Interview Date: Tuesday January 13, 2004
Interview Location: Dallas, TX
Interviewer: Paul Maxwell
Collection: Hauser Collection
MAXWELL: I'm Paul Maxwell with The Cable Center and this is part of the Gus Hauser Oral History Project for The Cable Center. Today we have Nate A. Levine of Dallas, Texas and somebody I've known for damn near 30 years, I guess.
LEVINE: Damn near.
MAXWELL: What got you into the cable business, Nate?
LEVINE: I had to make a living.
MAXWELL: Couldn't do it otherwise?
LEVINE: No other way, right.
MAXWELL: So what brought you to it, though?
LEVINE: Well, I started going to electronic school in New York at a school called the RCA Institute of Technology when I got out of high school, and I got interested in electronics. When I graduated cable was just getting started.
MAXWELL: So when was that that you graduated?
LEVINE: It was around 1960, and a friend of mine by the name of Ken Distel was working with a guy called Dave Weiner in Ellenville, New York, and they were building a cable system. It was probably the first or second cable system in New York State. It was an area that didn't receive any television at all. It was right behind the Shawangunk Mountains and 100 miles from New York. It was a completely dead town of about 10,000 homes. The interesting thing was it was also the headquarters of Channel Master Corporation, which was the largest antenna corporation in the country and you couldn't receive a darn thing on one of their antennas. So, we got interested in cable and I got working with Ken and started wiring the town and working there weekends and summers, and got a little interested in cable. Then I finished school and I went on and got a job in a neighboring community in Sullivan County, and again, the people that I was working with wanted to go into the cable television business. They didn't know a great deal about it and they asked me if I would join them and we formed a little company called KLM Video and we wired a little town up in Sullivan County called Woodburne, New York.
MAXWELL: How big was that town?
LEVINE: That town had about 500 homes, very small. We hooked everybody up.
MAXWELL: What did you bring in? Three channels?
LEVINE: No, we brought in seven channels at that time, and later converted it to a 12-channel system. At that time cable was starting to come into being. I worked there and fixed televisions and worked on the cable system and owned a piece of it. And then I ran into a fellow by the name of Alan Gerry, his own cable system about ten minutes away, and we got to be friendly and he said, "You know, Nate, I'm expanding my business and why don't you come work for me?" I said, "Well, I own this little cable system, or a piece of it, down here." He said, "Well, I'll buy that and you'll come work for me." He was a good salesman, and I did. I ended up working for Alan.
MAXWELL: How long did you work for Alan?
LEVINE: I worked for Alan for about five years and actually ran his service center. He had a big TV repair and appliance service center, it was the biggest in that area, so I ran that department and also oversaw the cable operation, as well. It was small town; we only had about a thousand customers, so the big part of his business at that time was really selling televisions and appliances and so on. But then that business started to deteriorate and Alan decided that he needed to expand this cable business. He wanted me to stay on with him but I never thought it would really grow as big as it did in that part of the world. So I saw an ad in the paper for a field engineer for Jerrold Electronics in Philadelphia and I applied there, was hired and moved to Philadelphia.
MAXWELL: Went to work for Milt. Was he still there?
LEVINE: I went to work for Milt – Milt Shapp was there at that time, and Bob Beisswenger was there, and Lee Zemnick was there. I got a job as a field engineer and it was very exciting for me because I hadn't traveled a great deal and this gave me an opportunity to really see the world and travel all over, and being a rookie, the first jobs they gave me were really, really terrible – Devil's Lake, North Dakota in the middle of the winter, it was 22 below zero when I got off the plane.
MAXWELL: At least there was a plane that went there.
LEVINE: Right. I always said I'll go to Bismarck and I'll take a dogsled the rest of the way, but I prevailed and then I was in Chambersburg, Pennsylvania, which was also very cold, and then I got a great assignment and that was being the lead engineer on the system for LBJ in Austin, Texas, and that was right after Kennedy had been shot. He was elected President so there was a lot of hoopla about that job. I stayed down there approximately about six months, met the President, went out to the ranch and out to his headend site.
MAXWELL: So was Pat Nugent running the...?
LEVINE: Pat was there, right. So we built that system for LBJ and it got a lot of press.
MAXWELL: Yep, it did. I think in some of the magazines I had back then, too.
LEVINE: I met him a couple times and he was something. People were scared to death of him, he was something else. I remember one thing... he had great big ears, you know...
MAXWELL: Very big ears. I knew him fairly well.
LEVINE: Did you really? And his language was very salty.
MAXWELL: To say the least.
LEVINE: He was something. So that's how I got started working for Jerrold. I stayed on the road for Jerrold, I don't know, two, three years or so, and then I got engaged to my wife, who's been with me now close to 40 years and hopeful we're going to make it another 40. She said, "Gee, you know, I don't mind you traveling but if we have a family it's going to be a little tough." Jerrold was a real nice company to work for and I said, "You know, I'm getting married and I'd really like to get off the road," and they said, "Alright, you've been with us awhile and have done a nice job. We'll figure out something else for you." And they did, and we moved to Harrisburg, Pennsylvania where they were putting in this big system. We stayed there for six months and then they promoted me to chief engineer and I moved to Philadelphia. So that was exciting. I'd never lived in a big city before and here we were with a big major company, a public company, and I was chief engineer of operations – kind of exciting.
MAXWELL: So how long did you do that?
LEVINE: I stayed with Jerrold until they sold their operating division. They sold it to Sammons Inc. I believe it was 1974. I said to Ann, "How would you like to move to Dallas, Texas." I figured she'd say no. She said, "Dallas, Texas! I've always wanted to live in Texas. Let's go!" I said, "No kidding?" We sold our house and next thing you know here I was in Dallas, Texas and Mr. Sammons offered me a job with about three or four other people from the company. I was now vice-president of engineering for Sammons. A lot of promises – we were going to go public and I was going to be a rich fellow, and all that. It was exciting from the engineering end, and it was exciting moving here to Texas. Nice people.
MAXWELL: Cable systems were what? How many channels then?
LEVINE: They were 12 channels at that point. Bill Karnes, at that time, was the president and he hired me and he hired Jeff Marcus, and that's how I got to know Jeff.
MAXWELL: Right, I remember well those days. I used to visit down here to write about things you guys were claiming to do in building systems. So how big did Sammons get while you were with them?
LEVINE: Sammons was about 350,000 customers, but what happened, what was interesting is that Jeff and I were at Sammons and we'd been there, oh, I don't know, three or four months, maybe, maybe five months, and we were going to go public. We had all the prospectuses all printed up and we all went to New York for the interviews with Wall Street and all that. We were going to come out at $15 dollars, I remember, and then the price went to $13 while we were there, and then the next day they said they couldn't do it at $13, they might do it at $12, the market started to go, and then it was down to $10 and Mr. Sammons got very annoyed, I remember. We'd spent, I don't know, a million dollars to put the thing together and he killed the deal. He said, "Nope! We're not doing it. We're not going public. We'll just go home." And we did.
MAXWELL: So what year was that, do you remember?
LEVINE: It was probably about two years after I started, so that would have been approximately 1975. So we stayed private and then an interesting thing happened – when the auditors did the books they found that the numbers that we'd had weren't quite the way they should be. I think we were depreciating things and that should have been written off and the numbers when you really put them together probably weren't as good as they should have been. Had we gone public it would have been a disaster, so Mr. Sammons was very angry about the whole thing and fired just about everybody in the company except for Jeff Marcus and me, just the two of us. He fired Bill Karnes, the president, the operations vice president, and the vice president of finance. He left a few regional managers and Jeff and I. Neither one of us had every run a company and so I was still vice-president of engineering and Jeff was vice-president of marketing. We both got a bright idea: why don't we go see Mr. Sammons and convince him that we ought to run the company. Not we together, just I should run it and Jeff thought that he should run it. So I called Mr. Sammons and told him I'd like to come down and see him. He said, "Oh, come on over, Nate." Going down the hall I passed Jeff. He was just coming out of Mr. Sammons' office. He had the idea, also. So we chatted, Mr. Sammons listened to me and said he'd let us know. About three or four days later he called me back and he says, "Nate, we're not going to make you president, we'll make you executive vice-president because you seem to have the background and you know the old Jerrold systems. I hope Jeff stays on," and all that. He liked Jeff, too, a great deal. So I became Jeff's boss, and so the two of us sat down and I said, "Jeff, we've got to put this company back together." We did. We got it back together and got it running.
MAXWELL: Talk a little bit about Mr. Sammons. He was a bit of a larger than life character around here.
LEVINE: He was. He'd started in the Depression selling insurance door-to-door for I think 25 cents a month, and collecting door to door. He always told the story of how he ran out of gas in North Dakota and almost froze to death in his car. He slept in his car for two or three days in a big blizzard and he was barely alive when they found him, but he prevailed and kept on selling insurance and he turned it into one of the largest insurance companies in the state of Texas. He invested into other things as well. He invested in the Jack Tar hotel chain and built three or four large hotels. One is still out there in North Carolina, and one in the Bahamas. He owned a lot of real estate downtown, he owned a distribution company, United China and Glass and Briggs Weaver, a distribution company for machinery.
MAXWELL: He owned it all himself, too, right?
LEVINE: Yeah, he didn't like partners. He owned it all himself. He was worth, at that time, over a billion dollars. A very conservative guy – he didn't like to spend money on anything that was not necessary. In fact, I remember one story where he had just bought a new suit, and it was a dark suit, and someone said to him, "Mr. Sammons, why'd you buy a dark suit? You have a dark suit." He said, "Well, to tell you the truth, if I'd bought a brown suit I would have had to buy a brown pair of shoes." So he bought another dark suit. That's the way he was. He was a real gentleman but very conservative. I remember having lunch with him one day in a restaurant and I picked up the check because he never carried any money and I left a two dollar tip for the girl and he picked up a dollar and gave it back to me, and said, "Now, you'll ruin the waitress." And it was his restaurant! That was Mr. Sammons. He was really a legend in his own time.
MAXWELL: Yeah, he was. You're running the company then, but just as an EVP.
LEVINE: Right. I'm running the company as an EVP and Jeff is doing the marketing and we're hiring some new accounting people, and most of the regional people stayed on. The company was doing quite well. Then they decided, after four years that they may want to take the company public again. I don't have that background coming from the engineering. I was lucky to get the job as executive vice-president. I didn't have the background to take the company public and so they figured they'd bring in some hotshot guy that knew the finance area and they did. They bought a fellow in by the name of Jim Whitson, and they made him the president, and that was okay. Jim was a bright guy and I enjoyed working for him. We never went public. Shortly thereafter, Jeff left. He saw that he'd gone about as far as he could go and he got a job with TelePrompTer, as you know, and the rest is history. I stayed on probably another couple years and when I reached 40 I decided, perhaps it's time for me to do something on my own also. I noticed that people in companies, if they reached 60 or even less, many times end up without a job, so I just felt I didn't want to be 50 or 60 years old and be down here in Texas not having a job. I thought perhaps it's best to just leave and do something on my own. I didn't know exactly what it was going to be but I was going to do it. I checked with my wife to see what she thought – she had a lot of confidence in me – and she said, "Nate, I don't know what you're going to do, but whatever you do you'll probably do fine. So you go ahead and do what you need to do." That was all the inspiration I needed. I went in and resigned. Then I went home and tried to figure out what the heck I'd done.
MAXWELL: That's a big step, though. You had a family.
LEVINE: I had a family and a boat, two cars, three kids. Fortunately, Ann went to work. She started selling real estate and she did okay until I figured out exactly what I wanted to do. I didn't realize how tough it was to leave a company and start out on your own. It was lonely. I didn't realize how lonely it was. I had no staff, and I'd had a big job with a secretary and the Wall Street Journal on my desk every morning, and now Ann went off and went to work and I just sat around and watched reruns of Perry Mason. I tried to get my act together and figure out just what is it I'm going to do with a limited amount of capital. I probably had about $12,000 to my name, and it was very scary. Very scary, indeed.
MAXWELL: So how'd you come up with the idea for the business that you did start?
LEVINE: Well, it's interesting how things work out. I met a fellow while I was with Sammons, met him at a New Year's Eve party. He drove up in this big Lincoln and his wife had a mink coat and he was dressed in a double-breasted suit – he looked like a million dollars – and his name was Stewart, and I said, "Stewart, what do you do for a living?" He said, "Well, I'm in the collection business." I said, "Really? What do you do? You go out there and beat up people?" He said, "No, we just collect some money for doctors and dentists and so on, send them some letters and tell people they ought to pay their bill or they're going to get in trouble with the credit bureau and so on." I said, "Really? Well, could you do that for the cable business?" He said, "Well, we've never done it for the cable business. Do you have some bad debts in the cable business?" I said, "Yeah, they're small, they're only about ten dollars." He said, "Well, turn them over to us and we'll see what we can collect." I did and I noticed that he was collecting some money.
MAXWELL: It works!
LEVINE: It worked, and it didn't look like it was a lot of work sending out some letters. I said, "Gee, I can do that." And you didn't need a lot of capital. I knew a lot of people, since I'd been on the board of directors at the National Cable Television Association and had a lot of friends in the business. I put together a series of letters and a business plan and went on the road with a package telling people how much money I was going to collect for them on all these bad debts that they had written off. I remember my first call was up in Tulsa, Oklahoma where Gene Schneider...
MAXWELL: United Cable, or was it LVO still?
LEVINE: It was United Cable. I remember I waited and waited to see Gene. I didn't realize what it was like to be a salesman, you know, you have to sit out in the hall and just wait for somebody to say, "Come on it, I'll give you three minutes." I spent a thousand dollars to fly up there in a snow storm and rented a car, almost broke my neck to get there, and I'm waiting and waiting. Finally I got in to see Gene. He was very nice. I told him the story about the collection business: I was going to collect a lot of money for him, how it was going to work, and he looked me straight in the eye and he said, "Well, it sounds like a good idea, Nate, but who are you doing this for?" I didn't know what to say. I said, "Well, I'll tell you the truth, Gene, you're my first call." He said, "That's nice. That's honest. That's an honest answer; I like that. I'll give you twenty systems to try it out on." He did. "Well, this is easy," I'm thinking to myself, "This is an easy sell. I'm just going to go off to Denver now and visit all the MSOs there." Monty Rifkin and John Malone, who I had known. While working at Jerrold I'd met John. He was working with McKenzie at that time, so I got to know John a little bit and always like him. Every place I went they said, "Well, let's see how you do with Gene. Come back and see us." So I did. It took about four months before I had any results. The first year, I remember, I made $800. That was my W-2 - $800. Fortunately, like I said, Ann was working. But then the business also started to grow. We started to get some volume and so on. Then I decided - I probably should get back in the cable business because I really know that better than the collection business. I'd been in the cable business all my adult life. I thought, well, maybe I could get a franchise some place and raise some money. So I put out the word that I was looking for some franchises and let people think that I had a lot of money. I didn't have a lot of money, but they didn't know that, and sure enough, Hershel Tyler – remember Hershel Tyler? Hershel Tyler invented the weather scan, right? He had a franchise in West Lake, Louisiana, and it was interesting how he got it. A fellow by the name of Bill Green actually got the franchise, and he didn't know what to do with it. He was a bandleader, and he met Hershel and Hershel said, "Bill, you give me that franchise and I'll give you 10% and I'll build it." Bill said, "Okay, it sounds like a good idea. I don't have any money. I'll do that." So Hershel sat with this franchise and then he ran into me and he said, "How would you like to buy a franchise?" I said, "Really? What have you got?" He said, "West Lake, Louisiana. I'll sell it to you for $100,000 and Bill Green comes with it." I said, "Okay." Bill didn't know what happened but Hershel made money on this deal, but maybe Bill didn't care because I ultimately did build the system. So I signed a note for $100,000 and I said, "Well, Hershel, I don't really have any money right now, but I'll have some in 30 days I'll buy it." So I signed the note and then I got home and I got thinking, "Well now I need to raise some money. How am I going to do that?" So I put together a little business plan that showed if we built this cable system we could make some money and maybe I could raise the money by getting some investors. So I got all dressed up again, put on the one suit that still fit, and I went on the road and I visited with some people. The first call I made was Dow Lohns and Albertson, the law firm that had represented us when I was at Sammons and also with Jerrold, so I knew the people there and I told them I had this franchise in West Lake, Louisiana and I needed some operating capital. If they would invest a half a million dollars, I'd give them half the deal and they'd make a lot of money. We talked about it for a couple hours and lo and behold they wrote me out a check for half a million dollars on a franchise I hadn't even bought yet and didn't have any money to finish it or anything else, but they had a lot of confidence in me. I said, "Well, I'll give you the tax benefits, and if I don't get this thing built in six months I'll give you back your money." They said, "Okay, that's fair enough. We know you, Nate, and we have confidence in you. We'll give you a try." So I left with a half a million dollars that day. I called Ann and said, "Hey, guess what? I've got half a million dollars. Let's go to Mexico." So I had the half a million dollars and I put it in the bank, but I didn't have enough money to build a system and the banks wouldn't loan me any money.
I was at a convention shortly thereafter, and was sitting at a bar and as fate would have it there was a fellow sitting alongside of me and we get talking. I said, "What's your name?" "Walter Corcoran." I said, "What do you do, Walter?" "Well," he says, "I'm president of Magnavox Credit." I said, "Really? What's Magnavox Credit do?" He said, "We loan money out for broadcast companies, TV stations, cameras and equipment like that." I said, "Well, did you ever think about doing anything in the cable business?" "Not really," he said. "Well," I said, "I've got a half a million dollars and I've got this franchise and I need about 3 million dollars to finish it out. Do you suppose you could convince your company to go in the cable business and lend money to the cable industry?" At that time Jimmy Carter was in office and I think interest rates were 20%.
MAXWELL: The interest rate was 20%, yeah.
LEVINE: He said, "Well, I don't know. I'll take it up with the board and see if they want to do that." I said, "We'll use Magnavox equipment and it will be a great place to sell your equipment. You could finance the rest of the system and everything else." He took it to the board and they approved it.
MAXWELL: They did it. So you got Walter Corcoran in this business.
LEVINE: Right, I got Walter in the business.
MAXWELL: That I didn't know.
LEVINE: And he turned out to be a big lender in the business.
MAXWELL: No kidding! A very big lender.
LEVINE: A super nice guy, too.
MAXWELL: Oh, a very nice guy.
LEVINE: So in no time at all, now I had 3 million dollars of money. Actually, 2 ½ of his and the other half a million and we built the system and it turned out real well. West Lake was the first one I built and a few years later we sold it. The fellows at Dow Lohns had given me each $160,000 and within three years I sent them each a check for a million bucks, paid off the loan, and refinanced it. Then I had some cash at that time, too. And the collection business was starting to move. I hired some sales people and that started to develop on its own. With this newfound money that I had, I figured, well, look what I did with no money. Now with 2 million dollars I could really be able to do a lot. Walter had loaned me 2 ½ million on $500,000 – that's five times – now with 2 million I should easily be able to get 10 million from Walter, and I did! So then we started getting franchises. Bill Green helped me since he was well-known in that part of the world. We got a lot of little franchises in Louisiana and Walter kept funding them for us at 20%, but he deferred the interest and principle for me for a year or two, so I had no debt service at all, and fortunately interest rates came down during that period and I was able to refinance all those systems at much better rates.
MAXWELL: Significantly different, too. So, the interest rates then came down and gave you an opening to grow again.
LEVINE: Well, I was very fortunate. In business it's nice to be smart, but it also doesn't hurt at all to be lucky and I got lucky in two areas. One is that HBO and Showtime started to develop so that the customers that were spending $10 a month were now spending $20 or more, so that was very helpful in these little towns to get some cash flow. Interest rates also came down, so I got lucky there. And in the collection business, the bad debt per sub went from $9 one month to almost $30. So as I was solidifying the collection business, nobody was in it because nobody could make any money at $10, so I solidified a lot of accounts at $10 and then the bad debt went to $30. Well, today it's $80 and we had the big jump on the industry. So that kind of grew at its own pace very, very rapidly. As interest rates went down we started leveraging these cable systems that we built for $200-$300 a sub, we could then leverage it and get $500 a sub of equity out of it and the bank would loan us some more money and we'd build another cable system, and over a period of time we built about 30 of these little towns with roughly 3,000 subscribers on each one. Then we sold a couple and currently we still have about 70,000 subscribers.
MAXWELL: Where are they all located now? Still in Louisiana?
LEVINE: Most of them are in Louisiana. We have one in Laughlin, Nevada. We have about 12,000 hotel rooms on it and about 3,000 subscribers.
MAXWELL: That's all that's there, isn't it, are the hotel rooms in Laughlin?
LEVINE: Right, right, along the Colorado River, a real pretty area. We have a couple in Mississippi and some in Texas, one in Kingsville, Texas. We bought some stuff from Charter a few years ago and rebuilt that. But it's a tough business today. It's not like it was ten years ago. The competition today makes it very, very difficult to grow. They really keep us on our toes. If it wasn't for fiber, quite honestly, and the ability to deliver those clear pictures and shorten up the cascades, the cable industry would really, really be in very serious trouble today.
MAXWELL: And without the internet subscription access... it really saved it.
LEVINE: It really does because even today we're losing 1 to 1 ½ percent of our customer base to Direct TV, and that seems to be pretty good in the industry. Some companies are losing more than that – 2 to 2 ½ percent. But we rebuilt all our systems with fiber and 100 channel capacity and so on. The internet has helped us where we may have lost 2,000 customers last year; we gained 4,000 internet customers so our cash flow has gone up. Another thing that's hurting us badly is the programming costs. Out of a $2 rate increase today about $1.50 of it goes to programming increases. I met recently with Senator John McCain and explained that to him and he understood it. So much of it is going to the programmers it's really not the cable's fault that we have to raise our rate. We have to raise our rate $2.00 every year just to keep cash flow flat in markets that we don't grow in. Now, if you lose 1 or 2 ½ percent of your base besides, you've got a real problem in this industry. Unless you can grow through internet and perhaps through telephone IP technology – and we're looking into that – I think that's going to help us also because where you have modem services it's not that difficult today, from what I understand, to provide telephone service.
MAXWELL: No, it shouldn't be. They plug directly into the modems, you know.
LEVINE: Right, right, and there's some interesting deals being made with the long distance carriers like a flat fee for $20 a month, unlimited calls, and we can mark that up a little bit and sell it perhaps for $30 a month and bundle it and give them a discount on cable if they're hooked on the internet, so we can compete that way.
MAXWELL: That should cut churn back to moving.
LEVINE: It cuts the churn. Cable internet is much superior over everything else. It's certainly much better than a dial-up and it's four or five times faster than the telephone service that offers DSL, so that's a big thing. That, pay-per-view, revenue from pay-per-view...
MAXWELL: Can you complete with the satellite companies on programming packages?
LEVINE: Pretty difficult. I think they've tied up some of the sports packaging, so that's hard. The other stuff I think we can compete with, the channels... especially with fiber ... our cascades used to be 30, 40 amplifiers and now they're three or four or five, so the quality in the home is a lot better, plus the local service. We're emphasizing our systems have attractive offices, offices that look like banks where people come in and feel good and offer them some coffee and show them how the internet works, have a little kiosk there, show them high definition TV, perhaps even lease them a new computer if they sign up for the internet for $20-$25 a month so that they could really have a nice package. So we're looking into things like that.
MAXWELL: What about the high definition set? That's going to be a bandwidth hog.
LEVINE: That's a bandwidth hog. With compression we could put, I believe, ten analog channels on and now with the high def, I think, only two. So it is a bandwidth hog, but I think with 500 megahertz, 700 megahertz, there's still enough bandwidth out there. Not everybody is going to high def tomorrow. So we hope that we'll be okay with 500 megahertz of bandwidth.
MAXWELL: What's the biggest town you serve now?
LEVINE: Well, we serve Plaquemans Parish, which is just south of New Orleans. We have about 5,000 subscribers there. It's probably the biggest. We have several other towns with 3,000-4,000 that we're tying the headends together and we'll probably have 6,000-7,000 on those when we're done.
MAXWELL: That will give you a better scale economic to handle the bandwidth problem.
LEVINE: That's right.
MAXWELL: So what's the average revenue per sub?
LEVINE: Average revenue per sub today is probably close to about $35-$40, in that range. Cash flow is a little north of $200 a year now.
MAXWELL: Still a healthy business.
LEVINE: Still a healthy business, but if you're going to lose 2% of your customers a year and you don't have any other revenue sources and a dollar and a half of your two dollars is going to programming cost increases and you've got inflation and you've got to give people raises, there's not that much growth unless you have a town like Las Vegas that's booming, or other communities that are growing rapidly. In our small towns, and that's what Classic, Charter, I think, is going to have the same problem, there's just not that much growth in these little towns and the revenue sources are going to have to come from other services.
MAXWELL: So all the investment goes to providing the other services?
LEVINE: I believe so, and making sure that your systems are fully two-way and the pictures are good. We do have an advantage over Direct TV if we have an office and it's maintained properly and the service is good. People still want to associate, perhaps, with somebody in the town, especially if it's good service and your trucks look nice. If you have service that your trucks are falling apart and your men don't look like they belong in someone's home than you're probably doing a disservice by having a local office, but if you can have some professionalism in your business I think a local office helps.
MAXWELL: How about tying in with the retailers in your local markets, to work with the local retailers to move high def TV sets, more computers...?
LEVINE: That's a good idea. We're working on that with selling computers and high def and so on.
MAXWELL: Using the local guys to help propel that.
LEVINE: Right, to promote their business and so on. That's a good idea. There are also some services we can offer that are interesting. In Laughlin, Nevada, I'm told, a fellow had some bars in there where he was trying to keep track of the waiters and the people behind the cash registers and all that, and we put in cameras in those bars and he can from any remote location monitor what's going on in those bars. The story goes – I don't know if it's true – he was on a cruise ship with his laptop and got on the internet and tuned into one of his locations and he saw one of the waitresses reading a newspaper and supposedly he was able to zoom in on the article that she was reading from his ship, and he called her right there and he said to her, "Don't buy that car."
MAXWELL: That's great! Freaked her out, of course, but made the point.
LEVINE: So that's pretty interesting. What's nice about it is you can put that service in if you drop your child off at a daycare center or you leave her home with the housekeeper or nanny and you want to see what's going on and you're traveling, you can offer that service on cable.
MAXWELL: Were you at Sammons when the University Cities, when Highland got built?
LEVINE: No, I left just prior to that.
MAXWELL: I was remembering all of the hype from that build out, all that stuff you could do.
LEVINE: Right. It never really materialized at that point. It took a long time to develop the two-way that works. I think now with the fiber and two-way really a factor in each system that all of that is going to be a reality. It's coming into its own at this point. It's taken 30 years of discussion and it's finally now... they always talked about shopping on cable and all that stuff, and I don't think anybody envisioned it going exactly the way it went with the Home Shopping Network...
MAXWELL: No, except for those two guys.
LEVINE: Right. They thought you would be able to shop out of a store and the store would deliver the stuff to you, like a grocery. That's never developed. The other thing that's never developed rapidly is pay-per-view competing with Blockbuster. That's a difficult thing to have video on-demand because of the bandwidth requirements. You can't have 10,000 videos available to 10,000 homes anytime they want them. It just doesn't work. The bandwidth requirements are just not there, but today with nodes and each node being 500 homes and perhaps having a server at each node, it's coming closer and closer to having several hundred movies available, anyhow, on-demand.
MAXWELL: Comcast is having some real good luck in Philadelphia with their roll-out of video on-demand, but the selection is more limited than they hope it will be soon, but they get interesting take rates on some of the stuff, and it's encouraging, I would think. And the DVR, of course, in the home from the satellite has changed that confliction as well, but the big key would be getting day and date release with Blockbuster on the pay-per-view movie. It would change the economics of that overnight.
LEVINE: Right. The thing that keeps companies like Blockbuster in business is that they have the window of about 30-60 days before it goes on pay-per-view, depending on the date. Actually I became a Blockbuster franchisee.
MAXWELL: So have you still got those Blockbuster stores?
LEVINE: Well, like I said, we became a franchisee and we built about 100 Blockbuster stores with some partners of mine and we still have about 30 stores in Austin. It's a good business and people still like to shop and go into the store and so on. We do a lot of work for Blockbuster today, also. We do a lot of their collection work and we send out their late notices. We've also developed a phone system for automated calls. We have 1,500 phone lines coming in here and we've developed a system where we call people when their tapes are late, we tell them which tapes are outstanding and which store they rented it at, and they need to return it, and so on. We do a million telephone calls a week just for the video business, and then we also developed that same type of technology for the cable industry with a little different twist in that we call people that are going to be disconnected tomorrow, we call them on the phone and if we get a live person we talk to them, and if not, we leave a message and ask them to call us, but if we get a live person on the phone we actually collect the money for the cable operator. We say, "Look, you're going to be disconnected tomorrow and from what we can see you owe $70. If you give me your credit card number, or if you don't have a credit card give me your routing number, which is located on the left side of your check, we'll cut a check for you and bring it down to your cable company tomorrow and you won't be disconnected." That's been very well received by the cable industry. I thing we charge 90 cents for that service and we'll make up to three calls, and for every 90 cents that we collect from the cable operator we return typically about $3 of money that comes to us. Many of the payments are made directly to the cable company, which we don't know, but money that we collect directly is usually about three times more than what we charge. So it's a pretty easy sale and we've got a lot of cable companies that use us now all over the country. Another service that we're offering today is a lot of these cable companies are putting in phone over IP, but they don't have the staff to handle problems as it relates to bills and with our computer system we can tie into their billing system and we have trained people here in five different languages and if a person has a problem with their bill as it relates to the telephone company, we take the call. Even companies like Comcast that have major, major call centers are using us, and Time Warner, so it's really turned into quite a business. If you go downstairs you'll see about 140 people on the phone taking calls and helping cable companies.
MAXWELL: Do you handle either of the satellite providers?
LEVINE: We don't handle the satellite providers, no. We will someday, but right now we don't. That's been an interesting growth for us, the telemarketing end of the business. We're looking for new services. We're thinking now – in fact we have it under development right now – a lockbox service where typically half the people pay by check and that money goes to the bank and we figured out in our own cable systems we have about 40,000 payments a month that we're paying the bank for, why don't we put our own lockbox service in and develop that and perhaps offer that to the cable industry. They're paying 30 cents, I think, a check. We could offer it for maybe 20 cents. You take a company like here in Dallas with 500,000 customers and you've got 300,000 of those paying every month, even at 20 cents that's $60,000 a month. That's ¾ of a million dollars coming in in the lockbox business alone. So we're excited about that. We've rented space and ordered the equipment and we're ready to rock and roll.
MAXWELL: How do you make the money on those? It's a service fee, just a simple service fee?
LEVINE: It's a service fee, that's all. Just a simple service fee. Today everything is electronic, you scan the check in electronically, you can represent the check electronically and then we tie it into our collection program – we have a special collection program now for bad checks – so whatever isn't collected upon representation after two times we bounce it right into our collection module and we can collect free for the cable operator because under the law we can add a $20-$25 collection fee, so we can keep that and give them back their money.
MAXWELL: Is that universal in the States?
LEVINE: Pretty much. It depends on the amount, but they all allow something to be added for a bad check because they've actually broken the law when they've written a bad check. So even our letters...
MAXWELL: Depending on the size it's a misdemeanor or a felony.
LEVINE: Right, so our letters could be a lot stronger than they are in the average collection letter that we send out for receivables. We're very limited on what we can say. You have to be licensed in every state and every state has different requirements and so on.
MAXWELL: Where do you see the cable business going next? Into the phone, you talked about.
LEVINE: Certainly the phone, pay-per-view, modem services.
MAXWELL: Do you think the cable industry can move the window up to match Blockbuster?
LEVINE: That's a good question, and very few people really know the answer to that. We really don't know... people for $3 a month can go rent a video and browse through a store, it's a night out, they see all the videos on the shelf and so on, and they like to come home and have it in their hand, and Blockbuster now is also going to offer a service on a monthly fee – you rent up to three or four videos, return them and get as many as you want.
MAXWELL: That's because Net Flix surprised them.
LEVINE: So I don't know if cable will ever really compete. From what I understand the video business, the rental video business is in the billions of dollars – like 8 or 9 billion dollars a year – and the total pay-per-view is under a billion after all these years, and the studios know that.
MAXWELL: It's their decision almost.
LEVINE: Right, the window shifts it might go the other way, but I don't believe they'll shift that window until they realize they've got something. They're not going to kill the goose that lays the golden egg for them because the video business today for the most part supports a lot of Hollywood production.
MAXWELL: Oh, I know it does, very clearly. What about in thinking about the cable operator going into these services like modem and phone takes away from the gatekeeper entertainment function that was the traditional function. Do you fear that that could be a political hot potato at some point?
LEVINE: No, I really don't. I think it's just the evolution of the business. It's just going to take a lot more talented people, qualified people. It's a different kind of business today. It's not just climbing up a pole and hooking up a subscriber. It's really knowing how to package things, how to market things, how to deliver that extra service, how to bill it properly and so on. I think it's just the way it's going to go.
MAXWELL: You didn't move into the billing of these subscribers. Did you ever look into that?
LEVINE: No, no, we've left it up to companies like Cable Data.
MAXWELL: They're almost gone.
LEVINE: That's what happens. They didn't stay with the industry, and Convergess has taken a lot of it...
MAXWELL: And CSG.
LEVINE: CSG has taken a bunch of it. One of the things I think where they missed the boat and where I think companies have to be careful is in service. Cable Data was a fine company but to get something done from them was very, very difficult. You got on the list and maybe six months from now they handled what your request was. My philosophy of business is entirely different. You've got to do more than what the customer expects. Doing what the customer expects today is just an average business. You do more than the customer expects then you've got a jump on the market. If the customer expects a report on Wednesday you get it to him on Tuesday and you Fed Ex it to him. Things like that. If a customer comes to visit us, we pick him up at the airport, you fly him in, you make sure that there's something nice that he wants to see in the evening, there's a gift for him in the room, you fly him back to wherever he lives, a nice thank you letter follows, and so on. That's doing just a little more than the customer expects and that's what makes us stand out. Our offices when they come up and see us here are just a little bit nicer than what they expect; our call center people are well-dressed, well-mannered, neat, just a little more than they expect; our collections are a little better than what they expect. We give a guarantee that if we don't collect as much as who they're using now we make up the difference in cash. We don't want anybody using our service where we don't do better than who they're using now. So that's a unique guarantee, and we stand behind it. I tell our people, "Listen, if we don't think we can do better we don't want the business. We only want to do business where we can improve somebody's performance." It's just kind of a unique approach to business.
MAXWELL: Yeah, it is. Do you remember some memorable highlights in the business? Anything that sticks out in your mind that was either a huge challenge or another piece of luck like running into Walter Corcoran?
LEVINE: No, not really. It's just been kind of one step at a time. I always say that they elevator to success is broken, only the stairs are available. One of the things that I might mention that's really helped us in the last ten years has been my son, Steve. He's come to work for us, and now lately my daughter Jolie has come to work for us. They bring a whole new perspective to the industry. My son came after working with Daniels and he has an MBA in finance and he saw opportunities of growth that I didn't see, and the phone center he developed with his own people here, which I probably couldn't have done that without him. He had some innovative ideas in marketing and the collection business, which I couldn't have done without him, so it's interesting – the son takes over where the father stops. My thinking stopped at this point and he just came right where mine stopped and took it to a whole new level. When he joined the company ten years ago, I would say it was this big, and ten years later it's this big. Most of that credit, most of that growth I would give to his hard work and his knowledge and looking at things out of the box. So that's been a big help to me to have my own family members here to work with me, and trust them, and see them grow with the business. I treat them well and they treat me nicely. Family's very important; very, very important.
MAXWELL: So what's next?
LEVINE: What's next? That's a good question. I don't know. I kind of like coming to work. As you see, we have nice offices here and a lot of our people have been with us 20-25 years, so I enjoy working with the people. We'll still be looking maybe for some new cable systems to buy where we can tie them into our own, consolidate them with some fiber and things like that. We see the collection industry expanding maybe into other markets. We like to specialize in small balances, maybe Master Card, things like that, where major agencies don't go after accounts under $100 and we'll specialize in that. There are always new things that we can offer the cable people.
MAXWELL: Well, you've got your own test pad, too, which is pretty good.
LEVINE: Right, we have our own cable systems where we test things out to see how they do before we put them into production. No other collection agency can do that, and it's a great selling point, too. We test everything on our own systems before we put it into production and we really do. What we have to do now is just stay healthy and do our job to society and do the next things that have to be done, I guess.
MAXWELL: So what other kinds of things are you involved in outside these businesses?
LEVINE: Well, some of other businesses that I've gone into recently are the real estate business, I've built some shopping centers, invested in oil and gas, didn't do too well in the stock market, but did okay in other areas. You know, you can't have 100% success. Whenever there are some opportunities around that have cash flow... I like businesses that have cash flow. I don't think I'm smart enough to take a business where somebody was losing their fanny and think that I can turn it around and make a fortune. I'd rather take something that's already making money, try to keep it making money and maybe improve on it a little bit. I'm not looking for these giant hits where you make 100% on your money in a year. I'm perfectly happy earning 10-12 percent a year and doing that.
MAXWELL: Thank you. I think that's very nice, and The Cable Center thanks you and Gus Hauser thanks you.
LEVINE: Appreciate it.