Superb article on Liberty Interactive-
Weekly Edition for October 5, 1998:
Former E! Chief to Lead Liberty Interactive
By L. ELLIS & L. MOSS October 5, 1998
Liberty Media Corp.'s new interactive unit, led by E! Entertainment Television veteran Lee Masters, won't have to look far for potential programming partners for its efforts.
Liberty owns stakes in a stable of networks and companies that offer sexy interactive programming opportunities, from The Travel Channel, to TV Guide, to USA Networks Inc., to Ticketmaster.
Liberty insiders were abuzz with ideas for offerings that Liberty Interactive can explore, from arranging for viewers to buy cruise packages from Travel, to ordering compact discs and concert tickets from an interactive spinoff of The Box.
"We like the kiretsu of relations that exist within our family," one official with a Liberty-owned company said.
Last week, Liberty unveiled its plan to form Liberty Interactive, with Masters as its president and CEO effective Jan. 1, when his contract with E! expires. Bruce Ravenel, formerly Tele-Communications Inc.'s vice president of interactive ventures, is joining the new unit immediately as its executive vice president and chief technology officer.
Liberty, armed with a $5 billion cash war chest from its sale of certain assets to AT&T Corp., will finance Liberty Interactive, the first mandate of which is to create enhanced-video content tailored to advanced-digital set-tops.
Liberty will also transfer its 86 percent interest in TCI Music — which owns The Box, DMX and the SonicNet Web sites — to Liberty Interactive.
"Liberty Media has an incredible amount of cash, and this is a priority for them," Masters said. "[Liberty Media president] Dob Bennett and [TCI chairman and CEO] John Malone know that for this to be successful, we can't wait until the [set-top] boxes are out there. Our mission is to develop content and have it up and running. Our intention is to be ahead of the market."
According to sources familiar with the deal, under TCI's merger deal with AT&T, Liberty Interactive will get one 6-megahertz analog channel on each of the MSO's former cable systems that it will program with roughly one dozen digital channels — video channels with interactive capabilities.
The source said those interactive video channels are expected to have a strong advertising component — a point that Masters also stressed.
"We're not talking about coming out of the gate with just one or two channels," Masters added, although he said there is no timetable yet for the rollout.
Liberty Interactive will also offer its interactive-programming content to non-TCI cable operators right out of the gate, according to Masters, and to Internet-oriented new-media platforms — possibly services such as @Home Network — later on down the road.
"Liberty has many ownership stakes that it can exploit — in Discovery [Communications Inc.], USA Networks [which owns Ticketmaster], Fox Sports, TV Guide [which is being acquired by Liberty's United Video Satellite Group Inc.], BET [Black Entertainment Television] and Telemundo," said Pat Keane, a senior vice president at Jupiter Communications.
Masters acknowledged that he will explore partnering with Liberty's programming stable, but he maintained that he doesn't have a special inside track with those networks. Masters said those companies must be sold on the commercial viability of Liberty Interactive's plans, especially since many of them, like Discovery, already have interactive components, such as Web sites, in place.
Ravenel said, "Liberty will be one of the creators, but not the only creator, of content in this area." He added that any content developed by Liberty Interactive will be made available to "every digital customer."
A source inside a Liberty affiliate company said the natural preference will be to work with Liberty Interactive, and not with an outside vendor, such as Wink Communications Inc. or ICTV.
"I wouldn't want to be a shareholder in any one of those companies," the source said. "Why would TCI, for example, work with them when they have Lee Masters building them something specific to their needs and working in concert with companies like us?"
Several weeks ago, in an apparent prelude to creating its interactive unit, Liberty acquired a 10 percent stake in interactive-program company ACTV Inc. for $5 million.
Referring to Liberty Interactive's plans, Greg Clark, vice president of Wink, said, "Much of this is still very unclear," adding that he's not all that concerned about potentially not being included in TCI's or AT&T's "friends and family" because "the companies that provide the most value will be the ones that will get to play in the AT&T and TCI world."
He noted that Wink's first U.S. deployment was with InterMedia Partners, part of TCI's "family."
Wes Hoffman, president of ICTV, seemed similarly unconcerned, saying that Liberty's plan appears to be largely digital, and that analog will remain a large opportunity for suppliers for many years hence.
Plus, he said, many interactive services "just don't lend themselves well to a multiplexed environment," although ICTV's does.
TCI president and chief operating officer Leo J. Hindery Jr. last week offered some insight on the interactive-digital tier.
"Initially, it will be natural extensions of basic-cable channels," Hindery said. "You will see, over time, a migration into the more traditional kind of retailing, video retailing and Internet retailing ... [but] we initially are just going to focus on brand extension of existing channels."
In line with Hindery's remarks, Masters also stressed that Liberty Interactive's primary focus will initially be on creating "enhanced video. Web content will follow."
Masters cited his expertise in building a video network like E! as a large reason for his hiring.
"It's meant to be, first and foremost, compelling video," Masters said. "But there will be more behind it. We will create businesses that generate additional sources of revenue, be it advertising or transactional opportunities."
For example, a viewer watching a show on a car could click and order more information about that model, or be directed to a Web site where such data are available, Masters said.
Ad-agency veteran Bill Airy, president of Liberty's digital-health group, has been working on concepts for interactive networks with strong ad opportunities, such as auto and real estate channels, which Liberty Interactive will follow up on, sources inside Liberty said.
One of the first things that Masters said he will look at is TCI Music and interactive opportunities involving music, such as selling CDs.
"We've been working in the last year very much in line with the vision of Liberty Interactive," The Box president Alan McGlade said.
For example, The Box now allows viewers to register on its Web site and order videos to air on the network.
"The set-top is the next logical environment," he said. "And adding the commerce factor is an obvious extension."
Jay Feldman, general manager of Travel, said there have been preliminary talks with Liberty about interactive transactional applications for the Discovery-owned service.
When asked about Liberty's plans to get its one dozen or so interactive services onto cable systems run by TCI and AT&T, Ravenel said distribution will combine TCI's Headend in the Sky for the video element with the cable infrastructure for the interactive elements.
He added that General Instrument Corp.'s forthcoming DCT-5000 set-top box — of which TCI has a blanket order for 15 million or more units — "brings the pieces together: It is technically possible."
The GI DCT-5000 will include a built-in cable modem, which automatically opens the field for Internet-based and IP-based (Internet protocol) applications, from TV Web to videoconferencing and electronic commerce.
HITS currently uses compression rates of 12-to-1 to squeeze one dozen cable channels into a single, 6-MHz cable channel, so Liberty's plan for 12 or so channels, aided by compression, would appear to logically fit any plans that AT&T has to allocate Liberty one channel for its content.
When asked whether TCI's arrangement to work with BankAmerica Corp. and Intuit Inc. for interactive banking would shift over to Liberty, Ravenel said he was "caught by confidentiality agreements, as well as quiet-period restrictions," and therefore, he could not comment.
But observers, including two TCI sources, said it would be "unlikely at best" for that project to move to Liberty. That's because the arrangement is partly a set-top-subsidy package, under which BankAmerica pays TCI cash in the range of $20 to $50 per box to be an "anchor tenant" in TCI's future "walled garden" of interactive services, to use the lingo coined by Malone.
"Moving [the BankAmerica/Intuit] project over to Liberty would make the financing part pretty sticky," one TCI source said. MCN
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