Denver media giant on the cutting edge

March 29, 1992|By Adriel Bettelheim | Adriel Bettelheim,Special to The Sun

Denver -- Cable television was a little-known luxury in 1952, when part-time cattle rancher Bob Magness sold part of his herd to raise money to build a community system in Memphis, Texas.

The service quickly became a hit in the farm town by relaying broadcast signals that were too weak to be picked up by conventional antennas. But, more important, it marked the birth of an enterprise that over the next four decades has become one of the biggest -- and some say most feared -- media powers in the United States.

Mr. Magness' gamble gave rise to Tele-Communications Inc., a powerful, acquisition-minded company that today is the world's largest cable operator, controlling systems that serve one in five of the nation's cable subscribers, including nearly 100,000 through its United Artists subsidiary in Baltimore.

Led by Mr. Magness and President and Chief Executive Officer John Malone, TCI used highly leveraged acquisitions to assemble a diverse collection of properties that generate more than $3 billion in annual revenues. It not only owns cable systems in 42 states, the District of Columbia and Europe, but it holds major stakes in the programming they carry, including 22 percent of Ted Turner's Turner Broadcasting System and 48 percent of The Discovery Channel.

Now, TCI is trying to tighten its grip by cutting deals to develop technologies that could bring 200-channel cable systems to homes by the end of the decade. But it is encountering harsh criticism from lawmakers and consumer advocates who say the company wields too much power and bullies consumers and rivals.

"We don't fulfill the residency requirement for media powers -- we're in Denver, not New York or Los Angeles," said Robert Thomson, TCI's senior vice president and chief lobbyist. "It's natural people are going to look across the prairie and say, 'Who are these guys and what right do they have to influence cable?' "

Last month, TCI again raised eyebrows by completing two major deals in as many days. On Feb. 18, the company bought 49.9 percent of Teleport Communications Group from Merrill Lynch & Co. for an estimated $75 million, giving it a piece of the nation's largest alternative local phone carrier. The next day, it sold the 2,400-screen United Artists Theater circuit to a group of former executives for $680 million.

Analysts say the deals are evidence of TCI's efforts to focus on sophisticated new communications systems, sell off unrelated businesses and buy out minority partners of Mr. Magness and Mr. Malone, who could stand in the way of the company's long-term strategy.

"They're simplifying a great deal and focusing on the synergies between video and other technologies that they can capitalize on," said Ken Goldman, analyst for Bear, Stearns & Co.

Analysts say TCI's rugged entrepreneurship is a direct reflection of Mr. Magness and Mr. Malone, who tightly control the company's dealings. Combined, the two executives control about 36 percent of TCI's shareholder votes and 56 percent of the voting shares in a spin-off company, Liberty Media Corp.

It was Mr. Magness who first saw cable's ability to bring television to remote communities and began building systems in Texas, Nevada, Utah and Montana in the 1950s and 1960s. The Oklahoma native sometimes climbed poles and strung wire himself and ran the financial end of the business with his wife, Betsy, who has since died. But by the early 1970s, steady expansion had left the business behind on its bank loan payments and nearly bankrupt.

Mr. Magness brought in Mr. Malone, a straight-talking executive from a cable equipment company who holds a doctorate in operations research from the Johns Hopkins University.

Mr. Malone placated TCI's bankers, refinanced the company, then went on an expansion binge, financed by issuing high-interest bonds. Along the way, he led the cable industry's $568 million bailout of Mr. Turner's cable empire in 1987, gaining veto power over major business decisions affecting Turner networks TBS and CNN.

The cable network of more than 1,000 systems Mr. Malone assembled is an undisputed cash cow that pulls in about 20 percent of the cable industry's revenue. While TCI posted a $287 million loss last year because of carrying costs, depreciation and amortization, the company's cash flow, or revenue before depreciation and other costs, stands at about $1.7 billion -- more than the three major broadcast networks combined.

With cable television maturing and subscriber growth starting to level off, analysts say TCI is trying to squeeze more services on the systems in an effort to sustain growth. It is doing so even as telecommunications research is blurring the distinction between

phone and television service. A single optical fiber system with the right computer software can carry voice, data and video signals faster and with less interference than conventional copper cable.

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