INTERNATIONAL: MEDIA OWNER PROFILE; Why profits don’t have to be a priority for cable giant TCI

One man’s vision turned TCI into a global network with assets of around dollars 25bn.

One man’s vision turned TCI into a global network with assets of around

dollars 25bn.



There aren’t many companies that reward their managers for making a

loss, but the Denver-based TCI is one of them.



In the 25 years the company has taken to grow from a local antenna

business into a global telecommunications and media company, it has

seldom posted a profit - and yet its interests add up to assets of

dollars 25 billion, making it bigger than Walt Disney, and even dwarfing

Rupert Murdoch’s massive News Corporation.



There’s a simple explanation for this. The TCI president and chief

executive, Dr John Malone, is said to have told his senior staff that if

their divisions ever showed a profit, he would find the person

responsible and fire them. As profit inhibitors go, that’s not a bad

one.



There is method in this apparent madness. Malone may have gained his

doctorate in electronics but its his financial engineering that has

impressed observers most. In particular, his policy of using any cash

generated to buy businesses rather than pay out dividends - thus

avoiding paying millions of dollars in corporate tax. Investors haven’t

complained because their stock has been one of the fastest-growing in

Wall Street’s history.



When Malone, now aged 56, joined TCI in 1973, he had cut his teeth in

tele-communications at the management consultancy, McKinsey. TCI was

actually founded by its chairman, Bob Magness, who now shares voting

control with Malone. But although Magness spotted the potential of local

cable in the 50s and sold his ranch to finance the company, it was

Malone who took TCI from its local roots on to the international stage.



The Denver-based giant now owns the largest cable operation in the US

and UK, and directly operates businesses in 20 countries worldwide. It

also has interests in more than 100 cable and satellite TV channels - a

figure that can be expected to grow exponentially as digital capability

becomes a reality. Finally, when the current Time Warner/Turner

Broadcasting merger clears all the regulatory hurdles, TCI will be the

largest single shareholder in that media megalith. But despite all this,

and a global alliance with Rupert Murdoch’s News Corporation which was

formed this summer to run Fox Sport TV sports channels around the globe,

the company has a low profile outside its North American heartland.



In part its invisibility is to do with TCI’s complex ownership

structure, which helps disguise just how far the corporation’s tentacles

reach. Keeping pace with the complex web of joint ventures,

partnerships, minority stakes and cross holdings that make up the

company is an achievement in itself.



In the UK alone, TCI has a majority shareholding in a publicly traded

company called Tele-Communications International or Tinta. Tinta has a

controlling interest in the UK’s largest cable operator, Telewest. It

also has a 49 per cent stake in the European music programmer, DMX

Europe, and a 48.8 per cent stake in the publicly quoted company,

Flextech - although in this company it has 50.9 per cent of the voting

shares, giving it full effective control. Flextech has stakes ranging

from 15 per cent to 100 per cent in a further 12 cable and satellite

channels, and a fifth share in the quoted terrestrial TV service,

Scottish TV, which in turn has interests in a raft of Scottish

newspapers, and a programme sales company. Complicated? The UK

arrangement is transparent compared with TCI’s multifarious interests in

the US.



TCI claims there are two main reasons for its complexity. The first,

inevitably, is regulation. TCI can’t legally own broadcast licences in

markets where it has cable interests, which is pretty much all of them:

there are restrictions on the number of channels it can own and in each

territory there is a different regulatory authority defining ownership

in a different way. So a little complexity is perhaps to be expected.

‘We contort ourselves to fit the rules,’ was how Malone described the

process.



The second reason is that the company, by keeping its fingers in many

pies, can benefit from economies of scale.



‘We regard all the disparate parts of our business as a whole,’ Adam

Singer, the International president and chief operating officer of Tele-

Communications, says. ‘We see no point in being in distribution of

programmes, for example, and not in their production. And if you take

our cable and telephony services and broadcast TV interests and

satellite channels and programme-makers together you can see how we

start to get economies of scale.



‘Take Europe, for example, where the level of subscribers to cable and

satellite is still small. It would be very difficult because of that to

make a standalone channel work. You have to be able to share the costs.

What we try to do is to maximise the economies of scale which is the

whole trick to making a successful business.’



And TCI is a hugely successful business, emerging as a favourite to

complete a deal with the BBC to help it into the international world of

cable, satellite and digital broadcasting. Although this move came as a

surprise to those who had not kept pace with TCI’s growth in power, it

seems a logical step for one who is already in bed with many of the

world’s big guys. Indeed, those in the know have already realised that

TCI represents one of the biggest big guys there is.



TCI at a glance



US INTERESTS



TCI has 13.5 million analogue cable subscribers, with a digital service

rolling out later this year in three US markets. This will bring up to

80 more channels, including pay-per-view. Total cable revenues were

dollars 5.1 billion last year.



Primestar is a digital satellite service with more than half-a-million

subscribers.



TCI Internet Services offers high-speed Internet access, principally

through a company called @Home. This is being tested in three US markets

before a national and international rollout. TCI also has stakes in the

entertainment software publisher, Acclaim, and the Internet software

company, Netscape.



TCI Telephony Services offers telephone services to cable subscribers.



Liberty Media is the largest provider of cable programming in the US,

and runs several worldwide sports cable and satellite channels in

conjunction with News Corporation, including the Premier Sports Network,

Fox Sports and Prime International.



Liberty also owns 23 per cent of Turner Broadcasting Systems, which

operates channels ranging from CNN and the Discovery Channel through to

Court TV, the Cartoon Network and E! Entertainment. It also owns the

pay-per-view movie network, the Encore Media Corporation.



Silver King Communications, a venture with Murdoch’s former lieutenant,

Barry Diller, is the sixth-largest network terrestrial TV broadcaster in

the US, and owns the world’s largest home-shopping channel, QVC.



International interests



Tele-Communications International operates in nine European countries,

and eight South American and Asian markets.



Its prime programming arm in Europe is the UK-based Flextech company,

which operates Bravo, the Children’s Channel, UK Gold and UK Living, the

Family Channel, EBN, the Playboy Channel, Discovery, TLC, Sell-A-Vision,

Kindernet, VTV and the Parliamentary Channel.



In France a venture with Canal Plus and Compagnie Generale d’Images led

to five cable and satellite channels.



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