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 AJR  Columns :    THE ECONOMICS OF TELEVISION    

From AJR,   October 1999  issue

Plotting a Bold, Wired-World Strategy   

Microsoft’s co-founder gobbles up cable for a marriage with the Internet and other interactive services.


By Douglas Gomery
Douglas Gomery is the author of nine books on the economics and history of the media     

Paul G. Allen may be most famous as co-founder of Microsoft, but now the billionaire investor is charting a new path as cable TV's newest mogul.

During the last 15 months, Allen, whom Business Week called the third richest man in the United States, has invested more than $10 billion in cable properties, becoming the nation's fourth largest cable operator, behind AT&T, Time Warner and Comcast.

As the cable industry consolidates and innovates, the steps could translate into higher fees for customers.

Until this summer, Allen kept his holdings private. But in July Allen's Charter Communications Inc. filed for an initial public offering with the Securities and Exchange Commission. The $3.45 billion proposal outlined in that filing plus information posted on the company's Web site (www.chartercom.com) give us a peek into the plans and prospects of this giant cable system operator.

From the Web site one gets the feeling of a mad rush to the future: "Feel the need for speed? Fasten your seat belt and get ready to cruise the Internet at warp speed with CHARTER PIPELINE," it says. "Enjoy up-to-the-minute news, weather, business, and even cable TV program information at your fingertips. CHARTER PIPELINE is up to 50 times faster than a traditional 28.8 Kbps telephone connection. Literally thousands of multimedia Web sites are waiting just a click away."

Allen, of course, has his own Web site, www.paulallen.com, where he spells out his plans to use his growing collection of cable systems to deliver all possible Internet services and allied information sources through the broad band that cable offers. He wants to link television, the Net, voice communication and every interactive service possible through his single line. AT&T is moving toward a similar model, but without Allen's revolutionary fervor.

To build this new information and entertainment superhighway, Allen must have reasoned he needed to control a wire into the home, and so he has purchased cable company after cable company to serve as his pipelines. His systems are located throughout the United States and will soon serve 6.2 million subscribers under the St. Louis-based Charter Communications.

The billion-dollar-plus takeovers have come in a seeming endless stream. But all focus on one principle: taking over the small- to medium-size cable systems. In late June, Allen agreed to buy cable TV system operator Bresnan Communications for $2.1 billion in cash and stock and the assumption of $1 billion in debt to add nearly 700,000 customers to Charter's then 5.5 million subscribers. Bresnan was a small pioneer that cashed out. Others will in 1999 and 2000.

And make no mistake, Allen will personally retain control of his growing cable empire. In his initial public offering of Charter, he seeks to sell some shares to the public, while explicitly retaining sole ownership of the "Class B" shares, which allow owners to vote for the company's board of directors.

Allen also has invested in cable TV programmers. In June, he made a $100 million investment in Oxygen Media, an Internet and cable network venture aimed at women. He joined a roster of rich and powerful investors in the network, most notably Oprah Winfrey and the Walt Disney Co.'s ABC-TV unit. Allen guaranteed his cable systems will carry Oxygen's cable programming--set to debut early next year.

Allen has diversified his programming holdings into other areas as well, spreading around his personal wealth, estimated as high as $30 billion. He has invested substantial shares in DreamWorks SKG, the film, television and record company, and in the USA Networks, the home shopping and television production company. His most visible programming assets are holdings in the Seattle Seahawks professional football team and the Portland Trail Blazers professional basketball team. Indeed, Allen is well known to NBA fans: He regularly appeared on television last spring as his Trail Blazers were having their best season in years.

Allen seems to be relishing his roles. Few executives have their own Web site where they can lay out not only their vision of the future "wired world," but also their favorite movies. (His include "Blade Runner" and "La Dolce Vita.") He lets Web surfers know that he is out to inherit Bill Gates' mantle by creating and defining the second wave of the new information world order.

Expect Allen's cable-convergence strategy to continue. He will spend his (and now the public's) money to offer customers a complete package of everything that can and might flow through a wire. This is a bold and expensive experiment, but one that will surely define how we use television and the Internet as the 21st century begins.