The Giants Take Over Cable Television   

TCI and Time Warner are in the midst of an acquisition frenzy.

Anyone who lived through the era of only three television networks celebrates channel surfing. Cable offers so much, from 24-hour news to uncut movies to complete weather forecasts every 15 minutes.

ýut cable TV has always been caught in a contradiction. With all of its choices, there is, with a few exceptions, only one corporate gatekeeper per local jurisdiction. Your cable company is a legal monopoly. If you do not like what your cable system does or does not offer, your only choice is to move or pay much more for an expensive satellite hook-up.

Economic logic dictates that such local monopolists will ultimately combine. It becomes possible to economize with a centralized accounting department and one sales force. As mergers take place, these and other fixed costs can and are amortized over larger and larger revenue bases. Simply put, this means ever greater profits, a classic case of scale economies.

And indeed, consolidation is the order of the day in today's cable TV business. For example, from June 1994 through February 1995, industry giants TCI and Time Warner have acquired thousands of new customers via a half-dozen mega-billion dollar deals.

Smaller challengers, such as Cox Communications, spend billions of dollars just to keep up. The stand-pat "mighty mites" of the cable business, such as Post-Newsweek and Chronicle Publishing, seem doomed.

The original cable wildcatters, who erected a large antenna to bring in distant signals, are content to cash out rather than try to continue to compete.

In short, the long fragmented cable industry (with similar corporate nameplates like Cablevision Industries, Cablevision Systems and Continental Cablevision) is consolidating. The alphabet soup of companies is giving way to a handful of corporate giants.

TCI and Time Warner have led the way, and once this round of acquisition frenzy ends, they will control about half of all cable TV customers in the United States – or maybe more.

That is today's reality while we await a new era of competition as the Baby Bells line up against TCI and Time Warner. These regional phone companies would like to enter the new – for them – world of video. But for now they await the formal blessing of Congress and the president.

When and if the Baby Bells are freed to enter cable TV in their areas of regional telephone monopoly, the cable business will cease to be one of pure monopoly as we have today. Instead it will be what economists call a duopoly: two dominant companies, two choices for the customer. Both cable companies and the Baby Bells will offer in a given market what we now think of as phone service and cable TV – and hopefully much more.

But that is tomorrow. For today in the cable TV industry we have the spectacle of simply pooling traditional cable franchises and the making of corporate powerhouses.

And TCI is the clear leader. So by this summer, for example, TCI will have under its tent nearly all cable TV systems in the San Francisco Bay area. The Bay area's 1.5 million cable customers will use the same 1-800 number to schedule installation and complain about power outages and late installers. TCI will have created a "Super Cluster" West Coast media powerhouse.

One man is leading this merger movement. TCI's John Malone deserves to be recognized for his place in the history of television.

More people have probably heard of David Sarnoff and William S. Paley and their creations, NBC and CBS. But Malone has joined their heralded company; he stands as a true media mogul. Sarnoff and Paley are long dead; Malone is hard at work today defining what Americans see as they channel surf.

When he was fighting for the cable deregulation bill in 1992, then-Sen. Al Gore called Malone "Darth Vader." Now they work together to deregulate the new world of information and entertainment flowing into the more than 61 million wired households across the country.

Malone has his good side. In the tradition of Sarnoff and Paley, who funded documentaries and spectaculars out of their extraordinary network profits, Malone makes sure that C-SPAN (to solidify relations with Congress) and the Discovery Channel (to give cable a good name with educators) run on most cable systems. He sits on the boards of both.

John Malone's vision is simple: one wire into every home, owned by TCI, offering all present and future communication services. He told Forbes in a rare interview, "You gotta consolidate." And since TCI "is generating about $2 billion a year in cash flow," he plans to spend more than $1 billion a year to acquire and consolidate.

Malone is today's most powerful television gatekeeper. More than any single individual, he has the power to make television something better. But will he? Watch and see. l