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John Waller

Interview Date: Tuesday December 10, 2002
Interview Location: New York, NY
Interviewer: Tom Southwick
Collection: Hauser Collection

John Waller

SOUTHWICK: I'm Tom Southwick, and this is part of the Oral History Project at The Cable Center, funded by Gus Hauser. It is December 10th of the year 2002, and we are at 30 Rockefeller Plaza in the offices of Waller Capital Corporation with John Waller, who played a key role in the development of the cable television industry, particularly in the financial arena. John, I thought maybe we could start by having you tell us a little bit about your background, where you grew up, parents, siblings, that kind of thing.

WALLER: Sure. I'm from Virginia, Alexandria, Virginia. My mother's British, and I went to school in Alexandria, grades 1-12, walked to school, and then went to college at UVA, and then got my MBA at UVA, and I've a brother who still lives down there where I'm from, and my dad's still down there. After my MBA I wanted to be in New York, I wanted to be in media. That's about all I knew, and wrote Dick Munro a letter, who was at the time head of Group Video at Time, Inc., and I thought that sounded exciting – movies and video and stuff. This was '78. Dick was nice enough to see me, didn't know me from a hole in the wall, and helped me work around the organization and got into Time, Inc. in 1978 in the financial group.

SOUTHWICK: How did you become interested in the media as a young man?

WALLER: I was always in the plays and theater in high school, and I thought I wanted to be an actor so I went to college, even though it was UVA, started off getting into the plays and taking theater courses, and then I decided the plays were taking away too much of my fraternity so I bagged the plays, but I got an interest in movies in college. So I majored in history but minored in film, and in those days they were creating film departments so I made movies and took a lot of film courses. So I always had this kind of movie thing in my head. I remember we had a case, UVA was case study and we had a case on a cable company. This would have been 1977, '76, '77. It was sort of an old-fashioned cable company, and I remember saying, boy, that's pretty interesting. The numbers kind of look pretty good there.

SOUTHWICK: This was a business school case?

WALLER: A business school case. That kind of was in my head, but really when I was trying to get in Time, Inc., I was more interested in sort of the video, production, movie side of things than anything else. And they did have a Time Life Films at the time, and they actually owned some TV stations, and HBO had started, and they had cable. So it seemed like a fun place to be.

SOUTHWICK: What did your dad do?

WALLER: He's an attorney. He was in private practice, then he ended up working for the government, worked for HUD. He's retired now, but that was his background.

SOUTHWICK: Did you also have an interest in government, politics, that kind of thing, growing up in Washington?

WALLER: No, my dad never liked being an attorney. He always complained about it, and so I never had that desire to do that.

SOUTHWICK: Were there particular teachers or experiences in school, either grade school or college that shaped where you went?

WALLER: Frankly, some of my drama teachers. I was a little more shy and introverted as a kid, and around 12 or 13 my parents started putting me in these acting classes, these little theater classes, and being on the stage, for some reason I clicked with that and I had the confidence and ability to do that, and that gave me more self-confidence otherwise. I think my drama teacher in high school was very helpful. I was also in the high school band, which I guess required you to do some sort of performing and entertaining, and be out in front of people. I was a band leader for my group, so there were leadership things.

SOUTHWICK: What did you tell Dick Munro in your letter?

WALLER: I actually saved it. It was just that I was very interested in Time, Inc., thought it was a great company, and wanted to get involved and do anything I could to get there. Take me, I'll do anything.

SOUTHWICK: And did he interview you?

WALLER: He did!

SOUTHWICK: And what was that like?

WALLER: It was great. I'll never forget it. He was an early guy, I'm sure still is, and they called me back in Charlottesville and said we'll bring you up here, and I said, great, when can you see me? He said how about 7:00? Which to me seemed like the middle of the night!

SOUTHWICK: AM?

WALLER: Right, I thought it sounded like the middle of the night! Now I get up early, but 7:00 in the morning? I was nervous enough as it was, but having to kind of wake up and get in there. Time, Inc.'s right across the street. He was very nice and helped out and said, well, there's a financial area, it's like a training ground, and it's actually where Glenn Britt came from. Nick Nicholas came from there, Tony Cox, Jim Heyworth, a lot of these guys that went off and did different things percolated in that group. A guy named Austin Furst, who you may remember from back in your day, were in that group for a year or two, and then percolated out and did different things. So that's kind of where they put their MBAs to hang out and get their feet wet, and then move on and do something else.

SOUTHWICK: And what was going on when you got there?

WALLER: It was actually pretty exciting. They had just bought ATC, which was a cable company...

SOUTHWICK: HBO was up and running, and was on the satellite.

WALLER: HBO was up and running, this was '78, so HBO was up and running.

SOUTHWICK: It was growing like crazy.

WALLER: HBO was really starting to click. It was right before all the networks had started, like MTV and those things. They started around '80 – '79, '80. But that whole world was exploding and Time, Inc. was a mixed company. It still had the old-fashioned culture, the two martini lunch, the ads sales guys, and then it had these new video guys. So there were kind of all these little tensions within the company – good tensions, but still... And then they had a big warmer company, they had Temple Inland, Temple Eastex, now they call it Temple Inland. It's a big lumber company in Texas. So they really were a hodge-podge sort of conglomerate, almost like a late '60s conglomerate.

SOUTHWICK: But your arena was just for the video.

WALLER: No, no, I was in the financial planning area, so I got to see all their lines of business.

SOUTHWICK: For all of Time, Inc.?

WALLER: Yeah, for all of Time, Inc. We would prepare presentations for the board, and the different divisions would submit their numbers to us and we would rework them, audit them, and do financial planning for the whole company. So we would take the cable group and the HBO and the movie group, and then look at all the numbers and just do special projects, and whatever financial planning. So I got to see all the groups, and I'll never forget when I looked at ATC's numbers and they weren't making any money. With depreciation there was no profit there, and then Dave O'Hare, who is still at Time Warner was the ATC controller, or he was the person that dealt with corporate and I was corporate. So Dave came in to see me and he explained to me all the business about cable cash flow, and what cash flow meant, and how that was a good thing. I thought, hmm, I get that, that's a real exciting business there.

SOUTHWICK: A lot of people didn't get it though.

WALLER: Not at the time, no.

SOUTHWICK: Including people at Time, Inc.?

WALLER: No, I think Time, Inc. appreciated it but I think there was still some concern because they were a public company and there was still some concern that here was a division that had all this depreciation so there was no real earnings or profit coming out of it.

SOUTHWICK: Can you kind of explain that?

WALLER: Sure. In other words, with cable there's so much investment in the plant that you write off a certain amount of the plant ever year, which is a non-cash charge, but on an income statement basis, you have your revenues and expenses, and you have an IBITDA, or a cash flow number. In order to reach the real net income you've got to offset that by any cash charges in the case of cable because of the plant that is pretty significant. So you really don't have any taxable net income, which is why Malone loved the business so much because he never paid any taxes.

SOUTHWICK: So there's actual cash to play with, but when you go to report your numbers it looks as if there's no profit.

WALLER: Correct, and there's no taxes associated with it, which is good, but from a shareholder standpoint, you're looking at earnings or PE ratios or something, the cable group was not helping you any. Whereas with HBO there's no physical plant; all the money that goes to the bottom line is pretty much profit. Maybe there's some good will or something, but most of the cash flow is profit, which is not the case with cable. But once you kind of figure that out, you go, wow, I get this. In those days it was still pretty good margins, probably 40% margins even in those days.

SOUTHWICK: Who were some of the other people you worked with when you first got there?

WALLER: I worked with a guy named Winston Folks who's no longer there, Kevin Dolan was the controller. I worked with Hank Luce, he was, and I think still is on the board, but he was on the board and he was more active then. He had a lot of special projects for us and things to do.

SOUTHWICK: This is the heir to the founder of the company?

WALLER: Yes, he was the son of the family, yes. Dick Beers, who's still around. He's at CourtTV now. I'm trying to think, most of the people... well, Jerry Levin, I worked with him. Gus Hauser was at Warner but we did some project with them. I'm trying to think who else at Time, Inc. that's still around, primarily Jerry.

SOUTHWICK: What was your impression of Jerry when you first got to know him?

WALLER: He was great, very smart. He was an attorney, so a little low-key in his demeanor. He wasn't as flamboyant as all the HBO guys because all the HBO guys were more sales guys and Ivy League, and real rah-rah, like frat guys. Jerry was more serious and more focused, but charming in a quieter way. Very smart, and he was always very involved. He never exerted himself in terms of he wasn't running around with a huge ego acting like he was going to run the company some day. He was VP of Video and he had a big job and everything like that, but he was quietly ambitious, I guess, is a way to put it.

SOUTHWICK: And how long did you stay with the financial group?

WALLER: Well, I stayed in the financial group for two years, from '78 to '80, and then in '80 I switched over to HBO which was...

SOUTHWICK: And how did that come about?

WALLER: Well, that was hard because... is anybody interested in all this stuff?

SOUTHWICK: Yeah, I am.

WALLER: Okay. It's hard because I was perceived as... it was the controller's group technically, so I was perceived as a bean counter. I had my glasses and whatever, and I really wanted to get into sales. The people at HBO said, well, aren't you sort of a numbers guy?

SOUTHWICK: Why did you want to be in sales?

WALLER: I liked it better. I think it was more suited to my personality. I really didn't want to crunch numbers the rest of my life. I liked the people interaction and wanted to get out there and do something. But I had a hard time making the transition because people didn't believe that I could do it. Do you remember Tom Oliver and a lot of those guys?

SOUTHWICK: Sure, yeah.

WALLER: Well, all those guys were at HBO at the time. The sexy jobs at HBO were the MSO account reps. They had one rep per MSO, so Tom would have TCI and someone else would have Continental and someone else, Bill Roedy would have one, each guy would have one. They all had their MBAs and that was where I wanted to go, and that was a hotter area within the affiliate group at HBO. I'll never forget the time I went to Tom, and Tom said, well, we think you're all right, but you're probably a bean counter. You've got to go to the small system group. Well, at the time, the small system group had Adelphia, had Century, had Alan Gerry, had all these people who were a lot smaller then. I was going to get Pennsylvania, West Virginia, and Ohio, which had about 300 cable companies in it at the time, a lot of little cable companies, and I remember thinking, well, they're little but I'm dealing with the owners, as opposed to the MSO group you're dealing with all these VP of marketing and that stuff. I thought, well, you know what, it's not as sexy but I'm dealing with all these little entrepreneurs in all these towns, and I thought, well, that's going to be more interesting to me anyway because I'm dealing with the real principles as opposed to the corporate type. So I did that, and did that for two years, and traveled around and got to know all these people.

SOUTHWICK: Who'd you work for there?

WALLER: Well, I reported to a woman named Marilyn Russell, who reported to, who was the VP? It was a guy named Dennis Garcher when I left. Ultimately it was Steve Davidson, if you know Steve. A guy named Dick McCaffery, he was there, but my first boss was Marilyn Russell. So I got to know all these little companies, and really got great relationships with them, and got to know when their wives' birthdays were, literally. Then I started seeing them buy each other up, and that's when I got the idea to set up my company.

SOUTHWICK: Who are the ones that kind of stand out in your memory?

WALLER: Well, the Rigas', of course because when you went out there there's no place to stay in Coudersport so I stayed in Tim's bedroom. This was 1980 or something, or '81, and Tim was off at college. I'd stay in Tim's bedroom and eat with John and Doris in the kitchen. She'd cook breakfast, and that's what you'd do when you'd go out there. Alan Gerry stuck in my mind. But I had a lot of the George Barco's and all of those guys. You can probably refresh my memory on a lot of these. A lot of these guys we ended up selling out. People in Sharon, Pennsylvania. John Raskowski. A lot of these Pennsylvania entrepreneurs were still around then. They had a big Pittsburgh cable club, which probably had about 20 entrepreneurs around that table, which was great. You'd go to one meeting and see 20 cable owners. We did a lot of fun stuff with them and created events and did stuff around that organization that helped HBO but ultimately helped me.

SOUTHWICK: Your job mainly was to sell HBO, or to get them to launch it in more systems, or was Cinemax coming around at that time?

WALLER: Yeah, it was both. My job was to get HBO in systems that didn't have it. When I started it was a single pay universe, so there were still cable operators that didn't have HBO. So the real job was to try to get the people that had it to market it. Cable operators have never marketed as you know. They didn't understand marketing, didn't really like the idea of spending money to get customers. They just thought you'd have to put it on and they'll figure out that it's there and they'll buy it. So we would do joint marketing programs with them and figure out ways to co-op advertising. We'd figure out ways to increase the penetration of HBO in the market. So, as an HBO employee I was incented to increase the penetration of HBO in each market. That's how they compensated us.

SOUTHWICK: Were there particular techniques that worked well?

WALLER: Yeah, phone calling was the best. Door-to-door, phone calling, and direct mail, sort of in that order.

SOUTHWICK: Did you have swat teams that kind of came into a city and would do a blanket...

WALLER: Yeah, you'd have swat teams, and a lot of the direct mail effort would be coordinated out of New York. HBO would do that. There were local sales teams. I think Jeff Marcus used to do door-to-door selling. There were companies that did that. I'm sure there still are, but I mean, there were companies that did that and you'd bring them in and send out a mail piece, follow up with a phone call, follow it up with somebody knocking on your door. That was sort of the routine.

SOUTHWICK: You mentioned that these smaller companies that you were dealing with began to want to merge. What prompted that sell out?

WALLER: I think there was a little bit of a tick up in value as multi-pay came on because Cinemax came on around '81, '82. Showtime they figured out, I was there when they figured out that a subscriber would actually take two pays. It seemed ridiculous at the time.

SOUTHWICK: Thibodeaux, Louisiana, the first time that happened.

WALLER: Thibodeaux, you remember that. People would think why the hell is anybody going to take two pays? But they did. A certain portion did. So, I think there was just maybe a slight up-tick in values and maybe it was just a slightly better economic time. Banks started to figure out that cable was okay to lend money to so you could actually get some transactions done. So, some companies like Adelphia were getting a little more aggressive, and then Alan Gerry was getting a little more aggressive, Century a little more aggressive, and then some guys would just be buying out their neighbors. But actually still in the early '80s you still had tax shelter financing. Cable was in the same category as an oil and gas lease or something where you could still get tax benefits by investing in cable. So that's how Jones got his start. He went around and raised all this limited partnership money from individual investors. So that helped fuel it, too.

SOUTHWICK: Was there a timeframe on those tax benefits? In other words, did they run out at some point?

WALLER: Yeah, they ran out after like five years, and then you had to flip the company. So typically the management group would borrow money to buy out the partners at some below market price. That was sort of the scheme. It's still going on a little bit in some companies. Glenn would go in, there was nothing wrong with it, they would just borrow money at a certain point to buy out the limited's and the limited's would get a great return and Glenn would get the assets at a little bit below market, and it worked out good for everybody.

SOUTHWICK: Everybody's happy, which is the best kind of deal, isn't it?

WALLER: Right.

SOUTHWICK: And so you began to see this, and what next?

WALLER: Well, I began to see it, and I began to see... I knew the guy in Allentown that was buying the guy in York, or something like that, and I said, well, jeez, I can get in the middle of that. But actually before I really figured that out I really thought I wanted to buy a cable company. That's what I really started to do. Either do some franchising because there were some franchises still coming up in Virginia and Maryland where my home turf was, or try to buy one. I found a system in Pennsylvania that I was going to try to buy, and then I was going try to do some franchising in northern Virginia because my father had some contacts through his family down there. So I left HBO, more with those two things in mind, the brokerage thing hadn't really clicked yet. I was just thinking, here's a great opportunity, I found a system to buy, I thought I had some money lined up and I was going to throw my hat in the ring on the franchising.

SOUTHWICK: What year was this?

WALLER: '82. Then it turned out that the money I thought I had fell through so I couldn't buy the system, and I was really glum, and I went to a banker friend of mine and I said what am I going to do now. I can't raise the equity to buy it. He said why don't you just broker it? I said what does that mean? He said you just find somebody else to buy it and you can make 5% or 10% or something, you just get somebody else to buy it. I said, well, that's easy because there's a guy up the road I know wants to buy it. So I called him up and...

SOUTHWICK: You'd left HBO?

WALLER: Yeah, I'd left HBO at this point. I call him up and he says, sure, I'll buy it, and then I figure out, well, wait a minute. I know five others for sale because as part of my due diligence before I was going to leave the company I was trying to find stuff to buy, and I knew these people really well, so I said, well, would you ever sell? Sure, we'll sell if we get X. We'll sell. I have four or five different people who were willing to sell. So I had figured out how to draw up an agreement and figure out how to do it, and talked to a lot of banker friends of mine in the city, and said, jeez, this is a pretty good business. It may not be better from a tax standpoint because then if you own something you get capital gains, but at least it was good revenue at the time. My vision was about this long. I didn't have a long vision, and just said, well, I was making x at HBO, I can make about five times x a year brokering. I was going to make 300 grand a year or something brokering, I thought that seems like a lot of money. So I stumbled across it, started doing that, and some of those... it took forever though. I remember thinking it was going to take like three to six months to close a deal, and if I'd known it was going to take that long, I don't know, I might have gone back to work or something. If I'd known it was going to take 13 months, which is what it took, I might have gone back to work.

SOUTHWICK: Why did it take so much longer than you thought?

WALLER: Oh, just approvals, and it was '82. It was a tough year. Money was tight and franchise transfers... a lot of the buyers were entrepreneurs trying to raise money through these tax shelters or whatever, so they had to scramble around and get the money. The people I was dealing with on the buy side in those days weren't necessarily MSOs because I was new. So I was dealing with the more borderline characters that had to go around scrambling to get the money.

SOUTHWICK: And part of your job was to help them?

WALLER: Part of my job was to help them do that, which I fell into that too because I needed to get the deal closed so I could make my commission. Being in New York I knew a lot of people, banking friends of mine from business school and whatever.

SOUTHWICK: Were there particular banks that were more amenable to...?

WALLER: Bank of America in those days was big in it. The Philadelphia banks, P&B, Philadelphia National Bank, and a bank up in Rhode Island...

SOUTHWICK: It wasn't Providence, was it?

WALLER: Well, it must have been Providence. Isn't that the bank?

SOUTHWICK: Yeah, Providence Capital, or something like that.

WALLER: Well, there's a Providence Ventures now, but that's a venture capital fund. But there was a bank up there. Cathy Merrion. I've got some of these old pictures of old deals on the wall that I can show you.

SOUTHWICK: And we can correct that later.

WALLER: Anyway, they were the ones lending the money to these things. The bottom line is it took 13 months to get my first paycheck. If I'd of known it was going to be that long, I might have said screw this. If somebody had said you've got to wait 13 months, because I had a little savings but not that much. But I did it out of my apartment and my rent was cheap.

SOUTHWICK: You were living in New York?

WALLER: I was living in New York. I had credit card debt and stuff, and I just sort of kept it month to month, and it was the kind of thing you thought, well, next month it'll close, next month it'll close, next month it'll close.

SOUTHWICK: What was the first deal?

WALLER: Albany, Texas. It was bought by Magness, actually, and I did the deal with Bob. And that's the other thing I figured out. When you're an HBO rep, sometimes people want to see you, sometimes they don't. Sometimes they want to talk to you, sometimes they don't. They've got your product, quit bugging me, I don't want to hear from you.

SOUTHWICK: You're a sales guy.

WALLER: You're a sales guy! Whereas if you've got a cable system for sale, everybody'll take your call. They want to hear from you. Everybody loves to hear about the cable market, what values are, even if they're not buying that day they want to talk to you. So I found I could get virtually anybody on the phone. I mean, I got Bob Magness on the phone, I didn't know him from a hole in the wall and he didn't know me from a hole in the wall, but he loved buying little systems in Texas. That was his thing.

SOUTHWICK: How big was Albany, Texas?

WALLER: Like 700 subs.

SOUTHWICK: Uh-huh, and who owned that?

WALLER: An independent, I want to say it was Bill Arnold, who ended up being big in the Texas Cable Association.

SOUTHWICK: Right, ran the Texas Cable Association.

WALLER: Yeah, and then I think he went to work for TCI, didn't he?

SOUTHWICK: He may have.

WALLER: Anyway, and I got that on a tip from somebody, and I called up Bill and said, well, I think I can sell it for you, and called up Magness and dealt with Bob and his secretary basically. Bob didn't come to the closing. Of course I did, and got my first check. I mean, it worked out great. That took a while, but it was fortuitous. My second deal was Steve Simmons.

SOUTHWICK: As the buyer?

WALLER: As the buyer. My third deal was with Bob Tudek, Telemedia. I did a couple deals with him. Another early deal was a guy named Tom Keeminey, backed by Butcher and Singer out of Philadelphia, which was the tax shelter thing. So, kind of a hodgepodge. And Simmons, his investments were venture capital, the old T.A. & Associates out of Boston, a guy named David Croll, they were his early investors. But that's kind of the mix. A few MSOs were buying, but a lot of these new entrepreneurs went private equity.

SOUTHWICK: Now Daniels and Associates had been around a long time.

WALLER: They'd been around a long time, CA had been around.

SOUTHWICK: Yep, Rick Michaels had been in the business. How did you manage to find these things to do when they were out there?

WALLER: That's a good question. Between the two of them they had 100% market share. No, I'm sorry, there were a few smaller brokers, a few little... A, being in New York helped a lot, but before I even got to that having these relationships from HBO was the key thing. I covered these people better than brokers could. They were in Denver or Florida or wherever, and I spent a lot of time out there getting to know them. It was also an era where there was a lot more to do. Fortunately we were established and got a reputation and everything else, but it would be harder to get started today with a new firm.

SOUTHWICK: Because there were hundreds and hundreds of independently owned cable systems?

WALLER: Exactly. There were more systems and more deals. There was no way Daniels could cover the whole market, or could CA, but really, I had a great lock on it because of my relationships with Pennsylvania, Ohio, West Virginia crew. That was my base. I got a lot of my deals done through them, which gave me the momentum to go to the next step. The next step was really... don't forget, nobody was doing it out of New York. That wasn't hard to figure out because they weren't, but also their approach, Daniels had hired a lot of sharp guys, but they had Xerox sales training, that was their orientation. So they were more sales oriented, whereas the world was different. When Bill Daniels started, he developed a great network of contacts and relationships and everybody loved him, and rightly so, but it was more like, okay, I'll buy it, the bank will owe me the money, and there wasn't a lot of complicated financing going on. In the early '80s, the financings got complicated. You had high yield come into the game, you had the limited partnership tax shelter money, you had venture capital come in to a large degree for the first time, so a lot of the deals were getting done here in New York. It also required a different set of skills to do the deal. So I figured out, well, we need to hire some people with really strong banking and financial backgrounds, as opposed to sales backgrounds. So I also thought, well, geez, there's no real sort of investment bank boutique doing it. Those guys were great brokers, per se, and they'd been doing that, and that's what was needed, but things were changing.

SOUTHWICK: So who were some of the people you brought on board?

WALLER: Well, my first hire was a guy named Andy Armstrong, who was with me for 15 years. He's subsequently gone into the private equity business, but a great guy. The second guy I hired was a guy named Rick Patterson, same thing, he left with Andy to do private equity.

SOUTHWICK: What were their background when you hired them?

WALLER: Oh, they were both banking. Rick was from Mellon Bank and Andy was from P&B. Rick had an MBA, and Andy had a financing degree undergraduate, so they were real strong financial people, which helped us competitively. Because we were in New York we could figure out who the new buyers were because they were all coming here to raise their money, so we'd be on their list of people they'd come to see. They knew we knew a lot of the pockets of money whether it's a venture capital or how to get these limited partnership things done. So that helped us. When we were going to a seller we could say, look, we're going to show your property not just to MSOs, but we have all these new buyers who are probably going to pay you more. It might be riskier, but we can evaluate whether they're real or not, which is also important because if you're a seller and you're going to be entering into a contract with somebody, they'd better be able to perform, and you don't know them from Adam, a lot of these groups are new so you had to have some way to check them out.

SOUTHWICK: And your timing was pretty good in terms of the growth of the industry because you had the '84 Cable Act come in, right?

WALLER: Right, that was so lucky. There were a lot of lucky things we kind of stumbled into, and the '84 Cable Act helped a lot. That opened things up.

SOUTHWICK: What was the impact of that?

WALLER: Just a lot of deals. The values jumped from 800 or 900 a sub to 1400 a sub. That was an era where... do you remember Bill James? Do you know him at all?

SOUTHWICK: Um-hmm.

WALLER: He got in in '85-'86 and we helped with his first acquisitions and then he got out a year later two or three times what he paid for it, and that was because of the '84 Act things were just accelerating so much. That accelerated through the late '80s and then of course you had HLT, and that whacked everything.

SOUTHWICK: How many deals would you be working on at a particular time? How many would you close in a year? Give us a sense of the size?

WALLER: We would close like 20-30 deals a year back then, and then deal size of course were smaller because per sub values were lower, but we would have... a good year for us would be 300-400 million dollars worth of deals, 20-30 deals. Back then our average deal size was probably 30 or 40 million whereas now about 100 million. We had a lot of 5, 10, 20 million dollar deals back then. We don't have as many of those now. There aren't many of those left, which are fine. You get paid well on those and you can get them done. There weren't as many mega deals, period, and if there were, the Wall Street firms were getting them or there just weren't that many. Warner merging with Time, Inc. in the late '80s, we can check the facts, but I bet you the value on that was probably a billion to 2 billion or something like that, which today isn't that big a deal.

SOUTHWICK: Were you involved with that one?

WALLER: No, no, no, we were not, but I'm just saying... We didn't really get involved in the bigger deals until the '90s. In the '80s there were enough entrepreneurs like a Bill James around that we could represent them and use that to build our reputation with the big companies. So by the late '80s the MSOs started to hire us, but in the early '80s they weren't. We were dealing with the newer entities.

SOUTHWICK: Was it true that some of the big name companies like American Express and Westinghouse and so forth that got in and out of the business wanted to hire a Solomon Brothers or whatever just too kind of satisfy their shareholders that they'd gotten "the name".

WALLER: Right, and that goes on even today to a degree, although on a lot of transactions, let's say, like the Bresnan deal that we handled, or we sold The San Francisco Chronicle's cable systems. That was a good example of they put Solomon Brothers on that because it was a public company and they were a newspaper company, and whatever, but we led the deal, we co-brokered it with Solomon, but we led it, did all the work. Solomon dealt with some legitimate board issues and some shareholder issues that are not our repertoire, it's not what we do, but in terms of running the merger process, we did that. That's fine, we can work with them, but we didn't really get on those big assignments until, like I say, the late '80s, early '90s.

SOUTHWICK: Was there a breakthrough one, or one or two that stick out in your mind where you went home and said, boy, we're really in a different arena?

WALLER: It was a much smaller deal, but I'll never forget when we got the listing on Chapel Hill, North Carolina, which was a very visible market – small, there were only 20,000 subs, but it was a high-growth, right in the middle of Time Warner territory, in those days ATC territory, and desirable to entrepreneurs because of the size. Jones wanted to buy it, a lot of people wanted to buy it. This was probably '85 when we got that. When we got that assignment it really put us on the map.

SOUTHWICK: Independently owned and operated?

WALLER: Independently owned. We went down and pitched the guy, the guy was a radio guy, a great sales guy. I think we just clicked in our personalities and he gave us a chance.

SOUTHWICK: Who'd you sell it to?

WALLER: We sold it to Prime, and that helped us develop a relationship with Prime. I guess the first big deal that got us on the map was Prime owned Prince Georges County, which we sold, that was 100 million dollar deal, which was a big deal for us at the time, and we developed a relationship with Prime because we sold them Chapel Hill and then a year or so later they hired us to do the Prince Georges County. That and the Bill James deal, because that was about a 200 million dollar deal, and that was around the same time. Those deals started to really put us on the map.

SOUTHWICK: Some champagne corks were popping?

WALLER: Yeah, exactly.

SOUTHWICK: Then we kind of hit the early '90s and a couple of things happened. The highly leveraged transaction rules – maybe you can talk about what those were and the impact on the business?

WALLER: They were so-called HLT, highly leveraged transactions, that was coming out of the Bush 1 administration. It was a backlash against all the debt, primarily, high-yield debt that was raised during the late '80s, and all these so-called leverage buyouts that just piled on debt with a teeny sliver for the management, and they'd flip it to another buyer that had even more debt but the management made a lot of money. Even though it was a teeny sliver because of leverage a lot of the dollars went there. So the government restricted the amount of debt you could put on a transaction so the banks just totally retrenched. For a year there – it started in '90 and went into '91, but the impact to us was felt in '91 because of the lag time. For a year there, there was just no deals getting done, banks weren't lending money. They'd maybe lend three or four times cash flow, whereas historically they might have lent at eight times, seven or eight times. But even if they were willing to lend that... I didn't want to do deals that were going to lend much more than that, so it was sort of a sticking point. So that was a dead, dead year. We started to get out of that and then re-reg one came along. That came along in what? '93? '92?

SOUTHWICK: Yeah, it was the Cable Act of '92 and it began to be implemented in '93.

WALLER: Right, that two or three year period, you'd finally see a little life and then the re-reg hit. We were lucky in that period because amongst the things that I'm happiest about and proud of is we raised the money for the Sci-Fi Channel, and we were looking for other things to do at the time because the brokerage was not doing well. The entrepreneur had the idea for the Sci-Fi Channel, came to us with a videotape.

SOUTHWICK: And who was that?

WALLER: Mitch Rubenstein. He's a great guy, a really smart guy. Anyway, all he had was a videotape with some clips from Star Trek and some other things, and he said, "This is a channel, you can tell it's going to be a channel," and we didn't have much else going on, so we said, "Sure, we'll take you in," and we shopped around the cable industry, got him 5 million customers from the MSOs just based on his story and a videotape.

SOUTHWICK: Wow!

WALLER: And then we raised him... we got a competitive bidding thing going.

SOUTHWICK: What year was that?

WALLER: Had to have been middle of '92, and we raised him a hundred million dollar from USA, the one that ended up doing it. We had a couple of proposals, but USA ended up doing it. Kay Koplovitz was there at the time. We got him a hundred million dollars to start the channel and really get it going and be USA's partner. We kept a small piece of that, and that did great, and then Mitch stayed in for two or three years and he got out. That evolved to the Golf Channel. Two years later we did the Golf Channel. Same thing, an entrepreneur, Joe Gibbs, who's a great guy, had the idea, came to us first, and said, "I've got this fabulous idea, don't tell anybody," so he had us sign all these things, and I said, "What is it?" He said a golf channel! I'm not a golfer, so oh, really great. I didn't get it. But my team did, they understood that golf had a really core following. So we raised 60 million from that.

SOUTHWICK: All venture capital money?

WALLER: No, six MSOs. Interestingly enough, Tim Rigas was in there. He was one of the six. It was Comcast, Alan Gerry, the Rigas', Continental, Tim Nehr from Continental, Time Warner. Oh, Bob Miron, I think, did it, too. Anyway, at least between the two of those channels I'm proud of the fact that – we didn't have the idea, I can't take credit for that – but we did get them the money and got them up. We got them both subscribers and made it possible to get up.

SOUTHWICK: But you stayed in cable. You didn't get off into radio or broadcast?

WALLER: No, we didn't. We kept toying with that, but I'll tell you what happened is when things started to pick up again it was competitive. We were competing against Wall Street, competing against Daniels, CA, and Daniels and CA spread themselves out horizontally, and we just decided to hone in vertically. We hired a great time, and I'm lucky to have had some wonderful people here, and we just decided to do more for cable. So the programming thing was sort of clicking and that was helping us. We were doing a lot of appraisals, we were just doing some informal consulting. We just decided to burrow done more on cable. So when we were competing, when we would go on a pitch, we'd say, look, we're small but we're only focused on cable. You hire us and you're going to get somebody who all day long talks to cable people. You aren't going to get a team who's half doing broadcasting or half doing radio.

SOUTHWICK: So you focused on domestic market rather than international?

WALLER: We didn't do much international. We got The Washington Post into the U.K. We hooked them up with an entrepreneur and got them into that. We did a couple little things over there, but for the most part, no, we stayed focused on cable, and that helped us out a lot through the late '90s when everybody was getting out. We got some great assignments and big deals, and that really helped us, being focused.

SOUTHWICK: What are some of the ones that stuck out?

WALLER: We handled the Bresnan deal. In '99 we did eight billion dollars. One way we differentiated ourselves is we...

SOUTHWICK: Eight billion, with a b?

WALLER: Yeah. I mean that was not our revenue, but that was the transaction size but our revenue was pretty significant.

SOUTHWICK: Right, right.

WALLER: But the way we positioned ourselves is we mostly worked for the seller. Our competitors a lot of times worked for the buyer or got in the middle and tried to make things happen. 99% of the time we're working for the seller, trying to maximize value to the seller. So we go in and make a pitch and we can show how we've gotten higher prices than our competitors did for our clients, the seller. It was a compelling story. So between that and being focused on cable really helped us. We did 26 billion since '96 worth of deals, so that's a lot. And it was 33 billion since '82, so you can see most of it was in the last... But that has a lot to do with the value escalation. We're having a lot of big deals, but it goes back to my point earlier.

SOUTHWICK: Same number of subs but twice or three times the...

WALLER: If you tracked the deal charts in cable, you can see what looked like a big deal, TCI buying Liberty. Remember Liberty on the West Coast, or even Continental going to Media One. I bet that was like a six billion dollar deal, or something like that.

SOUTHWICK: That sticks in my mind, too.

WALLER: But today that's not that huge, frankly.

SOUTHWICK: Not compared to Comcast, AT&T.

WALLER: No, I mean the Bresnan deal, when he sold it was 3 ½ billion, and Fanch was over 3 billion, and those were little guys compared to Continental.

SOUTHWICK: In your experience dealing with particularly the entrepreneur types, who are the ones that kind of stick out in your mind as particularly interesting in terms of their negotiating style? It used to be said that Magness would actually eat a cigar while he was doing negotiations.

WALLER: (LAUGHTER) I never saw that!

SOUTHWICK: Who was particularly good, and what makes somebody good at a negotiation?

WALLER: So many of these guys are good. It's really hard. We're all lucky to be in cable because so many of these people are smart, great business people, great entrepreneurs. Gerry Lenfest, Glenn Jones, Alan Gerry... I mean, I guess I'm closer to Alan or Leonard Tow than I am to a lot of these people. I'll tell you what works for Alan. He's got a great, warm, non-threatening style. He doesn't come in and act like he's going to try to beat you, or win every point. And at the end of the day, he may not win every point but he wins the deal, and that's important. I think the people who are the most successful at this are the people who have the vision to say, look, try to get something done, and don't get too caught up in some of the little things. Give up on some of the little things in order to get something done. I think Magness was that way, too. Magness definitely was... he had a vision, he clearly wanted to get things done, and he was willing to give on some things just to make it happen. But some of the people that were just too tough or too nitpicky, you could drive the other side away and it doesn't work.

SOUTHWICK: Is it true that those people may have also recognized that the folks they're dealing with today they may have to deal with five years from now or seven years from now? There's sort of a fraternity feel, isn't there?

WALLER: It is, very much so. Although I don't think that effected there... I think a lot of them didn't worry about that too much, but it is very much a fraternity, no question. Even today, it's hard for newer people to break in. I see it, I'm in a lot of meetings with the MSOs, and when the heads of the MSOs get together it's like a golf club or something. They're all hanging out and have camaraderie. Golf helped us, too. My former partner was a member of Pine Valley, so we used to take all the MSOs down to Pine Valley and golf was like a big cable thing.

SOUTHWICK: Did you learn how to play?

WALLER: I never did. I used to go and run around the track. I didn't have the patience for it. I used to go run around and eat dinner with them.

SOUTHWICK: Do you think that kind of fraternity culture made it more difficult for companies such as Westinghouse or American Express and so forth to kind of get in the business and understand how it worked?

WALLER: Yeah, I think so. I just don't think they fit. The same thing happened to AT&T. They came in and spent a bunch of money and threw a bunch of dollars at some parts of their plant, at telephony, certainly, and some other things, but they bulked up and added a bunch of overhead.

SOUTHWICK: And of course those are public companies, which have to report profits and the analysts wanted their profits.

WALLER: Yeah, they'd say you're investing all this money, you're not getting any profits? You just keep putting money into this thing and not getting anything out of it, what are you doing?

SOUTHWICK: Is it true that the companies that really did well and expanded were closely controlled? Even if their stock traded publicly, they had the class B shares, like Comcast and TCI, for example, they didn't have to worry about hostile takeovers.

WALLER: Correct, right. Most of the cable companies were in that category. Certainly all of the current ones are in that category. I'm trying to think – there must have been some other ones that were more widely held, but I can't remember what they were though. Currently they're all in that category, different classes of stock, voting and non-voting. Cablevision's that way, Comcast and MediaComm and Insight.

SOUTHWICK: As a journalist, I'd be remiss not to ask you this. Having known the Rigas' for so long, what happened there, in your view?

WALLER: I don't know. I think, honestly, they don't think they did anything wrong. I've known them for so long, and when we were at HBO, I had to sue John when I was at HBO because he wasn't paying his HBO bills, and I wasn't the first one to do that. This was '81. Apparently he had a stack of bills on his desk and everyday he'd pay one and he'd pay the one that had the most pink slips and noise on it, threaten to shut you down and court orders and the sheriff's stamp. "Okay, we have to pay this one. Pay that one." They just viewed it as credit was just a financing mechanism. HBO used to finance earth stations so it would help get HBO out there, and believe it or not, in those days spending $25,000 on a dish was a lot of money. So HBO would finance that and you could pay it back really out of HBO revenues. The Rigas', I think a dish isn't it – a lot of markets, not relative to them now, but they had a lot of markets, they just viewed that as almost like an investment. They're going to pay it back someday but they didn't have to pay it on time. Back to your question, I just honestly think that they thought they would borrow this money and they were going to pay it back. They don't think they did anything wrong. I just think they think – and apparently they've said that – I just think that they were doing what they've always done and eventually it would get paid back. Don't worry about it, we'll get it back to you. We're not stealing it, we're just borrowing it.

SOUTHWICK: Small town folks who've had a culture for a long time and all of a sudden got into a bigger stage and got the spotlight put on them.

WALLER: Yeah, but it's the same mentality. That was really HBO's money, but they didn't look at it that way. They looked at it like they're financing the business and HBO will get their money some day, so don't worry about it.

SOUTHWICK: What is the business like now for you? You have five or six companies that own 80% of the subscribers? Can we still do it?

WALLER: Yeah, it's an interesting business now. Thank goodness for cable because the entrepreneurs are all getting back in, there's tons of private equity looking to get in.

SOUTHWICK: Bill Bresnan is trying to buy some systems back.

WALLER: Yeah, we're helping him do that. Steve Simmons is buying back in here. Several new management groups that are reforming – the Intermedia team is reforming looking to buy, the old Rifkin team is reforming looking to buy, some ex-Cablevision people are getting together looking to buy – so it's all going through another cycle and a lot of these private equity firms that made a lot of money in the late '90s are all looking to get back in. First of all, they raised a bunch of money, they've got billions of dollars. You look at their telecomm portfolio which is on the tank and they've got to put money to work or they literally have to give it back, and where are you going to put it? You going to put it in broadcasting? Maybe, but that's pretty high right now, and at least cable is stead cash flow and there's some risk but not like the telecomm side, and probably not like the broadcasting side. This year there have been relatively few transactions but there will be a fair amount of transactions because all this money is going to pull product out and teams are going to get back in and build and row again. You've got these young kids...

SOUTHWICK: The cycle starts over again.

WALLER: I need at least one more cycle here, Tom, to keep me busy.

SOUTHWICK: Very good. Okay. Anything else you want to add or comment on?

WALLER: No, I don't think so. Thanks! I think the museum's great. I think the whole concept is wonderful and I appreciate your spending the time. I can't believe... selfishly, I'd love to be able to show my kids one day the museum and hear the tape and all that stuff.

SOUTHWICK: I think you'll be able to do that.

WALLER: All right, good.