A Mogul Broadcasts His Morals

No signs here bear his name, but 76-year-old John Rigas, founder and patriarch of Adelphia Communications Corp., the nation’s sixth-largest cable company, rules this hamlet on the New York-Pennsylvania border like a feudal lord.

He offers jobs to all comers and lends money to hard-luck cases who seldom pay him back. He owns more than two dozen local buildings, 10,000 acres of farmland and the movie house across from the village square. The old brick theater features strictly wholesome movies, and Rigas closed the balcony years ago to curtail necking by teenagers.

Now, Rigas is bringing his father-knows-best morality to Southern California. Since entering the Los Angeles cable market in late 1999, Adelphia has purged its systems of sexually oriented channels, alarming First Amendment advocates and bucking an industry trend.

Adelphia, which has about 1.3 million customers in the Los Angeles region, is the only one of the nation’s eight large cable companies that lacks adult programming, which is highly profitable and growing fast. Revenues from channels such as Spice, the Hot Network and Playboy are approaching $1 billion, up nearly fourfold since 1998.

Rigas’ moral stance is an outgrowth of his small-town upbringing in a region described by some locals as the cultural equivalent of northern Appalachia.

But Rigas also is a throwback to cable’s beginnings, a vestige of the pole-climbers who brought television to the hinterlands and whose folksy ways of business seem destined for extinction.

He is one of the last cable pioneers standing after an industry consolidation that saw fellow entrepreneurs such as Denver’s John Malone and Los Angeles-based Marc Nathanson sell out, landing some of them on Forbes magazine’s billionaire list for the first time.

Eight major operators, led by AT&T; and AOL Time Warner, control more than 85% of the nation’s cable subscribers.

But Rigas, firmly entrenched as chairman, chief executive and president of Adelphia, vows never to part with his beloved cable systems and is grooming his three middle-aged sons to succeed him.

Slight, stooped and standing barely more than 5 feet tall, Rigas is on a crusade to prove that rural America can compete in a fast-paced media world dominated by global giants.

At lunch at the Crittenden Hotel, one of several local eateries where Rigas has installed telephones because cell phones don’t work in these rural parts, the soft-spoken entrepreneur says he’s carrying the torch for cable pioneers who long shunned adult programming as an unnecessary evil.

“I’m on a mission as long as I can be to make sure cable will succeed and to realize the hopes of the cable pioneers who were my mentors,” Rigas said.

And so, soon after acquiring Century Communications Corp. in 1999, Rigas pulled the plug on Spice, the only adult entertainment service on that company’s system.

In addition, last fall Adelphia dropped five local public-access programs, including “Colin and His Sleazy Friends” and one by Dr. Susan Block that had aired on Century for eight years featuring bare-breasted women and genitalia shots.

“This old-fashioned moralist from small-town Pennsylvania is trying to dictate programming to open-minded Angelenos and is flouting the rules of public access,” said Block, a Yale-educated sexologist. Block said Adelphia has agreed to run her program, audio intact, now that she is blacking out the visuals with a message to viewers to complain to Adelphia.

First Amendment defenders say cable companies can refuse to carry adult entertainment programming like Spice, but can bar only obscene and commercial material from public access channels they are required by law to provide.

“What Adelphia is doing is illegal,” said Peter Eliasberg, a staff attorney at the American Civil Liberties Union of Southern California who reviewed Block’s tapes. “Just because something has sexual content doesn’t mean it’s obscene.” Eliasberg said the ACLU is researching the case.

Sticking With Tradition

Rigas winces when asked about Spice. Last fall, the company explained the move as a “business decision.” But during an interview months later, Rigas said he’s just not comfortable airing programming that conflicts with his moral code. He said the decision is part of a cable tradition.

“The early pioneers made a conscious decision that we didn’t need that product,” he said. “In the last five years, as cable has embraced more adult programming, we’ve never spent time thinking about reversing our decision. . . . It’s not going to make a difference in our survival.”

Rigas said he was taken aback by the national attention when Adelphia dropped Spice in L.A.

“We’ve done that for years in other places, and it was no big deal,” he said. “We’ve had letters from all over the country thanking us for taking that kind of stand.”

Not so thankful was Spice’s owner, Playboy Enterprises, whose chief executive, Christie Hefner, flew to central Pennsylvania twice last fall, showing up the second time on Rigas’ birthday in late November.

“She came out to make the point that it’s more acceptable now and that we are bucking the trend and could we reconsider,” Rigas said. “But we are not changing our position.”

Hefner described Rigas as “delightful” and “impossible not to like.” She is still hopeful for a change of heart.

“The opening up of channel capacity and the [improved] security provided by digital presents a compelling reason to carry it,” she said, adding that competitive pressures present another reason. Adelphia’s two satellite rivals--DirecTV and Echostar Communications’ the Dish Network--devote multiple channels to adult programming.

The economics are persuasive too. Based on typical cable rates, Adelphia could be giving up an estimated $12 million to $25 million a year in revenue, depending on its conversion to digital technologies that make ordering easier and more secure. Of the $6 that customers pay for Spice on pay-per-view, cable operators generally keep 85%. They keep only about half the revenues from regular $4 pay-per-view movies.

The business wasn’t always so complicated.

The son of Greek immigrants, Rigas grew up 40 miles north of here in Wellsville, N.Y., where his family lived above their bustling Texas Hot diner that Rigas’ brother Gus still runs today. Known in high school as “Johnny Hot Dog,” Rigas served in World War II and was among the troops who landed at Normandy.

In 1952, at age 28, he tried his hand at being an entrepreneur, buying the Coudersport Theater with the help of relatives. A traveling movie salesman who taught Rigas the ropes hounded him that year to buy the local cable franchise as a hedge against the advent of TV. Working at Sylvania Corp. as an engineer by day and popping corn and selling tickets at night, Rigas scraped together $300 to secure the cable license.

“My account was overdrawn, and I wrote out another check that made it even worse,” Rigas recalled. “Somehow . . . we got the franchise. I figured I’d just put it in a drawer and forget about it.”

Two weeks later, investors including a state senator arranged a $40,000 loan to build the cable system. “I’ve been leveraged ever since,” Rigas said.

By the late 1980s, Rigas’ three sons had returned home to join their father in business after getting MBAs and law degrees at Ivy League schools. They pushed expansion.

Today, Adelphia is a $7-billion empire that includes the cable company, a national telephone business, the Buffalo (N.Y.) Sabres hockey team and three private jets.

Its boldest bet was the October 1999 purchase of Century, Los Angeles’ largest cable provider and the highlight of a $12-billion shopping spree that doubled Adelphia’s size to 5.6 million subscribers.

The $5.2-billion acquisition catapulted Adelphia from small towns and cities close to home, such as Cleveland, Pittsburgh and Buffalo, into locales two time zones away that are more geographically and ethnically diverse than anything else in its portfolio.

Today, Adelphia serves Southern California communities in the Inland Empire, Lancaster, Palmdale, Oxnard, Simi Valley, from Eagle Rock west to Pacific Palisades and south from the coastal communities into Orange County.

In short order, Adelphia reversed Century’s poor service record in Southern California. Employees got raises and training. The company is rolling out digital services that other cities enjoy. Customer complaints have dropped dramatically, despite Adelphia’s controversial strategy for pricing HBO that could force some customers to pay an additional $10 a month for service.

But with the expansion, Adelphia, which is traded on Nasdaq, became mired in debt.

Though Adelphia has the highest profit margins in the business, it has lagged behind the industry in upgrading its systems for popular digital services because it is “tapped out in borrowing,” said Tom Eagan, an analyst at UBS Warburg. “That’s why it is our least favorite cable stock.”

Adelphia has taken a far bigger drubbing in the stock downturn than its cable brethren. After reporting Monday that losses widened in the fourth quarter, Adelphia’s shares dropped $2.81 to $37.69. They are down 27% for the year. By comparison, third-ranked Comcast Corp.’s stock has dropped 1% this year.

Many industry executives are betting that Rigas’ sons will sell out when their father dies.

“People have been predicting that we would sell for the last 10 to 15 years,” scoffed Michael Rigas, executive vice president of operations at Adelphia.

The sons acknowledge that there are drawbacks to running a high-tech business from rural Pennsylvania. Michael said one difficulty is recruiting the best and the brightest to Coudersport, a sleepy town of 3,200 people.

The situation can be even more frustrating for partners, who complain of the slow pace of completing even the most routine business deals with Adelphia.

“They have a small-town mentality and a distrust of outsiders,” said one Wall Street source.

Employees and industry executives affectionately make jokes about “Rigas Time,” a reference to Rigas’ habit of being 45 minutes late to meetings because he’s shooting the breeze in a parking lot or down the hall.

“He never wants to leave a conversation until the [other party] feels good,” said Spencer Kaitz, president of the California Cable Television Assn.

Staying Close to Home

The wearisome trek to “Coudy” is also tough on big-city executives who come calling on Rigas in a time-honored tradition that is part of the cable industry boot camp.

Peter Ligouri, president of News Corp.’s FX Networks, said he’ll never again visit the company during the winter--and not just because of the grueling flight from Los Angeles to Pittsburgh, followed by another leg on a private plane to Wellsville.

That’s just the beginning.

“We wound up in this complex of barns, in a room with all these old jukeboxes and dogs in dog beds,” said Ligouri of a trip about a year ago. “We’re served baloney sandwiches on white bread, and after this intense meeting, we get stuck in the snow and I have to push the Jeep in my dress shoes. It’s a gray day, about 10 degrees, and we end up walking a mile in the freezing cold because cell phones don’t work there, so we can’t get a ride. We almost miss our plane, and I’m nearly stuck in Pittsburgh because when I get to the airport, I realize I’ve lost my wallet in the snow.”

But Ligouri said he admires Rigas’ convictions. “I can’t damn anyone who is true to his values and forgoes certain profits as a result,” he said, adding that he also marvels at Rigas’ dedication to his roots and Adelphia’s hometown.

Rigas treats the 1,600 employees here, who commute from areas as far away as 60 miles, to movies at the Coudersport Theater and six tickets a year to Sabres games. Every Christmas, he hires New York’s Rochester and Buffalo philharmonics for a lavish Christmas party.

That’s not to say there isn’t grousing about the higher prices and housing shortages growth has brought.

“Some people complain about the traffic and development in town because they live here for peace and quiet and because money doesn’t mean much to them,” said Richard Long, who owns the Westgate Inn, which has expanded twice since 1994 to accommodate Adelphia’s growth.

“But all in all, Adelphia has been a plus because people have to make a living,” Long said. “And it’s not just Coudersport that’s benefited. The entire region, from Buffalo to Pittsburgh, has been touched by Adelphia’s expansion.”

Long and others in town said Rigas is a benevolent caretaker. “He does a lot of things to help, quietly, without people knowing,” Long said. “When people need something, the first place they go is to John. When they wanted the Little League field, John gave them the money.”

Rigas had one of his drivers devote a year to shuttling an employee who had cancer to treatments in Baltimore, Rochester and Buffalo. His habit of buying out destitute farmers has put 10,000 acres in his hands, some of which he has turned to Christmas tree, maple syrup, honey, sunflower seed and timber production at what one of his sons said is a “substandard investment return.”

“Rural America needs help and encouragement,” said Rigas, who helped finance a new medical center in town. “We have an opportunity to make a statement. It gives me great satisfaction to see children who left 20 years ago coming back for high-paying jobs at Adelphia.”

Some locals believe some operations could eventually migrate to surrounding cities such as Pittsburgh and Buffalo, where Adelphia already has expanded.

But they think the company is safe in family hands, even when Rigas dies.

“If the boys get rid of Adelphia,” said Dean Abel, a company driver, “the people who work there will tar and feather them and run them out of town.”