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With the media and cable industries rapidly consolidating, there's not much room left for a maverick like Malone. Stripped of the enormous leverage his cable empire once gave him, Malone can no longer dictate the terms at the bargaining table. AOL and Comcast are now the gatekeepers, and content players like Disney, Viacom and News Corp. carry much more weight. Malone has effectively acknowledged the corner he's in, indicating that lucrative Liberty stakes in certain closely held assets like CourtTV, E! and QVC will, within a couple of years, probably be sold to whichever media behemoth will pay top dollar. As he puts it, "We're in the business of moving goods." Nearly every major media power, from NBC to Viacom, would love to acquire Discovery, a worldwide, multibillion-dollar franchise. Says a longtime business acquaintance: "John is at a crossroads. Liberty is ineffective if it stays purely an investment company. Either John has to become a substantial operator of select media assets or he should begin to distribute his various equity ownerships."
But those who would become successful cable operators in Europe must step over the bodies of brave people, including Microsoft's own Bill Gates, and pick their way through cultural minefields. Premium cable TV has been a bust across most of the Continent, where people spend more time in cafes and pubs, and less in front of the tube, than Americans do. When Europeans watch TV, they're used to getting high-quality programming on state-subsidized channels. Only a few years ago, German media giant Bertelsmann gave up entirely on the floundering pay-TV market. Dutch TV production company Endemol, which created the reality series Big Brother, doesn't work with a single pay-TV provider in the Netherlands. "TV in Europe is viewed as a utility," says UBS Warburg analyst Chris Dixon. Even Malone concedes that "these are not investments for wimps," as he told the Wall Street Journal earlier this year in a rare interview. (No one at Liberty Media, including Malone, would comment for this article.)
About 30% of Western European homes have cable, compared with 68% in the U.S., and powerful satellite players like News Corp.'s BSkyB and Vivendi's Canal Plus feed signals to 20% of the Continent's TV sets. Gross margins in the cable business hover at about 12%--about a quarter of those in the U.S.--and subscribers outside the U.K. bring in only $13 a month in revenue.
Much of cable's woe stems from the high cost of programming in Europe, driven up a decade ago by newcomers KirchPayTV and BSkyB, which wanted to kick start their fledgling services. Soccer--which is quite literally "the only game in town," as Carmel Group analyst Jim Stroud puts it--has seen the cost of its coveted broadcast rights soar in recent years. Kirch alone paid $350 million a year to distribute the German national championship league, a cost that contributed to the German company's eventual downfall. Even BSkyB hasn't turned a profit on its most recent investment in soccer.
The Continent's cultural diversity makes it hard to turn a profit on other homegrown programming; the lack of an export market to recoup costs doesn't help. Pornography, the quiet cash cow of the U.S. cable industry, is not as much of a draw in countries where full-frontal nudity is routinely shown on free TV.