Wicked Alien forms unholy alliance with Evil Genius

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NEW YORK–The Wicked Alien is Keith Rupert Murdoch, transparently disguised as an American citizen. The Evil Genius is the ruthless and brilliant John Charles Custer Malone, widely described as the most powerful man in cable television–which he actually was, once, for a while. The unholy alliance–actually, the latest in a series of exploits–occurred in June when they became co-owners of TV Guide, with the plan to transfer it to the TV sets of an eager nation, and sell a sliver to the public. Wall Street, always agog about the lords of the ether, predictably went bananas.

“[Murdoch is] sort of looking ahead, I think, to the fact that electronic commerce and the electronic right of way is sort of the name of the game,” said Marion Boucher Soper of Bear Stearns. “It’s another great partnership between Rupert Murdoch and John Malone,” David Goldsmith of the Buckingham Research Group told the Denver Post.

But who has the upper hand? It would appear that the Evil Genius, purchasing the majority of (and bailing out Murdoch’s much criticized buy of) TV Guide, sits firmly in control. Yet a look at their past exploits–or a glance at Murdoch’s own “X-Files” TV show–sends a different message: Don’t bet against the Wicked Alien.

Whereas Murdoch is a transplanted Australian, whose American citizenship abets a complicated scheme designed to run a global network that avoids any nation’s taxes, Malone is the sturdy son of American soil, who turned his company, Tele-Communications Inc. (TCI), from a jerkwater Denver cable outfit into an industrial behemoth.

One of the few Ph.D.’s at the top of the nation’s corporate ranks, he impressed everybody as he built up TCI, and all (including Malone himself) agreed he was a frighteningly intelligent man–so luminously brilliant, in fact, that he recently struck an agreement to sell his obsolete and second-rate cable systems to AT&T for $48 billion. Along the way he was always careful to make nice with Murdoch because News Corporation’s distribution outlets gave the company a global reach.

After Murdoch established the Fox network, Malone put the channel on his cable systems in 1990, and gave it an attractively low number on the dial–a tremendous favor. Without it, it is possible that there would be no Fox at all. When Murdoch got into serious trouble in the early 1990s (in part because he paid too much for TV Guide), Malone helped bail him out by purchasing News Corp. stock at a key moment.

Still, it’s hard to win the heart of Rupert Murdoch. In 1995 and 1996, Malone mysteriously disappeared from TCI, leaving it in a mounting state of chaos. TCI owned a shiny new satellite, but a satellite needs an orbit, and TCI believed it would get one–the only one, in fact, still available over the continental United States. Because Malone has never thought much of bureaucrats (he once told this reporter that Al Gore was “a skunk”), the government was not inclined to approve anything Malone wanted. Murdoch, meanwhile, was Newt Gingrich’s publisher, and the government seemed to think the world of him. Murdoch, no doubt having noticed his old friend’s sudden absence from the corporate helm, immediately pounced. When the dust cleared, Murdoch and MCI–his date of the moment–won control of the orbit; TCI had no place to put its shiny new satellite, and still doesn’t.

Malone, back from his unexplained sabbatical, has once again joined forces with Murdoch on the TV Guide deal. But while Wall Street described the current deal as Murdoch’s bid to cut his losses and embrace the electronic future–as noted, Murdoch paid too much for TV Guide, and its once staggering circulation of 17 million has dropped to 13 million–a close examination reveals Malone’s ambitions as well.

The TCI-controlled United Video runs the Prevue network, a screen-based TV guide that is available to 50 million U.S. households, and 3 million abroad. Under the deal, United Video receives the right to rename Prevue “TV Guide,” and can reproduce features and news from the magazine as on-screen material. For years, Malone has been fascinated with the power of brand names, and TV Guide is one of considerable power.

Moreover, Malone has a brand name of his own–TCI–that many customers hate because of its poor service and arrogant, high-handed behavior. Appropriating the happy TV Guide logo therefore seems to be an unmitigated good thing.

But wait. A respected brand name doesn’t necessarily migrate well to an entirely different product. Does anybody remember Coca-Cola clothing? Can Malone use the TV Guide name to leverage, as the saying goes, whole new features such as home banking and shopping?

TV Guide is not a bank and it is not a department store. Moreover, home banking has been repeatedly tried and repeatedly found wanting. The same is true of home shopping. There is a reason why there are only two major home-shopping networks (QVC and Home Shopping Network), both of them substantially owned by John Malone and both of them heavily dependent on things like spray-on vitamins and costume jewelry. TV shoppers are roughly the same viewers who regularly watch television evangelists: They are middle-aged, middle-class ladies, and they are a minuscule portion of the viewing audience.

While there is no doubt that Malone can migrate TV Guide‘s printed content to the home screen, the trick is getting people to read it. Back in the late 1970s, a number of companies, including CBS and the New York Times Company, spent millions doing just that, on technology called “videotext,” and they lost it all. “The interface was terrible and the navigation was almost impossible to use,” says Buckingham Research’s Goldsmith. There was also another problem. For technical reasons, a television screen is much harder to read than a computer screen; the experience can be painful.

This is not to say Malone won’t be able to make these things work: Sooner or later, someone is bound to make a bundle out of new TV technologies, perhaps in ways not yet imagined, perhaps even using the TV Guide brand name. But people–including, it seems, the current John Malone–have a way of forgetting something about the future. It hasn’t happened yet.

Meanwhile, the wily Murdoch, his feet planted in the present, has allowed his pal to assume the bulk of the risk while reserving an effortless option on the future for himself. Murdoch’s News Corp. owns 40 percent of the combined TV Guide/United Video enterprise but retains nearly half the voting rights. In addition, he retains full control of the print version of TV Guide because Malone has no idea how to run a magazine (“Of course he doesn’t,” Goldsmith said). Why would Murdoch hold on to TV Guide when he has sold all his other expensive magazines? Because–as opposing networks often charge–it has been an important booster of Fox, and will doubtless remain so in its televised future.

Meanwhile, with this deal, he has recovered two-thirds of the money he spent to buy TV Guide, and he has taken a flutter on the future that will entitle him to almost half the money Malone makes with the televised guide–and will spare him financial repercussions if Malone makes a hash of it.

And the transaction has given him one final gift: a rise in News Corp. stock prices, helpful because Murdoch uses the stock as his own private currency–call it “the Rupe”–when he purchases another company. Stockbrokers, said Bear Stearns’ Soper, like Murdoch’s deal with Malone. “They like any sort of a deal,” she noted, “that reduces debt and reduces exposure to margin-reducing businesses.” And the stock market is in love with the digital future. Of course, when it comes to technology, Wall Street has an extremely difficult time understanding anything more complicated than a staple gun. Interim betting line: advantage, Wicked Alien; risk, Evil Genius.


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