00:00:00Jeffrey: This is They Create Worlds, episode 258.

00:00:03Jeffrey: The Shenanigans of CUC Software.

00:00:06​[Intro Music - Josh Woodward - Airplane Mode] One, two, three, four...

00:00:08If anybody wants to find me.

00:00:13I'll be in the last place you would look.

00:00:18In a place where people used to be.

00:00:21A land that's called reality. You'll find me there.

00:00:28Jeffrey: Welcome to They Create Worlds. I'm Jeffrey and I'm joined by my co-host Alex.

00:00:33Alex: Hello!

00:00:34Jeffrey: We join you from our epic trek into Europe.

00:00:38Jeffrey: Because we wanted to learn about Vivendi, and all of the games that it made.

00:00:44Alex: Well sort of. I mean yes, Vivendi is a French company, but they didn't really make games there.

00:00:51Alex: They made public utilities there, but they sure did buy a lot of game companies and other media companies in a very short period of time to create something of a Frankenstein's monster that could not hope to survive.

00:01:05Alex: But Jeffrey, we're not talking about any of that today.

00:01:08Alex: Because you can't talk about Vivendi games without talking about its prior incarnation, CUC Software.

00:01:18Alex: And you can't talk about CUC Software, Jeffrey, without talking about some of the most ridiculous accounting shenanigans that ever shenaniganed.

00:01:27Alex: Not just in the video game industry, but anywhere, because at the time it was the largest accounting scandal in history until the real big boys like Enron said "Hold my beer," a few years later.

00:01:41Jeffrey: So not only do we get to learn about video games, we get to learn about shady accounting practices and how people manipulate books in order to build financial empires that collapse and destroy the lives of poor defenseless people?

00:01:56Alex: That's exactly what we're doing all in the name of video game history.

00:02:01Jeffrey: That sounds like a loaded thing.

00:02:03​[Alex chuckles]

00:02:03Jeffrey: How about I do something safer, like talk about DragonCon that's coming up here in September?

00:02:09Alex: Oh, oh, yeah, we could talk about that.

00:02:11Alex: Fresh off of our recent excursion to Milwaukee, the Midwest Gaming Classic, we will once again be returning, as we always do, because I kidnap Jeffrey and throw him in my trunk, to Dragon Con, my home away from home.

00:02:30Jeffrey: ​[Dramatically] Let me out! Let me out!

00:02:32Alex: Uh, we asked to come back again and either they love us or they're afraid of us because they've said we can come back again and give another video game history panel. We still need to get the last one up. I've haven't given Jeffrey my footage yet.

00:02:46Alex: My bad.

00:02:47Alex: But uh, we will be this time, most likely doing the Dragon Quest series, something we've already done on the show here, but it's the 40th Dragon Con.

00:02:58Alex: And it is the 40th anniversary of Dragon Quest.

00:03:02Alex: They both have dragons, they are both beloved by me, and they're both turning forty, so match made in heaven.

00:03:09Jeffrey: We'll go with that. We'll definitely go with that.

00:03:11Alex: As always, we won't know exactly which day of the show we will be on until closer to time. It is usually Sunday because we request something later in the week for Mr. Jeffrey's sanity or whatever is masquerading his sanity within his mind at this point.

00:03:26Alex: But we of course won't know the actual time of it until like two weeks before the con, but if you are planning to come to DragonCon, keep an eye out for us and uh, maybe come say hi at our panel. We get a good turnout.

00:03:38Jeffrey: It always amazes me how many people do show up to us talking about video game history.

00:03:43Alex: You know, when you consider there's like 75,000 people there, it's technically a very small number of people that show up.

00:03:49Alex: If that makes you feel any better.

00:03:50Jeffrey: Sure, we'll go with that. [Alex laughs] It's a small intimate conversation about video game history. [Alex - Indeed.] Not one of those big stage things that are scary.

00:03:59Alex: That's right. No ballrooms for us. [Chuckles]

00:04:02Alex: But before we can enjoy the wonders of DragonCon, we have to bask in the horror of accounting fraud.

00:04:11Alex: With our good friends at CUC Software, which I'm sorry.

00:04:16Alex: It's CUC, which I would pronounce cuck, okay? I know.

00:04:19Alex: I know. I'm hip to the times.

00:04:22Alex: But I didn't name it, okay? It's cuck software.

00:04:25Alex: I'm sorry.

00:04:26Alex: Ethan, friend of the show.

00:04:27Alex: I'm sorry.

00:04:28Jeffrey: No comment.

00:04:29Alex: ​[Laughs]

00:04:30Jeffrey: Okay, so we have CUC Software, it eventually becomes Vivendi Games.

00:04:36Jeffrey: Somehow it is also a French utility, because when I think video games, I think of Electric utilities,

00:04:44Alex: Of course. [Chuckles]

00:04:46Jeffrey: I need to add electricity to play my game, so how does an electric utility get in the video game through CUC Software?

00:04:55Jeffrey: And then decide, you know, that name just leads to shenanigans. [Alex chuckes] We'll just call it Vivendi.

00:05:01Alex: Well, that's actually the story of our next episode, Jeffrey. We're not going to touch the French general utility company that would become Vivendi today, but we are going to take an in-depth look at CUC and some of the well-known game companies it scooped up along the way.

00:05:19Alex: There'll be some video game history in this, not as much maybe as some of our episodes, if you're thinking of video game history, specifically in terms of people directly working on video games, but it's a huge story in video game history that helped redefine a large part of the business.

00:05:37Alex: It is still a very worthy subject. Maybe in some ways a tangent, but when are we not ready for a big tangent at They Create Worlds?

00:05:46Jeffrey: Just look at the last 257 episodes.

00:05:48Alex: So many episodes.

00:05:51Alex: So many hours.

00:05:53Alex: Uh anyway. But today we are on episode 258, talking about CUC Software. And we cannot talk about CUC Software without talking about the company behind it all, CUC, or I'm sorry, cuck.

00:06:10Alex: Just it's CUC. I can't help it. I didn't name it.

00:06:13Alex: Anyway, moving on.

00:06:15Alex: The company CUC was actually not always CUC.

00:06:18Alex: That is short for Comp-U-Card.

00:06:22Alex: Comp C O M P hyphen, capital U, hyphen, Card.

00:06:27Alex: Because the company was originally founded in 1973 as Comp-U-Card of America, Incorporated.

00:06:36Alex: The company itself is actually kind of interesting.

00:06:39Alex: There's some myths that have grown up around it.

00:06:42Alex: It's hard to pierce all of them with all the financial shenanigans that went on. But what we do know is that the company was founded in 1973.

00:06:52Alex: It was founded by a group of Harvard. Folks. That we don't have the names of.

00:06:59Alex: So I mean I'm sure they exist somewhere, but I've looked. I haven't been able to find the names because the person who ended up running the company did everything he possibly could to bury the fact that there was anyone there before him.

00:07:10Alex: Which means that in newspaper profiles of the company of which there are many.

00:07:15Alex: The names just don't show up.

00:07:17Alex: It was founded in 1973 by a group of Harvard people, alternately referred to in the few press articles that deign to mention them as Harvard MBA graduates or Harvard professors.

00:07:30Alex: One or the other, but they were Harvard people.

00:07:32Alex: Who got to talking about the future of retail in America and thought that computers may have a role to play in it in one way or another.

00:07:42Alex: Now again, there's been a lot of mythologizing about the early years of the company.

00:07:48Alex: In later years, the individual who would end up running the company for most of its existence, one Walter Forbes. says that from the very beginning the idea of this company was to do shopping over networks.

00:08:03Alex: Computer shopping retail.

00:08:05Alex: Basically Amazon before Amazon.

00:08:07Alex: I'm skeptical that that's true.

00:08:11Alex: Because Forbes would say a lot of things about a lot of things to try to get all of the investment money.

00:08:17Alex: The company did not tried to do anything in computers for its first six to seven years of existence.

00:08:25Alex: I don't think online shopping was what they were about. However, the company was Comp-U-Card from the beginning. The comp does stand for computer.

00:08:33Alex: So I do think that they were interested in using computers, but not in terms of individuals using them to shop.

00:08:41Jeffrey: Now this is past the point where we have credit cards.

00:08:44Alex: Yes, we do.

00:08:44Jeffrey: Maybe they thought that, hey, maybe I can use computers to process credit cards.

00:08:49Alex: Well no, not yet. It's not that either.

00:08:51Alex: So here's what the original business model of Comp-U-Card was.

00:08:55Alex: I mean this is documented fact.

00:08:57Alex: Forbes claims that they were always thinking of computers, computer shopping, even when they were doing their original business model, I'm skeptical.

00:09:05Alex: But we do know what the original business model was.

00:09:08Alex: Basically, they had a giant database that they created.

00:09:13Alex: They went around to various manufacturers of various types of products, like all types of products.

00:09:20Alex: I don't know exactly what's in their catalogue, but I mean, you know; furniture, and appliances, and Kitchen doodads, and I mean just a whole huge database of stuff.

00:09:34Alex: Then they would allow customers to make use of their database.

00:09:41Alex: Through a call in service, you know, calling on them on the phone.

00:09:45Alex: For a membership Fee.

00:09:49Alex: A fee that was, I believe, technically monthly, but was all paid up. front on an annual basis.

00:09:56Alex: Twenty five dollars at the start of the company.

00:09:59Jeffrey: What kind of data was in this database? Just item descriptions, item names, pricing, averages?

00:10:05Alex: Yes. Items and pricing.

00:10:08Alex: What Comp-U-Card's model was is eliminate the middleman. The retailer.

00:10:15Alex: The way retail works is you have a creator of something.

00:10:20Alex: They create it. They sell that to a wholesaler or a distributor.

00:10:25Alex: The wholesaler or distributor then sells those products on to a retailer. Add a markup.

00:10:33Alex: And then the retailer adds their markup so that they can make a profit. I think it's generally said that Items double in price at each step of the chain. I mean, I'm sure that's not linear across all products, but generally speaking. Items double in. price at each step of this chain.

00:10:50Alex: Comp-U-Card's idea was to eliminate the wholesaler.

00:10:54Alex: They're gonna make most of their money on subscription fees to customers.

00:10:59Alex: So they don't need to do a large markup on the products they are representing.

00:11:05Alex: What they would do is they would have this huge database of products.

00:11:08Alex: A person could call in and say I'm in the market for a refrigerator with these features.

00:11:16Alex: Or I went to the store and I looked at the refrigerator that is this model number.

00:11:23Alex: Do you have what I want, and what are you selling it for?

00:11:28Alex: And they would say, like, "Okay, yes, we do have that model," or "Yes, we do have a refrigerator that's such and such size and includes an ice maker," or you know, whatever.

00:11:37Alex: Comp-U-Card would take just a 3 to 4% cut, rather than a wholesaler's typically much larger cut, on the item, and then have it direct shipped, factory shipped, to the customer.

00:11:51Jeffrey: So they are effectively doing drop shipping [Alex - "Mhmm"] before that became a popular thing and they're doing it over the phone. And I take it it's not just retailers that could do this. This is Customers in the form of I as a regular everyday American consumer can just pay this fee and go I want to buy this, I want to buy that. And I don't want to go to a store.

00:12:11Alex: Yes, it's all everyday consumers. They're not marketing this to retailers.

00:12:14Alex: It's all everyday consumers.

00:12:16Alex: They're cutting out the middlemen and allowing everyday consumers to essentially deal direct with the factory.

00:12:24Alex: Which in this day and age before widespread computer networks.

00:12:28Alex: The average person could not do.

00:12:31Alex: The most comparison shopping you could do is go around to all of the stores in your town.

00:12:37Alex: And if you're feeling really adventuresome, maybe even the next town over.

00:12:40Alex: And see what everyone is offering a product for.

00:12:43Jeffrey: I would argue that the closest thing would actually be the Sears catalogue.

00:12:46Alex: The thing is though that even the Sears catalog, that's put out by a retailer. [Jeffrey - "Mhmm."

00:12:51Alex: It still has all of those markups.

00:12:53Alex: So, yes, you can buy from Sears, and Sears may even ship it directly to you.

00:12:59Alex: But they're still the retailer.

00:13:00Alex: So you're still paying retail prices.

00:13:04Alex: This is paying virtually wholesale prices.

00:13:07Alex: Because they take very little markup. They just take 3 to 4% of the sale.

00:13:12Alex: Because they're making their money through membership fees. You have to have a subscription to do this.

00:13:18Alex: You pay for those subscriptions annually.

00:13:20Alex: That's the idea.

00:13:21Jeffrey: Do you have a ballpark idea of how much the subscriptions cost?

00:13:26Alex: In the beginning it was twenty five dollars.

00:13:28Alex: It went up a a little over time. By the mid eighties it was thirty dollars.

00:13:32Alex: And I'm sure it went up again some from there because inflation is a real thing.

00:13:36Jeffrey: Oh, now I have to pull out my inflation calculator again.

00:13:39Jeffrey: So according to mister Inflation Calculator, we're looking at roughly A hundred and fifty eight dollars today.

00:13:47Jeffrey: So yeah, that's actually in line with roughly what we would say for say Amazon Prime or something like that.

00:13:55Alex: Exactly.

00:13:56Alex: Just like modern subscription services, mister Jeffrey, they automatically renewed if you didn't cancel.

00:14:03Jeffrey: Once you got them hooked.

00:14:04Jeffrey: That's the business model of so many things.

00:14:07Jeffrey: Where it's easy to sign up and it's a pain to unsubscribe.

00:14:13Alex: Exactly.

00:14:14Jeffrey: So many gym memberships are a nightmare like that.

00:14:18Jeffrey: Just about everything is.

00:14:19Alex: Yeah.

00:14:21Alex: The company was established in 1973.

00:14:25Alex: It was funded by a company, a local Cambridge, Massachusetts company, by the name of Management Analysis Center.

00:14:36Alex: Which was a consulting group.

00:14:38Alex: They had a lot of trouble finding takers, people that agreed that their business model was going to be success. Finally, this company Management Analysis Center put up the money to get it started. In return for a 45% ownership stake in the company.

00:14:53Alex: Two years later, Management Analysis Center bought the remaining share of the company. And so in 1975, it was wholly owned by this consulting group that in this case was acting essentially as a venture capitalist.

00:15:08Alex: And it was one year after that that our good friend Walter Forbes joined the company.

00:15:15Alex: Walter Forbes was involved with the company from the very beginning, though to hear him tell it in later years.

00:15:22Alex: He was the founder and the visionary, which is not true.

00:15:27Alex: We don't know a lot about his background since he did everything he could to obfuscate it.

00:15:34Alex: We know that he had been a journalism student first.

00:15:39Alex: That's what he had initially gone to college for.

00:15:41Alex: And then had gotten himself a Harvard MBA.

00:15:46Alex: Then at some point he actually joined Management Analysis Center and was at Management Analysis Center when the Comp-U-Card idea came across their desk.

00:15:56Alex: So he was influential to my understanding in getting Management Analysis Center to invest in the company, which was necessary for it to get started, and was probably managing the investment from the Management Analysis Center side between 1973 and 1976.

00:16:15Alex: But he did not actually join the company until 1976, after which he quickly ousted the management at the time and took control of the company.

00:16:26Jeffrey: Now a Management Analysis Center is an investment company originally.

00:16:30Alex: They're a consulting firm, but in this case they are also serving as a venture capitalist.

00:16:34Jeffrey: Okay.

00:16:35Alex: They own it, but their intention is at some point to get a return on their investment by cashing out.

00:16:42Alex: You know, hoping the company goes public or whatever.

00:16:44Alex: But yes.

00:16:45Alex: So management analysis center put up the money for it in exchange for 45% of the company.

00:16:50Alex: Bought the whole thing in 1975.

00:16:52Alex: Then Walter Forbes moved over from capital management to Comp-U-Card in 1976 to run the company.

00:17:00Alex: Whether the company had an ambition to be involved with computer networks from the beginning or not, there's no doubt that Walter Forbes had great ambitions to take the company through any channels that he possibly could to expand their influence.

00:17:15Alex: How confident he truly was about computer networks in the early days, who knows, because like I said, he hyped himself up a lot in later years.

00:17:23Alex: But there's no doubt that they started exploring other areas.

00:17:27Alex: There was a burgeoning interest in content over networks in this time. It repeats like every twenty years.

00:17:35Alex: You know, the '70s and then the '90s and then the 2010's and you know, finally in the twenty tens we're actually able to do it. And now we have this for better or for worse world connected through so many different networks and entertainment and shopping and everything else delivered directly into our homes.

00:17:52Alex: In our recent Virgin Games episode, we talked a little bit about the '90s craze for that.

00:17:57Alex: Spoiler alert, the '90s craze for that is gonna also come up in this episode and the next episode on Vivendi a little later. But there was also a kind of a craze in this at the end of the '70s because cable television was coming in really for the first time.

00:18:11Alex: In the early days, there wasn't a lot on offer in the realm of cable television.

00:18:18Alex: Because in the very beginning of it there weren't dedicated cable stations and all of that stuff.

00:18:22Alex: It was basically just a way to get the television channels you were already getting, except more expensive.

00:18:28Alex: There were some places where it made sense, like in the mountains where you didn't have good reception over the air.

00:18:33Alex: But in general, it was kind of silly. Now, by the late 70s, there are some cable actual channels starting to develop and it's starting to get more interesting. But cable television is really looking for ways to expand. And so all the big cable companies are interested in perhaps networks and other stuff going over networks.

00:18:51Alex: It's also the period of time when the very first terminals and personal computers are entering homes of some people.

00:19:01Alex: And the maintainers of big networks out there in the world, big time sharing networks like CompuServe and the Source, that primarily exist to service commercial clients, are realizing that there are a lot of ordinary people out there that are starting to get access to terminals or computers with modems that could dial into their systems, and hey, maybe we could actually sell them some time on our systems as well, particularly on evenings and the weekends when the businesses are not doing the business at the business factory.

00:19:35Alex: So you have cable looking for new outlets for delivering content. You have the early computer networks, not the internet, not the world wide web, but early computer networks like CompuServe and the Source looking to capitalize on their networks.

00:19:49Alex: The idea of content being delivered into the home through existing infrastructure like phone infrastructure or cable TV infrastructure is becoming for the first time a big thing and it'll go up and down and up and down before we finally get there.

00:20:04Alex: So by the late nineteen seventies, Walter Forbes is exploring all of this.

00:20:09Alex: He's exploring what could maybe be done in the world of cable.

00:20:13Alex: For a brief period of time, they explore even perhaps doing a home shopping television channel in the early '80s. This is before the Home Shopping Network existed.

00:20:22Alex: They didn't end up going that route.

00:20:24Alex: They were looking at cable delivery and they were looking at computers.

00:20:28Alex: Looking at computers is the one that was the most logical at the time because they already had a computer. Like their entire business was computer driven.

00:20:35Alex: It's just that the computer was their computer where they had entered in all of these database entries that they then used with customers over the phone.

00:20:44Alex: It would be a relatively trivial thing to just make that database available in some way to users.

00:20:51Alex: So they did around 1978, 1979 start working on a computerized version of Comp-U-Card for people to use over the nascent networks by dialing in.

00:21:06Alex: They called this Comp-U-Star.

00:21:09Alex: They made it available, they made deals. So I should go back for a second actually and explain the other part of how the system worked, not just on computers, but also with their telephone service.

00:21:19Alex: They did not advertise directly.

00:21:22Alex: There were no ads on television.

00:21:24Alex: There were no mailers from Comp-U-Card in your mailbox.

00:21:28Alex: What they would do is they would make deals with existing organizations.

00:21:34Alex: Usually banks or credit cards.

00:21:38Alex: So you know how even today, at least I know I do, sometimes your bank will mail you something that is just it's life insurance.

00:21:45Jeffrey: Yeah. I got that.

00:21:47Alex: Yes. It comes in the envelope of your bank and it's like, "Hey, here's a great offer on life insurance for our members exclusively."

00:21:54Jeffrey: Yep. That and car repair services.

00:21:57Alex: Yep, exactly.

00:21:58Alex: So that's how Comp-U-Card marketed itself to consumers. They would make deals with credit cards like Citibank.

00:22:05Alex: Those companies would agree to send out mailers or when you opened a new account and they gave you a little folder with all your stuff, there might be a little Comp-U-Card card in there that you could fill out to get a membership.

00:22:18Alex: The very first one they worked with was Playboy.

00:22:21Alex: Again, they had just as they had trouble finding people to fund them, they had problems convincing companies to solicit on their behalf.

00:22:29Alex: Finally, Playboy was the one that agreed to do it. It was on their like subscription card. So, you know, you'd get a card like renew your Playboy subscription or subscribe to Playboy for the articles! Really! That's why we do it.

00:22:40Alex: Then you might also get a little thing. And also, we have this special deal where you can sign up with these guys for this, uh, shopping service.

00:22:49Alex: That's how they made people aware of their business. They didn't do direct marketing or direct soliciting themselves. They worked through intermediaries in order to do that.

00:22:59Alex: So it was similar with this service. Like, uh, they made a deal with the Source.

00:23:02Alex: Which was one of the very early computer networks, timeshared networks that people could dial into.

00:23:08Alex: They set up a little shopping corner on the Source. So if you logged into the Source, you'd see- one of the menu options you'd see would be for a shopping thing. And if you went to that, then it would take you to Comp-U-Card's database, Comp-U-Card shopping service. And you could enter in some information, what product are you looking for. Like television, for example-

00:23:27Alex: Which is an example that was used in one of the newspaper articles.

00:23:30Alex: You could choose like television and then it'll be like color or black and white, because those were the times.

00:23:35Alex: Then once you choose color black and white, it will give you other options like remote control or no remote control.

00:23:41Alex: Just all of the different standard kind of features that you would find on a television.

00:23:44Jeffrey: Ten inch, eight inch, or five inch.

00:23:46Alex: Mm-hmm. Indeed.

00:23:48Jeffrey: Yes, that's small.

00:23:49Alex: Indeed.

00:23:50Alex: Then it would finally come back to you with a hit on a product.

00:23:53Alex: Which you could then order directly on the computer and then it would be shipped to you. You know, you could pay with it.

00:23:58Alex: As South Park says, I'll put it on my credit card.

00:24:01Alex: Bonus points if you get that reference. I already said it was South Park, but there's a lot of South Park episodes, so bonus points still if you know what I'm talking about.

00:24:08Alex: [Chuckles]

00:24:09Alex: That's how the online service worked.

00:24:11Alex: They really, really touted the computer service.

00:24:15Alex: There were a lot of breathless articles at this time all about them and their computer service.

00:24:20Alex: But as even those articles admitted, that wasn't where the money, such as it was, was coming from.

00:24:27Alex: Because they had 1.5 million members by the end of 1980.

00:24:35Alex: At that time they only had 5,000 computer users.

00:24:41Alex: That was near the beginning of the service. That number rose a little bit in the coming years, but it never got above a few- in these early years, it never got above a few tens of thousands.

00:24:52Alex: Because it was way too early.

00:24:54Alex: I mean it's a kind of interesting idea, but how many people have computers? And even of those people that have computers, how many people have modems?

00:25:03Alex: Cause let me tell ya.

00:25:05Alex: Having a modem back then, even if you're a kid of the '90s like Jeffrey and I when we were all getting modems in '93 or '94 to, you know, get onto the World Wide Web in the early days.

00:25:16Alex: Those were called smart modems, and they were called smart modems for a reason. Because-

00:25:21Jeffrey: they were smart!

00:25:22Alex: They took most of the effort out of actually getting online.

00:25:27Alex: Which took a lot in 1980.

00:25:31Alex: Not just a modem.

00:25:32Alex: You needed an acoustic coupler.

00:25:34Jeffrey: You know those really old movies with the computers where they took the nice little handset and put it in a speaker?

00:25:42Jeffrey: Yeah.

00:25:43Jeffrey: Those things.

00:25:44Alex: So getting online was not easy for the average consumer in 1980.

00:25:50Alex: Such as online was.

00:25:52Alex: For most people, the juice wasn't worth the squeeze because once you got online there wasn't a lot you could do there.

00:25:59Alex: The things that you could do had ridiculous charges.

00:26:03Alex: You know, to be part of something like the Source, or CompuServe, which before it was an ISP was one of these early networks, you had to generally pay a monthly or an annual fee.

00:26:13Alex: And then you paid for the time you were using on the computer.

00:26:17Alex: You were paying by the minute or by the hour; for the time you were using on the computer.

00:26:22Alex: Then on top of that, if you wanted to be a Comp-U-Card member, you had to also pay their membership fee.

00:26:28Jeffrey: Fees upon fees upon fees.

00:26:31Jeffrey: You don't have any kind of e commerce coming up then.

00:26:33Alex: No.

00:26:34Jeffrey: I remember the derision in the '90s when it first came about that you could buy things online and people were like, "Why the hell would you put your- [Alex - "Mhmm."] -credit card information into some random website?" And there was all the stuff against that.

00:26:46Jeffrey: I remember the big push against doing that, and then here you have going back then to the '80s and '70s and it's like- [Alex - "Yeah."] -it cost me an arm and a leg just to get online.

00:26:58Jeffrey: I just have this text terminal that I can barely understand.

00:27:02Jeffrey: Then I have to pay by the minute- [Alex - "Yeah."] -to use this thing and it takes it five minutes to download a page.

00:27:09Alex: Yeah.

00:27:09Jeffrey: Then I have to browse that page and oh look, the cat knocked over the acoustic coupler.

00:27:14Jeffrey: Now I have to do it all over again.

00:27:16Alex: [Chuckles] Indeed.

00:27:18Alex: Oh, by the way, you know, you don't have two phone lines, so the entire time you're doing this, you are unreachable by the world at large. [Chuckles]

00:27:26Jeffrey: There are no cell phones.

00:27:27Jeffrey: Oh look, little Johnny picked up the phone.

00:27:30Jeffrey: You have to start from scratch again.

00:27:32Alex: Indeed.

00:27:33Alex: This is a true tangent, but I will always remember because- not to call them out. My parents were also a little cagey about the online shopping thing when it first started.

00:27:41Alex: Just when it first started.

00:27:42Alex: They are actually very tech savvy for their age. They truly are.

00:27:45Alex: And they got over it.

00:27:47Alex: And I still remember there was a Dilbert. We're not supposed to like Dilbert anymore because Scott Adams, not the video game guy, the other one, ended up being a most unpleasant person.

00:27:56Alex: Rest in peace.

00:27:57Alex: But I still remember there was a Dilbert, and it's Dilbert and I believe Dogbert and not Catbert. Dogbert would make more sense.

00:28:04Alex: And I think it's the two of them. I could be misremembering that part of it, but it's not important to the punchline. The important thing is is they're sitting in a restaurant.

00:28:10Alex: And they're talking and Dilbert, I think it is, or it could be another character, it doesn't matter. But they basically they're saying, I can't believe anyone would put their credit card numbers online, like where anyone could steal them.

00:28:22Alex: Then the waitress comes up, you know, and they're ready to pay the check.

00:28:26Alex: They hand the waitress the credit card. [Jeffrey - "Mhmm"] 'Cause of course, you know even in doing in person stuff.

00:28:31Alex: Like, I realize that bad actors can hack and whatnot, but still, like, even when you're using your credit card on a daily basis in person, you are actually constantly giving it to strangers who copy down your number. I mean, heck, back in the old days, before those lovely magnetic strips.

00:28:45Alex: Like they literally had to make a carbon copy of your credit card numbers. That's why the numbers were raised on cards back in the day, so they could make a carbon copy of those numbers and were actually storing them in the store.

00:28:57Jeffrey: Yeah, it's insane how it works. I know in Europe they tend to do a lot more of the you don't get to see the card walk away from your table to come up with a device to your table and run it right there.

00:29:10Alex: Yeah.

00:29:11Jeffrey: It's still fairly common in the States where they will go off to some secret room where they process your payment-

00:29:18Alex: Yeah.

00:29:18Jeffrey: \-then come back. And you hope they don't use it to process some other payments too.

00:29:23Alex: Right, and back in the day they were literally making copies of every credit card number.

00:29:27Jeffrey: Yeah, and you had a impression machines.

00:29:30Jeffrey: If you ever saw an old movie where they take this big thing out and then they go kachink back and forth, that's what we're talking about.

00:29:36Alex: Yup.

00:29:37Alex: So I kinda pointed out to them that Dilbert and they kinda had to agree that it was silly.

00:29:42Alex: That's how I remember it.

00:29:43Alex: They may remember it differently if they remembered at all.

00:29:46Alex: That's not important.

00:29:47Alex: Just a little tangent.

00:29:48Alex: I mean the point is it was hard to get online, there wasn't a lot to do online, so most people weren't gonna do it. Basically mostly tech heads were gonna do it.

00:29:55Alex: It cost a lot of money to be online, so mostly more well to do people who are gonna do it.

00:29:59Alex: There were only so many members they could get. So they start touting the computer thing as if it's the second coming.

00:30:06Alex: Forbes is all about how this is the future of everything.

00:30:09Alex: But really, almost their entire business is still conducted over the phone.

00:30:14Alex: It's not conducted on computers.

00:30:16Alex: They look into a home shopping channel as I said, that never goes anywhere.

00:30:20Alex: Based on all of this hype for network stuff, they managed to go public in 1983.

00:30:27Alex: During the period that they were really building and touting this computer stuff between 1978 when they started kind of building it and 1983 when they went public.

00:30:37Alex: They lost 13.4 million dollars.

00:30:40Jeffrey: Why does it feel like every time one of these companies goes public, it just leads to more problems?

00:30:47Alex: [Laughs] Oh, there's gonna be problems, Jeffrey.

00:30:49Alex: There are going to be problems.

00:30:50Alex: So they lost 13.4 million just between '78 and '83.

00:30:54Alex: They did not turn a profit at all in any of their first ten years. From 1973 to 1983, they made no money.

00:31:05Alex: Well, fiscal '83, which actually ends in January. So that's mostly just up to 1982.

00:31:10Alex: They did not turn their first profit until the fiscal year that ended January 31st, 1984.

00:31:17Alex: When they made 31 thousand Dollars.

00:31:21Alex: That was their profit.

00:31:22Jeffrey: How did they stay in business?

00:31:23Alex: Investors. They convinced investors that the future was right around the corner. This is why Walter Forbes, and by all accounts, Walter Forbes was an incredibly charismatic guy.

00:31:35Alex: An incredibly confident guy and an incredibly convincing guy.

00:31:39Alex: He was selling this future of computer shopping, and saying that everybody should get it on the ground floor now.

00:31:47Alex: So they were able to get some investors. They got a couple of additional investors.

00:31:51Alex: The consulting company ended up buying a hundred percent of the company, but then they were able to over time bring in another couple of investors into the company, which provided them more capital.

00:32:02Alex: So they were able to just kind of keep getting enough capital to keep the company going until they were finally able to go public and convince the market that they had something.

00:32:10Alex: In all fairness, Amazon lost money for years, right?

00:32:13Jeffrey: Yeah.

00:32:13Alex: Amazon was a complete boondoggle for years before it started turning a profit and then took over everything.

00:32:20Alex: There is some truth that sometimes when you are out in front of the market and you see an opportunity nobody else does, it is sometimes true that that opportunity is real.

00:32:29Alex: Then they take over the universe.

00:32:32Alex: Like Amazon did.

00:32:33Alex: Of course that is the exception, not the rule.

00:32:36Alex: You know, the way venture capitalists and other investors do these kind of things, especially venture capitalists, but even other funds as well, the idea is if somebody hits big, they're going to hit really big.

00:32:48Alex: They're gonna hit Microsoft big, they're gonna hit Google big, they're gonna hit Amazon big.

00:32:52Alex: You spread out a bunch of investments.

00:32:55Alex: You invest in ten companies, twenty companies.

00:32:59Alex: You know that probably nine out of ten or eighteen out of twenty of those companies are going to fail.

00:33:04Alex: But the one or two companies that make it are gonna make it so big that it not only covers your losses in all of those other investments, but makes you a huge, huge profit on top of it.

00:33:16Alex: That's how they keep getting money. It's the same way that all of these kind of companies keep getting money. And it's Walter's charisma and it's his touting of this computer thing is the future.

00:33:25Alex: We're not just a telephone shoppers club company.

00:33:29Alex: We are a e-commerce. I mean he didn't use the term e-commerce. It didn't exist back then, but we are an e-commerce company.

00:33:36Alex: That means something, to somebody, that has money.

00:33:39Jeffrey: Here I am as an average person and I look at that and I go, "This seems like such a bad idea to do."

00:33:45Alex: Right. Of course. And that's the thing, right? I mean, an average person can't do that because you or I could maybe scrape together a little chunk of chain to invest in a single company.

00:33:54Alex: We couldn't get together a chunk of change to invest in twenty companies.

00:33:58Alex: You have to cover the spread in order to make money at this kind of thing.

00:34:02Alex: Or just bring the sports almanac back from 2015 or whatever it was. [Chuckles]

00:34:08Jeffrey: Uh, I know it's past that date by now.

00:34:11Jeffrey: Where's my microwave hamburger that's instant from a pill?

00:34:14Alex: Indeed.

00:34:16Alex: But the Cubs did win the World Series, so there you go.

00:34:18Alex: So yeah, they were losing money, they didn't turn a profit until 1984.

00:34:22Alex: They didn't turn a real profit until 1985.

00:34:26Alex: The way they ended up turning these profits was unsurprisingly had nothing to do with computers.

00:34:32Alex: That didn't work.

00:34:34Alex: I mean they had a small group of customers, but it was not viable.

00:34:39Alex: No, what they finally had to do to start making some money was they started doing their own direct marketing.

00:34:46Alex: Instead of just relying on people signing up because they get a letter or a card from their bank or some magazine or an insurance company or whoever they were marketing these things through.

00:34:57Alex: They didn't stop doing that, but they also in 1985, they started mailing out product catalogs to people.

00:35:05Jeffrey: So starting the Sears approach.

00:35:07Alex: Yeah, essentially. You still had to have a membership to make use of anything.

00:35:11Alex: But yes, they started with the approach of we need to let people know what they're actually getting out of this.

00:35:17Alex: Like the kinds of amazing products that they can get really good deals on.

00:35:21Alex: Sometimes the deals were legit.

00:35:23Alex: You know, you have to balance that with, you know, was it really worth the money you were paying for it?

00:35:29Alex: The twenty five dollars a year, the thirty dollars a year, you know, goes up over time.

00:35:34Alex: But if you were looking for something that they had, you could sometimes get these items for like 30 to 40% below what you could get them in an actual retail store.

00:35:43Alex: You could almost always get items that they offered cheaper through them than through retail stores, even if it wasn't always as dramatic as 30 to 40%.

00:35:53Alex: As the company itself said, you know, sometimes a store might use a loss leader.

00:35:57Alex: You know, they will deliberately price an item below what they can make money on it for because that just gets people into the store and then they buy other things.

00:36:05Alex: They couldn't always compete if a company was having a sale, a clearance sale, or a loss leader sale, but most of the time, like, you actually did get something out of this.

00:36:15Alex: Whether you got thirty dollars a year worth of stuff out of it, I mean, maybe not, but there was money to be saved.

00:36:22Alex: The product was real. It wasn't a fake product.

00:36:25Jeffrey: It's almost a bit like the big box retail subscription ones like Sam's Club or Costco.

00:36:33Alex: Yeah, yeah, I don't know exactly how they sourced their product.

00:36:37Alex: I don't know how they got manufacturers to sign up with them because that side of the business isn't really covered in the articles.

00:36:43Alex: It is a Shoppers Club.

00:36:44Alex: Costco and Sam's Club are also Shoppers' Clubs.

00:36:47Alex: So yeah, it is a little bit of an approach, and I don't know if their inventory was as hit or miss as those.

00:36:53Alex: Because you know, like Sam's Club. If Sam's Club carries something that you want, you can get a lot of it for a good price.

00:37:00Alex: But they may not carry what you want. [Chuckles]

00:37:03Alex: Once they got that catalog in front of people and people could see some of the products they could actually get that these were tangible things, that started to push more signups, get them more members, and that's what allowed them to start turning a profit.

00:37:16Alex: After they went public in kind of the 1985, '86 period, they also went on a bit of an acquisition spree.

00:37:23Alex: They started buying companies in similar fields.

00:37:26Alex: They bought a traveler's club company. They bought a dining club company. They bought an automotive parts company. You mentioned automotive deals, and I immediately thought of that.

00:37:36Alex: Because this was a period of time like travel, for instance.

00:37:39Alex: In this age of the internet, it's hard to remember this as well, but you couldn't just call up the average hotel and be like I would like a room six days from now.

00:37:50Alex: That didn't work. That didn't happen.

00:37:53Alex: There might be some smaller hotels or something you could do that, but everything was done through travel agencies back then.

00:37:59Alex: You actually had to go to a travel agent if you were taking a big trip. I mean, obviously, if you're on the road and you pull into a motel for the night, I mean you can get a room. But I'm specifically talking reservations.

00:38:09Alex: You couldn't make a reservation on your own.

00:38:13Alex: You had to go through a travel agency who would book that for you.

00:38:16Jeffrey: If you wanted to go to a destination and have a event, say I wanted to go to Disney.

00:38:23Jeffrey: I want a hotel. I want to go to the park. I need a car.

00:38:28Alex: Mm-hmm.

00:38:28Jeffrey: I might need plane tickets to get there or train tickets to get there.

00:38:33Jeffrey: I need to go through a travel agent to make that work because there was no internet. I couldn't look up all those numbers.

00:38:39Alex: Exactly.

00:38:40Jeffrey: And even if I could somehow get someone on the phone, they'd be like, "Well, what's your agent code, or what's your reservation ID, or your whatever?"

00:38:50Jeffrey: Your package deal thing. 'Cause they would have these exclusive deals with certain travel agencies to be like, "Well, with this travel agency we do these deals. With this one we do those deals." So on and so forth.

00:39:02Alex: Yep. Very different world. And obviously travel agencies still exist today and sometimes still people use them, but they're not necessary as they used to be. Back then, you actually had to use them because these reservation systems were proprietary computer networks.

00:39:16Alex: Only the people that were granted access to them, licensed agents, could actually make those kind of reservations.

00:39:22Alex: They did the same thing in travel that they did with retail products.

00:39:26Alex: Where it was like, okay, well, we are serving as a travel agency, so we have access to these networks.

00:39:33Alex: But we're not making our money on the package deals, we're making our money on the membership fees.

00:39:39Alex: So we can give you lower prices on travel packages than if you go to a travel agent.

00:39:45Alex: So it's that kind of thing in all of these different areas they're going into-

00:39:50Alex: Insurance is another one.

00:39:51Alex: Insurance is still oftentimes sold by agents today.

00:39:54Alex: But of course a lot of auto insurance is agentless anymore, you know, Geico and Progressive and those are agentless.

00:40:00Alex: Back in the day you bought all insurance through an agent.

00:40:03Jeffrey: Oh, I remember when I first started driving, I had- actually had to meet the insurance agent that my dad had his insurance with at the time.

00:40:12Alex: Yep.

00:40:13Jeffrey: It was a thing. They got a little office and you do your thing.

00:40:16Alex: Yep.

00:40:17Jeffrey: It's actually a really weird thing with Alex and my generation where we grew up in this weird transition where we're almost like classically trained in how the analog world did things and then we got told:

00:40:32Jeffrey: "Take all that stuff you learned, throw it out the window. Here's the new stuff, learn it as you go."

00:40:37Alex: Right, and, uh, and you know, we're- we're of the generation that we were still I mean, we weren't digital native, like the uh Gen Z that came up after us or the younger millennials that came up after us, but we were still young enough when this transition happened that our brains were still elastic enough to absorb the new.

00:40:55Alex: People born right around when we were are- are kind of the one foot in the analog world, one foot in the digital world, people. For sure.

00:41:02Alex: So they were going into all of these areas where there was a middleman.

00:41:06Alex: A travel agent, an insurance agent.

00:41:08Alex: A retailer, in the retail space. Cutting them out and so getting lower prices. So they started having clubs in all of these areas.

00:41:15Alex: It finally started getting them money.

00:41:18Alex: They finally started turning a profit.

00:41:21Alex: They finally started to grow.

00:41:23Alex: They were continuing to tout that the future is coming and the future is going to be online because now we're getting into the period where the internet is expanding and we're getting close to the dawn of the commercialization of the internet and the World Wide Web

00:41:40Alex: That takes us kind of up to the early '90s with Comp-U-Card, which at some point in here I don't know when nor do I care, starts going by CUC rather than by Comp-U-Card.

00:41:53Alex: So when it comes to CUC getting into video games.

00:41:58Alex: There's the reason they said they did it.

00:42:00Alex: And then there's the reason they really did it.

00:42:03Jeffrey: So you're saying there's [Enthusiastic] The Truth, And [Upset] The Truth.

00:42:08Alex: [Chuckles] Yes.

00:42:10Alex: We're going to start with the reason that Walter Forbes said they were doing it.

00:42:14Jeffrey: [Enthusiastic] So the truth.

00:42:15Alex: Yes, because that's the more fun way to tell the story.

00:42:19Alex: ​[Chuckles]

00:42:20Alex: But just so you know, if you don't already know where this is going-

00:42:23Jeffrey: And I don't!

00:42:24Alex: \-this is going to take a turn.

00:42:26Alex: Walter Forbes, whether he truly believed in the future of all of this e-commerce stuff because, he was a true believer.

00:42:35Alex: Or he believed in it because he thought that's what people wanted to hear and this was his way to make money.

00:42:41Alex: He continued all through this period, even though it was not the important part of their business, to really tout the online space and that the future of retail was going to be online.

00:42:53Alex: And that Comp-U-Card/CUC is already there.

00:42:55Alex: We're here early, but we're there.

00:42:57Alex: Look, we're making lots of money now. They're not making that money in computers, but they're making lots of money now.

00:43:03Alex: At the same time, the video game space is beginning to explore these same areas.

00:43:09Alex: In the late 1980s, you not only had the old line networks like CompuServe and the Source starting to add games to the network, but you had whole new networks like Prodigy and the Genie network that were showing up.

00:43:24Alex: As smart modems began to proliferate and you didn't need a lot of fancy equipment anymore to get online, you could say goodbye to those acoustic couplers.

00:43:34Alex: You had still a small amount of the population getting online.

00:43:38Alex: Even before the World Wide Web, you started to have more people getting online.

00:43:43Alex: Which in these days did not mean dialing into the internet and surfing the World Wide Web, but usually meant dialing into big time sharing services like CompuServe, or Prodigy, or little BBS's, bulletin board systems, that people were running in their basement.

00:44:00Alex: There were more places to go online and it was easier to get online.

00:44:04Alex: So more people were online. And so computer game companies were starting to explore this area as well. Games were starting to appear on Genie and Prodigy and CompuServe.

00:44:12Alex: Some companies, like Sierra Online, were establishing their own networks.

00:44:19Alex: We talked about the Sierra Network, uh, because we've done Sierra episodes.

00:44:22Alex: It was insane. We're not gonna go in detail on the Sierra Network in this episode, but it was insane, because basically it was like 50 desktops in a trench coat connected by a single T1 line out of the mountains to create a- a computer network that people could log into.

00:44:40Alex: It worked.

00:44:41Alex: But there's no reason it should have worked.

00:44:44Jeffrey: Yeah, that's definitely duct tape and prayer territory there.

00:44:48Alex: Ken Williams was another person that was very early on networks, coming from the computer game side. He was a big believer that network computer games are going to be the future.

00:44:57Alex: The company was one of the very early of the big publishers to start experimenting with that, and they were certainly the first of those big publishers to have their own network as opposed to putting some of their stuff or making their stuff available through other people's networks.

00:45:11Alex: During this period of time, as Sierra was growing at the beginning of the 1990s, Ken Williams started being on the lookout for board members, to add to the Sierra board, that were in the kinds of fields that he wanted to be in.

00:45:27Alex: One of those people that he invited onto his board was Walter Forbes, around 1990, 1991, right in there, just as the Sierra network's getting ready to launch.

00:45:38Alex: As I said, Forbes was an impressive guy. Like You don't perpetuate the greatest to that point financial fraud in the history of America by being an unimpressive guy.

00:45:49Jeffrey: You have to have a cult personality to do that.

00:45:53Alex: Yes.

00:45:54Alex: Con man is short for confidence man. Because the confidence man is very confident, and you feel safe when he takes you into his confidence.

00:46:08Alex: Forbes at this time- you know, his company was delivering regular growth above expectations of Wall Street.

00:46:16Alex: He was touting this online network future.

00:46:20Alex: He was truly an impressive guy.

00:46:23Alex: Ken Williams was drawn to people like that.

00:46:26Alex: Ken Williams was not educated in business.

00:46:30Alex: He learned on the job.

00:46:32Alex: He was naturally drawn to people that were successful in business, because he wanted to be successful in business, and who had the kind of credentials that Walter Forbes had an MBA and running a big and at this point successful company.

00:46:46Alex: This is the exact kind of person Ken Williams wanted to be around.

00:46:50Alex: So Ken Williams invited him on to the board

00:46:54Alex: Ken Williams was not looking to sell Sierra. We talked about some of the story in our Sierra episode.

00:46:58Alex: But we didn't go into near the detail we're about to.

00:47:01Alex: Fasten your seat belts, gonna be a bumpy ride.

00:47:03[SFX - Seatbent being put on and clicked.]

00:47:05Alex: Ken Williams was not looking to sell his company.

00:47:08Alex: As a matter of fact, at this time Sierra was expanding rapidly, and apparently Walter Forbes, as a board member, so he's an advisor to the CEO as a board member, was one of the people that was really pushing Ken Williams to expand Sierra through acquisitions.

00:47:21Alex: Sierra is growing rapidly in this period and Ken Williams is achieving great success.

00:47:26Alex: Their revenues skyrocket from 47 million in 1992 to 160 million in 1996.

00:47:34Alex: This is Sierra.

00:47:35Alex: The computer game industry is taking off for reasons that we've talked about before.

00:47:40Alex: Sierra was very smart and started buying up other companies early. So they had a broad product range to offer in a period when computer gaming is starting to transition into big box retailers, like the Best Buys and the Targets and the Walmarts of the world.

00:47:56Alex: Where it hadn't been before, and where you need a broad product range to get those companies interested in letting you into their stores.

00:48:06Alex: So the company was getting big at the exact time that it needed to get big in terms of its product line.

00:48:11Alex: It was kind of a little ahead of the curve of some of its computer game competitors in that respect.

00:48:16Alex: And sales are blowing up.

00:48:19Alex: But it's also coming at a personal cost for Ken Williams.

00:48:23Alex: Because Ken Williams is just by his nature, he is a hands on Guy.

00:48:28Alex: Little like Jack Tramiel in that way. I mean, Jack and Ken are really not that alike.

00:48:34Alex: But one thing that they are very similar on is, you know, we talked in our Commodore episodes how Jack is following every expense. He has to approve every expense over 1,000 dollars or whatever it was.

00:48:44Alex: Ken Williams has a similar type of personality. I'm not sure that he's requiring every expense at that low level to be approved by him, but he wants to know everything that's going on. He wants to see everything that's going on.

00:48:55Alex: At this point, because they've done all the acquisitions, they are a really spread out company.

00:49:00Alex: They have subsidiaries all over the United States. They even have a couple of companies in Europe.

00:49:04Alex: So he's spending more and more of his time just traveling around on a plane to all of these different places because he wants to be a hands on with everything they're doing.

00:49:13Alex: He's not being a micromanager to hear him say it necessarily. He's not going there and giving them orders necessarily.

00:49:20Alex: But he wants to know everything that's going on, and if there's an area that he thinks he can help unblock progress, he wants to be there to offer solutions.

00:49:28Alex: The company's becoming too big for that kind of management style.

00:49:32Jeffrey: Yeah, it's definitely if you got stuff that's international, you need to have some degree of delegation with your management team, and you just have to trust those subordinates.

00:49:42Alex: Yeah. And he did have some subordinates.

00:49:44Alex: He leaned very heavily on his president, Mike Brochou, and his head of development Jerry Bowerman.

00:49:49Alex: The three of them basically ran the company together in this time period.

00:49:52Alex: So, you know, he did delegate a little, but he he wanted to know everything and he wanted to be involved at some level in everything.

00:50:00Alex: That was becoming an awful lot and was starting to wear him out a little bit, even as the company was reaching its greatest heights. In 1996, according to industry trackers, it took the lead in computer game market share in the United States.

00:50:14Alex: I'd have to look it up. This isn't a Sierra episode so I didn't prepare those figures. So I forget what the number was, but they had twenty something or thirty something percent of the market. I mean they didn't have the majority of the market.

00:50:24Alex: But it was the largest market share of any computer game company. They were literally number one in the business.

00:50:30Jeffrey: Of course, I'll be throwing the Sierra episodes into the show notes, so feel free to check that out if you want to know more, if you haven't heard it before.

00:50:37Alex: Absolutely.

00:50:38Alex: In the midst of this, Walter Forbes, who's on the board and is seeing this fantastic growth that Sierra is experiencing, is like "Would you be interested perhaps in selling the company?"

00:50:50Alex: He first broached it to Roberta, Ken's wife and also a member of the board and you know, Roberta Williams, legendary game designer.

00:50:58Alex: He went to her first to kind of feel things out and asked, you know, has Ken ever thought about selling the company?

00:51:03Alex: At that time she said no and that was that.

00:51:05Alex: But as it turns out Ken was kind of getting tired. This comes from Ken's own autobiography. So this is Ken's own words. Ken was getting kind of tired with this lifestyle he was living running this company.

00:51:17Alex: He was thinking maybe it would be a good idea to sell. The- the seed has been planted.

00:51:22Alex: Then in February of 1996, after a board meeting, Walter's on the board.

00:51:27Alex: Walter officially approaches Ken Williams to ask if he could acquire Sierra.

00:51:33Alex: Ken and Roberta both were kind of confused by this.

00:51:36Alex: CUC, or cuck, as nobody prefers me to call it, was a shoppers club company.

00:51:45Alex: Sierra, is a computer game company.

00:51:49Alex: Specifically computer games, because they did not do console stuff because Sierra got really burned by the cartridge market during the crash.

00:51:57Alex: There does not seem to be a synergy there.

00:52:00Jeffrey: No, not really. It's like, are you going to buy it to sell the video game catalog through your system?

00:52:08Alex: The logic that Walter Forbes used, and the reason that he told Sierra, Ken and Roberta Williams and the reason he told the press about this. Is it's all part of the networked future.

00:52:18Alex: It's all content.

00:52:20Alex: Whether it's shopping content, or entertainment content, it's all content that in the future is gonna be delivered through networks.

00:52:28Alex: At this time I should add, CUC has gone all in on the idea of online shopping. This is the very kind of tip of the dot com bubble just barely starting to form.

00:52:42Alex: The company had just recently put its money where its mouth is in the online space.

00:52:48Alex: In 1994 they bought a little company called Net Market.

00:52:54Alex: Net market, not well remembered today, but it goes down in history as the first company that did a secure credit card transaction over the internet.

00:53:07Alex: August 11th, 1994, they sold Sting's CD, 'Ten Summoner's Tales' to Phil Brandenberger of Philadelphia, with a secure credit card transaction.

00:53:18Alex: They were one of the very first online marketplaces and they were the first one to do a secure credit card transaction.

00:53:26Alex: In November, CUC bought them, and they started really pushing this idea of online retail again, and this time online retail somewhat in the vein of what Amazon would ultimately become.

00:53:37Alex: I think still with their member services and everything.

00:53:40Alex: But they have an online marketplace. Net Market is theirs. They're starting to make deals with domain owners to put their shopping service on their websites.

00:53:50Alex: They're making a big push into network stuff. Again, Walter Forbes has saying, and this has been my vision all along, ever since I founded the company! Yes. I'm saying what he says, not what's the truth. Ever since I founded this company, it has always been about computer retail.

00:54:06Alex: Even though we were too early, now that future is finally here and look at all the money we're making.

00:54:11Alex: We consistently beat expectations, every quarter.

00:54:16Alex: We are big strong company, and this is our vision, and we're going to do this thing.

00:54:21Alex: So he's like, "You're doing games, which are gonna be over networks. I'm doing shopping, which will be over networks. It's all networks, right?"

00:54:28Alex: Everyone, I think the press and the Williams is both are like, "I don't know about that."

00:54:34Alex: Then Forbes was like, "Okay, but all of that aside, I'm gonna pay 38 dollars per share for your company, and your stock is currently trading at 27 dollars a share."

00:54:44Jeffrey: Yeah, that's the trap of IPOs. It's like someone can come in with a hostile takeover of I will pay it more than it's worth and you pretty much have to take it because otherwise you're bad for your shareholders.

00:54:57Alex: Indeed, now this was not entirely hostile. It does not evolve into a hostile situation, but what you said is absolutely correct.

00:55:05Alex: Once that price was offered, Ken Williams felt that he had a fiduciary duty to the shareholders to bring that offer to the board.

00:55:13Alex: Because that is a lot of money, and if he just said no to that without consulting the board and the shareholders. He would be denying the shareholders a lot of income, and breaching his fiduciary duty.

00:55:25Alex: So he brought it to the board.

00:55:27Alex: CUC was huge at this time. They had something like a 20 billion dollar marketing cap.

00:55:31Alex: They were a humongous company. Their stock was always trading well because they beat analyst expectations every quarter.

00:55:38Alex: Almost by the same amount every quarter.

00:55:41Jeffrey: [Suspicious] Hmm.

00:55:42Alex: Not suspicious at all.

00:55:43Jeffrey: No, no, of course not.

00:55:45Alex: Like they were always just about- they were always just beating by just a little bit, every quarter.

00:55:50Alex: As all companies do, right? No. No, they don't.

00:55:53Jeffrey: Yes they do.

00:55:53Alex: Uh, no [Nervous sounds] they don't. [Nervous laugh]

00:55:58Jeffrey: [Sarcastically] They told me they did, therefore it's the truth!

00:56:01Alex: Yes.

00:56:02Alex: Then he also gave this grand plan.

00:56:05Alex: He wasn't just going to buy Sierra, because they have a huge market cap and they're going to be doing these purchases through stock swaps.

00:56:11Alex: He's using the power of his stock to do these purchases. He's not gonna have to pay them in cash.

00:56:16Alex: He's paying him in stock.

00:56:18Alex: The stock is so good right now.

00:56:20Alex: It's the beginning of the dot com bubble. It's the '90s when the stock market was breaking records all the time.

00:56:27Alex: It was a company that everyone wanted to invest in because they were always beating expectations, like He has stock that he can throw around.

00:56:34Alex: So he's like, I'm not just going to buy Sierra.

00:56:38Alex: I'm gonna buy Brøderbund.

00:56:40Alex: I'm gonna buy LucasArts.

00:56:42Alex: I'm gonna buy Davidson and Associates, more on them later.

00:56:46Alex: We're gonna combine this all into the biggest combined entertainment and educational computer software company of them all, and we're gonna push into these networked areas where my company has expertise, and we are going to take over the world.

00:57:05Alex: Well, [Exasperated sigh] you know, at this point Ken Williams kinda feels like he kinda has to do this.

00:57:12Alex: They do a little negotiating.

00:57:14Alex: The big thing is he doesn't want to lose total control of the company. He's kind of happy with the idea of stepping back a little bit from doing this CEO thing, but they're gonna be a lot of companies combining if all of this goes off.

00:57:25Alex: He doesn't want to be answering to one of his competitors as a CEO.

00:57:30Alex: At the end of the day it comes down to just two companies.

00:57:33Alex: The Brøderbund thing doesn't happen, the LucasArts thing doesn't happen. I don't know if either of those were ever viable or if they were just Walter Forbes' fever dreams. They're companies he threw out, but I mean they didn't get bought, obviously.

00:57:43Alex: It came down to just Sierra and Davidson and Associates.

00:57:47Alex: Forbes promised him that, no, we're going to create an office of the president for the software division. It'll be Ken Williams and Bob Davidson, CEO of Davidson Associates, and a CUC guy, Chris McLeod, as kind of a tiebreaker. He's not a guy that had any experience in the game industry, but he was a CUC guy, so if the other two are butting heads, he could be a tiebreaker between them.

00:58:09Alex: We're gonna keep your organization separate.

00:58:11Alex: The control is gonna be shared.

00:58:13Alex: It'll be fine.

00:58:15Alex: So you know, he's getting a little tired of it. The deal's too good to back out. And so he agrees, and on February 21st, 1996, it is announced that CUC International will be buying Davidson and Associates and Sierra Online for 1.7 billion dollars.

00:58:32Alex: As a stock swap.

00:58:34Alex: Totally as a stock swap.

00:58:36Alex: Sierra and Davidson stock, both of them were public companies, went up on word of this deal.

00:58:41Alex: Because they're about to be acquired, which means that everyone wants some of that stock so they get some of that acquisition-

00:58:47Alex: Not acquisition money because it's a stock swap, but they want to buy the cheap stock of Sierra and Davidson to get the more expensive stock of CUC and the stock swap.

00:58:56Alex: CUC shares go way down.

00:58:58Alex: Because the deal makes no sense.

00:59:01Alex: Forbes is making all of this noise about you know, we're all in networks and we're gonna synergize and all of this, it'll be great.

00:59:09Alex: But the deal makes no sense.

00:59:11Alex: Actually, there's a provision of the deal that if CUC stock falls below 29 dollars a share, that Sierra has the right to back out of the deal.

00:59:19Alex: That was just one of the stipulations of the deal.

00:59:21Alex: It falls below twenty nine dollars a share.

00:59:24Alex: They think about it, but ultimately it just feels too good to Ken. Ken is really impressed by Walter Forbes. He said so himself, his autobiography.

00:59:31Alex: Really impressed with Walter Forbes.

00:59:33Alex: He wants to be in this business. Forbes convinces him it's just a temporary dip.

00:59:38Alex: Because people are confused, they'll figure it out.

00:59:40Alex: Forbes does end up being right about that. It is a temporary dip. The stock does go back up later.

00:59:45Alex: The deal goes through.

00:59:46Alex: It's immediately a nightmare for Ken Williams.

00:59:50Alex: Because he gets nothing that he was promised.

00:59:53Alex: The office of the president, even though it technically exists, is a sham.

00:59:57Jeffrey: How so?

00:59:58Alex: Well Forbes was just promising him the sun, the moon, and the stars in the sky anything at all to get him to sign on the dotted line.

01:00:05Alex: That's how badly he wanted the company. So he basically lied to Ken Williams, said you'll have all of this control.

01:00:11Alex: And he wasn't planning to give it to him.

01:00:13Alex: Instead, all of the control ends up in the hands of Bob Davidson and the good people at Davidson and Associates.

01:00:22Alex: So at this point we are going to go back, this will be our most video gamey segment of this entire episode, and take a brief look at Davidson and Associates.

01:00:33Alex: Because it's not a company we've covered. I don't know that it's a company that warrants an entire episode.

01:00:39Alex: Davidson Associates was one of the premier educational software companies.

01:00:45Alex: By 1996, I think they might have been number two in the business.

01:00:49Alex: The company had been founded by an individual by the name of Jan Davidson, who had been a teacher.

01:00:56Alex: She has impressive credentials. She had an undergraduate degree from Purdue University, which is also where she met her husband, future husband, Bob.

01:01:05Alex: Whom she married in 1966.

01:01:07Alex: She later received a master's degree in communications and a doctorate in American literature.

01:01:12Alex: University of Maryland, so she was a PhD.

01:01:16Alex: Or is she still alive at the time of this recording.

01:01:18Alex: She was a teacher for a good number of years.

01:01:22Alex: At the same time that her husband Bob, a business school graduate and lawyer, was getting ever more prestigious jobs in the corporate world until they finally moved to Palos Verdes, California in 1976.

01:01:38Alex: In 1979, California was hit by a major education crisis when Proposition 13 was passed, which was a massive tax cutting measure that deprived a lot of school districts of the funds they needed to operate. Some schools were even closing at noon because they couldn't afford to run all day long.

01:01:58Alex: In this climate, Davidson, who had served as a teacher, founded a nonprofit tutoring program called Upward Bound.

01:02:05Alex: Which would offer afternoon tutoring and programs for these students that were just being kind of cut adrift by the system at the time.

01:02:13Alex: Founded in 1979.

01:02:15Alex: Soon after founding Upward Bound, Davidson beheld her first personal computer, an Apple II.

01:02:20Alex: Got interested in computers, went to look at what educational software was available, and it was abysmal in these early days for the most part. Just wrote question asking and answering

01:02:31Alex: Apple beeps when you get something wrong, just horrible.

01:02:36Alex: Absolutely not interactive, not interesting to kids.

01:02:39Alex: Not very educational.

01:02:41Alex: Made you feel bad.

01:02:42Alex: Apple II beeps are annoying.

01:02:44Alex: Especially annoying when the computer's telling you you're wrong, stupid!

01:02:47Alex: But they're always annoying.

01:02:49Jeffrey: To be fair, computers are still annoying.

01:02:51Alex: [Amused] Well, yes.

01:02:52Alex: But they can make cool sounds now.

01:02:55Alex: She thought it would be cool to kind of design her own educational program. So she designed a reading program, Speed Reader.

01:03:02Alex: A vocabulary program, Word Attack, and a mathematics program, basic Arithmetic program, Math Blaster, which we talked about in our A Hundred Thousand for a Hundred Thousand episode.

01:03:12Alex: 'Cause it was a big hit.

01:03:13Alex: These programs add a little more interactivity, a little more fun to standard academic drills.

01:03:21Alex: Didn't beep at you all the time just for getting a wrong answer.

01:03:24Alex: She's not a programmer, so she got a friend of hers named Richard Eckert to do the programming, but she did the designing.

01:03:29Alex: Released these products and offered them through mail order and they became successful pretty quickly.

01:03:35Alex: After a couple of years of this, uh, she kind of got tired of running this thing out of her house and decided she didn't want to deal with everything anymore.

01:03:43Alex: And decided she was going to sell her company.

01:03:48Alex: Or not sell her company, she doesn't have a company yet, but sell the rights to her games, sell this business to a small publisher down in San Diego, which has remained unnamed. I'm not sure who this was.

01:03:59Alex: Her husband, who is a very successful executive, actually, encouraged her not to sell because he's like, You love this too much. You're going to miss it. You don't really want to give this up.

01:04:08Alex: So they agree to meet at a restaurant in San Diego to go over the potential terms of selling.

01:04:14Alex: The software company that they came to meet was a no show.

01:04:17Alex: So Bob one more time was like, "This is a sign you don't really want to do this."

01:04:22Alex: "Don't sell."

01:04:23Alex: "You'll hate yourself for it."

01:04:25Alex: Turns out this restaurant they were going to had two locations and the software publisher went to the wrong one. So they weren't stood up.

01:04:32Alex: Just each went to a different restaurant of the same chain or the same ownership.

01:04:38Alex: That was enough of a hesitation that she decided to stick with it and then founded the company Davidson and Associates.

01:04:45Alex: The company continued to grow over the next few years.

01:04:48Alex: This was a period of time as we talked about in our Spinnaker software episode and in other places where education was kind of the last horse that you could still run out there on this home computer thing that was falling apart.

01:04:59Alex: Balancing the checkbook, storing recipes, doing the business at the business factory, doing your investments, none of that had been successfully sold to the general public as things you could do with a home computer.

01:05:09Alex: You could play games on him, but that was frivolous.

01:05:12Alex: Education was seen as the last thing that still had a shot to convince people the home computer was valuable.

01:05:16Alex: So educational software companies like Davidson and Associates, Spinnaker, and the Learning Company, and Brøderbund, which was not technically an education company, but kind of backed into it, all became very successful in this time period. The company grew and grew.

01:05:30Alex: In 1989, she convinced her husband Bob to leave his cushy vice president job at the construction firm Parsons International, where he was in line to be the next CEO, to come and work for her instead as the CEO of her company.

01:05:46Alex: He was a little reluctant at first and then she, this is the story they tell, it's a cute story. She pulled out this psychological thing or career search thing that he had done back in college that said that he would be most happy founding and running a small entrepreneurial business.

01:06:01Alex: Showed that to him was like, "See? This is what you really want to do, you don't want to stay at that big old company!" He agreed.

01:06:07Alex: Became the CEO in 1989, and he knew his stuff.

01:06:12Alex: He was really good at this.

01:06:13Alex: He basically started patterning their business similar to how Electronic Arts did things.

01:06:18Alex: With a studio system and affiliated companies and all of that kind of stuff.

01:06:25Alex: The company continued to acquire more products, both that it created itself and it's listed from outside developers.

01:06:31Alex: And got bigger and bigger and bigger as the early '90s went on.

01:06:36Alex: They finally got kind of to the ceiling of what Bob Davidson thought that they could do in the edutainment field.

01:06:43Alex: So he started to look for acquisitions in the computer entertainment field, which was where the real money was.

01:06:51Alex: Turns out there was a little company called Silicon and Synapse that had done a port of a Davidson product called KidWorks.

01:07:00Alex: That had done a really great job on the port and had really impressed Bob.

01:07:03Alex: So he went to that company and asked if they would be willing to be acquired.

01:07:08Alex: At the time, Silicon and Synapse was kind of torn between going with Davidson, which was offering them good money, and Interplay, whom they had been working with for several years.

01:07:17Alex: Finally, because of the existing relationship, they decided to go with interplay.

01:07:21Alex: Jan Davidson called them up and talked to him and said, "I think you're making a big mistake."

01:07:26Alex: For some reason that resonated with the Silicon and Synaps people.

01:07:30Alex: It kind of bothered them.

01:07:32Alex: At the same time, according to Brian Fargo, head of Interplay, he was also telling them that if Davidson is offering you this much money, you should really take the money.

01:07:40Alex: So they changed their mind, and allowed themselves to be purchased by Davidson.

01:07:45Alex: Of course, Silicon and Synapse soon after that, changed its name to Blizzard Entertainment.

01:07:50Alex: So Davidson had Blizzard right at the beginning, this is even before they published Warcraft.

01:07:55Alex: Had them right at the beginning before they became a publisher.

01:07:58Alex: But because Davidson was using this kind of studio system, he was willing to (A) leave Blizzard alone as long as they kept doing a good job and (B) let them have their name on the box.

01:08:09Alex: You know, we knew Blizzard as kids, 'cause that logo would pop up on all their games. We didn't know Davidson and Associates.

01:08:15Alex: Davidson was a really good businessman, really understood the market, great at organizing sales and distribution.

01:08:22Alex: Much better at all of this stuff than Ken Williams.

01:08:26Alex: He was a lawyer, and Jan calls him a business school grad. I don't know if he had an MBA, but he at least went to business school regardless, and really knew what he was doing and ran a tight ship.

01:08:36Alex: Which is presumably why Forbes was so interested in him.

01:08:39Alex: Unfortunately we don't have the perspective of Bob Davidson. We know why Ken Williams sold out.

01:08:44Alex: We don't know why Bob Davidson sold out.

01:08:46Alex: We can make a guess though.

01:08:48Alex: As I said, this is a period when retail is really changing.

01:08:51Alex: Computer, edutainment, and entertainment software is for the first time moving into really big box retailers.

01:08:58Alex: Big box retailers demand so much more out of these companies than specialty computer software shops like the Babbages and Software Etceteras of the world did.

01:09:09Alex: They require large orders to fill their shelves.

01:09:13Alex: But they also require an absolute right to return product that doesn't sell.

01:09:19Alex: Some people who've, uh, worked in the industry have told me this could be a huge double-edged sword because you'd get so many big orders and make so much money up front in theory from these big box retailers.

01:09:31Alex: But then they might send all of that stock back in two months.

01:09:36Alex: They're not gonna wait for it to sell through slowly over time like a babbage's might.

01:09:40Alex: So companies needed to become bigger and bigger to take the inventory risks that were demanded by big box retail, which wants higher margins, greater price protection, greater right of return. All of this stuff.

01:09:54Alex: This is why you see so much consolidation in the 1990s that we've talked about before in the computer game industry in the United States.

01:10:01Alex: A month before the CUC deal was announced between CUC, Davidson, and Blizzard.

01:10:09Alex: Davidson's biggest competitor, in the educational space, the Learning Company, was bought via a hostile takeover, a truly hostile takeover, by the company SoftKey.

01:10:20Alex: A company that made basically dirt cheap office productivity software and so wanted to move into the market of making dirt cheap edutainment software to sell into Walmart and other big box retailers.

01:10:33Alex: We're not gonna get into the whole learning company story. We covered that in our Brøderbund episodes. It's another kind of disastrous situation of acquisitions not panning out.

01:10:43Alex: But basically the Learning Company was dismembered by SoftKey.

01:10:47Alex: That really just wanted the product. Didn't want any of the people or the infrastructure.

01:10:52Alex: So I have to imagine that Bob Davidson, looking at that, where his biggest competitor was sucked up like it was nothing by SoftKey and then dismembered. Was probably like, this Walter Forbes guy is offering us a lot of money and he's promised me control.

01:11:08Alex: He promised both of them control, but Bob Davidson was smart enough to get his control written into his employment contract.

01:11:15Jeffrey: [Laughs]

01:11:16Alex: Because he's a savvy businessman.

01:11:18Jeffrey: Yeah, let that be a lesson to you kids. If someone comes up with all big smiles, yeah, we'll give you this whatever.

01:11:26Jeffrey: Always, always, always get it in writing.

01:11:31Alex: Indeed.

01:11:32Jeffrey: This is standard CYA in the business world too.

01:11:36Jeffrey: Someone gives you a verbal command to do something.

01:11:40Jeffrey: Follow it up with an email or something and say like, "Hey, just to confirm you told me to do this, I'm going to do this by this time. Here's a status update on it, whatever."

01:11:50Jeffrey: You can figure out your own personal way of how to do that, but it's just really important to create that paper trail.

01:11:56Alex: Absolutely.

01:11:57Alex: I think that's probably why he sold. They were offering a lot of money and it looked like it would allow him to sell to someone who was gonna let him keep control of his business instead of risking being gobbled up by SoftKey and losing all of that control.

01:12:10Alex: The Davidson's accepted the deal as well.

01:12:12Alex: Bob Davidson immediately started asserting the control that he felt that he had by virtue of his employment contract and other guarantees over the entire business.

01:12:22Alex: Which led to huge friction with the Sierra people and a big power struggle.

01:12:27Alex: The office of the president ended up being meaningless.

01:12:30Alex: Ken Williams basically didn't have a leg to stand on. I mean, he tried to get Walter Forbes to intervene on his behalf.

01:12:37Alex: Forbes just kind of vaguely tried to placate both of them. Like, I'm sure you can learn how to play nice together kind of thing.

01:12:45Alex: But of course, Davidson was the one that had the true control.

01:12:48Alex: This created a lot of friction in the company at this time.

01:12:50Alex: Then after all of that. After Bob Davidson goes through all of the effort to assert total control over CUC Software.

01:12:59Alex: Which is what the combination of Davidson and Associates and Sierra is called.

01:13:05Alex: He suddenly starts selling off all of his CUC stock and Insisting that C UC sell the entire software business back to him, back to the Davidsons, or they will walk away.

01:13:20Jeffrey: That sounds awfully suspicious.

01:13:23Jeffrey: Like he found out something- [Alex laughs] -and he's like, I am going to abandon ship, "Diplomatically".

01:13:32Jeffrey: I'm guessing this is the part where we're going to get to [Upset] The Thruth.

01:13:36Alex: In Indeed it is.

01:13:39Alex: Forbes says no. We believe in this business. We're staying in this business. You can't have the company.

01:13:45Alex: Good day, sir.

01:13:46Alex: So at the beginning of 1997, the Davidsons, both Bob and Jan, leave the organization.

01:13:54Alex: Ken Williams figures this is his chance to finally get control of the whole thing.

01:13:58Alex: Instead, the business is placed in the hands of Chris McLeod, the third member of the sham office of the president that was the CUC guy, who had no game experience.

01:14:08Alex: Solid enough businessman.

01:14:10Alex: But never done anything in games before.

01:14:13Alex: Clearly Forbes was never interested in Williams expertise.

01:14:19Alex: Williams responds by trying to throw himself into the online retail stuff, into the Net Market stuff.

01:14:25Alex: He starts trying to build a business plan to grow that business.

01:14:29Alex: He asks for a meeting with Forbes and his right-hand man Kirk Shelton partway through 1997 to present his pitch on what he thinks the future of online retail is.

01:14:38Alex: Forbes and Shelton basically ignore him.

01:14:41Alex: Don't seem to care at all.

01:14:43Alex: With that kind of final insult, it's not long after that that Williams himself also leaves the company.

01:14:49Alex: He never had any control over Sierra or the game business at CUC after he sold.

01:14:55Jeffrey: Definitely seems like Walter Forbes is one of those people who is all smiles, promises the world to you when he wants something out of you.

01:15:04Jeffrey: But the second he has what he wants, he'll brush you off, Ignore you, do the bare minimum placates just to get you to go away.

01:15:13Alex: Indeed, the Williams is gone.

01:15:17Alex: Davidson is gone, under rather unusual circumstances.

01:15:22Alex: In the aftermath of this Forbes pushes another, even larger, acquisition.

01:15:30Alex: Not in the game space, but a larger acquisition of a company called H. F. S.

01:15:39Jeffrey: High Fructose Syrup?

01:15:41Alex: Uh yeah, sure.

01:15:44Alex: It's called HFS now, but it comes from the original name Hospitality Franchise Systems.

01:15:51Alex: HFS, was founded by an individual by the name of Henry Silverman.

01:15:56Alex: A long time investment firm, private equity firm, guy.

01:16:03Alex: I actually worked briefly for Steve Ross back in the '60s as an assistant.

01:16:07Alex: Then got involved in investment banking and then moved from there to private equity.

01:16:11Alex: Who had gotten control of Days Inn, Ramada, and Howard Johnson, the hotel franchises, and created a company that was a franchisor of major brands.

01:16:26Alex: You haven't heard of HFS. Most people haven't heard of HFS.

01:16:29Alex: But you've heard of the brands that they controlled.

01:16:32Alex: Ramada. Days Inn. Howard Johnson.

01:16:35Alex: He expanded from hotels into real estate.

01:16:38Alex: Century 21.

01:16:40Alex: Coldwell Banking.

01:16:41Alex: Then he even moved in to rent a cars, Avis.

01:16:45Alex: These were all controlled by HFS.

01:16:48Alex: It was a franchise system. They didn't have to own any of the stores, any of the real estate, any of the employees.

01:16:54Alex: They just owned the brands.

01:16:57Alex: They would allow people to buy franchises that gave them access to the brands and a little bit of training around the brands and the prestige that the brands brought, In exchange for the franchising fees.

01:17:09Alex: Then he would periodically inspect them to make sure that they were living up to the standards of the brand.

01:17:14Alex: But basically he just controlled the brands.

01:17:17Alex: He established this company in 1990 and it was growing rapidly.

01:17:21Alex: Rapidly, rapidly.

01:17:23Alex: Forbes approached Silverman about buying HFS and incorporating it into CUC.

01:17:30Alex: Silverman was like, "No way."

01:17:32Alex: We're not doing that.

01:17:34Alex: But we can merge.

01:17:37Alex: Our company's going to be the surviving company if we do this.

01:17:40Alex: But we can merge our operations together.

01:17:44Alex: So at the very end of 1997, HFS and CUC merge to form a new company called Cendant, C E N D A N T.

01:17:54Alex: This merger makes a little more sense to the markets than the computer game thing did.

01:18:01Alex: Because the idea is, you know, the way that CUC solicits customers is often through promotional tie-ins and special deals with credit card companies and you know other organizations that does the marketing for them.

01:18:15Alex: The idea that you have all of these brands that Cendant has, and then these brands can be leveraged to market some of the shoppers clubs that CUC has.

01:18:27Alex: This deal makes slightly more sense. It's still a bit odd, maybe, but it makes slightly more sense. And it's a big big deal.

01:18:36Alex: Like the size of the deal, you know, the Sierra and Davidson deals were 1.7 billion, right?

01:18:43Jeffrey: Mm-hmm.

01:18:44Alex: This was a 14 billion dollar merger.

01:18:48Alex: So this was a huge deal.

01:18:52Alex: They were gonna kinda keep things separate, at least at first.

01:18:55Alex: The CUC lines of business and the HFS lines of business were gonna be run separately.

01:19:00Alex: Silverman was going to be the CEO of the company for two years, Forbes the chairman, and then they were gonna swap places.

01:19:07Alex: Forbes would be the CEO and Silverman would be the chairman.

01:19:10Alex: So it was treated as kind of a merger of equals, though HFS was the surviving corporation.

01:19:16Alex: It's through this merger that the truth about CUC and all of its shenanigans comes out.

01:19:24Alex: As well as the real reason why they wanted to buy companies like Sierra and Davidson and why they wanted to do a mega deal with HFS.

01:19:35Jeffrey: [Darkly] The truth.

01:19:36Alex: [Outro music - Bactrial Love - by Role Music] And in our next episode, we're gonna find out all about it.

01:19:41Jeffrey: I was promised shenanigans this episode, Alex, and you barely gave me any. I feel dipped.

01:19:47Alex: Well, you know, I mean, that's keeping in line with our subject. I promised you a lot and you didn't get it. How does that feel, Jeffrey?

01:19:55Jeffrey: [Dramatic] This podcast is over. Goodbye! Last episode ever!

01:19:58Alex: Ah, in all seriousness, it took a little longer to set everything up than I thought it would. I thought we might get through the entire CUC saga, but It's gonna take us another 45 minutes at least to walk through all of the crazy corporate shenanigans to come.

01:20:12Alex: So it's better to stop it now, and pick it up in our part two. But it's gonna get pretty crazy, Jeffrey.

01:20:19Jeffrey: We definitely seem to have teased it in a few points there.

01:20:22Alex: I can promise you that and I'll even put that in writing if you need me to. [Laughs]

01:20:26Jeffrey: I'll email you later and be like per our episode thing.

01:20:30Jeffrey: I was promised shenanigans in the next episode. So just so you know, I'm looking forward to that.

01:20:35Alex: Indeed.

01:20:36Jeffrey: Well kids, you can certainly see that something is wrong deep underground at CUC Software. So I'm gonna get to dynamite and start doing some excavating. Next time, on They Create worlds.

01:20:52Jeffrey: Check out our show notes at podcast.TheyCreateWorlds.com where we have links to some of the things that we discuss in this and other episodes.

01:20:59Jeffrey: You can check out Alex's video game history blog at VideoGameHistorian.WordPress.com.

01:21:05Jeffrey: Alex's book TheyCreate Worlds, the story of the people and companies that shape the video game industry, Volume 1, can now be ordered at CRC Press and at major online retailers.

01:21:14Jeffrey: Feel free to email us at feedback@theycreateworlds.com.

01:21:18Jeffrey: Please consider supporting us on Patreon at Patreon.com/TheyCreateWorlds. If you do sign up, please do so through the website and not through the iOS app. This saves you from the 30% Apple markup.

01:21:29Jeffrey: We understand that you may not be able to financially support us. But you can still support us by leaving a review on Apple Podcasts, Spotify, or the podcasting service that you use.

01:21:38Jeffrey: We now have the podcast available on YouTube. Please like and subscribe.

01:21:42Jeffrey: Intro music is Airplane Mode by Josh Woodward. Found at JoshWoodward.com/song/AirplaneMode used under a Creative Commons attribution license. Outro Music is Bacterial Love by Role Music. Found at freemusicarchive.org. Used under a Creative Commons attribution license.

01:22:00Jeffrey: I've made so many changes to the the website.

01:22:03Jeffrey: It's all pretty now. Not to mention I completely changed how the feed works, too. That's also crazy. Everything's crazy. Even me.

01:22:12Jeffrey: Also, hi Lincoln!

01:22:13Jeffrey: Hi Ben!

01:22:14Jeffrey: Hi BJ! Fun meeting you at Midwest Gaming Classic. I don't know what else to say.

01:22:19Jeffrey: But hi!

01:22:20Alex: Indeed, Jeffrey.

01:22:22Alex: Indeed.