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John Malone

Ken Auletta calls John Malone "The Cowboy" in his book The Highwaymen. Auletta agues that Malone is always on the frontier of new technology. With a background in engineering and experience in finance and the communication business, Malone not only understands how the technology works, but also how to use it to make money. Having his hands in both the cable distribution (Tele-Communications, Inc.) and cable programing (Liberty Media Corp.) businesses, Malone has been accused by government regulators of creating monopolies. Auletta cites three criticisms of Malone from members of the communications industry who deal with Malone: 1) he's a ruthless bully, 2) he can't be trusted, and 3) he's a monopolist. According to Auletta, Al Gore called Malone the "Darth Vader" of the information age because he appears to dominate the media universe with little regard for the other guy (1998, 28). Auletta also discussed the failed merger between TCI and Bell Atlantic. This failure is blamed in part on the government intervention with threats of monopoly crackdowns.

John Malone is now CEO and chairman of Tele-Communications, Inc. and in control of Liberty Media Corp., one of three separate divisions of TCI. Liberty Media controls more than 100 U.S. cable channels. The other two divisions, TCI Ventures and TCI Group, cover everything from U.S. cable systems to international cable, Internet, satellite and national digital video. Combined they control distribution and programing for a good part of the world. Recently, another company related to the parent TCI, TCI Music, became Liberty Digital when Malone transferred Liberty Media's interactive and Internet interests to it. Overall, Malone has more than $60 billion in investments and assets in new and traditional media (Hofmeister 1999).

Dr. John Malone is considered by the industry players and his critics as a conservative (Colman1998) and "a legendary taxophobe" (Sloan 1999, 44). The media titan has the reputation of being "one of the most brilliant and ruthless operators in the television business" (Hofmeister 1999, C1). His assets and business ties through TCI include Time Warner, USA Networks, Discovery, TV Guide and more recently News Corp. (Hofmeister 1999). Liberty Media, a part of TCI, adds assets and investments in cable television programing, high-tech and international media (Fillion 1999).

Malone has instigated several successful mergers over the past few years. Some call the 1998 merger between TCI and AT&T "the biggest deal in world media history" (Horrie 1999). Following the 1994 failed merger of TCI and Bell Atlantic, Malone was wary of merging with another phone company for fear of another regulatory setback. Malone also tread softly into the merger for fear of being out of debt. When he took control of TCI years earlier, it was $130 million in debt (Horrie 1999). Through some creative financial engineering, Malone used the debt as a tax benefit, using liquidity to boost return on equity (Estrella 1999). Following the TCI/AT&T merger, Malone was left debt-free with $9 billion in cash to invest as he pleased (Colman 1998). Mergers reshape the telecommunications industry, allying potential competitors for mutual gain. Malone wanted to get bargaining material and control of Liberty Media out of the deal, and "AT&T, the nation's biggest long-distance company, wants to use TCI's cable wires to bypass local phone companies (and the fees they charge) and offer customers telephone and Internet services directly" (Sloan 1999, 44).

Another more recent merger took place in April 1999 between TCI and Rupert Murdoch's News Corp. Besides its role as a major player in global satellite television, News Corp. also controls the Fox network, the 20th Century Fox studio, the L.A. Dodgers, and several newspapers around the world (Fillion 1999). Murdoch asked Malone to sit on the News Corp. board, which secures international distribution of Liberty's interactive channels (Hofmeister 1999). The TCI/News Corp. merger also puts Malone in a nice position in the expected struggle for control after Murdoch's death (Horrie11999).

Mergers result in synergistic relationships, on which Malone seems to thrive. "Malone is concentrating his portfolio on companies with interlocking agendas that can be allied strategically to their mutual benefit" (Hofmeister 1999, 44). With interests in all areas of telecommunications, Malone is in the position to control strategic alliances in cable, online and interactive realms. Synergies verging on monopolies attract government regulatory attention.

Malone is not only opposed to taxes. He also frowns on government regulation of the media industry. Liberty's spin off from TCI in 1991 was in response to government and industry concerns of "vertical integration" (Colman 1998). According to Malone, instead of discouraging mergers, the government should try to promote the creation of "super-corporations," such as TCI, that have enough capital to invest in new potential technologies (Horrie 1999, 9).

In the future, Malone hopes for more successes such as those he had in the @Home Network and Teleport Communications, an alternative access provider that he sold to AT&T (Estrella 1999). A spin off from AT&T in the near future is predicted by some experts. "Denver cable TV consultant Chuck Kersch is convinced that a split is coming, possibly at the end of 1999, when the five-year period since TCI repatriated Liberty ends" (Colman 1998). If they split before the five-year period is up, Malone will face harsh penalties from the IRS.

Future investments include General Instrument, Corp., the leader in set-top box manufacturing. Set-top boxes enable viewers to e-mail, shop, and surf the Net through interactive channels on their television sets (Hofmeister 1999). Set-top boxes are not only one way communication though. Advertisers are provided with information about the viewer in order to tailor ads to fit individual viewers (Lubove 1999). Another planned project is an interactive online version of TV Guide, accessed with remote control through television sets. Malone's proposed control over set-top boxes and TV Guide's online version worries some. "Many cable operators are worried about Malone's influence over both set-top boxes and the navigational guide because of enormous control it may give him over the viewing experience and his ability to give better placement and promotion to services and channels within the Liberty portfolio" (Hofmeister 1999, 44).

Malone has always been on the forefront of the technology scene. There are several new technologies taking off that Malone is anticipating as good for business. Malone says that he is attracted to E-commerce because it "cuts across the Web-TV boundary better than other applications" (Colman 1999, 42). Liberty Media recently created Liberty Interactive, a small subsidiary to control interactive television ventures, and intends to take TCI International private (Colman 1998).

Industry experts are watching for Liberty Media to purchase On Command Corp., which provides pay-per-view movies to more than one million hotel rooms internationally. Liberty is looking to use On Command as a delivery system for its ventures into Internet access, online shopping, sporting events and other digital services (Fillion 1999).

According to Malone, a movie studio is definitely not in Liberty's future. Malone says, "We tried making pictures once and they were awful. I don't mind having affiliate companies do that. But in terms of Dob (Liberty's CEO Robert "Dob" Bennett) being Cecil B. DeMille, don't count on it" (Colman 1999, 42).

Malone has several distinct philosophies in business that have lead to his success in traditional and new media industries. Regarding his interest in new media companies Malone says, "So the little ones can get big, too. You just have to have a nurturing kind of approach and patience" (Estrella 1999, 58). Malone has a history of investment success, but he maintains a practical outlook. He says, "In the technology world, you involve yourself in what you think are strong ideas. Some work out, some don't. The typical venture capital investment is a couple million bucks. Only when you have what you think is a home run, do you start pouring capital in" (Colman 1999, 42). Malone's philosophy of competition can be exemplified by his relationship with Rupert Murdoch. Malone explains, "Nobody can afford to get mad with their competitors because they are competitors in some areas, and partners in others. It has to be that way because the integration of media businesses cuts across so many technologies and across so many business areas" (Horrie 1999, 9). Malone's key principle of business is remaining in control of financial and technological decisions (Colman 1998).

Working with John Malone would be an adventure. He's strong-minded and stubborn, but he excels in the business of media and telecommunications. His global synergistic connections would be a benefit for any media corporation, and his reputation would come in handy for investment dealings. Besides, who could resist working with the industry's Darth Vader in the year of Lucas's Phantom Menace.

Rebecca L. Ash
JRL 304
May 3, 1999