A Pioneer Leaves the Trail

Retirement In Sight, TWC Chairman and CEO Glenn Britt Looks Back, Ahead

For all of the high-profile roles he has held, Time Warner Cable chairman and CEO Glenn Britt is known by those close to him as one of the most low-profile guys in the room.

Intense and soft-spoken, yet witty with insiders, he was described by an acquaintance as the “kind of guy who could drive cross country with you and not feel the need to speak.”

And yet over his four decades in the cable industry, he has jumped to defend MSOs at the forefront of whitehot controversies such as runaway programming costs, affordable cable packages and retransmission consent.

And now as he prepares to retire from the position he has held since 2001, he finds himself at the center of the M&A spotlight, with rumors swirling about a possible acquisition by Charter Communications.

Britt is one of the few executives in the cable industry who can legitimately be called a pioneer, having spent most of his life deploying the cable industry’s advanced digital video, high-speed data and phone services.

Just as cable TV began to reach critical mass in the 1970s, Britt first joined Time Inc. and took on several different posts. He thought there might be potential in American Television and Communications, its cable television unit. In the 1990s, before becoming president of TWC, he oversaw the launch of Road Runner, one of the first high-speed Internet services, as well as TWC telephone service.

More recently, he shepherded TWC’s transition to a publicly traded company that has grown from a $6 billion division into a $21.4 billion corporation in a viciously competitive industry. All the while, he’s been a relentless champion of diversity both at TWC and around the industry. Britt, 64, weeks ago disclosed he is battling cancer.

He recently spent time with Multichannel News editor in chief Mark Robichaux and talked freely on a range of topics that spanned his career, from politicians to programming costs to the possibility of TWC as the prize in a takeover fight. An edited transcript follows.

Multichannel News: When TWC was first spun from Time Warner Inc., many expected you to go on a buying spree and yet you didn’t. Has anything changed? In general, what are your thoughts on consolidation?

Glenn Britt: Not really. I probably said it as well as I could during that earnings call. The gradual consolidation has been going on for decades now. I think if you’re a much-smaller company, maybe family-owned, when you decide to sell there is a good possibility that you can sell to a much-larger company and realize more financial benefit than you were getting on your own.

Also, a much-larger company buys at a price that’s quite attractive compared to where it trades. And that’s just because there are — particularly if the size disparity is enough — lots of economies of scale. But there are only a few companies that are public at this point, they are bigger and the benefits are there, but they’re quite finite.

So if you go back 20 or 30 years, it was all about programming, so I think that the companies [that] were about half our size, they probably paid more for programming than we do. So that’s a one-time thing. I think one public company usually has less overhead of a certain type than two public companies, so that’s pretty finite too. And there are other overhead savings. Those numbers are quite easy to figure out. It doesn’t take a rocket scientist.

The trends, though, seem to be the same no matter what your size is. Compare Comcast’s public guidance for their program costs this year — it’s not much different than ours.

It’s far from apparent that getting bigger has any impact on that. The trend is pretty negative in both cases. So, yeah, there’s one-time savings that are finite; everybody knows what they are.

I think the reason you haven’t seen more deals is that, of big companies, both sides are sophisticated and they know what those are and you can figure out what the relative value is. Usually, and this is just the world of M&A, whoever buys the other guy pays a control premium on top of that.

And so what we’ve seen is a standoff , where, at least in our case, the reason we haven’t done a lot of purchases is the sellers want the financial benefit of all the synergies, which means they’re not that desperate to sell. And again, it’s different. If you buy a much smaller company, there’s a win-win.

People are looking for win-loses and that is not for making a good deal. I refer back to [the 2000 merger of America Online Inc. and Time Warner Inc.] as examples of win-lose. Believe me, the Time Warner investors were not happy after the AOL-Time Warner deal. And I was one of them. I lost a significant piece of my net worth.

MCN: You haven’t been shy about how you feel about the rise in programming costs. If you consider sports costs, retransmission consent and just the organic increases from the cable networks, the wholesale price of programming is rising faster than the resale price.

GB: That’s what consolidation doesn’t change.

MCN: It seems unsustainable.

GB: Yes. I think it was Herb Stein [economic adviser to Presidents Nixon and Ford] who said, “If something cannot go on forever, it will stop.”

MCN: How will cable’s programming inflation resolve itself?

GB: I think cable as an infrastructure play is going to do fine for a long time. The TV part, clearly that’s the challenge you’re talking about.

This all came out of the ’92 Act. And the problem that was being dealt with was — which I find ironic — the industry was being very competitive with the broadcast industry to the point where all three broadcast networks changed hands in the late ’80s, Ken Auletta’s Three Blind Mice book. And I find it ironic because today in Washington, I think no matter which party you’re in, there is a view that the government should foster new disruptive entrants to any industry.

Now that’s cool, and you should make sure the old guys don’t sit on the new guys. What was going on early in my career was the complete opposite. There was a view that the old incumbent broadcast industry had to be protected against this new, rapidly-growing cable industry. We were growing because consumers liked what we were doing.

We were the upstart then, and the government was unbelievable. I spent a lot of time trying to fight rules that made no sense that were holding us back. And any old timer will tell you the stories.

So in a way, [the 1992 Cable Act] is a throwback to a different era, and anybody who says anything about it as “free market” is saying that because they happen to find themselves in a good spot. It’s an incredibly intrusive law that I think determines the structure of this whole business.

Plus, it’s 20 years old. So what happened is that the cable networks, the ownership of them, migrated from the cable companies to the broadcast companies, by and large, not all of them, and we got competition in the video business. This was all the goal of the law, to create competition.

So we have this upside-down thing where, for a given wholesaler, there is relatively little competition. There is only one ESPN. But there’s competition in retail, so you have a structure that doesn’t work in the consumer interest because prices are still going up faster than inflation, even though we can’t raise prices enough to cover the cost, they’re still going up faster than inflation.

I’ve talked about this a lot. We have people at the lower end of the income scale — which unfortunately is more people than we would all like — who can’t afford it anymore. And you have the content companies, completely removed from that.

If you draw the lines out — and it’s true for Comcast as well as us, so size doesn’t matter — at some point the lines cross. The costs are going to be bigger than the revenue. I’m going to come back to that because you asked me what’s going to happen.

The other thing that’s happening, and this always happens in the entertainment business when they have found revenue, for a while it goes to investors, but then the production costs get them — especially the movie part of the business.

And in a way, they piss all the money away. That’s starting to happen now. If you look at everybody’s recent earnings reports, people are starting to say, “Oh, we have to spend this much more on production; the next quarter is not gonna be so great.” So they’re starting to take this newfound wealth — actors, directors, sports teams, the whole. We focus on sports, but it’s happening across the board in TV.

MCN: How will it end?

GB: I think one of three things is going to happen. And I don’t have a crystal ball and I can’t tell you when.

One is [that] enough lower-income people will complain or drop out that it becomes an issue, maybe it becomes an economic issue. Another variation of that is it becomes a political issue.

The third variation is that smaller distributors, and maybe even some bigger ones, start losing money on the retail end of video and they just say, “I’m not going to do it anymore.”

As I talk to the content companies, they are in complete denial. They do not believe people are going to get out of selling the television business. So one of those things will happen. Who knows, but I think it’s going to play out over the next several years maybe faster than I would have told you a year ago.

MCN: You think the government steps in?

GB: The way Congress is working now, no.

MCN: Do you think the cable industry moves to a “transport” model where you’re simply selling access to the pipe to deliver television?

GB: If you’re a retailer, you get out of the business because you’re losing money. It’s not your problem anymore. I’ve had this conversation with some of the content guys.

The consumer would pay for the transport — that’s over-the-top [video]. But if you’re a content guy, the other problem is, the tech industry is not interested in replicating the [pay TV] model over the top. They want to disrupt everything. So they want to go a la carte actually by program, never mind by network. And the problem is that the production economics of television and movies don’t support that.

MCN: TWC and all of the cable industry have suffered varying degrees of video losses. Will the industry ever reverse that trend and add subs?

GB: I don’t know. If you take a business where you’re the incumbent, and new entrants come in, the incumbent loses subscribers or market share or whatever you want to call it. This has been over a very prolonged period, because first we had [satellite] entry and then we had phone entry. But that’s what’s happening. And it would be extraordinary for the incumbent to be able to hang on or even gain.

MCN: In the end, Glenn, is there an acceptable loss of subscribers of video for cable?

GB: Well, I don’t want to lose any. I don’t know how to answer the question. We’re trying not to lose any.

I think that if you look at competitive businesses, you basically can compete on product, brand or price. And what you see is this set of industries, which traditionally, I would argue, are not the most sophisticated marketers in the world, trying to find something other than price to compete on.

And the phone guys have been very competitive on price probably for the reasons I spoke of. So particularly with lower-income people, who are very price-sensitive, it’s pretty hard to find product features that are going to hold onto that when people are offering really cheap introductory offers.

So, yes, we all have friends who don’t watch much TV because they’re busy and they watch everything on-demand or they’ll all say, “Oh the user interface is really terrible and if that was better I would be more loyal.” But right now that’s not driving it. And we’re all working on cloud-based guides and it’s going to be better. Ours is going to be much better than the current one.

But I’m not convinced that’s going to make a huge difference, because the people that are really moving around are the people who are price-shopping. We are all struggling to find product features and a brand identity that will distinguish us separate from just making a cheap price offer.

MCN: Any regrets on the CBS negotiations?

GB: I wish we could have gotten where we got without the whole big public flap.

But having said that, it was worth it. We definitely ended up better off than where we started.

There was a huge amount of misinformation put out there. And I will tell you, we never were attempting to cause CBS not to sell its digital rights. That’s totally incorrect and bogus. But the contracts are very complicated. It was as much about contract terms as it was about price, I will tell you that.

There is one thing I want to say about the programming negotiations and relevant to CBS. We are essentially a technology company. This isn’t a criticism, it’s just the way the world works. The content companies have engineering departments, deep in the organization, and their engineers tend to understand the technology and they tend to understand what we’re doing. The people who negotiate are pretty removed from that and there are a whole lot of lawyers involved who were paid to think of all the horrible things that might happen and dream up every bad scenario.

One reason all of these negotiations are so contentious is that there’s bad communication there. We found over and over again if we get both sets of engineers in the room, and they talk about this stuff in English in front of the negotiators, the negotiators say, “Oh, now I get it.”

But it’s that phenomenon of too many lawyers who are dreaming of all the horrible things when they don’t really understand what’s going on. And that’s what’s making all these negotiations so hard, as much as anything else.

MCN: Where do you see retransmission-consent negotiations headed?

GB: Retrans is a piece of this bigger structural problem. It was clearly set up by the government. It was created in the ’92 Act. And because broadcasting is heavily regulated, we thought quite clearly the FCC had authority to deal with it. We still think that; all of our filings say that.

Obviously through several administrations the FCC has chosen to not adopt that view. I think it goes back to the bigger problem. I think if enough consumers get priced out of the market then they might, but if enough consumers get priced out of the market there’s going to be a revenue problem for the content companies, too.

MCN: What about the state of the plant at Time Warner Cable?

GB: Our plant is in great shape. As long as I’ve been CEO, we’ve had a very clear capital spending strategy that’s different than some other companies have had historically.

But in terms of the physical plant, we have a pretty good idea of what we need to do with it over time and we tend to do that — our capital spending is around the same every year. So other people binge-spend, if I can use that word, and then they spend very little. And then they say, “Aren’t we a hero? We’re spending very little.” If you go back over the past 10 years, you’ll see that path.

Investors understand what we’re doing but the press doesn’t always. And you’ll see people saying, “Oh, Time Warner Cable is spending more capital than the other guys, what is wrong with them?” Or, right now we’re spending less than some other guys, “what’s wrong with them?”

We chose not to go all-digital several years ago and use video switches instead. And we are all-digital in places now. And maybe we could have gone a little faster on that, but that is not affecting our customer base. Going all-digital is something that’s done for the cable operator to create bandwidth, it’s not for consumers.

MCN: Some say the industry could have inoculated itself against some of over-the-top rivals if operators and networks moved faster to make it easier for consumers to use TV Everywhere with all their devices. Are you happy with the pace of TV Everywhere uptake by customers?

GB: I’m not even sure what it is anymore. I just think there is no common definition.

Let me define it. I think the idea was to make available in a subscription format programming that was available on all your devices and wherever you might be. That very notion is very consumer-friendly. A subscription is very powerful.

The problem is that the content business, historically, is designed around lawyers chopping up the rates into as many pieces as they can find. So the TV Everywhere notion is directly in conflict with that. I think that’s why it’s taken so long. It has nothing to do with user interfaces or any of the rest of it.

The technology is easy. Plus there’s just in the vertical chain of the entertainment business. There’s part of it that we don’t see all the time — producers versus networks, which are as contentious as the relationships we have, people tend to be very distrustful of each other.

It’s agent and talent, it’s agents and producers, it’s producers and studios, it’s studios and networks … because fundamentally, you’re negotiating about something that’s intangible and you don’t know what it’s worth until after it’s produced, and you’re always trying to pre-sell it. Every negotiation is about something that doesn’t exist yet, and everybody is trying to get leverage, to get the most economics out of it. That’s the entertainment business.

MCN: Welcome to the jungle.

GB: I think that’s true. I think video-on-demand would have gone faster except for this phenomenon. I think TV Everywhere is good for the whole ecosystem, by the way, this behavior that’s going on, and we’re part of it.

MCN: Do you think the cable industry is more balkanized now, with operators having more divergent goals?

GB: Years ago, you had a bunch of companies that were not too different in size. You have a much different industry structure now. Comcast is twice as big as us. We’re twice as big as the next company, and that’s really disparate.

I don’t think there’s any way to put that back together again. I really don’t. Maybe you create one other big company that’s almost as big as Comcast. Then everybody inside that company would cooperate by definition. But boy, that’s a lot of transactions and a lot of transaction costs to get to that. And the guys who benefit are the smaller guys, not the bigger. We’re doing fine, by the way.

MCN: Glenn, you joined Time Inc. in 1972. You’ve been involved with the cable industry literally all of your career.

GB: What’s wrong with me anyway? [Laughter.]

MCN: What are you most proud of?

GB: I’ve actually made a few speeches on this. When I got in the business, I wasn’t sure it was going be a real business. I mean it was a real business in rural America, but it was pretty small and there was this idea to create more choices in entertainment, create more choices in news and discussion, which is important to our society.

And there actually was this idea of doing interactive things, which was around in the industry, it’s what became the Internet eventually but the technology was different. The technology didn’t actually exist, but the dreams were there.

The idea of paying for TV was pretty wacky in 1972. No attempt to pay for TV ever worked. The idea that you could then finance building another wire for all of America, that was all pretty wacky.

The idea that we had those dreams and that people older than me had ’em — that’s an accomplishment for the industry, not just me — it’s pretty amazing.

So that dream was always there.

MCN: Time Warner Cable is now a $21 billion dollar enterprise. Did you do what you wanted to do?

GB: Yes. That’s almost $22 [billion], I think. And it was only six when I started. Roughly the same size footprint, although the compisition has changed. So yes, it’s been a very good run.

When I became CEO, I had a handful of big things that I hoped to do over whatever my tenure was going be. I’m proud to say that I have done those things and I actually don’t talk publicly about what they were, so I won’t start now. But I think if you look at the company, you’ll see the changes.

It’s pretty obvious. So I feel good about that. And those are the kind of things that you just work away at and it’s not one big event.

I think from talking to [current chief operating officer and Britt successor] Rob [Marcus] that he has already formulated his list. It’s not 1 million things, it’s three, four or five things. And for me, because I worked long on succession, if at the end of his tenure, however long that is, if he can say that he did the things he set out to do then I will feel I’ve been a success. So that’s my answer to that question.

MCN: Any regrets, looking back?

GB: This is not a big one. Possibly earlier on, I should have started my own cable company but I didn’t. Life is good and I’m happy.

MCN: What’s your fondest memory?

GB: I don’t have one. I think I’ve just made so many friends and this is an industry with a lot of relationships.

We had a retirement party the other night. People, young people, old people, 220 people or something like that — it was just a great coming together of lots of old friends. It’s the relationships with people that matter.

MCN: What are your plans now?

GB: My immediate plan is to deal with my health. I’m on some boards and I’m going to do that and beyond that I’m interested in almost anything.

We have a home in Hawaii so I’ll spend probably more time there. But we’re going to keep our residence here because we love the city. I’m interested in so many different things and I’m just going to play.

I’m beginning to realize that being responsible for nothing except me and my wife is going to be a liberating kind of experience.