Wharton’s Cable Guy

By Nancy Moffitt

Comcast and its Leader, Brian Roberts, W’81, Come of Age

Brian Roberts was dining on salmon at a private club on top of a Seattle skyscraper with a handful of fellow cable moguls – and Bill Gates.

In was 1997, and Gates was meeting with the cable industry’s major players to talk about the future. Gates and other software industry leaders were frustrated by phone and cable companies’ languid pace in offering consumers high-speed Internet hookups – and what that pace could mean to the Internet’s future. Gates wanted broadband, and he wanted it soon.

But the cable industry had been mired in difficulties for several years: in the late 1980s and early 1990s, profits went to laying new line and expanding the workforce during a time that Wall Street routinely penalized such moves. Pizza-sized satellite dishes were a new and formidable competitor, while massive companies such as AT&T barreled along, snapping up huge chunks of the market. And government regulators had twice hacked down rates.

Gates and the cable CEOs continued to discuss timeframes and challenges, when Roberts, who had only met Gates once before, suddenly spoke. “You know, what we could really use is for you to buy ten percent of every company in the room,” he said to Gates. His fellow CEOs were visibly stunned by their young colleague’s hubris. Gates hesitated, then asked, “What do you think that would cost?”

“Oh, I don’t know, maybe $5 billion,” Roberts said, off the top of his head. Gates responded, “You know I have $10 billion in cash. I could do it.” Roberts swallowed hard, encouraged, but didn’t get his hopes up. Another cable executive jumped in and changed the subject, asking Gates about his vacation plans to the Amazon. Gates, who planned to leave for the trip the next morning, chatted about the trip and the exotic monkeys he and fellow Microsoft founder Paul Allen hoped to see. Then he turned back to Roberts. “Would there be a regulatory problem?”

“At that point, I said, ‘Wow. He’s thinking about this,’ ” said Roberts.

Indeed he was. When Roberts, W’81, returned to Philadelphia two days later, he got a telephone call from Microsoft CFO Greg Maffei. “He said ‘I want to follow up about your conversation with Bill. I just got an email from the Amazon.’ ”

Thirty days later, Microsoft had invested $1 billion in Comcast – the largest single investment outside of Microsoft Gates had ever made. As a part of the deal, Gates agreed to forego voting shares, an unusual step for him. “He understood that we weren’t looking to sell control of Comcast, and if we were, the price was not a billion dollars,” said Roberts. “What we were looking to do was change the world’s perception of what might be – and to speed up broadband. It was exhilarating and obviously one of the highpoints of my business life, but I also felt a sense of disbelief and wonderment.”

Comcast did just what Gates hoped, spending quickly and heavily on new broadband technologies. And Microsoft’s investment in the company, Roberts believes, forever changed the business world’s perception of the cable industry. It also marked the start of a dizzying array of ever-greater deals, culminating with Comcast’s $60 billion pact to acquire cable giant MediaOne last year – a deal Roberts now calls his biggest triumph, and his greatest regret. At the eleventh hour, AT&T topped Comcast’s all-stock offer with a $62 billion, stock-and-cash deal. Roberts didn’t succumb to a bidding war, but also didn’t cower from the mammoth AT&T: Comcast collected $1.5 billion, plus two million more cable customers, for agreeing to walk away from a deal that would have made it the second largest cable company in the nation.

Roberts, relaxed and affable during a lengthy interview at his 35th floor, Center City Philadelphia office, becomes noticeably tense as he hashes through the hows and whys of the Media One deal. “People said, ‘Aren’t you happy? You came out better,’ ” he said. “And financially, we did come out better. But strategically, we would have been a global enterprise and would have had a much different profile had we bought all of MediaOne. Financially, we made a fantastic arrangement, and we didn’t shrink from the competition. A lot of people were telling us, ‘Just go home.’ ”

Ultimately, Roberts believes AT&T’s decision to acquire Media One had everything to do with the fact that Microsoft, with its $1 billion investment in Comcast, had endorsed the industry’s prospects. But he downplays his role in that historic deal. “We were at the right place at the right time,” he said.

Like Father, Like Son

Brian Roberts’ office, like all of the offices at Comcast, is a bit of a fishbowl, with interior windows instead of walls. Only his desk is invisible to hallway traffic, and so he positions himself at the conference table with his back to the whirl outside, facing a wall of artfully shot, black-and-white photographs of his wife and three young children. Interspersed are color photographs of Brian and his father, Ralph Roberts, W’41, who founded Comcast in 1963 with the purchase of a community antenna in a tiny Mississippi town, and who Brian, by all accounts, worships.

Brian Roberts is an easy interview – comfortable, open and full of illustrative anecdotes – and it’s evident that talking to the media has become familiar territory for him. As Comcast’s profile has risen in recent years, Roberts, 40, has been featured in Business Week, Forbes and on CNN, among many other media outlets. His father, understanding the marketing value of a business projecting a certain character and personality, has increasingly propelled Brian forward as Comcast’s young new leader.

Working for and with his father in his father’s company was all Brian Roberts ever really wanted. The fourth of five children, he read The Wall Street Journal in high school and was fascinated by the stock market. “I think business was perceived as cool when I reached college,” he says. “That perhaps wasn’t the case when my siblings were choosing careers, and they all wanted to do other things.” At Wharton, few would have guessed Roberts would become such a major player. “The cable industry was still relatively small then, so it wasn’t like I was being groomed for this big corporate job,” he says. “I was just a kid who wanted to work for his dad’s business.”

As a teen, Roberts tagged along with his father at work, learning the nuts and bolts of the cable business – and about the realities of being the boss’s son. He got a “good emotional scar” as a fifteen-year-old working for another of his father’s businesses, a supermarket merchandising operation in central New Jersey. When Roberts showed up on his first day, his supervisor pulled him into her office and closed the door. “I don’t give a damn whose son you are,” she said to him. “If you come to work here, you will work.” Roberts was so shaken by the confrontation that he nearly burst into tears, but says he’s glad it happened. “It was the best thing anyone could have done for me because it reminded me that you’re always going to carry that burden. No matter what you do, it’s not going to matter, because you got here because you are related to the boss.

“I learned early on that you’d better get comfortable with that, because it’s always going to be there. If you have an ego or a sensitivity, which would be understandable because everyone wants to be their own person, then this isn’t for you,” he says. Roberts credits his father for his ability to adjust and persevere. “He wasn’t overbearing the way a lot of parents are when their child is learning a family business. He never told me what to do or suggested things be run the way they had always been run, probably because my father and I had a relatively large age gap and his career had evolved through many different businesses. So there wasn’t a way he did it for 40 years. The cable business was something he happened into later in life that turned out to be the hot ticket.” Ralph Roberts had his teenage son sit in on some of his most significant deals-in-the- making, positioning Brian at the back of the room and instructing him to quietly listen. “He sat in the corner and observed, and he saw how the lawyers and investment bankers worked,” said Ralph Roberts.

But interestingly, Ralph Roberts didn’t expect that his son would graduate from Wharton and immediately come to work for his company. He was dismayed when Brian passed up investment banking offers and seemed to be hanging around, waiting for a job at Comcast. “I told him that he ought to go outside and bring us some great ideas, but he kept coming back and asking to come to work for me,” Ralph Roberts said. Finally, with no offer in sight, Brian told his father that he felt rejected by him. Ralph Roberts told him he could start the next day.

As a finance graduate, Brian assumed he would join Comcast’s corporate finance group and start making deals. But his father told him he was crazy. “He said ‘You have to go learn the business and the business for us is this new cable system in Trenton, New Jersey. You have to move to Trenton.’ ” And so he did, becoming a trainee in Trenton and focusing on everything from customer service to warehousing. “That’s when it all could have fallen apart, but I loved it. I wasn’t sitting there with a calculator. We were running the store. We were adding a thousand customers a month. We were building a brand new cable company. We were dealing with crises and interesting issues.”

Brian and Ralph Robertes’ close relationship has become legendary and is detailed in nearly every article written about Comcast. Ralph Roberts, now 80, shares an adjoining office with his son and still comes into the office four days a week. Over the years, he has gradually readied Brian to assume control of what is now America’s third largest cable company, but still is very much involved in the business. “My father and I tend to come to the same conclusions, but we arrive at them in different ways,” Brian Roberts says. “I’m more concerned and wary, while my father is more of a risk taker. His view is that we should take the risk, but find a way to be conservative in the way that we finance it. Plan for the worst, but bet on the future. I can do a lot of the analysis, and he’s great at pulling the trigger.”

He calls his father “the great psychiatrist,” someone who is always encouraging and has endless patience. By contrast and by his own admission, Roberts is more impetuous, reveling in getting out and making deals, though there’s nothing flashy about his manner. The six-foot-one, All-American squash player makes a point to break from his schedule each day to eat dinner at home with his family and says that he likes nothing more than “hanging out at home. I enjoy my children and my wife. My memory is that my father was home with us, and so the family is very important to me.”

Comcast: The Big Leagues

Comcast Corp.’s prospects are tied to Ralph Roberts’ all-too-logical belief that Americans love shopping, television and sports more than just about anything. The Philadelphia company has been built around this notion, and is an interesting amalgam of cable networks and majority owned “content” providers, from television shopping powerhouse QVC to sports outlets Comcast Spectacor and Comcast SportsNet. Comcast also owns the Philadelphia Flyers hockey team, the Philadelphia 76ers basketball team, and two Philadelphia indoor sports arenas.

Comcast has always aligned itself with promising young companies. In 1986, for instance, Franklin Mint founder Joe Segal called on Ralph Roberts with an idea for a television shopping channel. Ralph Roberts, wowed by Segal’s track record as a serial entrepreneur, agreed to be a founding investor in the business and feature it on Comcast’s cable stations. Comcast acquired controlling interest of QVC in 1995 and considers the company, now the nation’s largest electronic retailer, one of its prime properties. The channel reaches more than 90 percent of U.S. cable homes, and last year shipped more packages than Amazon.com, eToys.com, L.L. Bean, and Lands End combined.

Indeed, the Comcast formula of cable and content seems to be working. During the 1990s, the company grew more than ten times. In the last year alone, it nearly doubled in size, snapping up regional cable firms including Lenfest Communications, Greater Philadelphia Cablevision Inc. and Jones Intercable Inc. It also spun off its cellular telephone business for $1.7 billion, a move that cut the company’s interest expense by 20 percent. “But then along comes AOL and Time-Warner,” Roberts says. “All that work, and you’re feeling small again.” The cable industry, like much of corporate America, has undergone waves of consolidation in recent years. An industry that started as a collection of small, largely family-owned firms has now been swept into the communications revolution: increasingly, regional cable companies have sold out to conglomer-ates offering vast menus of information services.

In this era of gargantuan mergers, Roberts is fervent about keeping pace and staying relevant via aggressive growth. Comcast’s double-digit operating cash flow increases, as well as its strong balance sheet and $350 million in free cash flow as of the end of 1999, mean the company has the flexibility to pursue that growth, Roberts says. A critical priority is Comcast’s ongoing investment in upgrading cable systems, accelerating deployment of Comcast@Home, a high-speed data product, and expanding its digital TV services. The company is also testing video-on-demand and has two interactive television trials underway. Eventually, Comcast customers will be able to subscribe to services that will notify them of incoming telephone calls or e-mail while they are watching television. “One of Brian’s biggest challenges will be keeping the company on a straight path, and that means keeping up with the technological advances and not being a laggard, but a leader,” said Ralph Roberts.

A key to Comcast’s ability to act like a small, entrepreneurial company was Ralph Roberts’ decision to create two classes of stock and maintain a controlling position in the company. Today, Brian Roberts governs his family’s 85 percent voting control, which has “enabled us to take that entrepreneur’s risk even though we are not a small company any longer: we have 20,000 employees and a sizeable number of businesses,” he said.

Among those employees is marketing whiz Stephen Burke, hired away from Walt Disney Co. in 1998 to run Comcast’s cable business. “That is the ultimate litmus test about whether you’ve created the right environment, whether you’re in the right mix of businesses, whether you’ve capitalized yourselves right, whether your credibility over the long-term is working,” he says of Burke’s decision to join Comcast.

But Roberts, though energized by his industry’s breakneck pace, has mixed feelings about watching old friends leave a business he grew up in. “We will have a better, more regionalized cable company because of all of the consolidation, but there was something special about all those folks who were in the business. They all saw the world a little differently. There were 20 Ralphs. I learned a lot from those people. But what’s filling the void is that we’ve been able to attract some real talent, so that you don’t have to look out,” he said, “you look in.”

Wharton Magazine - Background

Type to Search

See all results