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[The Players:] [TCI] [Liberty Media] [AT&T] [Microsoft] [AOL] [AOL-TW] [News Corp] [DirecTV] [Comcast] [Others]
Part 1 The Systems: [Terrestrial] [Cable] [Satellite]
TCI (Tele-Communications) (now owned by AT&T) is one of the major US cable companies who has bitten the bullet. Headed by John Malone, TCI pulled together hundreds of small rural cable networks. Now it has 14.3m subscribers and is passing 50m homes (all mid 1997 figures), it is upgrading its analogue network to digital using set top boxes from General Instruments. This investment will allow it to increase the number of channels from about 40 to 80, where copper wire is installed, and to 154 where fibre optic cable is in use. The aim is to get subscribers to buy into extra channels. Early free pilot trials were most encouraging with 80% of customers staying on and paying at least $10 a month more for the extra channels. Home shopping and e-mail are planned. TCI part owns @Home, an cable internet service. The TCI and AT&T merger creates a $48bn company. John Malone personally secured 32m shares making him AT&T's largest investor.
AT&T then spun off Liberty Media as a separate company (effective August 2001) with John Malone as its chairman and with an initial funding of $5bn to fund numerous media acquisitions. In June 2000 Liberty Media and UnitedGlobalCom (UGC) merged, creating one of the largest cable companies outside the US. In September 2000, Liberty Media and News Corp formed an alliance. Liberty took an 18% stake in News Corp and News Corp increased its stake in Liberty from 21% to 43%.
In June 2001, Liberty Media purchased 6 cable television stations from Deutsche Telekom in a $4.7bn deal. The stations have 10m subscribers between them. The purchase needs US and EC regulatory approval. The cable systems are considered underdeveloped with no broadband and little programme choice.
AT&T, with 16m customers, is now the US's largest cable company. After the TCI merger mentioned above, in May 99 AT&T formed an alliance with Microsoft. This allowed AT&T to then take over the MediaOne cable operator for $57bn (that works out at $4,700 per customer), bankrolled by the $5bn new warrants and preference shares from Microsoft giving it a 3% stake in AT&T. As a result of the alliance, AT&T will install Microsoft's Windows CE operating system in many (perhaps half) of its set-top decoders. MediaOne own part of the UK's One2One mobile telephone company and 29.9% of Telewest Communications, the UK's number 2 cable company. AT&T already had a 21% stake in Telewest Communications through its TCI acquisition. As part of the agreement, Microsoft has agreed to purchase the 29.9% stake in Telewest Communications. (see below).
AT&T Broadband is the US's largest cable company with 13m customers. In July 2001, rival Comcast had made a $44.5bn for its cable business but AT&T refused to accept. In July 2001, John Malone, who has a $500m stake in AT&T and who was about to take control of a spun off Liberty Media, resigned from the board of AT&T. Malone also has a 18% stake in News Corp.
In October 2000 it announced a strategy involving splitting the company into 4 parts: broadband, wireless,, business services, and consumer long-distance. In July 2001 it spun of the wireless part to investors. Analysts think that the company has under leveraged assets and is slow to integrate acquisitions. Other contrasted the new strategy with the earlier one of bundling voice, video and data services under the AT&T brand name.
In March 2000 AT&T said it was talking control of Excite@Home, the US's biggest high speed internet provider with 1.1m customers, even though its shareholding stake would remain at 25%. This was acheived in agreement with two cable companies, Comcast and Cox Communications, who have major stakes in Excite@Home. The agreement runs to 2006.
Microsoft has done a deal with US cable company TCI, itself recently acquired by AT&T. TCI will use the Windows CE operating system in 5m set top boxes. TCI has also spent $2bn buying a stake in News International's TV Guide (News International being the owners of BSkyB) to provide the content to TCI's Electronic Programme Guides. As mentioned above, Microsoft has taken a $5bn stake in AT&T. It's all part of Microsoft's aims of reaching the TV masses and being gatekeeper of all electronic mediums. However, due to delays in providing robust software, AT&T said it would switch to rival Liberate in pilot tests.
Microsoft also owns WebTV, a supplier of set top boxes. As at mid 1998 it had 300,000 subscribers with an aim of 1m by the end of 1998. Web TV boxes cost $300 and there is a monthly subscription of $19.95. WebTV also uses the TV Guide. Microsoft has also invested $1bn in Comcast, a cable company.
In the UK, Microsoft has teamed up with BT and the BBC to trial Web TV in the UK. It also has a $500m stake in NTL, the UK's major cable operator, and a stake in Telewest Communications. It was unclear whether its stake in Telewest would mean the company would use Microsoft's software in its set-top boxes, as Telewest had then recently announced it was to use the rival NCI system, favoured by the 2 other major UK cable companies. In fact, the European Commission launched a probe into the Microsoft acquisition, fearing that the supplier would indeed force its software to be used in Telewest's set-top boxes. 15 months later in July 2000 approval was given when Microsoft agreed to limit its investment to a minority interest and to forego management control.
In May 1999 Sun Microsystems also formed an alliance with AOL to provide software for set-top boxes but some analysts are doubtful if they can be as persuasive as Microsoft.
American Online (AOL), one of the worlds biggest Internet Service Providers (ISPs) with 26m subscribers in 15 countries. This includes both American Online and Compuserve users after AOL acquired the company.
In 1997 it bought NetChannel, the only major rival to Microsoft and its WebTV company, though as at mid 1998 NetChannel only has 10,000 subscribers. On the other hand, AOL has become a leading ISP brand name and is well versed in attacking the mass market.With NetChannel it can make its own extensive internet content available to TV viewers.
In January 2000, AOL and satellite company DirecTV announced a Web TV offering using set-top boxes from Philips Electronics and Hughes Network Systems. It's aiming for a big slice of the 30m US households predicted to be using interactive TV by 2004. Later versions of the set-top boxes could be using technology from TiVo. In the same year it also acquired the internet browser and software company Netscape.
In Europe AOL Europe is a joint venture with the German Bertelsmann and in South America AOL Latin America is a joint venture with Cisneros.
Then on 10 January 2000, AOL and Time Warner stunned the world when they announced a $350bn merger, the biggest ever in corporate history, with AOL paying $184bn for a 55% stake in new company. But it was not just its size, but the fact it was the old one-way media of print and TV giving way to the new interactive Internet media. AOL will now have access to Time Warner's US cable network with 20m customers as well as marketing opportunities to 30m Time Magazine readers, a staggering 1bn CNN viewers, and access to Time Warner's vast media library spanning film, music, television and magazines. Symbolically, the deal was signed 10 years to the day after Time Inc. and Warner Brothers had merged in 1990. The combined group sees 3 revenue streams (with current revenue share in ()): subscriptions to the Internet and cable (40%); advertising and e-commerce (20%); and content (40%).
Time Warner, until now serving predominantly in the US, now has extended reach to two major world markets. Just a few days after the AOL - Time Warner merger, Warner Music made a bid for EMI to create the world's biggest music business valued at £12bn. However, nine months later in October 2000, after intense scrutiny and demands for major concessions from the European Commission, the two companies called of the deal.
However the EC did approval the Time Warner - AOL merger and in December 2000 the US regulator Federal Trade Commission gave the go-ahead with conditions. The companies are required to give internet rivals access to their cable lines and content for a period of 5 years. Further AOL cannot offer its services over Time Warner's cable network until another ISP is first given access and then another 2 ISPs must be given access within 90 days of the AOL launch on cable. Finally, the companies must not interfere in any way with the content being delivered by these other ISPs. The Federal Communications Division still needs to approve the merger.
One of the first initiatives of the new company was to launch The network, a cable music channel to rival the industry leaders MTV and VH1.
In June 2000, AOL-Time Warner said it wished to but IPC Magazines, the UK's biggest magazine publisher. Analysts value the company at between £850m and £1bn. No doubt the aim is cross media promotions. For example, the company successfully promoted the Time Magazine to over 1m AOL subscribers. Later this year it will relaunch CNNfn as CNN Money with links to AOL Personal Finance Channel.
Like many other media companies, Murdoch's News Corp has been making numerous investments into set-top box software companies such as OpenTV and ACTV, and also in TV channels and the internet.
After first dismissing the internet, Rupert Murdoch went on a $2.3bn acquisition spree, seeing opportunities to use one media to drive viewers to the other. Financial Services, Health, News and Sports are prime target sectors. In 1997 it set up News Digital Media to develop the 3 Fox web sites: Fox.com, Foxnews.com and Foxsports.com. In December 99 / early 2000 News Corp took a stake in Healtheon WebMD for a consideration of $1bn including free advertising on his satellite TV channels. Microsoft is already an existing investor. News Corp itself already has a minority stake in TheStreet.com, an online financial newspaper, as well as other healthcare stakes.
But by January 2001 News Corp had a change of heart concerning stand-alone internet companies. Within a year it pulled out of the WebMD venture taking WebMD's stake in a cable network in return. News Corp then wound down its News Digital Media company folding a smaller size operation into Fox Television.
News Corp is strong in many other parts of the world, particularly Europe with BSkyB (40% stake) and Stream (35%), the Far East including India and China with StarTV (100%), Australia with Foxtel (15%), Japan with Japan Sky (12%), Central America with Innova (30%), and Latin America with Net Sat (36%) - a total of 63m customers. But it is weak in the US, its major investment being Fox Entertainment Group with 22 TV stations. This is not for trying. In 1983 there was the failed Skyband satellite service costing $7m. Then in 1991 a joint venture with NBC, Cablevision and Hughes called SkyCable. Again in 1996 together with EchoStar to create ASkyB, another failure.
In August 2000 the company took to amend the situation with a $5bn bid for Chris-Craft Industries, the US TV Group. This will increase its TV stations to 32. This follows a relaxation in the rules that previously bar a company from owning 2 or more stations in the same market. With the acquisition the company will have slightly more than the maximum regulatory 35% of TV viewing audience, so it will need to divest of some smaller stations.
In September News Corp purchased Liberty Media's 21% stake in Gemstar-TV, who publish both paper based and on-line interactive TV guides. This raised News Corp's stake to 43% and in turn gave Liberty (which is owned by AT&T - see above) a stake in Sky Global Networks, News Corp planned new global company. Thus two adversaries, Rupert Murdoch and John Malone became partners. Malone is a pioneer in the development of the US cable industry and has an 18% stake in News Corp. Should Murdoch succeed in launching Sky Global Networks it will be the biggest initial public offering in history.
In December 2000, News Corp share hit a 12 month low. The market was concerned News Corp may be forced to buy out a 49.5% stake in Fox Family Worldwide for $2bn. Additionally the company would inherit Fox's $1.4bn debt. Apparently, Haim Saban the other major shareholder has an option to sell his stake to News Corp. News Corp needs the cash to help make a $70bn bid for DirecTV. Microsoft would also join the party but with a minority stake.
In April 2001, News Corp postponed the IPO of Sky Global Networks. Difficult market conditions and the slow progress in negotiating with DirecTV were given for the delay (see below). On the other hand, the new Bush administration relaxed some of the restrictions on cross media ownership.
In July 2001, News Corp announced that the FCC will allow it to acquire Chris-Craft Industries without the need, for at least 2 years, to divest either the New York Post or one of its 2 New York television stations. News Corp will pay $5.35bn (£3.8bn) for Chris-Craft. At the same time the company anounced that it was selling Fox Family Worldwide, that it co-owns with Saban Entertainment, for $3.3bn in cash and the assumption of about $2bn in debt.
DirecTV, the US main satellite broadcaster with 10m subscribers and the 3rd largest US subscription provider after AOL and AT&T. It has acquired USSB and Primestar and by 2000 had grown to 10m subscribers from just 1m five years ago. Created by Eddy Hartenstein, DirecTV has been digital and interactive from its launch in 1994. Services include shopping, films, financial services and betting. It is owned by Hughes Electronics, that in turn is 30% owned by General Motors. See above re details of its alliance with AOL. Rupert Murdoch has announced that News Corp wishes to acquire DirecTV as part of the IPO of Sky Global Networks but the cost is likely to be more than $70bn. However, Hughes' chairman Michael Smith was trying to make the company less attractive by trying to attract NBC Television, SBC Communications and Microsoft to take stakes in the company. Meanwhile, so as to not appear too eager, News Corp was also in talks with EchoStar but in May EchoStar said it would be mounting a counter bid against News Corp for DirecTV but with a war chest of "just" $2.3bn it will need the support of other backers and ultimately regulatory approval. That could be difficult because a combined EchoStar - DirecTV would have a monopoly in many rural areas. In July 2001, EchoStar withdrew.
In April 2001, it was reported that News Corp had persuaded Microsoft to take a $3.5bn stake in DirecTV as an incentive to General Motors to join the new Sky Global Networks company. It also asked Microsoft to add Ultimate TV, its interactive TV business, as well. Then in May 2001, Michael Smith resigned, an event that pleased News Corp. His replacement is harry Pearce, a former vice chairman of General Motors.
DirecTV has purchased Vignette's StoryServer 4 software for its web site so that customers can personalise their TV programme information. DirecTV is providing an in-flight TV service to JetBlue, America's latest budget airline. Passengers can pay to access 24 live TV channels.
EchoStar is another satellite broadcaster with 300 channels of digital video and CD-quality audio delivered to 6m customers. It is headed by Charlie Ergen. In May 2001, the company said it was going to bid against Murdoch's News Corp for General Motors 32% controlling stake in DirecTV. He had $3.2bn, far short of the $10bn that General Motors is said to want. EchoStar was looking to AOL-Time Warner and General Electric as possible partners. In July 2001, EchoStar withdrew.
One of EchoStar's channels is MediaX appealing to a young, tech-savvy audience. MediaX will incorporate features from its Internet site plus rich interactive multimedia, online purchasing and live events, all delivered to both personal computers and televisions. The e-commerce site offers 265,000 entertainment titles, including audio CDs, videos and DVDs.
Comcast is the US's third largest cable company with 8.4m customers (July 2001). It is 2% owned by the Roberts family who control 86% of the voting stock. In March 1999 the comapny made a $60bn bid for MediaOne the US's number 3. However, AT&T made a successful counter bid. Comcast has a 57% stake in QVC, the large home shopping network. Microsoft has a $1bn (11.5%) stake in Comcast. In July 2001, the company offered AT&T $44.5bn for its cable business but the company refused. Such a merger would create the world's largest cable company with 22m customers.
Charter Communications, the company founded by Paul Allen, the co-founder of Microsoft, is particularly aggressive. In first half of 1999, Charter has acquired or invested in over 20 cable and related technology companies at a cost of $12bn. It is also looking to invest in the European cable market.
Cox Communications
Disney owns 10 TV stations, the ABC Network, 42 radio stations and 9 International Disney TV channels. It also owns Internet portals and has interests in 9 US cable companies and of course its library of famous films and TV programmes. Despite these assets, Disney is considered to be behind in the world of new media and has an excessive cost structure. In May 2000 Disney was in a squabble with Time Warner. Disney tried to up the fees for its ABC channel and wanted to only provide it as part of a bundle of channels. Time Warner balked and pulled the plug on the ABC channel over its cable network. Disney then tried to block the AOL - Time Warner merger by accusing Time Warner of acting like a monopoly and denying millions of American households their favourite programmes, like Who Wants to be a Millionaire
iSky is a new startup planning to launch satellites capable of two-way communications.
Power-TV and @Home (a cable internet provider with 210,000 subscribers and now part of the $7.5bn merger between Excite and @Home) have also been designing set top boxes. In March 2000 Excite@Home announced an Internet portal with media rich content specifically for its broadband customers. It is aimed as a competitive offering to AOL customers who want fast Internet access but at $40 per month it does cost twice the price. At the end of 1999, Excite@Home had 1.15m customers and is aiming to reach many of the 59m US cable homes. In March 2000 it was talking control of the company even though its shareholding stake would remain at 25%. In July 2000, Excite merged with the Dutch company UPC to form Excite Chello making it Europe's largest supplier of broadband services.
General Instruments has orders for 15m units from 12 smaller cable companies.
Time-Warner has a set top box that will provide both video on demand and Internet access. At the end of 2000, 550,000 of its 12.6m cable subscribers had access to the service which is called Roadrunner. See AOL above re their merger.
Liberty Digital has made many investments in set-top box software companies and TV channels.
USA Networks in early in 1999 merged with Lycos, one of the most popular Internet portals, to form USA/Lycos Interactive Networks with combined revenues of $1.5bn. USA Networks already owns the successful Home Shopping Network and has a controlling interest in Ticketmaster. The aim is to produce synergy between the Internet and broadcast TV with each medium driving the 30m viewers to the other.
Sony with their Perios operating system have teamed up with Sun Microsystems and their Java software.
Compaq, IBM and Hewlett-Packard are also moving in as equipment and software suppliers.
The Viacom acquisition of CBS for a staggering $22bn is bound to have implications. It creates a conglomerate providing television broadcasting, film and TV production, consumer publications and other entertainment services. As the digital infrastructure becomes established, content will become the battle ground for gaining and retaining customers.
The Systems: [Terrestrial] [Cable] [Satellite]
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