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Continued Excerpt from
Wired to Win: Entrepeneurs of the American Cable Industry
by Kathi Ann Brown

Roberts continues: “So we paid a visit to our Meridian lawyer, Mr. Snow, who headed up the largest law firm in the city. He had flowing white hair and looked like William Jennings Bryan. After hearing our situation, he had a phone call placed to the senior vice president of the bonding company. ‘My name is Snow,’ he said. ‘I’m an attorney in Meridian, Mississippi. I want you to take a little time to find out who I am. And I have a message for you. If that bond you just canceled is not reinstated within 24 hours, your company will never do business in this state again. Ya hear?’ Within 24 hours, we had our bond again.”

The next bit of intrigue involved building the system to meet the bond’s ‘90 percent’ stipulation. Roberts and team came up with an ingenious method for fulfilling the requirement: “We strung many of our wires at night, when most people were asleep and not driving by,” explains Roberts. “The day before we completed each street, we delivered a mock-up of a newspaper announcing that cable was in front of the house and if they signed up today, the fee was only $5. No one else in town even knew we were there because we did no advertising. In the process, Dan Aaron became an early innovator in the use of door-to-door marketing for cable television. And sure enough, when the 12 months were up, we hadn’t completely built the whole city, but everyone who asked for our service had gotten it. We had managed to make sure that the only people who asked for cable were the ones we were ready to serve.”

Marketing wasn’t the only area where creativity was called for. The original Tupelo system was built to carry only three channels—the three network affiliates imported by microwave from Memphis, Tennessee. As Roberts built out new systems in Laurel, West Point and Meridian to state-of-the-art capacity—12 channels—a question arose about how best to use the extra space. Ingenuity kicked in. Roberts and his team created a “news” channel in Meridian that consisted of a camera trained on the Associated Press ticker. A “meditation channel” featured Bubba the goldfish, swimming to soothing background music. An early version of the Weather Channel offered continuing coverage of a group of weather instruments.

In Meridian, the company sponsored a Bingo contest every weekday at noon to attract potential subscribers. “We put the Bingo cards in the Meridian newspaper,”explains Roberts, “so if you bought the newspaper you got the card. We gave away prizes from local retailers, like the jewelry store and the clothing store. At the right moment, we had somebody imitating the voice of a little old lady in the front row saying, ‘Oh, look at that, I think I won Bingo!’” recalls Roberts, mimicking perfectly an elderly woman overcome with delight.

Given such limits on original “programming,” it’s little wonder that Roberts considered cable “dull as dishwater” in the 1960s. But that didn’t stop him from thinking ahead. “Ralph always had visions for his company that went way beyond” its current status, the late Dan Aaron wrote in his memoirs, Take the Measure of the Man. “When we only had five or six employees, he was always drawing up tables of organization with 30 or 40 people. When he had 30 or 40 people he was making organizational charts for 100 people. He was always looking at the future.”

Not one for putting all his eggs in one basket, Ralph Roberts had kept his hand in businesses other than cable. In 1965, the company acquired Storecast Corporation of America, offering in-store merchandising and manpower services for manufacturers and food brokers. Three years later, Roberts and his colleagues created the Music Network out of the many Muzak franchises that Ralph had assembled with his older brother Joe. (Joe Roberts had become the executive vice president of Muzak, following in Ralph’s footsteps.) In 1971, the company expanded its cable business beyond Mississippi, acquiring cable systems and franchises in western Pennsylvania.

The following year, Roberts was ready to take the company public, a move that called for giving the enterprise a catchy name. Yellow paper and pens at the ready, Roberts, Aaron and Brodsky tried out old words and coined new ones. After several brainstorming sessions, Roberts selected his favorite: Comcast—a contraction of “communications” and “broadcast.”

The next step involved pricing the IPO. “When we went public,” says Roberts, “we approached two or three investment houses and got Butcher & Sherrerd of Philadelphia. The stock was supposed to come out at $10 a share. About a week before the IPO, Barron’s published an article that said cable television was the most ridiculous thing they’d ever heard of. Who would pay for television when you can get it for free? The investment banker called me and said, ‘Ralph, we were going to come out at $10 but after that article I don’t think anybody will buy it. How about reducing it to $7?’ By that time I was desperate so I said, ‘Okay, we’ll take whatever you can get.’”

For those who ignored Barron’s nay-saying, bought Comcast stock and stayed in, the rewards were sweet: “If you had bought 1,000 shares of Comcast then,” says Roberts, “you would have better than $3 million today.”

Roberts is quick to credit Julian Brodsky with the financial savvy behind Comcast’s extraordinary increase in value. “As the years rolled by,” Roberts said in an interview in the late 1990s, “Julian’s real talents began to unfold as a creative, innovative financier. We financed each business separately as we acquired and built cable systems. Each one was organized to handle its own debt without depending on the parent company. We gave stock options to our managers and made them responsible for their own P&L (profit and loss). Later, we went to the public markets ... Julian really did shine again. He created innovative financing that permitted the company to grow into a major corporation in the multimillion-dollar class.”

Naturally, Comcast did not become a “multimillion-dollar class” corporation overnight. The company initially steered clear of urban areas. “When I saw people running down the street chasing our trucks,” explains Roberts, “I knew people were eager to get cable. But the question was, if someone received three networks and two independents without cable, would they buy cable anyway? You had to spend millions of dollars before you could find out. That made me nervous. So, we kept looking for smaller communities far away from where a major TV station could reach. Those were the places where you were sure you were going to make out. We wanted to go to the big cities, but we thought the risk was too high.”

Comcast’s attitude changed after HBO began satellite distribution, airing popular motion pictures without commercials. Almost overnight, big cities became the next hot cable franchise market. Dan Aaron, who had been elected chairman of NCTA in 1977, recognized that cable was about to be transformed from a local “antenna service” into a truly national industry. He turned down the honor of serving a second consecutive term as chairman in order to hustle back to Philadelphia to help Roberts, Brodsky and Comcast dive into the franchise contests. Among the many franchises the company landed was part of Philadelphia. Comcast committed to relocate its headquarters to Philadelphia’s Center City and moved into the city in 1989. By mid-decade, Comcast had doubled in size to 500,000 subscribers. Industry observer Paul Kagan soon dubbed Comcast the “little blue chip” of the cable industry.

Comcast’s stature, however, was about to change from little to lion-sized. In 1985, Roberts and his team made a $2 billion bid for Storer Communications, a move unprecedented in Comcast’s 22-year history. “We didn’t have two nickels to rub together,” says Julian Brodsky, “but we got together with Merrill Lynch and our banks, managed to put together some equity, and made a run at it. It took a lot of guts to take on the Mike Milken-led Drexel Burnham and the Henry Kravis-led KKR in a major league fight.”

Comcast lost the bid to KKR—but learned a great deal about what Brodsky calls “the magic of junk bonds”—lessons that would come in handy for the next 20 years. The deal also had an unanticipated fall-out: an invitation to another dance.

A few weeks after the failed bid for Storer, Brodsky was at a meeting in Washington, D.C., when the head of acquisitions for TCI asked if Comcast would be interested in teaming up to buy the Group W cable properties that Westinghouse was then unloading. Brodsky called Roberts, who reported that he had gotten a call the same day from Time Inc.’s Nick Nicholas inviting Comcast to partner with them on the Group W deal.

“We were the 16th largest cable company at the time,” says Roberts, “and here were two of the biggest operators asking to partner with us.” Roberts suggested to John Malone, president of TCI, that the three companies work together. The trio teamed up on the $2.1 billion deal, and Comcast walked away with 26 percent of Group W, bringing its subscriber count to more than one million and putting it on the map.

In 1988, KKR turned around and sold to Comcast and TCI the Storer properties it had purchased just three years earlier, a deal that doubled Comcast’s subscriber base yet again. Comcast was suddenly the fifth largest MSO in the country.

The growth in subscriber ranks was gratifying and a key component of Comcast’s long-term plans. But collecting systems was no longer the only thing on the company’s agenda. Programming had come a long way since the days of watching Bubba the goldfish do the backstroke. The successful satellite debut of HBO in 1975 had opened up great new possibilities. Dozens of cable networks had been proposed—and some even launched successfully—in the decade since HBO’s debut. Many players in the cable industry were busy trying to carve out lucrative niches in programming.

One day in 1986, an unexpected opportunity strolled through the door of Ralph Roberts’s office in Bala Cynwyd. His old pal Pete Musser dropped by for a visit, bringing with him a man named Joe Segel. When Roberts realized who his guest was, he rose from his desk dramatically: “If you’re the Joe Segel who created the Franklin Mint, I’m not going to let you out of my sight. You’re a gold mine.”

Segel was indeed the genius behind the highly successful Franklin Mint. For years, Roberts had admired the “gorgeous advertisements” for the Mint’s limited-edition products. He likewise admired the Mint’s creator for having the Midas touch of retailing. When Segel explained that he was trying to decide whether to start up a new catalog venture or a television merchandising operation, Roberts knew exactly how to answer.

From his advertising days, Roberts understood that “if you demonstrated something well to a group of people, you would make sales to some of them.” Here was an opportunity to demonstrate products to millions of people, orchestrated by an expert. “‘Forget the catalog business,’ I said. ‘Go into television merchandising. And if you do, I’d like to make a big investment in your company.” Roberts and Segel spent some time together watching an existing home shopping network. The pair found it schlocky. “I think I can do this right,” Segel told Roberts.

Segel worked up a business plan, and Roberts launched a campaign to sign up other cable operators to carry the new network, which Segel dubbed QVC. (“It stands for Quality, Value and Convenience,” Segel said, “because that’s what we’re going to sell to the public.”) To win support for the new channel among cable operators, Roberts promoted the prospect that QVC would go public. Operators would get stock up front in proportion to the number of subscribers they delivered for QVC. MSOs who held QVC’s stock would make a killing.

“Don’t let it slip through your fingers,” Roberts remembers telling his cable colleagues. In the end, he says, “we sold almost everybody.”

Securing a slot on a satellite was another challenge. Few “birds” were flying at the time, and finagling space on one was not easy. Segel turned to evangelist Pat Robertson to buy time on the 700 Club’s stand-by satellite. Robertson was willing to rent space to Segel, but stipulated that if his main satellite “drifted away or got struck by lightning,” says Roberts, Segel would have to forfeit his slot. Segel agreed.

“Joe had a lot of courage,” says Roberts. “He poured a lot of money into this. The satellite charge was $70,000 a month, plus several million up front. Fortunately, QVC took off like a rocket.”

QVC did so well, in fact, that it attracted the eye of John Malone, who at the time was backing a smaller TV retailer in partnership with Irwin Jacobs. Malone convinced Segel to buy out his rival channel. In exchange, Malone—who had earlier invested in QVC—received a slight boost to his QVC holdings.

Some years later, when Segel decided to retire, Brian and Ralph Roberts persuaded Barry Diller to become the head of QVC. When Diller subsequently decided to acquire CBS, using QVC as the vehicle, Comcast blocked the move “because we didn’t want CBS to buy out our baby,” Roberts said. The episode ended when Comcast and Malone bought out the other partners in QVC and negotiated a new ownership arrangement between themselves. “I’m not interested in running anything,” Malone told Roberts. “I just want to make a major investment.” Roberts agreed; Malone took 43 percent and Comcast retained the rest. The idea that was born in Ralph Roberts’s office in 1986 is today a robust business of over $4 billion in revenues.

Having gotten a taste of programming success, Comcast expanded into other ventures as the 1990s unfolded. The company invested in the Golf Channel and Outdoor Life, among other channels, and partnered with The Walt Disney Company for a controlling interest in E! Entertainment Networks. In 1997, the company unveiled a regional all-sports channel featuring the Philadelphia Phillies, the Philadelphia Flyers and the 76ers. The latter two were also part of the new Comcast-Spectacor, Comcast’s “super-regional” sports venture. Comcast also acquired and rebranded the Washington D.C.-based HomeTeam Sports. Comcast continued to add subscribers, climbing from fifth-largest MSO to third. Even as its peers reeled from re-regulation in the early and mid-1990s, Comcast hit a major milestone, logging $1 billion in revenues for the first time in 1993.

As much as he loved the cable industry, Roberts continued to pursue opportunities in other fields. In the 1990s, Comcast became a major player in cellular phones by building on an initial investment Roberts had made in 1988.

“I thought cellular was a marvelous business,” says Roberts. “Being able to walk around with a telephone in your hand. I thought: ‘Everybody’s going to want one.’ Plus, it was diversification. I didn’t like having all of our money in the cable industry, because there were always crises: The radio stations and television stations wanted to get rid of us; the telephone companies were going to bury us; and everybody picked on us. Cellular just seemed like a nice brand-new business that, like cable, has recurring monthly income.”

Comcast ultimately sold off its cellular business, but during its stint as an active player, the company built up its assets to become the leading cell phone service provider in the mid-Atlantic metropolitan corridor, capturing 51 percent of the market against many competitors, including AT&T and Bell Atlantic.

The company that Paul Kagan had once called “cable’s little blue chip” was now becoming a major force in the industry. And its founder had become an institution. In 1990, Roberts won the Walter Kaitz Foundation Award. Three years later he was named to Broadcasting and Cable’s Hall of Fame, and he won the 1993 Vanguard Award from NCTA. In 2000, Roberts was inducted into The Cable Center’s Hall of Fame in Denver.

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