Cable King John Malone's New Run at the Old World

Two decades ago, John C. Malone tried and failed to replicate his U.S. cable TV success in Europe by buying up local carriers. Now, despite losing money in his international cable operations in all but two of the past 16 years, the 69-year-old King of Cable is ready to try again.

In January, Malone's Liberty Global (LETYA) bought Germany's No. 2 cable operator, Unitymedia, for $2.7 billion. With nearly $4 billion in cash from the sale of a Japanese subsidiary in February, Liberty is looking for other European opportunities as well. It may bid on Germany's No. 3 cable operator, Kabel Baden-Württemberg, and Aster City Cable in Poland, company executives say. Malone could also try to acquire carriers in France, Sweden, and Denmark, says Guy Bisson, an analyst at media researcher Screen Digest. With many rivals interested in the same properties, "It's a race," says Manuel Kohnstamm, Liberty's managing director of public policy.

The winner stands to dominate newer digital technologies, both on-demand TV programming and Internet access. Though just one-third of European pay-TV subscribers have digital service, they currently generate half of all revenues, according to Cable Europe, an industry group. European homes with digital cable are projected to more than double, to 46 million, by 2014, Screen Digest estimates. Of those customers, some 41% will use their cable connection for Internet service, up from 31% today.

Malone sold his American cable business to AT&T (T) in 1996 for $54 billion. Today his U.S.-based flagship, Liberty Media, owns TV shopping channel QVC, the Starz pay-TV channels, and stakes in Sprint Nextel (S), Sirius XM Radio (SIRI), and Time Warner (TWX). Liberty Global has 16 million cable subscribers in Europe, but fewer than two in five are digital. With the addition of UnityMedia it now has operations in 11 European countries. Last year, before the acquisition, the company's European arm had sales of $6.2 billion.

For Liberty's latest foray to pay off, the company must get subscribers to shell out more for programming. When it comes to paying for TV, Europeans are famously cheap. In Germany, for instance, the average monthly revenue per subscriber is about $20, vs. $119 in the U.S. Now, Liberty aims to convert its millions of analog customers to costlier digital service. "We have 10 million [subscribers] that have yet to make the decision 'Maybe we want 150 channels, maybe HD would look good in my living room,' " says Michael T. Fries, Liberty Global's CEO. "So we have 10 million untapped homes that we are running as fast as we can to connect."

Even if Fries is successful, cable in Europe is unlikely to become the money spinner for Malone that it was in the U.S. two decades ago. Sure, Liberty will likely benefit from cheaper prices as it buys greater quantities of equipment and programming. But differences in languages, laws, and tastes make it difficult to gain the cost efficiencies that made Malone's consolidation of the American market so profitable. A bullfight finds few viewers in the Netherlands, for instance, while a speed-skating championship that's a hit with the Dutch gets a yawn from Spaniards. Ads aimed at children are barred in Sweden but allowed elsewhere. France, meanwhile, bans liquor spots, while they're permitted in Germany and Italy—but at different times of day.

Malone has called cable the "best wealth creation model" he knows. As he makes another run at Europe, he may find that's no longer the case.

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