Here'a great article for IATV that just came out today. They have such a great future it's a wonder that their stock price hasn't been soaring before now. Well this is just the start:
Weekly Preview for April 12, 1999
MALONE GETS INTERACTIVE
Liberty Chairman Swings GI, Music Deals
By M. FARRELL and B. MENEZES April 12, 1999
John Malone may have relinquished control over cable operations with the sale of Tele-Communications Inc. to AT&T Corp. last month, but his influence over interactive television programming and technology got stronger with two deals that his Liberty Media Group landed last week.
Liberty Media, which owns stakes in about 100 cable channels as well as Time Warner Inc. and USA Networks Inc., added to that portfolio when it acquired an additional 3-percent stake in General Instrument Corp. The acquisition brought its total holdings in the set-top vendor to 18 percent.
Separately, Liberty -- an AT&T Corp. subsidiary controlled by Malone -- agreed to contribute its Internet and interactive programming assets to TCI Music Inc. in exchange for 128.8 million newly issued shares in the company.
Liberty bought the GI shares for $280 million from New York City leveraged buyout firm Forstmann Little & Co. GI separately agreed to purchase 5.3 million of its own shares from Forstmann Little for $148.9 million.
The deals whittle Forstmann's stake in GI to less than 1 percent, ending an eight-year relationship between the two companies. Forstmann had been looking to sell the shares since last August.
The deal is also expected to solidify Malone's ties with GI. AT&T Broadband and Internet Services, AT&T's cable arm (formerly Tele-Communications Inc.), is GI's biggest customer.
"What this represents is Liberty's strong belief in broadband communications in general and in General Instrument," said Geoff Roman, executive vice president of GI. "We view this as a strategic investment."
Roman added that while Liberty and AT&T are operated separately, GI expects to continue to have a strong relationship with AT&T, adding that the investment "indicates we're an important technology."
"We've worked very closely as we've developed our products," Roman added. "I think a lot of our strategies are very much the same. There is some advantage from Dr. Malone's insight."
AT&T and GI also announced Friday that GI was the "first contracted development partner" working to supply technology for AT&T's Internet Protocol telephony deployments. That solidifies an earlier arrangement under which GI would supply gear such as cable modems, the DCT-5000+ set-top with a built-in modem and interface terminals for IP phone service.
Leslie Ellis, senior broadband analyst at Paul Kagan Associates, speculated last week that Malone might be spinning scenarios that would see GI "aggregate" other cable-related technology companies that have historic ties to TCI. Those could include cable hardware maker Antec Corp. and CommScope Inc., the coaxial cable maker that once was part of GI.
"This kind of strategy would make sense, given Malone's strong links to GI and his track record for aggregating companies," Ellis said.
TCI and its Headend in the Sky (HITS) affiliates had already committed to buy 6.5 million to 11.9 million digital set-top boxes from the company between 1997 and 2002. So far, TCI has purchased about 1 million digital boxes.
Although it is rumored that the order has been stepped up, Roman said that any increases would depend on how fast AT&T Broadband deploys digital technology and how many customers they can attract for the service.
No matter what happens with increased orders, by gaining a larger piece of GI, Liberty Media gets a significant share of one of the top set-top box makers in the world. Perhaps more importantly, Liberty gets major input in how the technology for interactive digital television in delivered.
"If you go back to the AT&T/TCI deal, that was a big data point for what the cable industry could be," said Gary Farber, an analyst with SG Cowen & Co. "It's all about access. The GI deal reinforces the fact that John Malone, in his mind, has a lot of thoughts about how he wants to access the consumer. The digital box is the access point."
And while the GI investment gives Liberty an inroad on the equipment side, the TCI Music deal makes Malone an even larger player in the interactive and Internet content arena.
Liberty Digital's Internet and interactive assets include investments in priceline.com, iVillage, Sportsline USA and drugstore.com.
Crucially, Liberty also has the rights to provide interactive video services to AT&T cable systems under an agreement that stems from the AT&T/TCI merger.
In return for contributing its programming assets, Liberty's Liberty Digital unit, run by Lee Masters, will get 128.8 million newly issued shares of TCI Music Series B common stock, upping its interest in the company from 86 percent to 94 percent.
Malone managed to significantly increase the public valuations of both TCI Music and Liberty with the announcement.
TCI Music's share price rose from $8.38 the day before the announcement to $29.56 the next day and $41.63 at the April 8 close. Liberty's shares also got a big lift, with the company's A shares trading at $68.75 on April 8, up $12.87 from its April 5 close.
By shifting around assets, Malone also increased TCI Music's market capitalization by nearly five times. Based on the number of shares outstanding prior to the agreement – 81.4 million – TCI Music's market capitalization was $3.4 billion, up from $682.1 million on April 5.
Probably the biggest piece of the deal, for investors, was TCI Music's access to a 6-MHz channel on AT&T Broabdand's network. That channel, which can be split into 12 digital programming channels, will give Liberty a venue for its other programming assets and millions of guaranteed viewers.
Some analysts value the addition of that 6-MHz channel at $1 billion.
Whatever the valuation, Janco Partners analyst Ted Henderson said the inclusion of that analog channel could prove to be very important to Liberty in the future.
"It allows them an avenue to roll out services," Henderson said. "You can create a wonderful service, but if you can't create distribution for it, it's useless. It's an outstanding asset to have. Now they know they've got a home for these things [interactive and Internet programming assets]."
The channel also provides an excellent testbed for digital programming that later can be offered to other systems as they upgrade to digital technology.
Liberty Digital's Masters said the company was focusing on six to seven interactive applications it wants to provide in the 6 MHz of bandwidth it is allotted by AT&T, including e-commerce, interactive advertising and gaming.
But he said the company still was hashing out its business plans and characterized the potential applications as in the formative stages.
"We are still in the stage of determining who we want to partner with," Masters said.
Liberty wants to offer the initial two or three interactive applications in conjunction with AT&T's deployment of advanced digital set-top boxes, which Masters said he expects to roll out late this year or early in 2000.
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