What You See is What You Get

by Sugar, Alan

  I walked out of that building with a £78m order. David Hyams couldn’t believe it. At this time, late 1989, we knew it would be such a shot in the arm to all the boys back in Brentwood, considering the tough times we were going through on the PC2000 series.

  After the meeting in Wapping, the focus was now on getting these new receiver-decoders to market quickly. Thomson had also been given an order and promised to get their units to the market on time. My parting comment to Rupert was, ‘I bet you ten dollars that even though I’m using Thomsons technology, I’ll have our unit to market quicker than they do, even if they are the inventors of VideoCrypt.’ He shook my hand in front of his board of directors as I left.

  To show you how horrible these Thomson people were, I’ll share another story. Our chief engineer, Ian Saward, was a specialist in satellite receivers. He was tasked with developing the new receiver-decoder and obtaining technical approval from Thomson. We had already engineered the product and got it working and were ready to push the button on production. However, we couldn’t get supplies of the SGS chip until we’d received approval from Thomson. Ian told me that we’d sent them a sample over three weeks before, but they hadn’t tested it yet.

  I went nuts. I called some person in France and asked them what the hell they were playing at. This was their answer: ‘Yes, you have sent us a sample, but the sample is currently in customs. It is not our job to clear your sample with customs – it is your job to deliver your sample to the doors of our laboratory.’ Bastards. They were deliberately slowing us down.

  I suggested that Ian get another sample, jump on a plane, go to their offices and stand there while they tested it. Ian went, but they would not allow him into their laboratory or give him a time when they would start testing it. They said, ‘We are very busy and we do not know what time slot we can give you. We will let you know.’

  Two weeks passed. Nothing.

  We screamed down the phone at them, asking what was going on. They told us, ‘We have tested your unit and it has failed.’

  ‘How did it fail?’

  ‘It is not for us to tell you how it failed; it is for you to look at our specification and make sure it passes.’

  ‘Well, just tell us which part of the specification it failed.’

  ‘No, we have told you – it is not for us to tell you which part of the specification it failed; it is for you to make sure you present an item that passes.’

  This was getting out of hand now. We had over half a million other parts sitting in the Far East ready to produce, but Thomson would not pass the product – and we knew there was nothing wrong with it. I spoke to David Hyams who advised me that what they were doing was tantamount to being illegal.

  I got on to News Corporation’s lawyers and, together with Herbert Smith’s lawyers, we sent a stinging letter to Thomson threatening that we would report this matter to the European Community’s Restrictive Practices organisation. These letters went by fax the next day (getting lawyers to work that fast was a miracle).

  We must have touched a nerve because the engineering people at Thomson were instructed to inform Ian Saward exactly which part of our satellite receiver had failed. When we got the unit back and looked for the problem they’d outlined, we found that, in fact, nothing had failed. We tested the unit thoroughly in our laboratory and it sailed through. One of our engineers was sent on a plane to Thomson, who retested the unit and finally gave us technical approval which enabled us to get the chips from SGS in Milan.

  Sky Television was steaming ahead, taking premises in Isleworth, west London, where they built studios to transmit Sky News. Rupert had employed a Scottish fellow, Liam, to be in charge of the logistics of taking the satellite receivers from us and installing them for customers, including setting up a network of salespeople and installers.

  At the time, apart from the opportunity of buying movies on a pay-per-view basis, Sky did not own any other major rights such as football or cricket. I think it fair to say that in the early days of Sky, the sales team were a bit like double-glazing salesmen – they were incentivised to get subscribers. Who knows what bullshit they were giving people, but they were certainly getting a lot of product installed around the country. The viewer base was growing.

  However, what Liam had organised was chaos – although to be fair he had an almost impossible job when you compare his small team with the infrastructure that exists at Sky today. We started to hear rumours that installers were stealing boxes and dishes, that there was no control on inventory or the quality of the subscribers they were signing up. The running joke was that a salesman would turn up at a house, see a kid and say, ‘Do you want to watch cartoons?’

  ‘Yes.’

  ‘Sign here.’

  Bingo. That was an installation. It was a real shambles. Nothing compared to today’s brilliantly slick Sky operation.

  The boss of Sky at the time was another one of Murdoch’s editors, Kelvin MacKenzie, who had successfully edited the Sun. It was clear that changes were needed and Rupert took action, appointing a heavy-hitter from Australia, Sam Chisholm. He was the first guy to come onboard who had some actual knowledge of the Pay TV industry. Sam had successfully worked for Kerry Packer in Australia and he was brought in to take over as top man at Sky.

  I’ll never forget my first meeting with Sam Chisholm, a short, round-faced fellow, in his mid-fifties I guess, with a broad Australian accent. You could see this bloke had fire in his belly and he talked with an air of authority – you got the feeling he was a tough street-fighter. He came to my offices in Brentwood with Liam and when we offered him coffee or tea, he abruptly said, ‘No, thank you, no. I’ve got to get down to business. These orders you’re shipping us have got to stop. We’ve got stock coming out of our ears – you simply have to stop.’

  That was his opening gambit. We had shipped all the goods ordered at the meeting in Wapping and Liam had placed more and more orders, as he was putting more and more units into the market. Now people were sending them back or telling Sky they didn’t want them and a lot of people weren’t paying the subscriptions. Chisholm had been thrown in at the deep end to try to stop this fiasco and get the business on the right track. His first port of call was me.

  Sam sat in my office, opposite me, with Liam behind him. You could see from his body language that Liam resented Sam Chisholm’s presence and was revelling in seeing Chisholm try to cancel the massive orders. Liam had obviously briefed Chisholm that I was not someone to mess with because, despite Sam’s bravado (I can remember it as if it were today), his hands were actually shaking. Liam, meanwhile, was smiling at me.

  I am a realistic person. This wasn’t the Nigerian United Africa Company, this was not a case of taking the money and running; this was a serious business and it was clear that it had got totally out of hand. There would be no future for Amstrad in this business if it were to carry on this way. I knew this had to stop. In fact, I was surprised it had taken so long for someone to come along and pull the plug.

  I decided to help out. I assured Sam that I would do everything in my power to slow production down until he got himself sorted out, but this might mean the cancellation of a lot of components which were particular to his model. I was honest with him – I told him I’d be able to re-use 65 per cent of the components in a model which I could sell in Germany. He was very relieved at my reaction, as he’d thought his first meeting with me would end up with us having a big legal battle.

  I told Sam not to worry, that I was standing alongside him as part of the family. I had seen Sky Television announced back in June 1988, launched in 1989 and had kept my promise to have equipment in the shops by February 1989. I’d even won my $10 bet with Rupert by getting our receiver-decoders to the market first. I said to Sam, As far as I’m concerned, apart from making money selling these things to you, I’m actually enjoying watching this new television network being born, so I’m onside with you. I’ll come back to you in a week or so, when my people have done the calcul
ations, and I’ll advise you of the financial exposure on the components we can’t use.’

  The specialised components for the outstanding orders came to a few million quid and we were able to convert the rest of the stock for the German market. It must have come as a great relief to Sam when I told him that the orders currently outstanding – which were worth in the region of £40–50m and which he was contractually obliged to take – could all be cancelled for a few million. We struck a deal and they paid up.

  *

  Once BSB had launched, they and Sky were beating each other up. This wasn’t a healthy situation for Murdoch. It was like his newspaper business, where the Sun was forever competing with the Daily Mirror. There was also some inevitable confusion in the marketplace amongst retailers. BSB had commissioned Philips and Tatung to make the D2MAC receivers and retailers stocked both BSB and Sky (Amstrad) equipment. BSB was burning money like there was no tomorrow. They were a totally useless, uncommercial mob compared to the great marketeers at News Corporation and Sky.

  In late October 1990,I took a call from Sam advising me of a big summit meeting being held with BSB and Sky. Rupert had flown in and was currently in a hotel room, locked in negotiations. I learned it was likely that an agreement would be reached whereby Sky Television would combine with BSB as a single entity. This sounded the sensible thing to do.

  About an hour later, I got a call from Rupert telling me they’d come across a stumbling block – the bloke in charge of BSB and his team were trying to salvage some dignity out of the deal. What they wanted was an assurance that the new company would not use the PAL system but D2MAC instead. This was BSB’s attempt to win some brownie points rather than face the humiliation of all the senior management being chucked out for making a real Horlicks of it.

  I told Rupert that this was absolutely unacceptable, not just because the units Amstrad were making for him were PAL, but because so were Thomson’s. Sky already had hundreds of thousands of PAL units in customers’ homes – how could they change over to D2MAC mid-stream? In view of the much smaller number of BSB squaerials installed, if anyone had to be disappointed, it would have to be the 20,000-odd BSB customers. I advised him, for his own sake, to go back in there and insist that there was no way he was going to agree to the D2MAC system. Once I’d pointed out the logic to him, he realised I was right.

  Later that evening, Rupert called me to say the deal was done, but that it wouldn’t be announced for about a week while some technicalities and contracts were being sorted out. Until then, everything was confidential. He finished the call in a strange way, saying he was going to send me a letter the next day. What was that all about?

  A couple of days later, Frances gave me a single sheet of paper. It was from Rupert Murdoch and read, ‘Dear Alan, it has taken me three hours to write this letter. You should be aware that it is the first letter I have ever written on a computer. Thank you very much for the laptop you gave me – it’s great.’ I’d forgotten that I’d sent Rupert a real leading-edge portable computer with a fantastic colour screen which we’d recently launched – the ALT1000.

  Now, just to show you that I’m not a nasty guy to my friend Stanley Kalms, Dixons was, of course, selling Philips and Tatung BSB receivers and squaerials, having disposed of all the Sky ones. Effectively, they had placed their bets with BSB. Little did Stanley know that in a week or so’s time there was to be an announcement which would render his BSB inventory at Dixons redundant.

  I called Stanley and suggested he take me out to lunch at Harry’s Bar, around the corner from his office, as I had something that was important for him to know. He was intrigued. During lunch, I said, ‘I’m about to do you a favour. Now don’t forget this because I know you wouldn’t do the same for me. I swear you to secrecy.’

  I quickly explained the situation and told him, ‘You’re going to be well and truly lumbered with all that Philips and Tatung stuff you’ve got in stock. I suggest you get back to the ranch quickly and get Danny Churchill to come up with some cock-and-bull story – because he’s very good at those, as you know – and tell Tatung and Philips that you’re sending all the stuff back. And might I suggest,’ I added, ‘that because Tatung and Philips need you more than you need them – in that you sell their TVs, VCRs and everything else – you have far more bargaining power in getting them to take the stuff back than you had with me when I made you cut your losses.’

  I warned Stanley, ‘This time, even if you agree to take half of what you paid for those satellite receivers, they’re totally useless – there will be no more broadcasts to watch on them! So you need to go and do what you’re best at doing, and screw Philips and Tatung.’

  Stanley was dead shrewd and he got the plot straightaway. I think he grunted a thank you to me and he might even have paid for lunch!

  About a week later, Sam Chisholm called and asked me whether I would show up at a television studio to be interviewed in front of ITV and BBC cameras about Sky taking over BSB. They wanted some comments from me, as the leading supplier of equipment in the marketplace.

  The deal was announced late on a Friday night, 2 November, and on Saturday I went to a studio somewhere in the West End. Rupert had given the BSB mob a little bit of dignity in that the name of the company going forward would not simply be Sky Television – it would be BSkyB, standing for British Sky Broadcasting. I heard a rumour that the company name was one of the things that clinched the deal. If so, it shows you how pathetic some people can be in business – little things please little minds.

  *

  Looking back on Amstrad’s spectacular growth, one of the things I regret was the lack of financial control for a company of our size. We certainly allowed the entrepreneurial spirit to flourish through Marion, Dominguez, Jost and myself, of course, but we were all marketing people who paid little attention to detail when it came to general housekeeping. That was fine when everything was going well and we had hot products that everyone wanted, but caused problems when things started going wrong, as with the PC2000 series. Despite the excitement of the satellite business, realistically, it was only part of the whole. The computer side was slugging us down, people were not paying, and stocks were building up in the subsidiaries.

  When you get to that stage, desperate for sales, you start making arrangements you wouldn’t normally make with customers – things like offering goods on sale-or-return, or agreeing extra-special discounts if they bought a certain volume.

  Alarm bells started to ring in early 1989. Ken Ashcroft and I decided to appoint one of our accountants as an internal auditor and send him regularly to the overseas subsidiaries to see what was going on. It must sound crazy to think about doing this after the horse had bolted, so to speak, and it goes to show how lax we were in those days of spectacular growth. We posted a senior accountant, Tony Dean, to Germany on a permanent basis. Jost was turning out to be a bit of a Jack the Lad – he was running the company as if it were his own, with no regard for authority or policy.

  As a result of these internal audits, a horror story emerged – terrible financial control and customers owing us lots of money with no clear road map as to when we would get paid. Spain was particularly bad, with the debtors’ list getting bigger and bigger and payment running out further and further. I discovered that some customers had been allowed over 180 days’ payment and in many cases payment terms weren’t even specified. The exclusive distributor in Barcelona owed Amstrad Spain a fortune.

  When we delved into the financial arrangements, it was as clear as mud. Dominguez had let the thing run wild. He had lost his enthusiasm when he realised that Amstrad had run out of ideas and that customers were no longer begging for stuff. He was confronted with having to deal with mundane housekeeping and problems with customers and he didn’t like this at all. He wanted to focus on new blockbuster products and create advertising campaigns and sell hundreds of thousands of units, but those days were gone. He’d cashed in a load of money when we bought his company and I was heari
ng rumours that he was dabbling in real estate and property and not focusing at all on the shit we were in.

  I liked Dominguez as a person and it was a sad day that September when I flew to Madrid with Malcolm Miller and told him that he and his senior staff were fired. We needed to put in some sensible people with a good accounting background to try to sort the mess out. Similarly, in Germany, Jost was a loose cannon. We removed him and promoted the sales manager, Franz Simias, to take over the company.

  We were in fire-fighting mode. Every single week there was another problem. My focus turned to shrinking the company and stopping the bleeding. In Spain, France and Germany, we shed our luxurious office premises and incorporated them into the warehouses we rented. This cost-cutting exercise also entailed the removal of a lot of staff. I had turned from an entrepreneur – thinking up products and ideas – into a liquidator.

  We had chased our tails on the PC2000 series for over eighteen months – including the fiasco of exchanging the hard disk controllers – till eventually, in 1990, we threw in the towel and flogged the stuff off. The full ramifications of this meant write-downs which affected our accounts. It was clear we’d been legged-over by the hard disk drive manufacturers. This rankled with me and I instructed David Hyams to engage Herbert Smith to investigate whether we had any legal claims against Seagate and Western Digital. Both denied any liability for effectively ruining Amstrad’s computer business.

  We decided to issue legal proceedings against Seagate through the English courts and, for some reason better known to the lawyers, we issued proceedings against Western Digital in the United States. The preparation for these highly complicated court cases would take hours to explain. I won’t bore you with the details, save to say it would be years before we ever got to court to fight the cases. There was no quick solution.