H. F. Gerry Lenfest
Interview Date: Thursday November 30, 2000
Interview Location: West Chester, PA
Interviewer: Joel Fleming
Collection: Hauser Collection
FLEMING: This is Joel Fleming speaking to you from West Chester, Pennsylvania. We're doing an interview with Gerry Lenfest. Gerry, CEO of Starnet and the Lenfest Group, in other words, he runs the whole thing. The year is 2000, the date is November 30th, 23 days after the presidential election, and no one knows how it's all going to come out. Before, Gerry, before I begin the actual interview, I'd like to tell you a story that you'll recall immediately. I was vice-chairman of the board of the New Jersey network out of Trenton, New Jersey. Gerry was trying to form a news network for the state of New Jersey. He appeared before the board and gave his pitch so that we would be the ones to transfer all the new throughout the state. Well, at the end of it Gerry left, thanked us for the time, and one of the board members, a banker, a stuffy kind of guy, said, "Does he have the money to do it?" And I said, "Well, Gerry has about 1 million cable subscribers throughout the country, and as of now, each cable subscriber is worth about 300 dollars. Do you get the picture?" Embarrassingly, the guy got up and walked out of the room. Gerry Lenfest is a true pioneer in the field of cable television. How many years were you actually in cable, Gerry?
LENFEST: I started ownership of our first system in 1974, but starting in 1970 when I worked for Walter Annenberg as a lawyer, I was involved in the franchising process and reviewing all the franchise documents. So, full-time was in '74.
FLEMING: This is the Annenberg who created Triangle Publications and served as Ambassador to the court of St. James?
FLEMING: Let me go back further. Where were you born?
LENFEST: In Jacksonville, Florida.
FLEMING: And grew up?
LENFEST: We moved from Jacksonville when I was one year old to Scarsdale, New York. We lived in Scarsdale until I was 13 and then we moved to a farm north of Lambertville, New Jersey, near Pennsylvania.
FLEMING: And your father? What did he do?
LENFEST: He was in the shipping and maritime industry in New York City, lower Manhattan.
FLEMING: And he commuted, I take it.
LENFEST: He commuted 60 miles from that farm, which was on a dirt road, when we weren't snowed in, of course, in the wintertime.
FLEMING: That's a long way for a commute even back then.
LENFEST: It is.
FLEMING: You went to what high school?
LENFEST: I went to Flemington High School, and then graduated from Mercersburg Academy, which is a private school in Pennsylvania.
FLEMING: Right. And your next step in the educational path?
LENFEST: Washington & Lee University, graduated in '53 and then went in the Navy, and then Columbia law school.
FLEMING: Did you have active duty in the Navy?
LENFEST: Yes, on destroyers.
FLEMING: Did you go around the world?
LENFEST: No, no, our home port was Norfolk, Virginia. We did go to the Mediterranean and up and down the east coast.
FLEMING: What was your rank when you were discharged?
LENFEST: When I was discharged I was a full lieutenant. I stayed in reserves and retired as a captain.
FLEMING: That's not bad!
LENFEST: It was a lot of fun.
FLEMING: The next step is admiral.
LENFEST: That's right, but I didn't make it. That's a big step.
FLEMING: That is indeed a big step. Did you enjoy the Navy?
LENFEST: Very much so.
FLEMING: Do you still sail?
LENFEST: I sail. I didn't know how to sail when I was in the Navy, but we sail now. We took it up in later years.
FLEMING: Oh, great. Do you have your own boat?
LENFEST: We have our own boat.
FLEMING: Oh, wonderful. The obvious question is how long is the boat?
LENFEST: The boat is 60 feet.
FLEMING: That's big!
LENFEST: It's a Little Harbor designed by Ted Hood. We've had her over in the Mediterranean, the Aegean, the Adriatic, the Caribbean, Nova Scotia, up the east coast.
FLEMING: Wonderful! Now, after you got out of Columbia, what was your first job?
LENFEST: I practiced law with a law firm in New York, Davis Polk and Wardwell. It was one of the, in those days, Wall Street law firms. Today it's mid-town.
FLEMING: Did they represent Annenberg?
LENFEST: They didn't represent Annenberg directly, but they represented Walter Annenberg's seven sisters.
FLEMING: I see, and then what was the route into working for Annenberg in his publication and cable dynasty?
LENFEST: Well, there was a senior partner at Davis Polk called Walter Fletcher, and when Walter Annenberg's father, Moses Annenberg, died there was a conflict in the will. The will said he asked his seven daughters to let Walter run the company, but it wasn't a requirement, it was a request, and seeing the conflict of interest the law firm that represented the estate of Moses Annenberg in Philadelphia called Walter Fletcher at Davis Polk and said, "Would you represent the seven sisters?" And the firm in Philadelphia represented Walter. And Walter Fletcher's advice to the seven daughters was let their brother, Walter, run the company and they all agreed to that, and he made the company worth a 100 times more valuable by keeping it together rather than if it had been split up. So Annenberg never forgot the favor that Fletcher had done for him, and when they needed another attorney in Philadelphia, he called Walter Fletcher, and Fletcher convinced me to come to Philadelphia.
FLEMING: And you worked strictly for the Annenbergs or Walter Annenberg, at that point?
LENFEST: Well, I worked for his company, Triangle Publications, which was the largest privately owned communications company in the United States at that time.
FLEMING: Didn't they own TV Guide?
LENFEST: They owned TV Guide, they had six TV stations, twelve radio stations, cable television, Morning Telegraph, Seventeen magazine. It was a vast company, and I was house counsel for five years, and then I took over a new division consisting of Seventeen magazine and their cable properties. So from being a lawyer, all of the sudden I was head of a teenage girl's magazine and in charge of their cable, and I left the legal end and went into business for it.
FLEMING: A mutual friend of ours, Jim Streavey, ended up running one of the properties that Annenberg owned in Binghamton, New York.
FLEMING: If I can tell an anecdote that Jim loves to tell, there was a small community outside of Binghamton and the franchise was coming up for a rate increase, or a franchise renewal, and you went to the meeting...
LENFEST: For a rate increase.
FLEMING: Rate increase. So you went to the meeting with Jim and the council, the little bitty council in a little bitty town, probably 1,200 customers, were giving you a hard time, and you stood up and said to Streavey, "Rip out the lines." And walked out. God, they were on the phone at 6:00 the next morning to Streavey's house.
LENFEST: We got our rate increase though.
FLEMING: And you got the rate increase.
LENFEST: The next morning.
FLEMING: Those were the free-wheeling days of cable television, perhaps more interesting than what they are today.
LENFEST: And I didn't tell Streavey ahead of time, I just said, "Hold on to your seat."
FLEMING: Oh, I know, he told me that. But how many subscribers were there at the time in that system?
LENFEST: I think the Binghamton, New York system at the time it was sold had about 20,000 subscribers when I was in charge of it. Triangle also had Lebanon, which had about 7,500 customers and had Suburban Cable, which had no customers, just a lot of franchises in the Philadelphia suburbs.
FLEMING: So your vast knowledge of cable television, where did you get that?
LENFEST: I never really did, Joel. I really had a lot of good people working for me, but in 1973 when I was at Seventeen magazine in charge of the cable, Walter Annenberg decided to sell the cable and I went to Joe First, who was number 2 under Walter, and who I reported directly to, and said would he intercede for me with Walter and see if I could be given an option to buy the cable systems, and they gave me a loose option. In other words, if somebody had come in and given Triangle the price they wanted for the cable systems, they would have sold it to them and I would have been out, but I had an opportunity to try to come up with the financing.
FLEMING: And you did.
LENFEST: It was sort of a long story. I talked to a gentleman I knew in Lebanon into putting up the money to buy the Lebanon cable system. Triangle wanted 9 million for Binghamton and Lebanon. Curly Va De Boncouer from Newhouse came in and said, "We'll offer you $5 million for Binghamton." The remaining $4 million we'd needed to reach the $9 million, was too much for Lebanon, so I met Sam Newhouse, just by happenstance, in a restaurant in New Hope, Pennsylvania, and he said, "Why haven't you sold us that cable system in Binghamton." I said, "Mr. Newhouse, you don't have enough money to buy that cable system." Mr. Newhouse had enough money to buy Manhattan, let alone the cable system. The next week the price went from $5 million up to $7.7 million, which meant we could buy the Lebanon system for $2.3 million, a price that we could get financing for. So that's how I started. That was in March '74.
FLEMING: For the benefit, this tape is going to be heard and watched by young people who have dreams of being entrepreneurs. Where do you go to get these millions?
LENFEST: Well, in this case, I knew the two gentlemen who put up the money and they believed in me and the future of the cable system, although it came very close to not doing it. The night before the closing, I received a call from one of the gentleman, and I drove to Lebanon and sat in one of their homes - the two men were there and their two wives – and they said, "Gerry, we just think it's too risky and we decided we're not going to go through with it." And the wives, I really don't to this day know what got into the wives, but they excused themselves and their husbands and went into the kitchen, and I could hear them, they said, "It just doesn't seem right that you have changed your minds at the last minute. Tomorrow's the closing and you told Gerry you were going to do it, and now you just decide not to?" So they talked their husbands into going through with the deal. They came in and said, "Okay, Gerry, we're going through with it." So it came that close, and I think part of being an entrepreneur successfully, anyway, is luck. Being at the right place at the right time, and not giving up when you're turned down at first, you keep trying.
FLEMING: That's perhaps the best advice, keep trying.
LENFEST: That's right.
FLEMING: Do you think there's such a thing as an entrepreneurial nature? Some people have it, some don't?
LENFEST: Absolutely. I think some people... I know one gentleman, he's a wonderful father and a wonderful family man, and he really doesn't care to stick his neck out and be an entrepreneur. He's very happy because his primary interest is his family, and not making a lot of money or achieving a lot in business, and who can say he's wrong? In fact, I sort of admire the person.
FLEMING: Yes, well, I have three sons in the cable business, and one of them is the entrepreneur, could never go back to working for someone else, but I guess it's the nature of the person or the beast.
LENFEST: It's where you set your values, Joel.
FLEMING: Yes. Do you remember in Lebanon how many employees there were to operate that system of 7,500?
LENFEST: You know, I don't remember exactly, but I think we had about 15, at that time.
FLEMING: How much did that system grow, from 7,500 to ten years later?
LENFEST: I believe today that system's about 33,000.
FLEMING: And that represents the kind of indicative growth of cable in every community. There's exponential growth.
LENFEST: On the day we took over, we built and we built and we built. With the banks, they tried to take us out at first and we were on our way to second, they try to take us out at second and we were on our way to third. We were just slightly ahead of our financing sources, but the only way we could sustain or achieve the cash flow we needed to be secure was to in effect build and build and build. So we were very tight in the beginning.
FLEMING: Did you purchase other cable systems?
LENFEST: We started by building our own. We expanded Lebanon, and then we went up north of Philadelphia in Bucks County and turned on a system there, and then we built Phoenixville outside of Philadelphia, and then Pottstown, so in '81 we had about 40,000 subscribers that we had built and expanded and operated. In '81, John Malone came to Philadelphia to address our cable club and I drove him back to the airport, and on the way back he said, "What are your plans?" I said, "We'd like to acquire other systems," because franchising was then pretty much over and the only way to grow was to acquire and I said we didn't really have the money to do it. And that ended up with TCI putting money into our company for equity, and with that we were able to start our acquisition program.
FLEMING: So you went and built as far as Oakland, California, for instance, along with TCI?
LENFEST: Well, right, we acquired. We acquired Oakland, we acquired other systems around the Philadelphia area. We also acquired the Berkley, California cable system, we expanded around the San Francisco Bay Area, but the initial acquisitions started with equity from TCI.
FLEMING: Ultimately, how many systems did you have?
LENFEST: We ended up with 22 systems, but then we consolidated many of them, so I think we had about 12 or 13 consolidated systems at the time we sold to Comcast, which was this past January.
FLEMING: And how many subscribers did you have when you sold to Comcast?
LENFEST: We had one million two hundred thousand subscribers in essentially one contiguous cluster.
FLEMING: And the question flashes in my mind whether it was a stock or a cash acquisition on the part of Comcast.
LENFEST: It was stock, strictly stock.
FLEMING: And speaking of stock, today AT&T closed at $18.88, and both markets are down today. Not too long ago AT&T was selling at $60. What happened?
LENFEST: There are people who are more expert than I am, Joel, in trying to determine what happened, but you know, our first deal was to sell to AT&T and we would have exchanged our stock for their stock. Their stock was then selling for around $50, a little above $50, so I feel very fortunate that we didn't. By the way, we did not want to sell our company. We grew to a million two, and over the years TCI went up to 50% ownership, and TCI sold to AT&T so AT&T had 50% ownership. I had complete management control of the company. I could elect the majority of the board of directors and was the CEO. I felt in order to grow as a company that we needed to go public because the plan was to merge the other privately owned cable systems in the area into our company and go public with a publicly held security, where for estate tax purposes and for other tax purposes, all the private companies could have a public security, and I felt that was very important. And there were other privately held companies in the area that were contiguous to us, such as Service Electric, and Susquehanna Broadcasting in York, and Paul Harron here in the Philadelphia area. To go public required approval of AT&T and for attribution rules, AT&T said we cannot let you go public and merge with the other companies because under the FCC attribution rules, it would have made AT&T exceed the limit imposed by the FCC in how many subscribers you can own. So when we couldn't go public, that's when I decided to sell, and originally it was with AT&T and I said, "Please, whatever you do, don't sell to Comcast," because Comcast was located here in Philadelphia, and not because I didn't like Comcast, I have great admiration for the company, but they're in Philadelphia and a lot of our top management would have been terminated by Comcast. And AT&T said, "We can't stand Comcast, we won't have anything to do with Comcast, don't you worry, we will never sell to Comcast." Well, the day I agreed to sell to AT&T they agreed to sell to Comcast because we were the queen in the chess game to get Media One, and AT&T went to Comcast and said, "If you'll drop your ownership claims for Media One, we'll sell you Lenfest." So that's why we went with Comcast, and we didn't do too badly. We got 72 million shares of Comcast stock this past January.
FLEMING: And Comcast has held up somewhat better than the other cable systems.
LENFEST: It's done much better than AT&T, so I can't say we planned it that way, but we're very fortunate looking back on it.
FLEMING: But in looking at the present situation, why do you feel this giant company, AT&T, their stock being called the "widow's stock" because it performs so stably and well, why has it plummeted the way it has?
LENFEST: Joel, I'm afraid I'm not the expert to tell you. I have some feelings – I think they paid heavily for TCI, I think the cost of making the cable systems ready for the offering of the broadband services was probably more than anybody really anticipated, the cost of upgrading all the plant. There's been a tremendous hit, as you know, on the long distance market. It's become a commodity with MCI, WorldCom, and all the others. But I do believe in their management. I'm a great believer in Dan Sommers, and I think with the broadband, once the rebuild is accomplished, that they'll look back and say the man was right, he persevered and he's going to be a winner.
FLEMING: It's interesting, keeping in mind this is November, the year 2000, I just heard a great eminent political philosopher Rush Limbaugh said, "The decline of the stock market relates back to the Microsoft case. When the government went after Microsoft everybody got scared." And the market's gone down again today, NASDAQ hit its lowest, or been halved, since it's highest. There's some disastrous news, and I'm like you, God knows what causes all this sort of thing.
LENFEST: I think Rush Limbaugh illustrates to me the limits of human knowledge. We try to put everything into what we can understand, but it doesn't really explain the phenomenon that's happened.
FLEMING: No, no, it doesn't.
LENFEST: That makes it too simple.
FLEMING: I'm trying to ask the question – is AT&T sufficiently low that people should go out and buy it? This interview won't be played for a year or so, so you can speculate.
LENFEST: Well, let's put it this way, I've recently purchased AT&T stock.
FLEMING: It certainly is tempting today, $18.88, that's a tempting stock for a giant American corporation with all its tentacles into every sort of communication. I noticed in the Wall Street Journal today, or no, it's the New York Times, they say AT&T faces hard choices over its debt, and indeed, with the purchase of TCI tremendous debt that they've incurred.
LENFEST: But they have a lot of assets; they can reduce that debt. A lot of assets – if you look at their balance sheet, that can come down substantially.
FLEMING: And the division of the company into four different divisions?
LENFEST: The real question of broadband is how they allocate debt to the broadband part because they need the funds in order to complete the rebuild and offer their services. By the way, getting back to our company, at the time we sold it was a million two, but it was one cluster. We had traded our California systems for Wilmington. So we extended from...
FLEMING: Explain for the benefit of those who are going to watch, what does a cluster mean?
LENFEST: Cluster means contiguous or... where all your cable systems are in one contiguous area, and by contiguous, some of them don't exactly touch, but they're close enough you can say they're contiguous.
FLEMING: And can be run by one management group.
LENFEST: Yes, and for marketing, use of television and other marketing tools, for the efficiency of eliminating middle management because you're all in one group. We could drive from our office to any end of the system within two hours. But we extended from Harrisburg, west of Harrisburg actually, through Harrisburg, Hershey, Lancaster, into the Philadelphia suburban area, Wilmington, across the river into New Jersey and all the way down to Atlantic City, so I mean, it was one tremendous cluster of one million two hundred thousand subscribers.
FLEMING: That's impressive.
LENFEST: I think it's one of, if not the largest cluster in the United States, so we were very happy to not only have that number of subscribers, but to have them all together in one major cluster.
FLEMING: Are you at all involved in the operation of Comcast now?
LENFEST: No, no. I would frankly prefer not to be. I think they have excellent management, they don't need any help from me, and they have their own team and it's a good team.
FLEMING: Do you miss any part of the cable business?
LENFEST: No. I miss the association with the people, but I think that with the challenges ahead with the competition, both from satellite and the others, and developing the new technology that it's a different chapter, it's a broadband chapter, and not quite the same as what I was used to.
FLEMING: What is the umbrella company that you now operate?
LENFEST: We loosely call it the Lenfest Group, but it consists of three companies. One is Starnet, which distributes by satellite, marketing and advertising spots to be inserted in cable program networks. For example, Comcast, in the Philadelphia and the HLLY market, which is Harrisburg, Lancaster, Lebanon, and York markets is using StarNet to distribute by satellite all advertising and marketing spots to be inserted in their cable program networks, and it's done through a software that was developed by another company we own called CAM – C-A-M – Systems, which is out in the Silicon Valley, which has developed what we consider to be the leading software for the traffic, billing, and management of the distribution of marketing and advertising spots.
FLEMING: How did you hook up with someone out in Silicon Valley?
LENFEST: Well, there were a lot of people involved in programming out there and the person we hired to develop this traffic and billing software happened to be out there. He was a graduate of Stanford and stayed in the area, so we used him and he developed a team. We now have major parts of Time Warner, we have Tampa and all of North Carolina where they're huge. We have the New York interconnect, we have Time Warner in New York, we have Charter, most all of Charter. It's become the dominant traffic and billing software for cable in the United States, and they're now developing an e-commerce application that'll just be absolute dynamite. You'll be able to place your advertising, have it delivered, verified, and billed all from one initial order. So anyway, back to Starnet, we have this satellite distribution using digital store and forward technology. In the Comcast HLLY and Philly markets we can reach 57 different zones and address each zone, so when they turn on a new digital service – they can market the service just in that zone. We also have a production facility, which is doing this tape at the moment, and we also have a channel, which is primarily infomercial and advertising channel that's being distributed throughout the HLLY and Philly markets on the Comcast systems. That's the Starnet group. And then we have a telemarketing company called Telestar that about half of their work is for the cable industry, and they've done a very good job. So we have those three companies, Starnet, CAM, and Telestar, that we're still involved with.
FLEMING: Let me take the example of telemarketing. Did somebody knock on your door and say, "Hey, I've got a good idea for you." What's the genesis of that?
LENFEST: I really owe a lot of my success in life to people that have worked for me. I've always had a sort of philosophy of individual responsibility. We never had many committees, or any committees, and we would put people in charge of cable systems in regions and pretty much let them run it as they saw fit without trying to extrude everybody through the same mold. We found that one manager was better in certain areas than another, but as long as you made them feel that this was their area, their responsibility, and you gave them the freedom to make decisions and do it right, in most cases it worked out very well. So you learn how to achieve through others, and that's how our Telestar telemarketing company started. Somebody came to me and said, "I'd like to start this company." There actually were two of them, a man and a woman, great team. We let them start the company, they'll have a million dollar cash flow this year, and they were rated the best telemarketing company two years in a row in the trade magazine – I don't even read it – that grades these telemarketing outfits and they've just done a fantastic job. You know how often I got down and see them?
FLEMING: How often?
LENFEST: I think when they opened the building in Lancaster I went for the opening, that's the only time. They come to see me now and then to tell me how they're doing, but if you pick the right people and you give them the motivation and encouragement to do well without too much interference, they generally will do. It doesn't always work, but I've found in most cases it does.
FLEMING: I agree, and I'm sure you've run into those people who haven't performed either to your expectation or satisfaction.
FLEMING: And you have to do something about that too.
LENFEST: They don't stay with us.
FLEMING: Speaking of people, you've known all the... there's a Yiddish word – the machers – the big shots of the cable industry. Who are three who immediately jump to your mind as being outstanding?
LENFEST: John Malone, of course. John, in my opinion, is a true genius. He doesn't like to run cable systems, he doesn't like administrative things, but putting deals together and just being able to unravel the most complicated situation to its simplest terms – he has that genius. He is in my opinion a great, great leader. Who else? Alan Gerry. Alan Gerry never let ego interfere with common sense and his drive to get the job done and done correctly. He's a man I don't think had much formal education but he's got a lot of street smarts, and a lot of native intelligence, a lot of drive. To me, he perhaps represents the epitome of the cable industry, where it took people who didn't come from Ivy League schools, or whatever, and made something out of it through sheer energy and intelligence devoted to making themselves a success, and their company. So I have great admiration for Alan Gerry. Completely different than John Malone – I admire them both. Each is good in their own area. A third – Ralph Roberts of Comcast. I think the world of Ralph, and he sort of exhibits the same philosophy that I mentioned about delegation. Ralph has the ability to motivate people without nitpicking and looking over their shoulder at how they're doing. I think he's a true leader, and I think Comcast has a lot of great people, but the leadership abilities of Ralph Roberts, I think, are wonderful and has really helped make Comcast a success.
FLEMING: Fascinating choice of three. Alan Gerry will be much flattered by your placing him in there.
LENFEST: He deserves everything I said.
FLEMING: Out of all the things that you have done or had happen, are there any outstanding moments and denouements that you look to, or any humorous events that happened that pop out in your mind? Let's pick the humorous, that's easier.
LENFEST: Well, I remember... when I first took over the cable, I'd left, you know, I was editorial director and publisher of Seventeen magazine and I had an office on Park Avenue, I had a good salary, I left all of that to work out of my basement for twelve years, not nationally known, not a good salary, I used to sleep on the sofa in Lebanon because I couldn't afford a hotel room. Some little lady came up to me and said, "What is your background, Gerry?" I said, "Well, I used to practice law in New York and I was head of a national magazine." And she said, "What did you do next?" I said, "Well, I went to Philadelphia and I worked in Philadelphia." She said, "Well, what do you do now?" I said, "I work in Lebanon." She thought for a moment and said, "You know, you're going backwards."
FLEMING: That's a great story! About one particular instance that caught you at the top, a great day in the cable business?
LENFEST: Well, I think the happiest time I had in the cable business is when the two wives in Lebanon took their husbands in the kitchen and they came back and said, "We're going to do it." I just wanted to have the opportunity to do something that was mine, my company.
FLEMING: It's funny, in today's New York Times, we talk about the old days of cable and really the primitive aspect of it. I mean, it started off with five channels, then twelve channels, now it's up to whatever, 100. But some of the primitive ways, in today's New York Times there's a one page advertisement that says "Free connections – save $50". That's exactly what all of us were doing 35 years ago.
LENFEST: Absolutely. Except maybe you'd save $5, but it was the same principle.
FLEMING: And the rates then? Do you remember the rate in Binghamton when you took over?
LENFEST: I think it was $6.95 for the basic service.
FLEMING: And there was no HBO.
LENFEST: No, no.
FLEMING: When you first heard the concept from probably Chuck Dolan about this HBO, commercial-free, edit-free programming, what was your immediate reaction to it?
LENFEST: Oh, I thought it was wonderful. Originally HBO was delivered by terrestrial microwave, where every 20 miles you had a tower and didn't have the satellite. So it was limited as to where it could go. I think one of the great achievements is when Jerry Levin distributed HBO by satellite, which is sort of the beginning of all the development of the cable networks, both pay and basic, and it was a great move and you could just watch the expansion of cable as the industry developed its own programming. You weren't based just on importation of distant TV stations. Then it became an industry in its own.
FLEMING: And looking back, I think of the primitive nature of the business, but also the primitive nomenclature – the term headend, I mean that makes no sense at all. How can it be the head and the end of a cable, or the more recent pay-per-view. That's a silly name for a wonderful product. As most people say pay-per-view and you don't even understand it. But it shows the evolution of this business, which is a major business in the United States and now around the world.
LENFEST: And, hopefully, it's just beginning and going into a new chapter – the broadband chapter.
FLEMING: What do you mean by broadband?
LENFEST: I think of digital, I think of return path, characteristically cable was just from the headend, the tower, and you distribute down to the home. Now we're developing return path capabilities.
FLEMING: Is that what you mean by digital?
LENFEST: No, digital is a higher frequency with a multiplicity of channels. It's expanding the use of the bandwidth and greatly expanding it through compression technology, but in simple terms, you're allowed to carry a much greater variety of programming and data in digital because your bandwidth is greatly increased through the digital technology.
FLEMING: And by compression, what do you mean by that?
LENFEST: By compression they're able to even further enlarge the number of channels or data or bandwidth that you can put on it because they compress the frequency and you're able to put in more programming or data within the existing bandwidth.
FLEMING: And your understanding of what wireless means? What does wireless technology mean?
LENFEST: To me it means other than through a cable, but wireless is limited in the amount of bandwidth that they can employ. By limited I mean it's less than through the big pipe, through the cable, and that's why I think in the long run that cable will still end up on top. It doesn't mean the others won't exist, but cable will have the ultimate advantage.
FLEMING: Will there be a one line into the home communication technology?
LENFEST: I think wireless will co-exist with cable, wireless not having a line into the home because it's wireless, but they'll both exist. I think the cable, the wire, the broad pipe will have the advantage.
FLEMING: What else can cable companies put into the home? They have the wire, the highly sophisticated wire into the home.
LENFEST: Well, with the return path they have the interactive capability and that would bring a whole new host of new services once you're able to order from the home or respond from the home, and there are so many different things you can do with the electronic guide. Instead of seeing what's on tonight, you can pre-select what you'd like to see, and to go through the myriad of all the different choices and select what you'd like to see.
FLEMING: I recall that your Garden State Cable did an experiment with the power company, with the gas company, in trying to read, in a very limited test, trying to do everything. I don't know where that ended up?
LENFEST: I don't know either, Joel, but I suspect that back then with the technology they had, it wasn't really that perfected, but with the new technology I think it will be.
FLEMING: But that's conceivable that you will be able to do all those things plus, as you said, the pre-selection of programming in the future.
LENFEST: Yes, absolutely.
FLEMING: Oh, yes. What do you think of mergers? You being one who merged – the Time Warner/AOL, your own situation – are we destined to have one company in the future?
LENFEST: I think the mergers are pretty much over but there may be a few left. You're talking about in the cable industry?
FLEMING: Yes, yes.
LENFEST: It seems to me that bigger is better to withstand competition from satellite, from overbuilders, and so forth. I think bigger is better. You always run the risk that you can't manage things as well, but if you have the right philosophy of management and you go back to what I said about individual responsibility for regions and areas, I think that mergers are not bad and will probably continue.
FLEMING: And speaking of competition, first of all, the definition of an overbuilder is somebody who goes out and builds over your current cable system?
FLEMING: And you have that and satellite. Which is the most fearsome?
LENFEST: I think in the long run, the satellite. I think the overbuilders, most of them will go belly up. I don't see how they can exist against a well-run incumbent cable television company, if the incumbent does the job right, and provides good services, I don't see that the overbuilder can acquire enough customers to support the cost of their building a separate plant. I don't see how they can do it.
FLEMING: It's not the abuse of customer, but the lack of attention to the customer, that invites the competition, whether it be satellite or the overbuilder.
LENFEST: But once the competition comes in, the existing cable operator, in most cases, will wake up to the fact that they have competition and improve their service. Now they'll hurt the existing cable company because even if they take away only 10% of their customer base, it's going to hurt and some damage will be done, but I don't think the overbuilder can last, unless somebody has deep pockets and doesn't mind losing a lot of money continually.
FLEMING: If you were talking to someone and they ask you, as I'll ask you, why should I keep cable and not switch to the satellite, what reason would you give them to stick to cable?
LENFEST: Well, I think in the long run with the broadband services that cable, because they reach an individual area, will be able to offer more variety of programming than one national service represented by a satellite provider.
FLEMING: I think one of our final questions in talking to Gerry Lenfest, which has been a delight, is where do you see the cable business, the satellite business, all of communications going in the future? Do we have a glut or do we have opportunity?
LENFEST: I think cable has a great opportunity. I know it costs a lot to upgrade the cable systems to bring it up to what we consider to be the capacity needed to offer the broadband services and develop the two-way and develop the people who are familiar with the new services. When I hear that it takes two or three people two hours to install a modem and the two-way data, that has to be overcome. People have to go to a store like Circuit City and just buy a modem and plug it in, but I think those things will come and I think with the ability to go into each home and each residence and the small businesses of the future with the broad pipe and working out the little details of how you provide the service and what the service is, I think that cable has a great future, and I think a lot of businesses in the U.S. will gravitate towards cable, with the interactive and other capabilities, to say "Use us." With the broadband pipe, I'd like to see a lot of cars on it. I don't think that cable has to have proprietary services. My own recommendation is to try to develop a platform that others can use, and I think many others will use it.
FLEMING: Most young people, if they had their druthers, would like to go to work for MTV. That represents youth and glamour. What would you advise someone who wants to get into cable? First of all, would you advise them to get in the cable business?
LENFEST: I would. What you get in depends on what each individual likes. Some people like programming – they say that programming is king. Look at MTV, with the future of cable and interactive and the things you could buy, videos and music recordings and the other things, there's a great future around MTV that I see in the future. Others are technically oriented or financially oriented, I mean there are so many different aspects to cable and the broad pipe and all that it brings that there will be a lot of opportunities in the future for people based on what their individual talents are.
FLEMING: Well, I'm glad you feel that way today and I'm glad you felt that way 25 years ago.
LENFEST: You know, I wish I could say I saw the evolution of cable when I decided to go into it. I didn't. But having been an active participant in it as all these new program channels and other technical advances happen has been a great ride. I really enjoyed it.
FLEMING: Gerry, thank you very much. We've been talking to Gerry Lenfest, CEO and Chairman of the Board of Starnet and the Lenfest Group here in West Chester, Pennsylvania. Gerry Lenfest, a true pioneer, a progressive, a fine guy, and a real success in the field of cable television. Our thanks.