Malone Vows Fight to Death on 1080i Format

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Atlanta -- John Malone tried to slam the door on the
high-definition destinies of broadcasters CBS and NBC last week, only to decide within
hours that his hardball remarks misfired on Capitol Hill and it was time for some damage
control.

Malone, chairman and CEO of Tele-Communications Inc., said
he would deny carriage to CBS and NBC if the networks insisted on using the 1080-interlace
display format, which he called a "spectrum hog" that would chew up capacity
reserved for incumbent cable networks.

"They're not getting on my systems. I'm not
saying I can't technologically carry them, but I am not going to voluntarily put them
on. No way," said Malone, adding that only the government could make him carry a
1080i signal.

Malone said he was ready to make bilateral deals --
"like right now" -- with broadcasters who would agree to use the
480-progressive-scan or 720-progressive-scan format, which he described as the wave of the
future that would fuse cable's interest to those of the computer-software and
-hardware industries.

"It's clear to us that we can make deals with Fox
and [ABC owner] Disney. It's sort of clear to me that I can make a deal with NBC. I
don't know whether I can make a deal with CBS," Malone said.

ABC Television Network president Preston Padden said last
week that ABC believes "strongly that 720p is better HDTV than 1080i."

NBC sources said they were unwilling to drop 1080i. The
network, which also intends to use 480p, is planning to utilize 1080i for the
high-definition feed of the Tonight Show with Jay Leno.

"[1080i] is superior to any other HDTV format out
there in visual quality and horizontal resolution," an NBC source said.

Asked about cable networks Home Box Office and Madison
Square Garden Network, which are planning to use 1080i, Malone said: "They're
not going 1080i. They're going to go whatever it turns out that they ought to
go."

Malone's threat to block carriage of CBS and NBC
mushroomed into a national story that depicted Malone as gutting a widely reported 1080i
carriage commitment made by TCI president Leo J. Hindery Jr. to the House
Telecommunications Subcommittee last month.

Cable industry sources insisted that Hindery made no such
pledge. Instead, they said he vowed only that TCI's advanced digital set-top box
would be able to pass through a 1080i signal to a digital TV set.

Ken Johnson, spokesman for Telecommunications Subcommittee
chairman Rep. Billy Tauzin (R-La.), said Malone's trashing of 1080i might force
Tauzin to introduce a bill that would force cable carriage of over-the-air digital TV
signals.

"If John Malone wants a war, he'll get one,"
Johnson said. "It's not the route we want to go, but it may be the route we are
forced to go by Malone's comments."

Sen. John McCain (R-Ariz.), chairman of the Senate
Judiciary Committee, said last week that he will hold a hearing on the display format
dispute but didn't give a date, according to press aide Pia Pialorsi.

Soon after Malone's comments reached Washington,
Malone and Hindery released a statement that purported to clarify Malone's 1080i
declarations.

The statement's key passage, which said TCI would
"continue to work with vendors to accommodate" 1080i broadcasters, did not
unambiguously revoke Malone's no-carriage threat.

That led to some tense moments between reporters and Lela
Cocoros, TCI's vice president for corporate communications, and Decker Anstrom,
president of the National Cable Television Association, who ventured into the press
section to discuss the release.

Reporters walked away unpersuaded that the statement's
promise of "passing through" 1080i signals was synonymous with a pledge to carry
1080i signals.

"In the end, on the threshold question 'will we
pass through the formats?' the answer is yes," Anstrom said. "Are there
going to be hardball negotiations between cable operators and broadcast networks? Of
course there are going to be."

Malone, uncertain about the outcome of the digital
must-carry debate in Washington, went to last week's National Show to advertise a
package deal for broadcasters: If they agree to use 720p with no must-carry demands,
he'll bundle TV stations on a high-definition tier with HBO and Discovery Channel --
which will broadcast in HDTV -- and give the TV stations a cut of the revenue.

"If the broadcasters dismiss this once-in-a-lifetime
opportunity to claw their way into subscription revenue streams, then they really are
suicidal," Malone said, adding that HDTV for broadcasters was nothing but red ink
under any business model except his.

Malone said he was playing hardball because 1080i occupies
a full 6 megahertz channel when he has the capability to squeeze 12 720i channels into
three 6 MHz channels. He said established cable networks would be decimated to accommodate
1080i broadcasters.

"This is massive. You are not talking about a channel
with a programmer who's upset. You're talking here about lots of channels and
lots of programmers who will be upset," Malone said.

Malone said he will "fight to the death" digital
must-carry rules now under consideration at the Federal Communications Commission,
presumably because the agency might give TV stations the right to demand 1080i
pass-throughs.

FCC chairman William Kennard said he would give
broadcasters and cable operators some time to come to an agreement. But the introduction
of digital broadcasting in the top 10 markets in November would impose limits on the
FCC's patience.

"These issues must be worked out soon. Otherwise the
FCC will have to step in and have to take the lead," Kennard said in a National Show
speech.

FCC member Susan Ness, speaking a day before Kennard,
delivered the same message, telling the cable industry to work with broadcasters if they
want to keep the FCC out of the debate.

"The need for government regulation is inversely
related to the level of industry cooperation," Ness said. "You need to work
together on issues like digital-broadcast carriage as stations role out their
service."

Time Warner Inc. vice chairman Ted Turner wasn't as
voluble as Malone when asked for his thoughts on digital must-carry at the show.

"It will all work out in the end," Turner said.

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