Money Talks, Then Deals Fly

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The Beatles told us long ago that money can't buy (me) love. But, as many cable networks can attest, money can buy you carriage.

That formula also applies when it comes to brand-name media giants persuading cable operators to partner up to deliver new non-video services.

A few years ago, it seemed like a slam dunk that AT&T Corp. would have a local cable-telephony footprint way beyond the Tele-Communications Inc. cable systems it bought for $55 billion. AT&T had the killer consumer brand and the millions of long-distance customers. Cable operators, seeing the Baby Bells' once-formidable move into cable fade to black, finally had a lower-risk way to steal some of the $100-billion-plus in local-phone business away from their dormant competitors.

Of course, things didn't quite work out. Operators, except longtime AT&T partner Insight Communications Co., took a pass, unwilling to pay AT&T's price. (Time Warner Cable signed a phone-affiliation deal with AT&T in 1999, but that got shelved after AT&T agreed to buy MediaOne Group Inc. and its stake in Time Warner Entertainment LP.)

Ultimately, AT&T took the Baby Bells' way out, selling its AT&T Broadband cable systems to Comcast Corp. — a newly devoted fan of local telephony.

Prospects were looking equally dismal for the biggest brand-name online services provider. A few years ago analysts saw a natural fit between America Online Inc. — whose chairman, Steve Case, loves
cable's expanded-basic subscription model — and cable's new foray into the foreign land of delivering data to home computers.

Cable by and large went with a homegrown provider, @Home Corp., preferring to hand big revenue splits over to a company they owned and controlled. AOL's brand name and immense customer base could have accelerated the painfully slow early introduction of cable-modem services, but operators weren't willing to pay AOL's price.

Ultimately, AOL bought its own MSO (and a lot else besides) in Time Warner Inc., but it couldn't convince other cable guys to partner up on a broadband version of America Online.

Then money started talking, and mutually beneficial motivations collided, in the forms of AT&T (Comcast's surrogate, until the cable sale closes) and AOL Time Warner and their historically challenging entanglement, Time Warner Entertainment.

Comcast made it known it didn't want AT&T's 27 percent piece of TWE, and AT&T helped motivate AOL by exercising the right to sell that stake to the public. AOL obviously tried to get the best terms it could for its own businesses — including, chairman Dick Parsons later told the papers, long-term carriage deals for AOL's cable networks. That tie-in didn't fly, but an AOL Broadband carriage deal did — after Comcast got the price it
wanted.

Comcast says AOL's terms aren't much different from what Juno owner United Online Inc. is paying to ride Comcast's broadband network. But one official politely points out that AOL might have been expected to command better terms than $35 to $40 per customer and a slice of other revenue.

Operators say they're willing to share the pipe with AOL, on the right terms, and Comcast's deal obviously sets a benchmark.

Parsons, by following through on his promise of making a TWE deal happen, deserves much credit. It lifted cable stocks in general, and at least one top executive — from a cable company not involved in the deal — was planning to write him a thank-you note.

AOL benefits from making its business easier to understand. There's one fewer question mark hovering over AT&T Comcast Corp., which could face some costly upgrades of those old TCI systems.

But the AOL Broadband portion of the TWE deal also demonstrates, once again, that a big consumer brand name has a lot more clout when there's money attached.

Kent Gibbons is editor of Multichannel News

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