annals of communications
The New Yorker - February 7, 1994
john malone: flying solo
John Malone, who engineered the merger between his TCI and Bell Atlantic, is the pioneering cable titan whom Al Gore once called Darth Vader. Despite charges of monopoly and deception, Malone has become the most powerful man in television, and has the industry and Capitol Hill wondering where he'll go next.
There is no television set in John C. Malone's office. This seems odd, since Malone, the president and chief executive officer of Tele-Communications, Inc., is the most influential man in television. After twenty years at the helm of TCI, Malone now controls one of every four cable boxes in the country, and through TCI and Liberty Media, a programming company formerly owned by TCI, he has an interest in twenty-nine cable services, including CNN, TNT, QVC, Court TV, Black Entertainment Television, American Movie Classics, and the Discovery Channel. Malone and his company have important business links to such corporate giants as Rupert Murdoch's News Corporation, Ted Turner's Turner Broadcasting System, Bill Gates' Microsoft, and A.T. & T.; they have branched out into the telephone business here and abroad, and, in addition, they are building two broadcast satellites. In all, since Malone started at TCI, in 1973, the company has acquired, invested in, or become a partner of about six hundred and fifty companies.
For all his previous success, Malone's most important deal was announced at a press conference in Manhattan on October 13, 1993, when he and Raymond W. Smith, the chairman of Bell Atlantic Corporation, said that their companies would merge, in a stock-for-stock transaction valued at thirty-three billion dollars. It was the biggest merger ever in the communications industry, giving birth to a behemoth that will reach twenty-three per cent of American homes, will be able to call upon sixty billion dollars in assets, and will rank as the sixth-largest American company. The merger increased Malone's worth--now some one billion one hundred million dollars--by about three hundred million dollars, and made him and TCI's founder, Robert Magness, major shareholders in the new company. (Malone will own one and a half per cent of the stock, Magness two and a half per cent.) This merger shifted the fundamental balance of power in the communications industry. A year ago, Malone boasted of how the cable industry would best the telephone companies. "He was captain of the cable team," says Brian Roberts, who is the president the country's fourth-largest cable system, the Comcast Corporation, and has been a partner of Malone's in various cable ventures. "But now he is straddling two industries--perhaps as captain of both teams."
One cable programmer, in discussing the power that Malone has, notes that a number of the cable systems in America can accept only about fifteen channels--a limitation that precludes newer programming services. If TCI's cable boxes aren't available, what's left is too small an audience to support a profitable service. A cable executive who does business with TCI explains the situation this way: "Imagine that you have all these publishing houses but only one book chain in the United States. You can write the best book, but what happens if you can't get into the bookstore? John Malone is the bookstore."
Malone transacts his business from an eleventh-floor corner office in a corporate park in suburban Denver. A block of gray granite serves as his desk; cactus plants surround an L-shaped couch of gray leather. The two exterior walls are windows, and from them one sees nothing but the snow-capped Rockies. Except for a six-foot-high replica of an 1854 America's Cup sailboat that stands on a stark black marble credenza behind his desk, and a smaller carved replica of Ragtime, a sixty-four-foot motorized commuter boat built in 1929 to go from Long Island to Manhattan, which Malone restored and now uses in Maine, the office seems impersonal. There are no photographs or plaques. The only touch of whimsy is a large fake-fur gorilla dressed in a white T-shirt and a red CNN tie, which sits on a chair facing the door; Malone instructs entering visitors, "Say hello to Ray Smith."
When Malone appears on industry panels or testifies before congressional committees, he seems a frosty figure dressed in boxy suits and wearing the strained expression of a scientist or an investment banker. In Colorado, as I found during a recent week with him, he seems much more relaxed. Malone is five feet eleven and square-shouldered. He is fifty-two years old. Smooth skin, a square jaw, a long, thin, straight nose, a tight smile, and burly biceps give him the look of a retired fighter pilot. Sports shirts, slacks, and loafers are what he wears to work. He drives a gray 1989 BMW or, on snowy days, a 1990 Chevy pickup with a plow. Of late, an arthritic condition has caused him to walk with a slight limp, which makes him appear almost vulnerable. He speaks in a monotone, but there is about him an unmistakable intensity. His eyes are hazel, and they fasten on visitors. "He's so focussed," says Diane M. Grimshaw, who was Malone's secretary and administrative assistant for eighteen years and in 1992 became TCI's director of facilities. "I used to say that I could walk through his office stark naked and he wouldn't notice."
Malone does not indulge in bombast or theatrics. When he is talking, his hands usually remain jammed in his trouser pockets or wrapped around a coffee mug. He is an intense listener. On the phone, when Ted Turner or anyone else calls him, his conversations are unhurried, near-leisurely. He proffers advice, he steadies, he calculates. He is a man of science: he has a Ph.D. from Johns Hopkins University in operations research, which centers on the construction of mathematical models. In his business life, he strives for pure logic, unalloyed by emotion, unswayed by friendship or sentiment. He hates political noise and what he sees as Washington's aversion to facts. Of Turner, whom he counts as a friend and a business partner, he says, "He's a very sound businessman. The only problem is that sometimes he lets emotions get the better of him."
The telephone does not ring in Malone's office--except when his wife, Leslie, calls on a line reserved for her. All other calls are screened by a lone secretary. For a man driven to succeed, Malone has an unusually brief office day--five and a half hours. He arrives at about 9 A.M., leaves at 11:30 A.M. to drive home for lunch with his wife, returns just before 2 P.M., and leaves three hours later, sometimes to meet Leslie at a local health club. To accommodate his wife, who will not fly, he bought a customized recreational vehicle two years ago--"a land yacht," he calls it, noting that it is the same size as a Greyhound bus. Twice a year (in late January and in early June), they pack their dogs--seven of them--into the vehicle, fill the tank, and drive nearly forty hours to Boothbay, Maine, where they have a vacation home. They spend several months a year there.
Malone and his TCI executives see themselves as outsiders who have successfully bucked the networks and the big boys of New York and Hollywood by helping pioneer CNN and Black Entertainment Television. To do so, they've had to be tough. And though to many Malone remains the Wicked Witch of the West (Al Gore, as a senator, referred to him as Darth Vader), admiring associates see him as both a genius and a liberated, balanced man. His mind is like a Rubik's Cube, according to Peter Barton, Liberty Media's president. "Take all these colors and six sides," Barton says. "Every square moves. It's a lot to keep track of. Now think of a whole bunch of disparate concepts as a whole bunch of unrelated colors. Now remember what's on each square. And move the cube around until the concepts fit together. That requires an extraordinary amount of memory and processing capability. John does this."
Michael Fuchs, the chairman and C.E.O. of HBO, says that, along with the investor Warren Buffett and Bill Gates, the chairman of Microsoft, Malone is one of the best businessmen in the country, and adds, "The guy is brilliant." Fuchs, who serves with Malone on the board of Turner Broadcasting and is a sometime adversary, says, "Malone knows everyone in the industry but is a personal friend of no one. It's all business." Always, Malone is guarded, acutely aware that, as cable and telephone and film and electronics and publishing and broadcasting companies continue to merge, an ally in one business or region becomes a competitor in another. "Being a C.E.O. is lonely," he says, unapologetically.
MALONE has always prided himself on going solo. One of his most vivid childhood memories is of walking or driving past cemeteries and noticing the "awful" sameness of the gravestones. "Nothing different," he says. "Nothing distinctive. Nothing unique. So I've always wanted to be different, always wanted to be unique." He and an older sister grew up in an eighteenth-century Colonial house in a blue-collar neighborhood in Milford, Connecticut. For several years, his father, who was an engineer with General Electric, commuted to a G.E. plant in Syracuse, New York, on Sunday night and did not return home until the next Saturday. Malone worshipped his father, and refers to him affectionately as "an intellectual with white socks." His mother was a world-class swimmer; she earned a master's degree in education from Temple University, and interrupted a teaching career to bring up her children. But he remembers that she was a remote figure, who did not hug her daughter or her son, because "she had some fundamental insecurities." Malone thinks of his father as a strict Calvinist, and he also recalls that he was tight with a dime and insistent on two things: a rigorous work ethic and a conviction that President Franklin D. Roosevelt was a socialist, or worse.
"I lived 'American Graffiti,' " Malone says, referring to the movie about teen-agers in the early nineteen-sixties. He recalls souping up cars and "cruising the boulevard." In school, he had a nearly photographic memory, and could recite entire passages from textbooks. When the Soviet Union launched Sputnik I, in 1957, and America was frantic to reclaim the lead in space, outstanding science students were in demand. John Malone was awarded a scholarship to Hopkins Grammar School, in New Haven.
Malone commuted daily to Hopkins, where he shone. But he was torn between his blue-collar friends and his intellect. His friends often taunted him, and he got into numerous fistfights. "I was neither a preppie nor a town kid," he says. "So I put a lot of energy into athletics." He got letters in fencing, track, and soccer. "It was raw drive, not skill," he says.
In the summer of 1958, when Malone was about to enter Yale, he was at the beach with friends one day when his sister approached and asked, "Want to meet a nice girl?" The girl was Leslie Ann Evans, a fifteen-year-old neighbor. Malone recalls strolling along the beach with Leslie, and he remembers making a silent vow that they would marry. While Leslie finished high school and worked as a secretary with the Milford Police Department, he attended Yale. Science courses enthralled him, but social sciences did not. Thinking of himself as an "individualistic" conservative, he felt that his teachers and most students were "socialistic." He argued with his teachers, and he says that his grades suffered as a result. "But when I got over into engineering, of course, the answers were either right or wrong," he says. "So as soon as I got into engineering school my grades took off."
Malone graduated with a B.S. in electrical engineering, in 1963; he and Leslie were married later that year, and he went to work for A.T. & T.'s Bell Labs. Bell helped finance two master's degrees that Malone received--from Johns Hopkins, in industrial management, in 1964, and from New York University, in electrical engineering, in 1965--and his doctorate from Johns Hopkins, in 1967. A rising star, Malone may have been smarter and better paid than his peers at Bell, but he felt like one of many tombstones. "The odds were that you were going to spend your whole life writing memos and making basically no impact on anything," he recalls. He hated the timidity, the bureaucracy. Looking around, he says, he saw "guys who had been me, ten years earlier, who had basically given up." He was determined not to give up.
In 1968, Malone joined the management-consulting firm of McKinsey & Company, seeing it as "a place to retool"--as an opportunity to go from science to business. The Malones moved into a house in Weston, Connecticut. Leslie expected that John would be home as often as he had been while he was working for Bell Labs, and could join in bringing up a family. (The couple have a daughter, Tracy, and a son, Evan.) He wasn't going to be like his dad, with a home in one state and a job in another. On his first day at McKinsey, he found a note on his desk telling him that a client expected him in Montreal for lunch; he stayed in Montreal six weeks. From then on, since his clients included I.B.M., G.E., and other lofty corporations, Malone was often travelling.
While Malone was at McKinsey, he saw the marriages of colleagues dissolve. He told his wife that he would find a job requiring less travel. In 1970, he joined the General Instrument Corporation and was soon named president of its cable-TV division, Jerrold Electronics. Over the next several years, Jerrold became a dominant force in cable. Malone got to know most of the pioneers in the infant cable industry, including
Steve Ross, of Warner Communications, and Bob Magness. A part-time cattle rancher and cottonseed salesman who wanted to improve television reception in rural areas, Magness owned a struggling cable system, based in Denver, that reached into twenty-three states, and also a new microwave broadcast company. In 1972, Ross tried to hire Malone to head Warner's cable operations; Magness offered him the presidency of the four-year-old TCI.
Leslie was not happy living in the East. She had a daughter who rarely saw her dad. She wanted to have family dinners at home, and to live someplace where they could keep horses. As for her husband, he recalls, "I wanted to get out of New York. I liked Steve an awful lot. I found him to be hypnotic. But I wanted to spend time with my family. I had made this commitment to my wife that we were going to have a more normal life." He and Magness envisioned loosening the stranglehold that, in Malone's words, "three channels, controlled by three guys in New York," maintained. On a typical evening in the mid-seventies, nine out of ten viewers watched CBS or NBC or ABC, and the only national cable service was HBO, which was then relatively small. Malone took a fifty-per-cent cut in pay and accepted sixty thousand dollars a year as chief executive officer of TCI. Magness would be his partner, the company chairman. Malone's base would be Denver, which was the capital of the embryonic cable industry.
Tim Wirth, who served as a Democratic senator from Colorado and is now Counsellor of the Department of State, recalls attending a cable meeting at a Denver hotel not long after Malone arrived in town. Wirth says, "I remember Malone's determination"--to change cable regulations. "You could see his crooked little smile. He looked at you with that smile and you could tell that behind it was a tank." Malone had reason to feel determined. Soon after he agreed to join TCI, in late 1972, the stock market fell, and interest rates climbed; then, within months, oil prices soared. TCI had a hundred and thirty million dollars in debt and nineteen million in revenues, Malone recalls.
Despite his good intentions, Malone was rarely home. "Of course, I might as well have stayed in the East," he says. "I was living where the banks were--in New York and Boston--for the next five years." His mission was not to expand the business but to save it from bankruptcy. "We looked catastrophe in the face every day," Magness recalls. When he and Malone travelled to make their pitch to creditors, the two shared a motel room. Hourly employees were put on a four-day work week.
"We had to be very tough," Malone says. The backs-to-the-wall circumstances of their early years, combined with their sense of mission, and with Malone's Calvinist proclivities and Magness's cowboy nature, helped to shape a corporate culture that has by now become either entrepreneurial or ruthless, depending on one's vantage point. It was Malone and Magness against the world. "He was my board of directors," Malone says of the chairman, whom he still calls "a mentor, a father figure, a friend, a partner."
TCI achieved a breakthrough in 1977, when Malone persuaded seven insurance companies to refinance his bank debt with longer-term capital. Money was thus loosened enough to begin making modest acquisitions. More money poured in after HBO and Ted Turner made their cable-programming breakthroughs, in the late seventies, and cable-company stocks soared.
Malone had put out TCI's business fires, but he was having problems at home. Speaking of his wife, Malone sheds his reserve and becomes almost confessional. "She always felt she came second," he says. "She's always felt I haven't honored the you-come-first, the-kids-come-second, and career-comes-third commitment, and, I think, with some validity." As Malone remembers it, she told him, in the early seventies, "I thought I was marrying an engineer at Bell Labs. You were going to be home every night. We were going to have a normal middle-class life and raise the kids and take the two-week vacation and so on. And now you're off on this ego trip of building a career. You're off running companies, things that I never bought into. And that's something you gotta go do, so do it. But I'm not coming along. Goodbye, I'm leaving."
Malone had reassured her that Denver would be different, but so far it had been worse. Now he promised to change. They bought a 1904 Stanford White house on sixty-three acres in Boothbay. Then TCI acquired its first jet, and the plane allowed Malone to shorten two-day business trips to one day. In Denver, he and Leslie started going to a health club together. Diane Grimshaw, who was then Malone's assistant, says of them, "A lot of John's motivation is his wife." David E. Rapley, who runs a successful engineering firm in the Denver area and, with his wife, Sandra, is among John and Leslie Malone's few intimate friends, says, "It's difficult for him to talk about his innermost feelings. Yet he has a real soft center. He's a very analytical thinker. He's an engineer, trained in logical thinking. Facts. He's not as comfortable with emotions." Rapley says that, by contrast, "Leslie is a touchy-feely person." Yet Rapley sees Malone as totally dependent on his wife. "If, God forbid, anything happened to Leslie, it would be hard for John to make a life," he says. "It would be easier for Leslie to carry on without John. She's had to make her own life. She paints. She buys antiques." She has studied interior design. By nature, she has more gaiety.
Grimshaw, looking back on her years as Malone's assistant, observes, "I really noticed a difference in John." He began to listen more, to open up a bit, she recalls. He began to pick up Tracy and Evan after school when Leslie was busy with her own projects. He began to buy her presents. Once, he arranged for a dealer to park a red Jaguar outside their health club. When they emerged, she spotted it and said to John, "Oh, there's that car I like." And he said, "Here. Here's the keys."
Malone could have the Jaguar and the jet plane because TCI was now thriving. A dollar invested in TCI in 1975 was worth eight hundred dollars by 1989. In 1992, the company's cash flow was nearly one billion six hundred million dollars. TCI and Liberty Media are today the largest investors in cable-programming networks. (By the beginning of this year, the number of cable networks had mushroomed to ninety-two.) Malone serves as chairman of CableLabs, in Boulder, Colorado, which is the cable industry's center for decoding the future. Like many of his Japanese counterparts, and unlike the C.E.O.s of most American communications companies, Malone actually knows how to assemble, say, a radio. Because he can ask technical questions and understand the answers, and because he has real experience with customers and economics, Malone may see the future a bit more clearly than his competition does. Consequently, he has been at the forefront of technological advances, among them digital-signal compression, which will multiply by ten the number of signals in existing copper wires; the ordering of set-top boxes from General Instrument to convert these digital signals into the analog signals viewed on a normal TV set; experiments with McCaw Cellular Communications to test cellular networks; the examining of video-on-demand in the Denver area with A.T. & T. and U S West as partners; and the test-marketing of home-energy information services with Microsoft and the Pacific Gas & Electric Company. It was Malone who announced, in December of 1992, the advent of something that is now part of the language: five hundred channels in the near future.
BY the early nineties, Senator Howard Metzenbaum, of Ohio, among other political figures, was regularly assailing Malone as a monopolist. Last October, Malone was invited to testify before Metzenbaum's Subcommittee on Antitrust, Monopolies, and Business Rights. When he declined, saying that he would be travelling overseas, Republican and Democratic senators alike charged that he was arrogant. Some insisted that he appear. When Malone did appear, in December, he suggested that he was being treated unfairly. "If I relied solely on recent press stories to learn about TCI and the role that it plays in the entertainment-and-information industry, I would think that I was dealing with an entity combining the power of the pre-divestiture A.T. & T., I.B.M. when it was the only name in computers, and the U.S. Postal Service before anyone ever heard of U.P.S. or Federal Express," he testified. The questioning of the witness, which attracted a throng of reporters, was respectful--a spirit enhanced by Malone's adopting an agreeable pose. "By letting Bell Atlantic acquire TCI, you kind of get rid of me," he said.
Although both men would probably be uncomfortable acknowledging it, liberals like Metzenbaum and conservatives like Malone have some common ground. In many ways, Malone and TCI do and have done exactly what many liberal critics denounce American corporations for not doing. TCI thinks long-term, and not just about the next quarter. It did not fatten its dividends by skimping on research investments. Although TCI enjoys astonishing--some would say excessive--profit margins, of more than forty cents on each dollar of revenue, it withholds dividends and instead invests in new ventures. "The nub of the problems of American business is shortsightedness," Malone says. "That's a big difference between here and Germany or Japan, where there's a much longer view and a much longer cycle." He believes that most businessmen, like most politicians, are conformists, eager to follow the herd. "I have an investment mentality rather than a control mentality," Malone says. "Time Warner has a control mentality."
Malone can be both predictable and surprising. His political heroes are Ronald Reagan and Dwight Eisenhower, since he shares their notions about how big government and big taxes sap initiative. Yet, calling himself "a libertarian," he disagrees with Reagan-style conservatives who want the government to tell a woman that she may not have an abortion. Malone says he won't spoil his own children--Tracy, who has a two-year-old daughter, lives with her husband in the Denver area, and Evan is a senior at the University of Pennsylvania--by leaving them the billion-dollar fortune he has amassed. Rather, he says, his will provides them with a financial safety net, but not with enough money to rob them of the initiative to work. The bulk of the Malone estate is earmarked for the creation of a foundation whose purpose will be to invest in education that promotes "initiative and free enterprise."
He can surprise people by saying that the TV networks, which he has spent many years assaulting, are still attractive properties. He is counselling his friend Ted Turner, who would like to buy ABC or NBC. "My guess is that CBS is not long for this world," Malone says. "It will probably merge with Disney within twelve months." Barry Diller, the chairman of QVC Network, might want to acquire NBC, but, Malone thinks, government regulations might prevent this. If Turner could acquire a network and combine CNN and a network news operation, Malone guesses that Turner could realize two hundred million dollars in savings. (Whether the endeavor would improve news is another matter.) One impediment, he warned Turner, is that the government might not look kindly on such a deal, since Malone is Turner's largest shareholder and is already being accused of monopolistic practices for his proposed merger with Bell Atlantic.
Despite Malone's striving for logic, his response to certain matters seems to be emotional. He repeats the word "socialistic" like a mantra, saying that he picked it up from Rush Limbaugh, whom he applauds for a willingness "to say politically incorrect things." He uses the term "socialistic" to berate liberals, and even moderates, who support government social-welfare programs. He wants NBC, CBS, and ABC to be uprooted from New York, so they will be less insular. "There's a huge diversity of values in this country between what people in central Manhattan think of the values of our society and what people in Peoria think the values of our society are," he says. "I think Manhattan thinks that single parents are fine. I think it's a much more socialistic world there, where the government does everything for you."
The way Malone lives is a surprise. Preferring privacy to convenience, the Malones live without servants--no cook, no driver. Their boat has no crew. "We're not socialistic," he says, this time meaning not elitist. "In Maine, we exist. We go out to the movies, or rent them. We go out to dinner by boat in Maine." When they visit their house in Boothbay in winter, they watch a lot of movies and ice-skate on their one-acre pond. In the summer in Boothbay, Malone is up at sunrise each morning and walks the dogs, feeds the fish in their pond, checks on his apple orchard and vegetable gardens, spends an hour in his office reading his E-mail and going through material sent by his Colorado office, then goes downstairs and makes tea, and while he and Leslie sip it they gaze out the tall windows and plan the day. Often, he rows two hours to the boatyard. When they spend the day on the boat, Leslie will pack a picnic lunch and the two of them will be off. Leslie has a studio, and sometimes she will spend the day there painting while he putters about in his gardens. Sometimes they will spend the day visiting antique stores. Occasionally, they will have nonfamily visitors--like the Rapleys, from Denver. Maybe once a week, the TCI plane will ferry him to a meeting in New York or elsewhere. He has two faxes, three phone lines, and a video telephone for conferences, but he tries to restrict his business to an hour a day. No one from the office calls him there, says his secretary, a cheerful red-haired woman named Martha (Marty) Flessner.
In Colorado, the Malones live in a rural area, on a hundred acres bordered by a security fence. Their driveway winds for three-eighths of a mile, leading to a comfortable but not opulent house and a barn with three horses. Though the house is only twenty minutes from the TCI offices, few who work for TCI have ever visited it, for Leslie Malone insists that her husband's personal and business lives be kept separate. She won't talk to journalists. Bob Magness says, "She's a nice lady" but admits, "We don't see them a lot socially." Even Ray Smith, of Bell Atlantic, who has been negotiating the merger with Malone since June, and who will become the merged company's chairman, says he has never met Leslie.
FOR a chief executive officer, Malone has a management style that is curiously indirect. He relies on Brendan R. Clouston, the chief operating officer of TCI, to run cable systems, and on Peter Barton, the president at Liberty Media, to run programming operations. Malone himself concentrates on strategy, deal-making, technology, and cable-programming. "Brendan is basically the president of the company, though we don't call him that yet," Malone says. His spending so much time in Maine, and declining to attend most operations meetings or to give direct orders, "lets the organization grow up," he says. "I've sort of worked my way out of a job."
He has not worked his way out of the job fast enough to suit quite a few people in the cable industry and elsewhere, however. The criticism of Malone and TCI amounts essentially to three charges: that Malone is a ruthless bully, that Malone is a liar, and that Malone is a monopolist. Accounts of TCI's coarse tactics are legendary. In 1973, when TCI and city officials in Vail, Colorado, could not agree on cable rates, TCI pulled all its programming for an entire weekend, substituting on TV screens the names and home phone numbers of city officials. The city surrendered. Eight years later, in Jefferson City, Missouri, TCI threatened to let the screen go blank if the city didn't renew its franchise. Again, city officials succumbed. A cable competitor filed an antitrust lawsuit against TCI, and a jury fined Malone's company thirty-six million dollars. "Keep in mind that in those days there were no rules or laws defining what a cable franchise was," Malone says of both instances. As for Jefferson City, Malone told Congress in December that the TCI employee responsible "was discharged once TCI learned of his unauthorized actions," and he noted that in 1988 Jefferson City had renewed TCI's "nonexclusive franchise" for eleven years.
The second charge--that Malone can't be trusted--was made by Martin Davis, the chief executive officer of Paramount, in a recent Vanity Fair account of the battle for Paramount between Viacom and QVC. It is a charge that has also been made by some members of the cable industry. "His word is useless," the C.E.O. of one major cable rival says. "He's the best businessman I ever met. On the other hand, in terms of a character, trust, or honesty evaluation, he's one of the most dangerous men I ever met." Another cable-programming executive, who, like most Malone critics, asks to remain anonymous--in his case, because his service is one of the twenty-nine partly owned by Malone's companies--says that even after you think you've reached an agreement with Malone and his people they often reopen negotiations. "On Monday, he can say to me, 'I want to invest in this, it's great,' " this executive says. "On Wednesday, he or Peter Barton will say, 'I don't think it makes sense.' " TCI, another cable operator says, has this philosophy: "I want mine. And I want what's not yours."
Ted Turner dismisses the criticism that Malone is a greedy partner. "He's a wonderful partner, and I say that after seven years or so of having him on my board with veto power over what we do," Turner says. "He's been exemplary as a director and as a partner. He's as honest as the day is long. He's fun to be with." Malone's frequent changes of mind, his defenders explain, stem from his restless intellect. Another Malone cable partner sees Malone's mind in a somewhat different perspective, defending him as personally honorable but so intellectually adept as to be frightening. "This is a man who in a two-day period can have four hundred different transactions going on," says QVC's Barry Diller, who is a sometimes wary but always respectful partner. "As someone once said, 'He has a frictionless mind.' The next idea has no historical relevance. He forgets what he said eight minutes before. But if you make an agreement, you can count on it completely."
The third--and potentially most damaging--charge made against Malone and TCI is that they are a monopoly and use muscle, just as the robber barons of the nineteenth century did, to gain advantage. The claim received new prominence last September, when Viacom, which competes with TCI in various programming ventures, filed a lawsuit charging that Malone had violated the Clayton and Sherman Antitrust Acts by maneuvering to deny competitors access to TCI's markets. The heart of Viacom's suit is contained in this passage:
Malone's scheme to monopolize cable television begins with his empire of cable television systems. Malone-controlled defendants Tele-Communications, Inc. ("TCI") and Liberty Media Corporation ("Liberty") have amassed local cable monopolies controlling approximately one in four of all cable households in the United States. . . . Defendants' monopoly power as cable operators, together with their expanding interests in all other aspects of the cable industry, gives them unparalleled power to dictate terms to cable television programmers, such as Viacom. Without access to Malone's cable systems, cable network programmers cannot achieve the "critical mass" of viewers needed to attract national advertising or a sufficient number of subscribers required to make the network viable. . . . As a result of Malone's unique control over this life-line, he can--and does--extract unfair and anticompetitive terms and conditions from cable programmers, including Viacom.
Among the coercive tactics alleged to have been employed by Malone, perhaps the most serious concerns his relationship with the Learning Channel. Back in 1990, this fledging cable-programming service was put up for sale. The Lifetime Television Network, which is owned by Viacom, the Hearst Corporation, and Capital Cities /ABC, stepped forward, ultimately offering thirty-nine million dollars. Sumner Redstone, the chairman of Viacom, charges that after Lifetime's owners negotiated a sale agreement they went to see Malone and he told them he planned to drop the Learning Channel from many of TCI's cable systems. As the Viacom lawsuit says, "Lifetime then withdrew its bid because of this threat." Four months later, the Discovery Channel, which is partly owned by TCI, bid thirty million dollars and ended up buying the Learning Channel.
One executive who was not a principal in the negotiations but is close to the Hearst Corporation agrees with Redstone's claim that Malone used inappropriate strong-arm tactics. But Herbert A. Granath, who oversees all cable investments for Capital Cities /ABC, and who attended a meeting of the three owners of Lifetime with Malone, offers an account of the meeting that, while critical, is closer to Malone's version. "We flew out to see John and said we were willing to turn it into a viable channel and invest more," Granath recalls. "But we wouldn't do that unless John agreed to keep it on the air a couple of years. He said he could not make that commitment." The reason he gave Granath was that many of his cable systems had already been told they "were free to take on Mind Extension University," and Granath says, "And some had. That could be true." Granath trusts Malone, he says. "I never found him untrustworthy. He tells you what he's going to do, and he does it. He's just very tough."
Being tough is not a felony, Malone says, aware that all business executives seek an advantage on behalf of their shareholders. "I play hardball," Malone admits. "But I'm very direct. And I win, frequently." What happened with the Learning Channel, he says, is that it was both a financially and a programmatically weak service at the time, and TCI, to protect itself against the possible bankruptcy of this programming service, sent a standard notification to the Learning Channel's principal owners that TCI reserved the right to stop carrying the channel. Many of TCI's local franchises never carried the Learning Channel, he says, and the Learning Channel was carrying a lot of infomercials. "We contracted to distribute Mind Extension University, which we don't own a piece of," Malone told me. When the three partners from Lifetime visited, he says, he told them of his complaints about the quality of programming on the Learning Channel and of the number of local operators that had already made other choices. He also says he offered to reconsider, and to pay more if they made the programming "first class." But they decided not to go forward. When Discovery bid, he says, it was "the only bidder."
There has been no shortage of allegations made against Malone and TCI. But they all dance around the same basic question: Is TCI a monopoly? Here, too, there seems to be no definitive factual answer. Redstone says yes. Others say maybe. Malone is among those who say no. People who say that TCI is a de-facto monopoly, even though it owns only one in four cable boxes, predicate the claim on their belief that no programming service could survive without access to Malone's subscribers.
Malone rejects such notions. "TCI is a large company, but we are certainly not a giant, whether compared to other telecommunications and technology firms or American companies as a whole," he testified before Congress in December. "TCI's 1992 revenues (including Liberty) were a little over three billion seven hundred million dollars. By comparison, A.T. & T. and I.B.M. each had 1992 revenues of about sixty-five billion." TCI, he said, was about a quarter the size of Time Warner, the nation's second-largest cable-system owner. It was about a third the size of each of the seven Baby Bell telephone companies. Besides, he told me, he has to operate under Federal Communications Commission guidelines. The F.C.C. has ruled that ownership of more than thirty per cent of the nation's cable boxes would threaten to become a monopoly, and the commission restricts ownership to that limit--a restriction that Malone says is reasonable.
Malone asks, "If we're cutting such a hard deal, how come Sumner Redstone is making so much money?" The real money in cable, he says, is being made by programmers like Redstone and by HBO, ESPN, USA, and, of course, Malone's Liberty Media. The chief reason that cable-subscription rates have risen sharply in recent years is that programming costs have increased between thirty and fifty per cent annually. "No one in Congress has sat down and looked at it," Malone says. The debate, he contends, is all about emotion, not facts. Malone is not wailing about his own cash flow, which is robust--partly because TCI and Liberty have bought minority interests in so many programming networks. He is simply pointing out that the balance of power belongs to programmers, because even if he wanted to he could not deny his subscribers such popular fare as HBO, MTV, Nickelodeon, and CNN. "What Redstone wants is to raise prices on his product, and I won't resist," he says.
Where does the truth lie? TCI is not a monopoly in the traditional sense. After all, TCI controls only twenty-five per cent of all cable boxes. Nor, even though Malone has fought with both Redstone and Time Warner, can he easily deny a place on his shelves to such brand names as MTV or HBO, which are owned by Redstone's Viacom and Time Warner, respectively. Malone bridles at being called "evil" for doing what he believes that most business colleagues would do. "People ascribe venality to someone who is only acting in his own interest," former Senator Tim Wirth told me. Some part of the criticism of Malone is envy.
Some part is not. Malone's company does, as he acknowledged, play hardball. It did remove HBO from some cable systems in Texas, because "we needed to get their attention," a TCI executive concedes. This executive says that TCI was losing subscribers, and felt that it needed to renegotiate its agreement with HBO. It is also true that, with the number of channels still limited, Malone does possess life-and-death power over new programmers that have yet to establish themselves.
For the cable industry, he has become the Wicked Witch. It was easy to make Malone out as such because he was mysterious. He rarely granted long interviews. He didn't linger at industry conferences with the boys but instead flew home at night to his family. He didn't advertise, or pour large sums into political campaigns, or retain high-priced public-relations handlers or lobbyists. He didn't court members of Congress or the executive branch. He played rough. He remained a loner. He maintained a naive faith in the power of his argument, in logic, even though he had no faith in the logic of Washington or the media.
The attacks on Malone mounted. There were anonymous physical threats, Malone says. He hired security guards for Leslie and for his children. His hair, which had been almost black, turned gray. Leslie Malone became agitated. She couldn't sleep, Malone says, for she worried about her children, was enraged that her husband could be equated with Darth Vader. Leslie pressed him to leave TCI, to devote more time to the family--to strike a better balance between family and business. Last fall, when Malone couldn't shake a persistent flu, his doctor said, "Your immune system is depressed. Your health problem is stress."
WHENEVER Malone thought about Washington, he felt more stress. A Democratic government was in the White House. Malone's old nemesis Al Gore was now Vice-President. Malone respected Gore's knowledge of telecommunications but not his politics. He was no longer sure what the government would permit. Would it allow him to run both a cable system (TCI) and a programming company (Liberty Media) or would it compel him to divest? Would it allow him to make more deals? Portrayed by his foes as all-powerful, Malone actually felt powerless to stop the freight train he saw barrelling down the tracks toward him and TCI. The uncertainty altered Malone: it made him more tentative.
Malone's confidence that cable could be king was also shaken. The telephone Goliath loomed larger in his mind. He believed that the Clinton-Gore Administration would unshackle the telephone companies, hastening the day when the seven Baby Bells and A.T. & T. and the other long-distance carriers would be allowed to carry video on their wires, thus challenging cable, without unshackling cable companies so they could enter the phone business. He knew that balance sheets were not cable's friend. "The cash flow of the entire cable industry is one and a half times the size of one Baby Bell," he has said more than once. Huge amounts of capital would be required to build an information superhighway--to lay the fibre-optic wire, to invest in programming to fill five hundred-plus channels, to order the high-speed switches and set-top boxes that would let viewers call up a movie or a sporting event instantly on their video jukeboxes, or interact on their computer network. The cable industry alone didn't have the capital. Nor did it have the capital to fulfill Malone's longtime dream of opening a second front by challenging the Baby Bells in the telephone business. Critics said that Malone was too big; he thought TCI was too small. "It would be a seven- or eight-front battle for us," Malone told Metzenbaum's subcommittee in December.
"Eighteen months ago, I started telling Bob Magness and the board that I felt we had to do a strategic deal with a phone company or we were going to have serious problems long-term," Malone says. To go into the phone business alone, he felt, would risk too much of their capital. His first preference, he says, was a "strategic partnership" with A.T. & T., in which TCI could draw on A.T. & T.'s capital and technology--could remain independent while having "a big brother." There were many meetings and discussions between Malone and A.T. & T. Malone sat on the board of McCaw, the largest cellular-phone company, and was aware that that company was about to merge with A.T. & T. Together, the three of them could compete against the Baby Bells--or cable, for that matter--in providing wired or wireless services. But such a joint venture would require government approval, and that was uncertain. Besides, Malone says, A.T. & T. feared that if government deregulated the phone business too fast the Baby Bells would challenge A.T. & T.'s long-distance business before A.T. & T. was ready to challenge their local phone business.
Craig McCaw, the chairman and C.E.O. of McCaw Cellular, suggested that Malone get better acquainted with Ray Smith, of Bell Atlantic, whose headquarters are in Arlington, Virginia. Malone had already met Smith while appearing on an industry panel with him, and Malone had visited Bell Atlantic two years before and dined with Smith. In May of 1991, they had become partners in a satellite programming service in New Zealand. Malone admired Smith's courage in challenging, in federal court, government prohibitions that kept telephone companies out of the video business. Smith claimed that the prohibitions were tantamount to a denial of free speech, and in May of 1993 he won his case. Bell Atlantic's balance sheet impressed Malone, for in 1992 the company generated revenues of more than twelve billion dollars, had relatively little debt, and produced net income of a billion three hundred million dollars. As a C.E.O. with more than thirty-three years in a government-regulated monopoly, where customers and profits were assured, Smith impressed Malone with his entrepreneurial attitude. Malone noted that Bell Atlantic was running the kind of slim headquarters organization he himself favored. "It was clear to both of us that we saw the world similarly," Malone says.
There was a bonus with Smith, and it was one that mattered to Malone: Smith was a skilled politician. He was on a first-name basis with leading Washington figures. He liked dealing with the press. He was used to having a public-relations employee sit in during press interviews--something that Malone didn't do.
Unbeknownst to Malone at the time, Smith, too, was searching for a partner. He had four reasons to target TCI as his top choice. The first, he said recently in his Arlington office, was that "it had national coverage," and the second was that it was situated in a number of major markets. "Then there was John Malone," he went on. "John's understanding of the business, and his skill at handling programming--that was the third aspect of it." The fourth: TCI had "very good cash flows." Smith phoned Malone and asked if he might pay him a visit.
They met in TCI's boardroom on June 16, 1993. Instead of getting right to the point, which was that he wanted to propose a partnership between the two companies, Smith recalls, he started by talking about their common vision--about how, as he is fond of saying, the superhighway means that "your computer will speak, your TV will listen, and your telephone will show you pictures." Smith spoke of how he was leading a cultural revolution at Bell Atlantic, encouraging managers to be more nimble--to be more like TCI. And in the future they, like TCI, would plow profits back into expanding his business. He spoke of how each of them imagined cable and telephone slugging it out, and joked about their sparring sessions on various panels. Then he got serious: "Do you think you'll be able to do this yourself?"
"Of course," Malone had said.
"But then he quickly retreated," Smith goes on. "He made it clear he could learn everything, but it would be a lot faster if he had someone who understood switching, regulation, operating systems, and service requirements--the stuff that we do very well." Smith then suggested a strategic partnership.
"The chemistry with Ray was terrific," Malone says. "The other guys are old school. There is no way companies like U S West would walk away from dividends. Ray was clearly a cat of a different color. Very entrepreneurial. He's a delightful guy. He's not the stiff three-piece suit."
He also plays hardball, just as Malone does. Although Smith was equally impressed with Malone, he says, he wanted to leave Malone with one other message, which was, he says, "If we did not succeed in partnering with TCI, we were going to partner with someone else." The meeting ended with Smith saying, "I'll write you a letter tomorrow."
Within days, Malone received a four-page letter. It asked that he consider three options: Bell Atlantic could make a small minority investment in TCI, much as U S West did when it invested two billion five hundred million in Time Warner; or it could take a larger minority stake, supplying more capital but without gaining control; or, finally, the two companies could merge. Smith also sent a confidentiality agreement, which both men would sign.
Malone was interested. It was the right thing for TCI to take Option
No. 3 and merge, he felt. And it was the right thing for Leslie and John Malone. He didn't want to run all or part of a large organization. Earlier in the year when I.B.M. had been scouting for a new C.E.O., its search committee visited Malone and asked if he might consider becoming C.E.O. of the computer giant. "I'm at the point in my life where I don't want to run a large organization," he recalls telling the committee. "I'm not good at it. I'm a builder. I like to invent." Leslie Malone desperately wanted her husband out of the public eye. He says that at one point he imagined taking Liberty Media and riding off into the sunset. "Les was real happy with that," he says. "She likes Peter." Peter Barton, an ebullient man of forty-two, is one of the few TCI employees who have been inside either of the Malone homes. Malone envisioned staying on as the chairman of Liberty Media, with Barton running it.
Still, though Malone liked that scheme, he was uncertain what to do about the rest of TCI. As it happened, two previously scheduled business conferences--a meeting of the National Cable Television Association in Lenox, Massachusetts, on July 8th, followed by an annual C.E.O. retreat in Sun Valley, Idaho--helped crystallize Malone's thoughts. The twelve-seat TCI Canadair Challenger jet picked him up in Maine and stopped in Lenox, where he stayed just half a day. Ranking cable executives were there with their spouses. "I'm feeling like a left thumb, wondering why I'm there," Malone recalls. At 5 P.M., he headed for Sun Valley, pulled out a yellow legal pad, and began making notes. At the top of page 1 he wrote, "John and Leslie's goals and objectives," and then he listed six: (1) to reduce stress; (2) to have more fun; (3) to insure a safe and liquid personal investment portfolio; (4) to generate predictable income to fund their life style; (5) to reduce government and legal and media exposure by taking himself out of the public eye; (6) to honor commitments and moral obligations to his family and business associates.
These goals, in turn, led to a set of conclusions, which Malone also jotted down: (1) to retire from TCI; (2) to reduce outside public board memberships from eleven to four; (3) to remain chairman and controlling shareholder in Liberty and stay as chairman of CableLabs; (4) to remain on the Turner board, because it was fun, and because it was an important programming investment for TCI and would allow him "to maintain my relationships with the old gang"; (5) to "get the government off our back"; (6) to generate predictable income by deferring TCI compensation payments, which, with stock dividends, should produce sufficient cash to maintain their life style; (7) to say nothing publicly about the contemplated change until Bob Magness was comfortable.
Magness, who is sixty-nine and spends less and less time in the office, had been kept abreast of Malone's search for a partner. The next step was to bring Magness and Smith together. A dinner was arranged in New York on July 12th. Sharon and Bob Magness, Malone, Brendan Clouston, and TCI's outside attorney, Jerome Kern, of
Baker & Botts, would greet Smith and a few of his key executives at an apartment that TCI maintains in Manhattan. The purpose of the evening was to see whether Magness was as comfortable with Smith and Bell Atlantic as Malone was. Smith acted like the suitor he was. Before going to dinner, he talked about the benefits of joining the two companies into one giant, and he made it clear, in his gentle way, that if they were to merge he wanted Liberty to be part of the deal. Smith knew he needed programs to fill his cornucopia of digitalized channels. He wanted Liberty. He wanted TCI people. He wanted the same kind of entrepreneurial culture that Magness and Malone had helped inspire. Most of all, he wanted Malone, his brain, and his cachet on Wall Street.
They walked to a restaurant, and there the discussion revolved around the state of the communications industry. When the two groups parted, after nearly five hours, Bob Magness was sold on Smith and Bell Atlantic. "I was very comfortable with them," Magness recalls. Malone was comfortable with Bell Atlantic, yet uncomfortable with the thought that he might not be able to go off with Liberty. "They were getting into a business they didn't know well," he later said of Bell Atlantic, "and they were afraid I'd outsmart them and they would buy obsolete stuff and I'd keep the good stuff. This is where my reputation hurt me."
A few days after the dinner, Malone telephoned Smith. "I agree with you--we should merge the two companies," Smith recalls Malone saying. "And that means Liberty and TCI?"
Smith wasn't sure what role Malone wanted to play in the merged company. He was sure that he, not Malone, would be the C.E.O. "I felt that I was the better person to run the combined company," he says. "Having the larger company. Having the experience in regulation." And he knew that Malone had no interest in being C.E.O. So he wasn't surprised when Malone said on the phone, "You should run the whole thing."
With the Bell Atlantic deal sliding along nicely, Malone knew that it would complicate, if not sabotage, an earlier deal he had made to own twenty-two per cent of QVC and to be partners with Barry Diller and Ralph and Brian Roberts, the father and son who are, respectively, chairman and president of Comcast. When they announced their partnership, in December of 1992, they had said that Diller would do more than build a home-shopping service. He would become cable television's programming maestro for the superhighway. He and Malone and Comcast together would bend the future to cable's will. Now three impediments had presented themselves. First, Malone had been told in midsummer that Diller wanted to make an offer to acquire Paramount, and Malone now says that that offer conflicted with discussions he had been holding which were meant to facilitate a link between Turner Broadcasting and Paramount. Second, if the merger with Bell Atlantic went forward, Malone would be unilaterally altering the nature of his partnership with Diller and the Robertses. And, finally, he would be aligning TCI with a phone company that wanted to enter the cable business and would be poised to challenge Comcast, since Comcast had cable boxes throughout much of Bell Atlantic's region.
Mindful of his confidentiality agreement, and of the possibility of subsequent shareholder suits, Malone said nothing to Diller or to the Robertses. When Diller proposed to the QVC board members that they make an unsolicited bid for Paramount, Malone recused himself, he has stated in a sworn deposition, telling Diller and the board that "it was inappropriate for me to put myself in a position where TCI's discussions, ongoing discussions, with Paramount would be in conflict with something that QVC and the QVC board might want to do." Malone says that he had discussions with
Martin Davis, of Paramount, for at least three years about Paramount's merging with Turner Broadcasting. This idea sank over "social issues," Malone says. "Ted's attitude was 'Maybe I can let Marty stick around a couple of years before I get rid of him.' And Marty wanted Ted to sell advertising." As late as last April, Malone now says, he received a proposal from Davis to link but not merge Paramount and Turner and Liberty. Each would own a piece of each other but retain its own independence. Davis and Turner would continue to run their own empires, and Liberty would own more than twenty per cent of Paramount to go along with its nearly twenty-five-per-cent ownership of Turner.
Malone says that he still had hopes of pulling off such a deal when Diller proposed going after Paramount. Since Malone continually explores possible deals, he was still talking to Davis through the summer. Malone said in his deposition that Davis had repeatedly asked whether Diller was coming after him and demanded that Malone put Diller "on a leash."
There have been conflicting interpretations of Malone's behavior. Friends maintain that he was trying to strike a delicate balance between his partners and his own shareholders, since he honestly believed that his earlier proposal for Paramount was better than Diller's. He did recuse himself--that is, until Davis chose Viacom as a partner, in September. Detractors say that Malone's behavior in regard to Paramount is one more example of why he can't be trusted. Whichever camp one falls into, this much is certain: even when Malone recused himself, he had a strategy. He was guessing that the threat from Diller might drive Davis into Malone's arms. To some observers, it seemed to be another case of "I want mine. And I want what's not yours."
Unlike the discussions with Turner, or the subsequent negotiations between Sumner Redstone and Martin Davis as they have been recounted in the voluminous depositions that all sides gave, the so-called social issues between Malone and Smith--such as who would be C.E.O., which company name would be listed first, and what titles would be conferred--were quickly resolved that summer. They agreed that Smith would run the company, that the TCI name would not be part of the new entity, and that Malone would serve as a kind of consultant, based in Denver, and would shepherd strategy, programming, and technology. "Conceptually, we were aligned," Malone says. "The real issue came down to price."
On August 30th, Smith and his team flew to Portland, Maine, to meet Malone and his team and take Malone's boat out to sea. Once on board, they wrestled much of the day over price. One of the issues was Malone and Magness's insistence that they be paid a ten-per-cent premium for their Class B stock. Malone maintained that this was not unusual. "Bob feels strongly that he is giving up control and ought to get a premium," he told Smith. Bell Atlantic was asking Malone and Magness to agree not to sell their stock for five years, and was asking Malone to sign a non-compete clause preventing him from working elsewhere in the industry for a number of years. Malone and Magness wanted something in return.
No definitive agreement was reached. But in coming weeks Smith embraced the ten-per-cent premium as fair, and, since this had always been seen as a stock-for-stock swap, they agreed on a method for determining the dollar value of TCI's shares. However, as is often true with Malone, until a letter of intent was signed he kept tinkering. On the morning of October 12th, the day before the marriage was publicly announced, both parties met at the Manhattan law office of Skadden, Arps, Slate, Meagher & Flom, which was representing Bell Atlantic. They negotiated until 4:30 P.M., Smith recalls. They haggled over price--how to value each of the components of the deal, including Liberty Media's programming investments.
"I was ready to walk away," Smith says. When they finally settled these matters and were in separate rooms drafting statements to be included in a press release distributed the next day, they had forgotten one important detail. Smith remembers that Malone entered the room to say, "My guys tell me I have to have a title."
"What do you want?" Smith asked.
"They say 'vice-chairman.' "
"O.K.," Smith said. To Smith, this was the ultimate demonstration that "neither of us has position ego." He says, "We don't care about where we sit or about titles." Malone doesn't care about titles, others say; he cares about control. At TCI, Magness had the title, and Malone had control.
THOUGH Senator Metzenbaum and others reacted with alarm to the prospect of Malone at the nerve center of a behemoth that now reached into twenty-three per cent of American homes, the reaction from the Clinton Administration was muted. The emerging consensus in Washington is that as long as the wires are open to any programmer the merger encourages competition by provoking warfare between cable and telephone companies, and thus inviting two or more wires into most homes.
Malone and Smith remain uncertain about what the federal regulatory bodies will do. They know they face a wait of about a year before the Federal Communications Commission and the Federal Trade Commission and the Justice Department rule on the merger. When Malone spoke to TCI employees at a videotaped question-and-answer session right after the October merger announcement, he himself did not sound like an employee. "Keep in mind, for those of you who feel bought or traded, that the two largest shareholders of the new Bell Atlantic are going to be the two largest shareholders of Liberty and TCI--that's Bob Magness and me," he said. "In a tug of war, I'd bet on our managers." And he made it clear: "TCI did not sell out. We got married."
In January, when Malone spoke to his managers at a Denver hotel, he guessed that there was "a seventy per cent likelihood that the deal happens." Why so low a percentage? Because, he has said since, the government might object to the marriage, or insist that the new company shed assets that Bell Atlantic would not want to shed. Perhaps, he says now, the complexity of the details to be settled between the two parties--as of last week, a definitive merger agreement had yet to be signed--could prompt one or both to back away. If the deal should collapse--and Malone does not believe that this will happen--he is currently telling his managers that he would "give up on the idea of a similar merger." Instead, TCI would go back to Square One and look for a strategic partner, with Bell Atlantic being his first choice. If that happened, Malone might slip off with Peter Barton and Liberty Media.
And what of Malone's former partners Comcast and QVC? They were unhappy, because the proposed merger with Bell Atlantic would mean that the Federal Trade Commission would require Liberty to divest itself of its stake in QVC--if, that is, the home-shopping service should capture Paramount. To stay in the bidding contest with Viacom, Diller and Comcast scurried to find new investors. If Diller loses Paramount, Malone will remain as their partner--unless the federal government should veto that arrangement. No matter what happens, Malone's present, or former, partners are apprehensive. Overnight, Comcast went from being a partner of Malone's to being a competitor. "I'm not saying John shouldn't have done the deal," a cable rival says. "But there was no emotion. This guy is a machine."
Comcast's president, Brian Roberts, who brokered the original partnership between Diller and Malone, still professes admiration for Malone's abilities, but he does not camouflage some hurt. "I was disappointed on several levels," he said. "John was not up-front that he was talking to a phone company and might sell his company. Yet we were in the middle of a ten-billion-dollar deal for Paramount that relied heavily on him. You can argue that Bell Atlantic was a thirty-three-billion-dollar deal and he didn't want to risk it by telling us. But he could have indicated that something was up without revealing any details. Deep in my heart, I say he didn't trust us--or perhaps anyone--enough to take a chance." Malone and Smith maintain that if Malone had told Diller and Roberts earlier than October 12th, which is when Malone called them, it would have violated Securities and Exchange Commission regulations. "We didn't make the deal till the last minute," Smith says. "John had to swallow the discomfort. . . . We had agreed to that. I had a partner who was totally shocked"--Grupo Iusacell, a Mexican cellular-telephone company, in which Bell Atlantic had announced just two days before that it had acquired a billion-dollar stake. Malone says that he has committed himself not just to carrying on his cable systems the two basic QVC channels but to opening the systems up to more when QVC expands; he also says that if Diller should need investment dollars to sweeten his bid for Paramount he was prepared to consider advancing him five hundred million dollars as part of a joint venture they could do overseas.
The fraying partnership between Malone, Roberts, and Diller may be a harbinger of the mercenary nature of business alliances in an era when communications companies are scrambling to converge. Malone says he feels regret that his relationship with Brian and Ralph Roberts has been altered. "We have great relations with Comcast," he says. "We have been partners in many deals together." He once invited the Robertses on his boat--an unusual move for Malone. Of Diller, Malone says, "He's probably the most professional businessman I ever met. He blends sensitivity and toughness in a way that you rarely find. I regret that I have not been able to be of counsel to Barry to the degree I had hoped."
But Malone is not looking back. In the future, he says, business relationships will get more complicated. "Virtually everybody who is not on your team or in your company will be both a friend and a competitor," he observes. "We're partners with Time Warner on a whole bunch of stuff. Yet we are also competitors." He competes with NBC but also has business dealings with it. He will seek to invest not in any one Hollywood studio but in several, he says, so as not to be just a renter of software. "If you have cross-investment, it increases the likelihood that your purposes are aligned," he explains. He does not want to own a studio outright. "It's like racing horses or owning a ball team," Malone says of the movie business. "There's too much ego in it to be a business."
Today, TCI has an equity stake in Turner Broadcasting, which has bought two small, independent Hollywood studios and the M-G-M library; it has a joint pay-per-view venture with Rupert Murdoch's Twentieth Century Fox; Malone retains a relationship with Diller if QVC should fail to take over Paramount; and he has been talking to both Sony and MCA about joint investments. Malone's game plan has never wavered. He wants "a piece of everyone's business," he says.
Malone believes that companies have no permanent allies, only permanent interests. Such an approach both enhances Malone's flexibility and constricts it. Alliances rest on business logic, not personal loyalty or shared passions. There is no fellow-businessman, Malone says, with whom he'd rather kick off his shoes and strategize than Rupert Murdoch. Yet so aware is he that Murdoch is also a competitor--his Fox network competes with Malone's cable channels, and his Sky Television news service challenges CNN--that, Malone says, he is always a bit guarded; everyone in business is both friend and enemy, no one is either.
Because Malone's brains and his cunning are widely admired, speculation in the business and media worlds has it that Malone must know something denied everyone else. Maybe he has figured out that the superhighway and its five hundred-plus channels will not be successful. Maybe he has discovered that the cable industry is a dinosaur. Maybe Malone made a deal with the government. Maybe Malone is keeping Liberty or other assets. Or maybe, Business Week suggested, it will just turn out that Malone will "quickly start to chafe at his secondary role."
But maybe, this time, the complicated Malone is simply following his heart, not his head. Maybe, for once, he's following human, not business, logic. Maybe he's doing what the Wall Street mutual-fund legend Peter Lynch did in 1990, at the age of forty-six, which was to step down in order to spend time with his family. Maybe one can take Malone at his word when he says that although he had multiple motives for merging with Bell Atlantic, his overriding motive had nothing to do with business. He was putting his wife and family first. He's not about to retire, he says, explaining, "I want to spend more time with my wife, my children, and my granddaughter in order to participate in their lives. To a very large degree, this Bell Atlantic deal is a conclusion to me, personally. Ray can make the speeches; he's better at it than I am, and he likes to do it. I can spend a lot more time with Les and the kids, and still be sufficiently involved to keep my intellect and my creative side occupied. The Promised Land."
What, he was asked, would he say to someone who thought the tough-guy Malone sounded henpecked? Malone did not shift uncomfortably in his office chair, did not move his hands, did not act as if he were under assault. His eyes never flickered from the questioner as he responded, "Call it what you will. It's not that she is beating on me all the time. It's something I feel." The feeling, he continued, was that he had not honored "the deal I made when I married her." He was also being selfish, he said. "When I'm in Maine, I'm a different person. I smile. I sleep well. I'm more fun."
Whatever Malone's personal motives may be, it's commonly assumed that Ray Smith will not be lonely running the merged TCI-Bell Atlantic, for many people believe that the fish has swallowed the whale. Soon after the merger, Brian Roberts marvelled of Malone, "Think how smart he is. Here's a guy whose company the federal government was thinking of breaking up on one day because he was too powerful. And the next day he has tripled the size of his business and the government appears to like it." Since Malone will be fifty-three in March, people can't believe that he is truly stepping down. Tim Wirth says of Malone's biggest deal, "I wonder who this guy from Bell Atlantic is. He's in for a ride." (c)