TelevisionWeek Spotlight Series: A Conversation With Mark Cuban

Oct 10, 2006  •  Post A Comment

TelevisionWeek: Thank you for coming. We want to make this as interactive as possible, so feel free at any time to raise your hand and come out and ask a question or comment on something we’ve been saying.
Given this is Advertising Week, I did talk to Bob Wright Monday and Bob, as most of you know, is vice chairman of GE and just celebrated his 20th anniversary at NBC and is now chairman of NBC Universal since they bought Universal two years ago. And what’s interesting about Bob is he’s a lot of things, but he’s not a brand. NBC is a brand. He’s a smart guy, he’s an analytic guy.
[I told] my wife, who’s not in the business, and she’s not into sports at all … I’m going to be talking to Mark Cuban. Well, first I said I’m going to be talking to the guy who owns the Mavericks, and she said, “I don’t know who that is,” and I said I’m going to be talking to Mark Cuban, and she says, “Mark Cuban! I know Mark Cuban,” so you are a brand.
There’s no doubt about that, and one of the attributes of the Mark Cuban brand is your candor; you’re a man of the people. You see the people’s side of things. Is this something you’ve cultivated? We’re at Advertising Week here. How do you build Mark Cuban the brand?
Mark Cuban: I just try to be honest. I think what’s different and maybe what’s caught people’s attention is I don’t care what people think and I don’t media-speak, and I don’t “No comment,” even when it gets expensive sometimes.
I didn’t necessarily set out to be a brand but in terms of our businesses, whether it’s the Mavs, whether it’s HDNet, whether it’s Landmark [Theaters], I think there’s always got to be somebody who’s accountable to customers, and if you’re not accessible, if you’re not available, then you’re always at risk of someone else taking the brand, if you will, not a sort of personal brand but a corporate brand, and there’s a lot at stake.
I’d rather have the buck stop here, if you will, or the question, stop with me, and the opportunity to begin with me. It just makes perfect sense to me. It’s not something that’s cyclical.
TVWeek: For example, I’ve seen you at a number of these events, and someone will come up to you and say, “I’ve got an idea,” and you’ll say, “Just e-mail me,” and you’ve given thousands, even millions of people your e-mail address. Do you actually look at that, I mean, do you have someone else …
Mr. Cuban: Yes. It takes me about 10 seconds to get the gist of an e-mail. Does it start with “I need,” “I want,” “I have,” you know … and so many times it’s good stuff. We spend so much money for R&D, we spend so much money to go out and hire consultants, this or that. I’ve probably got the most accessible e-mail address in the country, and that’s the best resource that’s available to me, and so I try to take advantage of it and where someone says, “It’s been terrible, life’s been miserable, I need breast implants. Will you please help me?” And that happens, hit the Delete key and you go on. Takes about 10 seconds.
TVWeek: But let me ask you. Obviously, you’ve had your ups and downs with [NBA Commissioner David] Stern and the folks at the NBA. What can they learn? Jordan’s no longer in the league. I’m not the first guy to mention that. I mean, you’re not a player, but you are so important to their image today. Is part of that in the back of Stern’s mind—”I fine Cuban and my attendance is going to go up?” What’s the relationship all about?
Mr. Cuban: A couple of questions there. What can I do with the NBA, for the NBA and what’s our relationship all about? When I first got to the NBA, when we first clashed, we had a very significant difference of opinion of what business we were in.
I never thought we were in the basketball business, and that was heresy inside the NBA. We’re in the business of answering the question, “What do you want to do tonight?” We’re in the business of sore hands and sore throats from kids screaming and yelling.
Sports is one of the few areas where a CEO, a 16-year-old, a grandma, a kid with a mohawk and a 7-year-old can stand up and scream for the same reason and have something to talk about at the dinner table. That’s a unique proposition and that’s what I thought we needed to sell. At the same time, marketing that proposition is a whole lot different than saying, “Look at our glorious past.” The NBA has a huge problem of always selling what we don’t have. Let’s talk about China. Let’s talk about Kareem Abdul-Jabbar and Bill Russell and Larry Bird and Michael Jordan. That’s not what we have, you know, and I butt heads a lot with them to make a point that we need to market to people who can be our customers.
We can add a hundred million Chinese to our customer roll and maybe our international licensing will go up, but if we add 500,000 viewers to our ESPN telecast, that’s up 35, 40 percent, we’re heroes. If we lose 500,000, we’re zeroes.
There’s such a small margin here in the United States, but we want to be in the business. There’s a saying I had at Broadcast.com: “You can drown an opportunity.” When people are afraid of taking on the immediate challenge that’s most critical to their business, you always look for something else—”I can’t close this deal, but look at all these other deals I have on the table.” You know, we can’t get results for this customer, but look at what we’re doing for all these other customers.
That’s a symptom of a bigger problem, and that’s the problem the NBA has right now.
TVWeek: What is your relationship right now with Stern?
Mr. Cuban: Who?
TVWeek: Stern.
Mr. Cuban: David Stern. You know, we don’t talk, we don’t write. The less the better.
TVWeek: It would seem to me he’s a seemingly intelligent man …
Mr. Cuban: Yes.
TVWeek: It would seem to me that you’d be the guy they’d hire even as a consultant to help them in marketing the NBA, advertise the NBA. They just don’t see it. Is it the other owners, or …
Mr. Cuban: No, it’s just that everybody has got a different perspective when you’re owning professional sports teams. For some, it’s something that’s been in their family or that they’ve owned for a long time. For others, it’s a more recent purchase at a more expensive price, so you have a different perspective, and David is a master politician.
He’s a master of balance, he’s a master of handing out homework projects, and I just don’t play that game. I try to look at a bigger picture and try to look at what’s going to have a bigger impact on our industry, our sport. We rarely see things on the same page.
TVWeek: What kind of influence do you have on a national scale? For example, you mentioned the ESPN deal or any of the deals they have in getting the games out on broadcast. Any influence on how that is marketed or advertised?
Mr. Cuban: Not really, other than the things I undertake myself. You know, the efforts, the things we do in Dallas, tend to get picked up around the rest of the league. I’m not afraid to stand up and take a bullet, call out San Antonio to increase rivalry.
You have to understand, I learned from Dennis Rodman, who’s one of the masters of managing the media, they’re so short-sighted and so focused on “Get something in the paper,” your 500 words, that they’re looking for things to fill.
You give them the little tidbits, the way sports fans follow those, they’ll fall right in behind, so when I called out San Antonio and said the Riverwalk was muddy, nasty and everything, I knew exactly what I was doing. I was going to be the most hated person in San Antonio, but they were all going to see how bad I was going to be booed at the game and this and that, and we got record ratings.
I can only impact a city here, a city there. We’re sending teams to China, to Moscow, to Paris, instead of to Louisville, to Cincinnati, to Pittsburgh. If we could increase our viewership by 10,000 in every NBA city and 50,000 people in every other city combined, we would be on a roll. I just can’t get that through their heads.
TVWeek: There’s some other owners that you mentioned that are actually more new blood and actually see things the way you do.
Mr. Cuban: Yeah! You know, Howard Schultz [of the Seattle SuperSonics] was great until we kicked him to the curb, threw him under the bus, which was unfortunate. Wyc Grousbeck of the Celtics is phenomenal. He’s much more even-keeled than I am, but just as passionate. You look at the guys who have spent $300 million-plus, [Phoenix Suns owner] Bob Sarver, they have a lot more at stake.
To analogize it, if I bought a stock at a buck and it hit a hundred and it came back at fifty, I’m OK. If I paid a hundred and it’s fifty, I have a completely different perspective. And I must say in the NBA, if anything, for advertisers we’re easiest to take advantage of. You can kind of name your own tune and there’s a unique opportunity there, but there’s just not enough of the new blood to have an impact yet.
TVWeek: Are you happy with the way the broadcast deals are structured? As an owner, do you think there’s got to be something else done in that arena?
Mr. Cuban: If you look at when we signed our broadcast deal, it was right after Sept. 11, and actually David was standing in front of the board of governors saying, “Your expectations should be that we’ll get fewer games,” and he was talking about scarcity and it’ll be fewer games and more viewers.
I just called “B.S.” and said, “Look, it’s 2001, 2002, and why don’t we look at cable?” They’re looking at ways to define themselves, differentiate themselves, and two months later we had a deal that was mostly cable-driven. Now, he would never admit that that’s how it all happened, but you talk to people in the NBA and that’s exactly how it happened. It’s all politics.
TVWeek: Are there things you think from an advertising and marketing point of view that the NBA can learn from the NFL?
Mr. Cuban: Yeah, I think the NFL actually advertises. And a lot of this is ESPN, partner-driven, bigger numbers and everything, but the NFL is actually out there spending money, between the NFL Network, between all the Monday advertisements we saw from ESPN, there’s so much activation towards the game.
We advertise inside the church, so if you’re watching an NBA game, you’re going to see an NBA advertisement, you’re going to see an “NBA Cares” advertisement, you’re going to see a WNBA advertisement, but if you’re anywhere else and you’re a casual fan that we potentially may want to attract, you don’t even know we exist. You don’t know when the games are.
The NFL obviously has an advantage where it’s Sunday with a Monday and a Thursday game, but we’re marginalizing ourselves to become a regional sport, and that’s a real shame because we’re not. If you look at any numbers for kids 12 and under, we’re their favorite sport. The NFL kicks up in an older audience; we own kids.
Between “NBA Live” and kids looking up to our players and loving the sport and playing the sport, we got ’em right there. And we just let ’em go. They don’t know who John Havlicek and Kareem Abdul-Jabbar and Wilt Chamberlain are any more than if you wanted to sell music you’d sell Bob Dylan. Well, that’s a bad example. But you don’t sell what you don’t have, and that concept is lost on us.
TVWeek: That’s very interesting, but maybe they’ll be listening to this, and change some of their minds. You mentioned that it’s passion-driven, it’s fan-driven. What do you think of, obviously with your technology background, all the new devices out there? As television gets bigger, and we’ll talk about HD and stuff, television is also getting smaller, which is an interesting dichotomy. It seems to me that one of the things on the smaller devices might be games. If you’re somewhere and you can’t see it any other way, and you’re passion-driven, you would look at it that way, don’t you think?
Mr. Cuban: Sure. You gotta understand, once video went digital, bits are bits and they’re going to be available anytime, anywhere, on any device, regardless of size, regardless of connectivity—and you’ve got to ask yourself, “How do we consume it, regardless of the type of content, and where do we consume it?”
What we have to recognize is that the PDAs, whether it’s a Sidekick, an iPod, even a portable DVD player, they’re time-wasters, and I don’t say that in a negative way. We use them to kill time. It used to be when you were on your way to the airport, you wanted to stop at the newsstand to get magazines, you wanted to get newspapers, you wanted to buy a paperback book, anything to kill time. You were on the train, you wanted to have something to read, you’d see people cover their eyes so they don’t see anything. You saw CD players for a while.
Now, mobile content is about killing time. When you’re playing games, the dumbest games, on your cellphone, but you just want to kill time, and it’s the most efficient, least expensive, most expedient way to kill time, and that’s all it is.
You know, people don’t say, “I have a 42-inch LCD TV in my living room but I’d rather watch the Mavericks on my cellphone or my iPod. They’re all complementary, they’re not replacement, and I think that’s lost to some people.
It’s the same with the YouTube phenomenon, if you want to call it that, I don’t think it is, it that it’s just about killing time. We got bored searching through the Web sites like we did in the late 1990s, so now we search through videos, and then those guys’ll get shut down and we’ll find something else.
TVWeek: Well, let’s talk about YouTube for a minute. I know that you think that the best advice for those guys is to sell. Talk a little bit about that. Obviously there’s a lot of buzz about them, a lot of people real sanguine about them.
Mr. Cuban: First, you have to ask, of all the video sites that popped up, why did YouTube excel and get to this point in terms of traffic? Because they had no problem with copyright laws. If I wanted to put up every single TV show, every single music video, whoever was first doing that. Now the question is, “Why are they not shut down now?” Well, I’ll tell you a quick story. Back when Napster was being Napster, we used to tell stories—because I have a different perspective than most people on copyright. Hey, I used to use Napster and it made me buy CDs. It was the best way to sample, it was the best way to go out there and experience it, but the quality wasn’t there, there were different issues in downloading, you could get viruses, whatever, and Napster was a good thing for the music industry, right? But the music industry didn’t see it that way and shut them down.
YouTube is no different. Napster went out and did a deal with Bertelsmann, and you know what that meant? All that meant was now there was a deep pocket behind Napster that all the record labels could sue, and they just recently settled the last one.
The minute YouTube sells, all that means is there’s going to be a deep pocket that’s going to get sued into oblivion. And it’s not because, well, Warner Music did a deal, but that’s for one type of right—it doesn’t deal with publishing, it doesn’t deal with public performance. And then put aside the licensing thing, when you watch something on YouTube, you’re actually downloading that file to your hard drive, the progressive download.
There are certain sites you can go to, you just put in the URL and you can just keep it on your hard drive. It’s yours to keep forever. I don’t think they’re going to like that. And you can go on and on and on, the streaming, the cost of the streaming. There’s a reason they haven’t gone public, there’s a reason they haven’t been bought yet. And it’s because they’re going to get toasted. [ Editor’s note: Google bought YouTube earlier this month for $1.65 billion.]
TVWeek: But they have done some deals. NBC, like you mentioned, has done some deals.
Mr. Cuban: Only on a promotional basis. Just like people did deals with Napster. Dave Matthews released a single on Napster. No one has a problem if someone from a record label squeezed something out on Napster or puts out a promotional. That was all fine and good. But those aren’t the guys running the label.
TVWeek: So would you put Break.com and all these kind of sites together? I know they are a little different. But, obviously, what has generated the buzz in the community is the user-generated content. That kind of thing. You sort of separate that out.
Mr. Cuban: It’s all fine and good. People want to talk about the long tail—user-generated content. And Lonelygirl got how many views?
TVWeek: Right.
Mr. Cuban: And what’s a view? Remember, back in the late 1990s it was a hit. And people used to configure their Web sites that have tons of graphics on it because only 10 people showed up, but you had a million hits.
And it’s the same thing with the view. You go to some of the sites and you hit refresh, refresh, refresh, and there goes the view. And then you get e-mails from people saying, “OK, dig it,” meaning putting it on their sites so other people go there. Or all your friends go to this site and refresh because we want to move up the favorites list and we want to move up everything.
It’s kind of rigged in a lot of respects, and even the people who get tons of press, like Lonelygirl, might get a million views, and you figure how many of these people actually watch the whole thing and actually go through it?
So it’s hot, and it’s interesting, but the reality of it is what’s made it so hot and interesting is the advertising community just started spending money there. There’s nothing else about it that’s interesting. As long as there’s money there, then everybody’s going to start streaming and offering downloads.
TVWeek: You bring up an interesting point. I mean, clearly the advertising community is there because they think the people are there. But, you’re saying it’s mostly fraudulent?
Mr. Cuban: A lot of it is fraudulent. OK, there are two elements to video on the net. There’s time-killers, random, and there’s in-office. The in-office day part is a real streaming video and download video environment. There’s no question about it.
I mean, back in 1999, we did research for Broadcast.com with Delahaye and I asked him, “What’s the number one media device on the office desktop?” In 1999, it was the PC on 93 percent of desktops. I’m sure it’s higher now as people have gotten rid of their radios and TV since then. So to reach an in-office captive audience daypart, there’s value there.
So when ABC and some of these other folks stream during the day, that’s who they’re reaching. Now, is there risk to that? Of course! Because if it’s your office and everybody is streaming media, and it seems like you’re getting engagement because you’re proactively choosing the video. You’re saying, “I want to watch Desperate Housewives” or whatever it may be, and I’m going to see the 15-second pre-roll or an ad in the middle of it. But the reality is, a lot of the times it’s just audio. Because it’s getting minimized and you don’t have any research to show one way or the other. There’s so much emphasis there, and I think there’s no accountability yet.
TVWeek: I do think that the viral video phenomenon is real. I mean, I watch in my office and if there’s the guy doing the juggling to the Beatles, I mean, it spreads like wildfire throughout my office, and everybody is engaged in watching it.
Mr. Cuban: And it’s always been that way. Not just in an Internet world. There are viral things in any number of different ways, whether it’s books, whether it’s … whatever it may be. The question is what makes viral so special is it’s so hard to plan, so hard to do. It’s very hard to plan.
I mean, there’s probably not anybody in this room who hasn’t tried to create a viral video. Or, hasn’t uploaded something and thought, “If I just put the right tags on it, then it’s going to take off. Or if I get the right people.” And it’s so hard to do. You can’t have 100 viral videos coming to your e-mail inbox all the time. It won’t work. So it’s self-limiting, which means according to YouTube, 59,000 other videos a day that are falling by the wayside.
It’s hard to stand out at the head of the tail instead of being one of many in the long tail. That’s a challenge, so that’s a lot of wasted money and effort.
TVWeek: Well, I think we face that in advertising all the time. You know the famous line: Half your money is wasted.
Mr. Cuban: Now it’s 99 percent.
TVWeek: Well, that’s sort of discouraging. I take it you think there’s lots of fraud with the ad clicks.
Mr. Cuban: When I say 99 percent, I mean in terms of efforts of the investment you make in trying to create a viral video. And there is click fraud. I’ve been writing about it forever and now BusinessWeek and The New York Times jumped on it.
You know, everybody is looking for the path of least resistance to make money. What is the path of least resistance for any 15-year-old to make money? Set up a blog, put on Google AdWords or some other competitor and get all your friends to click. So what if they shut you off after three months? You’ve made your $50, $100. That’s better than what Dad’s giving you for allowance.
Now you take all the kids around the world doing that, and $10 here, $10 there, and pretty soon you’re talking real money across that many kids. And then, that’s the nonprofessionals. Those are just kids. Then there’s professionals. You know, why do they rob banks? Because that’s where the money is. Why do they take money from ad expense? Because that’s where the money is. It’s Google’s money, and it’s an advertiser’s money, and obviously it’s too easy. Just from common sense. Now, Google can claim they’re smarter, and Yahoo can claim they’re smarter than everybody, but they’re not. When you have millions of Web sites collecting money, it’s just impossible …
TVWeek: So what would you say click fraud on ads …?
Mr. Cuban: I don’t know. I’d be guessing. You hear numbers out there, 20 percent. It really just depends. If you’ve got an ad word that’s expensive, then it’s probably 30 to 40 percent. If you’ve got an ad word that’s a nickel, then it’s probably not much at all.
It’s amazing how many kids in high school write about mesothelioma, or the different cancers and stuff, or all the lawyers that advertise. So it’s just difficult. We always have to go back to look forward.
In 1999, Yahoo and AOL were everything. Dominated the world. The Super Bowl of Web sites. And then they suffered and pay-for-click came along and created Google and kept Yahoo, in particular, alive. Now, do we think pay-for-click, based off of text, is going to be the end-all, be-all for generations to come? I don’t think so. So people are giving Yahoo a hard time for not keeping up with Google. I’d be looking to what’s next as opposed to trying to keep up with what’s already there.
TVWeek: What would you suggest to the advertising community, given the fact that you think there’s so much fraud in these various things, whether watching the stuff or clicking on it?
Mr. Cuban: There are a couple of different elements. Pay-for-click, you just have to be there. When someone is going to click on “red car” and you sell “red cars,” you want to be where red cars are at. When we put out a movie, “Jesus Camp,” and someone looks at “Jesus Camp,” we gotta be there because search is a utility. But, it’s not the end-all, be-all, right? It’s just one more complementary application.
In terms of video, I think you’d have to require a whole lot more data. Look, it’s the Internet. Everything that gets streamed or downloaded, there’s a file somewhere. And, even if it says maybe there’s not third-party applications that you trust, but even it means going to an advertiser, call it Broadcast.com, and say, “Give us your streaming media files and we can run them through a spreadsheet,” there’s tons of programs that do that for you. Right?
At least you can do your own analysis and get the actual data. For in-office dayparts, that’s a slam-dunk. I think everybody’s gotta be there. But then, and this is self-serving, I look at a whole other technology that’s coming along, HDTV, and nobody’s doing anything. It hasn’t dawned on anybody that maybe with, let’s say, 7 million homes watching hi-def content, through cable and satellite and how many more.
I don’t know if you realize this, but every 25-inch set or greater sold today and forevermore has to have a digital over-the-air tuner. So, all these people now, they’ll be 20-plus million sold in 2007, can receive hi-def signals.
So now we’re starting to see takeoffs in TV viewing, particularly in prime time, and you’re starting to see upticks, and no one’s correlating the fact that maybe hi-def viewers are watching more TV. Let me put something else in your mind. Anybody here have a high-definition television at home that gets hi-def content? Now how many hi-def channels do you have? 15? 20? Yet we have research that says, particularly for men, men will look at the hi-def channels first. Seventy-seven percent of men will look at hi-def channels most of the time first.
Which means that you can have your ad in a 15-channel universe for the fastest-growing government-regulated technology there is. And we’re trying to focus on this big-sized postage stamp. Why? Because how many people raised their hand? You all have PCs and you all have streaming media. But you haven’t gotten comfortable with hi-def yet.
But let me tell you this: If you’re watching CBS at home or you’re watching ABC “Monday Night Football,” and an ad comes, you’re watching it and it’s hi-def. It’s great resolution and it looks great, and you broadcast a commercial in standard-def, do you know what immediately happens? It squishes from 16×9 to 4×3. It screams, “Hey, I’m a cheap advertisement. Turn the channel.” You know, there’s bleeding edge, and there’s trailing edge.
For whatever reason, you guys love to be trailing edge. Here we are, seven years into streaming video, and now it’s hot. And here’s high-definition just ready, willing and able to create new opportunities. You want to get your advertisements noticed? Well, you’ve got 16-by-9, which is a unique palette that you’ve never had before. You’ve got 1080 high resolution, which is a unique palette. You’ve got 5.1 sound and people are now buying these LCDs as furniture and putting them right in the center of their living room, and what’s changed?
What’s changed now is that there’s just one per house, in most homes. So people sit around them again. It’s a family event again. Because it’s cool, it’s hot, it’s different. So you watch “Monday Night Football,” you watch “Grey’s Anatomy,” you watch “Las Vegas.” You watch any show. Hopefully you watch HDNet and you sit there and it’s a different experience. But how many of you are creating ads in high definition?
TVWeek: I’ve asked some of these folks the same questions. One of the answers people say is, well, it’s not critical mass.
Mr. Cuban: Oh, but watching YouTube is critical mass? The big hit is a million people watching a three-minute Lonelygirl? … And what’s next? Lonelyguy? So somebody puts up something really cool and it gets 60,000 viewers versus somebody just bought a 42-inch LCD, they’ve got 15 channels, or maybe even five over-the-air channels, and they’re dying to see something hi-def. They want something hi-def, and your commercial looks like crap. Where’s the better opportunity?
TVWeek: Well, the other thing I hear from other people is they are not particularly pleased that the set manufacturers in the HD industry have not marketed that really well. They’re claiming that so many people that have HD don’t even realize that they are watching HD television.
Mr. Cuban: That’s a self-fixing problem. How many people know how to watch picture in picture? Ok, how many people know they have a v-chip in their TV? There’s always going to be features that you don’t know yet, but the price point gets to …
You know, I started selling computers out of college … “Hey, people aren’t going to understand RAM, they’re not going to understand ROM. They can’t understand these add-on cards.” Then PCs got to the price point where it didn’t matter.
You can buy a 27-inch LCD for under $600, and those prices are dropping like that. Price points for LCDs are going to continue to drop, and then what happens in 2009? There’s the government-mandated transition to digital.
Now, what’s going to happen to Christmas before it? December of 2007. Do you know what’s going to start happening? In anticipation of 14 months later, every cable and satellite and whatever wireless comes along and TV manufacturer is going to start confusing the hell out of everybody, telling them that their TV’s going away if they don’t buy a new TV.
And that’s a huge opportunity for you guys to leverage it. But what’s going to happen? There’s nobody talking about opening new analog TV manufacturing plants. They’re getting out of the business. It’s here, it’s now. I can tell you what our Broadcast.com usage patterns were. And I can tell you when something is hot, it goes “schwoop” and then it gets normalized.
All of a sudden, this time next year, we’re not talking about huge growth rates. And particularly if YouTube gets shut down or hampered in any way. Let’s just say that Warner Bros. comes along and says, ‘We’re pulling our videos’ or ‘We’re not letting all user-generated videos go up that have our content,’ which pisses off all the user-generated video creators, so now all of a sudden the traffic is starting to decline.
All of a sudden, this time next year, it’s not a hot area anymore. And you can bet that’s what’s going to happen. You know, where’s it going to go from here? You think we’re going to go from 43 million YouTube viewers or whatever—half of which are users using it for free on MySpace.
You think those numbers are going to go up. Look at MySpace now. It’s not 18-year-old kids getting on it now. It’s 45-year-old guys and women getting on. I’ve had a MySpace page up for a while now. Slash Mark Cuban. Just because I wanted to learn. At the beginning, it was, “Hey, we’re huge Mavs fans,” and “Can I add you as a friend? I go to this school, I’m in this college.”
Now, people don’t lie to increase their age, people lie to decrease their age on MySpace. You’re getting people who are 40 years old; 45-year-olds that are now getting on. It’s getting so commercialized that what shocked me the most is that most of the accounts that are added to MySpace are commercial accounts.
All you guys setting them up for every character and every film and everything that you possibly do is the growth area. So it’s not what it seems. I think Ross at MySpace has done a phenomenal job. Taking Google’s money to support and subsidize the whole thing.
TVWeek: So you think that MySpace is ultimately a flash in the pan and the kids will be onto the next MySpace?
Mr. Cuban: No, I think that it just drags off. It becomes a very limited social network. So in other words, all my buddies that … if you look at kids in particular, college kids or whatever, it’s a great way for people just graduated to keep in touch. It’s a great way to post pictures and stupid comments and all that kind of stuff. All the things I would have done when I was in college.
It’ll be a constrained network. We’re not out exploring new people’s pages. It’s not like, “Hey, let’s see what new pages are out there.” It’s “Can I find old friends?” or “Where are my friends that I already know are on there and are going to be adding?” Or maybe it’s a band like it originally was. I think there will be commercial applications and I think there will be limited social networks. I don’t think it’s a new wave that changes how anything happens. They’re just Web sites, and they will go through the same trends and patterns that Web sites have for the past 10 years.
TVWeek: So in three or four or five years, it’s going to be something that we don’t know of today that …
Mr. Cuban: Oh, of course. I mean, Fox is going to do everything that they can to refresh it on an ongoing basis. And there’s enough of a user base that if it tails off, it’s kind of like broadcast television: It can start off here, but even here it’s bigger than anything else. So it’ll be a viable business. I’m not saying that MySpace is a bad place to be, like YouTube. Anybody who buys that is a moron. Totally different.
TVWeek: So if any of you buy it, he will actually say that in his blog, by the way.
Mr. Cuban: No. You’ll tell me I was right six months later, after you’ve gotten sued 50 times. Again, MySpace is what it is. It’s becoming so commercialized. When we come out with a new film, any character, every TV show. I think that’s how people are looking how to use it now. That’s the only thing they search for.
TVWeek: It’s interesting: The user-generated space and what people like and the idea that they like to do things for free and not pay for them. Where did all the millions and millions that were using Napster … where are they today? What are they doing today for music?
Mr. Cuban: Well, a lot of them are using iTunes because it’s easier. There is a value to time.
TVWeek: So they actually are paying for it now.
Mr. Cuban: Then, those people who have more time than money still are finding it online. All you have to do is Google “whatever.mp3” or Google BitTorrent for any movie and it’s out there.
TVWeek: MP3 is something you thought was going to disappear, right?
Mr. Cuban: It pretty much has as a commercial product. [At the] 1999 South by Southwest [event], I said MP3 as a commercial product will die because you can’t make it better, you can’t improve the compression. It is what it is. And you can’t add VRM to it. So Microsoft and pretty much everybody but eMusic has abandoned it as a commercial format.
TVWeek: Going back, do you not believe that people really want to make videos and put them up?
Mr. Cuban: Sure, for personal use. I mean, look, there’s all the wannabes, and it’s not like cable access hasn’t been around forever, and anybody and everybody in college and high school had a cable access show. It wasn’t hard to get carriage there and make videotapes or whatever.
There’s a perception that if I get it on the Net, it’s available to the world, so I can be a star. So, yes, people are always going to create videos and they are going to want to get in front of an audience. That will never change, particularly if the cost of tools continues to decline.
Still the majority is going to be, “Hey, I can make you sit in front of my home movie, or I can post it on our family Web site,” or the video equivalent of Flickr.
Look at the stuff on YouTube; it’s just free hosting. That’s its value. I’ve done it. It’s about putting stuff up, so user-generated content is not going away. But do you want your advertising dollar in front of Aunt Jenny taking video of her 3-year-old niece tap dancing?
TVWeek: You made an interesting point. You said that the networks and such are, for example, there was the “South Park” episode where Tom Cruise, about Scientology, was he not gay and all that. It was shown once on Comedy Central, then they yanked it, supposedly at the request of Paramount, their sister company, because he was in “Mission: Impossible III.” All this sort of rumored, nothing confirmed or denied. They let the people on YouTube leave it up there. It got a gazillion hits or whatever it was. And you said obviously NBC and others are doing it for promotion. That’s a good business reason to be up there, is it not?
Mr. Cuban: Sure, all Comedy Central has to do is go to their MySpace account and say, “Check out the Tom Cruise, you know….” and send people back to the Comedy Central site. Why would they put it on YouTube? There’s a value to video on the Internet, absolutely. Like I said, the majority of it is going to be watched during the day.
TVWeek: If you talk to people who have made deals with YouTube now, for instance NBC, they’d say we see X number of people using YouTube, so we want to promote our next show on YouTube.
Mr. Cuban: The bullshit factor in there is just go look at things that are put on their homepage and look at the number of views they get and then cut that in half as people sample it for 13 seconds and then go away from it.
How many people just watch the first three seconds of a YouTube video just to see what it is and then just shut it down? How many people have watched your own videos that you’ve posted like more than 10 times? Or made sure everybody you knew watched it? But go look at the homepage: “Hot cool videos.” Maybe you get 160,000 and you don’t even have an idea of which of those are real and which are not. And these are all short-duration videos.
TVWeek: Let’s turn to HD, which you mentioned. We had a piece this week. I don’t know if you had a chance to see it, about the fact that DirecTV has been sued. The court actually certified the class lawsuit. It’s not going to go to arbitration. What the issue is is the resolution. DirecTV, obviously, is important to the HD market. The question now is whether what they are providing to the public is actually HD.
Mr. Cuban: You know, it’s an interesting question. There are high-definition purists who have seen what high definition at its best looks like. So if you watch an over-the-air signal of CBS here in New York, you will see a full 1080i signal, and that’s pretty much as good as it gets for a television broadcast.
Then people who have subscribed to DirecTV, who get in addition to out-of-market channels, who get HDNet, Discovery, HBO, etc., aren’t now because DirecTV, and cable providers for that matter, don’t have enough bandwidth to fully deliver at full bandwidth. They are starting to compress. They’re starting to save so that they can add more channels.
So folks who have seen that compressed version don’t always like it. Some of the new folks who are buying it don’t know any different because they haven’t seen anything else, but to this person, it’s an issue. To me, it’s a transition issue because there’s different ways to skin that cat with MPEG-4. But the bigger moral of the story here is the pipes available to satellite. The amount of channels in high definition that could be broadcast in hi-def over satellite is limited by the number of satellites they can launch. So there is a finite number of channels. Because a high-definition channel takes, let’s say compressed, even 10 MBs a second and a standard-definition takes two to three MBs a second. To make it easy, let’s say a 4-to-1 ratio. So the long-term question so far as you all are concerned is: Is there going to be room for every channel on the cable or satellite dial to go to hi-def? And the answer is no.
Some people think going to hi-def is analogous to going from black-and-white to color. It’s not. It’s the equivalent of AM to FM. For those of you who are my age or older, you remember Top 40 radio was all AM. Those stations were dominant and thought that that would never change.
Then FM came along, and just like HD was just a secondary technology. Next thing you know it’s in cars, and now the AM stations are broadcasting in Farsi or talk radio. The same thing stands to happen with television. Is it feasible that a lot of channels right now can’t afford to go hi-def? Yeah. Is it feasible that a lot of the people you’re advertising on want to charge you based on a 90-million-user base, where they’re not going to give their analog slots up because it could impact their pricing if they go to hi-def?
So there’s going to be some fighting to stay in standard definition and some who can afford to do both, like Discovery and TNT have done, some that are unique to hi-def, like HDNet and HDNet Movies, then some who are just left out of the food chain completely, and there won’t be enough bandwidth for them.
And you as advertisers and the deals that you look at have got to take that into consideration. If almost every TV sold in 2007, pretty much every TV in 2008, and in 2009 every TV sold is in high definition, and by the way, standard-definition looks worse than those high-definition sets, are you doing long-term deals or buying ads without knowing that you’re going to be in the AM ghetto? The standard-definition ghetto with the channels that you’re buying?
That’s going to happen, and the networks are saying, “Oh, we’ll deal with it,” but one of the unfortunate realities, I don’t know if it’s unfortunate, in media today is that they’re all public companies, and they’re all squeezing every nickel. It’s not like 1999, where if they had announced the high-definition channel, the stock would go up $20. Now it’s a cost without an immediate return, and they’re afraid to do it.
Look at Viacom as an example. Talk about playing to the stock price. You know, CBS and MTV and that’s it. I think it’s going to be crazy, and you guys have got to be careful that you’re not putting your money somewhere where if you’re not already doing your ads in HD, you’re already at a disadvantage to any high-definition TV viewer because you’re hitting them over the head with, “Here comes an ad, and we’re not going to look as good as the ads in hi-def.” That’s only going to get more dramatic as more people use the technology.
TVWeek: Let’s do a little focus group. People with hi-def, raise your hand again. How many people are actually turned off when you see an ad that’s not in hi-def now? So, a lot of you.
Mr. Cuban: HDNet, we’re really trying to be a baby HBO or Showtime. We want unique programming that makes people say “Wow,” and that can be any number of things. Just like on HDNet or HBO, you’ll see “The Sopranos,” “The Wire,” and you’ll see “Pussycat Ranch” and “Taxicab Confessions.”
With us, we just hired Dan Rather and in October he debuts “Dan Rather Reports,” which we think goes back to “60 Minutes'” original roots, which is what Dan would call fearless reporting. We’ll have a show we’ll announce in January around Dennis Rodman. There’s a divergence there, but it’s our own version of “Queer Eye for the Straight Guy” featuring Dennis Rodman. Which in hi-def takes advantage of the hi-def palette.
You’ll continue to see us look for original programming that we think makes people say, “Wow, that’s something different than I’m not going to see anywhere else.” That leverages the palette. And then we also have the NHL, which sports we think benefits the most from high-definition television. I think hockey does in particular.
On the side where we license shows, we’re looking for shows that were critically acclaimed that had a great following, that people were passionate about, that maybe weren’t seen in hi-def, like “Arrested Development” or “Dead Like Me” or “Boomtown.” Shows that were critically acclaimed that just because they didn’t get the numbers, those networks didn’t keep them.
Then on the HDNet Movies side, we look for great movies that we license, but more importantly, in 2007 we’ll premiere day and date in theaters and on HDNet Movies—10 to 12 original movies, and that’s unique. There’s nobody out there that’s (a) premiering 10 movies-plus, and (b) that’s doing it day and date, so that you can go to a theater and see a movie or you can stay at home, for those of us who have kids and can’t get out. You can stay home and watch it on HDNet. We win either way.
TVWeek: To your point, more and more networks are repurposing their things and putting them on HD. Is that good or bad for you, by the way? More and more stuff out there, is it harder for you to be unique?
Mr. Cuban: No, I mean you either create great content or you don’t. You look at TNT in HD and they’ve got the NBA, and they’ve got “Law & Order.” They gear themselves to whatever drags in the best ratings for them and the demographics they want. We can take more chances. The final program decision is mine, so if I like a show, it takes two minutes for me to say yes, and if I don’t, it takes two minutes for me to say no.
TVWeek: [Addressing audience.] Is this encouraging for you to hear what Mark says?
Mr. Cuban: Well, you’ve got to start somewhere, right? Out of 21 hours of prime-time programming, 15 of ours are original. So it’s not like we’re not doing original programming. The problem is what you think is the best original programming and should be bought by everybody and what I think is always the challenge.
Audience member: You said earlier that you make provocative comments about opposing sports teams to build value for your own sports team, so are you now making provocative comments about YouTube to build value for your own HD broadcasting business?
Mr. Cuban: I wish I could. I wish there was some correlation between the two, but there’s not. The reality is copyright law is copyright law. I put up my own money to help support Grokster against MGM because I think copyright law is far too draconian. But we didn’t get what we wanted. And the reality is the reality.
I remember in the early days of Broadcast.com when we were still AudioNet. This is before the … There’s the Digital Millennium Copyright Act and before that there was the DCI: Digital Copyright Act, and it was permissible under the law for me to take any CD that I owned and put it up on what we called our “Celestial Jukebox” and just stream it. That was completely within the law.
And then they changed the law. And I had to take it down, and that was a big hit on the traffic. That was just the realities of the law. I’m not making any aspersions about YouTube in terms of their technology or anything like that. They’re just breaking the law. When we broke the law, people would call us and say, “Take it down or we’re going to sue you.” So we took it down. Would it be easy to re-create YouTube by taking copyrighted material from anybody and everybody and putting it in one central location? Yeah. Would it be easy to recreate it by subsidizing and hosting for millions and tens of millions …
Audience member: I’m a big fan of your day-and-date strategy. Can you talk about some of the obstacles you’re facing in the entertainment business as you try to go theatrical TV and DVD at the same time?
Mr. Cuban: Sure. We have a company called HDNet Films. We have a TV network called HDNet Movies. The charter of HDNet Films is to go out and produce as many great movies as they can and then release them in theaters, on HDNet Movies, and on DVD pretty much in the same time period.
The first movie we put out under that strategy was “Enron: The Smartest Guys in the Room.” It’s always nice when your first movie is nominated for an Academy Award. Which is hopefully good enough content. But the resistance when we announced the program and then we started really implementing on a wider scale with a movie called “Bubble” by Steven Soderbergh …
I was called the devil by the National Association of Theater Owners, and by M. Night Shyamalan, who called me out, this and that. Maybe he was just using me to promote something, which is fine by me. I’ve been used worse. But the problem is Landmark Theaters, which we own and play our movies in, so please go to the Sunshine. I won’t say anything bad about the Angelika. But theaters outside the Landmark chain, particularly the big chains—AMC, Regal, Lowes—have refused to play it because it’s day and date.
Now, our response to that is, look, the reality is you’ve got to work backward from the customer, not working backward from the way you’ve always done it. You know, we’ve all been in the situation: “I wanna go see that movie. Oh, it’s Friday night. I can’t for whatever reason. If I could watch it on HD Network I would, even if it meant paying for a subscription.”
If I could buy the DVD at a premium … You know, would I pay $29.95 to see it because I could see it here? Sure. So what we said to the theaters is that we’ll give you a percentage of the DVD revenue. That’s exactly what we did. If someone who bought an “Enron” DVD, if you were a theater that played it day and date, you got 2 percent. Basically based off a formula.
It was the same with “One Last Thing …” and “Bubble.” Good thing for the theaters is “One Last Thing …” We have a movie, “One Last Thing …” Go rent it. It’s Cynthia Nixon and Michael Angarano and Ethan Hawke. It just burst at the box office. It was terrible. But it’s been kicking butt at the DVDs and the rentals. It’s just blowing out the door, and so the theaters have made more money off the percentage of the rentals than they did off the box office. That’s been my point.
We’ve also made the point to the larger theater chains that on a day and date, you get to sell the DVD right there. So if you go see … we have a movie coming out Dec. 1 called “The Architect” with Anthony LaPaglia and Isabella Rossellini and Hayden Christensen. And another one right after that called “Diggers” with Paul Rudd and Lauren Ambrose. If you go see it in the theaters and you really like it and it’s Dec. 1 and here comes Christmas, we’re going to have the DVDs for sale right there for you.
So if you make $10 off a DVD as a theater owner, and you make $4 off admission, and you make $2.50 typically off all the popcorn and soda per person, you could make more money off the DVD than you do off of admission.
As much as we’ve tried to sell them on that concept, they’ve just been religious against the idea of it, and they’ve all gotten together and said as a trade organization and as an industry, we’re not going to support you. So that’s kind of a battle, but we’ll deal with it. As long as we make great movies, that just means more business for Mark Cuban.
TVWeek: But let me ask you a question from their point of view. Everybody goes—I mean, obviously Iger has mentioned that Disney would like to go in that direction, but everybody goes in that direction. If you’re making a dollar and now you’re only going to make 50 cents because you’re making a dollar on the admission plus the goodies that they buy at the concession stand, but now off the DVD release you’re only gonna make, you know, whatever, and everybody does that. Is it not really, in a real sense, hurting their business and they have certain visions and it may be—
Mr. Cuban: I mean, what the theater owners are saying what hurt them is that, you know, why go to the movies when if I can buy the DVD I’ll just stay at home and never go to the movies. I’m like, we can’t compete with someone’s couch, you know. Again, what business are you in?
Landmark is in the date business. It might be a date with your wife, it might be a date with your girlfriend, it might be, you know, hanging out with your buddies or your girlfriends, you know, we’re the answer to cabin fever. You gotta get out of the house at some point, even if you know all you have to do is wait for it to come on TV and not pay anything, yet people buy the DVD or rent it, or go to the movies.
And so what we’re trying to do is just say, look, not everybody is gonna want to experience it the same way at the same time. Let’s give them an option and you get to participate in all the options, whereas now theater owners do all the, you know, the theater owners take all the risk. If a new movie comes out, “Flyboys” comes out and it does X amount at the box office, well, if our theaters are empty, they’re empty. But that theatrical presentation helps sell everything downstream.
TVWeek: Right.
Mr. Cuban: And the theaters don’t participate in that at all.
TVWeek: Right.
Mr. Cuban: And we think because … we take as much risk as the studio. We put up the theaters like this, then make them available without any guarantees whatsoever. The studios at least know they have a decent shot at making their money back based off a DVD, TV, all the other exploitation.
TVWeek: But we’d still have the same number of multiplexes anyway if everybody went to day and date, you think?
Mr. Cuban: I think there might be a reduction of some, but I think that it would be a stronger industry as a whole because you have multiple revenue streams. And you can invest in movies, you can invest in the entertainment experience, you can, you know, one of the other issues the theatrical industry faces is mixed demographics.
If I’m going on a date with my wife, it’s not as much fun when “Saw 19” is playing right next to you and everybody is goth, out screaming and yelling or there’s the movie “Pirates” that I want to see, and half the audience is 16-year-old kids texting in the middle of it and the other half is parents who just want to watch the movie, you know.
And taking the cellphone away while you go in or trying to zap your cellphone is gonna keep parents away because they can’t get the phone call in case something’s wrong at home. So there’s a lot of issues that the theatrical industry has to address. Just burying your head in the sand isn’t the way to do it.
Audience member: Hey, Mark, how you doing? A couple of things. First of all, could you give your e-mail address again?
TVWeek: Do you know each other?
Mr. Cuban: We met before, yeah.
Audience member: Do we know? We’re old friends. Could you give your e-mail address again for those of us that want to contact you?
Mr. Cuban: It’s Mark, M-A-R-K @HD as in High Def, HD.net.
Audience member: Perfect.
Mr. Cuban: And if you forget it, just go to the HDNet Web site and it’s right there.
TVWeek: Great. OK, next question. For better or for worse, let’s go back to basketball for a second. For better or for worse, Bud Selig made the move from a team owner to commissioner of baseball. I mean, it sounds like from what you’re saying, you see some drastic changes necessary in the way the NBA is run, the way it’s managed, the way it’s promoted, the way it’s marketed. Is that something that you’re thinking about down the road?
Mr. Cuban: No. I think you just hire a couple of good marketers out of this room and we have, you know, we’ve got such … You know, you always look, do you have a great product and are the people who want to see your product … and then the question is why aren’t you reaching them. And you just gotta hire some people to help answer that.
TVWeek: So excuse me—I guess you’re done. You know, one of the things you always hear about—the NBA people say, “Well, you know, they’re still always looking the next Michael Jordan.” You think that’s just baloney?
Mr. Cuban: Yeah. I mean, when I look at how I’ve made my money, you gotta look and say, “Boy, did I have anything to do with the Internet stock market going up?” No, of course not. You know everybody is a genius in a bold market. And then you have to look at the NBA and you say, “Well, what happened when everybody started seeing Michael Jordan?” Well, cable came along, and so that gave people exposure to Michael, so it was the first time people outside of Chicago had really gotten a chance to see him.
You know there was one game a week or whatever on CBS, or the playoffs or finals were on, and that was it. And then what happened after that? Well, all of a sudden satellite came along, which created more opportunities to see, but then the other side of the sword, if you will, is that it created a lot of fragmentation, which everybody had to try to fight and that means there’s a lot more entertainment options and we can’t—it’s not about a given player.
LeBron James is great, you know, when he draws crowds, and yeah, there’s a bump when he’s playing on TV and there’s a bump when Kobe Bryant is play, or Shaq, or Kobe is playing Shaq, but it’s not like there’s another 25 million people who are drawn in to watch.
Could we get as many people to watch an NBA game every Sunday afternoon, as the NFL does? I think we could if we marketed it correctly. You know, people talk about our players, heck, look at the NFL, they’re all going to jail, you know, and no one cares. You know, call your coach great, that’s just more PR. It’s just—it doesn’t matter because you can just put your hand in your pants, get a beer, sit down on Sunday afternoon and you know it’s there.
TVWeek: Right.
Mr. Cuban: And they’ve levered that. And we haven’t.
TVWeek: I want to mention—we mentioned earlier about the big devices and the small devices. And clearly one of the things that’s interesting with the announcement that Steve Jobs made—obviously made such a success with his various I-products—is iTV … and we haven’t seen it yet. I know you’ve written about the fact that you use HP’s MediaSmart, which almost does that now. Do you think that we’re gonna see people doing a lot more home networking and networking between the small and the big devices and big-screen, small-screen?
Mr. Cuban: One of the natural evolutions of in-home technology is to connect it all together. The problem is nothing works and there’s no standards and, you know, I’ve said this before, if I was a kid coming out of college and I wanted to start my own business, I’d get into integrating home networks, connecting all the stuff together because, you know, I’m a geek and it’s a pain in the ass for me to try to hook it all together and it still doesn’t work, you know, and so it’s … someone’s gonna make a lot of money there.
And so until there are standards with enough bandwidth to pass things around, you know, it’s gonna be very, very difficult for it to be stabilized and then parallel to that you talk about copyright and you know all these HDMI … all these people are trying to protect their content, which is real stupid. I mean, you know they’re trying to protect against nobody.
And there’s this thing called the “analog hole,” right, that everybody’s fighting. If it’s analog coming out of video, then supposedly anybody can steal it. And they forget about the eyeball, you know. You got a hi-def television, you put a hi-def camera, which you can buy now for $799 and dropping like a rock in price, and at some point it’ll be the same $99 equivalent you buy now for digital video, you just put it on a tripod, put it in front of your TV and that’s what you’ll see.
So they’re trying to fight, you know, a battle they can’t win and so they’re overcomplicating things, I guess, to answer your question. So it’s gonna be a while before we see a lot of standard and full-home integration. It doesn’t mean people aren’t going to try.
And with what Apple is doing, I think the exciting part wasn’t the iTV, because there was nothing really super-special there. I mean, you can give Apple a lot of credit and their ability to sell or … What was exciting is that the iTunes interface is something that everybody has become trained on, which means while everybody is fighting over these programming guys and trying to come up with the best user interface, Apple is back-dooring themselves by getting people used to buying, selecting content and searching for content. And I forget what they call Movie Show or whatever—
TVWeek: Right.
Mr. Cuban: Like someone wrote, you know, it’s like flipping through the albums, those of you who remember having records, you know you had your own little way of flipping through to find what you wanted … That’s what they’ve re-created … and that could apply to a VOD universe, it can apply to live channels, it could apply to Internet, it could comply to anything and how they leverage the interface and whether or not they license them or not to me is the unique question.
TVWeek: Very good. In the back.
Audience member: A little off-topic, but I remember about a year ago, year and a half, you brought an initiative about a gambling hedge fund.
Mr. Cuban: Right.
Audience member: I was kind of curious where that went, what happened?
Mr. Cuban: It was actually a couple of years ago, and what I said was, you know, if you ever read what I write on the stock market, I think you’re better off going to Vegas more often than not. And I said, you know what, if you think about it, there’s more readily available information on sports teams than there are about companies to invest in, and I suggested that. And I said it in jest, but I got like a million e-mails asking me, you know, where could people invest. I haven’t even done anything with it, but there’s a couple of guys who actually have, and it wasn’t a business I wanted to get into, but it’s been interesting to see.
And one of the reasons it wasn’t—it would have been a challenge—is the issue of scale. You know, it’s one thing to place bets for a hundred or a thousand or even 10 thousand dollars; it’s another thing if you have a hundred million dollars, and that’s a whole different animal.
TVWeek: Speaking of controversial things, and you’re no stranger to controversy, a lot of what we do obviously in publishing is the church and state issue, obviously that’s important with advertisers, where to place their advertising, what kind of separations, obviously of product placement. And so those debates are always going on. You have something called Sharesleuth that I’d like you to explain for a little while, then I’ve got some questions.
Mr. Cuban: Well, I talked about investing in the stock market and that I think it’s more of a gamble than anything. I think individuals—I have this business lesson that someone taught me one time. He said when you go to the business table and look at any deal, you always look at the people that are sitting there, and you always look for the sucker. And if you don’t see the sucker, it’s you.
And all of us who have bought and sold stocks always forget that there’s somebody on the other side of the transaction. “Oh, I got this great deal, I’m gonna buy this stock.” Well, why are they selling it to you? And I think so many people get caught up in the marketing hype that, you know, “Oh, stocks are this great investment and you gotta be careful, let’s just leave it at that.” And so I was.
I’ve traded stocks a long time, 15 years, and done fairly well, and, you know, information is power. I only invest in things that I can get strategic leverage for or, you know, with my different companies, like I’m a big shareholder in Lions Gate Films because that helps HDNet. There’s strategic leverage there. One of the things that I’ll do from time to time, if there’s 10,000 public companies, not all of them are good companies, and so I got an e-mail from a gentleman by the name of Chris Carey, who was a business reporter for the St. Louis Dispatch and he goes, I’d like to start a Web site, we’ll work with you somehow, going out and investigating companies.
And so when we originally talked we thought, OK, we can create a Web site because I like the idea of having an investigative reporter because I can potentially leverage it for HDNet, you know, make it content for what Dan Rather is doing, make it its own show, whatever.
And we originally talked about doing that and creating a Web site and selling subscriptions, but then if you sell subscriptions you have to have all the infrastructure cost to go out and sell. And then when I looked at it and started looking at his first story which is about a company called Xethanol which symbol is XNL, I’m like, these guys are crooks. I don’t want to sell subscriptions.
TVWeek: And they do ethanol gas, right?
Mr. Cuban: Well, they pretend to, yeah. They pretend to—they say they’re going to, so let’s qualify it. They say they’re going to create gas from different materials other than corn, nontraditional materials. And so [Mr. Carey] put together this report on Sharesleuth.com, or he was going to, and I said the way to make money from this isn’t from selling subscriptions or sell advertising, it’s from just shorting the stock and using the information.
And so then we had a discussion. I said, well, I have the option of not publishing it and just using the information for myself or publishing the information and making it available to everybody. And the goal was that hopefully, you know, people will be warned off from this and so I was fine with it, he was fine with it, legally we were fine because we’re going to disclose everything. But there were a lot of people who got really upset by saying that this wasn’t journalism, this was, you know, a tell sheet and you know that’s fine.
TVWeek: Right. And make sure we all have it clear … so what happens is—Aaron is his name, right?
TVWeek: Chris, I’m sorry. So Chris does a report about the Chuck company, OK—
Mr. Cuban: Right.
TVWeek: And before it’s actually published, he’s going to show it to you.
Mr. Cuban: Right.
TVWeek: And you’re gonna look at it and you say this is a Chuck company obviously—
Mr. Cuban: Or it can be a great company, it could be an undiscovered gem, right.
TVWeek: Let’s say it’s got a lot of problems. So before you actually publish it, Mark would then short the stock.
Mr. Cuban: Right.
TVWeek: And that’s actually how you would fund the Web site, and there’s no advertising everything.
Mr. Cuban: Which is what happens every day in [unintelligible].
TVWeek: And then at some point later, the article would be published and if all goes according to plan, the stock would obviously go down and since you shorted the stock you’d do well. Needless to say, a lot of people thought this was a rather unethical venture of yours to do, but you’re gonna continue doing it and you don’t believe so.
Mr. Cuban: Well, no, it’s not unethical at all. I mean, if you just look at Wall Street, what do they do? Whether it’s short or long, they try to uncover information and in their particular case they’ll go on CNBC and say buy this stock, buy this stock and then hope the stock goes up. And then what’s worse is they’ll trade in and out.
In our particular case I go short the stock, in this case XNL, and then we wrote the article and I haven’t traded in and out. I think where people misunderstood and probably got more upset than anything else is thinking if the publication had a short-term impact on the stock, that I would use that short-term swing to get out.
And we published the article Aug. 7, I shorted it in May … the article was published Aug. 7 and I’m still shorting the stock.
TVWeek: And the stock had dropped like a stone.
Mr. Cuban: Oh yeah, because the people who invested in the company and started the whole thing were crooks. And it’s just that most people don’t do their homework, you know. Most people have bought stocks or you gave money to a mutual fund who bought stocks, not having the slightest idea about in-depth analysis or management. You just assume because it’s a Wall Street or MX or whatever stock, it’s all legit. Guess what, folks.
TVWeek: Well, let me ask you to go into that. OK, so let’s say I am a publisher of a publication, which I happen to be, and one of my reporters is doing a story about, you know—
Mr. Cuban: Same company, and you’re XNL and you get front cover—
TVWeek: Yeah, X whatever and it’s a public company, and I actually have asked to see the article before it’s published and we’re doing a report that’s going to be published in a month or two and I say, ‘My god, this is, you know, going to be a lot of trouble, I think I’m going to personally invest and short the stock and then actually I might sell it right away. But is that OK?
Mr. Cuban: You’re going to jail if you do that. You’re going to jail. Because the difference is the expectations of your subscriber and what they’re paying you for and your advertiser. So your subscribers are saying anything you uncover we want equal access to all other subscribers and that’s part of the value that we get in subscribing to your publication.
TVWeek: We would have actually subscribed to it, but I had shorted it before we published it.
Mr. Cuban: And what I’m telling you [is] because you worked for the company, then that would be considered you not fulfilling your fiduciary responsibility to your subscribers.
TVWeek: OK.
Mr. Cuban: Whereas with us, we don’t have these subscribers, we’re nothing but what we say we are. We’re telling you we’re going to go look for companies, I’m gonna trade on that information and we’ve chosen to tell you why, which is disclose the information I’m using to trade.
As opposed to saying I’m starting a publication, I’m doing any number of different things, I’m taking in subscribers and, oh, guess what happened to me, you know, I just found—uncovered this through one of our reporters. So behind the scenes I’m not going to trade on this company. And there’s a guy named Foster Winans who worked at [unintelligible] who got in trouble for the same thing.
TVWeek: So were you surprised at the number of people who were upset at this unconventional arrangement?
Mr. Cuban: No, I mean the people who are in the industry had no problem with it, it was all the media analysts that, you know, made a big issue out of it and so, you know, that’s fine. Right is its own defense.
TVWeek: OK, very good. Yes? Right here, the microphone.
Audience member: Hi, Mark. Something you were talking about earlier, the distribution of hi-def channels. Can you comment on the challenges you face for HDNet and your competitors, notably the Voom networks, on getting coverage in distribution on the cable channels, given that there’s a duplication of some of the programming that the operators already have and the bandwidth issues.
Mr. Cuban: Well, I mean, distribution is distribution and HDNet is already on Direct and Dish [Network], so it’s not a satellite issue. And we’re on everybody but Fox, Comcast and Cable [unintelligible]. And, you know, we’re making headway with several of those.
And so for us it’s—you know, we don’t see our programming as a duplication of programming. We only serve one master, so we’ll take the NHL as an example. You know, the new Versus has an NHL contract, but they don’t have an HD version. And so we’re completely different than what they do. Now they use—sometimes we’ll have special channels to get some HDL, but it’s not competitive at all.
Our original programming is, you know, it’ll have to stand on its own. And so we have to generate enough demand to make it worthwhile for distributors to carry us and keep us. You know, the perfect example is something so simple that but it’s so amazing is we went out and locked up the exclusive broadcast rights for the space shuttle for four more years. So if you want to see the space shuttle in hi-def—you can see it in standard def, CNN, anywhere—but if you want to see it in high definition, you have to watch it on HDNet. Just little things like that, you know.
You’ll just see us continue to raise the bar. We’re 5 years old. You know, if you look at a timeline for HBO, we’re way ahead where those guys are and it’s a different era, obviously, but you know, we’ll keep on raising the bar. Unlike other networks, it’s my money. I’m not beholden to shareholders to hit an earnings-per-share number and it’s something I’m committed to, and so we’ll keep on reinvesting in content. I mean, there’s nobody else doing 10 to 12 original movies. And there’s certainly nobody else doing those 10 to 12 original movies and releasing them in the theaters. And so we think there’s a lot of unique things—and those 10 to 12 are available for sponsorship, by the way.
TVWeek: I want to ask something—about the Rather thing you had mentioned, it’s very interesting. Obviously, Rather is a lightning bolt, as we know, which is probably good [unintelligible], and I’ve just spelled the name right, right?
Mr. Cuban: But Walter Cronkite—Lyndon Johnson once said, you know, when he lost Walter Cronkite is when he lost the country for the support of the Vietnam war. And Walter Cronkite coming to everybody’s home and of course huge shares in those days, and night after night, you know, showing these images from Vietnam. … I’m wondering if you think there’s a political component to what Rather is going to be doing. If Rather is my wrath and showing, you know, things that we might be seeing on the news now, but it’s in high definition and if you’ve ever—I urge everybody—who haven’t been in anybody’s home or seen a demonstration at a Circuit City, you should really go into hi-def.
Or if you want a sample, you can go to our Web site and we have what we call our World Report, which is the only high-definition news feature show, and we have downloads there. [It’s in] Windows Media format for HD so you can experience it. It really is a real—it’s such an overpowering visual and aural experience—listening experience. You think there actually might be some, you know, if you’re going to be sending Rather to these spots and actually that will have some effect if people are watching …
TVWeek: We’ll do one more question, and this time has really flown by this morning. Yes sir.
Audience member: [Unintelligible.]
TVWeek: The question was, what’s the tradeoff in terms of if there’s a fine item out of bandwidth and there’s not enough bandwidth to go around for all programmers, how’s that going to impact the dynamics for the distributors in the networks they carry to choose the distributor? Did I say that right? And the leverage between the two?
I think it’s going to be back to the future. If you remember back 10 years ago, when Fox News first came on, there was a big to-do because they had to pay $10 a head to get carriage because we were in an analog world and there wasn’t enough bandwidth to go around. Will we go back to that situation where distribution and bandwidth for a high-definition feed is going to be ocean front property?
Mr. Cuban: Absolutely. Absolutely. So the strength is going to switch on over because if everybody wants hi-def programming and you’re still in standard definition and there’s not bandwidth for you, what are you going to do? That’s one of the beautiful things about HDNet right now, you know, yeah, we’ve got approaching 4 million subs, maybe past that by now, but compare that to Showtime, HBO, their higher-end subs, and we can make a pitch there. But we’re one of just 15 channels on every network we’re on, 20 at the most. And so we’ve got researchers who said, you know, 16 percent of subscribers watch us at least once a week and almost that many watch us every day. There’s no one else who can say that. There’s no one else in the 20-channel universe. That’s incredible.
And so we’re leveraging that because we know we’ve got that oceanfront property, and so that’s why we’re willing to spend [unintelligible] on our programming and do it sooner, rather than saying, OK, we got to get to 80 million subs or 50 million subs before you can really make an investment.
TVWeek: I just got a text message from David Stern, who said he doesn’t know what you said, but he’s mad as hell and he’s going to talk to you about it.
Mr. Cuban: Good. Thank you very much.

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