A Chance Encounter Spawns a Cable Giant6/03/2001 8:00 PM Eastern
Daniel Aaron has a story to tell. In Take The Measure of the Man: An American Success Story ($24.95, www.danaaron.com), he and co-author David Long tell it well. Aaron, Ralph Roberts and Julian Brodsky were the "big three" at Comcast Corp. at its founding nearly 40 years ago. Aaron retired (as cable division CEO) in 1991, 11 years after he was diagnosed with Parkinson's disease, and left the board of directors in 1997. He served as National Cable Television Association chairman in 1977-1978, helping broker a key compromise over paying copyright fees to broadcasters. (For Aaron's 1973 campaign to join the association's board, a compatriot handed out tape measures to members-at-large and a leaflet that read: "Dan Aaron. Take the measure of the man." At 5-feet-7, he defeated a 6-foot opponent.) Aaron's first cable contact came in 1955. As a reporter at the Philadelphia Evening Bulletin, he wrote a feature on Jerrold Electronics Corp.'s Milton J. Shapp, for whom he later worked. The story of his early life, before and after his family escaped Hitler's Holocaust and settled in America, is as stirring as his cable recollections are droll. This week, Chapter 11, "The best-laid plans."
In 1961, Milton Shapp announced his intention to run for governor of Pennsylvania. He called me into his office, told me of his dream, and offered me a key position in his campaign staff. Although I was complimented and tempted, I knew that my professional career would be better served working on my own, not in someone else's shadow. The company would not be the same, and it was time for me to move on.
But my departure from the company would be delayed by a year. Much of that year I would spend in Bartlesville, Okla., the home of the Union Oil Co., working on the installation of one of the first pay-TV systems in the United States.
The project was the joint effort of Jerrold and the politically powerful Henry Griffing, who had led the charge to defeat the Pastore bill to regulate cable TV. He and Milt Shapp built and jointly owned a pay-cable system located in Bartlesville. Griffing had chosen Bartlesville because it was within the coverage area of three Tulsa network stations. If a cable system could make it there, it could make it anywhere, and he would be the first to know. With that knowledge, he would apply for cable franchises in all major markets. Unlike many other movie-theater owners who fought cable TV as a fearsome competitor, Griffing believed that cable would create a new source of revenue for the motion picture industry. He saw the day when large theater chains would vie for ownership of cable systems.
On the Bartlesville system, newly released, uncut motion pictures would be offered on one channel for a monthly fee of $9.50. Pay-per-view it wasn't! But it would give some indication of public reaction to movies on television for an extra monthly charge.
Henry and Milton asked me to run the project. It was against my better judgment, and I told them so. I thought the project premature and the mix of services confusing. I urged them to wait until Jerrold had successfully developed its Jerrold Cable Theater, which would provide movies of the consumer's choice and charge only for those selections. My caution was to no avail.
The Bartlesville pay TV system opened with the exhibition of The Pajama Game, which had just been released to theaters. I can still see the headlines on our news release: "The residents of Bartlesville stayed home last night, to go to the movies."
The Bartlesville system had a successful opening, attracting a home audience of approximately 1,000 subscribers. Viewers saw the newly released The Pajama Game, starring Doris Day, on the television screen rather than the theater screen. Unfortunately, the system did not retain its customers, and was down to 300 subscribers when we closed it down to await another day.
I was convinced that pay TV would eventually dominate the television screen. Bartlesville proved premature, but not a failure; that's the message I carried to "Hollywood" when I accepted Henry Griffing's invitation to join a luncheon in New York City with the heads of many of the major studios. It was my assignment to report on our experience in Bartlesville. I urged Hollywood not to make the same mistake they had made when the broadcast-television industry was in its infancy and they had turned down an invitation by the three TV networks to join them. By the time they realized their error and asked to join the networks, positions were frozen, and it was too late.
This young kid from Philadelphia couldn't persuade Hollywood, but he did convince the heads of a number of theater chains to invest in cable television.
As part of Jerrold's strategy, we sought maximum exposure in the motion picture industry, urging theater owners to obtain cable franchises in communities served by their theaters. Our goals were twofold: to bring business to Jerrold and to gain powerful allies in our fight to head off federal regulation of cable TV. We often took a booth at their national conventions.
It was as an exhibitor at the Theater Owners of America convention in Miami that I learned the value of having monkeys as marketing staff. Our portable exhibit consisted of a crude frame made of pipes and draped with a cloth, emblazoned with the slogan "Jerrold Cable Theater." It drew little attention among the giant exhibitors such as Coca-Cola, Pepsi and the leading producers of new movies. As I wondered how I could attract the attention of the crowd to our miserly display, I noticed a nearby exhibit for outdoor heaters that drew a steady crowd of onlookers. What they were watching was a monkey whose chain was held by a nearly unclad model. Every time a prospect passed the exhibit, the monkey would do a somersault. I decided to upstage them. I rushed to an exhibit house and rented two monkeys and found two attractive women at the Americana Hotel. The "Jerrold Cable Theater" soon outdrew the surrounding exhibits. Barnum I am not, but I sure learned how to attract a crowd.
By 1962 Milton Shapp had combined his office and factory and relocated to 15th Street and Lehigh Avenue. I squeezed into the offices with Shapp, Zal Garfield, a secretary and Claire Bloom, who later became the company's vice-president for cable operations.
The Bartlesville experiment had ended, and my responsibility at Jerrold had peaked. I was reaching a dead end. So I began to look for other ways to hop on the "CATV comet." Milton's able assistant, Zal Garfield, felt the same way, and in the fall of 1962 Zal and I joined forces to become brokers of cable-television systems and franchises.
The decision to leave Shapp and Jerrold did not come easily. My son, Jimmy, who was only 8 years old at the time, still remembers the nights I spent pacing the living room floor, trying to get a fix on what my plans for the future should be. At the age of 36, I was haunted by the fear that success was followed by eventual failure.
In the early 1960s, the brokerage business for cable TV was red hot, and a broker could make a lot of money. All one needed to do was to find a buyer and a seller, hook them up, and collect a 5 percent commission. A not-too-uncommon transaction of $200,000 resulted in a $10,000 commission, a sizable sum in those days. At least, that is how it looked from the outside. Actually, I discovered that it took a lot of work to find buyers and sellers, and a great deal of travel to get a deal underway. If a sale did not succeed, expensive time had been wasted. I soon found the travel too demanding, and my time away from home began to affect my family life. Furthermore, I did not like the superficial relationships a broker established with both buyer and seller; there was always a sense of underlying suspicion that "the other guy" had gotten a better deal.
One of the early investors in the cable-television industry was Warren ("Pete") Musser, who had made a substantial investment in Tupelo's cable system. Pete had decided to concentrate his limited assets on the development of a new company called Safeguard Scientific Inc., and to sell the Tupelo system. Knowing of my experience in the cable business, he asked if I would help in selling the system. He needed a buyer; could I find one? At any other time, it might have been easy to find a buyer for the Tupelo system, but the civil-rights movement was in full swing, and liberal white Northerners were less than welcome in the Southern states. However, I agreed.
A CHANCE ENCOUNTER
On a clear, cool, sunny afternoon in the fall of 1962, Pete Musser and I found ourselves walking down Chestnut Street in Center City Philadelphia, trying to figure out how to attract investors to the Mississippi cable system.
Suddenly Pete lit up, a boyish grin spread across his face and he said, "Here comes our 'fish.' "
"I don't understand," I replied.
"We are about to meet the man who is going to buy Tupelo," explained Pete.
Approaching us on the sidewalk was a good-looking, dark-haired young man wearing a Brooks Brothers raincoat; his name was Ralph Roberts. Pete and Ralph knew each other from the Young Presidents Organization (YPO). Ralph was flush with cash and ambition, having just sold his stake in the Pioneer Belt and Suspender Co. (the same company once owned by Leo Heimerdinger, former president of the Foster Home for Hebrew Orphans).
We continued our stroll down Chestnut Street as a threesome, arm and arm, shoulder to shoulder, each "with a hand in the other's pocket." We learned that Ralph had sold his belt business to the Hickock Manufacturing Co., which then was the largest belt company in America. Although he had retained his men's toiletry business, Mark II, he was looking for a new business that would not be as competitive as the one he had just sold, one where he could be a key player.
"We've got the business for you," said Pete. "It's called cable television."
Ralph had heard of cable at a meeting of the YPO chapter, a meeting addressed by Milton Shapp. It sounded interesting to him; would I give him a crash course?
Subsequent meetings followed and I began educating Ralph on the basics of cable television. The more we talked, the more evident it became to me that Ralph had decided to buy the business in Tupelo and had decided that I should come with it. As Ralph finally put it, "If I buy Tupelo, Dan Aaron comes with the sale and Dan Aaron runs the business."
The fish we had hooked was now trying to hook me.
"Why not come to my house in Elkins Park on Saturday?" I suggested.
"Fine," agreed Ralph. "I'll bring my brother-in-law, Robert Fleisher, and we will talk."
When Ralph Roberts and Bob Fleisher came to our home on Marion Road in Elkins Park to invite me to join their venture into cable television — the acquisition of a CATV system in Tupelo, Mississippi — there was immediate simpatico among the three of us.
I had stored a small sailboat on a trailer in the backyard, and Bob was an expert sailor. We both had summer homes on Long Beach Island, off the coast of New Jersey, where we both spent many of our summers. Ralph admired a 10-foot antique dining room table that my wife had just acquired to seat our family of seven. Ralph needed a similarly large table for his family of seven. Having interests in common was a good beginning.
We sat down to talk, and in my own inimitable fashion, I began to list some of the problems we might be facing in Tupelo. For one thing, the systems manager, who preached the gospel over the radio on Sunday mornings, might not consider our coming to Tupelo as the Second Coming of the Lord.
The good news was that in an attempt to impress his former investors, the Sunday preacher had consistently understated the number of homes in Tupelo in order to claim 98 percent saturation. In other words, he claimed that more than nine out of every 10 homes subscribed to the system. It would have been the highest saturation on record. Actually, the saturation was only 50 percent, which gave us an opportunity to add subscribers through promotions and direct selling and thus exceed our projections.
The bad news was that this high-tech system of five-channel capacity required a rebuild at the munificent sum of $3,000 per mile, money that this new venture did not have.
At this point Ralph retreated to our medicine cabinet to search for Tums to calm his churning stomach. Bob stepped outside to examine the seaworthiness of my sailboat. I figured that any two guys who, within 10 minutes of meeting Dan Aaron, head for Tums or the nearest boat couldn't be all bad.
I agreed to join the venture.
My former partner, Zal, returned to college, earned his Ph.D. in psychology, and began a counseling practice in California. I had learned much from my friend Zal. As assistants to the president, "Zal Garfields" exist in every major company, even though their names might clutter the table of organization or not appear at all. It is the job of the "Zals" to make the tough decisions; it is the boss's job to learn from them and to help implement those decisions.
All that was left now was to get Pete Musser and Ralph Roberts to agree on the price of the Tupelo system, which, in retrospect, was not difficult. The almost insurmountable challenge was finding a time when these two men could meet; Pete stuck to the "early to bed and early to rise" routine, while Ralph's pattern was just the opposite. But I was determined, and we did get the two together to consummate the deal.
That chance encounter more than 30 years ago on Chestnut Street led to what has become a billion-dollar communications company, the third-largest cable company in the United States, serving more than 8 million subscribers. It is one of the few companies among the Fortune 500 to have reached its present size in the lifetime of its founders.
Its name is Comcast.
Next Monday: Chapter 12, "To dream … the impossible dream."