Interview Date: Tuesday May 12, 1992
Interviewer: E. Stratford Smith
Collection: Penn State Collection
Note: Audio Only
Bob, it's our practice to start these interviews by getting some personal background information about the interviewee--vital statistics and so forth. Would you tell us where you were born and give us some background about your parents.
ROSENCRANS: I was born in March 1927 in New York City. My mother and father were both gainfully employed. My mother was a dress designer who had never gone past eighth grade but she was a pretty talented woman and she became a very important figure on 7th Avenue.
SMITH: What was her professional name?
ROSENCRANS: Her name was Eva Rosencrans. My father was an importer. He imported materials for the millinery trade--ladies hats--which were a factor in those days. I grew up with my older brother who was four years older than I. We grew up in Woodmere, Long Island, starting around 1931. I went to a small ethical culture school called Woodmere Academy starting in first grade and that's where I graduated in 1945. A wonderful school in the sense that there were small classes, prepared you for college and close to home. I played all the sports because they needed everybody they could get for the teams. And you did everything there. You had to be in the play; you had to be in the glee club; you had to play in the band. So it was a good preparation for the unknown future.
SMITH: What was your father's name and your mother's name specifically.
ROSENCRANS: My father's name was Alvin Jay Rosencrans. My mother's name was Eva Greene Rosencrans. My mother was born in Russia in 1901 and she came over with her parents about 1903--came on a boat. My father was born in Austria and he came over with his parents in about 1892 or '93. They met some years later than that, of course, but that's their background. Both of them were educated in this country. My father had college; he got a college degree. My mother was forced to work very early but she's highly knowledgeable--like she's got a college degree and more.
SMITH: You mentioned a brother. Did you just have one sibling?
ROSENCRANS: I had one brother who was older. He was in the service ... in the Second World War. Unfortunately, he lost his life in Germany in February of 1945 just towards the end of the war. He was in the infantry. He received the Silver Star for valor in service. It was quite a blow to the family and to me. It was a very, very difficult period of my life and my parent's lives.
SMITH: He was an older brother?
SMITH: What was his name?
ROSENCRANS: His name was Herbert.
SMITH: You mentioned sports in school. What was your favorite sport?
ROSENCRANS: I think I loved baseball the best although I played everything. Now that you mention that, every Friday or Saturday night we all went to the movies in those days. Between the double features they always showed the Pathe News. The thing I used to love the most was to watch the replay of the football games on film in the theater. I think I even remarked to someone at that time, "Wouldn't it be something if we could see that at home?" See the whole thing as it's going on. Never dreaming of television, of course, in those days. But I'd go to the movies just to see clips of the Notre Dame game that week against Southern Cal. I can remember that very clearly on the screen, watching those games.
SMITH: I noticed in a report I was reading about some of your early background that you were involved with Notre Dame games in professional activity. I was a little curious, you being a Columbia University graduate, which is jumping the gun here in the interview, but was there some special thing about Notre Dame that you enjoyed, or was it that just that their games were there?
ROSENCRANS: Well, they were the number one attraction college team in the country. The company I joined in '53, I think, had a contract to put their games on in theaters for the subway alumni--New York, Chicago, Boston, etc. That was before home TV carried any football games. They may have had a few football games on home TV but Notre Dame was special. And there was a special audience for that. So I had the opportunity during those years to go to Notre Dame and meet Bob Hessberg; Father Joyce, who ran the athletic department; Coach Frank Leahy. Those were interesting days. We got into live sports broadcasting. Pretty rudimentary, maybe two or three cameras. Wouldn't look good today but I suppose in those days it was okay.
SMITH: Was that the company that was known as Box Office Television?
ROSENCRANS: That's right, yes.
SMITH: Tell me, how did you get started in that?
ROSENCRANS: I graduated from college in 1949. I had two tours of duty in the service. One just at the end of World War II between high school and college.
SMITH: Which branch of service?
ROSENCRANS: U.S. Air Force. That was a short term because the war was over in 1945. Then after college the Korean War broke out and I was still in the reserves so I went back into the service for another year until that war was over. Never had to go overseas, fortunately.
In between I had a variety of jobs. Nothing really too exciting. I was in the retail business at Macys and Bloomingdales which didn't really move me. I also sold paper products. Not really finding my niche as yet. Then somewhere along the way a friend of my parents, a man by the name of Abraham Chasens who was the musical director for WQXR--a family friend ... was very close to an attorney who was the attorney for Sid Caesar. They had formed a company called Box Office Television. The purpose of Box Office Television was to develop programs to be shown in theaters on large screens to give the theaters an extra product to combat this new thing called home television. Also lurking there was the concept of perhaps doing industrial programs on videotape ... not on videotape, live. At that time videotape hadn't developed. So the mission of the company was to do industrial shows and events like the Notre Dame football games and we also had a contract with the Harlem Globetrotters to do their games.
So, I joined it. I had no family commitments and no requirements for much income and it sounded exciting. And it really was exciting. We quickly got into the industrial show end of things. As a matter of fact, we did a show once introducing the Edsel car. I remember very clearly MacNamara, who ultimately became Secretary of Defense, was very prominent in that development. We had a show out of Dearborn, Michigan, featuring that new car. It could have been the kiss of death.
SMITH: I was going to ask you, I hope the program didn't signal the demise of the Edsel.
ROSENCRANS: We introduced the name "Nationwide Insurance Company" which had a different name at one time. The service was used as a device to make important announcements to dealers, to the press. We did a show for Pan American. We did so many shows over the years. We never really were a profitable business because the shows were too sporadic. The Notre Dame games and the Globetrotters didn't draw enough to really make that a paying proposition. It was just really a demonstration of the method. We were able to invite advertising agencies and companies to see them in the hope of stimulating the concept of doing an industrial show. The industrial shows and the games were all done in those days on the AT&T long lines and local telephone company loops, all interconnected on a hard basis. Ultimately we began to use AT&T microwave across the country. So we had a fixed cost for each show that was really tied into the telephone company but it was a closed circuit and became, of course, a precursor of the cable closed circuit.
SMITH: When you described some of the shows as industrial shows, were they shows in the theatrical sense or was it just teleconferencing between business offices?
ROSENCRANS: No. Just as companies do films introducing a new product, they had entertainment. I remember a show in Bartlesville, Oklahoma, for Phillips Petroleum one year. They had a big campaign to make sure their dealers kept their restrooms clean because that was a complaint of people all around the country. They wanted to tell them to go to the Humble Oil gas stations, you'll have clean restrooms. Jonathan Winters did his routines. You know, four kinds of dealers telling them how he keeps the restrooms clean ... holding mops and buckets and all that stuff. Merv Griffin was the MC of the show. So that was the kind of thing. It was a company program mainly directed to their ... not their customers but to their own dealers and affiliates.
SMITH: Then they were, in a sense, theatrical productions?
ROSENCRANS: Yes. Some were much more straightforward. Some were simply panels talking. Ultimately we even did auctions. We did a government auction. The government was auctioning surplus property. They had found that when they did it in one location, the bidders often were in collusion. They wanted to test television by offering it to bidders in five or six cities with an audio feedback so that bidders in Chicago would be bidding against the guy from Boston. And they kept putting the surplus tent or whatever on screen. "This tent is now up for auction. We have 155 tents." There were guides as an auction will have a book which explained all of these products in detail. So they got real live bidding over the air and finally they hammered the thing "sold." So that was another kind of a form of television that was involved at that time.
SMITH: Well, did Box Office Television produce these programs or were they more a carrier?
ROSENCRANS: Well, very often we would contract with an advertising agency and they might be the producer; we would be responsible for the facilities. We had some producers on staff who were able to do some shows under contract but we didn't have musical people we weren't that creative. We were there to provide our facility primarily.
SMITH: Specifically, what were your personal responsibilities in that operation?
ROSENCRANS: Well, originally I was kind of subordinate to another party, a fellow by the name of Bill Rosenson. I don't know if that rings a bell with you.
SMITH: I don't think it does.
ROSENCRANS: Bill was involved with hospital television in the old days and he also left it when we ... The company, Box Office Television, lasted about two or three years and then the meetings began to migrate from theaters into hotel ballrooms. They were more logical because the groups weren't big enough to fill a 3,000 seat theater. You might have 300 dealers in the Paramount Theater with 3,500 seats. They were kind of lost. But in a smaller hotel ballroom you had the capability to put it on a nine by twelve foot screen in a smaller room and it was more immediate plus the hotels could get some revenue out of the lunches. So the medium shifted from theaters to hotels and we became a subsidiary--Bill and I were running the company--of the Sheraton Hotels Corporation. Robin Moore was the son of one of the founders of the Sheraton Hotels and he had a bent for television so he brought us into Sheraton and formed a subsidiary. That was about 1956, I believe. So we did a lot of shows subsequently in hotel ballrooms which is another refinement of the original concept.
My job was fundamentally to sell the programs, contract for them and organize the distribution. We didn't have many staff. The Sheraton concept lasted perhaps a year or two. Again, the sporadic nature of the contracts didn't give us a chance to really build anything of any consequence. We became acquainted with TelePrompTer during that period. I think that was '56 because it had some connection with my honeymoon. I had to come back from my honeymoon in October of '56 to do a show for the AFL-CIO. I think that was when we had gone on to TelePrompTer. With Irving Kahn at the helm, he was excited about the new media and he felt he could add excitement and clients to our business. He liked the idea of increasing, of course, the scope of the TelePrompTer Corporation which up to that point had been purely the teleprompter itself.
SMITH: He bought Box Office Television from Sheraton?
ROSENCRANS: He didn't buy anything. It was just a lateral movement and I went into TelePrompTer as vice president of closed-circuit television, I think that's what we called it. Again at TelePrompTer things were exciting. We did a number of shows. Then there came a time about 1958 or '59, I may be off a year or so, when I got a phone call ... We were dealing the fights, the Robinson/Basilio fights, into theaters and arenas on closed-circuit television. That was the period of time when the big fights became prospects for paying audiences in theaters. We bid against another company and we were successful winning the first or second Robinson/Basilio fight. My job was to set up the distribution in maybe two hundred locations across the country and tie them all together with cable, contract with each promoter.
SMITH: Was that Sugar Ray Robinson?
ROSENCRANS: Sugar Ray Robinson and Carmen Basilio--great middle-weight fight. Had loads of interest and the fights were fantastic. Prize fighting was more or less the dominant sport in those days. Today it shares the spotlight with quite a bit more. And during one of those fights I get a call from a fellow by the name of Bill Daniels in Casper, Wyoming. He said he'd like to buy the fight for his cable system. I said, "Cable system, what's a cable system?" So he said, "We have a cable system here in Casper. We have about 2,500 subscribers and we'd like to carry the fight." I said, "Well, maybe we can do something. How are you going to get it there? The cost of the telephone connection between the Denver terminus and Casper is going to be huge." He said, "Don't worry about that. We have our own microwave." "You do?"
So Bill came to town and we gave him the fight on a nominal basis. He and Irving Kahn met at the time and struck up an immediate kinship--an entrepreneurship. Subsequent to the fight I think Bill had convinced Irving that that was the business of the future and he ought to buy some systems. And Irving bought, I think, four systems--Farmington; Silver City; Liberal, Kansas; and one other which escapes me. And all of a sudden there he was in the cable business with maybe seven or eight or nine or ten thousand subscribers. I think he paid for them pretty much with company stock which was all over the place. But TelePrompTer was in the cable business. I was still in my closed-circuit television end of things. The division really ended up under Monty Rifkin who was then the treasurer of TelePrompTer. People like Ray Schneider were in the company. Other names--Les Read, Jack Gault--a lot of people still involved.
And after Irving and Bill met, Irving had the imagination to see where this was going. But, of course, cable at that time was really just for the sticks. For towns that were beyond the reach of TV stations either through terrain or distance, I suppose. But as I looked at the cable business ... I had nothing to do with it. It was not in my department. I wish it had been, but it wasn't. It was pretty much looked at as a financial thing. There really wasn't much marketing or any of those things going on. But I looked at the business I was in which was so sporadic and unpredictable ... You could have three shows in one month and you might go for four or five months and have nothing else. So, boy, would I love to have something that would have day-to-day revenue. I'm looking at this cable business growing. All of a sudden Irving tells me their revenues have just crossed the million-dollar level and growing. And I said, "That looks like something I ought to do."
So in 1962 they had discussed a deal with a man by the name of Newell Preiss. Newell Preiss goes back to the Bergren era.
SMITH: I knew Newell Preiss.
ROSENCRANS: Newell lived in Spokane. They tried to buy his system in Pasco-Kennewick, Washington. Their proposal was a stock proposal and Newell was too conservative and too smart to take the chance on stock because you had to hold the stocks for years before you could sell it. So the deal collapsed and Monty Rifkin knew I was interested in going into the business and he handed me the file. He said, "Well, why don't you try to buy the system?" And simultaneously with that I had gone to visit some friends of mine who I'd met up in Westport, Connecticut, through my family. A young fellow, even younger than I was, whose father and their partners had been in the business of acquiring companies. Not really starting companies but mainly acquiring bankrupt companies from the banks during the Depression and then either liquidating portions of it or running portions of it ... building it up and selling it. And I went to them with the idea of here's a new industry. I think we can buy some cable systems. Let's put some funds together. So they said, "Fine. Bring the property to us and we'll see what we can do."
SMITH: What was the name of that company?
ROSENCRANS: Flug and Strassler. There were two sons who were younger than I was and the fathers were quite a bit older. I was kind of in the middle. I played a lot of golf with the Strassler group and that's how I got to know them prior to this. They were very successful people, very careful people, and very much oriented to solid business practices. Had great relations with the banks because the banks would call them to solve their problems with problem companies.
So I brought the Newell Preiss thing back to them and I said, "It has to be a cash deal." I think we were acquiring 3,000 customers for $580,000.
SMITH: And which system?
ROSENCRANS: It was the Pasco-Kennewick, part of two of the three tri-cities which is equal distance between Seattle and Spokane but south. Right on the Oregon border on the Columbia River. Hence the name Columbia.
SMITH: I was going to ask that question in due course.
ROSENCRANS: That's where the name comes from.
SMITH: I wondered whether it came from Columbia University or the Columbia River.
ROSENCRANS: Take it either way but it came from the Columbia River. We called the company Columbia Television Company. We got a letter from CBS claiming we were infringing on or impinging on their name--both ... whichever.
ROSENCRANS: We went to some little court. We won the case.
SMITH: My God.
ROSENCRANS: But I learned a lot from Newell Preiss because I used to fly out to Spokane and he and I set out on a drive to the Pasco-Kennewick area. We got along awfully well. He was a very interesting, bright man. He was an heir to the Penney family, I think, somewhere along the way if I'm not mistaken. But a marvelous guy and one of the guys you'll see in the early gatherings of the cable industry wherever they were held. Newell told me everything about the system. And he told me two things that always stayed in my mind. One of them was always add services, never take anything away. If you can put microwave in to bring a distant signal in, do it. If you can put up a weather channel, do it. Just keep giving them more value and your business can't help but grow. The second point he made was always stay involved with the NCTA. You're going to need a lot of help in this business and you better build a strong organization. Make sure that the organization is sound.
So those were the two things that I learned from Newell which I never forgot. And even at that time, the system we bought was pretty advanced in terms of the state of the art because it was a twelve channel system not a five channel system.
SMITH: And roughly what year was this?
ROSENCRANS: That was 1962.
SMITH: That was an early twelve channel system, then?
ROSENCRANS: Yes, one of the early ones. There was a microwave ... Cliff Collins and Pat Hughes.
SMITH: I know them.
ROSENCRANS: They had the microwave company up there and they were feeding the network stations from Spokane and, I think, an independent station from Seattle. So we had the two tri-city signals; we had three Spokane signals; I think we had one or two independents; and an educational. So we had a pretty good package when you realize that the people in Pasco-Kennewick without us could only get the two local stations. One of them shared ABC and NBC and the other was a CBS affiliate, I think. I may not be quite clear on that. So we had something to sell. We put weather channels, the old clocks up there, that Bill Daniels had promoted and we were off and running. That was 1962. The system developed very quickly. We ran ninety-nine cent Mother's Day promotions--sending out postcards. And the thing did well. I think we went up to almost double the size of the system in the first year.
SMITH: What was it when you started?
ROSENCRANS: Three thousand. I think it was like five or six at the end of the year. It moved very quickly. And, of course, it was a cash flow positive system when we bought it and you add that revenue to it and it began to show some real gain. We originally financed the acquisition. We took ... half of it was in bank debt and half of it was investor equity. But the investors had signed personal bank notes so it was not arms-length financing.
Towards the later part of the first year, that was August of '62, in the middle of '63 I learned that the owners of the Pendleton system down the river from us in Oregon were going to offer their system for sale and they were interested in bids. We bid against Cox and somehow they bid $600,000 and we bid $650,000. And at the end of '63 we, all of a sudden, were a multiple-system owner. We had Pendleton, Oregon, and Pasco-Kennewick.
SMITH: How big was the Pendleton system?
ROSENCRANS: I think Pendleton, too, was about 3,000.
SMITH: Who were the owners that you bought it from.
ROSENCRANS: A bunch of local people--local farmers and merchants. A nice group of people. In our meetings with them they were very concerned that, because they lived in town, they weren't selling to someone who was going to abuse the system. I remember a marvelous meeting with them. We had a couple of beers and we shook hands. They wanted our deal because of the price.
So there we were, between the two with maybe seven or eight thousand subscribers. Pendleton was a most classical system. It's sitting there in a valley, far removed from any signals. So our penetration had to be 90 percent. But strangely enough each year the system keeps growing. Even today, I haven't looked at it in a long time, but I suspect it keeps growing. The rates in those days were probably four or five dollars a month. No pay in sight, nothing beyond basic cable and maybe a second outlet. That was the extent of the income. They were talking about FM connections. But that was the nature of the business. But it was steady; it was predictable. Subject to budgeting, you could really make a plan and come pretty close to the plan.
All this period I had never moved out to the northwest. I stayed in the New York area and flew out there perhaps every month to visit with managers and deal with whatever had to be dealt with.
SMITH: Who were your managers out there in Pasco-Kennewick and Pendleton?
ROSENCRANS: Clay White, I don't know if that rings a bell.
SMITH: That name sounds familiar to me.
ROSENCRANS: Not Clay Blanca. Later on we had a Clay Blanca.
SMITH: Just a different language that's all.
ROSENCRANS: Clay White and then Wes Stone in Pendleton. Wes Stone was just an extraordinary man. He passed away a few years ago. He was a guy you could set your clock on. You could just walk away from Pendleton and know that it was like you were there yourself.
Then, we acquired a few little properties up north in the Okanogan Valley from Sam Haddock. Remember Sam?
SMITH: I remember Sam. A great dancer. Not that he danced with me but ...
ROSENCRANS: So it was exciting because here we were going from what we started with 3,000 in '62 and here we were in '65 and '66 with a few acquisitions getting into the twelve, thirteen, fourteen thousand range all of a sudden.
We were using microwave. We were a little bit ahead of the curve, I think, of most of the systems by virtue of the microwave and bringing signals into these towns. We upgraded Pendleton from five channels to twelve. That was the extent of the technology, I think, during those days.
Our banking was very sound. We always had very comfortable leverage. We never were heavily financed. I think when we bought Okanogan we did the first insurance company, ten year straight amortization loan. A $600,000 loan at a fixed rate of interest for ten years. That was with Jim Straley of Home Life Insurance Company. He ultimately went to Teachers. Knew quite a bit and had a great feel for the business.
So that was the status of our northwestern cluster. It was a nice little company. I was making a living out of it. But during that period I also freelanced and did fights, set up the infrastructure for the heavyweight fights--the Liston/Patterson fights and so forth--just to augment my income.
SMITH: On whose behalf were you doing that?
ROSENCRANS: Every time a fight came up there were so many new bidders. There was a group ... Smith and Riner won one of the fights and they needed someone who had experience in the business on a freelance, part-time basis. So I said, "Fine, I'll do it." I gave them a fee and went in and contracted it. It wasn't hard. I'd done it so many times.
SMITH: You'd do the negotiations?
ROSENCRANS: With each affiliate, yes. Not for the original fight. TelePrompTer, I think, had lost out on some of the fights so Irving and I had a little strain there when he saw that I no longer worked for him but he wasn't appreciative of the fact that I came and helped some. I said, "Irving, my goodness. If you had it, I wouldn't have any part of it. But these other people had gotten it so I think I'm a free person and entitled to do anything I can do, and not do anything wrong."
SMITH: You've got to make a living.
ROSENCRANS: We've long since gotten past that. But then, I think, the most important thing that really moved the company out occurred in 1967. The Morgan Bank, who we had done our banking with, said there was a company called ... Bruce Merrill's company, the name has escaped me.
ROSENCRANS: AMECO was overextended. They had a mix of cable companies and manufacturing and the manufacturing was killing them. And the cable companies were producing but there just wasn't enough money left over for the banks. They were forcing Merrill to sell some of his systems. The two that I was interested in were Yuma, Arizona, and El Centro, California. Interesting systems. They had 10,000 subscribers. Microwave bringing in the four L.A. independents. And in the case of Yuma, those independents plus the three networks from Phoenix. A tremendous package and the highest rate in the industry at that time--$7.50 a month. Justified by virtue of the service you were getting.
I remember flying down there to see the systems. It was the day of the Israeli six-day war--June 10th or something 1967. The pilot kept reporting to us over the loudspeaker the news reports he was getting. And I went down there ... it was very hot in the valley in June and July. I was met at the plane by their chief technician, Marvin Jones. Marvin met me and Marvin was a typically spare ... not a great communicator at that time--a quiet southwestern fellow. His mission was to take me to visit the systems. Unfortunately, the air conditioning broke down in his car halfway between Yuma and El Centro.
I saw those properties, saw the areas. Yuma was a new town that rose out of the Second World War--hadn't even been there. It was a trading spot before that.
SMITH: Practically an Indian trading post, wasn't it?
ROSENCRANS: Yes. But you could see new motels. You could see a lot of new housing. A very attractive area even though it was awfully hot. And then El Centro was more southwestern in the sense that there were many more Mexican Americans living there composed of towns like Calexico, Holtville, El Centro ... some of the names now escape me. A cluster of four or five towns all interconnected. I always loved single headends. I hate a lot of headends because if you try to add something, your problems are a mess. So that was always in our thinking. Bruce Merrill wanted $4.5 million for the properties ... 600,000 subscribers. Which was a high price in those days.
SMITH: 600,000 subscribers?
ROSENCRANS: No, excuse me. A cash flow of $600,000. Ten thousand subscribers and a cash flow of $600,000. Well, you had to stretch to find the cash flow but I knew a little bit about Bruce and I met his attorney Corbett ...
SMITH: Don Corbett.
ROSENCRANS: They were pretty proud people. They never showed a sign of weakness, certainly Bruce wouldn't. He told me that make my offer $4.5 and they'd take the deal. So I said, "I'm going to take the plane home tonight and I'll be in New York until Friday morning ... take the "Red Eye" back from Phoenix. I'll call you as soon as I can give you a firm response."
So I was in the office early Friday morning after being up all night and the only person in the office in New York was David Strass' father, Sam Strass. Sam was 65 or 70 at the time. He said, "How was your trip?" I explained it to him and I said, "These are great, great systems. They've got nowhere to go but up. And I know the guy wants $4.5 million. He's not going to take less. There's no point in telling him $4 million because we're not going to get it." So Sam and I talked about it and we knew that the Morgan Bank would help finance it. We also spoke to the insurance company about putting up $2 million; the banks put up $2 million; and we were going to put up $500,000 to buy it.
So I called from the office and I missed Bruce. I was going to offer him the $4.5 million in the afternoon. But it was noontime, I guess, in Phoenix. So I took the train home early because my son was playing a little league game and I wanted to get there to see his game. So I get home and I'm rushing to get to the game and I call up again and I get Bruce. "Bruce, I want to tell you we're prepared to pay you $4.5 million. I'll send you a telegram confirming it but let me call you after the game because I've got to go see my kid play baseball." And Bruce said, "Great. I'm glad you called because Leon Papernow had just called half an hour before and offered me $4,250,000 but you've got the deal if it's solid." So I went to the game. I have no idea who won or lost the game but I came back, called him again and confirmed it and sent him a telegram. So he confirmed back and there we had a deal.
So all of a sudden we're a southwest company with interesting systems and lots of growth. Now we're up to 25,000 subscribers more or less. So, I think the next event was going public. Values of private cable companies were nowhere in those days.
SMITH: And what was your total subscriber count at that time?
SMITH: You went public on 25,000?
ROSENCRANS: Yes, in 1968. And I think we became effective in December '68. There was a time that some terrible decision came down like two days later from the FCC. You may remember that better than I would. Something to do with distant signals or sending some ...
SMITH: That would have been before syndicated exclusivity and it was probably the Second Report and Order. I'll look that up so we can correct it on the record if I've got the wrong one.
ROSENCRANS: But it was a bad decision two days later. But the deal was done. We'd sold our stock to the public. I don't remember what my reaction of the impact of the rule would be but, again, I didn't think it was monumental but to the public, hearing something like that, it's a bad thing. It's hard to come out with an issue in the face of what looks like bad news.
SMITH: If it was the distant signal rulemaking, the news wasn't too bad news for that operation.
ROSENCRANS: We were grandfathered I suppose. Okay.
SMITH: That's right.
ROSENCRANS: Now simultaneously just as we went public and we raised maybe $2 to $2.5 million gross but after you get through with the commissions and so forth and fees ... $2.2 million. I'm not clear how it came about. I think maybe Jack Cole called me about a company called International CableVision. International CableVision was the first public company in the cable industry organized by the Gunters in Texas ...
SMITH: Oh yes.
ROSENCRANS: ... the La Portes in Florida, and the chairman was a man by the name of Fran LaFarge who was a broker at Kidder-Peabody. They were a public company with two diverse systems--very little to do with each other. One in San Angelo, Texas, and the other in Ft. Pierce and Vero Beach, Florida. They didn't have the capital to do anything and they were anxious to find a way to tie in with someone else who could develop the systems. They had terrible problems with the cities of Vero Beach and Ft. Pierce. I learned that the Gunters were crucial and that I ought to ... I think they were clients of Jack.
SMITH: Yes, I think they were. Jack had just left my law firm and had set up his own. They were clients of Jack.
ROSENCRANS: Jack said, "You've got to meet Ken Gunter because I think you guys would get along pretty well." Ken Gunter ... the guy's from the southwest, a brilliant guy. Ken is well educated, very sophisticated but when it comes to the northeast, he becomes very provincial still to this day. I laugh at him but he's learned a lot but he still doesn't want any part of us guys. He wasn't going to move. At any rate, during January or so they welcomed stock proposals and we were in a competition with Viking, Vikoa the Baums to buy those systems. We went down and made a proposal--a stock exchange--and we won. Here we are with two interesting properties, having used our stock and not used our cash. And we had the cash--the $2 million or so--to do the rebuilds necessary to bring these systems up to some level of quality . Not so much San Angelo because Ken had pretty well handled that. The Florida ones were critical.
SMITH: May I interrupt, Bob. I need to turn the tape over.
End of Tape 1, Side A
Start of Tape 1, Side B
SMITH: You were talking about Ken Gunter and you were just saying that he had the San Angelo system pretty well in hand.
ROSENCRANS: Yes. And I remember meeting Ken in Vero Beach because we had to go ... Even though the deal was signed, we still had to get transfer approval. I met Ken for the first time in Vero Beach. Here's Ken and myself from different parts of the world, different backgrounds, and we were sitting there talking. And I said, "Ken, we've got to have you. You've got the background we need. We'll leave you alone. We'll give you the responsibility for Texas and Florida because Florida needs a rebuild and we don't have any engineering depth in our group at all. I'll make you vice president of engineering, second in command to me. We'll leave you alone. You give us budgets, plan it together ... it's your responsibility." Jack Cole was kind of a bridge. He told him I was a decent guy and you could trust me. So Ken reluctantly said, "Okay, I'll give it a try." Not a huge commitment but he'd give it a try.
But then together we go to the city council committee meetings at Vero Beach. I dealt with the history of my company and what our planning and thinking was. And Ken talked about the engineering needs and how we would put back-up power in; how we would put in a new microwave and improve the signals from the south, from West Palm Beach ... talking gigahertz's to guys that were very impressed. And I was impressed.
The two of us became a pretty effective team. We both liked each other immensely and it looked like something good was coming out of it. Long after we owned the systems actually, we finally got the transfers ... the contract technically didn't close but we were running the systems. Because the man that we were buying ... Barnie La Porte had such terrible relationships with the town that we told him he had to back away or the thing was going to explode before we ever could complete the deal.
SMITH: Now are you talking about Vero Beach or Ft. Pierce?
ROSENCRANS: Vero Beach and Ft. Pierce. He ran both.
SMITH: Who owned those?
ROSENCRANS: Well, that was International Cable Vision but Barnie La Porte was the owner and manager of that part of the two city company.
SMITH: I was trying to call that name back to mind. I guess I'm confusing it with Boca Raton which was Westinghouse and before that TelePrompTer, I think.
ROSENCRANS: Now, again, looking at the cable industry at that time, Vero Beach and Ft. Pierce, particularly Vero Beach, without cable you couldn't get any signal. And that made the issue even more sensitive than it might have been elsewhere because you were truly a monopoly. Ft. Pierce had a little better reach closer to West Palm Beach so people could get something with an antenna. But, again, looking at the territories, you knew the growth was coming--beautiful areas, movement from the south, immigration from all over the country into those markets. So they looked like great long-term growth markets.
San Angelo, not quite the same growth but again had all the characteristics that you'd look for in those days in a cable operation--the need to bring in signals. Without you they had very limited television.
So those 10,000 subscribers between the two of them on top of our twenty-five, in two months we've turned this public company into an engine of sorts. And we put the money to work in Vero Beach and Ft. Pierce. Rebuilt them and in turn the customer counts keep moving up and moving up.
That was 1968 or '69 and then the next ... early '71, I suppose, I think we may have acquired a few others things from the Ft. Worth Telegram. We bought Gainesville, Texas, and Jonesboro, Arkansas, during that period but they were not significant transactions.
But I think the next thing that was interesting in our company's history was in 1970 or '71. In New York City I was always living in the suburbs in parts of New York City. Madison Square Garden was in its peak. They had the Knickerbockers who were a top team in those days--very excited. The fans were very enthusiastic and the Rangers were very strong. The Garden didn't want to sell their home games to local television. In some experimental periods in 1969, '70, '71, they made an arrangement with the Manhattan system to bring a handful of games to the Manhattan system live because the stadiums were sold out. They felt that if they put home games on broadcast they might affect their gate. And I observed this. I'm not even clear how it came up but somebody called me and said there's a man in Pompton Lakes, New Jersey ... Pompton Lakes is twenty-five to thirty miles as the crow flies out of New York City, a suburban town in New Jersey, who has 1,000 subscribers and he's got a franchise--the franchise is with another 10,000 to 15,000--and he's looking for a buyer. At that point you would never conceive of those areas needing cable. You had seven V's off the air. You had another five or six U's--most people didn't bother with the U's. But what did you have to add to complement that. You couldn't bring in distant signals because of exclusivity and all of those issues. And there's nothing to add really if you could. But I said I'm a sports nut so maybe take a little fling here and if we could add the Garden's live events on top of the basic cable service maybe we'll have something. Maybe we'll get people who don't need it, ordinarily would not be a prospect for cable.
SMITH: Now we're talking about the New York City area generally, aren't we?
SMITH: And that's where the seven V's were and the five U's?
ROSENCRANS: Yes. Nobody had really gone into the urban markets. However, Irving Kahn had done it in the northern part of New York City but that was a function of the buildings creating so many ghosts that there was a need for cable just to improve the clarity of the pictures. But when you get out into the Westchesters, the New Jerseys, the Long Island suburbs the picture quality was pretty good because you didn't have those problems. There were pockets behind hills and things like that but by and large it was a risky proposition. We took the risk. We were doing quite well as a company and I think we paid $1 million for the franchises and the cable system.
SMITH: And this was where?
ROSENCRANS: In Pompton Lakes, New Jersey. We immediately contracted with the Garden and we built terrestrial microwave or we contracted with the phone company, I think, to make the interconnects from New York City to the Pompton Lakes headend to carry the Garden.
SMITH: You say you contracted with the Garden so casually as if you just went in and asked for a contract. Wasn't that easy, was it?
ROSENCRANS: Well, they already had a pattern that they had developed in the city itself. Nobody had then taken it out to the suburbs. I don't know whether Chuck Dolan was doing that or not at that time. He was developing kind of the fringes of the market in Suffolk County and Nassau County out in Long Island. But he may have had it out there as well. So there was a pattern formed and they had nothing to lose. It was all incremental revenue--no effect on their gate. So we developed a rate something like $7.00 a year per subscriber was our cost, I think, for the eighty-two Knick and Ranger games.
SMITH: And were you going to put it on basic?
ROSENCRANS: Basic cable because pay cable had not evolved in anybody's thinking then--certainly not mine. We thought it was the only way to stimulate the sale of basic cable. It was the first time that I think ... now we had a line for programming in our P&L. Our intention was to sell local advertising on the channel to offset some of the cost--sell to the local banks, local garden markets, supermarkets, whatever. We also felt that if we were successful and we could get the penetration up to a reasonable level, we had a key to all these suburban areas, at least in New York with the foundation of the Garden at the core.
Simultaneously with that Home Box Office evolved in New York City--the pay cable channel with movies--on a tier basis, a pay tier founded by Time Inc. I think Jerry Levin was at the source of that. They were selling the Manhattan system which they owned, I think, putting it on as an extra service. They were also feeding via terrestrial microwave to John Walson. They had to run all the way out there to service Wilkes-Barre, Pennsylvania.
SMITH: They started there with the Pennsylvania Polka. That was the name of their first program.
ROSENCRANS: So, I think, we said, "Now that we've got the Garden, let's put on HBO." We had done some things with local origination on a movie channel. A thing called ... Geoff Nathanson's box where you put a card in which never evolved ... Channel 1. They used to ship us tapes and we put them on and offered them for six, seven, eight dollars a month, something of that nature. The difficulty with tapes was the quality. After a while the tapes deteriorated. I remember we put on "Deliverance" once and you couldn't even see it on the screen it was so scratched and dark. So the idea of getting a feed right out of New York City from a two inch tape player had some appeal. The minute we did it we publicized it and people began to buy it.
SMITH: Was Nathanson's known as Optical Systems?
ROSENCRANS: Yes, that's the company. So we went from the direct local origination into the network concept out of New York. This was 1972 or '73. So with our two things plus a lot of local origination, we began to do a lot of high school things--high school basketball, high school football--town meetings. Some reason to knock on the door and say, "You like movies, we've got movies. You like sports, we've got the Garden. If you're interested in your community, we've got political origination. You don't need your antenna. We'll give you all the UHFs, which you don't bother to get anyway, and the V's." I'm trying to remember the channel capacity at that time. It was probably in the twenty-two range, something like that.
SMITH: I was going to say you were well over a twelve channel system by then.
ROSENCRANS: Yes, twenty-two channels, I think. You had to have that in the New York area. Things had moved to that degree ... 300 megahertz systems, I think, were being built. So we built a 300 megahertz system or a 330, I'm not sure which.
But we began to see some great success with that format, with those combinations. There was all of northern New Jersey unfranchised essentially. You had Vision Cable to the north doing some things in Ft. Lee and that area. You had Peter Gilbert and his group, which is today Suburban, doing some things down a little further south of us. But we had that whole Passaic County area untouched and Bergen County to the north and Morris County to the south. So we said, "Listen, we think we have the key. Let's do a massive franchising job. Let's get these franchises tucked in for other people to see what we're doing."
Now somewhere along that time we had an aborted merger with Viacom.
SMITH: I was going to get into that. As long as you interrupted for that, why don't you tell us about it. How that got started and why it didn't go through.
ROSENCRANS: Well, Viacom was a spin-off forced by the government of the cable operations from CBS. The stock of Viacom was in the hands of many, many people--nobody controlled. Even Paley may have had at most 5, 6, 7 percent of the stock. They had very interesting properties out in the Bay Area in San Francisco. They had that big property in Suffolk County outside of New York. It may not have looked great at that time but they had a pretty good sized company. They approached us about making a stock transaction with us. And in one fell swoop had we completed the deal our controlling group would have been the biggest shareholder of an emerging company because our owners owned so much of our company.
SMITH: You were larger than Viacom?
ROSENCRANS: Yes, and once the deal was completed, we'd have 30 or 40 percent of the stock. So a lot of our people said this is a great opportunity. Here we take a step up and we could really, in effect, control this company even though they're the surviving company and they're the surviving management--don't worry it will all work out. I wasn't certain, I just didn't know. Anyway, we went ahead with it ... we signed the contract. We began to have loads of meetings with Ralph Baruch and others. And although Ralph is a marvelous man, he's a very ambitious man and I got a little nervous when I saw his targets placed on my shoulder. I've never been that ambitious. Our company has kind of developed through opportunism rather than a grand plan. I didn't ever like the prospect of travelling all over the country all week doing different things because I had too much interest in what was going on at home. But I wanted to continue to build a good company. So I was not thrilled with it. Ken was a little uncertain about a whole new cast of characters back into the yard that he'd have to deal with. A lot of things happened in the formation of that merger that I agonized over and soured a little bit. The deal had been announced in the paper. There was arbitrage going on.
Then the government sued the three networks--antitrust suit--and Viacom on the syndication issue. They had complete control of the aftermarket of all these programs and they were leaning on producers who came in to get a show on the network, they had to commit to give the subsequent syndication rights to the network. Viacom had all the syndication rights going to CBS.
SMITH: Then Viacom was really a target rather than just being caught in a spin-off?
ROSENCRANS: Oh yes. They were integrated with CBS. Now maybe in discovery they could have separated themselves but nevertheless the government put them all in the same hat. Here we are, you know, the deal's about to close but we don't want to take our shareholders and company into an antitrust fight with the federal government.
The funniest thing, I remember my family all went to Bermuda for a long weekend. At that time the arbitragers, smelling that there could be a problem with the deal, kept calling. I had been very open with them as the deal progressed. I always answered my phone and I'd talk to these guys, "Yeah, the deal's fine; the deal's on track." And all of a sudden I didn't know what to say to these guys. Now the deal was in trouble. So I'd try to avoid the telephone. Somehow a guy traced me down to Bermuda. And the phone rings in the room and there I am and the guy's asking, "How's the deal going?" I'm starting to stutter because I really couldn't tell him anything. He knew the deal was in trouble. We got back and then, I think, a few days later we called it off by virtue of the antitrust action. And we were back then with a private Columbia Cable Systems. I never felt better in my life.
SMITH: You've never regretted the decision?
ROSENCRANS: No, no. I don't think I'm built for formal big structures ... that need to be a star recorder. We did it but I never liked that part of it. It didn't give you the freedom you needed to build a company.
Just after that we picked up conversations with U.A. Cable Vision. U.A. Cable Vision was a company owned by United Artist Theaters. They had assembled a lot of cable systems pretty much in the southwest and one in Brookhaven through their theater activities. They had about sixty-odd thousand subscribers; we had 75,000. They had no management. We ended up doing a stock swap with them.
SMITH: How did that deal initiate? Were you out looking for somebody to merge with?
ROSENCRANS: No. Through a bank, we had had a conversation ... a former guy at the Chase Bank, their treasurer, I think, had called us. We had a meeting before the Viacom deal so that died but then after the Viacom deal, we picked it up again. We got together, we did an evaluation of our respective cash flows, properties, etc., and we struck a deal. We changed the name to U.A.-Columbia Cable Vision. I was the president, Ken was the executive vice president, Dave Strassler was the chairman. But they had a number of board seats. They really were theater people and they were very happy to find a home where this thing could be developed. I missed something. Prior to our Viacom deal, they had spun-off the cable companies from the theater company and called it U.A. Cable Vision ... sold some stock to the public. So they were a public company and we were a public company. So it was really a perfect pooling of interests type of merger. All of a sudden we had a whole new cast of characters on the board of directors. I think my people looked a little nervous to them and they may have had a little nervousness--we had different cultures.
ROSENCRANS: They were middle eastern by history, by background. A very strange combination of people born and bred in the theater business. There were two brothers--Marshall and Bob Nathy--lived in San Francisco. Kind of reclusive people. Very strong views on things but could be very charming. They had a guy by the name of Salah Hassanein who really ran their company. He was Egyptian by birth--mother was Catholic and father was a Moslem. He was taught in Catholic schools. He caught the fancy of Spiro Skouras, a theater mogul. Spiro Skouras went to Egypt, because he's an Egyptian himself, to take a tour. While there he was given a young boy from the school to be his interpreter--Salah Hassanein. He was so sharp he said, "I want to bring you back to the United States to work in my theater business." So when he was of age he came back and started as an usher in a theater. Many years later he became the ... I had known Salah Hassanein, oddly enough, when we did the fights because he was running the United Artist Theater circuit and I used to sell him the fights ... Academy of Music in New York, Calderon Theater in Long Island, Corpus Christi in Little Rock where they had theaters. So I got to know him and I got to like him. He was a very imaginative, very gregarious kind of man. A big, bulky guy. So we had more than just the connections that formed in '72. I had a history with Salah so he knew where I came from and I had trusted him. So that helped make that deal come together. After the Viacom deal aborted, we announced, maybe six months later, the U.A. deal. We changed the name as I mentioned before.
So we went from 175,000 ... now we're in the 135,000 class. We've got a little pocket here in New Jersey. We've got another pocket over here in Long Island. And we had some management here that was getting pretty able and we're in the franchising mode so things were really beginning to open up.
Just about 1973, I'm not quite clear of the date, somebody called me from Washington and said would I talk to a young couple anxious to get into the cable business but anxious to work together. Their names were Bill and Kay Koplovitz. So I said, "Sure, I'd love to talk to them." So they came down to my home in Connecticut and I sat around talking to them. Boy, they were interesting people. I said, "Well, I can offer you a job. We're going to start franchising. We've got forty or fifty towns target towns here in New Jersey. Would you like to do that? I can't pay you a great deal but we'll work out some kind of nice commission on the homes we get. You might do well." And they said, "Great, we'd love to do it." So they joined us and started to do the franchising.
SMITH: Was Bill Koplovitz a practicing attorney in the communications field?
ROSENCRANS: No, I don't think so.
SMITH: There was a firm in Washington ... Dempsey and Koplovitz.
ROSENCRANS: That was his father.
SMITH: Oh, that was his father. All right, there's the connection then.
ROSENCRANS: Bill and Kay met at the University of Wisconsin. She had written papers on satellite transmission, believe it or not. None of that in our thinking at the time. And they went to work for us. They became the team to do the franchising. It couldn't have been a year later that the state of New Jersey put a freeze on cable franchising. They needed rules. They wanted a state cable commission. They wanted to do all the things to get the thing under control. So that wasn't great for us because it brought other people into the field and kind of slowed the process down considerably.
Now all our properties are all doing well. We're spending a lot of capital to keep them up to date. Marvin Jones, the man we talked about in the early days of Yuma, I elevated him to director of operations. He became a great manager and rebuilt the Florida systems. He really developed beautifully. So he, Ken and I were essentially the key management team. Everybody stayed where they were. Ken and Marvin stayed in San Angelo, Texas. We have a very good man in New Jersey by the name of Steve Simmons, who ran the New Jersey properties. We broke up into eastern and western divisions, I guess is the way we organized it. Eastern was just the New York market. That was a full plate. Then the rest of the country was the western division.
SMITH: Well, did this New Jersey freeze interfere with your franchising or had you pretty well completed that?
ROSENCRANS: No, no. We were just to the early stages of that. It must have stopped for over a year and a half or two years. But we had gotten some key ones. We had gotten the Clifton, Little Falls, West Patterson areas. So we were able to build a nice nucleus around the original Pompton Lake system. And, of course, as I mentioned, we were using the key marketing tools--Madison Square Garden, pay cable, Home Box Office, and local origination.
That kind of brings us up to the early part of '75 when I got a call from Jerry Levin ... Would I please come in and meet with him? They had something they wanted to talk to me about. We had had some discussions with them about establishing a comparable HBO headquarters, perhaps in Vero Beach or Ft. Pierce, and feeding north and south by microwave and creating an HBO of Florida. And maybe do something the same way in Texas using terrestrial microwave.
SMITH: But not connected with the East Coast microwave?
ROSENCRANS: No, you couldn't. Try to do it where they had lots of market potential and the systems that could be interconnected.
SMITH: You would originate by tape, then? Is that it?
ROSENCRANS: Yes, just as they did in New York, just reproduce that. We examined it. It was expensive, slow going. The process to get CARS microwave, a common carrier microwave to do all of that was laborious. So this had to be the early part of 1975, March or April period, I guess. Jerry said that they were very much interested in trying to go on satellite. The only way they could visualize building that company--the pace they needed to get to the systems--was to go on satellite and would we be willing to invest in earth stations. They'd like us to put one earth station in somewhere to be ready to do it. I said, "How much is an earth station?" They said, "I think it's about $100,000." They weren't sure--$100,000 to $200,000. I think we finally agreed it was probably more like $100,000 ... a ten meter, thirty foot dish. I said, "Gee, I think that's a terrific idea. Let me speak to Ken over the weekend." This was a Friday.
I had watched some satellite things come over from London, England. I saw the U.S. Amateur via satellite at my home sometime before that. The picture quality was a little shadowy ... I wasn't sure. So I spoke to Ken either that night or the next morning and I asked him, "Technically, is this a sound plan?" And he said, "Well, you're going to have the best picture in the world. There's no reason for it not to be perfect if you have the receiver." A ten foot dish would give you plenty of margin for error. As far as the expense was concerned, we were thinking of setting up much more expensive studio equipment or equally as expensive studio equipment to feed ourselves anyway. All the personnel you'd need to do it, $100,000 for a dish was a lot cheaper than the other costs associated with reproducing a Home Box Office for your system.
SMITH: I hadn't realized that.
ROSENCRANS: Sure, it's a passive receiver. Once it's in, it runs. So I called Jerry and said, "We discussed it and doesn't this make sense for all our systems?" He said, "Absolutely, as long as you're not a 2,000 or 3,000 subscriber system but certainly 10,000 or better." And we had seven fairly big systems in place at the time. So I called Jerry on Monday and said, "I spoke to Ken and technically we're comfortable with it and we'd like to announce seven earth stations. Do the first one in Florida." They were trying to key it to the September 30 date because that was the "Thrilla from Manila," the Mohammed Ali heavy weight championship fight.
We had a lot of work to do. We called Sid Topol on the phone and he said he'd be able to get a dish to us, and erect it and have it in place by then. The biggest obstacle really appeared to be the application we had to make to the FCC, getting through all of that. Any objection, as you well know better than anyone, can stall it a long, long time.
SMITH: It can and there were plenty of people to object.
ROSENCRANS: Oh, everyone. And to this day I don't know why they didn't. I don't know why the networks didn't object on some obscure theory. Why the film companies wouldn't somehow find fault with it. Why local stations somewhere in Vero Beach wouldn't object to it. Even if it's frivolous, it does stretch out the schedule. I remember Wiley was the commissioner, head of the FCC at the time. He was very alert to what we were doing and very sympathetic towards it. We went to see Quello. I don't remember who the other commissioners were. You'd remember who they were but we went and paid personal visits on them. They all liked the idea but they said, "If there's an objection that comes in we have to deal with it under the law." But sure enough the thirty days passed and I couldn't believe it ...
SMITH: I can't believe it either.
ROSENCRANS: Somewhere in May or June it went through the thirty days and it was done. I don't know that it got that much publicity although we did a big public relations job at the convention to announce it so that certainly it was big in the trade press.
SMITH: That was the New Orleans convention.
ROSENCRANS: Yes, and it was in the Wall Street Journal. It was in major stories. But maybe somebody said, "How can I object to this? I'm going to use up some capital in Washington with the FCC and I don't know if this frivolous objection is going to hurt my business or interfere with this or interfere with that." Whatever reason, we were thrilled. We got the notice, it was done. At that point we could begin to prepare the construction ... pour the cement and begin to think in terms of hitting that date. So that's where we were. So remarkably everything was still on course.
SMITH: You and Ken made that decision for the company?
SMITH: You didn't go to the board of directors?
SMITH: And you were merged with United Artist by that time?
ROSENCRANS: Yes. We had the capital to do it. We explained it to them all on the phone but we didn't put it to a vote.
SMITH: I think that's great.
ROSENCRANS: It's a part of our business, you know. And $100,000 a system, you can argue that it will save us a lot of other expenses and it's going to give us the ability to sell a new service--the Home Box Office service.
SMITH: But you were sufficiently satisfied with Home Box Office as a service by that time that you didn't consider you were taking a major risk?
ROSENCRANS: I guess we were. I didn't realize that Dick Munro and Jerry were on the spot if this thing didn't come together ... they were going to pull the plug. But, again, our risk was limited to the capital investment. If it was a complete failure, we had seven dishes on our hands and we could find a way to sell them to someone. It seemed like a reasonable risk. Years ago we went out and bought ten or eleven channels for $5,000 each or whatever they were. I mean it wasn't unusual. You could see the advantages of it. Of course what we didn't really focus on at that point was the fact that the satellite feeding it had twelve or twenty-four positions for other channels. It wasn't like a single shot.
So we had a lot of work to do. We went down to Florida to find space for this. Land was very valuable where our headends were. The man that owned an area which was presumably going to be an entrance to the Sunshine Parkway was in the cable business ... owned Wilmington, Delaware. He was in the extermination field.
ROSENCRANS: Rollins. He saw us coming ... I've got you guys where I want you. And he wanted a huge amount of money for that piece of land because someday the state was going to use it as an entrance way to the thruway. So fortunately we found a farmer who was adjacent to it who didn't need the land and we leased it for some nominal amount for a long period of time. I was so happy to tell Rollins we didn't need his land anymore. And it was right next to our headend. Then they poured the concrete and the construction started for that ten meter dish sometime early in September.
In the meantime, of course, Scientific-Atlanta had been building it. Sid, God bless him, told me he'd have it there on time, it would be in place, and it would work. And, I guess, we finally completed the construction and got a signal from space on the day before. They started sweeping the headend off where the controls were and I said, "Now we're in business."
You've got to visualize our system there. We were right between Vero Beach and Ft. Pierce probably a fifteen mile distance or seven and a half mile, somewhere in the middle. Our system had been rebuilt but it was a lot of miles of system. We were determined to hold the party on the beach at the Holiday Inn. We invited city officials, people from the FCC, the press, industry company representatives. They were all there. We had a ballroom at the Holiday Inn.
SMITH: Can you remember some of the FCC commissioners who were there?
ROSENCRANS: I'm not sure, I said that quickly. I'm not sure about commissioners. Was there a Bill Johnson?
SMITH: Yes, there was a Bill Johnson.
ROSENCRANS: He was not a commissioner. I don't think we had any commissioners.
SMITH: Bill Johnson was staff--past media bureau chief.
ROSENCRANS: A very thin fellow, right?
SMITH: Yes. Very much so.
ROSENCRANS: He was there.
SMITH: I had the impression that there was a commissioner down there but I guess I was wrong.
ROSENCRANS: Might have been. We had to take that into our headend signal from the satellite. Once we saw the picture you knew ... they were sending test patterns and other things up and down from Vernon Valley. Now here's a signal coming from Manila to the West Coast via the satellite COMSAT and then, I think, long lines to Vernon Valley in New York.
SMITH: Oh, really.
ROSENCRANS: Yes. I don't think there was a domestic satellite at the time. I may be wrong about that.
SMITH: I didn't realize that.
ROSENCRANS: I'm not sure. Somebody else could ... Andy English might has a few on that. But I think it was the Intercontinental Microwave. Then out to Vernon Valley on some New Jersey belt loop. And then at Vernon Valley transmitted up to the Anik bird ... the Canadian, I think. You know these things kind of merge. And then we get in down into Florida off the bird. So you had all those paths. And then you're going through maybe one hundred miles of system to get to the beach and then an underwater cable under the Indian River, up onto poles on the beach area. Maybe a quarter of a mile from there into the Holiday Inn, into the ballroom and into the sets.
Well, when the fight came on and I flipped the switch at about ... I don't know what time it was in Manila--probably a twelve hour difference--when they were fighting but it was like five or six or seven o'clock at night here in the east. On came the fight from Manila and when you looked at the close ups, they looked like they were in the next room. The picture quality was so extraordinary. As a matter of fact an arch enemy, a guy by the name of ... a man who was a thorn in our side. Every time we went for a rate increase in the Florida areas, he was all over us. He hated the big company from the very beginning. He stood up at some meeting and accused us of degrading the local channels in order to make our pay service look better visually. Bill Lucas was his name. I don't know where he is today.
SMITH: That wasn't an uncommon charge in the early days.
ROSENCRANS: I guess so. But there we were with pretty much a pure feed as compared to the pictures over terrestrial microwave coming all the way from West Palm Beach and other things. So we put it on and, God, we knew we had a winner. No question about it. I think also ATC put one on the same night down in Jackson, Mississippi. But my deal with Jerry was that we were the first.
So it launched and the movie that night was the "The Gambler" with James Caan, which was a good movie. The service clicked immediately, people bought it. The picture quality was great and then we put them into San Angelo, Texas; Ft. Pierce ... We even put a dish now in New Jersey. We cut the terrestrial link because the picture quality was much better. We also put it in Yuma, El Centro, the Pasco-Kennewick area, and out in Brookhaven. Those were the seven.
SMITH: You really straddled the country.
ROSENCRANS: Yes. There were a lot of people in the industry that weren't sold on it, even John Malone. I remember being at a convention early the next year ... he was not sold on satellite yet. I was surprised. He still didn't know it was economic but it was the most economic thing in the world.
SMITH: I stayed in that Holiday Inn when I represented the city of Vero Beach, not that that makes it particularly famous, but I wanted to ask if you went to that restaurant across the street from it?
ROSENCRANS: Ocean Grill?
SMITH: Ocean Grill. That's one of my favorite restaurants. I love that place.
ROSENCRANS: Well, we had a dinner that night after the show. We had big tables and Irving Kahn was down there as well. He saw satellite before any of us did.
SMITH: Well, he'd have to be there.
ROSENCRANS: He was lurking around. He wasn't part of the party or anything. Nobody had invited him. But I said, "Irv, why don't you join us for dinner?" And after dinner I introduced him and everybody. He and Hub Schlafly really had that vision a long time ago. It was ironic that I had never heard about it from them but it was there, and time and circumstances permitted me to play that role. But that was a nice part of town. That's why we picked that hotel. You're familiar with it.
SMITH: Right on the beach.
ROSENCRANS: Right after that, I think, Gene Schneider jumped in and ordered some dishes. At that time they were approving ... everyone had to be approved by the FCC. It wasn't open season. There came a time, I don't know when it occurred, but smaller dishes were ...
End of Tape 1, Side B
Start of Tape 2, Side A
SMITH: Bob, I think we're close to concluding our discussion about the satellite cable transmission from Vero Beach and Ft. Pierce, Florida, which marked the beginning of HBO's use of satellite transmission. Had you concluded your comments there?
ROSENCRANS: Let's see. We were talking about the additional units that went up in our company and others around the industry.
SMITH: Yes, you had.
ROSENCRANS: Everyone kind of began to see the merit. Obviously, ATC, a unit of Time Inc., became involved very heavily. Looking at your board over here I noticed that it was in '76 that the Commission approved a four and one-half meter dish which made it a lot less expensive to take that step and probably sped up the process of even equipping small systems with dishes.
SMITH: Yes. At $75,000 to $100,000 a dish, it would have been difficult for small systems.
ROSENCRANS: And then ultimately, I guess, the three meter dish became available so the cost went down below $10,000 at some point.
SMITH: You mentioned that Irving Kahn was down there. I was going to say "quietly" observing your ... But that's the wrong word, isn't it?
ROSENCRANS: You could spot his red Jaguar everywhere. He was as irrepressible as ever.
SMITH: Irving, as everybody in the industry knows, is one of the great visionaries; and I'm curious as to whether you recall any comments, in particular, that Irving may have made after observing what took place down there.
ROSENCRANS: No, I don't recall any. He was just very complimentary.
SMITH: Was this before Irving's vacation?
ROSENCRANS: No, after it. So he wanted to be rehabilitated so I think all of this was helpful.
SMITH: I understand that TelePrompTer, itself, shortly afterward installed a lot of earth stations for HBO.
ROSENCRANS: Yes. Russell Carp, I think, was head of TelePrompTer. He liked it very much. Gus Hauser of Warner was very alert to it. I think one of the last ones to do it may have been TCI. I think that could have been a financial issue as well at that time. But they came out with a vengeance.
SMITH: Surely this had to be one of the most significant developmental events in the history of the industry.
ROSENCRANS: Well, I think all of a sudden overnight the cable industry became a network. Instead of the terrestrial microwave being the key to adding signals, all of a sudden every system in the country was eligible to be interconnected. The economy of it, when you visualize that the cost of a transponder is the same if you're feeding one or a thousand, here you are with your cost in place and the ability for all these different systems--thousands of them--to receive the signal. HBO went from a little regional service to a national network in a matter of six months or a year.
As I mentioned before, the very fact that the satellite transponder had, I think, twenty-four positions totally--twelve on one plane and twelve on another. I think HBO, I'm not quite clear when, felt that they needed a separate feed for the West Coast because a lot of the R-rated movies didn't want to be shown late in the afternoon. They wanted to start those at eight or nine o'clock eastern time. In order to keep that position, they added a second West Coast feed. So now you're using two of the transponders.
Then, I think, Viacom said they have to go up on satellite. There was some concern. I remember people at Paramount had mentioned to me very angrily at the New Orleans convention ... "You can't put a film up on satellite. You're going to destroy the entire distribution pattern around the country." Because films had been distributed on a market-by-market basis. So a film that is shown in New York in January might not get to Kansas City until April and to Paducah maybe in June. The minute you put it up simultaneously six months later on HBO, you've destroyed the theater pattern. Therefore, they told me, the movie companies would never give us films because it destroys their distribution pattern. But that was not the case. They all provided the films because they saw a source of revenue evolve. And even the theater people in our company who could sense that this had a profound implication for their business ... not sure quite what, but significant--movies in the home as opposed to the theater, didn't object to it. They felt it had to happen so might as well be on the team rather than fighting it.
But also the implications went way beyond just the theater motion picture business and the cable business. It also affected the broadcaster dramatically. The broadcast industry, the networks, have always had that umbilical cord up until now to the local station and that was really the only way the station would ever get programming unless they got a videotape from somewhere. The only convenient way was to feed it down the AT&T umbilical cord into the system. So the impact on the networks was all of a sudden a station had a few more options as to what to carry. He could position his dish to pick up other ... Maybe I'm jumping ahead.
SMITH: Go ahead.
ROSENCRANS: But the networks ultimately began to do their feeds to each other. The network fed their programs via satellites instead of long lines ... late 1970 period, I guess. And the minute they did that station x could pick up some independent feed from somewhere. So the hard core structure of the networks that was so solid and so permanent apparently in the '60s and early '70s all of a sudden ... the technology was showing some leaks.
SMITH: Exclusive affiliation agreements were ...
ROSENCRANS: They had to give way. If the station felt they could do better with another program, they ... The networks couldn't just tell you to get lost. There was no alternative. So it had profound impact on the broadcast business. And probably if you could see into the future at that time you could see the decline of the networks relative to their environment. They had the world by the tail prior to that. Their world was much better off with two or three or four signals. Cable couldn't help them at all. It created competition for programming. It created all kinds of things.
But getting back to the capacity of the transponder, I think in around '76 or '77, Ted Turner put up TBS on the bird. Made it available to cable systems nationally. A basic cable service but it was still the retransmission of broadcast signals--that was still our business. I'm not quite clear how the idea evolved but we were doing the Garden games on our local systems in the New York market still via microwave because it was not on satellite. And we had built a little distribution system via terrestrial microwave to feed to other New York area markets like Haverstraw, Peekskill, Dover ...
SMITH: These were markets where you did not own the cable system?
ROSENCRANS: No, we just acted like a common carrier almost. It was a CARS microwave so each person owned their next link. And we managed it so we made some monthly fees. It wasn't much. We were just cooperating with the Garden to increase the size of their network because they wanted to put their programming out everywhere in their New York City market. So I went to Joe Cohn ... Joe was handling the Madison Square Garden network. Tony Wergland was head of the company at the time.
SMITH: You called it a network and said ...
ROSENCRANS: A local regional network.
ROSENCRANS: Because it was interconnecting all cable systems in the New York market ... Mike Burke. We got the time on the satellite--the satellite's available for distribution. The games are being produced anyway so let's put them on the bird and we'll offer them to cable systems at a fraction of what we sell them for in New York because the interest obviously dilutes the greater the distance dramatically. And maybe they're worth ... and I think the number was something like a quarter of a cent per subscriber per game. So the numbers were small but when you multiplied them out and if you could generate enough systems and enough subscribers, it was all incremental revenue to the Garden. We were responsible for the management of it. Kay Koplovitz who was with our company was obviously the most talented person we could find to put in charge of the Madison Square Garden network. So we announced it at a convention. I'm not sure the date--it had to be 1977 or '78. It was called Madison Square Garden Sports. We fed the games to the convention and we began to sell.
So that was occupying a transponder. We were buying a protection transponder for one thing. We didn't really have a top first class transponder. We were buying one that we could have lost had HBO gone off the air for argument's sake. If something failed. Our risks weren't that great because we weren't investing that much. Each cable system ... we'd just have to lose time I suppose. So we were occupying almost three or four nights a week during the season--maybe October to May--with the Knicks and the Rangers, an occasional college basketball doubleheader, the Westminster dog show, the horse show.
Again a basic cable service. And we were going to sell national ads because it's basic cable--it's not pay. And we were going to give the local systems moments and minutes to sell local ads similar to what we were doing in New Jersey. Just transposing that pattern which we had started back in the early '70s to a satellite feed.
So the Garden said, "Well, this sounds interesting. We've got nothing to lose. Let's try it." So we picked the convention. I'm not clear what year, '78 maybe, and we announced the Madison Square Garden Sports network--satellite network--and off we went.
Simultaneously with all of this a man by the name of Brian Lamb, who I had gotten to know because he was doing work at CableVision magazine ... He had come up to Westport and took a picture of me for an article on our company using the Alpine tower for our distribution. He had some interesting ideas.
He thought somewhere, somehow we ought to get the House of Representatives, the federal government on cable. His only option in those days was to use tapes--bicycling tapes. You know, have a studio and Congress would come in and tape five minutes and ship it to his cable systems and that would be the means of communication. I wasn't too stimulated by that. I thought I'd like to get the government out to the voters but it was too cumbersome. It didn't accomplish a great deal and it wasn't timely. And then the House decided to put the cameras in ... approved and they installed the cameras. Brian says, "You've got the Garden network up there and you're on mostly from seven o'clock on, how would you feel about putting the House of Representatives on during their day time ... whenever they're on?" I said, "Now you're talking. That sounds terrific." Live television because I wanted to keep this whole thing in the framework of something timely. Live television and Brian had the National Press Club in mind for occasional lunches. And some other things. And I said, "Gee that really dovetails with what we're doing with the Garden. We were simultaneously developing a children's format called Calliope which was to precede the Garden.
SMITH: By we, you mean the Madison Square Garden Network?
ROSENCRANS: Yes, Madison and ourselves. We went to Learning Corporation of America and leased their Library and built an hour and a half format or hour format every day to kind of precede the Garden but give us a little variety between live sports, children's programming and now public programming in the afternoon.
So Brian came to one of the NCTA board meetings and I was there. I wasn't on the board ... I don't know quite how that all evolved. But we talked about this and I said, "Brian, this is the greatest idea I've ever heard. How much money do you need?" He said, "Well, I think if twelve companies can commit $25,000 in seed money, I think we could put this together. We don't have to pay for cameras. We don't have to pay for the labor but we have to buy transponder time. We have to build a little organization to do the National Press Club and studio and so forth and go." I thought it was a tremendous idea. So I said, "Okay, you've got our $25,000." Ken, of course, was with me and we concurred. "You've got our $25,000." So they named it C-SPAN.
SMITH: It came about that way.
ROSENCRANS: Very quickly I got Russell Carp to come along from TelePrompTer and Gus Houser. Eventually every one of them ... they all came along. We even threatened in our franchising. We said, "We're a founding member and I'm chairman of C-SPAN." People loved that kind of stuff. It forced all of our opponents to come and join. They couldn't be without it. Unless you participated, you couldn't carry it.
SMITH: Was that true that you couldn't carry C-SPAN unless you were a member?
ROSENCRANS: Oh no ... unless you were a member, unless you were a contributor.
SMITH: I didn't realize that.
ROSENCRANS: At that time. I don't know whether the rules are different now. You just have to pay your ... But the seed money had to come from the top ten or fifteen companies.
I remember Brian, the travail of putting in the pad. It was raining in Washington and we were scheduled to go on the air at some point with the House and Brian couldn't get the cement poured because it was too wet. He was sloughing around in this mud and everything. But it was out there somewhere in northern Virginia. Scientific-Atlanta, again, built the earth station. We finally got enough length, fed the lines from over into the House and fed into the system. Put it on our Madison Square Garden Sports whenever they came on. Our network was kind of interesting. We had those three components. And it was the first proprietary cable network. TBS was merely a reproduction of an existing signal. Proprietary basic cable network, excuse me. HBO was proprietary but that was a pay network and Viacom didn't pay. But this, MSGS, was the first. So it was really was, I think, the forerunner of CNN and ESPN, etc., etc., etc. So it was the first one.
We were supporting ourselves with a combination of fees from the cable companies plus national advertising, which is the format that evolved for everyone. It's the reason the networks have advertising but they have no fees. But that was essential. Like a magazine, you had to have a subscription price plus the advertising. Bill Donnelly of Young & Rubicon sparked to it and through Young & Rubicon we got the first sponsors. Gallo Wine was one, an airline, one or two others.
SMITH: I think you had Holiday Inn, didn't you?
ROSENCRANS: Yes. That was the first time that there was national advertising on a cable network. The picture quality was great. They used to complain down in Arkansas ... "What do you put the Rangers on for? Nobody knows anything about ice skating down here." They liked basketball.
SMITH: They'll learn.
ROSENCRANS: But it moved right along and then ... I'm covering a lot of ground, but the leagues looked at this--the National Basketball League, primarily--and said, "We don't want the Knicks out around the country. That's a local team. They're infringing on the rights of all these other teams' territories." So we sat down with David Stern, who is now the commissioner, who was an attorney for the league. The Garden was cooperative because they were a member of the league and didn't want to violate the rules. We changed at some point, I think like 1980, into a league contract. We dropped the Knicks but we did league originations like twenty-five or thirty games a year ... like Thursday night basketball game of the week. We did a league contract for three years. I think it was $300,000 or $400,000 the first year ... $500,000 ... $600,000. At the same time we worked out a deal with the hockey league. They never took the Rangers off the network but they added their games because they were looking for television revenue.
And then we had an interesting experience. Had a meeting with Al Rosen. Remember Al was the great third baseman for the Cleveland Indians?
SMITH: I remember the name very well.
ROSENCRANS: He was the general manager for the Yankees working for George Steinbrenner. I got together with Al and we worked out a thirty game Yankee major league baseball series originating from Yankee Stadium. Like a Tuesday game of the week, whatever the name--maybe Monday. Entered into a contract with them. The minute it got any publicity, major league baseball jumped all over us ... "You can't do that. You can't take the Yankees and put them all over the country." Same issue as the Knicks. So I said, "Look, the game's tomorrow night. It's a Boston/Yankee game. That will be the last game. Let's work out a league contract," just as we did with basketball. So we played the first game. It was like a fourteen inning game. It was a tremendous game. Went until like two or three in the morning. The next day George Steinbrenner was all over me on the phone. He wanted us to continue the contract. I said, "You know the contract was based on meshing with the rules and with the league. The league says we're violating the rules. We're not going to do that." He was a little more aggressive. But we worked out a contract.
During this period Kay came up with the idea of changing the network to USA Network, no longer Madison Square Garden Sports. So we became the official cable arm for national league baseball, basketball and hockey. We began to do our basketball games. The other thing that happened, Bob Johnson came to me at one of the shows ... he wanted to put on some Black entertainment. Would we give him like two hours on a Friday night every week?
SMITH: I'll identify it for the record. Bob Johnson is the president of Black Entertainment Network?
ROSENCRANS: Black Entertainment Television--BET.
SMITH: Yes, that's right.
ROSENCRANS: So I said, "Gee, that sounds great, why not." It would increased the appeal of our network. I thought it was a good thing to do. So we gave him a couple of hours.
SMITH: Was that of your transponder time or just on your network?
ROSENCRANS: We owned the whole transponder so it really didn't cost us anything. Just gave him an opportunity to put that kind of programming on. I thought it was good for our image in the cities ... something we should be doing.
So we had a lot of components and the thing was getting much bigger. It required a lot of investment and people to run a network. It was an expensive proposition. During this period CBS had launched CBS Cable and poured in loads of money. ESPN, which was a lark, which was purely a regional thing at the beginning for the state of Connecticut--for University of Connecticut sports--somehow they went bankrupt and were bought by Getty Oil. So all of a sudden here's Getty Oil coming in and is going to start competing with us for the league contracts. We didn't like that prospect. Ted was out with CNN and some other things. The business was heating up and programming was becoming the byword. Basic cable was always the thing, the engine that made the industry go. I didn't feel that we had the long-range view of it. We didn't have the resources to play that game.
So in '81 when we sold our company ... U.A.- Columbia at that time was sold. That's a whole other story.
SMITH: We'll get into that perhaps another day because that's a long story.
ROSENCRANS: Ted Rogers was one of the buyers and we negotiated a deal. We sold USA Network then for $30 million to Paramount, MCA and Home Box Office. We had no investment. We had really run that whole thing at zero cost which was remarkable because we had so much product without cost ... to the Garden, to the joint venture. So we sold it in the summer of '81, I think it was. I regret that today. It would have been fun. Kay, one of the first employees, is still there. Doing a fantastic job. Probably the leading woman in the communications industry.
SMITH: Could you say something about her for the record? I got the impression from reading a press report quotation from you that it almost seemed like you woke up one morning and discovered you were in the network business because, you said, that you had developed the children's program and then she was developing a program on economics ...
ROSENCRANS: The Barrons program.
ROSENCRANS: We were looking for niches to build a diversified network. We never had the view of building a single news network, single sports network. We were more inclined to the broad, typical network approach. Even today, USA is still more diversified than the other networks--drama, Madison Sports, there's some women's programming and so forth.
But all of this evolved never in a master plan. Nobody sat down and said, "We're going to start here in '78. This is where we're going to be in '79 and '80." It was totally opportunistic. We were not willing to put a lot of money into this to the damage of our cable business. That came first. We didn't want to risk anything. I learned that from Bruce Merrill and the AMECO days. You could get swamped and take the money out of your cable system and put it somewhere else and really be in trouble.
So we avoided that and that's why our approach was always step-by-step. What can we do that we can do economically and add value? As I say, we reached a point where the competition for the sports rights, just conducting the network, became a much bigger, more professional thing.
But Kay had not only the ambition but the ability to deal in large concepts. She was unflappable. All kinds of disasters could occur but Kay never let it affect her demeanor. She got to know so many people in the process. She ended up doing the U.S. Open before the network picked it up in New York City. She did the Masters' Thursday/Friday golf games prior to CBS doing it. I believe she still does.
She had tremendous capacities. She was a very good business person and a very good manager. I admire the fact that people that have worked for us back when we owned half of USA are still there. She's remarkable in that respect. She happened to be the leading woman, I think, in the industry by far ... in any industry but nobody really knows it. She doesn't publicize herself that much.
I think as I mentioned earlier, Brian Lamb came to us with now the concept of the origination being provided by the House of Representatives itself and that we accommodate the C-SPAN service on the Madison Square Garden Sports. It was, again, a perfect fit time-wise and gave us a lot of dimensions. Now we had public service programming, children's programming, sports and a lot of other ideas. The Barrons thing never materialized. I think there was a lot of concern about something being said that could be construed as being tips. We also, I think, spoke to the Wall Street Journal on occasion with the same ideas. They haven't evolved as much as I expected until recently with CNBC and the Financial News Network.
But our objective was to build a broad-based network with a lot of different elements to it and each one drawing perhaps a different audience. But we did some women's programming. We had conversations with Hearst Magazine about taking their monthly magazine and converting to video the lead story, whatever that might be. Using the techniques that they used on the civil war program ... panning the magazine and voice-over. Instead of going into a very expensive kind of production, trying to limit that.
But Brian starting then with several programs, one being the National Press Club luncheons. Then there was another program with high school students coming from all over the country. The name escapes me at the moment but they would come and interview congressmen, senators and administrative officials. They would tell them what their functions were and what policy issues were and so forth. So that was another facet of it.
Brian's distribution grew very rapidly. His cable systems felt it necessary to carry that service. They were getting political pressure, in effect ... "Why don't you carry the House of Representatives?" Even though this was during a period of scarcity of channel capacity, C-SPAN I really made some tremendous inroads.
The programming just improved and increased. The organization got larger. We funded it by an assessment per month/per subscriber. The capital money came from the seed money we talked about earlier. The $25,000 put up by perhaps twenty companies to build the earth stations and all the equipment. But the ongoing budget is carried by assessments of about three cents per month per subscriber. So thirty-six cents a year times 50 million cable subscribers gave a budget of about $18 million. Brian got into two-way question shows from the field.
SMITH: Call-in shows?
ROSENCRANS: Got into all kinds of hearings. All the important hearings that just aren't available on stations, networks, PBS and others have been available on C-SPAN in their entirety. Brian has perhaps put the most important imprint on the network and that's keeping it completely unpolitical. Brian is simply presenting to the public at home what's going on. Without commentary, without afterthought, without any imposition of anybody's viewpoint other than the speaker who might be on. Our purpose is just to bring the subscriber into the Washington enclave rather than try to explain it, to take part in the process. We are a reporter, a pure reporter.
Brian has kept the integrity of that position a very important thing and it's the reason it has survived and has everybody's respect. Somebody might claim it's slanted on the liberal side and someone else might claim it's slanted on the conservative side. Well, that's purely a function of who you might have seen that day. And that was essential. I'm a political animal in some respects but I recognized from the very beginning that that position was crucial or otherwise you'd always be in a PBS type of position and it wouldn't work.
So Brian, again, it's marvelous to see the one that starts still there down the road. Again the same kind of people--the people he started with. Brian Lockman, production head, still there. First man on a camera we ever had. Jana Dombrosky, first person in the office, still there. He has trained some tremendous people. Now they have a staff of 300 people in there, just remarkable people. They're all imbued with the concept of how to run this particular network. And I think Brian is known as well as anybody in the city of Washington. Everybody knows him and everybody respects him. He's a unique person and he would be a proper subject for an interview here as well obviously.
SMITH: I had asked him, Bob, and he has said he would do it. With him it's a little bit like getting John Malone to sit down for an interview. Everybody's willing but they're pretty busy.
ROSENCRANS: Well, Brian's right in the middle of interviewing himself.
ROSENCRANS: And his interviewing technique is remarkable. He never imposes himself, he simply opens up the stream of consciousness of whoever he's talking with. He has created an enormous respect for himself and C-SPAN and we're hopeful that that respect translates into respect for our industry because we treat it very carefully. There's not a person in our industry that wants it to be anything different than it is.
SMITH: No. And it is one of those things that everybody in the industry can point to with pride and say this is something the industry did. Brian Lamb did it with support from the industry. We all recognize it as that halo around the industry's head that we can point to.
I'm the interviewer not the interviewee but I'm going to make a statement. I was in C-SPAN's offices a couple of weeks ago. Brian was out of the country but I knew a couple of people there and spent an hour and a half. I was utterly impressed with the admiration that those staff people have for the organization and for Brian Lamb. Some way or other he's got them all convinced that they're performing one of the finest public services that they can, and I'm sure they are, and everyone of them is aware of it.
ROSENCRANS: Yes. Well, it's interesting. Now that we're conducting the interview and I think back about two people that were moved out from kind of our company even though Brian never worked for us. In fact, we gave them the framework to start. And I'm talking about Kay and Brian. It reminds me of the way we always organized our company. I think we talked about it earlier with Ken and Marvin Jones. We adopted from the very beginning a highly decentralized approach to the business. We always felt that cable is truly a local business. There are a lot of national aspects to it with the programming and things of that nature. And the engineering is a more universal concept. But the matter of dealing with each community ... each and every community has its own components and you had to let that happen locally. It was the only way you could assure yourself that you were responsive because the home office doesn't know what's going on in the field. You can't. You had to give the manager the tools to be quickly responsive to deal with problems and the community had to respect the fact that he had the authority to do things. That he wasn't just an office boy sitting there and couldn't move without authority.
A lot of the companies in the industry developed another way. They developed in a highly centralized way. Everything went from the top down and a lot of those companies have suffered tremendous franchise problems. It is not a difficult business to be effectively decentralized because it's susceptible to planning. It's not a seasonal business, it's not a fad. It's got many elements of a utility company. You can reasonably plan a year, maybe two years, in some detail as to income and expenses. So our system evolved with a budget prepared at the managerial level. And the manager often used his department heads to even build up their department budgets into the system budget. Then their budgets are passed on to our corporate office. We study them, we analyze them, we ask questions ... maybe there are changes made. But fundamentally, when that budget goes back to them, it's his plan. It's not our plan and we're telling him you've got to do this, that, and the other thing. This is your plan and the chances are under that framework he's more likely to succeed and reach his plan than if we tell him what to do.
And we always have the same view of marketing although marketing certainly has become much more complicated in the last few years than it was when we sent out Mother's Day postcards. Again, if you impose things on a system, it's very easy for them to say, "Well, it's not my plan. I knew it wouldn't work from the beginning." But you want to give these managers a stake in the operation. You want to give everybody in that operation a stake. And we evolved this yearend bonus programs keyed to subscribers, things of that nature. I think in that way we built up a great spirit in the organization. A sense of being local, being part of the bigger thing, but they really had the responsibility. It's easily tracked on a month-to-month basis through financials. You can see where you are. And the manager has complete authority to spend his capital budget subject only to things that happen that we wouldn't know about. He's got to let us know what's happening ... something that might affect the budget positively or negatively. So we might have to rethink the plan and do something differently. But the assumption is that he's carrying out the plan, based on his plan, and the results will be there. If we see we're off track, we can always regroup and approach it again.
But it's a decentralized structure that most companies have to go to if they're going to keep their communities contented, responsive, and susceptible to renewals ... customer relations. It's a very important part of the business.
SMITH: We're at the end of the tape again.
End of Tape 2, Side A
Start of Tape 2, Side B
SMITH: This is Tape 2, Side B of the oral history interview with Robert M. Rosencrans.
ROSENCRANS: We were reviewing the method with which we controlled all of our operations.
SMITH: Oh, yes. You were contrasting centralized versus decentralized organization.
ROSENCRANS: The benefits of the way we operated, we attracted and maintained and kept very strong management people. I think the reason Kay flourished with USA was because we simply gave her the responsibility and didn't micro-manage everything from our corporate office. We did impose pretty strict engineering standards on everything because we felt that that was not a skill that somebody could afford to build in a system. You had to look for that outside. We never built an in-house legal force because, again, we felt that we'd be better off drawing as we needed it from the professionals in the field. We made accounting highly decentralized because we wanted to be sure that the accounting information was available to the manager before he came to us because otherwise he would always be trapped and caught in an embarrassing position and he should have a chance to correct it or comment on it or explain it before we saw it. So accounting has always been directly under the manager with a dotted line to our corporate accounting so that the procedures, terminology, standards, etc., were all consistent.
So many of our people are still in the industry--in the Pioneers Club. One was just added this past month--Earl Quam. Earl was one of the great practitioners of decentralization.
SMITH: I don't know him.
ROSENCRANS: A very able guy, unemotional. He just saw problems, corrected them, lived by the budget.
SMITH: In your emphasis on local autonomy, maybe that word is too strong, what was your policy in terms of encouraging or discouraging local originations?
ROSENCRANS: Well, local origination's a mixed bag. There were markets where local origination, number one, was required by the franchise, something you had to do. There were other markets where we used it as a marketing tool, like New Jersey where we never really had it as a franchise requirement, at least initially. And it became a very difficult process because it has a life unto its own. It eats up time, it eats up capital ... the equipment keeps breaking--cameras. They always knew what camera to use. You really wonder how many people are actually watching it out there. It's a great cost center because there's no way to generate income unless you attribute some of your system income to it. But it's not realistic to do that. So you have to look at it as something ... you want to produce professional programming but you want to control it so it doesn't just eat you up.
We got very ambitious a couple of years and we did a nightly hour news show out of our New Jersey areas. Of course, we were in the middle of franchising at the time. We attributed the cost to part of our story. We had a bigger base, we could afford to continue it. But it was very troublesome. The people who worked for us ... it was hard to justify their salaries or improving salaries because there was no way to measure it. The one serious union problem we had in my career was where the studio people in New Jersey wanted lots of changes--salary levels, equipment, everything--and they went on strike. I never had a union problem of much consequence before that. We had to explain to them this was not a profit center. We don't sell advertising, there's no way to ... we just have to keep this under control. Don't try to make this a lifetime job because there's just no future in it if that's what you're seeking. Use it as a method to prepare yourself to go to work for the programmers, for the networks, for the TV stations whose business is advertising. But for us it's a public service. It's very difficult to balance it just right. But that has always ... We have local origination even today in cases where we do it and it's costly. Other cases we provide the studio and the equipment and the commissions that regulate us very often will undertake the local origination.
It's very hard to determine if there's any serious viewership out there. There is a value to it in some respects. If you know your son has played basketball that night and the tape is going to play the next night, you're sure as heck going to have cable in your home.
So it's a mixed ... I can't give you a very clean response to that. I think you have to look at each situation on its own face and determine how much you can afford to do, how much you want to do, how much you can do and keep maintaining quality and not let it run away from you.
SMITH: In those situations that the franchisor or some local committee undertakes the programming, what has your experience been with those?
ROSENCRANS: Well, that is usually done on the basis that we provide the funding, and we know it's a fixed amount, and they use that funding and their people are involved and they go ahead and do it. Very few places do they try to do a nightly news show because that's almost competitive. You almost have to do as much of that as in a local TV station. They stay up with interesting things around the community. Again, it's a nice burden to get off your own shoulders as long as someone's doing it responsibly. It's a part of our business that I think has a role but I want to keep it in balance.
SMITH: How do you see these large operations like are proposed for Chicago, and I think it's in three or four other communities now, where they are going for twenty-four hour news service on cable?
ROSENCRANS: Well, that makes sense. I don't know how it works economically. I think they're going to have some tough years economically. But that's really a regional news service, in effect, to be funded by the cable companies. They will hope to recover some of that expense by selling local advertising. I think it's a great idea and it's got to be executed by some discrete organization that doesn't report to any one of the companies but stands on its own, with its own funding. And they'll operate like a network in their own region. They'll sell so-called national spots for the region and give the companies time to sell their local spots.
So those things have a future. They're all being tried today. Whether their economics work is another question.
SMITH: You remember the day when the FCC attempted to require local origination on all systems over what 2,500 or 3,500?
ROSENCRANS: 3,500, yes. And everybody tried to comply but it was ... particularly when you had a period of rate restraint where you had to go to the city council to get a rate increase and you said, "Well, look at all the local origination we're doing." And they say, "We don't care about that." But the FCC requires it. We've always been trapped between a lot of forces and requirements.
But there's definitely a place for local origination. You've got to use your imagination and ingenuity to keep the cost under control because it can run away from you.
SMITH: When the USA Network was still an operation of your group, did you undertake much production of original programs for the network?
ROSENCRANS: All the sporting events were original programming. We had to hire crews around the country wherever the games might originate. We didn't do any so-called studio shows. Most of the other material was taped. We were not a live network except to the extent of the sporting events. So, again, the economics of the business at that point didn't really permit that. You saw what happened to Westinghouse when they tried to go into the news business in competition with Ted. God, the cameras, the special effects, the studios, the space, the people--ate them up. Only Ted had the size and somehow he managed it but he lost a lot of money in the early days. He grew to a critical size and then that's what worked.
SMITH: I understand he was fairly close, I think, to throwing in the towel himself in that competition, when he managed to buy Westinghouse out.
ROSENCRANS: I would guess if you track every cable network starting with HBO, Showtime, CNN, USA, all of us, there was a moment in time when you wondered if we had a future. Business was building but every time it built you had to spend more money. You were not getting ahead of yourself. There were a lot of positions within the industry that said, "Gee, you guys produce the programming, we'll carry it. Then you start paying us when you get enough national advertising." I've had that argument with many, many people. I said, "That's not the way this business can grow. We need two sources of income. We need your fees and we need the national advertising." You may remember, ESPN had a little two year program and they were giving rebates back to cable companies. Everybody thought, boy isn't that great. You made money carrying ESPN. But soon Getty Oil realized what they were doing. They lost a few dollars but then they sold it at a pretty good margin to ABC. So it all worked out because the value increased. But as a discrete business, I think it was at ABC for some years before it began to be profitable.
But every one of those services went through soul-searching days. To start a new one today is obviously very difficult.
SMITH: And there are still a lot of them wanting to get started.
ROSENCRANS: Well, it's probably a $30, $40, $50 million dollar up-front investment to get through those three or four or five days. It's years before you cover your expenses. Just exhibiting at the conventions is a fairly expensive proposition.
SMITH: Compare the convention floors today to what they were back in the late '50s and early '60s.
ROSENCRANS: It's remarkable.
SMITH: It's dominated by the programmers now.
ROSENCRANS: Sure and a few equipment suppliers. But it's principally programming. That's what our business has become. I guess that all stemmed from 1975. The only way you could distribute anything was by satellite and satellite changed our world and will continue to change it.
Local origination, as we were talking about before, is hardly ... nobody's selling cameras of any consequence on the floor. It was interesting to me, I didn't see many HDTV presentations.
SMITH: Not this past convention.
ROSENCRANS: Very limited. Everything was on interactivity. Everything was on the concept of video-on-demand. All these things that the politicians and FCC commissioners are pointing towards--the future of communications. Here it is coming through our industry. How quickly it becomes viable is another question. But it's doable.
SMITH: When we get near the end of the interview, I want to ask you a few questions about where you see the new technology taking the industry. Probably in terms of cohesion, we'd do better to move along with the company's history.
ROSENCRANS: Now, where are we? Late '70s, still U.A.- Columbia. We have now franchised and built San Antonio. We haven't talked about that yet.
SMITH: No, we haven't. How did you get into San Antonio?
ROSENCRANS: It came out of a very idle conversation Ken and I were having one night after we had successfully franchised throughout New Jersey and then in Westchester County. We beat our competition pretty firmly in both places. We were building two very major properties, passing 250,000 homes in New Jersey and a potential 120,000 in Westchester. We had all the components to make those go. And we'd open up a system and we'd have 20 to 25 percent the first month because they all wanted the things we were offering. And if you look at the company, we had not been active in the franchising battles that occurred in the late '70s generally. We had stayed in our own backyards. We didn't go after Dallas or Cleveland ... all those things that were let kind of simultaneously.
Ken and I looked at our company and said, "Boy, aren't we getting a little top heavy in the east." We had all these more classical systems--Vero Beach, Yuma, Pasco-Kennewick-- and we've got some very modern stuff in the northeast. Wouldn't it be nice if we could find something else that was large that would kind of give us a better geographic balance going forward. So Ken said, "San Antonio, there's nothing happening out there. Maybe let's take a look at it." I said, "Great." So Ken goes down there, visits the city manager ... "Boy, this thing is wide open. A town we could build. Why don't we do something." So we said, "Okay, let's go after it."
At that time a lot of companies had been burned in other places and nobody was jumping all over the franchising anymore because they'd been through those wars. And we made a proposal. G.E. had once had the franchise and they had an infamous clause in there calling for a book buy-back at any time.
SMITH: At any time?
ROSENCRANS: Yes. And the combination of that defect plus the fact that the FCC put a lid on importation of signals into the top 100 markets, G.E. turned back the franchise somewhere in the '74 or '75 period. Now, armed with the development of satellite transmission and microwave, we felt we could tackle a city as big as San Antonio. We had capital resources. We were very under-leveraged all during this period. So we put a proposal together and they had some kind of hearings at which everybody puts something forth and they start to appoint a committee and conduct hearings. And we did all this.
I was just fearful that we'd get a flood of other people coming on top of us to compete with us. But we were ahead of everyone and they would take each proposal and go through the time frame and make a decision. The only one that really gave us any difficulty was Storer. They came in with both barrels. They got local citizens to take 20 percent of the franchise. We gave away nothing. And they were guys who owned the basketball team, the newspaper, they got all kinds of politicians--the "in" people in town.
SMITH: Well, that was standard practice then.
ROSENCRANS: We come there and we're a foreign company. We have a Texas slant and San Angelo and Ken. Storer forced themselves on to our schedule so we were paralleling each other. The city council was a big council--an eleven person council. There were three or four Hispanics, one Black and the rest Anglos. We just didn't know where we would fit on that scale. But we worked very hard at it. Storer's local guys probably did more harm than good. They overplayed their hand. Storer had some poor track records. They had grown so fast and had a lot of articles all over the place that were very obviously available to throw the questions at them. Our record was good. There's the place where I forced Storer to put up the $25,000 so they could carry C-SPAN. The day of the final hearing I said, "Oh, yes. We have C-SPAN." I figured they would call their contractor on the phone that morning so they would be able to have C-SPAN. But we laughed and the whole council laughed because they understood what had happened.
We won the vote seven to three or eight to three, something like that. Then Storer stood up and said, "We would like to propose that you issue two franchises," a dual franchise. And we said, "Well, it's totally uneconomically. We will not risk our company in that set of circumstances. If you decide on a dual franchise, we're withdrawing." We called their bluff and they stopped and Storer went away.
And we franchised the city of San Antonio with about 200,000 homes and all twenty-one suburban towns around it with one master franchise. No, excuse me. One franchise for San Antonio and a whole lot of fringe franchises--all the same though. So we had maybe 350,000 homes in a rapidly growing area. It had a big Mexican/American population and we had a lot of experience with that because we had Laredo, Texas, for years. Laredo was a very successful cable system and maybe 85 percent Hispanic. We began to build and we met all of our targets. Subscriber counts were ... I guess we turned the first phases on in '78 or '79 and the minute we opened up the telephones to an area ... we told them we could sell that area, we were getting 25, 30 or 35 percent over the phone.
SMITH: To what do you attribute that?
ROSENCRANS: Well, the cable had tremendous publicity. They only had two or three signals, maybe four, signals available over the air. It was a good market. Closer to a traditional kind of market. Maybe five signals but we were bringing in CNN, ESPN, USA, C-SPAN, HBO, Showtime ... Oh, and this was the first time we had ever gone beyond a single pay service. We had always kind of dwelled on one pay service. The Showtime people came to me and said, "Why don't you offer Showtime along with HBO?" Seven dollars for basic, seven dollars for HBO, seven dollars for Showtime, and seven dollars for GalaVision. GalaVision had started. So we had a lot of three pay buyers.
SMITH: GalaVision was the Hispanic network?
ROSENCRANS: Yes. So we started out with like 250 percent pay penetration, I think, in the early days. Everybody was buying more than one pay service. The thing grew very, very rapidly. We were just adding two or three or four thousand every week. It was just so fast once we got geared up. So the company really ended up with a pretty good balance weight over against the northeast. And between the two areas we really had some very current cable going. Right on the edge of the business. And as this all evolved, some of my men who had gone into business with me in '62 were interested in selling. We had sold the stock in 1968 and it came out at seven and a half. During the early '70s the time we merged with ... no before the merger with U.A. or even after ... with high interest rates, our stock was selling like two or three dollars a share. And the company bought in quite a bit at that time because we knew what we had. We knew it was a good business even if the market price didn't recover. But then subsequent to that with the eastern developments, San Antonio, the publicity got out and brokers started to follow us. We were up in the thirty, forty, fifty dollar range. Having come out at seven and a half that was quite a handsome profit for the original people. They were moving on. They had been involved for twenty years and they said, "Bob, maybe it's time to sell the company." I thought no, that's not what I wanted. But I couldn't deny them the chance to sell.
So the group that represented our original group pretty well unified that we ought to go out and find out what we might get. The U.A. people, on the other hand, were very much opposed to it, the U.A. Theater contingent. They didn't want to sell anything. They just didn't want to deal with it. So I was kind of trapped between two forces at the time. In the last analysis, I couldn't say to my people, "I'm not going to let you out." I just couldn't do it.
SMITH: This leads us to the Knight-Ridder-Dow deal, does it?
ROSENCRANS: Yes. Somehow we ended up at Morgan-Stanley and they put together the book. I don't even know if we had forecasts in those books. I'm not sure forecasting was appropriate for companies in those days. They put together a book and they estimated that we should be able to get $70 dollars a share--something like $1,000 a customer. I think about seven or eight hundred, eight fifty whatever. In the meantime the company keeps growing so all along we're getting stronger and stronger. We didn't have much debt. They went out and not much happened for quite awhile. They went to the IBMs of the world and Xerox. A lot of big companies and nobody ... it was funny. It was too big. It was dilative to most of those big companies. To buy a company like ours, have all that goodwill and not seeing earnings on the horizon--real earnings. So a lot of them shied away for that reason. They weren't sure about the cable business.
And nothing happened until all of a sudden, I thought the process was over and I get a call that Knight-Ridder and Newhouse want to talk to us. What they proposed was we split the company in half.
SMITH: Split your company in half?
ROSENCRANS: Yes. Knight-Ridder take one-half and Newhouse take the other. Management stays on and runs both halves. My reaction was, "Gee, how do you do that?" How do I run two companies ... private companies now, not public companies? I didn't like that at all. It was complicating.
SMITH: You'd build in conflict of interest all the way wouldn't you?
ROSENCRANS: I would think so. What do you do if something comes along? Who do you deal with? So we kind of shrugged our shoulders, didn't think it was practical. Then Knight-Ridder must have gotten hold of Dow Jones and they came in 50/50 owners of the new company. That made more sense ... a board of directors could proceed and go from there. I think they offered $75 a share. Our people were gung ho ... maybe we could squeeze it up to $78, $80 or something like that. Now the U.A. Theater people don't want this to happen.
SMITH: What was the percent of their holdings?
ROSENCRANS: Twenty-two percent. So after awhile they instituted a proxy fight. Said the price was too low. Management ... now they're accusing me of going to bed with ... this special deal with Knight-Ridder and Dow Jones. Those things get messy. We had Skadden & Arps as our attorneys. They had Marty Lippman's firm or is it Lipton--whatever that firm. It's a famous takeover firm in New York. Skadden & Arps is one and they're the other.
SMITH: I should know but I don't.
ROSENCRANS: Something Wactell ... Lipton Wactell. Let's go on, it will come back to me. So all of a sudden we're in court in Delaware. The whole process is going on and on. After a lot of very tense days and not knowing where we're going and board meetings on board meetings and a lot of ill will between the parties, Ted Rogers shows up with U.A. and they offer $90 a share. And that gets rid of Dow Jones and Knight-Ridder. There they are at $90 a share splitting the ownership, keeping the company and the management intact. So our guys were all smiles.
So I say, "Here I go. What do I do?" I really didn't want to leave the industry. So I said, "Well, I'll talk to my management and we'll do our best to carry on with the companies. It was not an unpleasant experience because I had a lot of stock left from the original days. We were all coming out very well. We had stock plans throughout the company and various people who were working for us--engineers, office people--were making anywhere from $25,000 to $150,000 on the sale of the stock they had earned over the years. So it was a pretty universal thing financially. People like Marvin Jones might have walked away with a couple million from all the stock he had. That part of it was very good. But now we're walking into new management and how are they going to behave. Of course, Ted Rogers, a person I hardly knew, was a different kind of guy--British empire builder. So that became quite an experience.
So, I guess it happened sometime in the late summer of '81 when we finally sold the company.
SMITH: And Knight-Ridder and Dow Jones backed out?
ROSENCRANS: They walked away.
SMITH: In effect, United Artist Cable Vision joining with Rogers kept their position and ...
ROSENCRANS: ... increased it.
SMITH: Oh, yes.
ROSENCRANS: They got the 49 percent, Rogers took 51 but they had a management agreement between them.
SMITH: Did that mean that all of you who were founders originally, you took your money but stayed on as management?
ROSENCRANS: Good management people stayed on. The name of the company was changed to Rogers-U.A. It was an entirely different environment because they didn't quite understand our decentralization. Rogers didn't, even U.A. didn't. They had never grown up in that environment.
SMITH: But they had been with you for ...
ROSENCRANS: Yes, but they never were ... They would have been happy to stay forever at 22 percent.
SMITH: They were on the ride.
ROSENCRANS: It was only when they saw they had been forced out that they got active. I can't fully blame them. But being an equal partner, from the 22 percent position of an equal partner, changed the whole psychology of the relationship.
After awhile, even though the company kept going like this, the two owners had disagreements. They couldn't agree. Ted Rogers wanted to sell his American operations to Rogers-U.A. It was Portland, Minneapolis, Huntington Beach. U.A. kept asking me, "What should we do?" I said, "Well, I think they're going to be a very expensive propositions." I couldn't even put a value on them. They were undeveloped major city franchises. You're going to need an awful lot of capital. You've got a bunch of strange things in here. You've got a bunch of book buy-back provisions. I've always been alert to book buy-back provisions. I guess we learned that in San Antonio for one thing but it always came up when we franchised through Westchester and so forth. Every city wants a book buy-back but if you give it to them you might as well not go into business. The argument as to what value to place on it. They had committed to put them in the company but the value had never been determined. And I pointed out the book buy-back weaknesses. U.A. just wasn't happy. They just couldn't get along and I'm kind of in the middle.
So they said one day, "We're going to break up this company and split the assets." The way you do it is make two lists of systems. U.A. agreed to make the lists with my direction and then the other side--Rogers--would pick one of the two halves. It forces you to be honest.
SMITH: The pressure was on.
ROSENCRANS: After some thought, we did two lists. One was the Westchester-Jersey combination along with Florida--Vero Beach and Ft. Pierce. Kind of the whole northern tier. So it was kind of the northern tier of the United States down the East Coast--about 275,000 subscribers. The other was San Antonio and the southwest, middle west, whatever we had in there--the same amount of subscribers. And Rogers selected San Antonio. He liked the idea of a big, massive franchise. He comes out of Toronto-Vancouver orientation. And he felt it would be easy to establish his connections with the city officials there as opposed to New Jersey and Westchester where you had fifty franchises in Jersey and twenty in Westchester. Also fearful that Chuck Dolan at renewal time would come in and try to overbuild you. I said that's not really a threat but nevertheless he was afraid of it. And he was very afraid of franchising and refranchising in this country being a Canadian, I guess.
SMITH: Why would he then have wanted to expand south of the border into the United States?
ROSENCRANS: Well, that was before. I guess he felt he was in great shape in Canada and just saw some great opportunities. But he built this thing and I think he may have been right when you saw the Texaco-Pennzoil case. And he was very much afraid of American politics. He felt he could handle big cities because there may be just five of them to deal with as opposed to umpteen numbers, you know. So he picked the southwest corridor in San Antonio--and I went with U.A., with the northern group. That was like '83.
SMITH: Ken Gunter didn't like that choice, did he?
ROSENCRANS: No. Ken came with me. He and Rogers and I had some terrible battles, disagreements. Ken and I were just anxious to get away from them. We thought maybe we could live with U.A. but even that didn't prove to be necessarily so. Probably a lot of the fault lies with me because once you run your own business it's not easy to be subordinate and be told, "You just take care of management, we'll take care of ownership." I could never get that through my head but that was the way they were talking. I kept pressing for various employee plans to give people in the field some stake in the company. I got no response and the more I pressed it the more they got annoyed.
And our relationship culminated with the GE transaction which was my transaction to buying the G.E. Cable Company partially for cash and partially for an interest in the subsidiary. That was a tremendous deal. We got Grand Rapids. We got some beautiful systems. We got 250,000 or 300,000 subscribers.
SMITH: How did that deal come about?
ROSENCRANS: I saw Bob Wright, who's now at NBC, was with Cox ... no he had been with Cox but came back to G.E. The Cox-G.E. deal never took place. Remember it was done and then Bob Wright went to Cox for awhile. And the deal unwound and he went back to G.E. with the systems. He was running the systems and the small appliance department. So I called him, we met at a convention and I said, "Wouldn't this be a great combination. I realize you guys don't want to step out and become a dominant player in cable and here's a chance to get into a good company, great properties." The combination of the properties were up to seven, eight hundred thousand subscribers. "You'll have a ??? going forward. You'll get some cash out now ... to be on the board. You know a whole bunch of things and I think it's a good combination." He agreed. And gradually we sold it to the G.E. and the U.A. people. But the U.A. people were not happy with the independence of management. They weren't happy with me at that point and even though the deal was completed, ten days later they asked me to leave.
SMITH: Well, I remember what I would call the shock waves that went through the industry. The temerity of anybody firing Bob ROSENCRANS:.
ROSENCRANS: Well, maybe they had good reason. I can't say that they didn't. Again, it was philosophical as much as anything. I wasn't prepared to do whatever they told me. I really wanted to do it the way we had always done. Maybe they saw that as a shortcoming, I don't know.
It turned out to be the best thing that ever happened for me, personally. It just opened up a whole new world. It was very lucky.
SMITH: Do you think that they had any lack of faith in the G.E. deal as having been a good deal for the company?
ROSENCRANS: Oh, no. They understood what a great deal it was. It was just that there were issues of health benefits, simple things that came up. Here's G.E. with their extremely generous health plan and here's Columbia here and U.A. Theaters over here ... three different plans. And I didn't think there was any way we could give G.E. people less here. We had to move our people up into those benefits. They got very upset with that because they saw me taking the G.E. position on that. And they said, "Gee, our theater people don't get anything like that. You're subverting the whole company." And I said, "Well, you've got a terrible problem if you weaken what they already have. You can't do that." So we argued about that. We argued about the issue of a stock plan. I thought our key people ought to have some incentive not just salary-- a bonus. A lot of stock options ... "You guys give them to yourselves all the time. We've got a plan out there. Why don't we take 200,000 shares and over time give them to our key people. Give them a chance to make some money in addition to their job." "Well, we don't do that for theater guys. It's just something we don't do."
So these were little issues that we couldn't see eye to eye on. The more I pressed, the more they resented it. I think they were just waiting for the G.E. deal. When they went to G.E. they said ... because they were responsible for the running of the company. They were the majority owner after the G.E. deal. Bob Wright had now left. He went to NBC or he went to the credit corporation-- from housewares to credit before NBC. The guy that picked up the negotiations, Paul Van Ordin, when U.A. told him they were going to let me go he said, "Well, it's your company. I can't stop you." So that was the end of that. Thank God I'm not working for G.E. I wouldn't want to be working for those guys. Once you've been in our business you have this feel, this smell, of being an individual, an entrepreneur. Not being overpowered by anybody. You don't want to lose that. That's the beauty of our industry.
SMITH: We have run out of tape.
End of Tape 2, Side B