in Prime also?
CROSBY: Yeah, I was one of the founders of Prime with Bob and still serve on the board. In fact, we just about sold all the systems, sold the last one, Las Vegas, the other day to Cox – the last operating system. Atlanta, Anchorage, Alaska, Chicago, etc. And Prime, Bob Hughes did a masterful job of running that company. Brought in Ron Dorchester, who was one of the top operating guys in the business, and Ron was the kind of guy who could take a system like Atlanta, that was a big, big system. Prime's main interest was in taking the major markets, we bought the system in Chicago from Westinghouse. Bought the system in Atlanta and those big markets. Anchorage, Alaska was a unique market and Dorchester would go into each of those, Las Vegas was a ----- situation and shape them up and was one of the top operating guys in the business. So Bob built a very good management team there.
KELLER:: And Lindaeur came in there too, didn't he?
CROSBY: Jerry Lindaeur was an old friend of ours. Jerry had come to the University of Texas as a shot up colonel, much decorated in the Marines. And he came in to shape up the Naval ROTC unit. And we got to know Jerry on a personal basis and he wanted to do something that had never been done before. He wanted to get a law degree while he was going to the University of Texas and while he was a Marine Colonel. Through Tom Johnson's good efforts we were able to get that done for him. He got his law degree, served there for another year at the university and retired and then went to the White House under the Ford administration as an aide to the White House.
KELLER:: I hope to interview Jerry also.
CROSBY: I said, "Bob, we need to get Jerry here." We just got the franchise in Louisville, Kentucky and I said that we needed to get someone in here to handle government affairs and to deal with the cities and we had also bought Atlanta. So we hired Jerry to come in and actually Jerry came into Communications Properties. When we sold it to the Times Mirror, they had to move the company out to California. And then we hired Jerry back away from Communications Properties for the Prime. So he did Prime for the whole area out there and as you know, Jerry served quite well as the chairman of the NCTA. And so he provided a great service to Prime.
KELLER:: So then Prime was built up from virtually nothing to almost a million subscribers?
CROSBY: Yeah. That is correct. In the meantime, in the more recent times to bridge a gap there, at Prime I was approached by a fellow that had been in the cable business a long, long time - Jerry Canty. Jerry Canty was an engineer. Came up through Bob Rogers' organization, TCI, and Jerry approached me and he and a fellow named Brian Owens who was one of the three partners who started E! Entertainment, and the E! channel some years ago. He approached me and Jerry had been going to Argentina for ten years consulting with a very interesting fellow, one of the world's great entrepreneurs. Fellow named Sam Leiberman on cable television. And he says I need to take you down there. This guy, you'll really enjoy the guy, he's one of the world's great entrepreneurs. And he never had a partner in his life but his brother. And he said, "With your penchant for partners and unique partners, maybe you can go down and talk to him. He's got 350,000 cable connections." I said, "Really? I didn't eve know they had cable in Argentina." And he said, "Yeah, he does. This business got very big and he needs to start thinking about taking it into total communication. He's heard talk about telephony and said it's big, but it's a sideline to him and maybe he might take in a strategic and a financial partner. So I went down and met Sam. He was born in Argentina. His mother and father escaped from Poland, went to Argentina and he was born there, years ago and he had a number of businesses. We got to know each other and over a period of four or five months, we talked about how we could come into his company.
And so, at that time a U.S. citizen could not own anything in telecommunications in Argentina. I went down there and found out that here's a country with a GDP twice that of Chile, twice that of Mexico. Then all of a sudden, I found they had 39 million people, nine million television sets of which five and a half million were connected to a cable. There were 1,500 cable television systems operating in Argentina when I went there five years ago. They had to be owned by Argentine citizens and you could only own one. We went in and said, "Well, how do we do this?" Fred Leiberman and I had been partners back in the '50's in Spanish International Network. The Escarga family from Mexico had wanted to be... they found out they could sell novellas soap operas down there in television and make a lot of money but they found that the Mexican people wanted to watch "I Love Lucy" and "Gunsmoke" and "Bonanza" and they had to dub those. And so they were paying a lot of money in pesos to bring the U.S. programming down there and since they had a monopoly, the government finally told them, you've got to find a way to get some dollars coming in instead of all the pesos going out. And so it was tough for them to do because there were no television stations in the United States doing Spanish programming. We were building cable systems back in those days in areas where we had a lot of Spanish speaking people and the only television station doing Spanish language programming was in San Antonio – KCOR.
CROSBY: In those days we were dealing with Emilio Escarga. We'd been through two generations at that time. Emilio Jr., we used to call him Chico and he was better known as El Tigre, was the son and he died about a year ago. His son, Jean, who is 30 years old is now running...
KELLER:: Generally controlled all communications?
CROSBY: For many years. And so they decided they needed to have an entity in the United State that they could sell their programming to. In those days, the Spanish population was rising. And so anyway, we got to know them and Fred and I became early shareholders in Spanish International Network which went on to build a television station in Miami, New York and Los Angeles, KNBX TV, Chicago, San Jose, San Francisco; any population area where they had a reasonable Spanish language segment. We built that up to a fairly good sized company and so we got to know them. When they wanted to build cable systems in Mexico back in the '60's, they did it on a defensive basis, much the same as many broadcasters in the United States went into the cable business – not to make a profit but to keep someone else from doing it. And that was their reason for building. They tried to build it three times, but it never did work and each time they would ask us to come down and try to help them and we finally did. It was tough in those days because the Mexican power system was so badly built, you got a surge. All the amplifiers would go out and you had to reset everything. It was a problem. But anyway, we were long time players of theirs and so we did have a little experience in dealing in foreign countries and especially in dealing in a Latin environment. So that gave us an experience back there when we went into business in Argentina. How to get in before the treaty was approved, if in fact Presidents Menim and Clinton ever signed the treaty, which they were talking about doing. TCI was there in the wings, US West was in the wings, Time Warner was there salivating over this market. Buenos Aires has 12 million people and had almost a million subscribers in the town when we got there and everybody wanted in but nobody figured how to get in. So I went to Sam and said, "Sam, if you're comfortable we'd like to figure out a way to do this." Prime Cable couldn't take the money down there, because they had a rule about going outside the country and I said, "I think I can figure this out, Sam. We get the best attorneys we can find, see if we can find a way to do this legally before the land rush starts, before the gold rush begins." And so we came up with a plan.
KELLER:: You made a statement there that interests me. As much interest as you had outside of the country at this time, why did you put a provision in Prime that you were not going to put your money outside the country?
CROSBY: That was not my provision, I was merely a director in the company at that time. Some of the big investors, interestingly enough some of them outside the U.S., when they put their money up they said, "We know what you guys can do in the U.S., Bob Hughes", and probably we could have stretched it but in all fairness, Bob was not all that acclimated to going outside the country anyway.
KELLER:: It was just an interesting comment and I was wondering about it.
CROSBY: And there were no ironclad rules but the first thing I did being on the board of Prime, I said, "Bob, we've got an opportunity down here, do you want to do it?" He said no and so that cleared the deck. So we went down and came up with a plan whereby we valued Sam's company and I said, "OK, Sam, X dollars is what it's worth and we will lend you half of that amount. We'll put that money in the form of a loan that can be pulled out if you want to and we have a 50% profits interest in the company. If and when Clinton and Menim ever sign the treaty allowing us to have ownership we will convert that debt automatically into equity.
KELLER:: This was in the '90's at this point? When did you start in Argentina?
CROSBY: This was five years ago.
KELLER:: You had not any interest prior to that?
CROSBY: Didn't even know they had cable down there and so we got to know each other real well and I said, "I'll bring a money partner in here, a strategic partner, and we'll talk about a couple hundred million dollars and come in and be your partners and go ahead and build this thing out. And he said, "Let's find out who we're going to get." And so we got the lawyers to write off on this plan. And so I went to Bud Hostetter. I don't know if in any of your interview you've run across an organization called the "ROACH"?
KELLER:: I have not.
CROSBY: The ROACH is the Royal Order of Ancient Cable Hackers of which at one time there were sixteen of us in the business who played golf together.
KELLER:: Indeed I have. John Saeman introduced me to that group not too long ago.
CROSBY: So, Bud Hostetter was one, a real gentleman and a good golfer, we carded down to eight about fifteen years ago. Sixteen was a little unmanageable. So we carded it down to eight and we play golf four or five times a year together and have a great time and so Bud at one time was one of the eight. But he got too rich and too busy, he was still private at the time. I said, "You just bought the cable system in Providence, Rhode Island." He said, "That's right." I said, "I think you paid about $2,400 dollars a subscriber and about 12 time cash flow." And he said, "Yes, that's right." I said, "Well, suppose I find a deal where we can buy 350,000 subscribers for $650 dollars a connection and for five times cash flow instead of twelve. Commit a couple hundred million dollars, then you've got to pass the test to be a partner with a very unique guy." And so he says, "Crosby, you're going to start telling me a whole lot more about this, aren't you." I said, "Yeah, if you'll be quiet, I'll tell you some more about it." He said, "What did you say the guy's name was?" I said, "Leiberman." He says, "We'll do that deal. You've had a lot of luck with that name in the past." I always say the bigger deals are sometimes easier to do than the smaller deals. The timing was right for Continental to do that. So Sam and I formed a partnership with Continental. Time will tell you, I've done a lot of different things. I had a little company called TESCORP, which was about a 20 year-old public company that we'd had in the oilfield equipment business and we had just sold the assets. So we went down there and TESCORP was sitting down there with a little cash and public shell. I said, "My gosh, big company had no interest in these other 1,500 little companies" and so it was a natural consolidation play for us to go in and start to guy the little systems. So TESCORP, separate and apart from VCC, the company that Continental invested in and I invested in started buying little systems, which we did. And we put those into a cluster into TESCORP.
KELLER:: Same old systems coming back again.
CROSBY: In Argentina. The same things we'd done over here five time. Consolidation play. They talk about roll ups today, they've been doing roll ups for 40 years. So anyway, we built that company up and within a year and a half, Menim and Clinton had signed the treaty and the values doubled overnight because U.S. people could come in and buy. And the industry consolidated into three companies basically. We sold TESCORP to a company called Supercanal. We sold VCC the company that Bud invested in, Continental invested in with Sam. We sold that to a company this is now controlled by a big media company called Clademos Canal. Citicorp Equity Investors and Telefonica de Espana are in another company and then Hicks-Muse came down and got involved and so all of that got consolidated into three major companies.
KELLER:: You'll get a chance after this is transcribed to put in these exact names. We won't go into them right now. I can imagine the transcriber trying to spell some of them.
CROSBY: One of the things that I haven't let you question, so I need to let you question, eventually you need to get a philosophy that I had early on. I decided that I knew a little bit about the hardware end of our business. Certainly Fred was the genius in that regard. But that early on I began to see that Fred was the guy that got Eddie Schneider started in a thing called Prism.
KELLER:: Tell us about Prism.
CROSBY: Eddie came to Fred. We were building the system in Philadelphia at the time, Telesystems was. And Eddie had bought the 76ers and the Flyers. This was before the days of the Spectrum I suppose. He came to Fred and he said, "You know, I'm sold out. Season tickets. This is a great business but I need to think about how I can sell more tickets. Can we do something with the cable area up here?" And Fred says, "Yeah, I think I can put that together." And he said, "We'll sell a season ticket over the cable." And so Eddie said, "I've got these two sports teams, we've got the programming." Fred said, "I think in all fairness you're going to have some other programming." He said we'd work out a deal to buy some films.
KELLER:: What year was this?
CROSBY: I wish I could tell you it was in the last of the '70's, early '80's. When was HBO?
KELLER:: They put it up on satellite in 1972. This was before HBO.
CROSBY: I don't know which was first. That was the first one in that particular area. So I got interested in programming then.
KELLER:: So they were going to provide Prism at an additional fee.
CROSBY: Over the cable systems.
KELLER:: Had Jerrold provided a satisfactory trap at that time?
CROSBY: Yes, sure did. But this leads into why. I said, "I need to know something about the entertainment business", because I thought the two should be together. And enough of our financial people were coming to me and saying you need to start learning about this other business. Nobody was really getting into it. Irving always wanted to buy MGM and Irving bought TelePrompTer. He wanted to own a film company because he could see the early blending later on, blending of the programming and the highway that we were doing. So anyway, I proceeded to lose personal money on just about every phase of the entertainment business. When one day I got a call from First National Bank of Boston saying that they had a company that was called Orion. That the people from United Artists had sold their company and they wanted to have their own company film business. Very fine people Arthur Krim, Eric Pleskow, Mike Medavoy and Bill Bernstein.
KELLER:: You're going to have to put those names in when you get it back.
CROSBY: They had done very well in the film business while it had been private after they left United Artists and sold it to Transamerica Insurance Company. They had been very successful. They made "Arthur" with Dudley Moore and "10" with Bo Derrick, both of which were box office smashes but they had not made any money because they did not have a distribution company. They paid Warner Brothers 45 million dollars in distribution fees in a two-year period. They said, "We've got to buy a distribution company and we've got one called Filmways on the New York Stock Exchange and Warburg Pincus is going to come in. HBO is going to put a slug of money in, Warburg Pincus is coming in with a slug of money and we want you and Fred to come in and buy a little piece of it and go on the board. And I said, "I'm not going to worry." And they said, "No, no, they need somebody in there that's got a hardware background because they understand what cable is going to mean to Hollywood. Since you've been trying to learn something about the software business, so it'll be a good deal. And I said, "I'll do it for three years." So I did. And went in there and served on the board, we took it on the New York Stock Exchange.
KELLER:: This was Orion films?
CROSBY: This was prior to the time that Sumner Redstone and Kluge started to play poker over the company but I got off the board after three years, which I committed to do. And in the meantime I met a fellow named Robert Redford through those activities and became the chairman of the board of a non-profit deal called Sundance Institute. And we started introducing the theatrical people to the hardware people through several of those interviews. I became chairman of that board and was on the board for about ten years. And then went on the board of a company called Imagine Films. Ron Howard and Brian Grazer, two very brilliant young filmmakers that made a film called "Splash" and things like that and built a company there. The only reason I mention it is because there had to be a liaison developed the HBO's of the world. We were doing a great job of getting Hollywood involved in the film business. Now you have announced yesterday the fact that Paul Allen is now making another four billion dollar purchase. So you have the software coming in with the hardware.
KELLER:: He already put money into Marcus.
CROSBY: He bought it for 3 billion, I think. This purchase is 4 billion.
KELLER:: Which company is this?
CROSBY: Charter. And Allen made the statement that he has decided that cable was the route to go. And he put his money where his mouth is in that regard. He said he wanted three or four million subscribers. I only mention the other because of the relationship between the Hollywood entities and the cable entities.
KELLER:: Were you ever able to marry the two of them in your own companies, the Hollywood connection with the cable connection?
CROSBY: No, the only way we got even close to that, we got into the theater business some years ago and bought a group of theaters called Wometco Theaters in Florida and Puerto Rico. And in those days the government made the film companies divest of the theaters some years ago. Now they're beginning to come back and we see there's a relationship there of them coming in. We sold those theaters and just recently bought another company out in California called Cinemaster, which is a theater business and we see the theater companies coming back in. They've all looked around in cable and I don't think there's any legal problem with them investing in cable, but that industry has changed so dramatically.
KELLER:: In the early days, you had the Vumore Companies out of Oklahoma.
CROSBY: It's very interesting that you should mention that because they had started out as a theater business as you know. Larry Boggs lived in Ardmore, Oklahoma. There were others, Bobby Rosencrans was connected with the old United Artists in Dallas and they were early investors in cable. There has been some intermingling there.
KELLER:: It's interesting that you in your early days had a telephony background. You went into the cable business and associated with other media businesses, broadcasters, newspapers and the entertainment business, and now it's starting to come back to where the combination of cable and telephony are getting involved together.
CROSBY: They may take it to business, no question about that. And as I said earlier on, if we have any skills, it's more in the entrepreneurial aspects of the game. Opening the South American marketplace, what we started down there five years ago has meant the influx of two billion dollars of American money into that economy in the last five years. It's almost like seeing a forty year history that when the cable business here can run fast forward into a four year ----- of consolidation down there, because bear in mind there are basically three companies down there instead of 150 systems. Three companies now own 65% of the total business down there. Now, the rest of the world down there is not built out like that. Argentina happens to be unique in that it's so much ----. For instance, we on a basic cable in Argentina would bring us 35 dollars a month. If you want American, Americanize it. They trade the peso is pegged to the dollar. And if you walk across the Andes into Chile, from Rio Gajuagos in Argentina 35 dollars a month, walk over to a similar town in Chile, would be 20 dollars a month. And it's a question of what the traffic will bear situation. So the economics are totally different.
KELLER:: Was the economy so much better in Argentina?
CROSBY: Yeah, Chile has always been the darling of the U.S. investment community because Pinochet made them pay their bills when he was dictator. But the wage earners there just don't have the upward mobility that they have in Argentina. In answer to your question, we are now looking at just about every country down there, with the idea of going back in and doing some cable in different areas. But it's a question certainly, every time you go out of your own backyard and have a partner you better have the right partners, you certainly better have the right partner.
KELLER:: There will be a lot of questions about Santo Domingo and Uruguay and some of the others in Central America that have been disaster stories to this point.
CROSBY: That's right. And we were very fortunate, we didn't want to lull ourselves into a sense of security. We were very fortunate to find the right partner down there. Sam Lieberman is an exemplary character. He has 4,000 people growing flowers every day in Ecuador and Columbia and Mexico and he has a company called Flor America, the largest flower grower in the world. He started off as a young man. He wanted to be the Seiko watch distributor for North and South America so he made 40 trips to Tokyo, taught himself how to speak Japanese and convinced Seiko that he should be their distributor for North and South America and he moves his family over to Panama and operated out of there for eight or nine years. He's an entrepreneur of the first degree.
KELLER:: He's still operating out of Rio at the present time?
CROSBY: Out of Argentina. But we were fortunate to find the right partner there. Not just the right partner from a political standpoint but from an integrity standpoint as well. They stood us in good stead. We were very fortunate in that regard.
KELLER:: So you do intend to go back down there?
CROSBY: Oh yes. There's another consolidation play frankly with the smaller systems. And the telephone companies are prohibited still, they divided the country in half and Telefonica de Espana...
KELLER:: Are you talking about Argentina?
CROSBY: They have north and the – companies from Italy and France, and they have the south. They are prohibited thus far from going into the cable business as are the cable companies prohibited from going into the telephone business. But that's all about to stop.
KELLER:: As it happened here.
CROSBY: Exactly. That's why I say, you see the condensation of time that's occurred down there, but it's the same history really.
KELLER:: Do you see in this country a consolidation of the software and the distribution methods continue to develop in this country?
CROSBY: Yeah, I sure do. With the introduction of the Microsofts, the Allens, the people like that, we were a pretty inbred industry for a long time. And a lot of bright new people started coming in from the Wall Street area and we got a little more sophisticated from the money end of the game, and now we're getting a little more sophisticated as to the technologies. Everything's blending. I see for a while we were worried about where does cable play, what part do they play? But with the TCI/ATT thing and all of that sort of thing coming together, the industries not only surviving, but it's still going to have another heyday.
KELLER:: Don't you think that now the term cable television is just about a misnomer? Just as CATV was at one time. Don't you think there's a time when we have to rename the industry?
CROSBY: Oh yeah. Probably so. We spent so much of our time and efforts in styling regulation in the old days and most of that is behind us now.
KELLER:: As you know, you were a great part of it. This country, the whole development of the infrastructure system for communications was developed by private capital, not with an ounce or a dollar of federal, governmental money. And it was a great tribute to the industry and the people who did it.
CROSBY: I think so. A great number of people, a great group of people.
KELLER:: If you were to see into 2025, how many major companies do you see involved in the telecommunications business?
CROSBY: Major players in the telecommunications business. I don't see how you can have internationally over ten or twelve. I think there is going to be a great amalgamation, already is, but a great amalgamation of companies like BT and people of that nature, they'll all cling together. And the dollars that are required to do what has to be done - I hate to say it, because if anybody's ever been a small entrepreneur, that's been our game. And I hate to see it, I don't want to see that taken away from the business, but I don't see how the very small operators will make it anymore. I don't see a place for the small company. Do you?
KELLER:: I don't personally. If there's going to be little systems like little telephone companies spread all over, it'll be those mom and pop systems.
CROSBY: Take for instance in Argentina. The little system with 2,000 connections sitting up in the boonies someplace, they're not going to get the same service that is available in the cities as far as that's concerned. But they obviously moved there because they want to.
KELLER:: We have thousands of those systems here in the United States.
CROSBY: Lots of them. So there is always going to be that opportunity. But I think it will be a few large Mega companies.
KELLER:: I think it was the same thing in the development in the cable industry as you recall. These people in the smaller towns were once satisfied with two or three signals and then they wanted everything that their brethren in the major markets wanted. Don't you think this is also going to happen in smaller systems that are going to demand to be linked together with all the satellites and other means of distribution?
CROSBY: I think so, and I'll tell you a funny story back to the pole situation. We had a friend who was ready to build a system in Munroe, New York years ago. And once again, the telephone company reared its head and said "no poles". And so we said, this is going to be a protracted deal. So we went out and just before dark we got three metal 20 foot poles, very small in diameter and we painted them. We painted one black and one green and one silver and we stuck them in the ground. And the next day we got the three presidents of the three garden clubs to come by and look at our poles. We said, "Ladies, we wanted you all to have the final say on what color poles we could put in town here, we want to build a cable television system." They said, "Oh, we want a cable television system." And we said, "We're going to put one of these color poles, which one do you like?" They all picked the dark green. We had the silver, the black and the dark green and they all picked the dark green because it blended in with the foliage. We get them to sign a little letter. We go to the city council. We say, you know, instead of lashing to the telephone company poles here, because they wouldn't give us a permit, we're going to build these poles in town and the garden club wants us to put the dark green. So this was implied consent, we both assumed.
KELLER:: When do you think the telephone companies finally decided to join us rather than to fight us?
CROSBY: It depends on the personnel running the companies as far as that's concerned as to how you categorize them. I think they've known all along or felt all along that consolidation would come about. And the thing that always worried me, Jim, was the fact that in the early days, especially, was that we never had the money. If we had the skills to develop the equipment that we had to have to learn to compete with the telephone company, we didn't have the capital to really go out. You know, Bell Labs in the early days had equipment sitting in there on the shelves that just put us to shame in our technology as far as that's concerned. You always knew that they were sitting out there with the equipment to rule the industry as far as that's concerned. The thing that used to worry me was whether or not our values were going to come about in time to stave off the great big companies coming in.
KELLER:: Before the consent decree in the middle '60's, all the telephone companies were operating leasebacks. They'd build the system and lease it back. Did you ever consider one of those contracts?
CROSBY: In Munroe. That's what they were trying to get us to do, when they said, you've got to challenge us to get on the poles, we're not going to let you on the poles. And in those days, you could go to court and you could sue over it as far as that's concerned, but I just mentioned how many years ago, doing it if you want. And that was the whole motivation to attempt to delay. They offered us lease backs and we never could make the lease backs work economically.
KELLER:: Did you try it?
CROSBY: Yeah, we tried.
KELLER:: Technically you tried to make it work? When you said "make it work" you meant from a financial standpoint?
CROSBY: We never could make the numbers work. Some people did.
KELLER:: But they couldn't make it technically work either.
CROSBY: That was the other thing. They certainly had the technical capability, but we were used to sinking or swimming, making the darn things work. And you were turning that berth right over to someone else. So it just never was a very practical arrangement.
KELLER:: I think there were very few that were ever signed and fortunately the industry won the consent decree in the mid '60's. Any major mistakes that you made along the way?
CROSBY: Oh gosh, yeah. In this business, I've been in a lot of different businesses, but in this business, probably not consolidating the companies - not a mistake that I'm concerned over. We had too much fun doing these things on a small basis, building up a certain size and selling them off. By mistake, if you mean financially, if we'd kept them all together and sold them all later on at one point in time, the financial rewards would have been much greater. But I don't know if it would have been any more satisfying.
KELLER:: You said earlier on as we started that your main reason for getting into the business was to sell television sets like Marty Malarkey was doing in Pennsylvania. If you had had a reasonable signal, do you think that the business from your standpoint, would have developed at all or would you have gone into something else? You had a choice of many businesses to get into.
CROSBY: Not in Del Rio, Texas, not really. In 1954 in Del Rio, Texas there were not too many things to go into.
KELLER:: You had a telephone background.
CROSBY: I had a telephone background, bought a little radio station out there and had a radio station. Over a period of time, I owned the radio station, the bank, the newspaper.
KELLER:: You were Del Rio.
CROSBY: No. In answer to your question, the scope was rather limited in that regard. I could go on out of there, which we eventually did, enlarging the scope, but it was not an open sesame to other opportunities.
KELLER:: You recognized this very early on?
CROSBY: Yeah, funny thing. Del Rio was the site of the most powerful radio station in the world. Dr. John Brinkley, as you recall, do you know who the first DJ was on that radio station? Wolfman Jack. And I had a 500 watt station, he had half a million watts over there.
KELLER:: Across the border?
CROSBY: Across the border. And there was no shielding. It just bounced it everyplace. When we first put the cable system in, the towers were four miles apart. Here he comes with that half million watts. We'd have our bitty signal and you'd have Arthur Godfrey standing up there with a box of Wheaties and in would come this Spanish language voice in the background. So my early experience in that business was the outdoor radio station. We used to say we didn't need a radio to tune in on it, we could get it off the bed springs or the telephone or barbed wire fence.
KELLER:: I'll bet it was radiating in your system too.
CROSBY: Oh yeah, we had to be shielded. We still couldn't keep it up because the television signal we were getting was so weak. And this thing was so strong that it would just blank us out. Another reason we needed to get closer down the road to the signal.
KELLER:: You jumped around the country. From Texas you went up to New England then to Pennsylvania and then out into Oklahoma. By this time you were almost national in your scope.
CROSBY: I think we built, Fred and I in Telesystems and we were not in the contracting business to be in the contracting business. We were in it as a means to an end. We moved into a little town in Massachusetts and a dentist had sold 93 of his friends stock in the cable system. We came in and he'd built about a third of the town.
KELLER:: What year was that, do you remember?
CROSBY: Back in the '60's. And so we came in and he had television and they had television and they weren't really interested in doing much more, so we came in and said, "Look, how about if we come in and buy control and put a bunch more money in and build out the rest of the system." So that was the kind of thing that we did with our construction company. But I think we counted up one day, I think we built in 38 states.
KELLER:: Your own systems with your own construction company?
CROSBY: Ben Conroy and I years ago were looking for places to build. In those days you went to the NCTA board meeting and you'd be very careful how you showed your papers because everybody was going to get in line for the new franchises. We hadn't heard about a little town called Effingham, Illinois.
KELLER:: John Gwin?
CROSBY: He's from there, exactly. But John didn't build the cable system there. We heard about the opportunity to build a cable system, went down there and made a deal with two families from Springfield, Illinois who had the theater there. The Fracinas and the Jaquetos.
KELLER:: You were in the rent a citizen business far before anybody else was.
CROSBY: We went to Springfield, Ohio. We found out they found a theater that they were a pretty influential people and they had a lot of money and we didn't. And so we went in there and I'll never forget, we went to Springfield to talk to them. Ben and I walked in, they had this little old lady sitting in the outer office and these were two Italian families. She says, just a minute. And she took us into the inner office there. They said, "OOO look at the young ones." Conroy and I walked in and made a deal with them to build systems in Illinois. We built the first one in Effingham and we built the tower right next to the drive in theater. We did it with non-union labor. It came whistling down, so we had our introduction to the union.
KELLER:: It's interesting that you were in Illinois because one of our biggest foes in the industry was also in Illinois, Augie Meyer, who was also a broadcaster both in Champaign and San Diego. He gave us fits for a long time.
CROSBY: We had a few antagonists, didn't we?
KELLER:: Broadcasters had one or two ways to go, either join us or fight us.
CROSBY: That was kind of a theory we had, it was get them in. And you had to do it on the basis of, look guys, don't do this if you're going to do it on a defensive basis. It's a business, it's a compatible business.
KELLER:: Can you think of any other stories that would have a meaningful relationship to your development in the industry and the industry's development itself?
CROSBY: They were some great old days but you heard a lot about the great old days: the rugged entrepreneurs that were in this business. Give us the Al Riccis of the world. I hope you have on tape Al's story of being shot down in Italy of all places, and getting the money for his first system when the banker collected on the loan chips. There are some great, great people in the early days of the industry. I think in all fairness that one of the reasons the industry has grown as it has it that you had some people who came into the industry who were pretty strong individuals. A lot of them left in the early stages but a lot of them stayed on and I think that's the strength of the industry that we've had the courage of the people who've been in it and it's changed dramatically. It became a financially driven industry after the first fifteen or twenty years but it's the only industry that I know of in the United States, if we stop and think about it, that started off in the little towns and made its move to the big towns. Can you name another industry of any size that has done that?
KELLER:: No, I can't.
CROSBY: I used to tell the bankers, we did so much early work with the commercial banks who laughed at us – with the insurance companies who laughed at us and Wall Street. You know we had to get this thing down to a very simple story to tell and now the money is coming.
KELLER:: Well, we talked about this question earlier. The bankers felt that there was a real business here only after we won the copyright question. We've gone over some of our problems with the telephone companies. Then as pay television was developing and we were distributing HBO on a pay television basis, there was a time when the bankers weren't sure whether our projections as to pay television were correct and they wouldn't allow us to use that much of the projected revenue in our pro forma. Do you recall that?
CROSBY: Oh yeah, I sure do. And I used to strike it out of the projection. Totally eliminated most of that was going to be a factor.
KELLER:: They still believe it.
CROSBY: They believe it. And the thing that really saved the industry as far as a financing area was the fact that you could point to these long years of cash flows that kept coming, even through the tough times. We all know that cable television is one of the last things that the family is going to take out, even the lower income families are better basic cable subscribers that the higher income families. We've seen times back in the early days when they'd take out the telephone before they'd take out the cable. By the way, we happened to see that down in Argentina. When we first started buying systems down there, the penetration rate was 15%. You'd ask somebody in the town if they had a telephone. No. Why don't you have a telephone Mario? He said, who would I call? My friends don't have telephones either. It's kind of interesting. The first system we bought down there in the little town Usuiha, which is the southern most city in the world, just before you jump off to Antarctica, the very tip of the South American area there. And they had no bills. There was no post office. So when we put up the system, they didn't know how many customers they had, but they had an idea. Of course, we could take the gross receipts divided by the rate and figure out what it was. But inside of six months, we had twice as many people paying as we did when we bought it. They were out there, but they hadn't gone by and asked them to pay. So we went on paying about two times cash flow instead of four times cash flow for the system. But down there, all services are basic. The package includes premium channel.
KELLER:: You went through a number of recessions in the business starting in '67 but tell us a little bit about the situation in the early '90's. '91 when there was great fear about the re-regulation of the industry after the Cable Act. Congress was going to revoke the Cable Act, and once again put rate regulation on the industry itself. How did you look at those years and how did you go through those years?
CROSBY: That was one of our slack times as far as that's concerned. And we were just as happy to have our investments down at a fairly low ebb at that point in time. Because our crystal ball was muddy, was clouded at that point in time and it was very fortunate from our standpoint we came across the Latin American situation at that point in time because it gave us – we stepped back forty years in time. We could do the same thing that we had done before without the competitive aspects or worrying about what the regulatory proposition was going to be. Bear in mind that our approach to this business as a slower entrepreneur has always been a somewhat venture capital approach and we were usually looking to turn our money at the end of five years. The reason I mentioned that is you had these peaks and valleys in the industry certainly, and back in the late '60's when the interest rates went through the roof, we had CPI somewhere along in there. CPI we operated for about 12 or 14 years and we hadn't anticipated staying with it that long, but we had to ride through an interest period when our cash flows were severely...
KELLER:: Did you have a floating interest rate at that time?
CROSBY: Yeah. And they were similarly restricted. In this business I always tell people I spent my career, most of it, in a capital intensive industry which it has been always. And so you're subject to the vagaries of the interest market. At that particular point in time, we could not have sold that company anywhere within about a four year period because the interest rate, the leverage that we had to the company... That's the difference between the telephone companies with their balance sheets being able to look at the industry differently. One of our problems, I'm sure you've had this chronicled in your discussions, was that the financial buyers coming into the industry and paying top prices and then had to turn around and pay that debt off and in the process had to raise rates, sometimes higher than the normal rates. Some of our problems, as you well know, have come about by the financial players coming in, raising the prices, leveraging the darn things and then raising the rates to get even.
KELLER:: That's what happened after the '84 Cable Act in certain places. That's what got our vice president into the act.
CROSBY: Mr. Gore, as a politician, you've got to admire for the fact that he seized upon the opportunity.
KELLER:: He's a populist, there's no question about that.
CROSBY: There again, those are factors that come in from outside the industry. Doing an opportunity that had to kind of mess up the landscape for a while.
KELLER:: The reason I asked that question is because there are two points of view. Some people looked at it as a great opportunity to consolidate when prices were so very, very low, recognizing full well, as you pointed out before, that even full regulation under the FCC wasn't going to be greatly onerous. There was still going to be a way to be able to make money.
CROSBY: That's a position that we've had fortified through the years, that there is a business here. The margins are going to ebb and flow, but there are not many businesses that are not that way. It was a business to stay in and to ride through the various ups and downs.
KELLER:: There were many limited partnerships that were bought out by the general partner in just that period and there had been many lawsuits filed because of that.
KELLER:: It was an interesting period and I just wondered what your reaction to that was. I ask that question of many people.
CROSBY: It happened to be a period of time when Prime was in the process of liquidating -------- properties. We were at a fairly low ebb investment wise in the industry and then as I said, we came into this situation in a totally different atmosphere down in South America.
KELLER:: But if that hadn't presented itself, what would you have done? Would you have hung on and when things turned around would you have gotten back in?
CROSBY: I don't think we'd have been able to do it. We are looking right now because of our experience down there and the early experience in Mexico and so forth, we're looking at some situations in Europe which we looked at before and were not palatable but now some situations over there look like they're developing. We don't have the capital, frankly, or the inclination or the skills to compete in the U.S. today.
KELLER:: I can understand that.
CROSBY: You've just got to realize your limitations and yet, we love the industry. So if we could take some of those same skills that we've developed over the years and apply them in other areas. For instance, we were in Switzerland when we spent a long time trying geographically to diversify. We were in business with a very large British company at the time and they were the largest contractors and the largest builders in the UK, called Wimpey. When Mrs. Thatcher first came along and said she was going to set out rules under which the islands would be wired for cable, our partners, who we were in partnership with over here in the construction business, Wimpey people called and said this looks like tailor made, this is your business. We're here. We got a strong balance sheet and we are in the contracting business and so come over and see what you think. So we took our Swiss engineers and we went over and looked. Our conclusion was that first of all, the construction cost was going to be very, very costly. And number 2, right or wrong, the incidence of VCR penetration over there was very, very high. The guy that had paid $1,200 dollars for his machine was acclimated to the VCR technique. We just told them, as badly as we wanted to go in there, because we could see ourselves phasing out of the Swiss operation and that was a natural move. We came back and said, we don't think it will work.
KELLER:: Many U.S. companies have been hurt, in London specifically.
CROSBY: And you know what happens then, Jim, I'm sure you've had somebody else say this, but what happens then is the telephone companies being blanked out over here couldn't go into it over here so they all went over there. There were some entrepreneurs from over here as well. Then you had Southwestern Bell and I think Bell South went over there.
KELLER:: US West went over there with a cable partner.
CROSBY: Yes, they did and Jones was there. But anyway, they would have survived because they had enough money to survive but the business just never would have made it except that when they came back and said, OK, telephone companies can be in the business. That made it not a great business still but it produced viability for the industry.
KELLER:: The telephone system over there was so bad, especially London. I think that enticed a lot of companies to go over there and say we can do something about that.
CROSBY: But I think the telephone companies went because they were desperately trying to find a way to learn the business and to be in it and that presented all of a sudden an opportunity. It was a language they could understand so that was an easy diversification for them.
KELLER:: The other big telephone company deal was when US West bought Continental and formed Media One. Do you foresee them continuing to be major players in the business?
CROSBY: I think they vacillate. I think they vacillate as to how strong they want to be in the business. I really do. When they made the deal with Bud, they were going to do all these great and glorious things and basically they've sold out of Argentina when you get down to brass tacks. I think they ebb and flow as to how strongly they want to be in the cable business.
KELLER:: That's quite interesting. Wonder when they're going to make up their mind? Of course they didn't bring any of the real knowledgeable people from Continental with them.
CROSBY: I don't know where this is going to go. I'll probably get killed on some of my comments.
KELLER:: You'll have the opportunity to edit.
CROSBY: I don't want to hurt anybody's feelings. I've gone this far. But anyway, when you pay eleven billion dollars for a company in another industry, it's almost inconceivable that you didn't pay for some of that for the talent. You know what I mean?
KELLER:: I agree wholeheartedly.
CROSBY: So I don't understand the philosophy, frankly.
KELLER:: I don't know if they offered these people positions and they just said they didn't want to come?
CROSBY: I think it was offered to the best of my knowledge and of course we worked very closely with those folks on the Argentine situation. I don't begin to know the ins and outs, but I think it was put on a basis of, if you want to move to Denver you know we'll have a job for you, and I think that's kind of the way it was put. I think we were all disappointed.
KELLER:: And then they bring in some gal who has actually no experience in the business at all and put her in charge. It was surprising to me, although she's done very well with the telephone business.
CROSBY: I think once again, in a different culture you have professional management in all these telephone companies. You don't have the entrepreneurs and the culture. One of the world's great entrepreneurs, Bud Hostetter, in with a very professional group of managers. Especially when they see that somehow or another he's got a few billion dollars in his pocket, it's a different atmosphere, a different culture.
KELLER:: I'm sure that would be the case. I guess Leo Hindery is enough of a professional manager to be able to get along with AT&T.
CROSBY: I guess so. I don't know Leo that well but he's done a masterful job and let's hope that he can be a cohesive force there between the total company people.
KELLER:: The breakup of the Bell system and Ma Bell went into the RBOCs and there were a lot of people who felt at that time that it was just a matter of time before they got back together again and be one of the major companies again. Did you feel that was at that time?
CROSBY: Yeah. As I say, you see that in other regulated businesses or other businesses where the anti-trust department is in a quandary about all this today. But most of the industries, the big ones, are in consolidation stages. There's no semblance of the old banking orbit as we once knew it.
KELLER:: Not even in small towns anymore. They're gobbling small town banks up. Makes you wonder if it's going to happen the same way in telecommunications and I'm sure it is going to happen.
CROSBY: I think so. I think there's always a technological aspect to it. There's always going to be some new technology out there and some young people coming up with a better way to fix things. When we bought the system in Las Vegas, none of the casinos were on the cable. They didn't want you watching television in your room, they wanted you down below in the game room, so they didn't have cable. Our engineers were able to show them that they could get about three times the amount of programming back there in the sports room that they were getting at that time. They said, "Why would you charge for that?" And we put a thousand rooms on the cable. Once we got one, they all came in.
KELLER:: Did you deal with the Greenspan people out there?
CROSBY: Father and a son. Actually we had sold Communications Properties to Times Mirror. Had a good relationship with the --------- and Chandler and that bunch. So they owned 50% of the Las Vegas systems with the newspaper, with the Greenspan people. They came to us and said, "Do you want to buy this thing?" It was a good investment for us but they knew that Bob was going to take it and go with it. They said, you probably can make it grow faster than we can, so we paid them a good price. We had to have a complete understanding and go forward from Greenspan's because there was no way we were going to get into that situation without ------- once again partners. Bob, to his credit, spent a lot of time with Brian who was the son, determining compatibility there. That's been a unique situation in other ways. In that town you could go ahead and do all kinds of innovations there that you couldn't do elsewhere, had all kinds of possibilities. Instead of taking the Specterdyne service, we developed our own hotel movie package, Hospitality Network. They put it in the sales room, I think it was 90,000 hotel rooms on a hotel movie package, and did all kinds of innovations that could be done technically with that system. Technically, you could sit in your room, play blackjack and get a charge on your hotel bill.
KELLER:: There was another player in Las Vegas as I remember. He was in the MATV business, at one time owned the taxi company there. Does that ring a bell?
CROSBY: No, not really.
KELLER:: He was trying to get a franchise there at one time because he wanted to link his master antenna systems together. Doesn't that ring a bell? Jack, how do you want to end this thing?
CROSBY: Golly, that's a great run.
KELLER:: This could go on forever.
CROSBY: No, I mean the industry. I just feel fortunate, Jim, that we went into the business at the time we did. You look back at the reiteration they're in, but the people experiences have been amazing. It's been a really rewarding experience to be in the industry, and you know that.
KELLER:: It's been good to all of us.
CROSBY: Lots and lots of interesting people. I travel so much still, I don't know what I'd do if I were younger.
KELLER:: Thanks, Jack. We really appreciate the opportunity to sit down and visit with you. Thank you very much, you've been very helpful.
CROSBY: Appreciate it Jim. Thank you sir.