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CABLE COWBOY
J M
OHN ALONE
ANDTHE
R
ISE OFTHE
M C B
ODERN ABLE USINESS
M R
ARK OBICHAUX
JOHNWILEY& SONS,INC.
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CABLE COWBOY
J M
OHN ALONE
ANDTHE
R
ISE OFTHE
M C B
ODERN ABLE USINESS
M R
ARK OBICHAUX
JOHNWILEY& SONS,INC.
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For Mary
Copyright © 2003 by Mark Robichaux. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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transmitted in any form or by any means, electronic, mechanical, photocopying,
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used their best efforts in preparing this book, they make no representations or
warranties with respect to the accuracy or completeness of the contents of this
book and specifically disclaim any implied warranties of merchantability or fit-
ness for a particular purpose. No warranty may be created or extended by sales
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herein may not be suitable for your situation. You should consult with a profes-
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special, incidental, consequential, or other damages.
For general information on our other products and services, or technical sup-
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ISBN: 0-471-23639-X
Printed in the United States of America
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CONTENTS
Introduction v
1 License to Steal 1
2 Running the Show 18
3 Cash Flow 33
4 Thrilla in Manila 49
5 Overgrown Monster 75
6 Cable Cosa Nostra 102
7 Five Hundred Channels 122
8 Nice Try, My Friend 137
9 Chasing Too Many Rabbits? 156
10 Dr. Kevorkian 177
11 Death of a Cowboy 193
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Contents
12 Trojan Horse? 208
13 What Pop Would Have Wanted 225
14 Give Me Liberty 242
15 Déjà Vu 269
Epilogue 281
Acknowledgments 289
Notes 291
Index 303
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INTRODUCTION
On the night of June 24, 1998, a corporate jet streaked through
the inky skies over the Midwest toward Denver, unofficial capi-
tal of the cable television industry in the United States. Inside, John
Malone, chairman of Tele-Communications, Incorporated (TCI),
sank deeper into a creamy soft leather seat. He was delighted to
leave New York. The city was basting in a heat wave, and at every
stop the cable TV baron had made in Manhattan on that steamy
day, throngs of photographers and reporters had jostled to get
closer to him.
Now, 35,000 feet aloft in the polished teak interior of the jet, Ma-
lone was surrounded only by a few loyal lieutenants and this writer.
Despite the long eventful day, concluding a week of clandestine
meetings, he was affable and refreshed. Even with a head of gray
hair, his wide grin, chiseled jaw, and intense brown eyes endowed
Malone with rugged good looks that made him appear younger
than his 59 years. He was, in fact, almost giddy, fueled not by cham-
pagne—they hadn’t uncorked any—but by adrenaline. Hours ear-
lier, Malone had pulled off the biggest coup in an illustrious and
controversial career: selling TCI, the world’s largest and most pow-
erful cable concern, to AT&T, one of the world’s largest telephone
titans and the heart of the once mighty Ma Bell.
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Although he had answered questions effortlessly in the press con-
ference earlier that afternoon, even Malone, the cerebral cable bil-
lionaire, hadn’t yet fully grasped the implications of what he had
just done—a $48 billion deal, one of the largest media mergers in
history, that promised to blanket millions of homes with a panoply
of interactive digital services that Malone had dreamed of for years.
TCI’s coaxial cable wires could deliver data and Internet traffic at
speeds unmatched by the nation’s telephone companies, making
them crucial to the expansion of the Internet. The deal would accel-
erate the changes already silently roiling American culture: how we
get our news, entertain ourselves, teach our children, buy our
stocks, and plan our vacations.
Combined, TCI and AT&T would serve one of the biggest cus-
tomer bases ever assembled. News of the deal had been carried to
every corner of the globe by CNN, which happened to be one of
more than two dozen cable channels in which Malone owned an
interest. The White House had learned of the deal only the night
before it went down, when Malone’s camp had alerted, among oth-
ers, Vice President Al Gore, Malone’s public nemesis.
To buy up TCI’s 622 million shares, AT&T had agreed to pay a
premium of more than 30 percent over TCI’s price on the Nasdaq
stock market at the time. Just as he had done for two decades at the
helm of the cable TV industry, Malone had come out on top of the
AT&T merger. Or had he? Over the next three hours, Malone
basked in the moment, launching a nonlinear lecture of sorts, veer-
ing from industry issues to arcane topics, such as the molecular
makeup of his diet and how the body breaks down carbohydrates.
He repeated ancient stories about TCI characters long since gone,
and in the easy, confident manner that had attracted so many
investors big and small, Malone mapped out where new fortunes
awaited them.
More than halfway home on the flight back to Denver, the banter
in the TCI jet’s cabin had given way to the soft hum of the engines.
In the faint light, Malone glanced out the window into the black
sky, thought about the partner with whom he had started it all, the
late Bob Magness, and muttered to no one in particular, “Bob
would have loved this one.”
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That night on the TCI jet, as Malone started to toy with ideas for
a post-AT&T life, how could he and the others know that by the
summer of 2002, the world as they had planned would be such a
radically different place?
Two years down the road, the TCI merger would spark another
landmark accord: America Online’s $165 billion deal to buy media
powerhouse Time Warner, the richest transaction ever. Each suitor
sought the same thing: a new nervous system for the digital age,
with miles and miles of copper coaxial TV cable reaching into mil-
lions of homes. A parade of companies would follow the template
set in the AT&T deal, merging, investing, and chasing the grand
vision of offering consumers a nonstop stream of information and
entertainment—and many would fall short. Just weeks after AOL
and Time Warner merged, the Internet bubble burst, sending val-
ues of online firms tumbling. The terrorist attacks of September 11,
2001, further accelerated a recession that battered media stocks in
nearly every sector. Synergies and savings were elusive. By 2002,
AOL–Time Warner would lose more than $100 billion in share-
holder value since the merger announcement, amid rumors the
behemouth might be dismantled. Vivendi, a French water utility
that remade itself into a global media giant with the purchase of
Seagram Company’s Universal Studios and other properties, nearly
choked in the process, losing half its stock value. Walt Disney stock
would deflate, first because of its ill-fated Internet plunge, then by
weak ratings at its ABC network. Hardly anyone was immune to the
weak economy and morose ad market. And unthinkable as it was
that evening for the TCI clan flying across the heartland, AT&T
itself would cease to exist in a few short years.
I had studied the bumpy odyssey of the industry for 6 of my 12
years at the Wall Street Journal,fascinated by the cast of underfunded
cowboys who had wanted merely to make a buck by building a rural
antenna service. Their vision always seemed just beyond their
grasp, and they often stumbled in running to reach it. Now this
same spider’s web of copper lines across the country was suddenly
the single fastest route to the Internet, promising a stunning array
of services; it would be unmatched in capacity and speed—the most
sophisticated wired network in the world. The tapestry of events
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that led to cable’s dominance was connected by a single thread:
John Malone.
After the sale of TCI to AT&T, some had expected John Malone
to disappear from the scene, weary from 25 years of near-death
experiences in building TCI with his partner, Bob Magness. But
instead of receding, Malone would reconstitute his old power over-
seas, and in the process, reconstruct a truly global empire. When he
rode away from the AT&T deal, he hung on to Liberty Media Cor-
poration, which held choice programming pieces of the old TCI
empire, and immediately began striking deals. When AT&T stum-
bled with its strategy to remake Ma Bell into a cable powerhouse,
Malone agitated for change. He stirred intrigue with his 4 percent
stake in entertainment giant AOL Time Warner, sparking rumors
that he and his old buddy Ted Turner might stage a takeover. And
in the years that followed, Malone struck more deals, assembling
a global cable operation bigger than the realm he had built with
Magness.
Why should it be any different now? Malone had held center
stage in the pantheon of cowboys, gamblers, and debt-riddled deal
makers who had built the digital nervous system of the nation. Ma-
lone clearly wasn’t one of them; he had been reared in Connecticut,
educated at Yale, and steeled in the storied research ranks of Bell
Labs—yet he had grown into one of them, parlaying his quicksilver
mind, financial agility, and public persuasion into an irresistible
force in pursuit of the dreams they all held. They were entrepre-
neurs whose infamy often negated the need for last names.
But Malone symbolized a much more ominous side of business to
critics, consumers, and competitors. They saw a monopoly run by a
rapacious, Machiavellian bully who lived up to his many nick-
names, including Darth Vader, Genghis Khan, and The Godfather.
He had skated perilously close to securities law violations, and like
industrial powers Andrew Carnegie or J. P. Morgan before him, had
extracted a price for the progress he offered. As his power grew in
the world of television, he decided which cable networks survived,
he defied regulators, and he crushed competitors. And all of this he
did openly, brazenly. He seemed to provoke his critics, relishing
their many barbs. Yet, for all of his influence, Malone remained a
