Edward Allen - Oral History
Interview Date: Wednesday, December 13, 1989
Interview Location: Anaheim, CA USA
Interviewer: E. Stratford Smith
Collection: Penn State Collection
Note: Audio Only
SMITH: This is Tape 1 of Side A of the oral history of Ed Allen, a cable television Pioneer. It is December 13, 1989. This oral history is being recorded at the Anaheim Hilton Hotel in Anaheim, California at the time of the 25th Annual Western Cable Show. Approximately 9,800 people are expected to be in attendance. The oral history is being recorded as part of the oral histories program of the National Cable Television Center and Museum which has been established at the Pennsylvania State University. The interviewer is E. Stratford Smith, Professor of Cable Communications and Director of the Oral Histories Program of the Cable Television Center. Ed, I only know you by Ed Allen. Would you give us your full name?
ALLEN: The full name is Edward McDowell Allen. Edward M. Allen, E.M. Allen, Ed Allen. Like Bill Daniels, I guess, I'm known throughout the industry as Ed, rather than anything else.
SMITH: Perhaps like Bob Magness, he's known as Bob and not Robert.
ALLEN: Or Stratford Smith who is known as Strat.
SMITH: Ed, the first portion of our questioning will be with respect to your personal background. Do you mind telling us when and where you were born?
ALLEN: I was born in Winona, Minnesota in 1924. So I turned 65 last month. I grew up in Winona, spent the first 41 years of my life in Winona, got my college education in Winona, married a Winona girl, conceived my four children in Winona, and it wasn't until I was about 41 that I left Winona for California.
SMITH: Let's get a little bit more information about those happenings in Winona. Did you have brothers and sisters?
ALLEN: I have one younger brother who still lives in Minnesota.
SMITH: Your parents ‑ would you give us a little bit about their background, their nationality? Were they native borns or immigrants, whatever?
ALLEN: Well, they're native borns. I guess Allen is an English ‑ Scotch ‑ Irish ‑ Welsh ordinary name. My dad was a flour miller. He was the vice president and general manager, ultimately, of a flour mill in Winona. He had started out there as an office boy and telegrapher and for a guy who only had an eighth grade education; he did pretty well in terms of ultimately running the flour mill. My mother came from Ohio to Winona as a widow and my dad was the town's eligible bachelor at age 42 and they were introduced to each other and were married in Winona.
SMITH: What was your father's given name?
ALLEN: Frank. And my younger brother's name is Frank. I remember one interesting thing there. His actual name was Francis, but he was known as Frank and the first time he ever applied for a passport he needed a birth certificate and they couldn't find him in the courthouse records. Because of the name Francis, he had been registered in the courthouse as a girl. But his name was Frank J. (Frank Joseph) Allen.
SMITH: What was your mother's maiden name and her given name?
ALLEN: Her name was Marjorie and her maiden name was McDowell. The American composer, Edward McDowell, which is where my name comes from, was a part of that family. She had been married in Ohio to a man named Ade; and George Ade, the American author, was a piece of that family. Her husband died of pneumonia and that's why, when she moved to Minnesota, she was known as the Widow Ade, back in those days. They tell one other interesting story, Strat, about my mother and dad. Things were rather formal back then and, apparently, my dad never referred to my mother as anything other than Mrs. Ade until the day he proposed and I guess it must have gone something like, "Mrs. Ade, will you marry me?" "Yes Frank." "Thank you, Marjorie." Things were a little more formal back then.
SMITH: Ed, tell us something about your boyhood. Your special interests and activities and your early school activities ‑ sports, whatever, that occupied your time as a very young man.
ALLEN: Well, the day I was born I was enrolled in a military school. I wound up going to a military school, but not the one that I had originally been enrolled in. My dad's boss at the flour mill was very much associated with a military academy in Faribault, Minnesota, known as Shattuck Academy. He gave the swimming trophy there. Unknown to my dad, he enrolled me at Shattuck the day I was born and then told my dad about it. So my dad had actually been talking to me about military school ever since I was old enough to understand what one was. I didn't go to Shattuck but I did wind up spending my four high school years at a military academy in Wisconsin. It was Northwestern Military and Naval Academy at Lake Geneva, Wisconsin.
I had my grade school education in Winona and Junior High School education in Winona and then, at age 14, I went to this military academy and wound up as a class officer and company commander. I only weighed about 115 pounds or so at the time. I was pretty skinny because I was almost 6 feet tall, I suppose, at that time. I was something of an athlete in most sports ‑ football, baseball, not much basketball, gymnastics, parallel bars, hockey goalie. Now I seem to get my exercise by signing my name a lot. I've drifted away from being any kind of an athlete.
SMITH: How odd that you were about six feet tall and basketball wasn't one of your particular sports?
ALLEN: I really didn't care for basketball. One interesting sidelight there, this was a very strict military school and the colonel who ran it did not permit anyone to chew gum, ever. He thought that was bad training. Well, the basketball team wanted to chew gum to keep saliva running in their mouths while they were playing basketball. He wouldn't permit that but he would allow them to chew rubber bands and we had a lot of rubber bands swallowed, I'll tell you.
SMITH: He kind of stretched things, didn't he?
ALLEN: World War II broke out in my senior year at this military school. We had four years of R.O.T.C. training and infantry training. So I was 17 when I graduated from high school and enrolled at Carleton College in Northfield, Minnesota for the fall of 1942. Pearl Harbor had happened in December of '41. So I was halfway through my senior year there. My dad was on the draft board in Winona and I was determined that he wasn't going to be allowed to draft me. I thought with all of this infantry training, all of the R.O.T.C. training that I had, that it would be like shooting fish in a barrel to get into Officer Training School. I was naive to think they wanted 18 year old second lieutenants at the time. Anyhow, I enlisted halfway through that first year of college in the infantry. It didn't take very long for me to determine that they really didn't want second lieutenants that young leading the troops. Rather than spend the rest of my war years in the infantry, I switched to aviation cadet training in what was then the U.S. Army Air Corps. They didn't have an Air Force at the time. I wound up with four years in the U.S. Army Air Corps as a navigator on a B‑17.
SMITH: Did you see active service?
ALLEN: Yes, I was in the Pacific theater, mainly on Okinawa, but the only B‑17s that were in the Pacific Theater, because they were using B‑29s as their bombers at the time, were the general's private airplanes and the air‑sea rescue planes, and that's what I was in. We carried a life boat that was suspended from the bottom of the B‑17 that you dropped by parachute to fliers that were down in the water. We had, in addition to the B‑17 with the lifeboats, the flying boats that were known as Catalinas that could land on the water. We had helicopters and we had crashboats which were speedboats that could go out into the harbor and pick up downed fliers. I spent about a year, year and a half, on Okinawa. They stripped all the guns out of our planes because they had to carry so much other equipment, and we never fired a shot at anybody, because we didn't have anything to fire. Our function was to try to pick up downed fliers.
SMITH: Do you recall any specific incident in your rescue activity that stands out in your memory?
ALLEN: There really isn't. The war ended just a few months after I got to Okinawa, but I was there another year. I remember we killed more people in our squadron accidentally, after the war was over, than we did while the war was actually on. Mainly through jeep accidents. People were bored being on Okinawa, they might drink too much, and they'd drive off the road. There is no specific rescue incident or anything because the war had come to an end so quickly after I got over there.
SMITH: What year were you discharged?
ALLEN: The war ended in '45, I was discharged in '46. That's when I got married, as fast as I could, when I got back to Winona.
SMITH: That was going to be my next question, take you back to Winona and ask you to tell us about your marriage, how you met your wife. Please give us a little background in that area.
ALLEN: In the summer between my graduation from military school and on my way to Carleton, my parents thought that I should learn some secretarial skills like shorthand and typing, which they thought would be helpful as a part of my college education. So I went to a summer school where they taught shorthand and typing, and that's where I met Pat who would become my wife. She was in the summer of her year between her junior and senior years in high school. So I was 17, she was 16 at the time. Things clicked from that very first time. I had to fend off a lot of other boyfriends that she had, but then I went into the Army so fast, like in January of '43. It would have been in the middle of her senior year in high school. Then, spending four years in the army, we didn't have much of a courtship. We had to do it all by letter, from different bases in the United States or overseas. We were just hanging in until the war was over because we knew we wanted to be married as soon as I got back to the United States.
She was going to the Art Institute in Chicago, as a student, so I decided I would go to school in Chicago so I could be with her. I had an idea at that time that I wanted to be a doctor. So I was checking out the Illinois schools for pre‑med courses and one of the first things I found out is that the Illinois schools were not very excited about accepting an out‑of‑state student. They had so many Illinois veterans returning and they needed the space in their schools. I couldn't get into any of the schools in Chicago as a pre‑med student. After spending several weeks trying, I remember one day I met Pat after one of her classes at the Art Institute and she was holding her apartment key in her hands. She said, "I'm turning this in this afternoon. We're going home and getting married." She had dropped out of school, knowing I wanted to be married so badly, and she withdrew from the school and then I enrolled in college in Winona.
SMITH: What year was that, Ed, that you got married?
ALLEN: We were married in November of '46. I got out of the Army in '46, tried to get into the school in September of '46, found I couldn't and we were married then in November of '46.
SMITH: When you enrolled in school after getting married, did you say what school you enrolled in?
ALLEN: I enrolled in St. Mary's College in Winona which is a Catholic college although I am a Protestant. I picked it because they had a reputation of having a very good pre‑med course. The story at that time was they had never had a student who completed their pre‑med course and was accepted to medical school that didn't make it through medical school. Of course, not everybody was accepted for medical school. I rather quickly found that I really wasn't much of a candidate to be much of a doctor anymore. I had the first semester of chemistry at Carleton College in the fall of 1942 and they put me into the second semester of chemistry at St. Mary's college in the winter‑spring of '46‑'47. In the intervening four years, I couldn't remember the first semester of chemistry. Something had gotten lost in the translation on Okinawa. So it didn't take me very long to switch from a pre‑med course to a business course and that's what I ultimately graduated in. B.S.S. degree, a Bachelor of Social Studies. That was their equivalent of a business degree. I graduated in 1950. Being married and with children coming along, I was in a hurry to get out of college.
I think in a lot of cases today, you find the professional student who doesn't think of college as a four year exercise; it's five, six and seven years. At that time, the average age of the freshman class was 22, not 17 or 18, because they were all returning from the war. A lot of them were married and they just wanted out into the real world, so they would attend summer school, just trying to speed up the process. I did that. I completed four years of college in three and a half years.
SMITH: Did you have to work to support your family?
ALLEN: Well, we had the G.I. Bill at that time. I think as I remember it paid $100 a month, if you were married and $500 a year in tuition. It was amazing how many schools had tuition of exactly $500 at that time. They had a lot of flying schools that had $500 tuition. They had, of all things, a chicken sexing school with a $500 tuition.
SMITH: Chicken sexing?
ALLEN: Yeah, I guess it's only important to other chickens to know whether it's a rooster or a hen but it was a way of examining these baby chicks and determining whether they were hens that could lay eggs or roosters that could produce other chicks. That tuition was $500, I remember. Dancing schools were $500. I got some help. I worked summers and I got some help during the school year from my parents. I couldn't work and go to school at the same time because I was carrying such a class load there just wasn't any place for it.
SMITH: You mentioned that when you graduated you had children on the way?
ALLEN: I think we probably had two by the time I graduated.
SMITH: What were the children's names?
ALLEN: Well, to run through all four of them, I have two girls and two boys. In a superlative piece of engineering, I alternated them as girl‑boy‑girl‑boy. I remember the only argument my wife and I ever really had was whether we would have the girl first or the boy first. We had agreed on alternating them, we had agreed on two and two. She wanted a boy first, as she said, so when the daughter who came behind couldn't find a date for the senior prom, she would have an older brother who could take her to the senior prom.
SMITH: The older brother would like that.
ALLEN: I wanted the girl first because I wanted a built in baby sitter faster and, as I am in charge of the X and Y chromosomes, we did it my way and we had the girl first. Tracy is the oldest. She and her family now live in Steamboat Springs, Colorado and they have produced two grandchildren for me. The next in line was my son, Steve, who is in the cable television industry, the Chief Engineer of a cable system in Roseville, California. Then came my daughter, Paige, who lives with her husband down in the San Diego area. The youngest is my son, Dick, who is a dentist in California. Among the four of those children, they have produced five grandchildren for me so far. I'm not sure they are through yet.
SMITH: Ed, only for the sake of having a complete record, am I correct in my understanding that Patty died several years ago?
ALLEN: Yes, in 1976. She had cancer. When they diagnosed it, at that time our youngest child was still in junior high school. She determined that some way or another she was going to live at least to see him through high school. And she did. She hung in there another five years with cancer. She died in 1976.
SMITH: And you have remarried?
ALLEN: Yes. I remarried, finally, four years later. That's kind of an interesting story because the girl I married has been in the cable television industry as long as I have. When I had my cable system in Winona, her husband was my Chief Engineer. When they decided to get married, and she was very young at the time, I suppose, 18, 19, something like that, she and Gary, my Chief Engineer, decided they were going to get married by a Justice of the Peace. My wife, Pat, said, "No, you're not. You're getting married in a church." So we arranged for our minister to perform the ceremony in a side chapel in our church and there were just five people at the wedding ‑ the minister, the bride and groom and Pat as the Maid of Honor and myself as the Best Man. When I left Winona, Gary took my place as the manager of the cable system in Winona and then, ultimately, moved to Reno to run the cable system there and then, subsequently, got out of the cable business and went into real estate.
Their marriage, while they were living in Reno, fell apart. But over the years, Geri and her husband had been in touch with us through Christmas cards. About four years after Pat died, I happened to get a telephone call from Geri. She told me she was in the midst of a divorce and was selling some furniture, as part of the divorce settlement. She was in San Francisco, which is only thirty minutes away from my home, so I invited her to come and see me, and sometime after that we decided to get married. At any rate, she entered the cable television business in 1958 at the same time I did. I guess she's a Pioneer too.
SMITH: That logically takes us back to a good point to get into your cable career. But just before I do that, let me ask you what your employment activities were between graduation and your first exposure to cable.
ALLEN: Okay. I started out working for my wife's dad who was in the business of manufacturing and selling farm silos. The company was called Madison Silo Company. I started out in the plant manufacturing the cement staves that go into these silos and that's what I would do during the summer months when I was going to school. Then I also worked erecting silos, which is some of the toughest physical labor I have ever done in my life. In a lot of cases the cement doors to the silos that I was trying to throw around weighed more than I did. It was brutal physical work, but then, after I graduated and was available to work full time, I began selling the silos and I had a sales area down in Iowa in the area called New Hampton. That's when I first learned that on‑the‑road salesmen don't spend much time at home. I would leave very early from Minnesota on Monday morning, I mean like 4:00 in the morning, something like that. Drive down to my sales area in Iowa and then try to be home by late Friday night. Sometimes I would make it by Saturday morning. With a relatively new marriage and a couple of small kids, this is not the best way to start out when you are gone all the time. After I had been doing that for a while, and other than that I liked the sales process, I discovered I really wasn't that enamored with the silo business, as such. I really didn't know much about farming for one thing.
SMITH: Easier to make them than sell them?
ALLEN: Yes it was. One problem there is that the farmers you would talk to would expect you to know something about farming and about silage and feeding cows. I was kind of green in that area. Then I went to work for my dad in the flour mill, again as a salesman. I never seemed to get a sales area close to my home, because, while I continued to live in Winona, my sales area was Louisville, Kentucky. That's a little far removed. I would sell flour to bakeries. That was my job there. I also knew some Spanish and they had a small amount of international trade and because of my knowledge of rather rudimentary Spanish, I did some of the work in the flour sales to the Spanish speaking countries. I really wasn't happy doing that, either. I guess I felt, in both cases, working for my father‑in‑law and then for my father, that these were kind of sinecure jobs. I got the job because of who my dad was, rather than who I was.
Ultimately, I was offered a job as a radio time salesman at a radio station in Winona, under the sales manager. That's when I found my niche. It was still selling, but I absolutely loved the radio business. The sales manager and I got to be known as Mutt and Jeff and if we went in to sell somebody and double teamed him, there's no way he was going to say "no." We were a very good sales team together.
SMITH: Who was Mutt and who was Jeff?
ALLEN: I don't remember. They also called us the Gold Dust Twins. There's one story I remember and I swear it's true. We walked into a guy's office who was selling real estate and when he saw us coming he ducked under his desk. We pulled him out from under his desk and sat him down and sold him. We were pretty fair country radio salesman, I guess. After about two years as a time salesman for a radio station, the general manager of the station left to go to Johnson City, Tennessee and they needed somebody to run the station. The owner of the station, who was also the publisher of the newspaper in town, reached down and grabbed me and wanted me to be the general manager of the station. He offered me an opportunity to buy a 10% interest in the station. Obviously, I was intrigued with the concept of running a station, but also of having an ownership opportunity in the station. I told him I would do it if he would also offer 10% to my friend who was the sales manager, which he did. It started out as an 80‑10‑10 partnership. We subsequently each bought 10% more, so it became a 60‑20‑20 partnership and then, ultimately, the publisher‑owner of the station sold out the whole thing to my partner and me and it wound up as a 50‑50, Sub‑S corporation. There were only two stockholders in it ‑ my partner and myself.
ALLEN: Those were the three positions I had prior to getting into the cable industry and it was the involvement in the radio station that led directly to my involvement in the cable television industry.
SMITH: My recollection from some conversation I recently had is that you still have an ownership interest in that station. Is that right?
ALLEN: I did until about three years ago. I was involved in radio from 1952, that is when I started as a time salesman, until about 1986. I think it was about three years ago that my partner and I sold our interest. He was three or four years older than I am, so he hit 65 before I did. It was at that time that we decided we would sell the station and an interesting thing happened there. We sold the station to a young man whom we had originally hired years before as a radio announcer. He had gone on into station ownership in Wisconsin and then subsequently came back to the station he used to work at as a radio announcer and became the owner.
SMITH: How did your involvement in the radio station introduce you to, in those days, could we call it CATV ‑ Community Antenna Television?
ALLEN: That's all they called it at that time. I belonged to a service club in Winona called the Exchange Club. I was attending one of our luncheon meetings one day and a friend of mine who was a lawyer in Winona introduced me to two of his guests who were lawyers from a city in Minnesota called Mankato. They had gotten a cable television franchise for Winona. There hadn't been a lot of publicity about it in the paper. I didn't really even know what cable television was ‑ CATV, at the time. They had a franchise to build a cable system in Winona, but their source of money was going to be some money out of Minneapolis. As I remember, it was Kimberly‑Clark paper money. They owned and operated the cable system in Mankato.
SMITH: These two lawyers.
ALLEN: Yes. That's kind of interesting. They were the lawyers who represented their client who was the guy who had the original cable franchise for Mankato. Except he kind of bellied up, or left town, or something, and all of this equipment started arriving at the law office and they didn't know what to do with it. So they decided that they would go ahead and build the cable system and they set up a cable construction company. In addition to owning the cable system, they were contractors who could build a cable system and they built the cable system in Mankato. Anyway to go ahead, the availability of the money out of Minneapolis depended on their ability to deliver Minneapolis television signals with some clarity to Winona and that was more than a hundred miles away. At that time we were not allowed to use microwave. There was no legal provision for it. It meant that you had to put a very tall tower on the tallest possible hill you could find and try to peek over the horizon to grab these signals on a line‑of‑sight basis with enough signal strength so you could deliver it without a lot of snow in it.
They had hired an engineer who was the Chief Engineer of WCCO‑TV in Minneapolis to be the engineering advisor to determine whether these pictures were good enough to sell.
SMITH: These two lawyers?
ALLEN: That's right. If this engineer didn't like the pictures, the fellow that had the money wasn't going to turn the money loose. So they wanted to test for those pictures. They had gone to the 60% owner of the radio station, the publisher of the newspaper, and asked for permission to hang test antennas on our radio tower in order to try to bring in these pictures. We had a 400 foot self‑supporting tower on top of a 600 foot hill so that we were 1,000 feet above the city. Well, the publisher's first reaction was, "I don't think so. This somehow might be competitive, I've got a nice thing going here, why rile things up? No, you can't use the tower." Well, when my lawyer friend introduced me to these two fellows, and they told me that story, I said, "Let me see what I can do as the manager of the station." I said I'd go talk to the 60% owner, because we could only get about two and a half channels of television in town. We could get La Crosse, Wisconsin and Rochester, Minnesota. And an occasional "sort of" picture out of Eau Claire, Wisconsin. I had rather recently gotten a television set and I was kind of enamored with it and I thought it would be a nice thing for the city if we had more than two and a half television stations available. In fact, two of the stations were duplicating network stations, so we really had two of the three networks and no educational, no independent signals and I just thought it would be nice if we could do this.
I went back and talked to the publisher and persuaded him that it would not be competitive and it would be a fine service to the city if they had a cable television system in town. No problem. So I went back and told them they could use our tower for test purposes. They hung these gigantic antennas up on our tower. It was a good thing it was a heavy, self‑supported tower. They ran cables down the side of the tower and into our control room. That's where they had their monitoring equipment. It was one of these things where they have this moving scroll of paper and a pen which recorded signal strengths, kind of like a lie detector thing.
One thing that I had forgotten, Strat, is that when I gave them permission to hang the antennas on the tower the radio station was going through its annual proof of performance tests at the time and I had completely forgotten about the fact that this was going to distort all of the figures, all the engineering figures, on our proof of performance. In fact, every time the wind slapped one of those cables against the side of the tower, it pinned the needles over on the V.U. meters. At any rate, they ran their tests, they recorded all the information. Then they had this engineer come down from WCCO‑TV in Minneapolis to examine the test results and he said, "You'll never be able to sell those pictures. They aren't good enough. People will not pay money to get signals as weak as these from Minneapolis. You don't have a business." These guys were pretty discouraged at the time because they had just lost all of their money in Minneapolis. I said, "Well, let me see if I can find some money" because I didn't think the pictures were that bad. I had seen them on a television monitor rather than on a scrolling pen and at least it was something more than we got before, not good, but not totally impossible. I thought there might be a business there so I said, "Let me see if I can find you some money."
I knew everybody in Winona because I had lived there since birth, so I went to a friend of mine who was the president of one of the three local banks. I had worked as a bank messenger at that bank during the summer months when I was 14, 15, and 16. I got 25 cents an hour and never got a raise in three years. That tells you what kind of a bank messenger I was, I guess.
SMITH: Or what kind of a bank you worked for?
ALLEN: I talked to him about the concept. I really knew very little about CATV except that it was a way to hang wires on poles and kind of like a master antenna on an apartment house. You wire up a whole city and you can get some more television pictures than you can get normally off the air. That bank was associated with one of the biggest companies in town called the J.R. Watkins Company. They were manufacturers of spices, liniments, and ointments. At that time, it was a very big door‑to‑door operation ‑ bigger than Avon. Well, the chairman of the board of the Watkins Company was also the chairman of the board of the bank. They owned that bank. So my banker friend went to the chairman of the board of the J.R. Watkins Company, a fellow named Bud King, and proposed the idea to him. He was kind of intrigued with the concept but, again, didn't know much about it. So they said, "Let's send Ed to Washington, D.C. because there is a cable television convention going on at the Mayflower Hotel in Washington. Ed seems to be the only one who knows what a piece of cable looks like or what this business is and we'll let him go there and sound it out."
So, I went to Washington. I remember meeting a fellow named Doug Dancer. Remember Doug?
SMITH: Yes, from Naples, Florida, correct?
ALLEN: Doug was just getting into the business at the same time and he was there also investigating the business for some other people who had some money. We were kind of leading each other around in the dark, trying to find out what this industry was.
When I got back to report to these people, I remember telling them that the only problem that I could see that the industry had at that time was how to keep the money that they were making without having to give it all to the Internal Revenue Service. It seemed to be a profitable business. It seemed to be a business that people liked. They were willing to subscribe. It's one that I thought they ought to get into.
So they decided that they would put up the money to build the system and they would use these people from Mankato, but not as the franchisee. We would become the franchisee. We would use their construction company to build a cable television system. They would make their profit as a contractor to build the system and we would be the operators of the system. They did make money building the system because they took the profits from the construction of that system, ultimately, and built a cable system in New Ulm, Minnesota. I'm sure you know these lawyers.
SMITH: I was going to ask you their names. I'm sure I do.
ALLEN: Bob Regan. And Cliff Kroon.
SMITH: I'm going to interrupt you on account of the red lights flashing. We'll turn the tape over and keep right on going.
ALLEN: All right.
End of Tape 1, Side A
SMITH: This is Side B of Tape 1 of the oral history interview with Ed Allen. Ed, you were naming the two lawyers that you had referred to that were involved with your initial activity in cable television. Would you like to proceed from that point?
ALLEN: As I said, it's Bob Regan, Robert Regan, and H. Clifton Kroon. He was known as Cliff. They had a third partner too, a Ken McHugo. Ken was not a lawyer. He was the guy who was the brains behind the contracting company, because he used to build power lines. So he knew about pole erection for electrical power lines. So he was the guiding light, and the estimator, and the purchaser, and whatever, of this contracting company that built cable systems while Cliff and Bob had their own law practice. I know Cliff and Bob are members of the Pioneers. I know Bob is, I think Cliff is.
ALLEN: And I think McHugo might have been, but Mac is dead now. I don't know whether Mac was ever a Pioneer or not. At any rate, we did go ahead. It was in 1958 and they built the cable system for us in Winona. We put up a 600 foot tower on a 600 foot hill to try to peek over the horizon and try to get these Minneapolis signals. At that time there were a couple of other cable systems in Minnesota. One was the Mankato system that they built. There was one at Brainerd, Minnesota. Another fellow we both know, Frank Thompson, was associated with the Brainerd system. The system in Rochester, Minnesota, was either built or in the process of being built at the same time. That's where Bill Bresnan was the Chief Engineer. He subsequently wound up heading up TelePrompTer for Jack Kent Cooke and has been a National Chairman of the NTCA and is a Pioneer.
We had just barely come out of the stage of five channel technology. You perhaps have interviewed Pioneers that built one channel and two channel cable systems, I'll bet. We had just come out of a channel 2‑6 era, the five channel era and for the first time could build systems with as many as twelve channels, although there weren't twelve somethings in the air to pick up. I remember my first cable system, even with everything we could pick up from Minneapolis and the local signals, delivered only eight signals even though we had the capacity for twelve. That was kind of interesting in that, at that time, there was only one manufacturer of twelve channel equipment. That was the Spencer‑Kennedy Laboratories group out of Boston, Massachusetts. Bill Headley, who is also a Pioneer, was vice president of sales and salesman number one out of a sales staff of one.
Bill had a great story to tell. They got an entree into the Midwest and particularly into Minnesota, which was unusual because Jerrold was much the biggest manufacturer at the time. But Jerrold didn't have broad band equipment. They had the low band 2‑6 equipment. So Bill would go into a prospective client and say, "You want five channels or do you want more than five channels?" The fellow would say, "Can I get more than five channels?" and he would say, "Yes, you can if you buy from me, but only if you buy from me." So S.K.L. (Spencer‑Kennedy Laboratories) as they called it at that time had, for a short period of time, kind of a lock on twelve channel equipment. It didn't take the other manufacturers very long to come along with their own versions of twelve channel equipment. That was also tubed equipment at that time. That's before we had transistors, which meant that every amplifier in the line had to be mounted on a pole, rather than suspending it in mid‑span, because there had to be a power line from that amplifier running up the pole to the electrical power source.
As you know, we can now send the electric power right through the cable. We can put the amplifiers wherever we want to. We mounted these amplifiers in great big steel boxes that were mounted on these poles. There had to be a fusing system in each box and these were the old threaded fuses like you had in your home. You screwed them in.
I remember when we had lightning storms in Winona (we had a lot of them in the Midwest) and they would knock out the cable because of the power surges. One time I got so frustrated I gave my engineers a handful of pennies and said to go out and put a penny behind every one of those fuses because I don't want them to blow anymore. It helped a lot in terms of the continuity of service but we also destroyed a few amplifiers in the process. At any rate, we built the system in Winona and we're off and running in my first experience in the cable industry.
SMITH: How were the signals on the 600 foot tower compared to the 400 tower? Were they better?
ALLEN: Yes, but marginally, Strat. Enough so that the people enjoyed what they were seeing. We had very good pictures for these three local channels, but the five channels that we were bringing out of Minneapolis ‑ that was the three networks, one educational and one independent, would vary. It was at least 100 miles straight line that we were trying to pull these signals. The people understood that. We were down in a valley and were used to getting only a couple of signals. They thought literally it was a miracle that we could deliver eight channels. I remember we charged $5 a month, mainly because we didn't know what else to charge. As people would come in to pay their bills each month, they would lay that $5 down on the counter and they'd say, "That's the best $5 I spend every month."
It was interesting, though, to watch the attitude change because what started out as a literal miracle to these people, ultimately became old hat and they began to expect more than we could really deliver. They would become, then, critical of the pictures from Minneapolis. It was no longer the miracle. They wondered, "Why do I have to pay money each month for what people in other cities get for free?" Our industry has always been a success because the people like what we're doing. Bill Daniels has a great phrase that he uses and that is that "It isn't just Wall Street that likes us, it's Main Street also." That's very true and the success story of our business is that while the people may grouse on occasion, whether it be a snippy CSR that answers the telephone or . . .
SMITH: Customer service representative.
ALLEN: ...or a failed appointment at the house, or a rate increase that they think is excessive, whatever it might be, underneath it all, they really think we give tremendous value for what we do and they like what we do.
SMITH: Do you remember any specific entertaining incidents with your subscribers relative to complaints?
ALLEN: I can think of one and I'm sure this has happened to other cable operators. When we first began building the system, one of the first things you do is you put up a steel strand messenger wire from pole to pole to pole. Nothing but a steel wire. Then you lash your cable ‑ the coaxial cable ‑ to this messenger strand. As we were out putting up this steel strand, we began getting complaints, registered at City Hall, that the strand was sucking all the television signals out of the air and that people who had rooftop antennas were not getting as good reception as they used to as soon as that strand went past their house. That's idiocy of a very high order, but people believed it.
You'll find as we go through this process that we're going through that I am not an engineer. The commonest engineering term that we use is db, standing for decibels, and for more than 30 years now, db's, to me, have always been dollar bills. I don't pretend to understand the technical aspects of our business. I'm sure there are probably a lot of other anecdotes that relate to our subscribers but I can't recall them right now. I'm sure they're out there. Everybody's got things that have happened with their subscribers.
SMITH: Did you personally have any ownership interest, Ed, in that Winona system?
ALLEN: Yes. We subsequently built the cable system in La Cross, Wisconsin and I had an ownership in that also. The original split of the three of us ‑ this is the chairman of the board of the Watkins Company, the president of the bank, and myself, was 75‑15‑10 and I had 15 percent of the business. The bank president had 10 and the principal money source behind it, the chairman of the board of the Watkins company, had a 75 percent interest. We ran the penetration up rather rapidly, as you would expect in a town that didn't have much television reception, to over 65‑70%. Now I think the penetration after all these years is in the 90% range. You don't see an antenna in town. One of the very first promotions we ran, I remember, and it's as old as the cable industry, is the antenna take‑down promotion. That's kind of interesting.
SMITH: Could you elaborate on that a little bit?
ALLEN: We would perform as a service of taking down these antennas on the roofs, and keeping them, so we could destroy them in exchange for the normal installation charge. It was a free installation if you would turn in your antenna. A lot of the people wanted to get rid of these antennas because they were ugly. We ran a campaign in which we vilified the antennas. We called them "bird perches," and I had two classic photographs that we ran in our newspaper ads. One showed about eight birds sitting on an antenna. The other showed an antenna snapped in half and lying on the roof. The combination of those two things persuaded a lot of people that they really should get these antennas off the roof. They were ugly. They were dangerous. They could damage the roof and whatever.
I remember parking a flat bed truck out in front of our office and it was so big I think I had to plug three or four parking meters to find a space to park it. I had a big sign made for the side of the truck which was stacked about six feet high with the antennas we had taken down. The sign said, "Another load of bird perches headed for the dump." That was a very successful promotion.
SMITH: Ed, let me interrupt you a minute on that and ask you if you would think that someplace in your files, you might have those old photographs and any newspaper articles or advertisements related to your antenna take‑down promotion. The Museum would just love to have them if you were prepared to release them.
ALLEN: Sure. I don't think I have any. At one time I had a few souvenirs including some of the promotional literature we used. I don't believe I have anymore, but if I do I'll sure send them on to the Museum.
SMITH: Pamela Czapla, the head of our information center, would love to have them if you could find them.
ALLEN: The antenna take down promotion just triggered off another thought. Did you ever hear the story of our i mouse promotion?
SMITH: No, I did not.
ALLEN: It got written up and got quite a little bit of publicity. "i" standing for Irving. Irving mouse. i. mouse was a mythical creation of ours. He was the night manager of our cable television system. The gimmick we used is that he would type memos to me at night which we would then run as newspaper ads, subsequently. He was so small that he couldn't stand on the capital shift key and hit another key at the same time, so everything he typed came out in lower case. Then he would sign them i. mouse, Irving mouse. We created a whole cast of characters. The next door neighbor's cat was one of them, who was constantly harassing him. It was a soft sell. He would occasionally talk about the services we had. Mostly it was almost like a comic strip. Irving got to be a very popular character in town.
We decided that we ought to allow the children in town to talk to Irving. I had one girl in the office who could squeak when she talked and at that time answering machines had just barely come on the market. We got an answering machine. She would put a message on the answering machine (which we would change every day) so the children in town could call up and talk to i. mouse. We drove the phone company nuts because we overloaded the phone lines. People would come from out of town and their host in town would say, "Have you ever talked to a mouse?" and people would be calling up this mouse. Then people wanted to see i. mouse and so I remember going over to the Mayo Clinic in Rochester and in their medical laboratories I found a beautiful white rat (because I felt the mouse was too small for people to see). This one was a beauty. It was a beautiful rat. So I put him in, of all things, a glass aquarium in our front window. I didn't realize that the sun coming in that window and the odor from the shavings in this glass aquarium that didn't have very good air circulation, could create such a powerful stench that it could almost drive us out of the office.
i. mouse finally got to be such a problem (because he was too successful) that we decided we had to somehow stop this promotion. We announced to the world that i. mouse was being promoted from our Winona cable system to our La Crosse system and he was going to be the night manager at La Crosse, which was a bigger cable system. We were going to have a going away party for i. mouse. This was in the summer. So I rented the high school auditorium which had 1,500 seats and we brought a children's television personality into town. He did a show on WCCO‑TV in Minneapolis and he brought his "Our Gang" comedy films along. We had a golden retriever puppy that we gave away as a door prize and everybody who came to the affair got a numbered button that had a caricature of i. mouse on it. We filled the auditorium with 1,500 people for a going away party for a mouse. They had just painted the floor of this auditorium and between the suckers and the balloons that they blew up, and then popped, and ground into the suckers on the newly painted floor, I had to pay to have the floor painted all over again. We ultimately got rid of i. mouse and put that promotion to bed. As a soft sell public relations thing I think it probably was the best thing that I have ever done. It was a lot of fun to do for a while until it got out of hand.
SMITH: Was it an effective subscription getter?
ALLEN: Yes, I think so. It wasn't designed to do that. But it made us good corporate citizens in town and created a friendly feeling toward us. I think it was helpful. It constantly kept our name in mind before the people. One thing I learned in terms of newspaper advertising, some of the best advertising you can do is in the form of printed letters. In this case they were memos of i. mouse. He would write this memo to me. We would have the newspaper take a photograph of the letter and then, using that engraving, print that letter in the paper. Well the typewriter type is so different from newspaper type that it just literally jumps off the page at you. Everybody likes to read somebody else's mail. You've had people come into your office and you've got a letter on your desk and they'll try to read it upside down even from across the desk. So they were reading somebody else's mail in a typeface that was not typical of what is normally in the newspaper. It turned out to be very effective newspaper advertising.
SMITH: Was i. mouse a success in his promotions?
ALLEN: Yes. It did get away from us, but just as we could use i. mouse on the answering machine and on the telephone, it would lend itself to radio commercials. So we would have i. mouse on the radio also. We had i. mouse's memos in the newspapers. So it was a totally accidental but coordinated advertising program that we built.
SMITH: One more question about i. mouse. Where did the name Irving come from?
ALLEN: I don't know. I think I actually got the idea, including the lower case concept, from a brochure that somebody put out. It might have even been Pitney‑Bowes postage meters. I don't know, but it was a little brochure on how to do direct mail. The concept was not media, like newspapers and radio, but a single direct mailing piece done in lower case type. They might even have used the name i. mouse, I don't remember for sure. The concept was not original with me. The embellishments, I guess, were.
SMITH: What other cable systems, if any, were you involved in before the move to California, which we'll get into. You're satisfied that we've completed the Winona background?
ALLEN: Well, we built the Winona system in 1958 and in 1960, two years later, we decided that we wanted to apply for and hopefully get the franchise to build a cable system in La Crosse, Wisconsin. That's 30 miles and roughly 30 minutes away. This was a competitive hearing and the first one we'd been involved in because we kind of inherited the Winona franchise. It was my first exposure to the political process at the local level of trying to get a franchise. We ultimately did get a franchise in a competitive situation for La Crosse, Wisconsin. There we built a 660 foot tower. We were that much farther away from Minneapolis and still trying to get these signals. We had a very high penetration in Winona. But we had a real difficulty in getting that kind of a penetration in La Crosse. I think one of the reasons was that there was a television station right in La Crosse. At least that station had superlative pictures. They also got good reception from Rochester and Eau Claire, Wisconsin. So the picture quality was better than what had previously been available in Winona. There was also outright opposition to us from the local television station. They considered us competitive and they didn't want their market fractionalized.
I remember being in an FCC hearing in Washington with your colleague, and at that time, associate ‑ Tom Shack, who was my lawyer. We were trying to build a microwave to improve the picture quality (once microwave had been allowed). You may remember the case by the name of Mississippi Valley Microwave. It was a case of our winning some battles, but losing the war. We didn't ever get the authorization to build this microwave because of the opposition of the local television station in La Crosse. I remember introducing a trade magazine ad that the local station had run about the size of the audience that it received through its transmitter and a big tall tower. I was trying to point out that they were talking about how many hundred thousands of people they reach and this little microwave system serving just a few thousand people was not going to be of any economic impact. I remember the Law Judge, at that time they called them Hearing Examiners, ruling that the introduction of this advertisement was not proper. He would not allow it in evidence because it was what he called, "Puffery without regard to the truth, thereof", apparently inferring that you can say whatever you want to in an advertisement (there were no "truth in advertising statues" at that time).
What got me off on that tangent? We had a problem with penetration because of the opposition of the television station in La Crosse. We did well, ultimately, but not as fast and not as high as we had done in Winona. There's an interesting story there, Strat. In Winona, I had every motel hooked up. So the traveling salesman, as he came to town, would get eight television pictures. In La Crosse, they had a motel owner's association and they all got together and said, "Look, if one of us puts it in, then we've all got to put it in and it's going to cost some money. So let's none of us put cable in. We'll just give people the three channels that they can get off the air." I tried and tried and tried to break into the tight motel association and get some cable in the motels and I just wasn't able to do it. Finally, one of the motels got sold to a new owner. I got to the new owner before the motel association got to him. You may remember at that time, the NCTA had illuminated signs you could hang outside a motel that said "Cable TV." They were going out of the sign business and they had just one of these signs left. I told this new owner, "If you allow me to install cable in your motel, I will give you a beautiful illuminated sign that says 'Cable TV' so that all the passing transients will know that this motel is wired for cable TV." He thought that was pretty neat. He allowed me to come in. I bought the one remaining sign that the NCTA had, gave it to him and we mounted it.
The highway going through La Crosse was a single north‑south highway. I bought 24 sheet billboard posters on that highway on each end of the city ‑ going and coming. It said, "La Crosse is a cable television city. Look for this sign at your motel." There was only one motel in town that had this sign. The upshot was that all the other motels had to go out and fabricate their own signs that looked exactly like this one and they all had to sign up for cable television service and I ultimately got them all. But I had to blackmail them into doing it.
SMITH: I suspect that was a better way of getting them than filing an anti‑trust suit for a combination in restraint of competition.
ALLEN: I guess I was so young then and knew so little about the law that that idea never dawned on me; and I wasn't smart enough to ask a lawyer.
SMITH: That was a pretty dangerous tactic. Very interesting story. Would you say that sort of thing was typical of the early days of the industry?
ALLEN: Yes, I think so, Strat. We were an entrepreneurial industry at that time. We were creative at that time. The money players hadn't moved in at that time. The M.B.A.'s from Wharton were not in control of the industry at that time. Yes, I think you thought of every creative idea you could. You had to overcome a very natural resistance of people having to pay for what better situated people got for free. Even though they loved the service and were willing to pay, there is an ingrained resistance. In a lot of cases we didn't get these people until their antenna fell down. But once the antenna fell down, they went to cable rather than put up another antenna. But you may have to wait a long time.
SMITH: Did you ever pray for windstorms?
ALLEN: I became much more conscious of telephone poles once I got into this business, than I ever had been before. I also used to love thunderstorms. We have some real cracky‑doodlers in Minnesota. I really got to where I didn't care for thunderstorms anymore because the lightning would knock our cable system out and just raise havoc with our subscribers. I guess, in one instance, I wanted windstorms to take down antennas, but I sure didn't want any lightning to come along with it.
SMITH: Were there any other systems besides Winona and La Crosse that you participated in?
ALLEN: Not until I moved to California.
SMITH: Before we go to California, Ed, let me ask you whether you were involved in any state or regional trade associations for the community antenna or cable industry as it became known, while you were still in Minnesota.
ALLEN: Yes. We formed the North Central CATV Association while I was in Minnesota and I was the first president of that association. I remember we formed it in a motel room in Rochester.
SMITH: By "we" who do you mean?
ALLEN: Regan, Croon, Frank Thompson, some of the other old timers. We sat around in this motel room, actually a bedroom, if I remember. We passed the hat and everybody threw five dollars into the hat, the purpose of which was to buy one box of stationery that was to have nobody's name on it because we were going to pass it around from president to president that identified us as being the North Central CATV Association. We picked the states that were going to be in this. North Dakota didn't have any cable systems at the time, but we picked North Dakota as one of them. So it was North Dakota, South Dakota, Minnesota, Iowa, Wisconsin, and the upper peninsula of Michigan, but not the full state of Michigan because they had a cable association of their own. The Michigan fellows in the North Central Association, again the names known to you, were Jim Klungness and Chuck Henry. They preferred to be associated with the Minnesota based group rather than the Michigan based group. I was the first president of that association.
SMITH: You've identified the background of Cliff Kroon and Bob Regan. You mentioned Frank Thompson, who is a good friend of both of us. Would you identify him a little bit more explicitly for the sake of this record.
ALLEN: Well, Frank is one of the shooting pistols of the cable industry. At one time he used to be a school teacher. This was up in the Brainerd, Minnesota area which is a tourist area. That's the Paul Bunyan and his famous Blue Ox area. Frank left the teaching profession and built the cable system in Brainerd, Minnesota. I think Frank probably was the first cable operator in Minnesota. I think he predated Regan and Kroon. Frank held very strong opinions on everything. He became a power in the national industry way before anybody else did from Minnesota. I know at one time he was a Vice Chairman of the NCTA. Wouldn't back down to anybody for any reason. I remember the first year I went on the NCTA Board. The election process was such that the Board did not elect officers from among itself as it does now. There was a slate of officers proposed by a nominating committee. In 1970 they had proposed a slate and someone, and I don't remember who it was, had been nominated as Secretary.
Some people decided that I should run for Secretary. I'd never been on the National Board before. I had no experience as a director and my wife, Patty, was ill at the time with this cancer, and I could not attend. The convention, which was being held in Chicago, is where this election was going to take place. Frank Thompson got up and made a speech on my behalf to the group assembled as to why I should be the new Secretary. It was stuff like, "Ed's a good old boy like I am. If you like me, you'll like Ed." That type of thing. It was sufficiently persuasive so I got elected as the National Secretary in '70 which put me on the Executive Committee and I'd never even been on the Board. I had no Board experience and, ultimately, I had to fly to Chicago to have my picture taken along with the rest of the newly elected Board, and my wife and I went up and back in one day to get it done. Frank was responsible, through that speech, for my becoming involved in the national level back in 1970.
SMITH: We have an oral history in progress on Frank and I wanted to draw the connection.
ALLEN: I can predict that's going to be a hilarious history.
SMITH: It is. Ed, what were the motivations for starting this North Central Association? Were there any particular problems that you guys had to face up there that you needed to work on jointly.
ALLEN: We were beginning to get snapped at around the edges by the state of Minnesota and we had heard that other states were beginning to look at the concept of state regulation. It never really got off to a flying start in the Midwest under a Public Utilities Commission concept, although Minnesota ultimately did have a state Cable Commission which subsequently disbanded. The state regulation of cable really was more of a phenomenon of the northeast but it never really got started in the Midwest. I think we felt that we needed a unified presence before the state legislatures to try to fend off state regulation. I think that was probably the impetus. Probably there were some national problems. I don't remember in 1960, or whenever it was, just what they might have been. We just felt we needed a cohesive local voice as opposed to only a federal voice, a national voice.
SMITH: Did you have any recollections of any specific appearances before state legislative committees or investigating bodies?
ALLEN: I remember appearing before what was a Railroad and Warehouse Commission. That was their equivalent of what would now be a Public Utilities Commission. And also some committees of the state legislature who were looking at cable issues, yes, that happened at that time. Nowhere near as much as the involvement in California which came several years later. I remember doing that, Strat.
SMTIH You were the first president of that Association. How long did that term last?
ALLEN: I think it was one year and I think either Regan, Kroon, or Thompson stepped in behind me. I don't remember for sure. There weren't many of us in cable. When you've named those four names, plus a fellow named Joe Poire, (he was involved in the Rochester cable system) you've named about all the cable operators who were in Minnesota at the time.
SMITH: Let's go to the California development, then. What occasioned your leaving Winona and moving off to California?
ALLEN: We built the cable system in 1958. In about the 1963‑64 era, the principal owner of the cable system in Winona felt that it had matured as much as it could. We had a very high penetration. Perhaps this was the time to sell the cable system. Jack Kent Cooke had just gotten into the cable business at the time. We had been exploring the concept, in addition to possibly selling, of getting bigger by buying something. We looked at 5 cable systems with the idea of possibly purchasing them. They were owned by Narragansett Capital. I know Barstow, California was one of them. There was one up in Maine. They were scattered all over the area. We ultimately didn't buy those, but Jack Kent Cooke did buy those five cable systems. Those were the very first five cable systems that Jack ever owned. He then approached us, through Bill Daniels, to find out if we would be willing to sell our two cable systems in Winona and La Crosse. We ultimately did sell them to Jack Cooke, so they became the sixth and seventh cable systems that Jack owned.
The next one, of all things, was Rochester, Minnesota, where I acted as the intermediary between Jack and the owners of the Rochester cable system. I'm not sure Bill Daniels ever forgave me because there was no brokerage commission involved in that transaction. That became the eighth system that Jack owned. Bill Daniels gets a lot of credit for bringing Jack Cooke into the cable industry. He had been a Canadian citizen, an interesting, fascinating guy. He had a private bill passed and signed by President Eisenhower to make him an American citizen rather than a Canadian citizen. He moved down to Southern California with the idea that he was going to enter into the newspaper business and the cable business in the United States and he had two sons, Ralph and John. Ralph was going to be in charge of the newspaper business and John was going to be in charge of the cable end of the business.
SMITH: Ed, I'll have to interrupt you, I've got the flashing light again.
ALLEN: All right. We'll pick it up at Ralph and John.
End of Tape 1, Side B
SMITH: This is Tape 2, Side A of the oral history interview with Ed Allen. When we ran out of tape, you were identifying the two sons of Jack Kent Cooke. Is this the Jack Kent Cooke who is also well known as the owner of the Washington Redskins professional football team?
ALLEN: That's the man. To show how things that go around, come around, I sold him those two systems in 1964 and this year, in 1989, when he decided to get out of the cable business, our company bought a whole bunch of systems from Jack. So that which goes around, comes around.
Anyway, he had the two sons, Ralph and John. He was going to get into newspapers, which he had in Canada along with Lord Thompson of Fleet, and cable television. It was Bill Daniels who suggested the name of his then new company. Jack said something like: "Bill, what should I call this cable company?" Bill said, "Why don't you pick something modest like American Cablevision." So he called his first company American Cablevision. He parlayed that into H&B American; parlayed that into TelePrompTer and then, ultimately, that was sold to Group W. This was at the very beginning stages of Jack's original cable career. He rather quickly found that it was a lot tougher to buy newspapers. I don't know if he owned any newspapers until his relatively recent purchase of a newspaper in Los Angeles and, subsequently, of all things, in Steamboat Springs, Colorado where my daughter is. I know he has the newspaper there.
For a long time he was not involved in newspaper ownership, so his son, Ralph, had an advertising agency that handled the advertising in‑house for TelePrompTer. He sent Johnny Cooke to me to learn something about the cable business. John spent some time with me in Winona and then I put him into our La Crosse cable system. He was the manager of the La Crosse cable system for a while.
SMITH: This would have been before you sold to Jack.
ALLEN: No, after we sold to him. In '64 is when we sold.
SMITH: Were you still managing the systems then after they were sold?
ALLEN: Yes, for a year. In the sale, in addition to some cash down, there was some paper for five years. I didn't know Jack Cooke at all. So I told our investors, the bank president and the chairman of this other company, that I would stay with the company at least for a while to make sure that this was a good operation that could come through on the paper that was owed. Of course, they were and they did. I stayed with the original companies from '64 when we sold to Jack Cooke until about October or November of '65, which is when I moved to California. At that point I had no more association with these two cable systems.
The genesis of the move to California goes back to the equipment manufacturer I told you about, Spencer‑Kennedy Laboratories in Boston. I had the Winona and La Crosse cable systems literally running like a Swiss watch. They didn't seem to require a lot of my time. I was still young enough at the time, 40, where I was still something of a charger, I wanted a bigger challenge. It didn't seem to be with the two systems that I had originally built, more particularly after they had been sold to someone and I had no equity position in them. Spencer‑Kennedy Laboratories got in touch with me. Donald Spencer, another Pioneer, asked me if I would be interested in being, in essence, the operations manager for five cable systems that were owned by Spencer‑Kennedy Laboratories. One was in Illinois. Again, Strat, I've forgotten where they all were but one was in Lafayette, California which is one of the outskirts of San Francisco ‑ it's in the San Francisco Bay Area.
After some thought and knowing that I had spent all of my life in Minnesota and, more particularly, in Winona (I'd never been out of Winona), I decided I would make a leap of faith and travel a couple of thousand miles away and see if I could replicate in California and these other communities what we had in Winona. I packed up my family in the fall of 1965, having sold to Cooke in '64 and moved everybody out to California. One thing that was kind of interesting, I went out there in like October of '65. My family couldn't join me until the school break in Minnesota which would be like in January, early February, I suppose. So I lived as a bachelor out there for a while. My eldest daughter, Tracy, the one who is in Steamboat Springs, was in her senior year in high school. This can be kind of a trauma for a girl to move 2,000 miles in the middle of her senior year. As it turned out, in Winona they had not yet taken the pictures for the class yearbook. In California they had already taken the pictures by the time she arrived so she did not wind up in either yearbook. As you can imagine, she couldn't wait to get back to Minnesota where all of her friends were so, after she graduated from high school in Lafayette, California, she headed right back to Hamlin University in St. Paul to begin her college education.
I also remember the day the family moved out from Minnesota to California. It was 30 below zero in Minnesota when they left; and when I met them at the San Francisco airport it was 70 degrees. So that's a hundred degree temperature swing in one day that they had to go through. In getting to the Minneapolis airport, their car had skidded off the road on ice, and they had to get shoved out of a ditch. They arrived in California and it's all beautiful sunshine and nice warm weather.
SMITH: That helped a little bit.
ALLEN: I hope so. We became acclimated to California real quick. After 40 years in Minnesota, I guess the two things I miss the most were the 40 year accumulation of friends because I found that in California people are much more private. It's more difficult to make friends than it was in Minnesota where everybody was so open and you grew up with them. In Minnesota, one backyard runs right into the next backyard. In California, everything is fenced in so you get a little piece of privacy. I miss my friends and I miss the boat I had on the Mississippi River, but I sure don't miss the snow and ice. It's nice to live in California. At any rate, I moved to Lafayette. That was the headquarters for me in running those other four cable systems, a total of five cable systems. That was in the fall of '65. In early '67, about a year and a half later, the Chronicle Publishing Company got hold of me. They are the publishers of the San Francisco Chronicle. They also had KRON‑TV as a television station in San Francisco, the NBC affiliate.
Meanwhile, the Lafayette cable system and the other systems owned by Spencer‑Kennedy Laboratories were sold as a group to create ATC. This is when Monty Rifkin was heading up ATC and there were several properties that came in all at one time.
SMITH: American Television and Communications.
ALLEN: Right. In Denver. Number two in the country. The SKL systems had been sold and I wasn't at all sure that I again wanted to be under an absentee ownership, as was the case with Jack Cooke ‑ he was in Beverly Hills, California at the time. In this instance, the ownership control was going to be in Denver. The Chronicle approached me to start their cable company, which ultimately became Western Communications, Inc. I was amenable to the idea because it would give me the opportunity‑‑while I wouldn't have any ownership interest, since the Chronicle was a family held operation‑‑to start from scratch a brand new cable company and put it together my way, based on what I had learned over the prior years. So I went to work for the Chronicle and spent the next 21 years running Western Communications as the cable television arm of the Chronicle Publishing Company.
SMITH: Tell us the details about the systems you acquired, how you went about it, any special or interesting experiences you had in building that group.
ALLEN: The concept of entering cable on behalf of the Chronicle originated with two people. One was Charles Thieriot. It's a French name. You'd think it would be pronounced "Theerio" but the family pronounces it "Terriot." Charlie Thieriot was the publisher of the San Francisco Chronicle. The Chronicle, in turn, was the owner of KRON‑TV, Chronicle Broadcasting Company. At that time, they also had an FM station. KRON‑TV was the only television station they owned. They since have added two more television stations, one in Wichita and one in Omaha, to their stable of television stations. A man named Harold See was the president of Chronicle Broadcasting and I think Harold was the one who persuaded Charlie Thieriot that the Chronicle ought to get into the cable television business, particularly in the area of dominant influence of the newspaper and the television station. Probably for competitive reasons. I think they thought that "If we don't do it, somebody else is going to do it. We would rather do it so that, as we have the other media, we'd also have cable."
Not knowing anything about the cable industry, Harold See and one other man on his staff, literally just the two of them, began trying to franchise cable systems in the immediate San Francisco Bay Area. At that time, the cross ownership rules were not in place. They were only modestly successful. They purchased a franchise for a little tiny area. It had no subscribers and it had not yet been built. They were successful at about the time I came on board in getting a franchise for the city of South San Francisco and they got a franchise for the city of Concord, California. That, literally, was all they were able to do in terms of franchising. Then, subsequently, the cross ownership rules came into effect so that they could not secure new cable systems within the Grade B contour of the television station they owned. They could be grandfathered as to what they had, but they could not enlarge.
SMITH: The cross ownership of the rules of the Federal Communications Commission?
ALLEN: Right. So after that point we stopped franchising completely. Very frankly, I was upset, deeply upset, by the franchising processes that were going on. This is before the so‑called franchising wars of the late 70's and the early 80's where so much was given away by so many to so few. I still didn't like the franchising process that was going on at that time. We decided, very deliberately, that we would purchase cable systems. We did purchase a series of cable systems primarily in California. In fact, at the time I left 21 years later, we had seven or eight cable systems and all but one were in California. That one was in Las Cruces, New Mexico. Las Cruces stands for The Crosses. And, for a long time, the cable systems we had were all in Northern California. We hadn't yet dipped a toe down below the Monterey Peninsula. . .the Carmel/Monterey complex. We were very parochial in our thinking.
I remember when we were in the process of buying the Monterey cable system from the original owners. At the same time we were looking at Honolulu and Toledo, Ohio. I remember Charlie Thieriot saying Toledo was too far east. But Honolulu was not too far west. As it turned out, we didn't take either one of them. We bought the Monterey system. We were really western oriented and California oriented in the process. At the time I left the company, in my abortive attempt to retire in 1988, we had about 260,000 subscribers. They were in about seven, maybe eight, cable systems because we had dipped down into Southern California at that time. They were all big systems. The smallest system we had was 15,000 subscribers. We had two of them that were in the 60,000 subscriber range, so the bracket was 15,000 to 60,000.
SMITH: Could you identify them, specifically, Ed?
ALLEN: Let's see if I can remember them. We started out in the Bay Area with the South San Francisco and Concord cable systems. In some cases the identification is where the headquarters office is. We added in other surrounding entities. Like, in Concord, we also had the system in Clayton, but it was run out of the Concord office. The next thing we bought was Chico, California, I believe, and that had adjuncts to it of the little towns of Corning, Orland and Willows, fed by microwave from the Chico system. We put together a series of purchases in what we called Monterey Peninsula TV Cable. It started out with the Carmel/Monterey/Pebble Beach system. Again owned by a former Pioneer, help me, Jerry (Gerard) ...
ALLEN: Jerry Henderson. Jerry is the one who started a company, of all things, called Alarm Corporation because somebody had stolen something out of his house in Carmel and he decided he wasn't going to permit that and he was going to set up an alarm company. It was the alarm company that got parlayed into the cable business. Through a series of buys on the Monterey Peninsula, we literally locked up all of the Central Peninsula: 60,000 subscribers. All of the towns around Carmel and Monterey, Pacific Grove, Salinas ‑ all became a piece of the property. We did our one little foray outside the state of California when we bought a cable system in Las Cruces, New Mexico. Again from someone you may know, I. E. "Irish" Shahan.
SMITH: I'm glad you named him because some of us a few days ago were trying to remember his name and we couldn't do it.
ALLEN: I think Irish still lives in Las Cruces. Just before I left the company in March of '88, we bought a rather major complex in Ventura County in Southern California. I don't know whether I missed any or not, but that's essentially the properties. We were about the fortieth largest cable company. There's a far cry between number forty and number one. Five million and 250,000.
I think my friends thought that, owning the Carmel/Monterey system (which is a two hour drive from my office) I would spend every weekend on the Monterey Peninsula or Pebble Beach.
SMITH: I would have.
ALLEN: Well, I got down there about twice a year and that was usually to put out a fire of one kind of another. They were good properties with very good people running them. We had a very highly decentralized operation. Now a lot of the cable companies are coming to that, but every one of our companies, our cable systems, was a separate corporation. We didn't have any general managers. Each cable company was run by its own president who was a resident of the town. We would try to treat him like a president and the city council would treat him like a president. We gave assistance from the corporate office, which was a very small corporate office, in such things as franchise renewal negotiations, lobbying at the state or federal level, legal work that we would handle, and then of course, budgeting. Once the budgeting process was done (which was worked out with the local president) he signed off on it. That was his company. As long as he was within the budget constraints, he had the authority to run it. It's the kind of thing I would love to see replicated more. It's a good way to run it.
Our corporate offices started out in San Francisco. When I first joined the Chronicle organization, of all things, I had two rooms in a hotel, cattycorner from the Chronicle Publishing Company plant ‑ the newspaper plant. At that time, the television station, KRON‑TV, occupied the first floor of the building that the newspaper was in. They had run out of space for all of the television people so they took over a whole floor of this old hotel that was cattycorner from the Chronicle. Along with a bunch of displaced television people, their engineering staff and some of their programming staff, my secretary and I were the only two people in the whole company when we started.
As I say, we had two adjoining bedrooms in this hotel. We had planks on the bathtubs so we could stack paper on them. The conventional hotel lighting had been replaced with fluorescent lights. I enjoy telling people that my first secretary and I shared adjoining bedrooms in a hotel in San Francisco. Ultimately, they built a beautiful television building and moved the television station out of the lower floor of the publishing building into its new television facility. Again my secretary and I, at that point, were still the only two people in our organization, with a part time accountant from the Chronicle accounting staff doing our accounting for us. We had two offices in this new KRON‑TV television building. They ultimately began to expand the KRON‑TV facility. They needed more room for their news department. They needed more room for the accounting department. They were looking at the space that I had and decided they needed it.
I was living in Walnut Creek and had been commuting to San Francisco. That's when I said, "Why are my offices in San Francisco? I can do this anywhere. Why don't I do this in Walnut Creek?" So, ultimately, instead of trying to find replacement space in San Francisco, I created the Western Communications offices in Walnut Creek. We were in two different locations over the years in Walnut Creek but all the rest of the time that I was with the company the headquarters was in Walnut Creek. At the maximum, our staff (other than the accounting department and when I created a full blown accounting department of about a dozen people I didn't depend on the Chronicle anymore) consisted of myself, four executives, three secretaries and four middle management people. So that's 12 people. That (plus our accounting department) was our full corporate staff for running the 40th largest cable company in the United States. That's what you can do when you have very good people at the local level. You get a good system president, you give him a good chief engineer, you give him a good marketer, and you give him a good office manager then stay off his back and let him run it.
SMITH: It worked.
SMITH: You had referred to your aborted retirement. What caused you to retire from Western Communications?
ALLEN: Well, I was 63 at the time and I guess I just got to thinking that I had spent enough years working, had enough money, and I had a bunch of young chargers coming behind me that were brilliant people. Maybe it was the time for the old man to step aside and let the next generation move in. I found that the industry had changed a lot. It was moving maybe even faster than I could keep up with. I used to get to the office at 6:00, 6:30 in the morning, because in a lot of cases I would be talking to Washington. This was particularly true when I was the National Chairman. If I waited until 9:00, everybody in Washington had just gone to lunch. So I would use those early hours to read the trade press, voraciously, trying to stay up with all the changes that were taking place, technological changes, programming changes, philosophical changes, concept changes. The industry was really moving rapidly and I felt that maybe it takes a younger person who can adjust more rapidly than I was able to adjust.
It reminds me of when I was taking Aviation Cadet training several wars ago, World War II. The first day we were in this one class, the instructor said, "Let me tell you, we're going to throw this information at you so fast and in such volume that if you drop your pencil and bend over to pick it up, you're going to be irretrievably behind." And that's kind of the way I felt about how our industry was changing. So much was happening that maybe it took a more facile mind than mine to stay with it. I was too much in the tradition of the old line cable operator. At any rate, I guess I felt mainly, Strat, that it was time to get out of the way and let some younger people play with it. I had enough money. I was just going to play with my grandchildren and relax for a while.
SMITH: The Chronicle didn't sell. They still own Western Communications, do they?
ALLEN: Yes, they're still in business and getting larger. They had the same staff that was there when I was there. The same key people in all the same key slots. To my knowledge, they have no plans to sell. I was there 21 years and they've now been in the business 23 years. I think that qualifies them as an old line established cable operator. And they're doing well. It's a fine operation.
SMITH: Where are their headquarters now?
ALLEN: Just about two months ago they moved into San Francisco. So it's gone from San Francisco to Walnut Creek and back to San Francisco. But the owning family lives in San Francisco and so I think they felt that they would, now that I was gone and I was the one who had insisted that it be in Walnut Creek, pull it back into San Francisco. They are now in the Rincon Center area in San Francisco, but that's brand new.
SMITH: You had an illustrious career both in California in the California Association as well as nationally and with the NCTA and I'm going to want to go into that in quite some detail with you but I think logically maybe the best progression is to find out why you're back in the cable television business now and how did that happen?
ALLEN: As I tell my friends, I retired for four weeks and then retired from retirement. An associate of mine named Leo Hindery had been the chief financial officer of the Chronicle for about the last three years that I was associated with the Chronicle. That was his first exposure to cable television. He comes from a financial background. He had been with different financial institutions. He's a young man. He was about 39 or 40, 38 maybe, when he was working for the Chronicle. He conceived of the idea of creating a new kind of cable company which would be a vehicle for institutions who had formerly been just lenders to the cable television industry to become equity owners in the cable television industry. So he conceived of the idea of creating what we now call InterMedia Partners. He approached me during my period of retirement (actually before that) with the idea that maybe I would join him in this venture because, while he knew how to put together a company from the financial side, he did not have the cable credentials that would persuade these people to part with their money as equity players, unless they felt that there was someone else associated with the company who knew something about the cable television business. He asked me to join him as one of three general partners. Leo is the managing general partner. He's in our San Francisco office and his responsibility is to make the deals and to find the financing, in essence. My responsibility was to assist in raising the money on the basis of credentials, reputation, experience, but then, having done that, to be responsible for the operation of the various cable properties.
The purpose of this partnership was to raise money to purchase cable television properties and hopefully purchase a newspaper. We haven't found any newspapers yet. We have found and closed on some cable television properties. The two of us then tapped a third man who was my Washington communications attorney. A young man, also now in his early 40's, named Dave Rozzelle. Dave had been my communications attorney in Washington for ten or twelve years. He was with the firm of Fletcher, Heald, and Hildreth. A fine firm. A small firm but I think very highly thought of by the Commission. Their filings carried some real weight. Dave was a full partner in his law firm. In fact, he was the managing partner of the firm in that he handled the business aspects of the firm in addition to being their principle cable practitioner. We persuaded Dave to leave the law firm and move his family to Walnut Creek, which he has done and, while I'm not sure, he may be the only partner that ever left that firm voluntarily. I think they might have had some partners that died or retired voluntarily, like Bob Heald, but I think it was rare, within that firm, that someone who was a full partner in the firm would leave the practice of law to go into what I call POCO. You've heard of POTS (Plain Old Telephone Service), well POCO is Plain Old Cable Operations.
But he moved to Walnut Creek, bought a home there, moved his family out there. We are now in the process of finalizing the acquisition of some cable properties that we contracted for. The intent is that Dave will take over the cable operations. He's a brilliant administrator. He's also spent 10‑12 years in the cable law business, so he's not unknowledgeable at all about cable. I intend, starting next year, to back away from active involvement in operations and to pass the torch to Dave.
So anyway, we are up and running. We have three transactions that we have signed paper on. We're in the process of transferring all the franchises, and by January of 1990, we should have closed on the transactions and that will make us almost as big, overnight, as Western Communications was when I left it. We'll have about 240,000 subscribers, instantaneously. I think when we had started the company we kind of envisioned a gradual growth. We knew the size of the systems we wanted. We wanted to replicate Wescomm (Western Communications) so systems in the 15‑80,000 range was what we were most comfortable with. But some major properties came on the market and we were successful in purchasing these properties. But it gave us an awful lot of subscribers in one big hurry. That's not without its problems when you've got 100 franchises that have to be transferred before you can get up and running.
SMITH: 100 franchises. That's quite a few.
ALLEN: We're dealing, really, with three separate transactions. We had previously purchased one small cable system. It falls below my 15,000 subscriber threshold. This is in Hawaii. It's about an 8,000 subscriber system. I think that's kind of a fun property. Maybe that's where we'll hold the partnership meetings.
SMITH: I'll have to go out and check it out.
ALLEN: Yeah. The other two principle acquisitions were the Hearst properties at the south end of the San Francisco Bay. Hearst decided they were going to get out of the cable television business and that's about 60,000 subscribers. The other is the Jack Kent Cooke properties. This is where I said it all comes full circle. Jack decided that he was going to get out of the cable television business also. This is the second time for Jack in the cable business after he got out of TelePrompTer. He had made a running charge to become a major player in the business and it didn't really materialize the way he envisioned it. He got to a certain point and it kind of stalled. He ultimately decided that if he couldn't get bigger, he didn't want to play. So our company, InterMedia, with Leo as the principle negotiator, put together a consortium of about six companies to purchase Jack Cooke's properties. They were big. They had about 700,000 subscribers. It was so big that no one entity wanted to buy all of it. More particularly, there were certain specific geographic areas that Jack had and they seemed to fit certain companies better than other companies. So, while we made a joint bid for the whole thing, we had decided ahead of time how the properties were going to be carved up. The total bid was about a billion and a half dollars. Our portion of it, I suppose, is about 400 million dollars for the Cooke properties that we're lifting out of the package. So, between Cooke and Hearst and the little Hawaiian property, literally overnight, we've made a financial commitment in excess of a half a billion dollars. It's enough to give you a trauma on occasion, particularly when the bottom fell out of the junk bond market and we had to restructure the financing. We have now closed InterMedia Partners I, as we now call it, and Leo will be creating additional InterMedia Partners, II, maybe III, maybe IV, with additional cable properties and maybe a newspaper if we can find it.
SMITH: These are limited partnerships?
ALLEN: It's a California Limited Partnership. The interesting thing about it, Strat, was the original concept, a brilliant concept, that Leo had and that was to go to the lenders in the industry and give them the opportunity to become equity owners in the industry they're lending to. So this is not the kind of a partnership like Heritage or Jones Intercable has created where they sell $5,000 interests to rich dentists. We only have about a dozen limited partners. Nobody is in for less than $5 million dollars. But they are names you would recognize. The only partner we have which is not a financial institution is TCI. We sought them out‑‑they didn't come to us. We felt that it would give us a significant advantage it we could use the TCI program rates and the TCI purchasing power‑‑something we wouldn't have by ourselves. We asked them to join us. The rest of our limited partners are all financial institutions. It's kind of a Who's Who. Bank of New York, Bank of America, the Mellon Bank, of all things Sumitomo Corporation. I think this may be the first Japanese money in the American cable industry. This is the parent‑parent‑parent, Sumitomo. This isn't the bank. This is the guy sitting on top who owns the bank.
So, Traveler's Insurance, Chrysler Pension, these are all significant players. They all have a piece of the equity and they have committed to be a long term player and that means 10‑12 years. It's not going to be a franchise flipping thing like some of the money players (who I really have no time for)‑‑the asset players who have become involved. At some point, as institutional investors, they want the opportunity to make their profit but they are going to have to wait ten to twelve years. That doesn't bother pension funds, for example. Pension funds are historically long term players. At any rate, then we went back to the same people, our equity partners, and said now put your lending hat on. We want to borrow some money from you.
SMITH: I'll have to hold you again for the flashing red light. This is fascinating.
End of Tape 2, Side A
SMITH: This is Side B, Tape 2, of the oral histories interview with Ed Allen. Ed, would you continue with your discussion of the partners in the new company, InterMedia Partners, in which you are a general partner?
ALLEN: Sure. I might say, Strat, we have a partnership philosophy not discussing our partnership or its affairs with anybody unless it comes from the managing general partner. We speak with one voice. This is kind of special because this is not media exposure, so I'm delighted to tell you about this concept knowing that it's going to wind up in the historical archives of Penn State rather than being splashed all across the trades.
SMITH: This is staying right where it is until you release it.
ALLEN: Okay. I was at the point where we then went back to our equity partners and said, "Now we want you to become lenders and loan us some money." That was an interesting experience because (I didn't know, but I'm sure Leo as the managing partner knew) the equity interests in a bank and the lending interests in a bank are totally different. They are sometimes on different floors. I sometimes think they don't talk to each other. Having these people as equity partners was not that helpful in terms of cutting a more favorable deal than we might have gotten otherwise from the lenders. They handled us just as they would any other entity. I think there's no doubt that they would talk to the equity people who would say, "Hey, these are good people. Yes, you should be involved with them as a lender," but it didn't make the lending turns any better than they would have been.
SMITH: Is it a matter of a possible conflict of interests?
ALLEN: There are days when I think they deliberately bend over backwards to avoid that by making it tougher‑‑I just don't know. When we started out to raise the money, we put out a prospectus. This is a private partnership, as opposed to one with more than 100 partners. It has to be, otherwise you're into a public partnership, this is a private partnership. We said that we wanted to raise $100 million dollars in equity. If we didn't raise at least 80 million we wouldn't go on with it, but if it was successful, and we raised more than $100 million, we would saw it off at $150 million. Well, we raised the $100 million. We actually raised $101 million in equity. Our thinking at that time was, "OK, now that we have, in pocket, $100 million, we can take that to the lending institutions and probably borrow three times that much to create our pool for system acquisitions." Another $300 million would give us $400 million to go out and acquire cable systems.
We hadn't envisioned that something the size of Cooke would come along and, by the time we closed the transaction (closed is wrong, because that won't close until January), by the time we arrived at agreement, we had signed contracts with Cooke and Hearst and Hawaii. We were up over $500 million and we had a pool of $400 million. So we went back to these same institutional lenders that had come in before in the blind, not knowing which cable properties we had, and said, "Hey, we want to raise the equity portion from $100 million to $150 million, what we had talked about before."
Now they knew what the properties were and they were not working in the blind and so we are just closing out what will be now $150 million in equity and that will close the fund. But, borrowing three times that is another $450 million which gives us $600 million to buy $537 million worth of cable systems and have some working cash. At that point, InterMedia Partners I is a done deal. It's closed. Now we have to operate it.
The thing that we think is going to make it go, is what we call a triad‑‑three things that really are of equal importance. It's almost like trying to decide which is the more important of the legs on a three legged milking stool. First, is to buy it right. You don't give away the store, just because you want to be in the cable business and get some properties. The second thing is to finance it right and then the third thing is for ten years to operate it right. We think that we have struck good deals, fair deals, with the sellers of these properties. We think that the financing is good financing, solid financing. It's not junk bonds. It is with big institutions. Bank of New York is the lead in this, for example. We think we have the experience to operate it, along with the advantage of having the TCI program rates and equipment purchase rates, which we wouldn't have otherwise with our 250,000 subscribers.
The operations team is a lot deeper than just me. While it's a very small team, it is, essentially (with one exception) people who were with me at Western Communications. When I left Western Communications and decided to come into this company, the only person I asked to join me was my secretary of some eight years. And she knows she runs the company, I can't do without her. I did specifically ask her to come with me and she agreed to it. There have been three other executives from Western Communications who voluntarily followed me. In the process of their joining us, I made certain that they told the people at Western Communications that I had not approached them and had not asked them to join me. I didn't want to be accused of raiding my old company. The principal marketer for Western Communications is now our marketer. The man who was a Chief Engineer of our Concord Cable System, which is a major cable system, and then ultimately switched over to the operations side and became the president of two of our cable companies at Western Communications, our very smallest and our very largest, joined me. He's what I call a two‑fer, in that we're getting some engineering talent and some operations talent.
The controller at Western Communications joined me as our controller, as our cable controller, and he's the one who will be creating our new accounting department for our new operation. The only key person on our staff who is not from Western Communications is a man who just joined us in December of '89, as our quintessential engineering guru. Normally, you would say he's a corporate engineer, except we're in a partnership, not a corporation. That's why I'm stumbling around, but he will be on the partnership staff as the principal engineer. He was formerly the Chief Engineer of a major cable system, the one in San Jose, California, and won the NCTA Engineering Award a couple of years ago as the top engineer in the industry. So we have put together, we think, a top notch operations staff which will be in charge of the operations of these cable systems, the third leg of the three legged triad, for the next ten years. Also, the key people at the systems that we bought are good people and they are staying with us. So, there is a continuity involved, between the former owners and the new owners. We think once we have paid for these systems, next month, we will have in place an operations staff that will adopt a lot of the same philosophies that I have had in the past, a lot of the same operational techniques that we used at Western Communications and we'll just transplant them into the InterMedia operation.
SMITH: That is a very interesting story and also, to me, the entry into your organization of TCI is interesting. Did you have any particular problem in persuading them to join you?
ALLEN: No. If you look at TCI's relatively recent history, they have been interested in making investments in other entities whether they be cable systems or programming entities. They're involved in Black Entertainment Television as a programmer. They also are involved in Bresnan Communications as a cable operator. No, it wasn't difficult. I've known the principal players at TCI for a long time. John Malone and I have been on the NCTA Board together for a lot of years.
SMITH: Let's go to another aspect of your career, Ed, which I'll say is very illustrious. You have been a very active statesman in the cable television industry, on behalf of the California Cable Television Association and the National Cable Television Association. Let's start with California. Give us some of your background and your activities in that Association, the offices you held, the committees you've been on, the problems you've helped resolve. You do the talking and I'll do the listening.
ALLEN: I moved to California in '65. The first Western Show that I ever attended, and we're taping this at the Western Show in Anaheim (we expect 9,800 people), was in San Diego. We used a part of one hotel in Hotel Circle and the exhibitors displayed on the sidewalk on the tops of card tables. That's how small the California Association was. I got involved through Walter Kaitz in the California Association affairs, because he heard I had been involved in the North Central Association. One of the first things that we were involved with was lobbying in Sacramento to try to keep out from under the clutches of the California Public Utilities Commission. Every year bills would be introduced to declare us to be a utility and, therefore, subject to the jurisdiction of the California Public Utilities Commission and every year we would have to go up to the state legislature and argue that we were not, in fact, a public utility and therefore did not fall under the PUC.
We were armed with a California Supreme Court Case involving the cable system in Martinez, California, which specifically declared that, under California law, we were not a public utility. In order to permit the PUC to get their arms around us, they had to change the California law and that's why we would be arguing at the legislative level against changes in the law that would permit the Supreme Court to come to a different decision that, in fact, we were a public utility.
SMITH: Would you permit me to tell you that I tried that case and argued it before the California Supreme Court?
ALLEN: HA! You're the hero then.
SMITH: The National Cable Television Association financed the case and I was its General Counsel at the time. We tried the case, I think, in Walnut Creek before the California Supreme Court Case was argued. Then the Commission Hearing Examiner issued a decision that cable was a public utility under California law. We argued that decision before the California Supreme Court and they unanimously reversed the Commission ‑ all nine justices.
ALLEN: Well, the California industry owes you a debt of gratitude then because, for about the first three or four years I was in California, this type of legislation would be introduced every year and we would be up in Sacramento arguing it every year. It now has not been introduced for more than a dozen years, so that original Supreme Court ruling is holding up beautifully in California. It was through the lobbying efforts in Sacramento on the Public Utilities Commission issue that I became involved in the California Association. First, as a director and then as the treasurer for a couple of years, I think it was. That took me up to about 1970 because I came out to California in 1965 and it was in 1970 that I was first elected to the NCTA Board. I have not been involved since 1970 in the Board of the California Association. Although, as a courtesy to me as a National Director, they include me in on all of their Board meetings and I get all of the Board literature and whatever. I'm kind of an ex officio Board member, but I don't vote in the California Association.
For the last several years I have been the Chairman of the State Legislation Committee. This goes to my lobbying involvement in both Washington and in Sacramento. At the California Board meetings, those of us who are on the National Board, John Goddard, for example, the immediate past chairman of the NCTA, are asked to be kind of liaison between the state Association and the national Association. We try to give them input into the industry problems as we see it from the Washington perspective in the hope that it might be of some assistance to them or, more particularly, that they can be of assistance to us, because it's a very effective lobbying organization.
I think there's no doubt that the California Association is the premier state association in the country and, in terms of its efficiency, I think it pushes the national Association pretty well. It's professionally staffed, it knows how to work the politicians, it is a significant voice because there are so many cable subscribers in California, probably a disproportionately loud voice because people in California like cable. I don't know just what the figures are but, to be illustrative, if we had 10% of the population, we've probably got 15% of the cable subscribers, something like that.
My involvement with California since my involvement with the national in 1970 has been one of essentially political lobbying in Sacramento as a part of this State Legislative Committee; and then the interface between the two trade associations.
SMITH: In addition to the public utility problem, which you say no bill has been introduced in quite some time, what have been some of the principal issues that the California Association had to handle before the state legislature that you might have been active in?
ALLEN: I can think of two of them, Strat. You'll remember when the Congress passed the Federal Pole Act, Cable Pole Act. It was in '77, somewhere in that area, we successfully passed legislation in. . . (I'm trying to remember if it was legislation or just working with the PUC) we got the Public Utilities Commission of California to accept the federal pole formula. So, as pole disputes, pole rental disputes, might arise in California, we had in place a mechanism with an acceptable formula to resolve these disputes. That was done by the California Association. I think the other principal thing we did was to establish the concept of rate deregulation for the whole state of California before it ever became a part of the Cable Act. It was tied to the cable industry's willingness to be involved in programming at the local level. If we would do certain things, to foster the concept of local programming through the access concept, we would then be free to set our own rates in the state of California.
SMITH: That was a negotiated proposition with legislators, legislative committees?
ALLEN: Yeah, then it had to be written into law. There's a piece of state law called Section 53066. This is the bedrock piece of cable legislation in all of California. This became an amendment to 53066 and, in fact, those provisions sunsetted with the passage of the Cable Act of 1984 when we got federal deregulation. But until that happened and national rate deregulation kicked in on January 1 of '89 the cable systems in California had, for several years, the opportunity, if you met certain criteria, to set their own rates and it worked. In fact, as we were lobbying the Cable Act, I suggested and we did, in fact, use language out of the California Act as a piece of the Cable Act because it had been tested and we knew that it worked. It was helpful when we were dealing, for example, with Senator Wilson. He was familiar with the California legislation and he became a work horse for us on the Cable Act. We also, as a part of the rate deregulation concept in California, created a Foundation which was a creature of the legislature for the funding of local programming ‑ local access programming. The cable operator had to contribute, it was either 30 cents or 50 cents a subscriber a year, to this Foundation. It, in turn, gave grants from these funds to the communities that were working with the access concept. It might be a private individual producer that has an idea for a program. It might be a City Council that needed some lights for its Council Chambers in order to televise its City Council meetings. The Foundation became a rather significant funding mechanism through the contributions made by the cable television operators.
With the passage of the Cable Act and the sunsetting of this California law, there was no more support for this Foundation and the Foundation now has dispersed all of the funds and has gone out of business. A significant piece of its funding, its remaining funds, was given to an attorney you probably know, Tracy Weston. Tracy was formerly a Washington communications attorney but is now with the Annenberg School down in Southern California. It was Tracy Weston and one of his graduate students who just recently put out a voluminous report on the concept of what we call the California Channel. It's the California version of C‑SPAN. It points out that California probably has one of the most minimal coverages of the state legislature of any state in the United States. Russia has better coverage of their Politbureau than the California legislature does of its own functions and it's a multibillion dollar operation that they are running up there.
At any rate, a lot of the remaining funds of this Foundation were granted to Tracy and the Annenberg School to come up with the concept of the California Channel. We wanted to call it Cal‑SPAN, and we may still be able to do it but, of all things, we found that there is some guy out there that had a calcium supplement and had the name Cal‑Span tied up. I think for a nominal payment of $100 we're going to be able to get the name released. That was truly significant state legislation ‑ to put through a state rate deregulation bill at the time we did it. The lobbying on that bill was probably as intense and lasted almost as long as it did on the Cable Act.
SMITH: Who was principally responsible for directing that lobbying?
ALLEN: Two people, really. One was Spencer Kaitz, who is the son of the late Walter Kaitz. Walter was the founder of the California Cable Television Association and Spencer, ever since he was a young kid, has been on the periphery of the Association. He then went to law school, graduated, and became General Counsel to the Association under his dad. When his dad died, Spencer took over as the paid president of the association. The other is a man named Dennis Mangers. Dennis is our principal and registered Sacramento lobbyist and a former member of the California Assembly. That's what we call the House of Representatives. It's the other side of the Senate. Dennis is a consummate political practitioner. While his focus has been on Sacramento, I think he could be on the NCTA staff and do a superlative job, he is that good. As a former member of the Assembly, he knows how the game is played. He knows all the players and the California Association has an office in Sacramento with only two people in it, Dennis Mangers and his secretary. The California Association has a separate office in Piedmont, California. Those two people, Spencer Kaitz and Dennis Mangers, were the organizers of the lobbying. The individual cable operators, just as we did at the national level, would come in and get briefed and they were the ones who walked the halls and knocked on the doors and made political contributions back in the District, and whatever, to accomplish what these two people as the generals set out for us to do.
SMITH: I ask the question specifically to get you to identify Walter, mainly, and then Spencer, because the two Kaitz's are absolute legends in the industry, particularly in California. Walter, more than Spencer, I guess, nationally.
ALLEN: The third Kaitz, Walter's first wife, died.
ALLEN: The NCTA has their highest national award to go to a woman called the Idel Kaitz Award. It is now the Distinguished Vanguard Award in the memory of Idel Kaitz. I remember when that award was first created. It was my privilege to present it to the first recipient ‑ this was Yolanda Barco. And I did it on behalf, really, of the Kaitz family. Walter's second wife, and now widow, is Dorothea Kaitz. She is considered very much a part of the California cable industry in the Kaitz family tradition as Walter, Idel, and Spencer are. She is Mrs. Cable in the state of California right now. A lovely, lovely woman.
SMITH: I did not know that part of it. I also presented the Idel Kaitz Award. I think it was the second time it was presented, but I'm not certain, and that was to Polly Dunn.
ALLEN: You and I have been following each other around for a lot of years.
SMITH: Again, and this is not necessarily part of this interview, we had intended to try to get started on an oral history, to get the Kaitz's properly represented in the archives of Penn State and an oral history of Spencer is being recorded here today. Marlowe Froke is doing the interview.
ALLEN: Spencer has won an award for the state Association and whatever we call that award. Walter has won that same award in the past. He may have been the first one to win it. Two national awards are named after husband and wife and it's a legendary family in California. I don't know whether you knew it or not, but Spencer had a heart attack, not too long ago. I think it was in Reno.
SMITH: I heard it from you, Ed, when you and I were setting up this interview.
ALLEN: I know he's back at work full time now, but it took a while. They didn't have to do any surgery, and he and his wife took off and went to Europe. I don't know whether it was a cruise or something relaxing like that. While he was getting his feet under him, Dennis Mangers, who I mentioned before, was kind of the interim acting president. But Spencer is back under full steam now. He certainly should be interviewed by the Museum. It's a dynasty. They're not very many in the cable industry, but that's a dynasty.
SMITH: You may be correct now in saying that the California Association is possibly the finest or most effective of the state regional associations. The California Association, through Walter Kaitz's activity in those early days was, as you well know, of inestimable value to the NCTA in connection with national legislation. The influence that the California Association had in Washington has been tremendous. This is part of the history.
ALLEN: Walter taught us all a lot about lobbying. Originally, he was the principal lobbyist in Sacramento for the state employees association. He had a little tiny office, and then he took on as a second client, the embryo California cable industry. He represented the state employees and the cable industry. As the cable industry affairs became more and more complicated and more time consuming, he had to drop the state employees and that's when he became exclusively involved in the California Cable Television Association. Another man whom you know, Harold Farrow, an attorney in California and one who has had some significant prominence in certain cable cases was associated with Walter and I don't know whether Walter was in Harold's office. I'm more inclined to think that Harold had office space with Walter in the Association office. At one time Harold, literally, was the only outside counsel that the California Association used, if they needed outside counsel, if it was something that Walt, as an attorney, couldn't handle, or Spencer as General Counsel. Subsequently, of course, Harold went on to bigger and better things with his own good sized law firm. Sol Schildhause and Mayor Lionel Wilson of Oakland are a part of the firm, although I don't think Mayor Wilson is active anymore in the firm. At any rate, they went their separate ways. That was about the time the California Association began staffing up with someone other than a Kaitz. We had Walter Kaitz heading it. Spencer Kaitz was the General Counsel and Idel Kaitz as the Officer Manager with Spencer's sisters thrown in for free when we had meetings like this where they would be the gofers and run around and put badges on people and make up the badges. We got the whole Kaitz family when we hired Walter.
SMITH: We diverted a little bit from your career mentioning the Kaitz family's relationship to the California Association. We are at the end of the tape.
End of Tape 2, Side B
SMITH: This is Tape 3, Side A, of the oral histories interview with Ed Allen. At the time the tape ran out, I think we completed your discussion of your activities with the California Cable Television Association. I would like now to move on to your activity with the National Cable Television Association as a Director for many years, culminating, not too long ago, in your being elected the National Chairman. Please start at the beginning of your service with NCTA.
ALLEN: I guess my first involvement, Strat, would go back to about 1960. At that time I was a two year veteran of the cable industry. The NCTA sponsored a management seminar of some kind or another at the University of Wisconsin at Madison. The concept was to pair a cable operator with a member of the faculty so that, on these different issues, the faculty member would lay out the theory, marketing, for example, and the cable operator would follow behind him and try to apply what the faculty member said to the real world of cable marketing. That was an interesting experience, for a young guy. I might have been 36, something like that. And a two year veteran knows it all. I was trying to pontificate my expertise and wisdom with that little bit of background. I'm not sure if it was one of the smarter things I did. I remember there was a bunch of fellows from Canada who attended. I'm trying to remember the name of one of them. Bud something, he died as a young man. Bud Shepard. These Canadians were attending this seminar and they would come to class in tweed jackets and leather patches on the elbows and smoke pipes and never open their mouths during the class.
So we were telling everybody how to run a successful cable operation. We got to know these fellows after class when we'd go to the neighborhood tavern and have a beer together and we'd get these guys from Canada to open up. I remember I had about five thousand subscribers at the time and I was talking to Bud Shepard and I said, "How many subscribers do you have?" He said, "Oh I think it's around 60,000." They had these monumentally large cable systems in Canada. Much bigger than anything we ever had in this country. They were light years ahead of us in terms of knowing how to handle these big urban systems. For example, they would join the local builders association so that, as apartment buildings were being built, they were a part of the association and would know about it as soon as it hit the drawing boards so that they could arrange to get into the buildings and do the internal wiring. A simple concept like that never dawned on us in the United States. I had an off and on relationship with the NCTA, as I suppose lots of operators did between 1960 and 1970. When they would put out the alarms, you'd come running to Washington to do what you had to do. 1960, you'll remember, is the year we shot down Senator Pastore, in our wisdom. That's an interesting story we might want to put on the tape or maybe somebody else has.
We had an opportunity to have our own Cable Act, ala 1984, as far back as 1960. The NCTA didn't have much of a lobbying staff at the time, but we had the concept of wanting to be a part of the Communications Act in our own right, rather than being ancillary to broadcasting. So we hired an outside lobbyist, a professional gun to do our lobbying for us. I don't remember his name but he was good. He knew all the calls to make and which buttons to push and what have you.
SMITH: I'll remember his name in a minute.
ALLEN: Unfortunately, we destroyed him in the process. We had a bill that, as I remember, Pastore was managing. We had amendments ready to add to the bill from Senator Fullbright and then, if the bill got out of control and we didn't like it, we had arrangements to kill it in the House. This thing was on track, no problems associated with it. One day I'm sitting at my desk in Winona, two years in the business, and I get a telegram from Washington. That was before the days of mailgrams, when telegrams looked like telegrams. That yellow piece of paper got my attention. I was urged to come to Washington. It was absolutely imperative that we stop this bill in its tracks. I was flattered that, after just two years in the business, they would ask me to Washington. I didn't know that they had sent out about six hundred other similar telegrams. It was a group, including Governor Milt Shapp who, at that time, was still with Jerrold, who had decided that they didn't want this legislation. They felt the status quo was better than having federal legislation relating to the cable industry.
We came to Washington. It was up for debate and vote in the Senate. We spent two days walking the halls of the Senate doing an absolute reversal over what we had told these Senators before. We were now saying, "Don't vote for this bill." Two weeks ago we were telling you that you should vote for it. We absolutely destroyed the credibility of this lobbyist. The Congress does not like to be double crossed. There is no doubt, particularly with regard to Senator Pastore, that we doubled crossed the man. I remember the debate as it went on in the Senate. I was up in the Senate gallery. Senator Pastore, who is a physically small man, was down on the floor and I remember him looking up at the gallery and I'll swear he looked right at me. He waved his finger right at me and he said, "You will rue the day you did this to me." I'll never forget those words. And we did. It took us another 17 years before we could get our first piece of cable legislation passed and that was the pole bill. We absolutely double crossed the Congress. I guess, in our political naiveté back that far, we didn't know that you don't do that to United States Senators.
It's interesting to speculate, knowing how helpful the Cable Act of '84 has been to our industry. Just suppose we had our own Cable Act 24 years before that. Where would this industry be today if we had been a part of the Communications Act twenty four years sooner?
SMITH: The bill was S.2653, do you recall that now?
ALLEN: I recall that now and we licked it by one vote.
SMITH: By one vote. The man that Senator Pastore was pointing his finger at was me.
ALLEN: Maybe you were sitting next to me.
SMITH: I was General Counsel of the NCTA at the time. I had made all the promises that the industry would support the bill.
ALLEN: Isn't that an accurate characterization that we absolutely double crossed the Congress?
SMITH: An absolutely literal characterization of it. You've got your basic facts, exactly in line. It was also Governor Shapp (of course, he wasn't Governor then) who decided that he was going to turn the industry around, almost single handedly, and did. We defeated the bill by one vote and, as you said, we never got anything in the Congress again for 17 years. That was a very traumatic experience for a lot of us.
ALLEN: My first real involvement with the NCTA on the national scene, as I already recounted, was in 1970. As a result of a speech by Frank Thompson, I was elected as the National Secretary which meant that, with no prior experience, all of a sudden I was on the Board of Directors of the NCTA. As an officer, I was on the Executive Committee of the NCTA. With the exception of two years, I've been on the Board every year since 1970, so that's 17 of the last 19 years. In about seven of those years, seven of 17, I'd been on the Executive Committee‑‑two years as the National Secretary ‑ in '70 and I guess it was in '76‑‑three years appointed by the Chairman, again as the National Chairman, and then as the Immediate Past Chairman.
Just as an aside, the Executive Committee can either be a very powerful Committee or it can be a not very important Committee. Depending on how the Chairman runs his Chairmanship. There are some Chairmen who like to run the Association through the Executive Committee rather than involving the full Board. When I was the Chairman, there was so much going on (we were working the Cable Act at the time) that I didn't want to put that kind of power in the hands of the Executive Committee. So I insisted on working through the full Board which meant we had more Board meetings than we would normally have. But there's no doubt that the Executive Committee is the power behind the Board and can make a lot of commitments on behalf of the Board that are fully enforceable through their posture as the Executive Committee.
I guess other than being on either the Board or the Executive Committee, my next real national involvement came with the passage of the Copyright Act in '76. You will remember (I think Fred Ford might have been the NCTA President about that time) that there was a strong feeling that because we had a Supreme Court ruling that said we didn't owe any copyright fees under the 1909 Act... That was another piece of your work, wasn't it? The Fortnightly case, wasn't it?
SMITH: Yes, it was. I did not do it by myself. A New York and Washington law firm, Cleary, Gotleib, Stern and Hamilton, and mine, Smith & Pepper, together handled the case.
ALLEN: There was some thinking that, because it had been ruled that we didn't owe any copyright fees under the language of the 1909 Act, the status quo was just fine. We shouldn't change it. I remember Fred Ford or somebody coined the phrase, "Why buy two tickets to the same performance?" It was the rallying cry. That was also the time when CATA, another trade association, was formed of the smaller operators who felt they didn't have to and, therefore, did not want to pay copyright fees and we should do nothing to upset the existing Supreme Court ruling that would require them to pay some copyright fees. I was on the other side of that issue. I felt that the Copyright Act of 1909 was out of date. It never envisioned the cable television industry. It didn't envision juke boxes. It didn't envision Xerox copiers. That Act was, in fact, going to be changed to recognize some of the newer technologies that didn't exist at the time the Act was written and it was my thinking that if, with some certainty, it is going to be changed we better have some input into those changes.
So I was on the side of the issue that said, "Let's write a new Copyright Act and include the cable television industry in the Act, under the Compulsory License concept, so we can't be accused of being parasites that are taking the broadcasters' signals and reselling them for a profit, under terms and conditions that are acceptable to the industry, rather than wait for something that might be imposed on the industry." You'll remember all of the discussions we had with the broadcast people and the Hollywood people and the Jack Valenti's of the world and we ultimately arrived at the Copyright Act of 1976. It's an extremely complicated subject. I think, as a first try out of the gate, it perhaps was not bad legislation. In fact, probably pretty good legislation. The problems we ran into, as you know, were in the enforcement of the Act through the Copyright Tribunal. We had five inexpert people who were designated as political appointee‑Copyright Commissioners.
SMITH: Would you interrupt your narrative for the sake of the record to explain what the Copyright Tribunal was and is?
ALLEN: That was the entity that was to collect the copyright fees. There's a distinction that's made between the Copyright Tribunal and the Copyright Office. The Copyright Office was part of the Library of Congress, as I remember. Its function was to collect the copyright fees paid by the cable systems under some rules they devised (that's where we ran into the problem) and then be responsible for the equitable disbursement of these fees, back to the copyright holders. That's a whole story in itself‑‑you begin to get Hollywood and the broadcasters and the television stations versus the radio stations and the public broadcasters against the commercial broadcasters, trying to decide what is an equitable portion of this pie that is to be allocated back to them. As it was originally established, there were literally ten people in the Copyright Tribunal. Five Commissioners and five private secretaries. There was no General Counsel. There was no Economist. These five inexpert people, who knew nothing about property rights, were responsible for creating the rules and regulations under which these monies were collected. They created a whole bunch of anomalies that exist to this day. For example, we were required to pay copyright fees on programs that we weren't even showing. This comes about under their ruling where they said if you are carrying a program ‑ they had two six month reporting periods ‑ on the first day of the reporting period, even though you dropped the program on the next day, you had to pay fees for the full reporting period. So, if the reporting period is a half a year, 180 days, and you carried the program one day and dropped it, you still paid copyright fees for another 179 days, even though you were not showing the program.
I don't think that's what the Congress intended, but that was what the Copyright Tribunal came out with in their rules. Another thing that they did is to require us to pay copyright fees on programs where we had already paid the copyright fees. This goes to our carriage of the satellite signals, cable satellite signals, where, in the fee we pay for Cable News Network or ESPN or MTV, the copyright fees are included in that fee. However, because it was on a tier of services that included some broadcast signals, you had to pay copyright revenue on the total revenue from that tier. There was a mix of broadcast signals and satellite signals, so, because you paid on the total revenue from that tier, you were paying copyright fees a second time on something you had already paid for. At any rate, those are some of the anomalies that these inexpert people created. We were successful, to tie this in a knot, in getting a new Copyright Act written. The language of the Act, as a first effort, probably isn't bad. At least it hasn't been modified, the language hasn't been. The rules have been but the language still sits there pretty much as it was in 1976. But we have run into some real copyright problems and anomalies created by the people administering the Act. Someday they'll revisit that Act and try to straighten that out. Until they do, the cable industry is saddled with payments that I don't think they should be making.
SMITH: Did the cable industry gain anything by that legislation?
ALLEN: Yes, legitimacy. Before, we had been considered as people who were taking somebody else's product, not paying anything for it, and reselling it for a profit. By paying copyright fees for the distant signals we brought in, I think it gave us legitimacy. It at least spiked one of the arguments the broadcasters were using against us in the Congress, that we were this parasite that was taking their programming and reselling it and they weren't getting anything for it.
SMITH: Was there a trade off of some kind to get a license to receive those distant signals in exchange for the agreement to pay a copyright fee?
ALLEN: Strat, I'm sure there was. This goes to all the preliminary discussions that we had with Valenti and the broadcasters. I've got to tell you that my memory now, going back that far, isn't that good to be able to put my finger on just what we gave up in order to get what we got. Maybe you can fill me in.
SMITH: I just wanted to get the term on the record of the "compulsory license" that is pretty much a growing issue in the industry today too. I think that compulsory license required the copyright owners to grant a license and, in effect, Congress granted the license to receive those distant signals and then the operators were required to pay into the Copyright Tribunal the fee for that license that they distributed as you described.
ALLEN: Yes, what the license actually did is give us a blanket right to carry local signals without copyright fees. The local signals were licensed to a community. It's the same community we serve. This would truly be a two tickets to the same performance type of thing. But in order to have the blanket license to carry the local signals, we had to agree to pay for the distant signals. We pay nothing for the local signals that we carry, but the funds we pay for the distant signals is what goes into the Copyright Tribunal pot. There was a lot of political maneuvering, as you might imagine. Letters of intent. To this day, Jack Valenti can quote chapter and verse on some of those. He and I have tangled on occasion. He's a fun guy to debate with. He's a master orator and I've enjoyed debates with Jack. At any rate, we got it done in '76 and I think it did lend some legitimacy to our industry.
I'm about to move ahead to '77, when we got the Pole Attachment Bill passed. So often, the legislation that we've been able to develop, and there hasn't been that much through the Federal Congress, has been to correct abuses that exist. It's kind of been a case of "if it ain't broke, don't fix it." These were some areas where it was broken and we had to fix it. We found that the utilities, because they owned these poles, were rapacious in what they wanted to charge for these poles. They still are in terms of what they want to charge for conduit and that's why the cable industry doesn't use the telephone company conduit. You can't believe the rates they want to charge for occupying their conduit. We managed to get a law passed which put some sense of reason into the pole rates that the utilities were permitted to charge. They had to be based on some kind of a cost justification, rather than just feeling the cable operator's wallet.
I remember one case in California where we had to take a power utility to court. They were going to raise the pole attachment fee rates in one year from $2.50 a pole to $12.50 a pole. It wasn't until we went to court with all kinds of anti‑trust threatening noises that we stopped that. We got to a negotiated rate concept (that I had mentioned before) that we now have under the California PUC. Some of these utilities looked at us only as a source of revenue which they wanted to maximize without regard to the social implications of what they might be doing or what their costs might be.
I guess, then, after that '77 Pole Attachment Act, the next big thing was the Cable Act. In the intervening years, I'd been involved in a lot of NCTA committees, usually the upper level committees, the Regulatory Policy Committee, Telco Policy Committee, etc. So even if I were not on the Executive Committee, at least I had an opportunity for some input on some of the ideas I had through the committee involvements. NCTA honored me in, I think '78, with what at that time was called the Larry Boggs Award. It's now the Distinguished Vanguard Award. I remember I received that Award in New Orleans in '78. Now they let the recipient know that he's getting the Award, that's true of all the Awards. At that time, they didn't. This came as an absolute and total surprise to me. I remember they had a table assigned to me right next to the speaker's rostrum and I didn't know why my table was this close to the speaker's rostrum. When I found out where it was, I thought this is a chance to make some brownie points with some members of Congress and the Copyright Tribunal Commissioners, by giving them a good seat to see this show.
I was going around inviting people to sit at my table and the NCTA had someone following me around cancelling the invitations to sit at this table because they had secretly arranged for my family and my secretary to be flown out to sit at the table. It wasn't until I walked into this gigantic ballroom and here are my four children and my secretary and my partner from my radio station in Winona and one woman Copyright Commissioner, who still hadn't had her seat pre‑empted, all sitting at the table. I still didn't tumble as to what was happening. Finally, it dawned on me that I'm going to get the award, it was a very nice thing to have happen. I'm glad my family could be with me.
This brings us up to, I guess, my election as the Chairman in '84. I don't know whether you are ready to jump into that.
SMITH: We can jump around as it occurs to you. If you want to reorganize it, we can.
ALLEN: I don't know of anything of significance that anybody would be interested in until that. That was an interesting experience. The election process was interesting because I was not the Vice Chairman of the NCTA. I was not an officer, I was just a Director. The NCTA does not always go through the chairs so that the Vice Chairman succeeds to the Chairman. More often than not, they do. In this year, the Vice Chairman was a good friend of mine, Gus Hauser, who had headed up the Warner operation. The Columbus Qube interactive experiment was one of the big pieces of that operation. That had significance because it was the first major attempt by a cable operator to involve himself in two‑way interactive cable. As it turned out, it didn't work. In fact, they are, right now, in the process of removing all of the old Qube equipment from Columbus.
I remember we wondered at the time if this exotic concept would work, if there was a demand for it. You could call up and, for 35 cents, get a guitar lesson, this kind of thing. They would show a football game and they'd give you the scenario of its third and eight on your own twenty‑four yard line. The logical play to call with two and a half minutes left is a pass, an end run, or off tackle. What should the quarterback call? You had a little box in your house and you'd push buttons and pretty soon it would come up on the screen that 68 percent of the people think you should throw a forward pass. But it turned out there just wasn't that kind of a demand for these interactive concepts. We referred to it at the time as Gus's "turn in the barrel" because a lot of us had been involved in trying to get something other than just more and better television pictures off the ground. I think we learned something in the process. I think we learned that our business is still more and better television pictures than the exotic peripherals on the outside.
At any rate, the election was scheduled and there was a group of NCTA directors that thought, with the divisions that existed on the Board with regard to the Cable Act that we had been working on for three years and there were some very significant divisions on the Board, plus the business track record of Gus's Qube operation and the obvious problems that were happening with that operation, that maybe someone other than Gus, or really, more specifically, maybe I, as a guy who had been around for 25 years, might be able to be a more cohesive force in trying to pull together what really were three very distinct camps on the NCTA Board in terms of a consensus behind the effort on the Cable Act.
Bill Strange and Clive Runnels out of Texas, people I now refer to as my Texas Mafia, contacted me and asked if I would run for Chairman in competition to Gus. It's very rare, really, that there is a competitive race. I told them I would run but that I wouldn't campaign for it. I would not call a single Director and ask for a vote, but if the Directors wanted me and it should happen, then I would serve. The upshot of it was that I was elected. This was at a time when Tom Wheeler had just announced that he was leaving the NCTA to go into his own business. He was the president of the NCTA and Jim Mooney, who was Tom's Number Two man, had just been selected as the new paid president of the NCTA. So, as we are coming to the denouement of a three year effort to pass the Cable Act, all of a sudden you had a brand new Chairman and you had a brand new President. The new paid President concept was not that important because Jim had been the architect of the political effort for the last three years. While Tom was out front as the big tall guy with the charisma, it was Jim, as the general behind the scenes, who was directing the political effort. All the change meant was, you had a short guy out in front, rather than a tall guy out in front. The same guy was directing it.
As history is written about that Cable Act, full credit has to go to Jim Mooney for being the architect of the strategy involved and then, right up to literally the very last day, holding everything together so that when the Senator Metzenbaums of the world and the Ralph Naders of the world intrude in the 24th hour, we still could hold the Act together, and get it passed and that's what Jim did. My job, coming in as the new Chairman, was to try to give Jim a tool that he needed and that was a truly significant and impressive consensus of the National Board behind the Cable Act. Early on that didn't exist. We were divided into three separate camps. I was very prominent in the third camp, that's the one that wanted the Cable Act. But once I became the Chairman, I had to play it straight down the middle and not be the vocal advocate that I had been before. I could lobby and I did lobby with the Directors behind the scenes. However, as I was conducting the Board meetings, I had to play it fair so that all elements could get their concerns out.
There were three different camps, Strat. One, and it reminded me of 1960 when Milt Shapp decided the status quo was better than federal legislation, was a group of Directors that didn't want any legislation by the Congress or action by the FCC. They were perfectly happy with the status quo. They had no problems in their towns. They didn't want anything that would upset the apple cart. It was kind of a narrow view because while they didn't have problems in their towns, there were lots of problems in lots of other towns. This goes to the curing of these municipal abuses, particularly in the areas of rate regulation, where the City Councils were afraid to grant rate increases because it was a political issue (and they didn't want to get tarred with that) and franchise renewals. There were abuses in the franchise renewal area, so that, if you had been in town for 20 years and had done a great job, you had no assurances that, at the end of twenty years, they wouldn't give the franchise to the mayor's son‑in‑law. That's what the Act was designed to prevent.
The first group was the status quoer's, if I can call them that. There was a rather significant second group that, while they wanted some changes, didn't want those changes to come from the Congress. They wanted the changes to come from the FCC. This is what I call the "quick fix" group in that they felt that, (I think at that time there were seven Commissioners) if they could persuade four of them to buy the concept of FCC action, to think a certain way, we could get it done faster, could get the kind of protections that we needed. I objected to that concept as being a quick fix because Commissioners change. They are political appointees in the first place. As administrations change, Commissioners change. If they get an opportunity to go into private practice, they do. There is no continuity that you can depend on for continuing votes. There's a constant state of flux among the Commissioners themselves.
That's why my position was, rather than go for the short term fix, what we really need is a long term solution and that can only come from legislation by the Congress. You write it in the law, because that is much more difficult to change. It doesn't mean it's impossible. We may see some change in the next year or the year after that. But that law's been on the books now for five years. I was pushing for the concept of a Cable Act, passed by the Congress, as a part of the Communications Act of 1934, that would give us a legitimate position, not as ancillary to broadcasting, but as an entity in our own right, with our own Section of the Communications Act.
As we were winding down the lobbying effort and getting it close to floor action, these were the three groups that had to thrash this thing out at the Board level. I think, in the prior years, there had been some thinking that the Board was kind of a rubber stamp for the NCTA staff. The staff would devise the policy, bring it to the Board, and the Board, rather than debating the policy or discussing alternatives, would say, "These are the professionals, they must know what they are doing" and they would approve it. I decided no more rubber stamp concept. I happened to agree with what the staff was proposing, but I was going to force that Board to debate it and come to a consensus. For a while that was difficult to do. The guys hadn't been used to having the Chairman literally insist that, before a vote is taken, all sides of the issue have to be laid out on the table and debated and discussed and argued and examined.
I remember when the debate would start to wind down, I'd throw out a question. Sometimes I'd play devil's advocate, trying not to ever indicate my own position but trying to keep the flow going. There were other times when the discussion flowed too well. At that time, I was still smoking and I had a great big Zippo lighter that I carried with me. I put a lot of dents in that lighter by pounding on the rostrum, trying to gain quiet and peace in the room.
Ultimately, we did get it all aired. We had multiple votes as we went along but they were kind of "sense of the board" votes. I wasn't ready to put it to a formal vote, a vote that we could release to the press. I think that, at that time, we had about 35 guys on the Board. We had many special meetings in Washington. Normally the Board meets four times a year including one meeting at the NCTA convention. So there are normally three other meetings. We had lots of meetings during this period. We had lots of meetings of the Executive Committee during this period. I waited until I almost couldn't wait any longer because it was getting ready to move on the floor. I waited until I felt we had the consensus that Jim needed as a tool. When we finally took the vote (and I was In Europe), we got everybody but two. Out of 35 people. So Jim was then able to go to the Hill and say an overwhelming preponderance (I wish he could have said a unanimous) of the Board is solidly behind the passage of the Cable Act. That was a tool that was helpful to him because they knew we were not a splintered industry.
SMITH: Remember where you are, I've got to turn the tape over.
End of Tape 3, Side A
SMITH: This is Side B of Tape 3, of the oral history interview with Ed Allen. Ed, you were just saying just before we turned the tape that you were able to give Jim Mooney the preponderance vote that he needed on the NCTA Board to go to Congress on the Cable Policy Act.
ALLEN: Well, it ultimately came up for a vote and, in the last few days, the opponents of the bill pulled in their allies like Senator Metzenbaum, Ralph Nader intruded himself into the process and Jim had to hold this thing together. Jim was the one who had been the principal negotiator with the cities during this thing. You may remember that we had struck deals with the National League of Cities on two different occasions, with its negotiating committee. But the rank and file cities overturned, in both cases, what their negotiating committee had agreed to. We kept having to go back to the negotiating table but we ultimately arrived at an agreement with both the National League of Cities and with the Conference of Mayors, which includes the largest cities in the United States. The League of Cities covers everybody. The Conference of Mayors covers principally the larger cities. We managed to hold that coalition together even in the face of an attack by Senator Metzenbaum. There are days when I think he doesn't like anything or anybody that has to do with business. He wasn't just singling out the cable television industry.
I think, as I remember, in both Houses it passed by a voice vote and I almost missed it. I had a television set in my office in Walnut Creek hooked to C‑SPAN by means of a satellite on the roof of my office because there was no cable in the office park. While the tape was off, we were discussing whether, in the negotiating process to arrive at the language of the Cable Act, all the parties knew exactly what they were doing in terms of the writing of the actual language because some of it is kind of obtuse and obscure. I think I would agree, Strat, that some of the language is obtuse. But, from the cable industry standpoint, in at least some instances, that's deliberate. We didn't want precise definitions in some areas so we would have some room for maneuvering. For example, there's a term of ours called, "engineered at the headend." You ask even the people involved in writing that language what they meant by "engineered at the headend" and you will not get a precise answer. This has to do with channel capacity. Does that mean the number of modulators that are at the headend? Or the capacity even though the programming is not being presented because you are not using the full capacity?
Deliberately obtuse, I think, in the case of the city negotiators, and I don't mean to say this to put them down. I guess I really mean it as a compliment to the cable negotiators. I don't think the city negotiators were as expert as they should be about the cable television industry. Again, it goes to Jim Mooney and his staff. Chuck Walsh, who is a Washington attorney whom we both know and love, was Jim's right arm in writing the actual language. Chuck gets a lot of credit for the language. I guess he, also, if it's obtuse, has to take some of the credit for making it obtuse. It was a delicate, delicate piece of language construction down almost to arguing about the placement of commas, but from the cable industry's standpoint very deliberate. There's an interesting term of art that comes out of that Act and I don't think our cable industry has yet fully focused on it. The underlying theme of the Act charges both the city and the franchisee to know and understand and respond, to what are known as the "cable related needs and interests of the community."
To my mind, as I have negotiated with cities, the needs and interests are not what an appointed Cable Administrator says they are. That doesn't sample the needs and interests of the community. It is not what a majority of four on a seven person City Council says it is, even though they have been elected to represent the people. Or, as we more particularly have in California, a majority of three on a five person Council.
The way to determine the cable related needs and interests of the community is to ask the subscribers who are paying for it. As I have negotiated franchise renewals, I have adopted the position that I will give my subscribers anything and everything they ask for, as long as, at the same time, they tell me they'll pay for it. It's very interesting that, if you're talking to community activists in the area of local access programming, they have a concept of what they need to do their work and what the degree of their interest is in that. If you talk to educators, they have a concept of how they could use television better for education and the level of interest that they have‑‑as long as school funds don't have to be used to finance it. When you take those same needs and interests to the subscribers who have to pay for it because, except for a little advertising, the cable system's only source of revenue is the subscriber, you get a different reaction. You ask, "Do you want to support two color studios, three color cameras and two mobile vans for the local access group? It'll cost an extra dollar a month on your bill. Do you want 54 channels instead of 35 channels or are 35 channels enough, based on what you're paying now, because 54 channels would add $2.50 a month to your bill to pay for the rebuild." All of a sudden the level of interest diminishes. Interest goes inversely to the amount of the bill is what I'm trying to say.
So the needs and interests of the community is a term of art that I think the industry should be relying on more and more and more as they deal with their municipal officials. I think, in a lot of cases, and for purely political reasons, we have agreed to do things in a community that our subscribers don't want and have no interest in but have to pay for. The Cable Act gives us an opportunity to relate our business decisions to a federal law which charges us to know the needs and interests of our communities.
I started to tell you that when the voting was going on and this was a voice vote and I was watching it on C‑SPAN, I turned my back on the TV set. I was standing behind my desk, I turned my back to the television set, I picked up the telephone and I was going to call a man over at the Chronicle to say, "Hey, the vote is taking place right now." By the time I turned around, they had voted. I missed the denouement of the three year effort because it happened so fast by a voice vote. After the Act passed, Broadcasting Magazine, which I consider to be the premier trade publication of the communications industry, ran a very fine editorial congratulating the cable industry on the passage of the Cable Act and on the superlative job of lobbying that had been done. But they raised a question; now that you have these newfound freedoms, now that you are out from under the political thumb of the City Council (with regard to rate regulation and the renewal of your franchise) are you going to accept the responsibilities that come along with these freedoms?
I wrote back to Broadcasting in my capacity as the Chairman and they were kind enough to publish my response and, in essence, I said, "Yes, we recognize that there are responsibilities that go along with this Act and we are responsible people and we will respond responsibly." I said that the entrepreneurial spirit which created our industry had almost been smothered by the heavy regulatory hand of some 20,000 individual municipalities, each with its own cable policy, and that the fire in the belly that we had originally had almost been smothered. But, with the passage of this Cable Act, the industry was born again. We can now recreate the entrepreneurial effort but we would do it in a responsible manner. I think a part of that prediction came true. I think we did create a new and almost smothered entrepreneurial effort. You can see it in the program services that have been created, in efforts to provide more services, always, to our subscribers, in efforts to improve our subscriber service. But we have fallen short in some instances.
I'm disappointed in our industry. I'm disappointed in some people and in some companies in our industry because I don't think they've been responsible. This has to do with the two areas of excessive rate increases and shoddy customer service. Maybe they go together because they're both impacting the operating statement of the cable company. The first thing that happened was that we had some new players move into the industry. The financial players. The asset players. The franchise flippers, as I call them. Those who announce, up front, "We're only going to be in this business for five years. We're creating limited partnerships, but, in five years, we will take our money and run." Once they get the franchise, they raise the rates as high as they can, they decrease the expenses as much as they can, they pump the cash flow as hard as they can, and they leave the pieces behind for the next owner to pick up. Meanwhile, they have made some money.
I can't fault just these new players because there are some existing old line cable companies that, in some instances, have done the same thing. I think, in the case of customer service, their focus had been on getting new franchises when they went through the franchising frenzy that we had. In the process, customer service fell by the wayside ‑ they didn't have time to look at it.
I think, in some cases, they refinanced and the lenders to the industry have written such onerous lending covenants that the size and the frequency of rate increases is now being dictated by the lenders to the industry rather than by the cable operator himself. I think, in many cases, it forces either an excessive rate increase or a too frequent rate increase on a community with monstrously bad political repercussions. It is something that is necessary because your lenders require it. I'm sorry to see that happen. As I went around in the two subsequent years as Chairman, I tried to caution the industry in literally every speech I made. After me it was Tryg Myhren. Jim Cownie did it, as a successor to Tryg. John Goddard of Viacom did it. So has Bob Miron of Newhouse, the current NCTA Chairman. They've all said exactly the right things. Be moderate in your rate increases. Be better at your customer service. But the industry, to a great extent, did not heed four years worth of warnings. That's why we have the political problems that we have in Washington. We are going to lose some of the freedoms that we have under the Cable Act. It's not going to be fatal, it's still going to be a good industry. It's still going to be a good Act. However, we brought this on ourselves, in a lot of cases.
There's an old saying that the cuckoo is the only bird that fouls its own nest. I've got to say that I think we have some cuckoos in our industry which, over the last four years, have fouled our nest and the Congress is not going to tolerate it. We're getting hit with a bum rap on the rate increase issue. I've just recently had an opportunity to deal with 100 different franchises as a part of the franchise transfer process we're going through and not one of those cities has brought up the issue of excessive rates. They do have a problem with customer service. As they write new franchise agreements or transfer agreements, they're writing in consumer protections, fines, penalties. In some cases they get down to where they want to micro‑manage your company, like you shall answer the telephone within 30 seconds. This kind of thing. The concern is more on shoddy customer service than it is on excessive rate increases. Where we get the heavy discussion of rate increases is not from the consumer, as a general rule. Some of it, sure. Letters to Congress, yes, there's been some. But the general consumer really thinks that he gets good value for his cable television dollar. Where we hear it is from the politicians who have a personal and political ax to grind. They want a political issue.
Mayor Volgy of Tucson, one of the properties that we will be getting from the Jack Kent Cooke transaction, is the Chairman of the Telecommunications Committee of both the National League of Cities and the Conference of Mayors. He doesn't want to be just the Mayor of Tucson. He wants to go to Washington. He is very vocal on a populist issue which is cable television service‑‑that thing you have to pay for every month that some other people don't have to pay for. In the Cooke transaction, the other properties that we will be involved with happen to be in Tennessee. That's Senator Gore. Senator Gore has eyes on being President of the United States. He had a populist issue involving backyard satellite dishes which gave him a constituency of about two million backyard dish homes. He now wants a constituency of 50 million cable television homes. So he has jumped off of the satellite issue to the cable issue because he has got something out in front of him that he wants to get done. They say "all politics is local" and I believe that; but, unfortunately, so much law is made on the basis of local anecdote rather than national policy.
The Congress, including friends of our industry, are hearing from City Council people, from subscribers, on shoddy service and, in some cases, admittedly excessive rate increases. It has happened. They have enough local anecdotes so that if we get reregulated, it's going to be because we've been anecdoted to death by these stories that drift up from the local level. It's like getting nibbled to death by a thousand guppies. How do you stop it? I think the industry will self police itself, starting like about now. They should have started four years ago. If you look at rates right now, while the rates spiked in 1987 and '88 when we were permitted, for the first time, to adjust the rates, they spiked because they had been held so artificially low for some many years, by the political considerations of these City Councils. In 1989 to date, and the figures are out through the first ten or eleven months, rate increases in 1989 are only half of the increase in the Consumer Price Index. That spike is gone and we are now down to the more typical ongoing level of increases that we had before the Act. But that two year spike did happen and we're going to have to pay the price for it.
SMITH: What do you think that price will be?
ALLEN: They say that there are really two choices‑‑the cable industry must have some competition or must have some regulation. It can't be an "unregulated monopoly" and I have another whole spiel I can go through on why we're not a monopoly. When they talk about competition, what they are really talking about is the telephone company being permitted to come into "our industry." They're not really talking about multi‑point distribution systems‑‑MMDS, or backyard satellite dishes. They're really talking about the telephone company. I think it is possible, maybe even probable, that, in the future, but not yet, the telephone company will be allowed to provide cable television service (what we call Telco TV) outside of its own service area. But not within its own service area. An example of that trying to go on right now is Pacific Telephone (which has telephone interests in just California and Nevada) being involved in the Chicago cable franchise. Judge Greene has not granted the waiver yet, so we don't know, really, but that would be the case of a telephone company being involved in cable operations outside of its own service area. That doesn't offend me too much, Strat. I find it kind of difficult to find the logic behind saying it's all right for Centel telephone in Illinois to be in the cable business outside of its service area, but a regional Bell Company cannot be in the cable business, even outside its own service area. It just doesn't seem to make any sense.
The reason there is a proscription against the regional Bell Companies being involved is that there is a multi‑year history of predatory anti‑competitive practices. As Judge Greene has said, the opportunity for that kind of mischief is even greater now than it was back in '82, when the AT&T divestiture took place. If they can set up the proper protections so that the telephone company cannot use its telephone service profits where it does have a monopoly to subsidize their cable operation, fine. Then I see no reason to continue to object to their being involved. I don't think they can set them up. And nobody else does except some economists and accountants at the FCC. They have already set up some safeguards, as a part of the Computer III hearings, that they think will provide the necessary safeguards to prevent cross‑subsidization in the computer industry and that these same safeguards can be picked up and translated en masse to the cable/telephone industry.
There's no proof that that works. The General Accounting Office says it won't work. Judge Greene says it won't work. Our industry certainly says it won't work. I don't know whether they can set up those kinds of protections. If the phone company wants to get into the cable business, they should do it with shareholder money. They shouldn't do it with telephone consumer money. Make their shareholders take the risk. Make the shareholders pay for it. The opportunities for cross‑subsidization, the hidden transfer of funds and or expenses from the monopoly telephone side to the unregulated cable side are rife with possibilities for mischief. It could lead to predatory pricing.
Another thing, most of the telephone people that I've talked to talk about telephone being a source of competition to the cable industry. They don't plan to come in and compete with the existing cable operator. They want to buy him. So you still have only one cable operator in town, it's just a bigger company than the one that was there before, but it hasn't created any competition. There's a lot of sentiment on the Hill in Washington, that if a phone company is to come in, they have to come in as a second entity and create competition. They can't come in as the only entity, by buying out the guy who is already in there, because then you could truly have one wire into the home, rather than two wires. So, one side of the coin is the need to create competition. The alternative to that, then, is the need to reestablish some regulation. I think we might wind up, ultimately, not in the near term, I don't think next year, maybe the year after that, with a combination of some re‑regulation and some telco involvement in our industry, outside its own service area. I think we are going to have to face the fact that we are going to have to expect some form of re‑regulation to take place. It becomes a question of what form is that going to take. How onerous is it going to be? How badly have we fouled our nest, in terms of the Congressional reaction?
I think that becomes a factor of who controls the legislative process. If you've got someone like Senator Gore or Senator Danforth or Representative Boucher controlling that process, I think our industry is in deep, deep trouble. If you have someone like Senator Inouye of Hawaii, who is a more reasonable man, who would apply only that amount of re‑regulation necessary to correct a problem (rather than to punish an industry) then I think you have a different approach to it. Looking at the more moderate approach, I think there are some things that the cable industry can agree to, which are a reduction in the freedoms that we have now, but serve to cure a problem that exists and that should be cured. For example, I have no time at all for the so‑called franchise flippers. I think there ought to be a requirement, as there used to be in the broadcast industry, where you must hold the property for a certain period of time. That doesn't necessarily have to mean three years or five years as a time certain before you can divest yourself of a property because there may be very good reasons why you have to divest of a property, maybe it's to settle an estate or whatever it might be. But there can be a waiver process where you show good cause as to why it should be something less than this holding period.
Or you might have to pay a penalty in the form of taxes on a transfer that takes place sooner than the law says it should. What you are trying to do here is to avoid the multiple, multiple sales of cable systems at ever higher prices which require ever greater leverage, which require ever bigger bank loans, which require more interest payments, which require raised subscriber rates, in order to service the bank debt. I think the industry would support a holding period before such transfers could take place.
I have a little bit of a philosophical problem with the idea of size caps on any one entity in our industry, but there's all kinds of precedent for such a thing. We have it in the broadcasting industry. No one entity can own more than 25% of the viewers in the United States, something like that. I remember back in the earliest days I was on the Board, that would be in 1970, '71, the FCC had an inquiry out on how big should any cable operator be allowed to be. Should there be geographical limitations if all of his subscribers are in Washington or in Oregon ‑ is that a bad type of thing? That inquiry never went anywhere, because it was pointed out that the television networks, through their then five owned and operated television stations reached more viewers' eyeballs than the biggest cable operator ever thought of.
SMITH: Even in one setting.
ALLEN: Yes, true. This has only recently resurfaced as an issue because there are some entities, TCI being foremost, that are getting to be of a significant size. They have some concern that it might pose a problem. There's no demonstration that it has. There's no evidence that TCI has abused its size. Some of the programmers will argue differently when it comes to the muscle they apply to program rates, but that's part of the free enterprise system, too. The Danforth bill would require a divestiture if you have more than 15% of the subscribers in the country. That affects only TCI so that's aimed right down TCI's throat. They've got about 22%. But it doesn't significantly bother the John Malone's of the world, if they have to divest some of these subscribers. TCI has already created about five sub companies, regional TCI's, if you will. They could instantly break into five companies, no one of which exceeds the limit, and keep their cotton pickin' fingers off in terms of oversight from Denver. That's what CBS did when it spun off Viacom. At one time they used to own Viacom. They just gave it away to the CBS stockholders. I think we might be looking at a subscriber cap as to size.
The biggest thing, probably, we will have to look at is their attempts to re‑establish rate regulation. Rate regulation, right now, exists only in those communities where there is not "effective competition," which has been defined as the presence of three television broadcast signals in the community. The reason that definition was adopted was because the NCTA commissioned a study to determine what, in the real world, constituted effective competition and this study came to the conclusion that if three or more television signals exist there is competition for the eyeballs in the community from off‑air television signals. That study was the only hard evidence ever presented to the FCC when it was trying to come up with its definition of effective competition. So it adopted the three signals as the definition of effective competition. Everybody else had a different number of signals, like every local signal.
In the county I live in there are 22 local signals, must carry signals, under the old must carry rules. Naturally, if you deregulate about 97% of all the cities in the United States, the cities will object to losing the turf that they had before. So they're looking for a new standard of effective competition. It's my understanding that yesterday the Commission (the 12th of December) issued a Notice of Inquiry about the cable study that they're charged by the Cable Act to come up with and report, I think, in October of '90; although Chairman Sykes said the Commission is going to get it done by June or July, it's going to be a summer report. Two things that were left out of that Notice of Inquiry, as I understand it, are Telco entry and effective competition definition. They will be the subjects of separate hearings.
I think there might be some changes in the standard of effective competition as long as there's some hard evidence. You can't do it on the basis of no information. Well, that's not true, you can. As a political compromise, you can. You can do whatever you want to as a political compromise. But if there is some evidence that three is the wrong standard, maybe it should be four. Maybe it should be five. But there should be some evidence that helps you define what is the threshold level at which you can say competition exists. The thing that is disturbing is that some of the bills that have been introduced, like Senator Danforth's, for example, want to define effective competition not on the basis of the number of signals that can be watched in the community but whether there is another actual multi‑channel delivery system that can go in head to head competition with a local cable system. That means another cable system. That means a telephone company, that means MMDS systems. Something that delivers multiple channels and can engage in head to head competition.
That, effectively, would re‑regulate the entire industry because nobody in his right mind wants to put a second cable system into a town where there is an established cable operator. We've got some of that going on down in Florida with Florida Power and Light, but it's a greenmail operation and it isn't a big thing. Nobody in their right mind would build a second cable system. A competitive multi‑channel provider doesn't have the program sources it wants to have. They may get those someday, but it still doesn't have as many channels for as low a price as the cable operator does. It just is not going to be, it's the nature of the beast, there is not going to be an alternative delivery system that is multi‑channel and if there isn't, then these guys say there's no effective competition, therefore we're going to regulate your rates. That's what I'm afraid of. I don't think that will happen. I think if we do get a new definition of effective competition it will be a change in the number of signals, rather than shifting to this concept of having another provider. There's an outside chance for 1990, but that's the second year of the two year congressional session and it's an election year. I think you can get up a pretty good head of steam in the Senate in 1990, but I don't think the House is going to be prepared to act in 1990. Once you start a new two year Congressional session in 1991, you've got two years in which to work on this legislation. I think some form of re‑regulation is likely to come out of the Congress in the '91‑'92 session.
End of Tape 3, Side B
SMITH: This is Tape 4, Side A of the oral histories interview with Ed Allen. Ed, when we ran out of tape I think you were in the process of summarizing your beliefs about possible future legislative activity and its impact upon the cable industry. I believe you had expressed the opinion that the industry might wind up by 1991 with some re‑regulation. Would you complete your thoughts on that subject?
ALLEN: Well, two comments. The industry has a superlative lobbying organization, political organization in Washington. I think it is generally recognized as the best among the communications organizations in Washington. One Senator or Representative said the National Association of Broadcasters couldn't lobby their way out of a wet paper bag. We do better than that. So I think that if we wanted an all out nuclear war approach, we could forestall this re‑regulation for a time but I don't think we could win that war. I think that discretion being the better part of valor, we would decide, as the Mafia used to say, "...not to hit the mattresses and call for all out war." We will try to be as cooperative as we can, particularly if the effort is headed by a responsible person, such as Senator Inouye. I think it would be all out war if Senator Danforth tried to move his bill in its present form. I don't see any opportunity for that to happen. That's so draconian it could kill the industry.
I think though that, assuming we get some re‑ regulation, you have to characterize it as a giving up of some freedoms that we presently have. That's not necessarily bad for the industry. The new regulation will come to cure abuses that exist and that's good. It doesn't diminish our industry as a viable industry, as a successful industry, as a premier communications industry. It just says, you can't do some of the things you've been doing, you must be more socially responsible. You must have a social conscience on what you're doing.
I don't like to see government regulation, literally, in any form. I happen to be somewhat Adam Smithian in my approach in that I believe that the best regulator is the market. If you abuse the market, then you've got to expect that there's going to be some corrective action and I'm hopeful that corrective action will be helpful to the industry. We'll get rid of some of the abuse that presently exists and make us a stronger industry.
SMITH: Ed, I believe, correct me if I'm mistaken, you served two terms as the National Chairman, did you not?
ALLEN: That's right. They changed the by‑laws a few years ago to permit the Chairman to succeed himself. That's the only officer that can succeed. The other officers can move on to other officerships, but the normal progression is that you go from Chairman to Immediate Past Chairman. It's not unheard of in the past. I've heard people say it's unprecedented in my two years as Chairman and that's not that case. In the very early years of the NCTA there were men who were Chairman for more than one year. Not too far ahead of me, in the first year when this change in the by‑laws was made, Doug Dietrich served two consecutive years as the Chairman, so, even in the recent past, it's not that unusual. The Vice Chairman in my first year as the Chairman was Tryg Myhren, who we mentioned before, and at that time, Tryg was the Chairman of the Board at ATC (American Television and Communications). ATC/ Time, Inc. was going through some executive shuffling and re‑organization and so Tryg's right arm, Joe Collins, who was the president of ATC, had been lifted out of that position by Time, Inc. and brought over into their HBO operation. Subsequently, another shift took him back to ATC and, in fact, is running ATC, in Tryg's place. But, in the year when Tryg was scheduled to be Chairman, his own company had enough new organizational problems so he just felt that he wouldn't have the proper time to devote to both the NCTA and his company. I agreed, as kind of a holding action, to take the Chairmanship for another year, with the idea that, at the end of that year, Tryg would have the ATC organization the way he wanted it and then could, in fact, devote the amount of time that's required to be the National Chairman. I did it, not because I wanted to be Chairman for another year, because the travel can be killing, especially when you're on the West Coast and most of the action takes place on the East Coast. A lot of cross‑country flights. But I have such a high regard for Tryg as an industry statesman, I wanted to be sure he had the opportunity to follow in behind me as the Chairman so he could continue some of the concepts I'd tried to put forth.
Yes, I was Chairman for two years, but the second year was kind of a holding action for Tryg. But it gave me the opportunity to spend another year on the rubber chicken circuit trying to exhort my friends to be responsible under the Cable Act, which is the way I spent that year.
SMITH: We talked a good deal about the Cable Act and the compromise procedure, negotiation procedure that resulted in the Act. During your two terms as the National Chairman, were there other legislative developments or special battles that had to be fought on behalf of the industry that you would like to comment on?
ALLEN: Well, they would all pale by comparison to the Cable Act. There probably were other issues, not legislative issues, there wasn't any other legislation, but I'm sure that there were FCC issues. I'm sure there were P.U.C. issues, there were state regulation issues that the NCTA had to be involved in. On a scale of one to ten, in terms of its importance to the cable industry, I'd rate the Cable Act as an 11. There is nothing in the 41 year history of our industry, really, that has the magnitude of the importance of the Cable Act. I think, just ahead of the passage of the Cable Act, systems might have been valued at about $1,000 a subscriber. Five years later we're now approaching $3,000 a subscriber. A price of $2,000 is considered a cheap price today. I remember being on the rubber chicken circuit and telling people, like about six months after the Act passed, that your system today is worth double what it was six months ago. It turns out that was not a bad estimate.
So, in terms of the contribution it has made to the success of the industry, the value that's in it for the individual investors in the industry, in terms of allowing the cable industry to conduct its own business affairs, in terms of putting some stability into the industry with some assurance of renewal, it's been a winner. In eliminating the local political process as much as possible and substituting business common sense, I don't think there's anything that approaches the Cable Act in terms of the contribution that it has made to the industry.
SMITH: How has the public benefited as a result of the Cable Act?
ALLEN: You'll get an argument there from some regulators and, I suppose, some members of the public‑‑those who feel that the industry is obsessed with making money because of the new freedoms it has, that it has improperly raised rates or deliberately delivered shoddy service. You always have those kinds of arguments surfacing, even back in the days when City Councils could regulate the rates and I would go before a City Council with a rate increase request. If there were more than four people in the audience who were there to object about it, I would be very surprised. The basic underlying subscriber base is not critical of what the Act has produced. Specifically, what the Act has produced for the consumer is much better programming, a greater diversity, a higher quality of programming. I don't know whether I mentioned before that when I was talking about my Canadian friends back in the very early 60's, they said five channels is all anybody needs. The three networks, an independent, and an educational station. People can't use any more television than that. Well, that was so wrong. While we know that people tend to focus on about eight or nine channels, do 90% of their watching on eight or nine channels, you almost can't give the people too much in the way of diversity. If you have enough channel capacity and there is a group of left handed widget watchers in your town, you can devote a channel to the left handed widget watchers and they're going to watch widgets on their channel.
Because we have been able to increase our rates to the market level, you have to start with the premise that they were artificially depressed below the market level ‑ the basic service rates, not the pay rates. The pay rates, I think, we drove too high. But, because we have been able to raise the basic rates to properly reflect the price/value relationship that our subscribers give to it, we have taken in more money. The program suppliers have charged us more for their programming and they have used that money that we give them to go out and buy better programming. So now we have NBA basketball that Turner just signed at $275 million. We have the ESPN pro‑football package that didn't exist before. We have new channels that keep surfacing all the time. I thought that every conceivable programming idea had been created that could be. Now we're looking at one comedy channel on the air and a second comedy channel coming along. Willy Nelson and some associates are putting together a cowboy channel. There's going to be a science fiction channel which might be very popular if the material that runs is like Star Wars or 2001. We're developing regional sports networks that didn't exist before.
In California we are working on the concept of the California Channel ‑ a California C‑SPAN. There is no end to the diversity of programming we can deliver. The programming has to be good programming. It can't just be talking heads. That's the problem with the local access programming. These kids have a desire to play producer, but the program that comes out is boring! It's just talking heads. It takes money to produce good programming and the Cable Act has enabled us to provide the programmers with the money so we get better programming.
SMITH: Would the re‑imposition of rate regulation destroy that development or at least significantly retard the development of new programming services, and better ones?
ALLEN: Yes, it would. That's particularly true if rate regulation reverts to the most local level so the municipalities, once again, can say: "We can't do anything about the power rates, we can't do anything about the phone rates, but we can sure do something about the cable rates." So they don't allow necessary rate increases. If rate regulation is re‑established, but at the federal level, as was done in the Cable Act, where they allowed for five percent annual rate increases even before the de‑regulation kicked in, as a matter of federal law it could be acceptable. Or if they set up a formula where you can increase your rates based on some index. I suppose it's the Consumer Price Index that they would pick. Although I would argue that the price of a head of lettuce really has very little to do with operating a cable company.
Maybe it's the Consumer Price Index plus the increased program costs that are passed on. That's the cap ‑ the most you can raise it. I'd worry if it ever gets down to rate regulation, again, at the most local level. These politicians are terrified of the possible reaction of our subscribers, so they prefer to take a duck, or carve the baby, or say no, or give you the average of the cable systems around you, or something that doesn't relate at all to your actual cost of doing business. We'd be hurt if that were re‑established and the programming would be hurt.
SMITH: You made a comment back several tapes ago, Ed, that I made a note on and wanted to take you back to. You said that you had had a lot of interesting debates with Jack Valenti who I believe is the President of the Motion Picture Producers Association of America, is that correct?
ALLEN: Yes, the MPAA.
SMITH: Could you tell us a little bit about the issues and perhaps some of the more interesting personal experiences you had in debating against Jack on behalf of the cable industry with him representing the motion picture producers?
ALLEN: I'd better clarify something. These have not been one on one public debates. They've been an exchange of correspondence type of thing, or informal discussion type of thing. He and I would show up at the same events, maybe on different panels, and it seemed that people would try to get us in the same room, at any rate, so that we would talk to each other. This was primarily on the issues surrounding copyright, because I was a part of the process, as was Jack, in the cable/broadcast/motion picture compromises, letters of agreement that evolved prior to the passage of the '76 Copyright Act. We would have discussions about what we meant in the language that we evolved in these letters of agreement, for example. My charge has always been that Jack interprets history after the fact without regard to what the facts might have been. I remember one specific area where we got into a pretty good discussion. I was laying out my concern that the Congress never intended that we pay copyright for programming we never delivered. I went through that exercise before where you carry the station for one day, drop it the next day and still have to pay for another 179 days.
Of course, it's Jack's position that that's exactly what the Congress intended because Jack had expressed a concern about what he called cherry picking and he they didn't want the cable operator cherry picking selective programs from the broadcast stations. He would have to pay for the entire program schedule, not just what he lifted up. That is true, but that never got down to 179 consecutive days of non‑carriage as being a reason why you should pay copyright fees.
Jack is an articulate spokesman. He can be a little histrionic, loves to coin a clever phrase that makes a good sound bite. But I have been known, on occasion, to maybe not coin a phrase as clever as his, but to create a sound bite. I think that's why people tried to throw us together on occasions, to see how much we could wound each other.
SMITH: My recollection is that you had made some public statements about the re‑imposition of the Syndex rules. Since you lived through the first Syndex rules as an operator, and now are looking at a re‑imposition of the rules, I'd like to ask you to express your general opinion about them, and then be as specific as you would like. Was it not you that made an address entitled Syndex Revisited?
ALLEN: Might have been, Strat. At one point, in one of the NCTA Board meetings I was one of two, and that's all, who voted to appeal the Syndex rules. The rest of the Board didn't want to appeal them. They knew CATA was going to appeal them. Jack Cole, on behalf of his clients, was, but I felt the NCTA Board took a duck on the issue of appealing. We're the biggest trade association representing the cable industry in the country and if not us, who? Do you pass it off to a CATA or a private client of Jack Cole's? I believe in the concept of the broadcaster having a right to exclusivity, if he's paid for it. Just as I believe, on the other hand, that the cable industry has an equal right to have exclusivity for the programming it creates and pays for. That's where Senator Gore and I would have a problem. I think some of the programming that has been created by and for the cable industry should be the property of the cable television industry. It should not necessarily, by government fiat, be forced to be made available to satellite earth stations or MMDS or whatever. I think we should have that right if the broadcasters are to have that right. But I think you also have to balance that with the damage that the Syndex concept can do to both the subscriber‑viewer and, also, to the broadcasting industry. I think they both stand to be hurt.
There's a big difference between Son of Syndex that we have now and original Syndex, particularly in terms of the notification procedures that are required. Under the original Syndex rules, if a broadcaster wanted to invoke his right of Syndex, they had to give notice to the cable operator which included, among other things, the television station against which they wanted protection, the day, the time that the program is going to run, the program series title, etc.
In many instances they had to provide the name of the individual episode. There are so many "I Love Lucy" packages. You can't just put down, "I Love Lucy." You've got to put down, "I Love Lucy ‑ package 14/episode 8," whatever it might be. That enabled the cable operator, with some precision (after he'd done an investigation and determined that it's accurate), to know exactly what has to be deleted so he can pre‑program all the program switchers that are necessary. Under the new Syndex rules, the obligation to search out which stations are to be deleted and which programs and at what time falls on the cable operator, not on the requesting broadcaster. So the broadcaster can turn in a notice that says, "I have exclusive Syndex rights to 'Arsenio Hall', a late night talk show. I am exercising those rights. Here is a copy of my contract to prove that I have exclusive rights." At that point the cable operator doesn't know which other stations are carrying "Arsenio Hall", or what time they are carrying it. Is it at 10:30 at night? Is it at 11:30 at night?
Perhaps a better example than that, because that's a live show, is any syndicated show where the outside station can put it on at any time it wants to during the 24 hour broadcast schedule. It could be at three in the morning, could be at three in the afternoon. The cable operator doesn't know what time it's going to be programmed. That's why, in the last Board vote (where I was one of two and the other was a very small independent operator who has been through Syndex One as I have), I voted that it should be appealed only because of my concern about the operators' inability to comply with the Syndex requirements on the basis of the notice requirements as they exist. I wouldn't have as big a problem with the Syndex concept (notice concept) if it reverted back to Syndex One and the broadcaster requesting the protection was required to give you the notice that he was required to give before. I think the broadcaster stands to be hurt too in that right now a lot of broadcasters are being carried on a lot of cable television systems outside their market area. If the programming becomes Swiss cheese, and there are estimates, in some cases, that thirty percent of the programming is going to have to be blacked out, then the cable operator is going to say I cannot afford to carry this channel any longer.
The programming is so badly butchered that he's sitting here with these big blank periods. He cannot afford to buy programming to fill those periods. It doesn't satisfy the subscriber for him to put up a sign saying "don't blame me, it's the local broadcaster who forced this hole to appear in your programming." They'll just say, starting with the next copyright period, "I'm going to drop that programming." In the process they have dropped some sports and that hurts the subscriber.
SMITH: I have to turn the tape over again.
End of Tape 4, Side A
SMITH: This is Side B of Tape 4 of the oral histories interview with Ed Allen. Ed, would you please continue with the remarks you were making concerning the harmful effect of Syndex on the local broadcasters.
ALLEN: Strat, you remember there is an old concept a guy we both know, Henry Geller, came up with years ago, called retransmission consent. I think in the old history of retransmission consent, there was only one cable television system in the United States that was ever able to secure the necessary retransmission consent from a local station. This was only after a monumental effort on his part because the local station doesn't own the rights to grant that consent. The only thing the local station owns rights to are its locally produced programs and of all things, it's own locally produced in‑house commercials. But, if it's a network station, it does not own the rights to that network programming so the affiliate cannot tell the cable system, "Yes, it's all right for you to carry the NBC programming. You've got to go to NBC to get that permission. The same thing is true with the syndicated programs. The local station that has bought a package of syndicated programs does not have the legal right to pass off to a cable operator consent to watch that programming. That consent is owned by the owners of the syndicated programming and they're going to want to be paid for it.
Hollywood types are kind of voracious for money and you can bet they are not going to give it away for free. While the concept of retransmission consent sounds almost logical, in the real world it doesn't exist because the rights don't exist. We're going to see that surfacing again in that the NAB with a prod from CBS, has just recently come up with a concept where they want cable television systems to pay the local station for the right to carry that station.
That would mean nuclear war if they tried to get very far on that concept. That is a serious concept that's been floated originally by CBS. The National Association of Broadcasters has appointed a committee to examine it as to its validity. It is going to be discussed by the broadcasters at their next meeting in January. That really could trigger a nuclear war if the broadcasters tried to charge us. At some point along the line the cable operator is likely to say, "The heck with it. Subscribers, put up an antenna. We'll even help you. We are only going to carry cable exclusive satellite signals. That's all we'll charge you for. We're not going to pay the broadcaster for the privilege of carrying his signal. We are not going to pay copyright fees for distant signals. We are only going to carry non‑broadcast satellite cable signals." It becomes a question, then, whether that is an attractive enough service for people to continue to buy cable service. It would be interesting to find out.
If they don't have an alternative, you could wind up with the people watching the local stations by means of rabbit ears, if they can get them, refusing to put up a rooftop antenna and then depending on the satellite services, including the superstations, for their television programming. They would get some commercial broadcast programming, they would still get their sports, WGN to bring them the Cubs, WTBS would bring them the Braves, but they would lose their local broadcast service under that concept.
SMITH: Do you have an opinion at this stage, Ed, whether the cable industry could survive economically as an attractive industry without local and distant signals, excepting the superstations which are quite dependent these days on cable?
ALLEN: Well, the superstations are taking steps to make themselves "Syndex‑proof," as they call it. So there won't be blackouts on the superstations because they are buying national rights. Or the common carrier, the microwave service, is arranging for its own substitute programming so, if there is a blackout on the superstation they are carrying, there is an alternative piece of programming. I think in the beginning, Strat, it would hurt, but as long as people have a source of local news, from some other source, then it becomes a very real question of whether they then need a local television station to deliver that news. In the San Francisco market area where I come from, there are several independent UHF television stations that don't program one minute of news during a broadcast week. Their function is to grind out movies which you can get from other source.
Initially, unless a substitute can be created, there would be a shortage of local news available. I happen to be on the Board of educational television station KQED, that's Channel 9, in San Francisco.
We have a very interesting concept that we're in the process of developing in that KQED, in addition to Channel 9, has a second television station, educational television station Channel 32, which isn't being fully utilized. It has a short broadcast day from five in the afternoon until midnight. We are working with a commercial television station, KRON‑TV, the NBC Channel 4 affiliate in San Francisco, where a commercial television station and an educational television station are going to join forces to create a new entity which will be known as the Bay News Center, which is going to be a 24 hour per day local news operation. It's like Turner's Headline News, except it's going to be local news. It will program over the educational television station, without commercials, because it's an education television station. There will be programmed into that programming, public service announcements and station program announcements. That same programming will be fed by microwave to the cable systems in the Bay Area. They can sell advertising in it. The Bay News Center can sell advertising in it.
You have then created another news entity like Headline News except it's a regional news entity. That would fill the void, meet the need, for the local development of a news service, but it doesn't come over a broadcasting station. Sports could be more difficult, but there's an answer also to sports. They're creating now, all over, regional sports networks. Here in Southern California, they have one called Prime Ticket. In the Bay Area there is a sports network, I've forgotten exactly the name of it, but there is a regional sports network. The baseball Giants in San Francisco have their own program called Giantsvision which, for a fee, gives you the Giants home games. So there is a way even to fill the sports void. I've got to be very careful how I say this, but the Communications Act of '34 has, as its major underlying premise, the concept of the validity of localism.
I question whether "localism" isn't a myth, whether, in fact, the viewers in the market want that many local television stations that don't ever program any news, that don't ever program any sports. They can get "I Love Lucy" from a San Francisco independent station or they can get "I Love Lucy" from an Atlanta Superstation. It doesn't make any difference to them. They do need availability of sports, availability of news, but I'm not at all sure that you can find a justifying rationale that says that, even if there are 15 independent television stations in the market and two thirds of them don't do any local programming, you can still sustain localism as the rationale for the Communications Act.
SMITH: I'll make a comment, Ed, on that only because I have some background and because I want to encourage your conversation. I think it is a fact that the FCC has, for most practical purposes, abandoned the concept of localism. They do not now require regular television stations to show X percentages of sports, entertainment, talk shows, like they used to.
ALLEN: They don't do community ascertainments anymore.
SMITH: And they do not require community ascertainment any more. I would think, with the exception of news, which creates its own problem, that there really is no requirement any longer that radio and television stations program original, locally produced programs.
ALLEN: That's true. That's what the Commission says. They don't say it very loud or very publicly because the Congress, on the other hand, still believes that the rationale for the very existence of the Communications Act is the concept of localism. It goes to the scarcity of the spectrum and, therefore, the best use of that spectrum and they say that best use is the provision of local programming. You don't ever look at what's on the channel and determine is it, in fact, local? Or is it just grinding out movies or religious programs? Home Shopping Network owns a whole series of television stations, UHF stations, all over the country. The only thing on them is 24 hour per day selling of products. No news, no sports, no religion, no talk shows, no nothing. That's a local station? Where cable gets caught up in it, and I know the industry wants to ultimately resolve this must‑carry issue, is that you must carry the local television stations. But if the local television station isn't programming locally, I don't see why we have to carry it. It might be there is something on the satellite that is of more value.
I happen to be a big fan of C‑SPAN. I've been deeply involved in C‑SPAN since it started. We have a problem on the carriage of C‑SPAN II. It's a channel capacity problem. We've got good carriage of C‑SPAN I. C‑SPAN II came along several years later; it's the United States Senate. I wish I could say that the coverage was as great as on C‑SPAN I, but it isn't because of the channel capacity problem some of the cable systems have. It's not a cost factor because the cable system gets it free. If he's paid for C‑SPAN I, he gets C‑SPAN II for free. So, if we could throw off the air a local station that does nothing but sell products 24 hours a day, we might be able to find a slot to put C‑SPAN II on so the people could see the United States Senate in action.
SMITH: I want to come back to C‑SPAN, Ed. Your discussion is suggesting a line of questions that I think are appropriate right now.
ALLEN: Let me say one thing, Strat. I am not advocating this concept of dropping all the local signals, say "put up an antenna" and delivering only satellite cable services. I'm not advocating that. That would rattle too many cages, including public policy questions in the Congress. I'm not prepared to take on that battle. However, the longer the broadcasters try to abuse us, the closer we're getting to that kind of a concept, I think.
SMITH: In pursuing that line of questioning, I certainly don't want this transcript to suggest that you were. Your remark about turning the programming into Swiss cheese with so many holes in the channels that it's not worth carrying them anymore seems worth following up. The fact that the local stations are really not local stations anymore and, at the same time, being required to support the idea that exclusive rights need to be recognized, it does begin to suggest that perhaps cable television may be forced to become a medium wholly independent of the broadcast industry. That's an implication of the trend in the events and, if you will recall, I'd asked you the question if you thought the industry could survive that way.
ALLEN: I ducked and weaved, I guess.
SMITH: You were a little ambivalent but you didn't ignore the question. There's another aspect of this. Is there not a cable system, I think it's on Long Island, that's decided if this syndicated exclusivity is the way to go, it's going to go out there and buy the programs itself and program a local channel just as if it were a television station?
ALLEN: Yes, that's an ATC system in, I think, Rochester, New York.
SMITH: Well, I missed with the Long Island then.
ALLEN: They had a local origination operation as a lot of cable systems do. They decided that, in essence, they were going to turn that operation into a television station, by going out and buying the same kind of programming that a television station can buy. I think, in every instance, the programming that they bought was first offered to the local television broadcaster and the local broadcaster turned it down. He wouldn't pay the necessary fees. Now the broadcaster is livid because, having turned it down, the cable system came in behind him and said, "I'll pay the fees, I want to program this." They are now out selling advertising on what is a significant piece of programming. It's not just local origination talking heads anymore, it is syndicated programming. Half‑hour and one‑hour programs, off‑network. While the broadcasters, particularly the independent broadcasters, as evidenced by INTV, the in trade association, are absolutely livid about this. The local independent station that turned down the programming doesn't think this is a competitive threat to it. The FCC, in the person of Chairman Al Sykes, says this is exactly what we think the cable industry should be doing. It should be providing more diversity of better programming. That's exactly what they are doing. It's a question of whose competitive ox gets gored, I guess.
SMITH: Is there any reason in your mind why that system in Rochester shouldn't go out and bid against the local station for available syndicated program, rather than waiting?
ALLEN: I give them absolutely every right to enter the market and compete head to head for local programming. That's what the cable networks are doing.
There is some concern about the shifting of sports from broadcast TV to cable TV. That's another straw man that's been set up. Because, even with the sports programming that is now available on cable, exclusively, that's an add‑on to the broadcast sports. And the broadcast sports are at an all time high. It has not taken anything away from broadcast sports. It has just added on and given the sports fan even more programming. In those instances, cable goes out and goes head to head with the networks and they may or may not get the programming. There are all kinds of rights, the National Football League rights, for example. ESPN has a small package of games that they carry at 5:00 on Sunday nights. Those are new games, they are not taking games away from the networks. The same thing is going to be true of the Olympic rights. The broadcast networks pay buckets of money for these but then they lay off some of the costs to the cable industry for the more secondary sports.
At some point, maybe we'll be able to bid on our own for these rights. I don't think the cable system, in the case of Rochester, has any obligation at all to wait until it's been offered to someone and turned down before they step up to the plate and say, "I'll show it." I think they should be able to go right in, in the first instance and, of course, the syndicators, the owners of the programs, would love that. It's another player, another competitor in the market. Whether it's a good business deal or not is another thing. I don't know. With the limited coverage that a cable system local origination signal has, compared to the multi‑county coverage a broadcast signal has, I don't know whether it's a good advertising deal or not.
SMITH: Concerning these various developments, would you think that the broadcast industry may be in the process of digging its own grave?
ALLEN: To a degree, I would. While we have tried to caution our brethren in the broadcast industry, they tend not to listen. We've tried to tell them that, if Syndex goes through, a lot of them are going to be chopped off of cable systems. They won't believe it until it happens. We've tried to tell them, in the case of retransmission consent, that they don't have the legal right to grant this consent. They don't understand that. The audience is diminishing every year. The network audience is being picked up by independent broadcasters and by cable. At one time, the three networks could easily account for 90% of all the viewing in prime time. Maybe kind of split 30‑30‑30. Now, in cable homes that have pay services available to them, the network share is in the 50‑60% range. That's a dramatic loss.
SMITH: I think it's at 60, but it continues down every year.
ALLEN: You can wish that the good old days were back, but they aren't coming back. It behooves the broadcaster to try to figure out some answers other than what he's doing right now. I think the independents are on the right track. They're plowing money into programming and doing a better job of programming, even with the proliferation of independents, a lot more of them now than there have ever been. They are trying to counter program, be creative in their programming, buy better programming. Certainly the cable networks are doing the same thing. Every once in a while, you hit a remarkable idea in cable. One of them was Home Shopping Network, for example. I don't know how long that phenomena is going to continue with the number that exist, but I think there is a significant number of people who prefer to do their shopping from home with the telephone rather than going out and fighting the crowds. I think there is a place for that.
Not many people would have said there is a place for a 24 hour documentary channel. One of the most popular channels we have right now is the Discovery Channel. You try to tell some broadcasters, even educational broadcasters (and I say that as a Director of an educational television station), that you could make a success out of a 24 hours a day documentary channel and they'd say you're crazy. But we know it works. I think the broadcasters are hurting themselves by being intransigent. Maybe I should say it this way: I think the broadcasters trade associations, and maybe this is true with cable too, sometimes get out ahead of their membership in terms of rhetoric and they foment problems (maybe to justify their existence) when, out in the field, the problem isn't there. I remember one time, representing the NCTA, I went to a meeting of the Board of Directors of the INTV, independent broadcasters. That was when the issue of channel positioning had first arisen. I went there with the idea of talking about must‑carry. They shifted it to channel positioning. You get two or three red‑hots, as we call them, on that Board, who are livid about the fact that their television stations were moved. In some cases, they've got a legitimate complaint. Any cable operator that moves a television station during a sweep period is doing a real disservice to that television station.
One of the problems is that the cable operator doesn't even know what a sweep period is. If the broadcaster and the cable operator had sat down to lunch over the years and talked to each other, the cable operator would know the damage he could cause by moving the station at that time. At any rate, the average member of that Board of Directors was very nice to me. But, some of the red‑hots and the professional staff were trying to foment a massive argument. That's why I say, sometimes I think the problem is with the trade associations. Maybe that's true of our own industry, too. I don't know.
SMITH: In a recent lecture that Wendell Bailey, the Vice President for Science and Technology of the NCTA delivered at Penn State as the first lecture of the Donald Levenson lecture series that was endowed by a gift from Mr. Levenson's widow, Mr. Bailey responded to a question from the audience that in five years there wouldn't be any more television broadcast stations. Along the same vein, and something that might be taken more seriously but I won't characterize either remark, Al Warren, the publisher of the TV Digest who has been reporting on the cable industry since its very beginning, was also a guest lecturer at Penn State recently, and he quoted an interview that he had with Frank Stanton at the time when Stanton retired as president of CBS. Al said he asked Stanton, "Where do you think things are going?" Al quotes Stanton as saying, "Al, it's all going to be on cable in ten years." We are at the end of the tape again.
End of Tape 4, Side B
SMITH: This is Tape 5, Side A of the oral histories interview with Ed Allen, in progress at the Anaheim Hilton Hotel in Anaheim, California on December 13, 1989. Ed, will you respond or comment with respect the prediction of Frank Stanton of CBS and the comment of Wendell Bailey of the NCTA about the future of television broadcasting?
ALLEN: As a cable operator, I'd like to think they are right, but I don't think they are right. I think television broadcasting will continue to exist. This kind of a concept, that everything will be on cable, is the concept that was advanced in the book, "The Wired Nation". Remember when that came out a few years ago? The thesis behind it really makes some sense. It runs something like this. The electromagnetic spectrum, the radio spectrum, which is used by the broadcasting industry, radio and television, is a finite national resource. And, by the laws of physics, it is fixed. It extends from A to B and you can't create more usable spectrum. So you must make the most and best use of this finite resource, just as much as you would clean air and clean water or gold or oil or any other resource.
Right now there's a feeling that we are wasting a lot of this resource. If you tune across your radio dial and it runs from 550 to 1500 or whatever the numbers are (on the AM dial), depending on where you are in the country, you can get 30, 40, 50 different radio stations. One television station takes up more spectrum space than the entire AM radio dial. It delivers just one picture. Essentially, it is entertainment. There is some information, some education, but, essentially, it is an entertainment use. In the VHF band, you've got 12 of these hunks, each one bigger than the entire radio band. Then when you go to the UHF spectrum, 14 to 83, you've got, I'm not going to try to do the math, but much more in the way of these clunks of space that are being devoted to entertainment, essentially.
Meanwhile, we have other uses for that spectrum. We're shooting rockets to the moon and we need telemetery information coming back. We have a crushing need for two‑way communications, business communications, taxi cab, fire, police, just multiple, multiple uses for this very finite piece of spectrum. The cable industry doesn't use any spectrum. It doesn't have a transmitter. It creates its own spectrum and we have found ways where we can stretch it beyond that which the broadcaster can. So if you were to remove all of the broadcast services from over‑the‑air transmitter/tower transmission and put it on cable, you would release a tremendous amount of this spectrum space for other uses that might be socially more desirable. That's the argument behind transferring everything to cable. Having said this, I don't think, in the real world, it's going to happen. There are big areas of the country, the so‑called white areas, where cable does not have any service.
That was the genesis years ago of the 50,000 watt radio station, to fill in the white areas with a night time signal so that people would have a broadcast service available to them. Nationally, now, about 40% of the people who can get cable don't use cable, maybe it's an economic reason. There has to be some way of supplying television programming to the people who can't afford cable, to people who live in the rural areas. More particularly, even with the tremendously expensive costs of television advertising, it probably still is the best deliverer of a mass audience that exists. It's better than newspapers, much larger than radio. Better than magazines.
Cable networks can't come close to what a national broadcast network can deliver. So I think there is always going to be a place for commercial broadcasting, educational broadcasting. It may exist in a different form. It may have to modify what it does to allow for the competitive realities of what is out there. I don't see television going away and everything winding up on cable in my lifetime.
SMITH: I think perhaps we can leave that subject now. I would like to go back to another subject that you mentioned, that you indicated a great deal of interest in, and that is C‑SPAN.
ALLEN: You get me started on C‑SPAN and I can talk for days on that.
SMITH: Well, we only have one day, but I'd like you to tell us about your own background in C‑SPAN, and its development. What part did you play in it?
ALLEN: C‑SPAN began in 1979 so it's celebrating its 10th anniversary this year. The concept was Brian Lamb's. He had been a Washington editor/reporter for Cablevision Magazine. The publisher of Cablevision, once Brian came up with this idea, told him to go try it to see if he could sell it. They kept him on the payroll while he developed this concept and talked to the cable television industry. He managed to get, I don't know, 10, 15, 20 cable operators, and I was one of them, to come up with some seed money and they pulled together $400,000 to get it launched. When C‑SPAN started I think it had three employees. It's only programming at that time was the floor programming from the House of Representatives.
We have to go back to how did that start. The House of Representatives, at one time, had, as an internal communication system, only audio from the House floor or the committee chambers or whatever. They call them squawk boxes. But if the Representative sitting in his office wanted to know what was happening on the floor, he could only hear it. He couldn't see it. The House decided that they were going to come in to the modern era by installing cameras and wiring the House of Representatives so that the members of the House could watch the floor proceedings in their own office. There were big discussions ‑ when C‑SPAN was first getting started, C‑SPAN's concept was to take the House feed, as we call it, and run it up to a satellite and then deliver it out to the outside world through cable systems ‑ over who should control those cameras. Should they be employees of the House of Representatives or should they be the private entrepreneurs like C‑SPAN, or the networks on a rotating basis? The House decided they wanted to control the cameras.
In a way, I don't blame them. I don't know if it's hurt the coverage or not, but that way you don't see a guy sleeping at his desk or reading the newspaper during the debate, or whatever. It puts the House forward in the best possible light but you're still getting the debate. That's the important thing. At that time then, when C‑SPAN began, if the House of Representatives was in session and televising, C‑SPAN was on the air. But if they weren't, the screen was blank. The only programming we had was the House of Representatives. As we began to grow and as the cable industry embraced the concept and as the cable industry became the supporter of the concept through subscriber fees, we could get more cameras, get more people, we could get more remote crews organized to go out and do committee hearings. We worked out a tie‑in with the Close Up Foundation which is a group which brings high school students to Washington to watch their government in action. We began televising the speeches from the National Press Club. We wound up where the House of Representatives first‑run, live programming is now only about 10% of the total C‑SPAN programming. I think we have something like five different remote crews that can be sent out every day so we can cover five different committee sessions, everyday.
We operate now as a 24 hour network, where before, and as I used to refer to daytime radio stations as the stations that run down at sundown, if we didn't have the House feed, we didn't have any programming.
There was lots of debate in the House, on whether C‑SPAN should be allowed to carry this programming or should it be only an internal service of the House of Representatives for the Representatives use in their offices. The same old arguments were presented that surface so many times. The Congressman will showboat. They've got big egos. Speeches will get longer. There will be more speeches. They will be more concerned about wearing the red power necktie than about what they are saying. None of this materialized, but they were all reasons put forth as to why we should not exist as the visitor's gallery of the House of Representatives to the entire country through the cable system.
I think, in some cases, members of the Congress were uncomfortable with television. They didn't know how to present themselves on television. They thought they would come across poorly on television and it might affect their chances of being re‑elected or something like that. Again, none of that has happened. When we spent several years trying to get into the Senate, the same arguments were raised again about the long speeches and the frequent speeches and the playing to the audience and abusing the process to get themselves elected, and none of that has happened. It could have been predicted based on our House experience. The rules are all different in the Senate. In the House of Representatives, if you want to address the House, you walk down into what is known as the Well, that's the area right at the bottom of all the seats, you turn around and you face your colleagues. You are up front talking to them and you're under a time constraint established by the Chair.
In the Senate, the Senators speak from their desks and they kind of wander around the room when they are talking. There are no time constraints. A filibuster can go on for days if they want it to. So the Senators were really very concerned about how television might change the "traditions" of the Senate.
I remember testifying before Senator Mathias when we were trying to get the right to televise the Senate and he was expressing these concerns about the Senate traditions. I had to concede the tradition did exist. They call it the world's greatest deliberative body or the world's most exclusive club. However, I cautioned the Senator not to confuse tradition with habit because in a lot of cases they do it that way just because that's the way they've always done it, without regard as to whether it's the best way to do it. Since we've begun televising the Senate, there have been some changes. They do speak using a microphone which they hang on the breast pocket of their jacket. They can only wander around as far as their microphone cord allows them to wander. They have made some cosmetic changes to the Senate.
Some of the Senators who were in the back of the room didn't like the mustard yellow wall behind them because they didn't think it showed them off to the best advantage. The cameras in the Senate are mounted in such a way that they shoot down. They're underneath the balcony and they shoot down on the Senators. Those who have bald heads don't much care for that kind of a camera angle. But that's been a success too.
My own involvement has been not only being one of the original founders, along with a lot of other people, but then having been a Director every year for the last ten years. And on the Executive Committee every year, for I suppose, eight or nine years. I'm not sure I was on the Executive Committee in the first year it was formed. The Executive Committee is that body which runs the affairs of the company, the network, in between the meetings of the Board, just as it does at the NCTA. I was also privileged to be the Chairman of C‑SPAN, again for two years. I seem to do things in two year cycles.
SMITH: What years were those?
ALLEN: That was '82‑'84. It was the two years immediately preceding when I became the NCTA Chairman. I was the third C‑SPAN Chairman. I have two more years to serve on the C‑SPAN Board, as I have two years left on the NCTA Board. I think, again, it's time (at age 65, 66, 67) to step aside and let some of the younger executives take these positions. I plan to do that. I will finish out these two terms, but then I do plan to step aside and let some of the new blood play in the same playpen I've been playing in for these many years. I'm so proud of C‑SPAN, Strat. Broadcasting Magazine once described C‑SPAN as the "crown jewel of the cable television industry." It is that. It was conceived by the industry, the godfather being Brian Lamb. It is funded by the cable industry, it is carried by the cable industry into 30 million homes for which the industry pays C‑SPAN for the privilege. It is the world's greatest on‑going civics lesson that has ever happened. Other countries are just beginning now to catch up with what we're doing.
The Canadian Parliament has an excellent system of televising its proceedings, as does Australia. Russia just very recently started televising the Politbureau meetings. They did one meeting and then changed their mind, but I think they might be back televising them now under the glasnost concept.
The House of Lords in London has had sporadic television for several years. After much, much debate, the House of Commons just began televising their proceedings in November, just last month. And C‑SPAN is carrying that. They're picking it up off a satellite and delivering it to the cable systems in the United States. Compared to the United States, there is such a paucity of television in England with only four television stations in the whole country; BBC 1, BBC 2, and two commercial stations. They cannot devote the time to showing the proceedings of the House of Commons that C‑SPAN can in this country. No television station in this country would be willing to spend 24 hours televising the United States Congress. It takes a special network to do it. As a result, it is very possible that the C‑SPAN viewers in the United States could see more of the English House of Commons than the people in England because we have the vehicle with which to carry it.
There are times when, very frankly, some of the C‑SPAN programming can be boring! Like watching paint dry. I have also seen some of the highest drama that is possible to see on C‑SPAN. I remember one instance and I'm sure as a Washingtonian you'll remember it. There were two members of the House of Representatives who were censured by the House for their sexual activities involving boys and other men. They got caught in a restroom in a park or something like that. These men were forced to walk down into the Well of the House and stand with their heads bowed facing the Speaker, so you only saw them from the back, while the Speaker laid this formal censure on them. That's drama when you see something like that happen.
One of the interesting things that's going to come out of our televising the House of Commons is the procedure they have where the Prime Minister, Margaret Thatcher, has to come to the House of Commons twice a week, on Tuesdays and Thursdays, and, for 15 minutes each time, subject herself to questions asked by the members of the House of Commons. The closest equivalent to that would be if President Bush were required to show up in the House of Representatives so that these Congressmen could fire ad lib questions at him. Not press conferences, these are elected Congressmen that would be asking the questions. It's interesting because they have a long history in the House of Commons of very raucous question and answer periods. They yell and they holler and they say, "Sit down, you're crazy, you're an old bag, shut up," you know. That kind of thing. We're just beginning to get an exposure to the kind of give and take that takes place in the Mother of Parliaments, the House of Commons. It's going to be an interesting experience for the cable industry.
C‑SPAN has a very big tie in, with the educational process. We have a whole program called "C‑SPAN in the Classroom." And I'm sure you've read about the Cable Alliance for Education, which is a consortium of major cable operators and major programmers who have programming that lends itself to educational use in the classroom and certainly C‑SPAN is a big piece of that.
SMITH: At The Cable Center, we hope to one day be allowed to participate in it.
ALLEN: That would be great. That is one of the better public relations concepts, the Alliance for Education, that the cable industry has come up with. The only one that exceeds it is C‑SPAN. It's had a ten year head start. It's an amazing organization in that the average age of the employees has got to be in the very early 30's, maybe late 20's. There is only one man that is over 50; Brian Lamb is in his 40's. All of his senior lieutenants, his vice‑presidents are in their 30's. It's a young crew. But it's a dedicated crew. They could make much more money somewhere else, but they like what they are doing. They feel they are contributing something by doing what they are doing.
One of the big things, the reason that it is a success, I think, is that the C‑SPAN air personalities who are on the air on the telephone call‑in shows ‑ they do three one hour live call in shows a day, five days a week never identify themselves. There will be a crawl at the bottom that will give their name, but they never say, "Hi, I'm so and so from C‑SPAN." As they are doing the interviews, they never inject their own opinion. They will ask questions to draw out further answers from the person being interviewed but they try to get the caller to come in to do the questioning, rather than them doing the questioning.
I think one thing that people like is that whether it be the House of Representatives or a committee hearing or, of all things, the national political conventions, we cover gavel to gavel. It's always gavel to gavel, start to finish coverage with never an intrusion by a C‑SPAN staffer to tell you what you're watching. I think people tend to doubt the network anchors who have this instant analysis after a presidential speech. Very often you're dealing with what I call a $25 haircut and a five cent mind. We don't do that at C‑SPAN. We do not do interpretive analysis. We allow the viewer to do his own analysis. It's a cinema verite approach. This is what's happening. Just watch it. That's what's made it the success it is.
SMITH: I mentioned earlier in our interview today, Ed, the appearance of Brian Lamb at Penn State talking to some communication school students. I had an opportunity, driving him to the airport, to discuss C‑SPAN just a little bit with him, and he mentioned something to me that quite surprised me at the time. That was this. On that day, before he had flown up to State College, he had conducted an hour‑long talk show in the early morning and had received three calls from West Germany which surprised and impressed me. I would like to ask you to comment upon what you might see as the potential for the combination cable/satellite industry impact on international relations.
ALLEN: It's not as big a question as you might think, because it's happening right now.
End of Tape 5, Side A
SMITH: This is Side B, of Tape 5 of the oral history interview with Ed Allen at the Anaheim Hilton on December 13, 1989. Ed, I asked you to comment on the possible international implications of the combination of satellite/cable transmission based somewhat on an experience in C‑SPAN.
ALLEN: That global process has started already and, again, Brian Lamb is the big global thinker. He was the one who conceived of this concept. Last year, I think in '88, it might have been in '89, was the first time that C‑SPAN went to London and they spent a week in London. They talked to what would be the equivalent of our Secretary of State. He showed up on C‑SPAN in London. It's almost an unheard of opportunity for him to get his thinking across outside of the British Isles. The mechanics exist for C‑SPAN to originate live programming from London, put it on a satellite and deliver it into the United States. Then to homes by cable system. That's when they discovered, for the first time, that there are a lot of satellite viewers in England and Western Europe that can see the programming. Not only that which originates from within Europe but also the American programming on our satellites can be relayed to Europe via another satellite and picked up in the European countries. So we have had telephone call‑in shows where we have to dedicate a line to foreign telephone calls.
SMITH: By we, you mean...
ALLEN: C‑SPAN, yes. We would exclude the residents of the United States from using that line because we are trying to get as much opinion as we can from all over. That's an interesting thing, by the way. The telephone calls that come into C‑SPAN during the shows we do, are paid for, every one of them, by the caller. We don't use 800 numbers so the caller has to be sufficiently interested to spend his own nickel to call in and talk to the C‑SPAN audience. As American cable network programming expands, first in Europe and then in Eastern Europe, and then in Russia, there is going to be this opportunity for two way exchange, assuming the telephone service is good enough, and sometimes in Russia and in some of the Eastern European countries it isn't that good. But a two way exchange of at least audio doesn't have to be very exotic. The two way exchange of video information is a very expensive operation, but it isn't that expensive to have a telephone call from Gdansk coming into the United States.
In Europe, right now, CNN has a headquarters in London. Bob Ross, who used to be with the NCTA, heads it up. Bill Roed heads up MTV Europe, also headquartered in London. One thing MTV Europe is doing is putting American rock music, of all places, into the Eastern European countries ‑ communist controlled countries ‑ where there's a big demand for rock music for some reason. CNN has just announced that they are now authorized to deliver the CNN signal into Moscow into the hotels and the next step is to deliver it into the homes of the Muscovites. So we're opening up a window of American news and public affairs programming going out in that direction. There is no reason why, with the new freedoms that are developing, somebody can't pick up the telephone and call back and talk to the C‑SPAN interviewers in Washington. It has happened, as Brian demonstrated when he talked to you about the number of telephone calls he received from West Germany. It's a global opportunity, limited only by your own imagination, as to what we can do with this.
SMITH: Can we expect over the years, in your opinion, Ed, to see it operate in the reverse? That is, the programs originating in Russia, other countries, or anyplace in the world, then being beamed by satellite to the United States, distributed on cable systems in this country and thus opening the door to talk programs in both directions?
ALLEN: Sure. I believe that absolutely. It depends on the type of programming as to whether for example, it would be appropriate for C‑SPAN, that's a public affairs network. But the Politbureau, absolutely. Right now, as I say, we're carrying the House of Lords, the House of Commons. Next year they'll be doing the French Chamber of Deputies. We're already doing the Canadian Parliament. So this material is up there, not on American satellites but on other satellites, like the Canadian satellite called ANIK. But there is no reason why live programming of an entertainment nature can't be picked up off of these satellites and presented simultaneously in the United States. We have a lot of European programming that comes to us by tape. The Italian network, RAI, does a lot of programming here. It's headquarters are in New York, but you see it all by tape.
You know, maybe someday we'll have an International Channel and people can pick and choose the programs of that channel from a dozen different satellites. The same satellite that feeds Japan does not feed London, you know. So you've got to have a way to relay this programming from one bird to the next to get into this country. That's certainly possible. The world is shrinking. Cable is a big piece of how it's shrinking.
One other thing, cable is just beginning to start in Western Europe and, in a lot of cases, there's a lot of government involvement in it. Post Office Department or whatever. I read the other day that the Polish government granted a franchise for all of Poland to one entity. That's a big franchise, the whole country at one time. As cable begins to proliferate in the European countries, you don't have to depend on the guy having a backyard satellite dish to pick this up. Then entrepreneurs will rise to the fore as they did in this country to become the networks that can deliver this kind of programming to cable systems. They don't have to depend on the satellite dish. Then it will be the cable subscriber who's picking up his telephone to call back, rather than the dish viewer who is picking up the telephone. It's enough to boggle the mind, the opportunities that are out there.
SMITH: I had shut the tape off a moment or two to have a private discussion with you and in the course of that discussion you mentioned other activities that you have been involved in in your career as a cable television executive. I think they would be quite appropriate for you to review. Would you like to discuss some of those matters you were just mentioning?
ALLEN: Well, the cable industry has been good to me and to most other people in the industry. So I think we have an obligation to try to give back something of ourselves to the industry that has been so good to us. That was why I would take on two years of the National Chairmanship and travel around the country and not see my family for periods because it's a necessary giveback. I've been involved in some other things where, while they're allied to the cable industry, they are not business oriented and designed to make a dollar for the person participating in it. I'm thinking of two things in particular. The cable industry for the last four years, maybe five years, has become a national sponsor of the Jerry Lewis Labor Day Telethon. Jerry's Kids. This is the Muscular Dystrophy Telethon and, under the leadership of Sandy Freeman of Comcast, we have persuaded nearly all of the cable operators to participate in the Jerry Lewis Telethon with such things as offering a free installation of the cable service if you make a donation to the Jerry Lewis Telethon. We have raised millions of dollars (and it isn't generally known) in just five years.
I think last year, by itself, it was something like two million dollars that we presented to the Jerry Lewis Telethon. It makes me wonder just how much more we could do if the entire cable industry were involved in this effort. It's not a thing that has a national sanction from the NCTA or from CATA. But this Cable/Muscular Dystrophy Advisory Board (which I'm part of) has just, one on one, tried to persuade the cable operators that they should be involved in this every Labor Day. Where they have been involved, it's selfishly been a very good promotional tool for the cable industry to get new subscribers. The emotional appeal of helping Jerry's Kids sometimes reaches people that a conventional 99 cent Day Sale or something else doesn't reach.
We have made such a significant contribution in just a short period of time that we are just as much a major national sponsor as is 7‑11 Stores or the postal clerks who have been involved for so many years. We could do a lot more than we are doing and, I think, make a significant social contribution by tying into the muscular dystrophy effort.
Another area I've been involved in since the beginning and I can't tell you with any certainty when that started is the Walter Kaitz Foundation. We spent some time talking about Walter and his family. Spencer Kaitz, his son, and his sisters and Dorothea Kaitz have set up the Walter Kaitz Foundation in California although it is now national in scope. The purpose of it is to provide executive training in the cable industry for minorities. Walter had a very deep interest in trying to assist minorities to find a place in the cable television industry. This is not entry level training that these people get. We've had people who are law school graduates.
SMITH: We had to interrupt the recording for a minute. You were beginning to discuss the Walter Kaitz Foundation and its purpose and objectives. If you would, I'd like you to continue with that.
ALLEN: The Walter Kaitz Foundation is not designed for entry level training of these minorities. We've had people who were law school graduates who decided to make a career shift. We've had people who already have master's degrees, but want to move into the cable industry from whatever industry they are in right now. It's a fellowship program and the screening process is very elaborate. They put out calls for applicants. They probably get two or three hundred applicants. In terms of their ability to place them with cable companies, that means that they've got to screen them down to 15 or 20. They go through a screening process very similar to what the White House does for the White House Fellows, or what the Coro Foundation does for the Coro Fellows. These people are known as Fellows. They are Fellows of the Walter Kaitz Foundation. They are placed out with individual cable companies or cable networks because some of them have an interest in the software side of our business.
They spend nine or ten months with that sponsoring company. That company is under no obligation to continue to employ them or to fund them after these ten months. But what typically happens is if the guy likes the cable industry or the woman likes the cable industry, and wants to stay in it, very possibly they're going to stay with their sponsor. The sponsor will find a place for them, either in the corporate headquarters or out at the system level or something. These are some very brilliant people.
When I was at Western Communications, we took on one of the Walter Kaitz Fellows and she wound up as a marketing director in one of our cable television systems after ten months or so of training, as a kind of a cub intern type. But it's executive training, it's not entry level at all.
SMITH: What did you say your formal or official relationship is with the Kaitz Foundation?
ALLEN: I'm a Trustee. They have, instead of a Board of Directors, a Board of Trustees and I'm one of the originals and still am a member of the Board of Trustees of the Walter Kaitz Foundation.
SMITH: You were telling me, while the tape was shut off, that you were an unexpected and reluctant speaker at the first Foundation dinner. Would you like to relate that experience for the record?
ALLEN: Let me see if I could repeat it, Strat. The principal fund raising activity that the Walter Kaitz Foundation has each year is a black tie dinner held in New York City. That's why I say this program is now national, it's no longer confined to California. I think usually at the Waldorf. And it has become a major cable industry event of the year in New York. In fact, in this last year, the week of the Walter Kaitz Dinner, because there were going to be so many cable executives in town for the dinner, became kind of a Cable Week in New York City. The NCTA held one of its Board meetings in New York City so that people could attend both the Kaitz Dinner and the NCTA Board meeting. The other allied cable groups also held meetings in conjunction with the Kaitz Dinner in New York. So, it's a major, major affair. I think they've had the dinners for five, six, seven years, something like that. They have grown monstrously.
The last dinner they had, I know over a thousand people attended. It might have been as many as 1,500. I think tickets are like $250 each. So the proceeds after they pay for the dinner ‑ and it's a very nice dinner ‑ go to fund the Foundation. I think they raised about a half a million dollars from the last dinner.
I was recounting the time that I became inadvertently the speaker at the first Walter Kaitz Dinner where they didn't have 1,000 or 500 or 400. I think they might have had 200 people or something like that there. The scheduled speaker was to be Ray Joslin of the Hearst organization. And I was in Europe, so I hadn't planned to attend the meeting at all. Just before the dinner, Ray was involved in a very serious accident. As I remember, he was riding a sit down tractor type power mower and I think it tipped over backwards on him or something. But it badly damaged one leg. In fact, he was in therapy and on crutches for several years after that happened. Happily, he's doing well now. But Ray knew that he could not give the featured speech that night and somehow he tracked me down at my hotel in Europe. I don't remember the country I was in, but I remember talking to him from a pay phone in the lobby of this hotel and every time I tried to give him a reason why I couldn't do this ‑ because the dinner was going to be on the night that I arrived back on a trans‑Atlantic airplane flight from Europe ‑ he had an answer. I'd try to say, "Ray, I'm going to have a ten hour flight under my belt and lots of jet lag and I can't go through the hassle at the airport and get to the Waldorf and give a speech." He said, "Yes you can. We'll have a limousine waiting for you at the airport so you don't have to go through a lot of hassle." I said, "Ray, it's a black tie dinner and I don't have a tuxedo with me." He said, "No problem, we'll rent a tuxedo and we'll have it in your hotel room." I said, "I don't have a hotel room and I know it is sold out." He said, "We can always find you a hotel room. We'll talk to the management."
Ultimately, I arrived at Kennedy. There was a limousine there. They took me directly to the Waldorf. I went up to the room. There's a tuxedo laid out on the bed. I got into the tuxedo, turned right around and went downstairs because everybody had already gathered and with no opportunity for any kind of preparation I had to get up and give about a thirty minute speech.
This was the very first Walter Kaitz Dinner and it was fortunate that I knew the Kaitz family as well as I did, Walter, his wife and all the children. I spent the time talking about the Kaitz family and how appropriate it was that a Foundation be created to honor Walter Kaitz on an issue that was of such importance to Walter, creating the opportunity for minorities to involve themselves in executive positions in the cable industry. But that was a long day I'll tell you, after a trans‑Atlantic flight and then having to stay up until twelve or 1:00 in the morning giving a speech. Happily, they have had better speech talent since then.
SMITH: I'm not sure that can be, Ed. We've had a long day, too, and I've glanced over my notes a few minutes ago and the transcribers of this tape are going to be happy that I've run out of questions. Do you have any other thoughts of activities involving your personal career, bearing in mind that in another year here or two, when you decide that you are honest to gosh going to retire, I'm going to be back and make you comment on what you have predicted here. Is there something more that might wind this up?
ALLEN: Let me throw one other thing out. This goes to maybe someday you might be back to see how good my crystal ball is today in relation to something that might happen five years from now. Let me comment a little bit on the phenomenon of the upcoming HDTV. That stands for high definition television, which is coming down the pike slowly but inexorably. I think I have kind of a different position than a lot of my colleagues in the industry do. It'll be interesting to see if, five to ten years from now ‑ this will be the second half of the 1990's ‑ what I say comes true, or what some of the other people in the industry say comes true. You have to go back to when the present American television system was devised which must have been 40 years ago.
SMITH: It predated cable, or course, and cable is 41 years old. It was before World War II, a few stations were operating. You could take it back into the mid‑30's.
ALLEN: I remember seeing something at the Chicago World's Fair, like in '38. Anyway, the American television industry developed a system called NTSC. It is the system of technical standards by which American television is presented to the American public. There are other systems than that. For example, in Europe they have the PAL system. NTSC was a compromise system from the very beginning, but it was color compatible. As we moved into color, we could deliver color programming to people who had only black and white television sets. They would see it in black and white but it was compatible, at any rate. In terms of picture clarity, it isn't the world's best television system. This goes to the number of lines (as we call it) that appear on the television screen. The more lines, the greater the definition. The European PAL system has more lines and, therefore, a better picture than we have. The Japanese, about 20 years ago, decided, "Ok, we have taken the American television market away from the United States." Literally every television set used in the United States, except for some Zeniths, is now manufactured off shore in China, Japan, Taiwan. All are manufactured to the NTSC standard so they said the next opportunity for them to create business in the United States is to develop a new television set that makes the NTSC set obsolete. It's got to be a better set. But it means, then, that every television set in the United States has to be replaced. So they began working on the concept of HDTV or High Definition Television.
The Japanese HDTV system, as I have seen it demonstrated, delivers pictures of a quality like 35 mm film would be in a motion picture theater. It is certainly of a better quality than NTSC. The projections are that high definition television a la the Japanese style, although there are several other styles of high definition television, will begin to appear on the scene in the early 1990's, like 1993, 1994. First will be the high definition VCR machines. Then there will be high definition tapes which means you will be able to play a tape with better definition than what you can see off your television screen, off of a broadcast or off of a cable. At some point down the line, as a transitional thing, and as people's television sets wear out, they are going to want to replace those sets with the new high definition sets. There is also thinking in Washington that if this is going to happen, this is maybe the one remaining opportunity for the American electronics industry, which gave away its television set manufacturing capability years ago, to get back into it and create new jobs in a new technology by developing high definition television in this country.
SMITH: It's time.
End of Tape 5, Side B
SMITH: This is Tape 6, Side A of the oral history of Ed Allen being recorded at the Anaheim Hilton on December 13, 1989. Ed, you were commenting on the matter of high definition television and some thoughts you have with respect to its development.
ALLEN: As I was saying, there is some thinking, particularly in Washington, that this is an opportunity to rejuvenate the American electronics industry by having it get itself involved in building, selling and servicing these high definition television sets. I have a problem with the concept of this ultra‑high definition television set because I don't think enough studies have been done as to whether the consumer wants it. I remember when we talked about the needs and interests of the cable television industry, I'm not sure enough study has been done to determine whether the consumer needs, or is even interested in, the concept of high definition television. The first reaction would be, why wouldn't they be? If it's a better picture, why wouldn't they want to watch it. Well, the initial television sets are going to be in the range of $4,000.
SMITH: That's one reason.
ALLEN: They will certainly come down in price, there's no doubt about it. The Japanese version of the high definition television set is not compatible with the NTSC television sets that exist in every home in the United States. So we're going to have to keep an NTSC system going while people make up their mind as to whether, in fact, they want to have high definition television. You're going to have two parallel systems. What are the television stations going to do? Are they going to program two different signals, one NTSC and one in high definition? As I have seen the demonstrations of high definition television, you can see a difference in the picture quality when you get to very large television sets. By that I mean forty inches or larger. When the sets are smaller ‑ the set that's in the typical home ‑ there really isn't that much of a difference between the NTSC picture and the high definition picture. It's only when this picture gets expanded that you begin to see the flaws in the NTSC picture that are not present in the high definition picture.
Most housewives that I know don't want a six foot television set sitting on the floor in their living room. So the next step that comes along then is the flat wall television set but that's years down the pike. If you could have a television set of literally any size you want with all of the electronics in the frame that goes around the tube, which might be only four inches thick, and hang it on the wall, that problem will be resolved. That's years away from development. Even then, if you have a six foot or eight foot screen hanging on your wall, a lot of people are going to find that they can't back away enough to take it all in.
There's an alternative to this high definition television that is so inexpensive that I think it makes more sense. We can do things to the NTSC picture that we're not doing right now to make it a better picture. This is called ATV. Advanced TV. I just have a feeling that the consumer, who has not been asked, might very well say he likes the idea of an ATV set. It's compatible with everything he's doing now, there are no changes in the programming required, but it will be a better picture than he is getting right now. He will wait until his present television set wears out and then get an ATV set. But I don't believe he needs this high definition set that costs so much and I think we may find that the American consumer is going to be perfectly happy with an improved television picture over what he gets right now. We aren't going to have to make this quantum leap to the Japanese version of high definition television. I don't see it as being the savior of the American electronics industry. I'm not sure we should even try.
It's like when they invented the car. Should somebody try to go out and save the buggy whip manufacturers because they are hurting? I think maybe the American techno‑industry could better concentrate its efforts on the supercollider's or the smart computer or something like that rather than trying to go head to head with the offshore manufacturers of television sets. I don't see HDTV as taking off and then being the be all and the end all of the future television reception in this country, if we can develop an improved and advanced NTSC system and I think we can. End of speech about HDTV.
SMITH: When you made your comment about the large screen hanging on the wall and the housewife not being able to back away far enough, I wondered if you were going to suggest as an alternative to put the screen outdoors, like a drive‑in theater.
ALLEN: Or have the housewife stand outdoors.
SMITH: I have been reading about the same thing you were talking about. Is it the Foroudja system that some manufacturer and some MSOs are backing?
ALLEN: Yes, it's a pet of TCI. John Sie, at TCI, is pushing the Foroudja system. I think they may be here in Anaheim demonstrating it. One thing I forgot to mention. This again is something we should keep in mind about high definition. I'm trying to do this without being technical. The NTSC signal, the ordinary broadcast signal takes up a hunk of the spectrum we talk about which is six megahertz wide. High definition television cannot, today, be compressed down into six megahertz. It either requires nine megahertz or perhaps as much as 12 megahertz. What this really means then is that it takes a channel and a half or two channels in order to deliver this picture. That's why it is incompatible with the America broadcasting system. They can't do more than deliver a six megahertz signal. The broadcasters don't have the capacity to deliver a channel and a half or two channels. That's why there is a place, perhaps, for the cable industry to be the primary deliverer of HDTV signals if it ever comes to pass. We create our own spectrum, so we can create nine consecutive megahertz of space or 12 megahertz of space and deliver an HDTV signal that the broadcaster can't deliver.
I don't know whether that will happen or not. But, technically, we have a significant advantage over the broadcaster in our ability to deliver this signal. I just don't know whether there's going to the consumer demand for it and, to my mind, there has not been enough consumer testing to know. For example, the HDTV picture has a different aspect ratio, we call it. The conventional television picture is almost square. The HDTV picture is wider than it is high. It is like a movie theater screen, the proportions are the same as what you are used to seeing in a movie theater. That lends itself to sports, for example, that play left to right, like football. It doesn't do anything for a tennis match where you are looking at it on end, or a baseball game. Basketball and football that are left to right type sports, fine. It doesn't do anything for horse racing. While they are running you are trained just on the horses up in front. You don't have to see what's happening all over the race track, as you do in the case of football.
I just don't know whether there is going to be the demand for it, but it may very well be that the cable industry has a leg up in terms of its ability to deliver true high definition television that the broadcast industry of the United States doesn't have. Not every broadcast station, by any means, even if they were to figure out a way to do it, would want to involve itself in all of the costs associated with high definition television. Certain services like the movie services, Home Box Office, are big pushers of HDTV. Sure, they show movies, first run movies or close to first run movies. They want to present those with 35 mm clarity if they can. But the local broadcaster who is doing the 11:00 p.m. news with his anchor person and sports person and weather person, really doesn't need high definition television to put on a news broadcast.
I think you are going to find that even on a cable system, if we have to carry it, there may be six or eight high definition services that we carry. The rest of them will be ordinary broadcast services because the services just would not spend the money to go to a high definition format.
SMITH: A lot of unanswered questions out there.
ALLEN: Strat, you've seen the changes that have come along in the years that you have been in the business. I would confidently predict that in the next ten years there is going to be more change in the cable industry than in the last forty years. We aren't going to be able to sit here tonight and speculate on what those changes will be. We just know with certainty that they are out there and the industry in the year 2000 is going to look a lot different than it does in the year 1990.
SMITH: There's a big difference between the strip amplifier handling one channel, which dates back to the late 1940's, and the maximum band width now. What is it?
ALLEN: They're going to be showing equipment here (at the Western Show) that will deliver 100 channels. This is the first year and I think it may still be prototype but it's here. We cannot tell the people, adequately, what's on 30 channels. There is no good way. TV Guide doesn't do it. Our electronic program services don't do it. The Sunday supplement doesn't do it. We're going to turn this nation, once everybody has a remote control device in their hands, into channel flippers and they're going to stop at whatever catches their eye at the moment, because there isn't a good way to tell people what's on 100 channels.
SMITH: It takes you back to the days when it was common to say, "Who needs more than three channels, there are only three networks? All right, let's add an independent, a public broadcast station, so we'll make it five channels. How could anybody use any more?" What was lost sight of is the fact that there were many people who wanted to watch types of programs that weren't available because there weren't any channels to put them on. That accounts for the growth I suppose today, and the enlarged variety of program services that cable has made possible. Can we absorb 100 or 150 channels or should we start adding those channels together and make high definition television channels out of them?
ALLEN: I don't happen to think we need more than 35 channels. I think the 35 channel system is the absolute optimum system in terms of the cable system operators' ability to keep them clean. In terms of providing enough channels so everybody has significant diversity, the next step is the stretch 35, then 42 channels, then 54 channels, then 70 channels, then 100 channels. At some point it becomes ridiculous. People not only don't need, I don't think they want that kind of diversity. The whole concept of narrow casting, as they call it, envisions that if there are ten people out there who want a certain kind of service, if you've got the capacity and they're willing to pay for it, you ought to be able to deliver it to them. Well, we're not a library. We don't have to have every book that's been published to give to the people.
SMITH: Well, do you have any thoughts on other cable related matters, Ed?
ALLEN: I'm about talked out. I have nothing profound.
SMITH: It's been a very pleasant interview and it's almost 5:00 p.m. We started almost exactly at 9:00 a.m. and we didn't stop yet for lunch.
ALLEN: We skipped lunch?
SMITH: So it's been quite a day. I want to thank you very much, Ed. You've been most cooperative and you've given me, personally, an opportunity to explore what it would be like if we can carry out this thought I have for making the oral history program not just a program of Pioneers, but a continuing record of the current industry. The people who are in it today and the people who will be in it tomorrow ‑ tracking the industry, so to speak.
SMITH: Ed, tell us briefly about the family you acquired when you remarried.
ALLEN: They're important. I have two stepdaughters and, through one of them, I've added to my total of grandchildren by three.
SMITH: That's very important.
ALLEN: That makes eight. My wife, Geri, has two spectacularly beautiful daughters, Lynne and Holly, who are now my stepdaughters. Lynne is the married daughter. She lives in Reno, Nevada and her husband is in the cement end of the construction business. Cement finishing, foundation pouring, that type of thing. She and her husband have three children, two boys and a girl, who are very close to me and to Geri, their grandmother. Lynne, I don't believe, went on for any formal education, after high school. I think it's probably just as well she didn't because she is absolutely superlative mother material and there aren't that many of them out there anymore. They all seem to be career minded or something. She spends full time taking care of her husband and three children and the home and I like to see that. I think in this day of somewhat militant feminism, and I don't mean to put down those women who are career minded, it's nice to have someone who thinks so much of the family process that they're willing to devote 100% of their time to being a wife and mother.
The younger daughter, Holly, I think will be 26 in just a few days, the end of December. She is a student at the University of London in a specialized school which has the acronym of SOAS. That stands for the School of Oriental and African Studies. She had two years of college training in California at St. Mary's College. You might remember I went to a St. Mary's College in Minnesota. This is a St. Mary's College in Moraga, California. She had about two years there then, for her junior year, through a program set up by the college, she went to London and attended the London School of Economics which is also a part of the University of London.
I think it was in that year that she developed this interest in law and so, rather than going ahead with an economics education, a business education, she decided that she wanted to get into law. The School of Oriental and African Studies is a part of the University of London but it grants its own law degree. So she will be finishing this year, after a three year course which grants an LL.B. degree.
At that point, then, she has a law degree and has to decide what she's going to do with this English law degree. She can't practice in England because you must be a solicitor or barrister, as they call it, and that takes another year. I don't think she would ever intend to practice in London. They kid her already about her American accent although when she comes home I kid her about the British accent that she has developed. I would hope that she would decide that she wants to go to work for some multi‑national company, perhaps on the West Coast, that does business in Japan or China or Taiwan or something like that. In the law course that she is taking, she is studying Chinese law, she studies Japanese law, she studies international law. I would hope that when she completes her education which hopefully will be this summer, she would be in this country working for a multi‑national.
After this, I will have financed six bachelor degrees, one dental education and one law education, so I'm about ready to close the pocketbook on education. That's it.
SMITH: Okay. Thank you very much again.
End of Tape 6, Side A