Cable Guy: John Malone: Wiring Europe

John Malone has been American cable's smartest operator and toughest dealmaker. But he's finding it hard to translate his success overseas

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In Germany, the world's second largest TV market after the U.S., Leo Kirch's premium TV service, Premiere World, boasts an impressive lineup of soccer matches, Formula One races and Hollywood movies, yet it has managed to lure only 2.4 million paying subscribers. After losing $1.4 million a day, it ended up dragging its parent company into bankruptcy, and buzzards from four continents have converged--among them Bertelsmann, Liberty Media, News Corp. and Sony--to pick at the carcass. In Italy, where stealing satellite service is pursued with the same ingenuity and gusto as is tax avoidance, two competing pay-TV services, Vivendi's Telepiu and News Corp.'s Stream, have fared so poorly that they have had little choice but to combine their 2.3 million subscribers. Two struggling Spanish providers of pay TV by satellite, SogeCable and Via Digital, are headed down the same path.

To put it mildly, Malone's European strategy is a contrarian play. But that's what he has always sought. Now that many cable companies have exhausted themselves and the patience of their bankers by trying to string copper wire and coaxial cable from the North Sea to the Baltic to the Mediterranean, he can come in and scoop up the fruits of their labors for pennies on the euro. "What seems to be cheap seems to get cheaper as one waits," he quipped, with his typically dry sense of humor, at the recent shareholder meeting of Liberty Media, the onetime TCI programming arm that Malone has turned into a mini-media conglomerate. "We're trolling. We've got our bait in the water, but so far we haven't landed any big fish."

That doesn't mean they haven't caught anything. Malone has already taken advantage of the depressed market, pouring in much-needed funds to gain effective control over United GlobalCom, the leading international broadband provider, which has nearly 10 million cable subscribers scattered across the Netherlands, Germany, Austria, France, Scandinavia and Eastern Europe. And although he has been stiff-armed so far, Malone watchers believe he may end up combining Telewest (whose bonds he is trying to buy up) with NTL to form one British cable provider, with 4.7 million subscribers, that could compete with Rupert Murdoch's popular British Sky Broadcasting (BSkyB) satellite-TV service. Lately Malone has been making a play for NTL's Swiss cable subsidiary, Cablecom, as well as Dutch cable concern Casema, owned by France Telecom. A cable provider in France, NC Numericable, may also be up for grabs.

Malone isn't in Europe just for the bargains. He's also looking for outlets for the programming assets in which he owns stakes through Liberty Media. Though Liberty is publicly traded on the New York Stock Exchange, Malone owns 44.6% of the voting shares and controls the company as its chairman. Liberty owns the Starz and Encore premium movie channels, plus 50% of Discovery Communications (which includes Discovery, Animal Planet, Learning and Travel channels) and 43% of the home-shopping channel QVC. In addition, it holds valuable stakes in Vivendi (3%), News Corp. (18%), USA Interactive (20%) and AOL Time Warner (4%), the parent company of this magazine. Liberty also invests in cable and programming companies in Latin America and Japan, where its Jupiter Communications is the largest cable provider (though still a money loser).

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