Interview Date: Monday June 16, 2008
Interview Location: New York, NY USA
Interviewer: Paul Maxwell
Collection: Hauser Collection
MAXWELL: I'm Paul Maxwell. I'm here with Michael Willner of Insight to tape his oral history for The Cable Center. So, Michael, why'd you get in the cable business?
WILLNER: It seemed like the right thing to do in 1974.
MAXWELL: That's when you graduated from Boston University?
WILLNER: College of Communications. I had a professor who heard I was interested in cable and she tried to convince me that I should go into "real" TV, that cable wasn't real TV, which was probably true in 1974.
MAXWELL: Well, pretty much. There weren't a whole lot of things around. Let's see, HBO was '72, I believe?
WILLNER: Oh, no, that came later than that. Oh, you're talking about the microwave launch to the polka contest in Pennsylvania. That's right.
MAXWELL: That was '72.
WILLNER: We actually had HBO before satellites in one of our cable systems in New Jersey.
MAXWELL: By microwave?
WILLNER: By microwave. We turned it on and it was all snow the night that we launched.
MAXWELL: You studied communications at Boston University, but how did cable even get on your radar screen?
WILLNER: I guess I was always interested in television as a little kid. I used to ride my bicycle over to the NBC affiliate that was located near my house in Miami, Florida and I don't know how but they allowed me in the studio whenever I showed up and I got to watch them taping the kids puppet show called Charlie Baxter and Willie the Moose at 4:30, and Charlie Baxter was the man and Willie the Moose was the moose. I guess you could have figured that out on your own. Every day at 5:00 Charlie would get a pie in his face from the moose and then they would clean that set up and push it aside, bring out the new set and at 6:00 they were live doing the 6:00 news.
MAXWELL: So they only had the one sound stage?
WILLNER: Basically. Today it's an all news station, still in the same building, my niece works there selling advertising for the Fox affiliate now, channel 7 turned to Fox, and I went in there about a year ago for the first time since I was about 11 years old. It's an all news studio now, basically, and it's the same exact place, the door's in the exact same place, but you walk in and it's the 21st century.
MAXWELL: It would have changed dramatically from that. That was back when there were real local kids' shows, too. So that was in the early '60s?
WILLNER: Oh, that hurt, that hurt me.
MAXWELL: No, you graduated in '74, you said. So you back up a little bit.
WILLNER: Yes, it was in the early '60s before the turbulence.
MAXWELL: You missed the turbulence. You missed Vietnam?
WILLNER: No, I actually was in the draft. I had a high number so I didn't go. I went to college in the first four years of the '70s. Those were the transitional years and the first two years were very turbulent, protests up and down Bay State Road in Boston about getting ROTC off campus and protesting the war in Vietnam, and then the following two years kind of just flipped and it became the forerunner to the disco years, which is exactly what happened. We were very involved politically in those first two years. I had long hair.
MAXWELL: You did?
WILLNER: Longer than yours is now!
MAXWELL: Well, mine used to be a lot longer.
WILLNER: I remember that well. But mine wasn't that long and gray at the same time.
MAXWELL: Oh, you make a good point. I mean, I got out of college ten years ahead of you which puts me way back there.
WILLNER: Well, you look good for your age.
MAXWELL: Ditto. At the College of Communications though, you really wanted to be in television when you got to college, I take it, and studied it on purpose?
WILLNER: No, I didn't actually major in broadcasting, which was a major there. I was more in... there was a generalist program called public communications and it gave me writing courses, journalistic writing, public relations, broadcasting, both from a journalism point of view and also from a programming point of view. So I was always very interested in all walks of communications and I think the thing that I took away the most from it was writing skills more than anything else. And by the way, I only did this in my last two years. I was in general education for the first two. I take great pride in people's ability to write well. You write very well.
MAXWELL: Thank you.
WILLNER: And you do it for a living, and I appreciate good writing. As people here know – Sandy, sitting over there, probably knows painfully well – every time something gets thrown in front of me there's always that edit pen that comes out. But I love to write, I do, and I got that...
MAXWELL: And you're blogging now.
WILLNER: I'm blogging now and I'm enjoying it, but it's time consuming, it's an hour a day probably. I do write my own thing almost all the time.
MAXWELL: It's nice to be able to say that. How did cable even get on your radar screen though? In school? When you decided to go into when you got out of school?
WILLNER: They were building a little cable system in the suburban New York community that I went to high school in after we had moved up to the New York area while I was in high school, and it just seemed to me at the time that I could go into broadcast television and I'd probably be lugging equipment around and doing a lot of the heavy duty stuff at first. So I figured, well, let's go into this new thing because cable's going to be the television of the future. I had all the right answers for all the wrong reasons. It was clearly going to revolutionize television because of local programming. Ft. Lee, New Jersey was going to have its own programs instead of having to be overshadowed by New York City. That really worked out to be exactly what happened. Luckily, I turned out being right, for all the wrong reasons, but the fact was that in order to avoid having to lug all that equipment around and work my way up into this big industry, I started out lugging all that equipment around and taping city council meetings until the wee hours of the mornings for playback on the local origination channel. I remember one night that some guy got up there at about 1:00 in the morning after a very tumultuous meeting – we were sitting there and just waiting to get out of there – and he broke into an opera aria for the city council.
MAXWELL: On camera? No kidding!
WILLNER: Somewhere in the archive that tape still exists, I'm sure.
MAXWELL: I'm sure it does. So you were at Vision Cable – where were you doing this taping?
WILLNER: That was in New Jersey, in Ft. Lee, right over the George Washington Bridge. I had a TV show called the West Bank. Of course that was the Hudson River we were referring to. One of my most memorable episodes was I had the local librarian on and she brought a piece of equipment to demonstrate and I looked at it and I said, "What is that contraption over there?" and she said, "That, Michael, is a record player."
WILLNER: I was speechless as I am right now.
MAXWELL: That's interesting.
WILLNER: No it isn't.
MAXWELL: A record player.
WILLNER: That's what it was.
MAXWELL: And you hadn't seen one?
WILLNER: Well, it was closed in a box. I thought she was bringing something really interesting.
MAXWELL: So who runs the system there now, that Vision Cable that was in Ft. Lee?
WILLNER: It's Time Warner now.
MAXWELL: It's Time Warner now? And it's where NBC Universal has all that...
WILLNER: They're in Englewood Cliffs, that's right.
MAXWELL: Yeah, Englewood Cliffs, that really big facility they've got, and the CNBC facility there is something else.
WILLNER: That's right, it's a beautiful facility.
MAXWELL: You were there, you were working on the scut level and you had your own television show and you thought you were important. Did anybody ever see you on it?
WILLNER: My grandmother. Every time I was on she'd run out through her apartment building and say, "Turn on your TV, Michael's on, Michael's on," but nobody had cable so...
MAXWELL: It wasn't wired?
WILLNER: No, it was wired, it was that nobody bought it. Those were tough years.
MAXWELL: Those were the early years of building in the suburban areas where we all avoided at first.
WILLNER: Well, look, the best thing we had were the home Knicks and Ranger games and we had a couple of channels from Philadelphia and that was it.
MAXWELL: Otherwise it was over-the-air.
WILLNER: It was a 20-channel service and most of it was over-the-air broadcasting.
MAXWELL: And all that local origination that we tried back then never went anywhere, really. It actually did in a couple of small markets but...
WILLNER: Actually, I'd say it evolved today into New York One, News 12 New Jersey, that kind of thing where cable operators who own a market or dominate a market can afford to do a quality all news channel like they do in New York and a lot of other big cities.
MAXWELL: That was a long time coming because of the fractured nature of the way the business grew up. We had all those franchises with individual headends with individual things. That's a thing of the past. You've gotten to watch that development. So after they took you off the air, where did you go?
WILLNER: I was cancelled.
MAXWELL: You were cancelled?
WILLNER: I actually figured out early on that this was an interesting business other than just the on-air work. One other major experience where we actually started a news program and got accused of reading the news out of the newspaper, which of course we vehemently denied but we were lying, but we did have an event happen in Ft. Lee where the mayor, in 1975, was bribed by some people to build a huge complex, a residential and commercial complex in the center of town, and he went to the FBI and actually there was a sting and it was a big story. It broke one Friday afternoon and we grabbed the cameras that we had only used for city council meetings and we ran down to city hall and we were allowed in with the press pool for the first time. We were elbowing people like Mary S. Alice Williams, who you might remember her from NBC, to get in front of the mayor, and the mayor knew us because we were the local cable company and we actually started a five day a week news show after that experience, so that was fun. I also knew that there was more to this business than doing a little television show here and there. That this was not broadcasting in the sense that cable really does have a much more direct relationship with the viewers in the fact that we have subscribers or customers that pay every month. There was another whole aspect of the business that seemed very interesting to understand and that's managing a local cable system. So it wasn't hard in the 1975-76 era to move immediately into management no matter how old or young you were because there was nobody else doing it anyway. So it was kind of filling a vacuum.
MAXWELL: Who controlled Vision in those days? I don't remember.
WILLNER: Well, the chairman of the company was a fellow by the name of Sid Knafel, who's in the office right next door right now, who is the chairman of Insight, and he had partnered George Lindemann, who was the chairman and CEO of the company.
MAXWELL: I remember George.
WILLNER: Everybody remembers George. He's a character, a very funny guy. It was an independent company, both private and public at various times, from the time that I had joined it in '74 until it was sold to the Newhouse Group in 1981, and I stayed on to run it for the Newhouses until 1985.
MAXWELL: And you were running the place by then, right? The whole thing?
MAXWELL: How many different franchises were involved?
WILLNER: I don't remember how many franchises. We operated in New Jersey, in North Carolina, South Carolina, Louisiana and Florida. That was basically the makeup. Just like today, it's a conglomeration of various deals that came along, there wasn't any great strategic vision about geography or anything like that.
MAXWELL: No, none of us had that vision back then.
WILLNER: No pun intended.
WILLNER: We sold about 170,000 customers to Newhouse. At the time it was a huge deal in the cable business, and then after we sold it, in the following three years we had gotten some franchises in very competitive fights, but we built those out and 170,000 because about 350,000. It was one of the top 20 cable operators in a much larger field than there is today. I left and started Insight in 1985.
MAXWELL: And that was backed by whom?
WILLNER: Well, I got back together with Sid. Sid had left the company when we sold it to Newhouse, and he gathered a few of his buddies, and then Amos Hostetter heard about it. We had done something previously with Amos on Staten Island, doing some franchising there with Continental. When Amos heard that we were going back in the cable business together he said let me put up some of the money and let me own enough of it that I can get you some discounts in programming costs. We said, "Gee, that sounds like a pretty good idea." It didn't take a rocket scientist to figure that one out, having Amos as a partner, and he became a significant shareholder, Continental became a significant shareholder in Insight.
MAXWELL: That's a good partner.
WILLNER: A very good partner.
MAXWELL: A good guy.
WILLNER: And Amos is now back with us, he reinvested when we went private two or three years ago, and he's on our board.
MAXWELL: Is it Pilot House, that he calls it?
WILLNER: I think that it's an individual investment for him.
MAXWELL: Good, he's a good partner, and a very smart man. So what was the first system that Insight got?
WILLNER: We bought 4,000 customers in Franklin, Virginia.
MAXWELL: Where's Franklin?
WILLNER: I have no idea! No, I've actually been there. Home of Cannon Mills.
MAXWELL: Is it?
WILLNER: Yeah, it's outside of Norfolk in the southeast corner of the state. It kind of was a stand-alone system. We never really were successful in buying other systems near it so ultimately when we sold some systems and started to rationalize some of our operations that one went.
MAXWELL: You grew up in the era of the fractured franchises that were scattered every place that all resulted mostly from serendipity, it seemed to me, and luck and things falling into your lap.
WILLNER: That is an understatement.
MAXWELL: So you were in some early franchising fights. You mentioned Staten Island and some others, so tell us a little bit about that.
WILLNER: I think the franchising era, the competitive franchising era, was probably the most fun time in the cable business. It was intense, it was a rollercoaster, the highs were as high as you could be in business, the lows were as low as you could get, and we competed in very specific areas where we either had operations or had motivation. Operations – New Jersey, North Carolina – we had acquired some and then we were looking to expand our footprint in those areas as well as go into new areas within the same state. Or, something as simple as gee, I heard the Clearwater, Florida franchise was being bid out and oh, gee, I'm from Florida, what a good reason to go back home every now and then. So we went after it.
MAXWELL: I remember when UA Columbia had Aspen.
WILLNER: Right, right. But the battles were intense, we were looked at as the little company in Clearwater, Florida and being accused by the big, mighty Storer Broadcasting of not being big enough to do this job, and we knew we had a public relations or public image problem. So we showed up on the day of the franchise hearing and we brought this huge truck with our logo on it with a satellite dish mounted on top of it. We set up 25 television sets in the parking lot right outside city hall, and we had 50 guys running around in orange jump suits and white hardhats with the Vision Cable logo on it, and it just made us look big and strong and all of the arguments that were made against our ability to build this franchise – which would have been the biggest franchise we owned in the whole country, which was true, that we had no money to build it, which by the way, was also true – but it just melted it down. And then there was just this fundamental lack of leadership on the city council and the mayor asked for a motion and a guy leaned forward and he made the motion for us and everybody was just astounded that the motion was even made for us and not for Storer. Some other guy leans forward and says, "Well, I second that, not because I support it but because I second everything just so we can have the discussion." And the mayor says, "Well, is there any discussion?" And we had just gone through this whole big presentation and all the companies – there were five companies – all the companies had presented, the mayor says, "Well, is there any further discussion?" and nobody said anything. So he said, "Well, I'll take a roll call," so he goes to the first guy who made the motion and he voted for us. There was another woman sitting next to him and she said, "Well, I'll vote in favor of that," and then the third one – this is a five man council – so the third guy says, "Yes."
MAXWELL: And that was it!
WILLNER: And then the fourth one said, "Yes." And then the mayor said, "Well, I was inclined to go a different way but in the interest of making this unanimous, since it's already done, I'm going to vote yes," which of course changes the dynamics of your ability to reopen the question at the next hearing under certain laws of either Florida or Clearwater or whatever it was. So the fact that it was unanimous stopped it and basically that was the end of it. The reality was that there were an awful lot of these around the country that in the matter of a five minute city council vote real, real net worth was built into companies' futures and real value was built into companies' futures and their shareholders'. They were life changing for a lot of people.
MAXWELL: So you built Clearwater.
WILLNER: We did, and then we got Pinellas County in an equally competitive catfight against very, very formidable opponents. Storer had one, Dunedin, which was the town just north of Clearwater so there was a real battle for the unincorporated areas which were even larger than the cities themselves.
MAXWELL: The cities were smaller jurisdictions back then.
WILLNER: Right, right, and that today is owned by Newhouse to this day as part of their whole central Florida complex.
MAXWELL: I think they have quite a bit of Florida. How was working for Bobby?
WILLNER: It was challenging. Bob is one of my two mentors, Bob Miron, and Sid Knafel is the other one, both very different people. Bob has to this day an attention span that is far greater than anything I've ever seen, an ability to focus on issues and details that I frankly don't have the same ability, and also see the big picture at the same time, which is an unusual quality. So I try, I've gotten a little better over the years as I look at running the business on a day-to-day basis, but probably rely more heavily on other people on day-to-day things than Bob ever has.
MAXWELL: I think that's fairly said. His detail is astonishing, I've learned.
WILLNER: He's a terrific guy and he raised terrific kids.
MAXWELL: Oh, very much so, a really great family, they really are. They're among my favorite people, too.
WILLNER: It must have been all Diane's good doings, I'm sure it was.
MAXWELL: I'm sure it was. So when you were at Vision, then, you're down there doing some of the franchising fights, I assume that was something you were leading by then.
WILLNER: Sid and I did it ourselves. We didn't hire franchising executives who ran around the country doing all the franchising for the company. Sid and I would show up at these city hall meetings on a Monday night, we were fighting for Dunedin, Florida, and I'd get up there and I'd say what a pleasure it was to be here in Dunedin and the next night I was in Moonachie, New Jersey doing the same slide presentation with a few slides slipped in saying how great it was to be here in.... duh... Moonachie, New Jersey.
MAXWELL: The franchising wars then were a fascinating world and they bounced around the country like I couldn't believe.
WILLNER: One time we were sitting on an airplane and the guys right behind us didn't know who we were and they were talking about their strategy in one of the franchise battles that we were in.
MAXWELL: That's bad homework.
WILLNER: That's stupid, is what that is.
MAXWELL: It's very stupid. It's like talking about deals in elevators. You just don't do that.
WILLNER: Oh! I didn't know that!
MAXWELL: Sure you didn't. So how fast was your trajectory into the high end of running these things?
WILLNER: '74 I started taping city council meetings, and then I guess around 1977, right after HBO launched on the satellite, I became the resident expert of launching HBO.
MAXWELL: Were you at Vero Beach?
WILLNER: No, that wasn't us.
MAXWELL: No, I know it wasn't. That was UA Columbia's deal.
WILLNER: But we had HBO over microwave in New Jersey so I was the one guy in the company that knew how to launch HBO, at least I thought I did, or at least Sid and George thought I did and that was more important as to whether or not I thought I did. So when we decided that we were going to invest this huge sum of money and basically bet the ranch on these 10-meter dishes we started out in Alexandria, Louisiana and I got put on an airplane and sent down there to teach the local management team what it was like...
MAXWELL: They don't speak English there.
WILLNER: They speak a different language, and I'll tell you, when we launched that was the day of the 30 day free preview of HBO and we flipped the switch on and the first movie on was Big, Bad Mama with Angie Dickinson showing it all, and that weekend our manager got a call from the Assistant District Attorney's office saying, "Kim, if you don't turn that off, we're sending you to jail," and Kim calls me up all frantic and he says, "What should I do? What should I do?" And I said, "I'll send you a cake."
MAXWELL: With a file...
WILLNER: But what we actually did do was very quickly determine that what we should do is just turn the switch off during R-rated movie product for Alexandria, Louisiana and show the preview all the rest of the time, which is what we wound up doing.
MAXWELL: It was five bucks a month back then, wasn't it? Wasn't that what you launched it for?
WILLNER: No, actually we launched at nine dollars a month. Basic was seven and HBO was nine, which is why I thought HBO was a really dumb idea at first.
MAXWELL: Too expensive.
WILLNER: Yeah, one channel for nine, and giving you 25 channels for seven – I don't get the math.
MAXWELL: Yeah, the math didn't turn out to be what counted.
WILLNER: No, it wasn't the math at all.
MAXWELL: It was something different.
WILLNER: It was cable not being very much in a community unless it was a rural community, and then one night sitting at dinner with my chief engineer – at that time I was the general manager of the cable system in New Jersey – and there was a table of six people sitting right next to us and they were laughing and howling and having this great time and they were talking about HBO and how great it was, "they show movies and there's no commercials, and yeah, they even show the R-rated stuff, you have to get it, you have to get it." And the two of us are just sitting there thinking, wow, we've really made it! People are talking about us now, which was really unusual in those days, and I just turned around as we were leaving and I flipped the guy my card and I said, "Thanks for making my dinner tonight!"
MAXWELL: You didn't pick up their tab?
WILLNER: No, we didn't have enough money for that. We were worried about cashing our paychecks in those days.
MAXWELL: Did you try any of the other early pay experiments besides HBO or was that the only one you tried? There was Channel 100, a whole bunch of other guys running around.
WILLNER: No, we were one of the early two pay launches in our markets where we added Showtime and then of course we had to have the discussion about what you do with Cinemax and who needs three pay channels, but it all kind of worked out.
MAXWELL: It has kind of worked out. Now there's a ton of them. Of course then HBO wasn't 24 hours when it launched, was it? It was 18.
WILLNER: Yeah, I think you're right.
MAXWELL: It was dark for six at night, I think.
WILLNER: Well, there were color bars up.
MAXWELL: That's true, there were color bars up. That's true. But then over-the-air broadcast went off at midnight up until the mid-70s about?
WILLNER: Yep, with the national anthem.
MAXWELL: Right, and the flag waving. It's a different world.
WILLNER: Well, now they go off the air but instead of switching to color bars they switch to paid programming.
MAXWELL: They do infomercials, right. That has been the substitute, but that stuff actually makes money.
WILLNER: Yes, more than color bars do. So now we've got the economics of television all worked out.
MAXWELL: We do. Just run infomercials. That's what Home Shopping is, so... That was one of those brilliant bids.
WILLNER: Well, that's another story!
MAXWELL: It is?
WILLNER: That's right, Clearwater, Florida, that's where they were based, if you remember.
MAXWELL: That is right, that's where Paxson was. What was the other guy's name?
WILLNER: Spear. One day I'm sitting in my office and we were building Clearwater, Florida and it was 108 channel system. It was two 54 channel plants being overlashed. You didn't know what to do with 54 channels on one plant in those days, let alone two. So we were sitting there trying to figure out what to do with all this capacity that we were in theory committed to build, and one day in come these two guys and they looked like Abbot and Costello and they look across my desk and they say, "We want to lease a channel from you." "Oh, what a novel idea," I said, "What are you going to do with it?" They said, "We have this radio show right now in Clearwater and we sell stuff all the time." I'm thinking to myself, okay, I've heard this before. They said, "We want to take it to television and we think the best way to do that is to lease a channel from you and pay you a monthly fee and use one of your channels." I said, "Well, how much are you willing to pay me?" And they looked at each other and I think Bud said, "Well, how about $4,000 a month," which I almost fell out of the chair, like somebody just dropped $4,000 a month in my lap. It was more by a factor of ten that I have ever heard anybody willing to pay to lease a channel in the cable business. I said, "Okay, I think we could do that," and then Spear says to me, "Well, you know, as an alternative to us paying you $4,000 a month what if we gave you some stock in the company?" I'm thinking to myself $4,000 a month or stock in this ridiculous idea – I'll take the $4,000.
MAXWELL: I'm surprised they didn't offer you a revenue share of some percentage.
WILLNER: It got to that later on.
MAXWELL: That's the most variable approach. So you should have taken stock.
WILLNER: I definitely should have taken the stock and Bob Miron to this day won't let me live that down.
WILLNER: That's right, to this day.
MAXWELL: I like that. So they launched with you?
WILLNER: They launched with us.
MAXWELL: And it was still Vision then?
WILLNER: It was still Vision. Well, Vision never really changed names even under Newhouse until that Time Warner deal happened with Newhouse. That was after my time.
MAXWELL: That's right. That was quite a while later, that's right. I'd forgotten the timing of that. Vision was around for awhile. So you left that on the table. Is there anything else you left on the table in all these years?
WILLNER: Did you have to ask?
WILLNER: Yeah, I've left a lot of things on the table.
MAXWELL: Not like that stock though.
WILLNER: Not quite that bad because that stock would have been worth a gazillion dollars at one point. It was up and down.
MAXWELL: I know. When it crashed it crashed.
WILLNER: I had a good friend who worked for MTV before they launched, part of the launch team. That was... Warner Amex owned that at first. He was begging me to launch MTV in New Jersey on the day of the launch and I said, "Mark, it's a lousy idea. Who's going to sit around and watch music videos, promotional videos, all day and all night long? I mean, come on, they're just promotional videos." I said no even though he was a friend, and then three days before the launch I get a frantic phone call from him. "Michael, we lost the only system we have in the New York metropolitan area," which was in Rockland County, New York, which is up north, and he said, "I desperately need a launch in New York because I've got to have a launch party. I've got 150 people working on this for the last two years and we're finally launching and we have nowhere to go." So I said, "Mark, I don't even like the idea. Why would I do this?" He said, "Look, I'll buy all the equipment, I'll install it in your headend, I'll give you free service for five years, I'll do whatever it takes. You need to launch this service on your system." These were times when we were really looking for stuff to put on the dial because there just wasn't enough out there. Mark and I were good drinking buddies so of course I had to say yes to him; I couldn't leave him in a lurch, and the night of the launch – I'll never forget, in the basement of some bar in Fairview, New Jersey, which is teamster town USA – you saw the biggest collision of universes you've ever seen between these old truck drivers at a bar at 2:00 in the morning with people with spiked hair and piercings coming out of every part of their body all sitting around having a grand old time thinking about how great this whole new thing was, and they were all getting along with each other.
MAXWELL: It was the same era as when Willie went to Austin and got the hippies into country music.
WILLNER: It was kind of like that.
MAXWELL: Do you remember what the first video they ran was?
MAXWELL: You've never heard of this group since, by the way, but it was The Buggles and Video Killed the Radio Star.
WILLNER: That's pretty good.
MAXWELL: But you know the guy that did the first movie clips, I mean they had the clips of Elvis on Ed Sullivan and all that stuff, but a guy named Michael Nesmith started doing what he called pop clips as interstitial programming on Warner Amex's movie channel and that's where it all came from. He was one of The Monkees.
WILLNER: Right, I knew I knew the name.
MAXWELL: And a good songwriter by the way. So that was in the Vision era, and next came Insight. So how did that come about?
WILLNER: Actually I was being wooed by somebody who joined them to help them run their company, another mid-sized operator, and I went to George and asked him his opinion, who I still had a friendship with, and then I went to Sid and asked him his opinion about doing this. Sid basically looked at me and said, "Well, if you're thinking of going back into the cable business," as he put it, even though as far as I was concerned I was still in it, "if I knew that I'd say, well, let me put up some money. I wouldn't try to woo you away from the Newhouses because I sold the company to them, but if I knew you were thinking of doing this anyway I might consider putting some money up and raising a few bucks from some friends of mine." And that's what we did. It made the decision easier because I knew Sid very well and knew we got along. To this day we get along very well.
MAXWELL: So what was the first Insight system?
WILLNER: Franklin, Virginia. 4,000 customers
MAXWELL: So you had that but you were never able to grow there. So where did you go to grow?
WILLNER: Look, this was 1986-87 and we started just looking for deals. What was going on in the business then was that all cable systems were basically valued around the same – on a multiple of cashflow basis or price per subscriber basis. It didn't matter where they were located, what they were doing. Every property was thought of as a similar growth trajectory looking forward and therefore they were valued very similarly. Well, we didn't exactly agree with that depiction of what systems should be worth. We though that if we could find systems that had high housing growth within their demographics that over the years those would become less expensive to have bought because they'll grow faster. As a result of that we started looking around and finding properties in the suburbs of major metropolitan areas. We acquired some systems outside of Indianapolis, outside of Louisville, outside of Atlanta, Phoenix, Los Angeles, we were all over the place. But they were all suburban corridors. One may not think of Indianapolis as a growth market, in the overall market it's not a big growth market, but if you own the growth corridor in any market then you're going to own growth, and we owned the northern suburbs in Hamilton County, Indiana just north of Indianapolis; in Jeffersonville, Indiana, which was the suburbs of Louisville, and we had a lot of housing growth. Internally, without acquisitions factored in, we were one of the fastest growing cable companies in the industry without even trying because we were just kind of building...
MAXWELL: Because you followed developers, right?
WILLNER: That's exactly right.
MAXWELL: And they all grew out the interstates.
WILLNER: That's right. And that strategy worked. It was a good strategy for five years, from '87 to '92-'92 period. The '92 Act was very painful to the industry. We were very leveraged because we had made some major acquisitions so it made it even more painful for us. One could say we were on the verge at times but we worked our way out of it. We got involved in the United Kingdom and actually bought an operating system in Glasgow, Scotland and started getting involved in the licensing process over there which was all done through the national government as opposed to local franchises, which was a lot different and actually became the forerunner of what became NTL and is now Virgin Media. It was there that we knew that the business was going to change dramatically because we were talking about telephone there, or telephony as they coined the term. The internet was kind of out there but nobody quite knew what that was all about yet except that we knew that we had a capability of doing something with it that was beyond the dial-up experience. We began to sense that the business was going to change fairly dramatically as we went forward into the rest of the '90s. We looked at our assets and we realized that we didn't have a strategy that was particularly efficient for the next phase of growth in the cable business where you could launch new services in a market, do it efficiently using the marketing tools that are available to you in that market, and we were burdened by having Intermedia Partners being the dominant operator in the Louisville market and we were a small suburban operator in Jeffersonville, Indiana and Oldham County, Kentucky. We couldn't use Louisville television, we couldn't use the Courier Journal to advertise in because it was just too inefficient for us. So, Leo Hindery had started making some noise about the summer of love at that point and talking about lots of swaps and buying and selling and dealing. We had decided we wanted to grow the company and change the company and take advantage of the future of the business, but we knew we had to change the company. So we became one of the partners with TCI, gave them some really, really good markets in the Salt Lake City market in return for all of their properties around Indianapolis, which made us the dominant operator in the state and did the same thing... we swapped Gilbert, Arizona with Cox for Lafayette, Indiana. Gilbert, Arizona for the last ten years has been the fastest growing community in America. But we had relative valuation issues... John Dyer, who I love dearly, we both worked off the same formula and we both knew that you plug in certain growth factors and you can see what the relative values are of these systems. We did it – the same number of customers, Gilbert, Arizona came out looking as if it was 30 million dollars more valuable than Lafayette, Indiana, and all logic would point to the fact that that's probably a good guess, and even though it said 30 million dollars I thought that was a big ask. So I said, "John, you know what? It says 30, yours says 30, we'll do it for 20 because it passes the giggle test." He said, "That's funny. I didn't think that there was a 20 million dollar difference between the two. I thought you owe us 5." "I owe you 5 million dollars and I'm getting Lafayette, Indiana and you're getting Gilbert, Arizona? How do you come up with that?" To which I never got the answer. But we solved it somewhere in between and both companies were happier for it.
MAXWELL: Once scale got there in a DMA or in a market, what changed?
WILLNER: The whole business changes. You're now in control of your destiny. Do you want to launch – in today's terms – a 10.0 service, a 10 MG service for internet versus a 6 MG service? When do you want to launch it? Do you want to advertise it in the newspapers, on television, on radio? And you have scale. So people always thought that we would be the seller in the Louisville market because we owned the little suburbs; we wound up buying the city from Intermedia and it just changed the whole dynamics of the business. And really we went through a whole series of acquisitions and sales and swaps to take a company that was originally spread from sea to shining sea and consolidated it into four contiguous states into what was essentially one very big cable system, pretty much interconnected throughout the entire footprint. Although we have since split with Comcast that's still the case. The half that we own is one 700,000 subscriber cable system.
MAXWELL: And you think of it that way.
WILLNER: Yes, we do.
MAXWELL: How many headends?
WILLNER: Well, it depends on your definition of a headend.
MAXWELL: That's a good point. That has changed.
WILLNER: There are local insertion buildings where we put the local signals in and we do certain things locally, but it all kind of ties back to Louisville where we have our knock and our network operations center and a lot of other facilities that are centered in these very 21st century looking buildings in Louisville.
MAXWELL: And that does change the entire nature of how the business works. So along this way when did you get involved in the NCTA and start up that process?
WILLNER: When I woke up in the morning after the passage of the 1992 Act, I realized that things were going to be pretty dark for awhile. I was never involved with NCTA, never had anything to do with them. NCTA wasn't particularly, at the time, warm and fuzzy towards smaller cable operators. You just kind of accepted it and you let the big guys take care of all this stuff, but when the '92 Act occurred and we had a real potential meltdown in the business I picked up the phone and called the newly appointed president of the NCTA, a fellow who I'd never met before named Decker Anstrom, and I said, "Decker, I don't know what happened here but this is really bad and I'll blame myself as one of a number of people who are at fault. My fault because I wasn't there to help, and I don't know if I can help, I don't know if you want my help, but I'm there for you." Well, Decker being the type of fellow that he is knew a sucker when he saw one, and Bob Miron probably had some input on that as well. He was very active and I had told him that I thought I could be helpful and should be helpful. That's how I did it.
MAXWELL: And you got involved.
WILLNER: I got involved.
MAXWELL: And started up the track of being very involved.
WILLNER: I think when people are willing to give some of their time to that organization, I think that organization is perfectly willing to accept it, and they should be.
MAXWELL: Well, you had a big impact on how the industry reports itself to the world. So tell us how you managed to pull that off given the cast of characters.
WILLNER: I don't know if I can say that.
MAXWELL: Address it as gingerly as you prefer.
WILLNER: You mean the fact that they took out baseball bats and smacked me on the head with them every time I brought the subject up?
WILLNER: I was the chairman at the time. I had gone through a relatively quiet first term, and usually they were one term but the industry was consolidating so rapidly...
MAXWELL: You were like a safe harbor to stay, right?
WILLNER: Well, that and I think I went to the bathroom during the board meeting at the wrong time and came back and found out that I was re-elected. It was a relatively quiet first term. Robert Sachs was the president and we were working very well together. Robert and I went back to the Continental days with franchising, that's what he was involved with, so we knew each other pretty well. And then I had an apartment in Miami and I was sitting by the pool one Thursday afternoon around one of the holidays that we were away for and Ari Berkhoff, who was an analyst on Wall Street and a very well-respected analyst, appears in front of me in his t-shirt and bathing shorts. He was frantic and I said, "Ari, first of all, what are you doing here?" This is totally out of context. His in-laws had an apartment in the same building. And then he said, "Did you hear about Adelphia?" And I said, "No, what happened?" And it was the day of the meltdown where the analyst was raising the questions, and I said, "Do you think that's really going to change anything on Wall Street for the rest of the industry?" He looked at me like I was a moron. "You don't get this!" This is the Enron era. You just don't realize it when it's happening. It was kind of like 9/11, you just have no idea of what's really going on until it sinks in. It was a little bit like that. He said, "You guys are going to have to do something to get the Street comfortable again, that Adelphia's the exception not the rule in the industry." And then I heard from Rich Belotti and a few other people... because I was the chairman so they figured they should come to me and then I would carry the message back to my colleagues on the executive committee of the NCTA and that's when the baseball bats came out – "No, no, we'll never do that." But the stocks kept sinking that summer from March until about June or July and finally one by one people were picking up the phone and saying maybe we need to do something. So we convened a group kind of led by us and Cox and Time Warner and came up with some standards that we could all agree to. It wasn't easy. There were a lot of other issues here like companies have to listen to their certified public accountant firms to make determinations about accounting practices. So we couldn't get to accounting practices but we could get to operating reports. So, what is a subscriber, how many do you have, what is a revenue generating unit, and by the way, what are the capital expenditures that everybody is so concerned about in terms of directly related to growth versus infrastructure versus maintenance, you know, what does it cost to change the light bulbs? And we came up with a series of categories for all these things that were compliant with accounting rules which gave us some limitations as to what we could do collectively, but also helped to explain our business a little bit more transparently to the Street, and I think it actually worked.
MAXWELL: Oh, I think it has. If I may editorialize, it was one hell of a significant achievement.
WILLNER: We had no idea when we were doing it that it would actually be that significant but I think it was.
MAXWELL: Oh, it was, no question about that. In hindsight it was another validation very basic to the business.
WILLNER: That's right. And we were reporting things differently.
MAXWELL: Well, you had different terms.
WILLNER: That's right, and it was never intentional. Companies grew up for many, many years reporting certain ways, we didn't really talk to each other about how we were reporting, and the analysts were charged with the responsibility of trying to turn a tangerine into an apple so they could compare it to another apple. That process just took some of the work out of it for the analysts, and we didn't get paid for it and they still do.
MAXWELL: That's true, you don't get paid for it but it rationalized the way the Street looks at the business and that has got to be significant in any kind of an assessment.
WILLNER: Well, happily, things did settle down and there was still another golden era to come.
MAXWELL: So how was riding that?
WILLNER: It's always fun when it's going up, but look, these are tough times now. I think the Street over-worries about our ability to compete in a competitive world. I think we have proven over and over again as an industry that we are as good as we can be when it comes to being competitive in the business that we're in.
MAXWELL: Satellite took away a lot of basic subs and hurt the industry in one sense, but there was a whole lot of growth that kind of masked a lot of that as it was happening. With the telephone companies they keep thinking it's going to be the same but it hasn't been. There's been spurts and recapture and growth again.
WILLNER: I kind of get a kick out of the way the street has viewed this because there's a big disconnect in my head. Our basic business is being challenged by the fact that it was a monopoly and it's not anymore, and hasn't been by the way since satellites launched. So this isn't about phone companies, but even though that's the case, in the case of today's new competitor, the phone companies, whether it's FiOS or U-verse or whatever it is, the phone companies are spending an awful lot of money building plant, and in particular the Verizon strategy of fiber to the curb, I mean, they're going to spend the gross national product of 95% of the countries on this planet combined – I'm exaggerating, but you know – in order to go into the video business, basically. They're already in the phone business, they're already...
MAXWELL: But it's really defensive isn't it?
WILLNER: But the point is they're spending all this money, and they're going after the part of our business that I commonly like to refer to as the worst piece of crap in our repertoire because the programmers have taken so much of the value out of the video business already.
MAXWELL: From the operator, right.
WILLNER: And at the ratio of eight customers that we're taking from them in the phone business to one that they're taking from us in the video business...
MAXWELL: You like it.
WILLNER: And I like the phone business a lot better than I like the video business right now in terms of just the economics of it. I think you need them all and I think they're all great products but the economics would tell me that I'll take the 8 to 1 good business against the 1 to 8 bad business any day of the week and yet cable stocks have been beaten up because of the challenges of competition while phone companies are given a pass because I think the Street thinks that they're losing their wire line customers to themselves in wireless but that's not really the whole story.
MAXWELL: They also think the market cap there makes them the winner in the long run because just of simple size, but if I were them I think I'd be more inclined to buy. Of course AT&T blew that.
WILLNER: There's been a lot of businesses in the history of our capitalist system where sheer size didn't result in the winner. There weren't many Western Unions around and railroads are being subsidized by the government just to keep running today because they didn't strategically play their hand right whether it was to invest or not to invest, or whatever the right answer was. So just because they have the market cap doesn't mean they always will.
MAXWELL: No. I couldn't agree more. In the cable situation, you're not involved in the programming side as much as other cable operators are. Was that a strategic decision or just one that never came up?
WILLNER: We dabbled in a few things. We were actually one of the first round investors in a service that was called Movie Time at the time and became E!, but I think just our size didn't put us in the position of having deep enough pockets to invest heavily in programming and we were always partnered up until this year with a major MSO where we were able to get the significant volume discounts but we weren't part of the party putting the programming together.
MAXWELL: That's beginning to fray. Time Warner in one sense is divorcing its operations from its programming. Do you think that'll happen with some of these others?
WILLNER: Well, there are very few left that are vertically integrated. If you think about it... I think I've heard numbers like... not too many years ago 70% of the programming assets were controlled by cable operators or distributors and now it's about 20%. So all of this programming, and a lot of it because of retransmission consent, by the way, has shifted to the big media companies.
MAXWELL: That was an interesting redirection of value.
WILLNER: Yes, and that was government mandated. I don't know if it's for the better. I'd contend maybe not. You've got four or five companies controlling an awful lot of programming that gets put out in this country, and it's very, very difficult for an upstart now to start a conventional linear television channel.
MAXWELL: True. Is the broadband network going to change that?
WILLNER: Oh, absolutely. We're in a revolution that's no different than the industrial revolution itself was 150 years ago. It's a communications revolution, and we're already seeing dramatic shifts and changes in people's use of their spare time, of their work time, and I think the cable industry has been perfectly positioned to exploit those opportunities whether we're a dumb pipe or a smart pipe, I think we're still going to be a rich pipe.
MAXWELL: Anything else you'd like to leave with The Cable Center because that's one hell of a great epitaph there.
WILLNER: I think what we're doing at The Cable Center is a terrific smattering of programs, all very different, all very contributory to the industry's efforts. I'd like to see more customer service effort; we need a lot of work in that area as an industry and I'm glad that The Cable Center is focusing on helping cable operators.
MAXWELL: It's off to a good start with that.
WILLNER: It is. And Amos's program, the distance learning program, is a terrific program and people should watch that.
MAXWELL: They should. My daughter took it three times at DU. She's a big fan.
WILLNER: I'd love to see more of them. I think it's cost-effectively challenging.
MAXWELL: It's challenging, yeah, but that might come.
WILLNER: Yes, especially in today's world.
MAXWELL: So Michael, in the industry today do you have any comments about how it ought to go forward?
WILLNER: I think we have some terrific opportunities. We're positioned right in the sweet spot of this communications revolution that the world is undergoing right now. I also think we have some very serious challenges as an industry. I'm not one of those guys who kind of looks for the silver lining around every dark cloud, although I did win the Little Orphan Annie Optimist Award in our company this year because Dinny, who's our COO thinks part of his job description is to manage my optimism, but I worry a lot about the industry's history and perceived experience in customer service. I think that customers have a lot to be concerned about. We've all seen the surveys and the research and cable is ranked pretty low among industries in terms of what customers think of the level of service that we provide. That's not to say that our competitors are much better because they're not, our direct competitors, but I also take a little bit of satisfaction, but very little, over the fact that we at Insight have started focusing on improving our customer service – we're a little company in a big industry – and that the customers are noticing. Our customers, in our research, they actually do like us, and that in itself is a feat for a cable company.
MAXWELL: Well, you did one thing that was really interesting in that when you had a blowup on the broadband side you admitted wrong, got out in front of it and took charge of fixing it. So those kinds of things other cable operators have hesitated to do.
WILLNER: In fact, internally we had huge battles about that, whether or not we should get in front of it.
MAXWELL: That's a Tylenol story – getting in front of it makes more sense than not.
WILLNER: That's right, and we used that example, one of a few in history that you can look at, and I think it was probably a turning point in the whole company's attitude towards how to deal with the customer. Blogging – that's really getting out there and talking openly and freely about subjects that a lot of cable operators really haven't wanted to talk about, network management. But when it comes to customer service, we don't want to be just the best in the cable industry and that's good enough because the cable industry... to us it's like grading us on a curve. It ain't good enough. How does Federal Express manage to move as many packages as they move every single day of the week, every single week of the month, every single month of the year and have so few people complain about them? Have so few people say they have lousy service? That's the goal. It should be to make yourself better than your colleagues or even your competitors who may or may not be very good. It's to be the very best in all industries, in all countries, in all places. We have a long way to go. All of us have a long way to go before we get there.
MAXWELL: We do have one advantage you talked about early when you talked about getting into cable instead of broadcasting. You have the communication with the customer every month.
WILLNER: Right, which is often a bill though and that's not always a good communication.
MAXWELL: Well, no, people don't mind paying for things when they don't feel bad. Do you feel bad about paying the Fed Ex bill?
WILLNER: I never pay that bill, but... No, no I don't. We're getting a service and we're paying for it.
MAXWELL: Right, and there's nothing wrong with that and never should be, but to make the customers feel good about you is an opportunity.
WILLNER: And that's part of what the blog is about. That's a lot of what our customer communications efforts are about these days.
MAXWELL: This was Michael Willner for The Cable Center. Thank you.