Interview Date: Tuesday February 15, 2000
Interview Location: Denver, CO USA
Interviewer: Jim Keller
Collection: Hauser Collection
Note: Two part video.
KELLER: This is the oral history of Del Henry, cable pioneer, marketer extraordinary, a man who went from door-to-door salesman to one of the most respected marketing people in the cable television industry. The date is August 15, 2000. We are taping this at the Teatro Hotel in Denver, Colorado. This oral history is made possible by a grant from the Gustav Hauser Foundation and is part of the Oral History Program of the National Cable Television Center and Museum. Your interviewer is Jim Keller.
Del, to start off with, give us a little bit about your background before you got involved in the cable television industry.
HENRY: I was a student at Berkeley. By the way, I got there when the riots started, and they stopped when I left. They had nothing to do with me, of course. I had to work my way through college. I had a football scholarship at Berkeley. I spent a lot of time working – evenings and weekends and summers. One of the things I'd done in high school and college was promote concerts. I had a little rock band and I did the ticket sales and the advertising promotion. I was doing radio advertising, newspaper and print promotion when I was probably a sophomore in high school. Then in college, I made a little extra money doing the same thing. Just before I got into cable, I promoted the Doors first concert in the San Francisco Bay area when "Light My Fire" was the number 1 song in the nation. I was in my early 20's and negotiated to get the rights for the Doors when they were doing their nationwide tour on that one hit. I had two sell-out shows at the Berkeley Community Theater, competed in the negotiations against Bill Graham, and he put on two concerts that night elsewhere in the Bay area to knock us out of the box. I was offered a couple of jobs at radio stations in doing promotions because it seemed to be kind of formidable – the outcome. Of course, the Doors carried it. It wasn't me. They had the number 1 song in America so I just had the good fortune of cutting a deal with them. About that time, several of my student friends were selling cable TV, door-to-door, part time evenings and weekends to make a little extra money to go to school. That sounded good to me. Some of them were making $1,000 - $2,000 a month, which in 1967 was a small fortune for a college student. So after I did the Doors concert, I thought I'd try that out. Scott Bergren actually interviewed me and started me in a training program. I was in training with Jeff Marcus who was also at Berkeley and just was hired by Teleview at the time. Our first system manager was John Goddard in Livermore and Pleasanton, California. Jeff and I would go door-to-door selling cable TV. At night we'd meet back near the office and fill out our sales order forms and drop them through the mail chute at the little cable office and go back to school. It was about a 45 minute drive back to school.
KELLER: Let me put this just in a little bit of perspective. Jeff Marcus then went on to form his own company, Marcus Cable. John Goddard became president of Viacom Cable and Scott Bergren was the major factor in Teleview in California. So I just wanted to mention those.
HENRY: The Bergren family, Homer and Scott. Teleview eventually sold that to CBS of course. Anyway, I was there, this college student that needed extra money. Sure enough, I was making $1,000 - $1,500 a month right away. I did pretty well in sales and got promoted to sales manager and so on. In fact, I left Berkeley for almost a year and worked in the cable industry all over the country in '68 in a marketing contract situation where I would go in and increase penetration of the cable systems. I had been doing that for awhile, and I realized that if I didn't have an education, a college degree, I wouldn't be able to do much. So I went back in the fall of '69. While I was working full time in the cable business, I took 26 units at Berkeley including French II and III and passed the courses and was able to complete my degree. We're talking here about what I did before cable, but I'm trying to segue into how I entered the cable business. I don't know if that's the way you want to go.
KELLER: That's just the way I want to go.
HENRY: When I got in the cable business early, I did the door-to-door thing I'd never done before. I really learned a lot from that. It was a different skill set. But when I went in to sales management in '68 – '69 for other cable companies around the country, I needed radio and newspaper and print promotion. So my concert and music background played a dominant role. Not to blow my horn, I became a little more successful than other people, I think, because of that very broad background in promotion. So in '68 I was at the Western Show as a panelist, predicting market penetration in new cable systems. Rick Michaels was in the audience. He was working with Times Mirror at the time and had just gotten out of Annenberg School of Communications in Philadelphia and gone to work for Times Mirror. Bob Breckner who was the president of Times Mirror Cable, the new division they were forming, and Rick were in the audience. So I did my "here's how you predict system penetration." I had developed a research technique for doing that. I was doing it all over the country. They came up to me afterwards and said, "Del, we'd like to get to know you." That's how I met Rick Michaels and Times Mirror. About a year later while I was still an undergraduate Berkeley, back in school, I met Ralph Swett who had been hired by Breckner and Times Mirror to be the VP of Operations for their new cable division. They had 8,000 subscribers and boy, this was a big-time commitment. So Ralph recruited me. When I graduated from Berkeley, I joined Times Mirror on Jan. 4, 1970.
KELLER: But you had had a couple of years experience in the sales and marketing area in cable before that.
HENRY: Yes just about 3 years, 2 ½ - 3 years. But my little specialty was market research and penetration. Cable systems were being built all over the country. Some of them were not doing so well. Berkeley, for example, had 15% penetration after a year of operation. Santa Maria, California which had imported signals, microwave signals and had 53% penetration, was really a mature system but they just couldn't get higher penetrations. So HB American brought me in and we were able to increase that to 65% in about 9 months through special marketing promotion and direct sales.
KELLER: The difference between the two of them is one was more of a classic market, Santa Maria, as opposed to Berkeley which was a major market.
HENRY: Right. A fellow named Mark Van Loucks had done a market research study at Berkeley for Gulf and Western that owned that franchise at that time. He predicted 55% penetration and wanted the marketing contract for Berkeley. I did my research. Of course I lived at Berkeley. I knew the community pretty well. I predicted 15% - 18% penetration, so of course they wouldn't give me the contract. They gave it to Mark, and 1 ½ years later, the system penetration was under 20%. Gulf and Western and couple of other properties were sold rather quickly because they had a major problem. So the word got around the industry that I could predict, pretty close, system penetrations. That's sort of how I entered the cable business in 1967 ...
KELLER: Did you do your market research based on interviews with people in the community?
HENRY: Yes. It's really interesting what was happening. I did a sampling technique. I looked at demographic data and did a sampling profile of each census tract so I knew the demographic profile. Then I did that across the city, with door-to-door people – not myself. We had a survey form that I designed and they filled out. Then we'd compile those and table them. I learned some of this in a class at Berkeley. Then I would read them and having done my own interviews, I would just, from my own experience, discount what they were saying, and render a penetration estimate.
KELLER: Take a wild guess.
HENRY: Right – take a wild guess and pretty much got on to it, very close to being able to predict penetration. It was very material, the industry at the time because of the new markets. The urban markets weren't built yet and there were about 2 – 2.5 million cable subscribers in the nation at the time. As you'll recall, there was very little lending to the industry. There was very little sales and marketing because you'd just sign up people when you went down the street – charge them $150 for installation, even $300. That was the cable industry we knew in '67 – '68, a 12-channel business, no set-top converters, no satellites. There were a few block converters, that didn't work very well, being used at the time or tried at the time. So market penetration and predicting penetration became very important. Rick Michaels, Bob Breckner and Ralph Swett thought that it would be helpful at Times Mirror since they were making this big commitment to the cable industry. By the way, we had 50,000 subscribers two years later. It was major growth. We were in the top 30 MSOs at the time because the industry was small.
KELLER: Most subscribers in California?
HENRY: For Times Mirror, at that time, yes. But then we added Long Island and the outer end of Long Island plus central Florida around Disney World. Rick Michaels went down there to franchise central Florida and did an incredible job. I think he got 22 – 25 franchises out of 35 – 40. Of course then there was an overbuild down there, you may recall, with TelePrompter, and there were some problems up at TelePrompter with Jack Kent Cooke, etc. Eventually, Times Mirror sold that to TelePrompter, that overbuild around Orlando.
KELLER: Then ATC got involved down in the Orlando area too, and Kissimmee, that area down there. So as you were developing the Times Mirror cable system, how long did you stay with them?
HENRY: Three years, 1970 – 1972, and I reported to Rob Swett. Now one of the things that happened there that I just thought about was that we had built one of the first urban markets in the country. We weren't the only one, but we had to build, because we had a franchise for Long Beach and Signal Hill, we built part of Long Beach.
KELLER: That was the part that was under the hill?
HENRY: Well Signal Hill was behind the hill, but the Long Beach franchise was outside of the footprint of the shadow down along the shores there – Naples, the marina area to the left of downtown Long Beach. We actually built 50 miles of cable down there. There were 315 homes per mile. There were no set-tops. It was a 12-channel system, had 18 – 20 capability. We were able to get 15% penetration when there were 18 channels off air from Mount Wilson, 50 miles away with no obstructions. We had 12 channels on the cable.
KELLER: If there were 315 homes/mile, 15% penetration still gave you ...
HENRY: 45 customers per mile.
KELLER: There is the critical number.
HENRY: There is the critical number. So it made sense, however there were a lot of apartments because of the high densities. It was a high churn area and that was a very marginal system and in fact, it shut down, for a long time, Times Mirror's expansion into urban markets. We learned a lesson, a little 50 miles section taught us that we better be behind the hills for awhile. This was long before HBO and Showtime and CNN and Turner Broadcasting channels, long before the satellite inter-connects.
KELLER: In the Los Angeles market you had all the signals available anyhow, all the programming available everywhere.
HENRY: From America.
KELLER: So there was nothing else to get down there. Even if you could import signals, there wouldn't be any additional programming you could give them.
HENRY: I remember Gene Jack, who was our sales manager there. He was out of Concord and the Western Cable Group. He came down and joined us as sales manager in long Beach. One day he said, "Well, why don't we go out and I want to show you an installation." That's not what he wanted to show me, but I went with him. Later, I figured out what he wanted to show me. We went in this house and the installer was putting the cable in, hooking up the back of the TV, and the lady was in the apartment, didn't have an outdoor antenna. She had rabbit ears. So the installer hooked it up and as soon as he put the cable on, the off-air signals deteriorated to cable service. Gene said, "What do you think of that?" In other words, it not only got more channels when they had a 50-mile shot to rabbit ears, but it was like a studio picture off Mount Wilson. When the cable down there through 15 – 20 amplifiers, it actually degraded the signal. She was happy. She kept the service. She didn't notice the difference, of course. Gene wouldn't explain it to her and neither did the installer. She was happy because she got all the programs that she wanted to get and she had a selection of them all, including UHF, on the 12-channel dial. If it were not an apartment, she could have put up an outdoor antenna, had one for UHF, a rotor, and she would have gotten 18 channels. So cable turned out to be, in spite of what everybody said at the time, an antenna reception service, which also converted UHF channels to the 12-channel VHF dial.
KELLER: It was a convenience to a lot of people. If you needed two antennas or a rotor or whatever, you didn't have to have that with cable. It was one of the basis on which we sold it at that time.
HENRY: So the cable industry became an antenna maintenance service in the early urban markets.
KELLER: We had the same thing in San Francisco, virtually the same. So you stayed with Times Mirror for how long?
HENRY: Three years. At that point, Times Mirror made a decision not to expand further, to prove in the business which took about another 5 – 6 years before they bought CPI in 1978. So there was a no-growth mode, and I was a growth person. So I sat down with Ralph and he had a little chat with me saying, "We're not going to be growing for awhile, and you're a growth person. What do you want to do?" So I moved on.
KELLER: And you went up the highway to San Jose?
HENRY: No, I didn't end up in San Jose until late '74. In that two year time period I was with a company out of Los Angles called Cable Marketing, and we did consulting work on system penetration and increasing values. It was Nelson Reising and Fred Port and Victor Palmeri. Victor Palmeri later became very famous for a number of things. But he had a venture capital firm and they were involved in some small cable properties, so I went in and worked with them for a couple of years.
KELLER: Was this the time also that you were doing seminars around the country?
HENRY: Well, to back up a little bit – in 1971 while I was at Times Mirror, ... In 1970 I had been on another panel at NCTA in Chicago and got to know some NCTA people and other national figures. I was invited by Amos Hostetter to be on the PR Committee. He was chairman that year and was on the NCTA Board and chaired the NCTA PR Committee. So I was invited to be a member. I think there were 5 or 6 of us and Rob Stengel from NCTA. So I served on the NCTA PR committee in '71 – '73. In '71 I had this idea for a marketing workshop to get the marketing people together to exchange ideas so we could improve marketing for everyone. I had been all over the country. I had worked in over 100 cable systems at that point, and I could see what other people were doing. Some were good, some were not so good. We could all learn from each other. Nobody knew everything. None of us were geniuses. But if we could get together, we could help each other and, as an industry, become stronger. So I went to Bud Hostetter with this idea for a Cable Marketing Workshop to exchange ideas and get the marketing people in the industry together.
KELLER: Bud Hostetter, that we now know as Amos.
HENRY: Amos Hostetter, right, Bud Hostetter at the time. So the PR Committee liked that idea. They liked it a lot. Linda Brodsky was on there, John Barrington, Marc Nathanson, and Rob Stengel. We thought it would be a great thing to try. So NCTA sponsored the first Cable Marketing Workshop in Denver which was while I was still at Times Mirror – the summer of '72. We had worked on it for 6 – 8 months at that point. We got everyone together and had panels. We had another one in the summer of '73 in Dallas - there were two Cable Marketing Workshops. At each one, there was a panel focused on the subject of "Should We Form A Separate Association?" I chaired both of those panels both years and I was chairman of the Cable Marketing Workshop both years. At the first one there was kind of a lively discussion about forming a separate association. By the way, there had been a lively discussion within the PR Committee as to whether we should even have this panel at this workshop because setting up another association might otherwise compete with NCTA on a national level. There were no other national associations at that time other than NCTA. So to set up a separate association would seem to be threatening to NCTA. On the PR Committee, they questioned whether we wanted to have that kind of panel. There was, in fact, a book published as a transcript of all the panels at that Cable Marketing Workshop in 1972 except the panel on "Should We Form A Separate Association?" was left out of the book intentionally. Bud Hostetter and Rob Stengel and the PR Committee felt that it would be too inflammatory, that this other group was trying to organize and divide and conquer and separate from NCTA. But at the discussion of this panel, everyone in the room felt first of all that the Cable Marketing people weren't getting enough attention and support from NCTA. We didn't have a forum to meet and discuss, no one sponsored or cared about us. At that point the industry, pretty much, built down the street and the truck chasers (as they later called them) came running after the trucks and signed up and paid their $100 or $50 or whatever to get on the cable service, so why would we spend all this money on sales and marketing. In fact, we had great difficulty getting companies to approve the budget just to send people to this conference. "Why do we want to do that?" When we had the conference, and they went home and talked to their system managers and senior executives, and the transcript came out – which was distributed at cable conventions and sent by mail and used to train our marketing people who were unable to attend – the word got out that something was going on here. So at the one in Dallas, the Cable Marketing Workshop in Dallas in 1973, the board members came, John Gwin was there (I think he was chairman of NCTA at the time), Bill Bresnan, Chuck Dolan, there was a list of who's who in the cable industry – all came to that convention to see what was going on. Then we had this panel on "Should We Form A Separate Association?" and they attended. It was a huge conference room at the Fairmont Hotel. There was a big round table and everybody gathered around and people stood up in the back of the room. We had 100 – 200 people in this large meeting room. It was conference table setting rather than a podium threatening "we're the speakers - you're the listeners" because we wanted everybody to talk. It was unanimous. We should form a separate association. John Gwin, Chairman of the NCTA, is standing up there pounding the table. By this time, the NCTA board had bought in.
KELLER: The board of NCTA?
HENRY: Yes, of NCTA, and the senior MSOs had executives attending this meeting. But the board didn't feel threatened by this association now. Rob Stengel had been working on it quietly. He was very instrumental in this whole thing.
KELLER: He went, then, with Continental and with Bud Hostetter.
HENRY: Later went with Hostetter and Continental and was there for years. But Rob Stengel was on the NCTA staff at the time, ... He was Vice President of Public Affairs for NCTA. He was very, very supportive and worked the back room at the NCTA, the staff level and the board level about what was going on with the marketing group and the marketing workshops, why it was necessary, why it would be beneficial to the industry to have it. He lobbied very effectively behind the scenes.
KELLER: And the outcome of these various panels is what we now know today as CTAM?
HENRY: That right. After the Dallas meeting in the summer of '73, the next meeting was in September, 1975, close to two years later. It was a pay TV conference in Chicago, and people came from all over the country and Dolan was there and Bresnan. Again there was a list of cable's who's who. There were probably less than 100 people there, and it came up again. These are very beneficial when we get together. We had a great conference strictly on the subject of pay TV. "Are we going to form this association?" I was there. "Don't you think this would be beneficial." "We haven't done it." "We've been talking about it for three or four years." "Why don't we do this." So there was a little fund set up on the side as people donated money. They said they'd put money in as kind of a good faith commitment that we're in fact going to make this happen. A few months later there was a first board meeting of what became CTAM. Interesting little story here is that Al Gulilland ... we were both working together and we both went to the pay TV conference in Chicago. I told you that everybody greeted me and didn't greet Al. So when they had the next organizational meeting, Al said, "Why don't you stay home this time." So I wasn't able to go. He told me not to go to that formation meeting of CTAM a few months later. He went and became actually one of the first board members of CTAM. And the joke in the industry from Jim Faircloth and others was that "Al took my place." I didn't have a choice, though.
KELLER: Tell us what CTAM means. It's an acronym for ...
HENRY: Cable Television Administration and Marketing Society. [Note: It is now called Cable & Telecommunications Association for Marketing]
KELLER: Where did the "Administration" come from?
HENRY: Well that's an interesting question because it originally was Cable Television Marketing Society. They felt that it was far too limiting as to who would be involved. In fact, marketing – and this is really true – marketing of a cable system becomes the administrative process of dealing with the cable customer.
KELLER: And unless you have the backing of the top people, your marketing people aren't going to do anything.
HENRY: That's right - and the customer service people answering the phones, and the installers doing the install. So it became clear to us through these sessions over the 3 –4 years that it had to be "how the administration of the cable system affects marketing." So they're one and one. You can't just have a cable television marketing society. You have to have administration in there as well or marketing won't succeed.
KELLER: How long did it take before the formal organization bonded together.
HENRY: I'm not sure when the first meeting was. I don't remember the dates. I think it was a year or so later.
KELLER: Who was the first president of CTAM, do you remember? [Note: Greg Liptak was the first president. Gail Sermersheim was the 2nd]
HENRY: It probably was either Greg Liptak or Gail Sermersheim.
KELLER: I was going to say Liptak, but I'm not sure of that.
HENRY: I'm not sure either.
KELLER: Trygve Myhren was involved in that early on, wasn't he?
HENRY: Yes. Trygve came in. Trygve wasn't in the industry when we did the marketing workshops. He came in a little later.
KELLER: He came in with CTAM. Wasn't he then president of CTAM at some point.
HENRY: He was later, but he came into ATC. Monty Rifkin hired him as his number one marketing guy. Interesting little story about Monty – you might not want to put this one on tape – Monty had interviewed me for the top marketing job at ATC and for one reason or another, I got distracted and did something else. So he hired Trygve. So then Monty called me up and said, "I'd like for you to come to Denver and lunch with Trygve and myself. I'd like you to spend some time with Trygve teaching him the ropes about the marketing part of the industry."
KELLER: He had a marketing background, but he had no experience in the industry when he came in.
HENRY: So I went up to Denver and had lunch with them, and it was a great meeting. I just think the world of Trygve. He did an incredible job. And I have to tell you, he did things that I couldn't do. He was the right guy in the right place at the right time.
KELLER: He was, no question about it. So you feel yourself as one of the parents of CTAM organization then.
HENRY: Yes. Well maybe that's not the right way to say it. The way I would say it is that the idea of getting the marketing people together to exchange ideas was the one that came to me in 1971 and I took to Amos Hostetter. That idea led to the marketing workshops and the NCTA supporting us and rolling this thing through so it wasn't in conflict, which eventually in '74 – '75 timeframe, led to CTAM.
KELLER: Did you ever get any funding from the NCTA?
HENRY: For CTAM?
KELLER: For the Cable Marketing Workshop number one, and CTAM secondly.
HENRY: The Cable Marketing Workshops were all funded by NCTA and fees that people would pay to attend. The publication of the book "Put One Idea Into Action" with the transcripts of the one in 1972. That was totally paid for by NCTA. It was quite an expensive project but they thought it was worth it.
KELLER: So your involvement in these Cable Marketing Workshops which led then to CTAM, kind of transcended your time both at Times Mirror and then before you went into Gilliland in San Jose?
HENRY: Right. I went to San Jose, Gilliland, in January, 1975 on special projects and then became an officer of the company.
KELLER: What type of special projects?
HENRY: The special project that I did – they weren't meeting their subscriber goals so they didn't have enough hands on deck. So I took on a project to audit the cable system and create subscribers out of auditing inactive drops. I had crews all over. My goal was to audit 15,000 – 20,000 inactive drops in 3-4 months. It created 3,000 – 5,000 subscribers which they would not otherwise had and therefore they made the milestone on the banker's requirements in spring of 1975.
KELLER: So that's how you initially got your foot in the door in San Jose at Gilliland Cable and Al Gilliland. You had just conducted the system audit where you picked up 4,000 – 5,000 subscribers. Do you want to take your experience in Gilliland Cable from there?
HENRY: Right. Now what happened next was real interesting. At the completion of that project, which took 4 – 5 months, Al Gilliland called me into his office. I didn't report to him so that was kind of a surprise. "Well, I've got this next project for you. We're trying to get into pay TV, and I would like for you to head up our pay TV project as your next assignment." Of course since day 1 of 1997 since reading the NCTA literature about the future of pay TV, I made a personal commitment that I wanted to be a part of that industry when it developed. I thought this was just like the nirvana offering. Little did he know that this was my dream come true. So in the summer of 1975, I traveled to 25 of the 28 pay TV systems in America.
KELLER: Were any of them receiving their service off the satellite at that time?
HENRY: No – stand-alone or microwave out of the northeast, HBO and microwave. I went to these systems, and I talked to people in the systems. I drove. I did my own little market research. I looked at the traps on the poles, I'd measure the penetration of the traps on the poles, and I'd drive down the streets. I went to the hotels where they were hooking up wings. "This is the HBO wing. It costs $10 more a night. Would you like to watch a movie or two? Or you can stay over here where there's no HBO." That was in San Angelo, Texas. That's how they were doing it. And I went to Dolan's systems on Long Island, and Channel 100 in San Diego. Twenty five of them. It took awhile – about four months. I came back and met with Al and developed a strategy, points of strategy as to how we should enter the pay TV business. We had a 24-channel cable system. That means two cables side-by-side.
KELLER: You had dual cable systems.
HENRY: Dual cable. No set-top converters. The problem is the little cross-talk in there, but the engineers were pretty good about that. So we had channel capacity. When we looked at adding a set-top box to provide HBO, it was actually cost prohibitive. There were too many problems. We didn't need the extra channels. We had plenty of channel capacity. In fact, we put a set-top box in an AB switch, we could have about 48 channels – more than double the channels in the system. But there wasn't anything to put on, and it cost $1 million in capital to put in set-top boxes to offer HBO, and we wouldn't make much out of it. So I went through a list of strategic considerations. What it boiled down to is that pay TV would be a loser for us. So I commissioned a market research study for our San Jose system, and I think they surveyed several thousand homes, approaching 7,000. It was about 7,000, something in there. It was an independent firm that did computer tabulations. Three books this thick on price sensitivity. The whole study was on how sensitive are subscribers and non-subscribers (we did two universes – subs and non-subs) to price of pay TV. It turned out that above $4.99 there was incredible sensitivity.
KELLER: Negative sensitivity.
HENRY: Negative. Once you hit the $5 mark, you would go from 60% of the people want it down to 30%. It was just incredibly dramatic. We had charts and graphs and all of this - I still have some of them in my personal archives – of research that proved that cable subscribers and non-subscribers both were equally as price-sensitive, very, very price sensitive to optional services. So based on that, we took that research – I'm talking three volumes of it this high – and Al Gilliland and I went to every major studio in the country except Paramount. We went to Universal, and I met with the chairman of Universal and his number 1 pay TV guy. This was just before "Jaws" and they became the biggest film company in the world. We went to United Artists, Fox, and others. There were five or six of them that we took this study to. We went around and said, "Here's price sensitivity. If you'll let us offer this service at a lower price, we get a phenomenal increase number of subscribers. Isn't that what you want?" So we got permission. They said, "Look, we've never seen any research like this. You guys are really convinced. You've done your homework." I did these presentations about all the systems I'd been to, the pay TV systems, and the research, and the study. We let them read the copies. They said, "We'll go with you on this one." It was the first place in the country where the film companies backed what was later called "mandatory" pay TV.
KELLER: How did they price it? Was it per subscriber or on a flat fee basis?
HENRY: The films?
KELLER: The films.
HENRY: That's a very good question. The films were priced on the monthly revenue times 40% allocated to the number of films that month. But for some films, there would be a minimum dollar amount and pennies, per subscriber for the film. Now the average of the composite was around $0.30 - $0.35.
KELLER: Per month?
HENRY: Per film.
KELLER: Per month per film?
KELLER: So if you showed ten films a month ...
HENRY: A month we only showed two.
HENRY: We showed 24 a year for $36 dollars.
KELLER: Would you continue to repeat them over and over again or could you only have one showing?
HENRY: Ah, we had four showings the first week and three showings thereafter over a period of about 12 weeks.
KELLER: All for this $0.30 per subscriber per month.
HENRY: Right. So the math worked like this: $36 for the year and 24 films. 40% of $36 is divided by 24 films and that's how we came up with the price. I don't remember the exact math.
KELLER: But if you didn't buy all of the films from one company, how did you allocate it from one company to the other?
HENRY: You've been in this business. You know the problem. So that was a major contention of all the film companies. "I'm going to show mine in this month, and you're not going to show the other guys." So what happened was, we would go to each company, and I would go around the country. I would fly to each studio. I bought film for four years. I became a film buyer. I dealt with each .... In fact the first three years, I had no written contracts. It was all done verbally between the senior executives in pay TV and the large companies and me personally. That's how we did these deals.
KELLER: I don't think that they wanted it known that they were doing that, did they?
HENRY: Right. They didn't know how to do a contract with us. So they felt if it was verbal, they could get out of it any time they wanted. So it really was a trust.
KELLER: Or if the theater owners started to complain, they could get out of it.
HENRY: Later, in the third year, we were forced to go to contracts – they were and we were as well. So we eventually reduced it to writing. But there was a problem. For example, I booked the first showing of "Gone with the Wind" in the United States on television, Gilliland Cable in San Jose on The G channel. We didn't get away with the prices we paid otherwise. I think in the end, we paid $0.55 for that picture.
KELLER: And how many subscribers did you have?
HENRY: At that point around 70,000 - 80,000.
KELLER: So you're still $40,000 a month to the film producers.
HENRY: In the first year, we increased the basic rate $3. We added two films a month. To the consumer, that was $1.50 a film. In the second year, the 11th month, we increased the rates again, and we went to four movies.
KELLER: But again, if you were paying $0.40 a subscriber to the film producers, $0.40 times 80,000 is still $32,000 a month, $500,000 a year to the film producers.
HENRY: Right. My film budget at that time was a little over $1 million a year. I was buying film for 20% of the pay industry for one little system. The industry was small. I think there were 200,000 – 250,000 customers, pay TV subs in the nation, and we had 50,000 – 60,000 of them. The way we did this – I forgot to mention – was if a film ... The problem we had in getting this deal done with the film companies was if a film was shown universally to a subscriber base or a TV audience, it came under the broadcast rights of copyright and directors fees and actors fees and guilds. So if we had proposed to put the movie on basic cable where everyone would get it, they would have to treat it as broadcast and there's no way we could do that without commercials and editing. We would then come under the FCC broadcast rules. So the work around we negotiated and kind of invented as we were going through these discussions with the different film companies, was that we would trap out public places – bars, hotels, businesses, rec rooms in apartment buildings, large gathering areas. We went through, and we gathered all those addresses and went out and trapped every one of them out.
KELLER: That's where HBO got the idea then, which they required us to do later on.
HENRY: Oh, really? Well the films companies said, "If it's not in broadcast so that everyone can get it, and it's not in public places, then it is optional pay TV." So what, in fact, happened, there was a great controversy in the industry at that time, as you may recall, over the negative option where you would mail the subscriber something saying, "I'm giving you HBO and if you don't tell me by the end of the month, you're going to be paying for it." There were lawsuits all over the country and state attorney generals involved and federal cases. So we couldn't do the negative option in offering this service. So we just put it in the basic. The G channel was one of the channels on the dial, but if you were in a public place, you would not be able to receive it.
KELLER: You trapped it out of those public places.
HENRY: Trapped it out. So we did the ultimate negative option.
KELLER: First one, at least.
HENRY: No, no. We weren't the first. But we did the only one that was legally accepted and that is – if you weren't in a public place, you were going to get the movies. That was our negative option. But no one challenged it, and it worked. The way we did it was, in fact, legal, because we looked at the other rules and regulations on negative options and were not in violation.
KELLER: Why did HBO never pick up on this concept. I know they prohibited it from being offered as part of basic service in subsequent years.
HENRY: HBO became very, very defensive about our success. They lobbied everyone against doing it the way we did it which was detrimental to their future, of course. And they put out the forces on the fact that the San Jose system was not going to work long term. There are going to be all kinds of problems. Other cable operators came to me and told me these stories, so I knew it was being said and it was going on. But we proved – and I'm going to answer your question a couple ways – first we proved that low price pay TV would be broadly accepted by the cable base.
KELLER: If you could afford to do so, which you did by the buy you made.
HENRY: Right. And we gained 25% - 30% of subscribers in three months when we increased our basic by $3. We saved that company, in ten months, from default on its loans to good standing on all loans, and increased the value of the company from $18 million to $150 million in three years because of the wide acceptance of G channel. The public wanted this. The public wanted the movies without commercials and unedited. But they wanted it at a lower price than HBO could afford to offer it.
KELLER: They were charging $9 - $10 weren't they for that?
HENRY: $8.98 - $9.95. That's right. And we felt that we couldn't get the penetration that would make pay TV viable for us because of the cost of capital for the set-top box. We didn't want to put in the box, first of all. And secondly, if we'd gone to the banks, they probably wouldn't have loaned it to us anyway because we were in default on the money they'd already loaned us. But it got us out of all the defaults, and it increased our system penetration, and HBO did not like this story. Now the next evolution of this is what Tom Willett did with Continental up in Ohio. He launched a little bitty mini-pay. They eventually called them mini-pay – low price pay - $3.95 a month. He set up a stand-alone service similar to HBO but on a smaller scale and offered them a very high penetration with Cineview. The problem was there were no satellites and it was stand-alone and they this little ¾" – 1" origination equipment that was very unreliable. So after about 2 – 3 years of operating Cineview (or something like that), they rolled it up into HBO and let HBO run it for them.
KELLER: You had the advantage of being associated with a television company so they were able to give you the benefit of their knowledge as far as the origination equipment was concerned.
HENRY: Right. We owned channel 11 across town, the ABC affiliate in San Jose, 100%. In fact in the days we were in default, the TV station money was coming right over to us.
KELLER: By courier!
HENRY: By courier, wire service – so we could pay our bills. That was in '75 and '76.
KELLER: But Al Guililland never faltered, did he, in his belief in viability of the system.
HENRY: He never. He bet everything he had, including the silver and the china in his home on cable TV, and it paid off. After the G channel turn around, the first half sold to Heritage for $150 million valuation. Three years later, the whole thing sold for the equivalent of $350 million. In '78 he sold the TV station for the highest price for an independent, what they call hyphenated market vee in the history of the industry that at that time was $28 million. They sold the bakery property, and he sold everything to subsidize the continued growth of the cable property.
KELLER: And of course by this time, San Jose was just booming. The economy was booming. The housing was booming. Everything was going ...
HENRY: But that wasn't good because we were putting dual cable in every trench and pre-wiring every home. It was just a tremendous capital draw-down.
KELLER: You were pre-wiring every home? I wasn't aware of that.
HENRY: Yes, because we developed what we called the in-and-on strategy. When a person moved in to a new home, the cable was in and on, just hook it up to your TV. And we got very high penetrations with that – 65% the first 30 days.
KELLER: I did that in my first managerial job in southern California also. Every new subdivision, I pre-wired. I did. When I didn't, the difference in penetration was about 50%.
HENRY: Yes. 75% versus 25%.
KELLER: And Al finally sold the system when?
HENRY: I don't remember the final sale. The first round with Heritage was 1985. It closed in ...
KELLER: Did he sell the whole thing or just a portion of it?
HENRY: Half of it and retained board control and operating control. The trigger that changed the deal was that there was a clause in the sale to Heritage that said if the control of the Heritage board changed, that Guililland could put the other half of them on a formula basis. So when Heritage was in this takeover threat, probably would have been '87 or '88, TCI came running in to bail them out so they wouldn't be taken over by a third party. Malone wanted that deal. So he took Heritage out. That changed the control of the board and Guililland triggered all the formulas, and in six months he was out of it. He had sold all of Gill Cable.
KELLER: This was what '85, '88?
HENRY: '88, yes. The first round was December, 1985. The second round was about three years later.
KELLER: So you were with them through this entire period, is that right?
HENRY: I was only there five years – '75 – '79. There are a few other things we probably should discuss about Gill Cable, but in January, 1980, I formed a small cable company to go get franchises. I went out and got five franchises in a row for myself, my family, my parents, and built that little cable company.
KELLER: While you were on the payroll of Gill Cable?
HENRY: No, I had left. I started that on my own. We got five franchises and various levels, a couple levels of financing.
End of Tape 1, Side A
Start of Tape 1, Side B
HENRY: I was president of that obviously and 80% owner. Then I was offered the job of American Cable, Bruce Merrill's company in Phoenix so I went down there in '82.
KELLER: Then started another era of your life.
HENRY: Yes. There were a few things at Gill Cable that .... I don't have to remind you, but Al Guililland was one of the premier entrepreneurs of our industry. He was one of the greatest risk takers that I've ever known. He wasn't like a gambler with bad judgment. He was someone who had a gut instinct and belief and lived it. He just persevered. It was amazing. When I joined him in '75 and did the pay TV project, I can honestly tell you the guy had aged five years in one year. The banks were on him. They had everything he owned. His wife had divorced him and taken a lot of things away from him in the first place. I would say that, before we did the G channel, he was at the lowest point in his whole life. His father had died of a brain tumor – 68 years old – and left his 33-year old son this media broadcast empire which included the bakery and bakery property and KNTV, the TV station channel 11.
KELLER: Heavily in debt.
HENRY: No it wasn't that heavily. Al bet the farm on the cable system and turned it upside down.
KELLER: Did he mortgage the television station too, to build his cable system?
HENRY: Everything. Al took his dad's empire and put it at the lowest point of virtual bankruptcy because - I'm not saying he was stupid – because he believed in cable TV. When I joined him in '75, we had 28% - 32% penetration. Dual cable built in an urban market. Our average homes passed around 130 per mile. Those numbers don't work.
KELLER: He also had to be concerned about what the FCC was doing, what Congress was doing at that time. Everything was in a big turmoil in the industry, and this guy stuck in there.
HENRY: All the way. I remember one day I sat in his office, and I said, "Al, we are making our milestones in subscribers, and we're not making our milestones on cash flow." This is the banker discussion. I said, "You know, we might be able to cut back a little bit on the number of techs we have in the field." This guy almost went into a rage. He came across his desk at me, and he looked me in the eye and put his finger in my face and said, "You know, I learned one thing from my dad – people buy what's in the loaf," because his dad spent his career in the bakery business, "and if they don't like it, they don't come back and buy it. So I'm not going to compromise, I don't care what the banks say, on the quality of what people see on their screen. I'll go down with this business before I will take the quality out of the loaf." And he did and he would.
KELLER: Did he do the same thing with all of his customer service?
HENRY: Absolutely – staffing, customer service, maintenance. And the banks would come in and say, "Why are you doing this? The other companies in the industry don't do it." But in the end, the G channel was the salvation, the mandatory pay TV – G channel, was the salvation of Gill Cable. But what it did, it was the promotional platform that got the attention of the public to come and taste what's in the loaf. And when they got there, we could deliver quality signals. If he had cut the money two years before, they would have come to try the G channel, watch the movies, and they wouldn't have liked the other services, and they would have disconnected. So it paid off handsomely in the end.
KELLER: With the hyphenated market, you could deliver the San Francisco signals then into San Jose so that was a great advantage.
HENRY: Right, a great advantage in the foothills, Almaden Valley, back along towards Santa Cruz and those foothills that couldn't get San Francisco signals. Most of the time they couldn't get Channel 11. So for years, that was the bread and butter of Gill Cable. Then when we built out on the flatlands that could receive, look up the Bay Area right across the bay and see the towers at Sutro and the penetrations out there weren't 65% - 75%. We had 80% areas and we had 25% areas until the G Channel came in.
KELLER: Depends on what the hills were. The same thing within San Francisco. It was the same way.
HENRY: So there were several things that Al did, as an entrepreneur, that were just gut instinct. They were just conviction.
KELLER: And in the days when customer service was kind of frowned on in the industry, he was the one who stuck into it until finally, the industry was convinced. And that wasn't until the mid-90's that they had to put the money into customer service.
HENRY: Right. The G Channel was so successful that our phones lit up. We had all the phone trunks lit up as long as we'd stay and man the phones. We got into a big dog fight with our bankers because one day, Al came in and said to me, .... We were running promotions and people were signing up right and left, but we couldn't answer the phones sometimes. He said to me, "Shut off the promotion until we can answer the phones." I said, "Okay. Fine." We shut off the promotions. I went downstairs and took over customer service and set up a whole new process for answering phones and calling customers back and keeping memos and tracking systems until we could get caught up. Well, guess what? Our sales went down. Our installs went down. And the banks came in and said, "What in the world are you doing? You were on a hyper-growth curve and you shut it down." Al said, "I live in this community. I'm not going to make my customers mad because I can't answer the phones." It was a tremendous lesson I learned for later on when I was in Phoenix. There were some real parallels.
KELLER: Yes, I can see that. You stayed with him then through '83, '84?
HENRY: No. It was '79 – December, 1979.
KELLER: That system then was really booming then? It was growing and everything was in good shape? There was a story related to me early on about when there is a going business, what makes a going business. And this is another "Guilillandism".
HENRY: I sat in Al's office one day. It was one of those times that he looks across the table at me where I'm the student and he's the lecturer. He's the professor, and I'm the undergraduate. It happened many times. He said, "Del, when you have a business that's breaking even, you have a business." I've used it over and over over the years. It's a fundamental principle of mine. Basically what it means is – and I share this with people all the time, and I've learned from it myself – there are three ways to put money in a business. There are only three. All the textbooks on finance relate to variations of the three. But there are only three:
Internally generated funds because you're profitable and you're paying all your bills and taxes. You've got money left over. That's internally generated cash flow.
Loans from the bank if they'll lend to you
Money that you put in yourself from your family or friends
It's equity, debt, or internally generated funds. All the business schools and MBA programs teach you how to cheat and bend the rules, but there are only three. So Al says, "If you're breaking even with your business, you can pay your bills. You don't need the other two. You don't need to borrow. You don't need to invest more money in your business. But more importantly, you have the time to look around and think about how to improve your business so, in fact, it can become profitable. Your customers are subsidizing your own research as to how to turn this into a profitable business.?"
KELLER: But as San Jose was growing and various subdivisions were being built, was he able to finance all of this cable construction through internally generated funds?
HENRY: No. Not for awhile. We still had to draw down from the banks. But the numbers worked. They believed us. We didn't put the million in the set-top boxes, and we took the basic rate from $5.95 to $10.95 in one year – 12 months.
KELLER: Just by giving them these movies?
HENRY: And we took the subscriber base up over 30%, the penetrations up in the high 30%s. The G Channel momentum .... There are so many things that came out of the G Channel that were first in pay TV industry. One was the simulcast of the movie sound through the cable FM band. We demonstrated that first with "Towering Inferno". January 31 was our launch movie in 1976 – "Towering Inferno". Then in probably April, we premiered "Earthquake" for the first time in the cable industry, and we simulcast the "Earthquake" through the FM band.
KELLER: Surround sound, huh?
HENRY: That's right. We called it 3-G surround sound. That was our little brand name for it. Then we also within a year simulcast other key television channels through the FM band so you could tune in to the major networks or some other channels and get their audio in high quality stereo. We promoted it as a home theater system with the theater effects coming through your cable FM band so we could sell more FM outlets.
KELLER: So all the time you were there, did he continue to build dual cable?
KELLER: Even when Heritage took it on?
KELLER: They still did?
KELLER: When did they finally put a converter in or what that after you left?
HENRY: Yes. Oh, I forgot to mention that. Part of the basic minimum priced pay TV strategy was that we would introduce pay TV with a mandatory low price of $3 concept. Once that had matured in for awhile, we would come in with the optional pay TV, HBO or others and a set-top box. The subscriber would pay a minimum of $49.95 for the box and a minimum of $9.95 for any channel we put in. But we wouldn't introduce that until our business could justify it and until everybody understood the concept of movies in the home without commercials and interruptions.
KELLER: So you had an interesting 3-4 years, almost 5 years, with Gill Cable in San Jose.
HENRY: Yes. It was a really eye-opener, first of all in the entrepreneurial environment, but secondly all the things we tried, the new things we had to try.
KELLER: Then he finally sold half of it to Heritage in when?
HENRY: December, 1985.
KELLER: That was well after you had left and you were doing something else.
HENRY: Right. I still owned part of the company so I was glad. I actually cashed out on that round.
KELLER: And what is Al doing today? I hope to be able to interview him before too long.
HENRY: Al is deceased.
KELLER: Oh, I wasn't aware that he had died.
KELLER: Tape is blank for a short time. [We have been discussing your years at Gill Cable and the things] that occurred during your time there and the development of that great system and of Al Guililland's personal commitment to it and some of the innovative ideas that he and you had at the time. Is there anything about that system or about that time that we haven't covered yet?
HENRY: One of the things that intrigued me ... once we got the G Channel going and were in great shape financially, and the banks wanted to do about anything we wanted to do, they'd support us because they thought we had worked a miracle ...I wanted to buy some cable systems in the area and Salinas came up. Al was kind of interested in it. Ed Allen ...
KELLER: Eddie Cohan wasn't it?
HENRY: Cohan and he sold it to Ed Allen and Western. Well, we were in there. We were going to buy it. Al had these little pearls of wisdom that he'd throw at me from time to time. He said, at one of those private meetings the two of us had where he was the professor and I was the student across his desk, "I've decided I don't want to own anything that's beyond the horizon. If I can't see it everyday, I don't want to own it." In other words,
KELLER: ...if he can't put his own hands right on it everyday.
HENRY: ... if he can't feel the heartbeat on the operations and what's going on there, he didn't want to own it. So we passed on Salinas. Turned out to be not a good deal. We should have bought it.
KELLER: Oh, yes.
HENRY: It was an extension of our cable system, just a few miles away. There were a couple of others that came up. Morgan Hill came up. Gilroy and Marc Nathanson bought that from TCI. I can go down the list here. There were other properties that we wouldn't buy because he wanted to be able to see it and touch and feel it or he didn't want to own it. And that was even after he sold KNTV and we had plenty of money. We could do about anything we wanted. There were many innovations there. Bob Coward was our system engineer. He's since deceased as well. Joe ____. We had the innovative dual cable system. The one in lower Bucks County you probably remember that was owned by the Tribune Company out of Philadelphia.
KELLER: In Redding?
KELLER: Bucks County, okay.
HENRY: Bucks County, lower Bucks County. It was dual cable and it didn't work very well.
KELLER: A lot of dual cable systems didn't work very well.
HENRY: Right. But what Bob Coward, our system engineer had done, is he had trained the maintenance people, and they had the right fittings, to minimize cross-talk. And they would test the system at short intervals. They had incredible maintenance program. They did nothing but maintain that system and keep it tweaked to minimize the cross-talk between the two cables. Because of Al's commitment to "what's in the loaf and what's on the screen, we want them to pay their bills every month, we want them to come back," he funded Coward - we had an R&D lab right there in the building - to help perfect how to maintain and how to operate a dual cable system. I believe we operated it better than anyone in the country. That, Al Guililland deserves the credit for. He made the commitment. I'd come in some days looking for Al, and he would be back in the lab with Coward. Here's this guy, he's got an empire crumbling around him, we're running 1,000 miles an hour as a management team trying to get things done, and he's back there in the lab tinkering with these little things that will improve the cable service. And he wasn't an engineer, but he felt that was just vital to our future, and that's why he spent a lot of time back there.
KELLER: You're mentioning Bob Coward. I first met Bob when he was in Myrtle Point, Oregon, in 1960. He owned part of the system up there at the time.
HENRY: Hmm. I didn't know that.
KELLER: Then you stayed with Al and helped him build this for five years and then went out to find some other systems of your own in the area?
KELLER: What systems were those?
HENRY: They were near Modesto. I went to these small towns that were kind of satellites to the big towns of Modesto and Turlock and Merced. The Modesto system, you may recall from the "Golden Era of Franchising" in the TV industry, was the first one that had the incredible franchise fees. They went all the way up to 36%. You may remember that.
KELLER: I do. That was in Colorado Springs.
HENRY: Colorado Springs, yes. I was in a bid – we actually came in number 2 – with Gordon Rock who had the Lodi system at the time. We bid on Modesto and gladly lost, under the circumstances. It took years for that system to recover, the Modesto system. It changed hands a few times.
KELLER: Finally the FCC put a cap on the franchise fees which saved that system among others.
HENRY: Right. But what had happened was the little towns around there, Waterford where I went to grammar school, was about 7 – 8 miles out of Modesto. Livingston, which was down on Highway 99, my parents lived there. It was a little town of about 5,000 homes. I went down the Christmas of '79. I was leaving Gill Cable. I went down and met with my parents at their home. We were having a dinner, and I had driven out that day with my mother to all these little towns around there. I had never done that before. I went to high school in Merced, 120 miles away I went to Berkeley, a few years later I'm down in San Jose which is about 40 miles south of Berkeley. So this is a little triangle that I've lived most of my life. I still go there frequently including a couple of days from now. I looked around, drove these little towns, I came back, set down to dinner, and said to my parents, "We have a business opportunity here. But if you want to be in this, I'll only do it if you want to be in it and help me do it." They said, "Okay. We'll do it." So we didn't have a business card. We didn't have a phone number. We didn't have an office. We didn't have any employees. And we carved up the company. I owned 80%. They owned 10%. We were left 10% for other people. And we went out to get franchises. The interesting thing about this strategy was that these little towns had been trying to get GE in Merced and Atwater. A Post Newsweek company owned Modesto. The mayors of these little towns had tried to get the system managers to come out and meet with them and talk about extending the cable service in their small towns. These system managers wouldn't even return their phone calls, let alone have lunch with them. So I came in, local boy, high school and grammar school, knew quite a bit about the cable business. They had heard about San Jose and I had just come from there. I'd sit down with the mayor, and I'd go in homes and meet with the councilmen. I'd say, "Here it is. I know a little bit about the cable business and believe me, we have an opportunity here. Your one little town doesn't make sense on its own, 2,000 homes here, 5,000 homes there. But if we put these together. If you help me franchise all of them, we can build a nucleus on one operating system, one office, to service everybody. And I'll make you this promise: you'll have a 35-channel system, you'll have the latest state-of-the-art, and you'll have pay TV when it turns on – 3-4 channels" which GE and Post Newsweek did not have in Modesto. Turlock was owned by Sammons at the time. None of these four major cities, Modesto, Turlock, Atwater, Merced, had more than 22 channels. They did not have 35-channel technology. Of course, I had the windfall that that 35-channels was new and it worked. They couldn't afford to rebuild their systems. So out of the 25 votes on the five councils, including two counties, I had 24 positive.
KELLER: What happened to the other guy?
HENRY: The other lady was in Merced, a board member, Merced County, said, "There's already a franchisee in this area that you want." It was Sammons. "I have a principle. I'm opposed to granting two franchises in one area, so I abstain." So it was 24 positive and one abstention.
KELLER: So then you set about building out in the valley.
HENRY: Right. The best part of this story, actually, was that when I'd received the fourth franchise, I still had no line of credit, no investment, and I'd put $150,000 of my own money in it and worked for free. That was about 2 ½ years into it. Is that believing in cable?
KELLER: They didn't ask you for a commitment on financing?
HENRY: Well, Scott Bergren had helped me out. He, in fact, put up his financial statement, and said they'd build the system. So I had that back-up. In the end, we didn't use it. But we borrowed $1.1 million from Wells Fargo and raised about $700,000 - $800,000 from limited partners and built the systems and sold them later for quite a bit of money. But it really put the pressure on these larger towns to upgrade their systems. It was a timing thing. There were two things with timing here. One is a golden opportunity in that the big cities didn't want to go out there and hadn't so they had a black eye and I was a white knight. But the other one was that interest rates went to 22% in the second year.
KELLER: I remember that very well, in the early 80's.
HENRY: Yes. Shut down the cable industry and we couldn't borrow the money. You couldn't find anybody that had the money to loan. So we had to go .... My parents and my share – our group – Scott Bergren had 5%, Bill Garina was in it and a couple of other people – our 100% went down to about 35% in the merged company less the limited partnership shares. Because of the 20%, we got scalded pretty badly.
KELLER: Go back and say ... You sold off portions of it into various limited partnerships. Is that what you're saying?
KELLER: You kept your 35% free and clear of any partnerships, is that right?
HENRY: No. We had 35% of the general partner.
HENRY: And the general partner owned the system with the limiteds and the bank loan.
KELLER: Was Bergren still involved with Teleview at the time?
HENRY: No. Bergren was out in his own company in Oklahoma. I forget the name of it. But he sold those properties to Jones Intercable in probably 1982 or 1983.
KELLER: In Oklahoma?
HENRY: Yes. The Oklahoma properties were sold to Jones. One of them might have been sold to United, ones near Tulsa.
KELLER: And you were able to sell your properties in and around the major cities in the valley to the big city operators or the larger city operators?
HENRY: No. It actually sold eventually to Chris Cohan at Sonic. He came in and bought it, as is.
KELLER: After selling Salinas?
HENRY: No. Well, Salinas was sold, but that was before he came in. His dad sold that early.
KELLER: That's right. This is Chris, not the old man.
KELLER: This is '82 now. You, earlier on, said that you went to work with Ralph Sweat three different times, one in '69, now you're in '82. Did he go back with you? How did that happen?
HENRY: I hadn't thought about that in a long time. What triggered it was this: When I was doing my little cable systems, I built financial models on VisiCalc and I had a little Apple computer and a printer – the epitome of a notebook. I had a little Apple with a TV monitor with a Diablo printer which was this wide and this high and weighed about 50 pounds, and I had it in the trunk of my car. And that's how I prepared my cable franchise proposals, because each one had to be similar but just slightly different. So I did it with word processing. Simultaneously, I developed a financial model for a cable TV system. My goal was to come up with a pricing structure that would make the business viable but not be so highly priced that it would intimidate the city council and therefore bring in the big cable operators nearby. It was a very delicate balance. So what I did, I developed ... At that time, it was a new thing in the cable industry – what I called a variable cash flow model – that analyzed every system and every dollar revenue from every source and product and the associated cost of that product, and built a "what if" model. If you increased this by this, if you increased this by that. I had these little models running, one for each one of the cable systems, and then a combined model that put them all together for this little region of 4-5 little towns. I went down to Times Mirror, and I met with a guy named Larry Miles who was there at the time, and Greg Liptak was there at the time. They reported to Ralph Sweat who was president. Larry was in charge of all the marketing. He was senior VP of marketing and programming. Greg Liptak was the Executive VP. Don Williams was there as well. He was the VP of operations, senior VP of operations for all of Times Mirror. They all reported to Ralph Sweat. So I went down with Larry, and I showed Larry my variable cash flow model. He goes, "We've got this huge cable company with 1 million subscribers. We don't have this. Let's go show it to Greg." So we went in the room, and we showed it to Greg Liptak. He said, "Wow, we don't have anything like this, and we're a huge company and we can't do this. How did you do this?" "Well, I did on a little Apple, 64 k." "Oh. Well let's meet with the financial people." One thing led to another and pretty soon we were all huddled in a room and Ralph's in there. They said, "We've got to put this into our problem systems immediately so we can figure out how to price and how to market and how to penetrate where we need to go."" So they retained me as a consultant to go out and train their system managers and their accounting people and to run this model and to also convert the model into their systems, their billing systems and their financial systems. So I was a programmer at this point in my life. I was a computer programmer for financial models. I never thought of that. But that was my role at the time. I flew around the country with Larry and Greg giving seminars to their general managers and field accounting people and their financial people on variable cash flow analysis and how to price your variable products in tiers and multiple pay and second outlets and how to price everything so you could combine it into ... so you could predict the variable cash flow that would out or fall through all that. We were in their systems in Texas. They had a huge system in Texas and Hartford and Louisville and Phoenix and Las Vegas. I was the guru of variable cash flow – not anything else – but variable cash flow analysis – giving these seminars. One of the things they did is in March, 1982, Bruce Merrill ran out of money. Times Mirror owned 15% - 20% of American Cable and they were the passive partner and didn't have control of the board. Bruce had the board. So the company had defaulted on major loans with the bank.
KELLER: This is American Cable, Bruce Merrill's company, and Ameco.
HENRY: Yes, and he owned Ameco as a little side piece of it, right. He got to keep Ameco in the deal, which had dwindled to nothing at that point. But he wanted all spare parts for all the amplifiers out in the field. I was up in San Jose working on my cable properties and March, 1982, Larry Miles called me. He said, "This morning we closed." The banks had forced Bruce, before they'd loan him any more money, to sell out the remaining 30% or so of Times Mirror so it would be 50-50. Times Mirror would take over operations and have control of the board – 3 seats of 5. So Larry calls me and says, "We're taking over today, and I need you over here to run the variable cash flow model to figure out how to reprice this thing and get it going." I said, "Okay, that sounds great. I'll be over there tomorrow afternoon." He said, "I don't think you understand. We have to present this in the morning at a board meeting at 10:00." I'm in San Jose. This is like 11:00 am. I said, "Okay, I'll be on the next plane out there." Times Mirror had purchased these TRS 80, ten little Radio Shack computers - now we have 128 k – and given them to me with printers. I had them in the original boxes so I could travel with them to all these systems. So I got my computer off the desk, didn't have much in the way of baggage, got on the plane, the first plane out of San Jose, and I flew to Phoenix. I got there about 4:00 in the afternoon, and Larry picked me up. We went up to the cable office, stayed up all night – Bill Garina, Larry Miles and myself – built a special new model for American Cable in Phoenix and presented it at the board meeting the next morning at 10:00. It was how to reprice and repackage and redefine all the cable services in the cable system.
KELLER: Wasn't there competition in Phoenix then?
HENRY: Yes. That's part of the saga.
KELLER: Actually over-wearing in some areas.
HENRY: Yes, a lot of over-building. So Bruce Merrill was sitting at this board meeting with the management team, the Times Mirror management team. Liptak was there. I'm not sure Ralph came over. Don Williams, Larry Miles, Bill Garina, Bruce Merrill, his son Phil Merrill, and I stand up and present the variable cash flow model. It was warm and fuzzy being completed at 4:00 in the morning! It was all I could do to stay awake. So Bruce said, "This looks really good. We should have done this a long time ago. Let's implement this immediately." I said, "Well, that's great," and I left and went back to the airport and flew back to San Jose. I was there 24 hours. Larry took me back to the airport. A couple of days later I got a phone call, "Del, we want you in Phoenix." So I became a 50%-time cable consultant to American Cable. My topic was financial modeling, strategic planning, packaging, and helping the marketing guys in their meeting so there weren't any conflicts between what management wanted to do, what the budget had said and budget wanted to do, and what the current management running the company wanted to do. So it all had to fit together, and I was the catalyst, had to go to the meetings. The other half of my time, this was in '82, I was developing my cable property in northern California. So I was kind of wearing two hats going back and forth. Bill Garina, who's a very dear friend that I've known since '69, was president of American Cable. Upon that March announcement, he had been a consultant there. He became president and Bruce was chairman. So I shuttled back and forth about 1 – 2 weeks a month, most of the time 2 weeks, especially in budgets. My role was to coordinate budgets. So one day I went in Bill's office and said, "Bill, I heard a rumor that you're leaving American Cable." He said, "Yup, that's right. I'm leaving, and I'm going to be out of here on August 30, and I told them that four months ago, and they haven't done anything about hiring anybody new. They had a couple guys in here that didn't make it and left. So it's their problem. I'm putting the keys on the desk on Aug. 30, and I'm going out that door. That's what I told them." I said, "Well, who's going to be president?" He said, "Do you want to be president?" I said, "Bill, I hadn't thought about it up till now, but what do you think?" He said, "If you put your name in the hat, I guarantee you that you'll be president." So sitting right there, I said, "Okay. Put my name in the hat." That's all I knew. September 8, I was announced president of American Cable.
KELLER: It was controlled by Times Mirror at that time.
HENRY: Yes. So I was the president and general manager which is the same as president and COO. Bruce Merrill was the chairman. Our offices were together, side by side, but I didn't report to him. Initially I reported to Don Williams and eventually to Ralph Sweat.
KELLER: Did you move to Phoenix then?
HENRY: Yes. So I had an interview with the team before I was accepted. So I interviewed with Greg Liptak who I had known since '68, Don Williams who I had known since '68, Ralph Sweat who I had known since '69, and of course Larry Miles was there. I'd known him since '69. This was '82. It was like old home week as I'm was going through this interview. But they had to do it because Bruce was on the board, and they had to hire the right guy. I'm proud of the next thing I'm going to tell you. When they had the board meeting to approve the new president of American Cable, they went around the table. There were 5 votes, and every vote that, during this common ownership after Bruce had lost control, every vote item had been 3 – 2 until I was nominated to be president. It was 5 – 0. Bruce and his son, Phil, were on the board and they said, "This is a great move." So after this meeting, Ralph came out shaking his head and said to me, "They never voted 5 – 0 on anything. What did they find out about you?" That made me feel good. And Bruce was really supportive. I didn't report to him, but he was very supportive while I was there. I was able to turn the company around and build it and created a lot of value for him. He had a company that was underwater, the banks were going to foreclose on him. When we settled up with him and negotiated a new deal in September, 1983, he walked out with $12 million which turned out to be about $18 million – light-years from where he was 18 months before.
KELLER: But he didn't save Ameco?
HENRY: No. He took it but he didn't save it. He took it and sold off the inventory. But Bruce and I have always been good buddies.
KELLER: How long, then, did Times Mirror run the system in Phoenix and I think in Tucson too?
HENRY: Yes. No. Tucson, well .... In the Phoenix deal when we took control in March, 1982, the Times Mirror crowd, there were MDS operations all around Arizona that Bruce had set up. There was a two-channel MDS in Phoenix that had HBO and Showtime. There was a one-channel MDS operation in Tucson. At that point in the country in the MDS business, those were the two largest MDS operations in the country. The one in Phoenix, when I took over, had about 28,000 customers, down from 50,000 or 48,000. The one in Tucson was down to 17,000 from about 25,000. At the high point, those two properties had about 60,000 – 70,000 MDS customers between the two. But as cable was built out, it acted as a piranha and it would take the MDS sub away and put the cable in. Well, that was such a bad deal. It sounds good, like you're pre-selling cable. But you never recover the MDS investment.
KELLER: Well, it's true. We did the same thing in Denver at ATC.
HENRY: The roll-over was .... It was good to presell the market, help penetration, but economically it was not good.
KELLER: Good thing the Justice Department never looked at those at that time.
HENRY: Right. So in Phoenix I not only had the over-build, if you will, of MDS. Fortunately we owned both. But Storer came into the city of Phoenix, got a second franchise because Bruce wasn't building fast enough. They started building very fast, kind of carving out their turf in the city of Phoenix, which was one of the larger cities in the country at that time and was unbuilt. So Times Mirror accelerated construction very, very rapidly. We were building 500 ... One month we turned out 1,000 miles of cable. 400-500 miles a month, and Storer was doing the same thing cross town. So what we ended up with, this would have been in '84, we had the largest over-build in America. It was over 65,000 homes. We did a swap with Storer. They got our Louisville property and some other things, Mount Pleasant, New Jersey, I think it was. And we got their Phoenix property and another one somewhere in the east. We consolidated the build in Phoenix so in a period of 24 –36 months, we went from 16,000 to 170,000 – 180,000 customers. The period of time from '82 to '84 was, at that point, the fastest build of a cable system in the history of the industry. It was only because of the overbuild competition. Everybody was building fast.
KELLER: What did you do with the two cable systems? Did you tear one down or leave them up there? What did you do?
HENRY: You know the cable business, I can see that. That was a colossal nightmare because for example, in the city of Paradise Valley, small town but very wealthy people kind of like the Beverly Hills of Arizona, probably 5,000 – 8,000 homes there. There were pedestals. It was all underground. There were two cables in every street, two pedestals, and sometimes one cable company would take a customer and use the other company's drop to service them. So we had to, as a apart of the approval to transfer the franchise in Paradise Valley for example, we had to present, at the hearing, how we would change out one cable system – close out one, leave everybody on the other one, convert people over so they wouldn't have interrupted service, and not cut each other's cable so that everybody has bad service. We spent a fortune.
KELLER: I bet.
[Typist's note: Please check the pp. 43 - 45 for references to Jim Hall and/or Jim Faircloth. sf]
HENRY: A fortune. We realized we had to do it that way throughout the valley or the cities ... because we were the incumbent. We would be left with the operating cable system two years later and the company that traded out, Storer, left town – not their fault. So we realized that if there was any damage to customer relations, it would be our fault. So we were forced, by way of political pressure, but more importantly customer satisfaction, to spend a fortune changing out that overbuild cable. By the way, to get the approval, I had to testify before the Justice Department. It was one of the most rigorous things I've ever experienced in my life to get the approval to close down the other cable system, to make it become one. So the president of Storer Cable in the west, Jim Faircloth, testified for Storer, and Bill Garina who was the former president and I testified for Times Mirror. I went in there for almost eight hours. It was one of the most grueling experiences I ever had because – I'll tell you this quickly – on my side of the table was myself and my attorney. On the other side were five attorneys. They had a binder this thick. They had every document we had. Every question they asked me was read from a list. And the answer – I could look at it upside down – was below the question. What they were trying to do was trap me into trying to deceive them about something they knew to be fact. So I'm sitting there going, "If I say the wrong thing, I go to jail."
End of Tape 1, Side B
Start of Tape 2, Side A
KELLER: Del, you were still involved in trying to separate or put together, I'll put it to you, the two systems in Phoenix between Storer and Times Mirror at that time and the problems that you had with that. What developed out of that system in Phoenix? How did you develop that system after that? It went from a few subscribers to one of the biggest systems in the country.
HENRY: Right. It went to the 9th largest in the country. By the way, on the overbuild solution, the thing after I testified at the Justice Department, I just remembered that there had to be a middle man doing the deal with Storer because they felt their properties were worth $2 billion and ours were worth $1 million. Each side felt over-valued. So we had a middle man to kind of mediate and bring the parties together. It was Rick Michaels. So the same guy I had worked with my early years at Times Mirror, came in and Rick and his company, CEA, they brokered the largest swap, system swap - it was a non-cash swap. There might have been a little boot in it but not much. They brokered the largest swap in the history of the cable industry. It was a $250 million deal and CEA was the mediator between the Storer crowd - Jim Hall and that group that Rick knew so well, and Ralph Sweat and the Times Mirror crowd - getting the parties to agree on the valuation of the properties so that we could do the exchange.
KELLER: I bet that was a tender negotiation on that one.
HENRY: It was. And the interesting thing was at that point, Bill Garina, who had been president for me remember, was working for Rick Michaels doing the books. He was the one that Storer and Ralph Sweat ... He had worked for Ralph Sweat for 15 years or so.
KELLER: About that time, Storer was just about to the point of having enough of a business to do it.
HENRY: That's right.
KELLER: They wanted out pretty much, in spite of Jim Hall who wanted to stay in in the worst way.
HENRY: Right. And then that take-over group came in.
KELLER: Then it got really messed up after that. Finally between Comcast and TCI, they finally got it straightened out after years, I think, of operating separately. It was an amazing story in itself. Jim Hall knows that story better than anyone.
HENRY: Yes, he's a fine gentleman.
KELLER: He really is.
HENRY: Jim Faircloth.
KELLER: And Brodsky, Julian Brodsky knows it pretty much of that story too so I've got that pretty much on tape. So after you got things running pretty well in Phoenix, what did you do then?
HENRY: There were a couple of things in Phoenix before we got running well that I probably should mention. In '83, we had to settle up with Bruce Merrill, settle up on a Phoenix Suns contract which was quite onerous. Actually we convinced the bankers that that one contract was bankruptcy for us if we didn't renegotiate it. So we did a three-legged stool deal in September, 1983 where we simultaneously bought out Bruce Merrill, renegotiated the Phoenix Suns contract, cleared up all the defaults on the $115 million in loans with the banks, and at that point in time, Times Mirror owned 100% of the company.
KELLER: Was Times Mirror pouring money into it then?
HENRY: Oh yes. It was running $1 million a week coming in which in '82 was frightening in the cable business and a start-up. They had put in their guarantee on the loans plus another $25.5 million when ... The worst day in the cable industry for me was when Ralph Sweat called me up. He said, "We've got to run your business out of operating cash flow. The banks are not putting anything in and Times Mirror's not putting anything in subordinated." So I did a quick pencil and said, "Well, that means I've got to reduce the expenses around here about $1 million a month." "Well, if that's what you've got to do, that's what you've got to do," he said in a positive way, not a threatening way. I said, "Well, I know what I've got to do. We'll work this out." So the number one accountant from times Mirror came over and spent a couple of days with me. About ten days later we laid off 125 people out of a 500 employee group. It was really devastating. It was a black rock day. I brought in outside consultants. We paid people severance and extension pay. It was not a pleasant day in my life. But once we did the deal in September, 1983, and Times Mirror took 100% control and we could fund it and grow it again, 65% of those people came back to work for us.
KELLER: As you grew?
HENRY: Yes. They wanted to come back, but we had communicated to them that it wasn't their fault, that this was something that the business had dropped on us, and until we'd worked out the problems of how we get money to fund our growth, we couldn't afford to pay their payroll so isn't it better to tell you now than to tell you when you don't get a check. Plus we're giving you the severance and the out-placement. About one-third of them went to work in other Times Mirror properties.
KELLER: Was this about the time that Times Mirror was trying to determine whether they were going to stay in the cable business or not?
HENRY: No. that came in '85 – '86 after the Storer swap that closed in '85. No, this was in '83. The layoff was probably in April, 1983.
KELLER: That would be a difficult day.
HENRY: Oh, it was devastating – 125 people told at the same time.
KELLER: Did you put them all in an auditorium and say "this is the group that's going to go and this is the group that's going to stay"?
HENRY: More or less.
KELLER: That's tough.
HENRY: It was awful. So Times Mirror got ... We had the funding to grow and go, and we had settled up things with the Phoenix Suns and had a new schedule with them which was a 13 year contract. We had a pay TV channel with NBA Sports, one of the first in the country - the Phoenix Suns. We telecast 48 games with them and their away games and their home games. We would do the satellite feeds and the broadcast transmission. We had announcers and all the people to do the electronics were actually on the staff of the cable company. We had a sports channel, we had a broadcast group, we had advertising sales early on in the industry. We did some packaging and pricing that was unique. Probably the most unique thing we did was we had the ... It's not a great thing to report. I've never bragged about it over the years in the industry, but now since it's ancient history I'll mention it. We had the largest rate increase in the history of the cable industry to help us survive in this overbuild environment. We went from $8.95 a month to $15.95 a month with virtually unanimous approval from all our city councils before rate deregulation at the FCC level, two years before.
KELLER: And Storer didn't try to undercut you on rates?
HENRY: We went in for the rate increases in '84, the consolidation was in '85. What happened, we proved to the city with our penetration and the overbuild, the only way we could survive was to increase the rates. Storer did not oppose it but after ours was approved, they went in and got an approval and their rates were about $1 below ours. So they went up about $6. And it saved the company. We were still negative on the bottom line. We were using about $25 million a year in capital and pre-tax negative was about $23 – $26 million. So it was huge start-up losses. But that little $7 made a monumental difference.
KELLER: When all of this occurred, had you already build the then limits of Phoenix?
HENRY: No, we were still building it. We were wiring 50,000 – 60,000 new homes a year. It was the number one growth city in America. It was building 55,000 homes a year.
KELLER: And you were doing it out of your cash flow?
HENRY: No, it was internally funded from Times Mirror.
KELLER: You said when Times Mirror said they weren't going to fund it anymore, then you started to fund it from your internal cash flow.
HENRY: Right. When I laid off the people and had to go to internally generated funds, that was April, '83 – Sept. '83. September, 1983 we did the three-legged stool deal and bought out the Merrills and settled with the Phoenix Suns and the banks. At that point, Times Mirror refinanced and from that date forward had 100% of the company and funded 100% of its growth.
KELLER: That's when they started putting money in for the growth then.
KELLER: But now you were the only operator in town.
HENRY: In the franchise areas, where we were franchised. There was another operator in Scottsdale. It was United at the time, before TCI bought United.
KELLER: You've had some real interesting experiences in your years in operations then.
HENRY: Yes. At the end of the Phoenix experience, which was like being a fireman. I jokingly said I went to work every day to help to the fire drills and help put out the fires. I never got to deal with operations of the company, it was always something that was wrong. That was my job, along with other people. I wasn't the only one. But I did that for three or four years and became senior vice president of corporate development for Times Mirror Cable, and I said, "That sort of it." That was my last round with major operations because I didn't know where I could go to experience any more than I went through there. It wasn't all fun either.
KELLER: So you got Phoenix going and you left it going in pretty good shape.
HENRY: It was still growing and losing money, but it didn't have the control problems that it had before. We had moved it from 16,000 to 170,000 – 180,000 customers. We had 150 trucks. We were doing 10,000 home appointments a month and processing 200,000 bills a month and answering 1 million phone calls a year. We had 5,000 miles of cable to maintain, 3 AML systems that interconnected all the systems. It was a big challenge and very rewarding for me, personally. I have no regrets on Phoenix. It was a terrific experience.
KELLER: And it probably set the basis then, or the standards, for what you were going to do in the future. You learned an awfully lot.
HENRY: Yes. We actually negotiated with American Express to build fiber from the American Express customer service office there out of town to bypass US West to get out the long haul networks. We were going to put that fiber ... I was negotiating fiber in 1984. We didn't get the deal done because Dow Carpenter, who was our senior vice president of the cable division down at Times Mirror, wouldn't let us use the funds for building fiber for telephony. But we were in the middle of it, even then. I was going to conferences in 1986 on how to build fiber and how to splice fiber and how to use fiber in telecommunications.
KELLER: Is that how you first became acquainted with the data/internet/telephony approach to the business?
HENRY: Sort of. But the way I really got introduced to that is in 1986, I was leaving Times Mirror because I had sold the Gill Cable stock and wanted to do something with my own family, my dad, and my own career other than running day-to-day operations. At that same time, Ralph Sweat, who had been chairman, and I had been reporting to, left and an LBO on the telecommunications division of Times Mirror Cable, which had been acquired from CPI and Jack Crosby and Fred Lieberman and Bob Hughes in 1978. So Times Mirror wasn't that interested in investing in the microwave business for telecommunications, and Ralph wanted to buy it. He bought it and left and moved to Austin. I visited him frequently over the years. In 1993 – 1994, he started coaching me on why I should get involved in telecommunications as a new part of my career. I don't know if I already told you this once, but one of the things he said to me at dinner was, "Well, you've done this, you've done that." He rattled them off because he knew me very well. This was the third time around for us. "You know all these things, but you don't know telecommunications. And your career won't be rounded unless and until you do." So I went away from that 5-hour dinner, thought about for about five months, and realized he was right. So I started talking to him about involvement in the company which was IXC at the time, a former microwave division. That company had been around since '65 as hauling video signals and microwave out to the CPI properties in Ohio and Texas.
KELLER: In Texas, Del Rio and those systems down there in the southern part?
HENRY: Yes. Some of it's still running on its own by IXC, and those signals are carried on a month-to-month contract. They're still there all this time, 30-some years later. So I got involved with Ralph again and IXC in May, 1995 as a consultant. I'd meet the senior management team and the board on strategic planning for a fledgling fiber company. In the fall, 1995, Ralph and the IXC group raised $285 million to start a fiber build between major cities. This was all long-haul fiber. It's not one fiber. It's like 96 strands, 128 strands, 48 strands, fiber pair in the sheath to haul all kinds of communications between the cities. The communications could be data, telephony, and of course the internet, and video. Whatever somebody wants to haul between two cities, and they don't want to put it on a satellite would go through the fiber. Once they were funded, I joined them in January, 1996. My position was titled "Emerging Markets" which meant domestic markets and business which the company was not in but should consider getting in to. And one of the first parts of that that I got involved in was the cable TV industry. I knew a lot of people in the industry so they invited me to present. Jim DeSorrento, a friend from '69 said, "Sure, come on up to Denver and I'll huddle a management team. Just tell us what you want to talk about." So I went up there for three hours. The first hour is jargon - words, meanings, concepts, basics. I was doing Telecom 101. I'll always remember that at the end of these meetings, off to the side with Jim DeSorrento, he said, "I've known you for a long time. Where did you ... You're not a telecom guy. Don't tell me about this stuff. Where did you learn all this stuff?" I said, "Jim, I had to learn it to go down there. When I come talk to you I have to know how this stuff works to explain it to you." In '96, the cable industry, other than the Sprint deal, was pretty much naïve and non-committal to the telecom business. There were a couple exception to that, of course – Cox.
KELLER: It wasn't until the cable act of '94 that they were able to get into that kind of business.
HENRY: That's right. And then they were looking at it. So in '96, I would go in and say, "Well, you can have your own self-branded, long-distance service, your name on it, you own the subscriber. If you don't like us, we're a wholesale carrier, you can go to some other carrier and get a better deal, take them all with you at that time, and that's our risk. But we want to have that relationship with you. That's number one. Number two: We know that cable business. Ralph and Jim Guthrie are former CFOs at Time Mirror and Times Mirror Cable and are down at IXC." We had cooked up this strategy of how a long haul telecom provider should interface with the cable industry to bring more value. One of the deals we did early on was Adelphia. Adelphia started, in addition to high-peering their CLEX service which we eventually signed about a year later and brought that into the fold too, we gave Adelphia the cable industry's first self-branded long distance service where the cable operator actually owned the long distance subscriber.
KELLER: Did you, then, work the contracts with the long distance carriers – Sprint, AT&T or whoever it may be?
HENRY: No. We were the carrier.
KELLER: All over, nationally and internationally?
HENRY: Yes. The contract was with IXC. We came to them as a wholesale provider. We will originate the calls, do the billing, provide the billing service for you. In fact, we'll subcontract the back office customer support to help get you started for the first year or two.
KELLER: And you didn't have to interconnect with any other system?
HENRY: No. We had that. We did that. That was our core business. We not only had the fiber build, but we were into about 80% of the tandems in America. There were about 700-some tandems owned by the regional Bell companies that you have to interface with to distribute calls in the region, and we were under contract for the balance of them. So we had origination/termination 100% of the _____ in the United States.
KELLER: If somebody in one of the Adelphia systems in New York or Pennsylvania wanted to call someone in Denver, through the service that you provided, would you be able to then connect them?
KELLER: Or if they wanted to get somebody out in Greeley or up in the mountains somewhere, would they be able to do that?
KELLER: Through your own system?
HENRY: Right. Now this is what I spent the first hour talking about at these meetings. Company after company - Jones Intercable, TCI, go through the list – we were there at virtually all of them, 100% of them. What we're talking about now is what's called "call flow". How does a telephone call originate? How does it flow through the networks and how does it terminate? Once this process is understood, it's pretty easy to understand how a company can do it for you under contract and all you are is the brand and the billing service. The call originates when a person in their home picks up a phone. There's a little tone that's called a signal 7. It sends a signal out to the nearest ... on a line saying, "I want to make a call." Then you dial the numbers. It goes through that first little computer switch and routes it through the long distance network to terminate to a local RBOK and get on another line to that phone.
KELLER: Okay. So you did have to interconnect with the RBOKs then.
HENRY: Right. But we had already done that. We had set that all up.
KELLER: You did negotiate the contracts with the various regional Bell operating companies or the other independent telephone companies or long distance carriers or whatever.
HENRY: Yes – interconnect agreements.
HENRY: Those were all done. That was kind of the bread and butter of being in the business. You had to do it if you wanted to be a wholesaler. So in call flow, as opposed to cable business, you can go anywhere in the country or anywhere in the world and it's totally automated. The only way a telephone call is ubiquitous (meaning that I could pick up a phone here and put in the digits and dial any other phone in the world that's connected to our phone system – that's ubiquitous reach) is that what facilitates it is that every one along the way has a computer tracking that call so they can send back a billing at the end of the month saying it originated at this time, it ran for this call duration, terminate at this time, minute rate is this, you owe me this much – for every call. It's very, very highly automated.
KELLER: Old AT&T did that years and year ago when they put that whole network together ...
KELLER: ... before they were required to divest. How long did you stay with IXC?
HENRY: From May, 1995 as a strategic consultant to January, 2000 – almost five years.
KELLER: And how many companies, other than Adelphia, did you actually make deals with, cable companies?
HENRY: Bresnan Cable, Time Warner Telecom, TCI before the AT&T merger.
KELLER:' For all of their systems, portions of their systems or just individual test systems?
HENRY: Test systems and we had a guarantee of half of their properties.
KELLER: From TCI and Time Warner?
HENRY: No. From TCI. But there were some subjected to certain disqualifiers, which meant that when AT&T bought them, AT&T got the business. We had to wind it down. It took us about 2 years to actually wind it down. We were still providing services to TCI long distance about 2 years after AT&T bought the company.
KELLER: Is the company still moving, still going?
HENRY: IXC or TCI?
HENRY: IXC merged with Cincinnati Bell last November and has moved from the NASDAQ to the New York Stock Exchange.
KELLER: As a subsidiary of Cincinnati Bell?
HENRY: Is a division. Actually now it's called Broadwing. Broadwing's the parent company to Cincinnati Bell. Cincinnati Bell's actually a subsidiary. Cincinnati Bell was the one that was on the New York Stock Exchange, but by way of some holding company kind of restructuring, IXC went up into what's called the national company and is now called Broadwing.
KELLER: Then what did Del Henry do?
HENRY: Short and sweet, my option's vested and so I decided I'd rather spend my time doing my things with my family.
KELLER: So you're semi-retired, looking for new opportunities, new challenges?
HENRY: I could be if I wanted to be, and just as candid as I can possibly be, is there's something about how I live life and how I think about what's going to .... I tend to be a futurist. What's going to happen tomorrow? What's going to happen in the future? It's not that I'm a future analyst or anything like that, a new age person. But I mean I've always been kind of forward thinking. So now I'm looking ahead at things to do with my life and my skills and my family and businesses I might want to be in or not want to be in. I'm looking at it proactively. I actually retired at 40 in 1986, and I found that about a year later I was working as hard as I was when I was full time in Phoenix. But I was doing other things. I'm not hyperactive. I can tell you Rick Michaels runs circles around me, but I'm not lethargic either.
KELLER: He's crazy. He spends 100,000 miles a week on an airplane or something.
HENRY: Travels 200 days a year. But he's been doing that for 20 years. That's his life style.
KELLER: Is there anything else you want to add to this, Del? We've gone into an awfully lot of facets of your career and how you contributed to the industry. Is there anything you want to add before we wrap this thing up?
HENRY: Yes. When I fell in love with the industry in 1967 as I said, I was intrigued by the future of the business – subscription, pay TV and satellites. I've lived it, like many of us. I'm not the only one. In 1968, I remember I went to the Western Show banquet. There was a reception at the Del Coronado Hotel out on the plaza in the central part of the hotel where there's a gazebo. We didn't fill up that plaza. There were 200 - 400 people there. Today those names are in the Hall of Fame, Pioneers Club. They're the guys who invented the industry. I was fortunate to know them and to be in an acquaintance, to be a part of the industry's development. But what I saw over the 33 years since that is that all these things have changed cable TV – the satellites, the pay TV, the different kinds of programming, the niche programming, Discovery Channel, ESPN – a little cable channel with college sports that sold for millions and became a billion dollar empire. Who would have thought that 20 years ago. Who would think that HBO and Channel 17 would have the impact on cable penetration that they had, for example in Tulsa which was going upside down until HBO was launched.
KELLER: And many other systems too.
HENRY: One of my dear friends, Ray Madison, was a director of marketing working for Greg Liptak in Tulsa. I went to visit him several times a year. They took that system to 55% penetration right down to 35%. They couldn't figure out what to do when HBO comes along and pops the penetration back up, and the rest is history. United Cable was saved actually by adding HBO in these urban markets. I got to see all that happen and learn from it. The satellite channels expanded, multiple satellites, DirecTV, those things. I was a strategist for DirecTV actually for awhile before the satellites were up. The moving into telephony and data – I watched the internet start. I was negotiating internet deal in '95 and '96. I could talk for an hour about the internet and how much fun I've had with it. But what I saw happen was the internet came to the cable industry, and I had the good fortune to work with @Home, Milo Medine, their CTO, Tarm Germoluk and also the Roadrunner people negotiating backbone for those two companies and helping them figure out how those backbones go together. Here I am, over in the telecom business being a cable guy, taking them long distance and telephony and internet. I sat down with those guys.
KELLER: The cable companies have that pipe. They've got that cable. They don't have to go out and build it like some of the other companies do.
HENRY: That's right. The way the public views the cable industry today is 1,000 light years away from how they viewed in 30 years ago, 20 years ago, and what any of us in it thought it could become.
KELLER: I'm sure.
HENRY: But one thing leads to another. Oh, we might have a high-speed modem. What if we did @Home? What if we did Roadrunner? By the way, this little dial modem is too slow. What if we did this? What if we split the mount? All these little "What if we did this." The cable insure has been doing for thirty years.
KELLER: More than that.
HENRY: More than that. "What if we did this?" So I feel very fortunate just to have lived it and have those experiences in between my ears at this point.
KELLER: Del, we could probably go on for another couple of hours, but it's going to start dragging. So I think we better just put an end to it at this time. Maybe at some future date, we'll have the opportunity to sit down again. I just want to remind everyone that this oral history of Del Henry is enabled by a grant from the Gustav Hauser Foundation and is part the Oral History Program of the National Cable Television Center and Museum. The date again is August 15, 2000. Your interviewer is Jim Keller. Del, thanks very much for your time. I enjoyed it.