A short time ago, in a galaxy that seems far, far away, John Malone was the Emperor of Cable Television, a man deemed so powerful by fearful rivals he was dubbed "Darth Vader" by none other than Al Gore. He'd amassed unmatched power for his Tele-Communications Inc. (14 million customers) through, critics charged, ruthless conquests, annexing competitors and requiring tribute from cable channels that wanted to be on his systems. But at the height of his power, in 1998, Malone sold out to AT&T and retired to his home base, suburban Denver, where the billionaire seemed satisfied to be a passive media investor.
Malone, it now appears, was merely plotting his next conquest. And this time he's switched allegiances. With an $11 billion deal last month for control of satellite-TV leader DirecTV (15.5 million customers), and possible projects with No. 2 player Dish Network, Malone is once again aiming to shape the future of television--and in the process zap cable TV, the very industry he helped propel to world dominance. Key to his goal: high-definition television, which offers images so crystal- clear you can see the blemishes under a starlet's makeup. After launching two new satellites, DirecTV plans to add 100 new high-def channels, including CNN and FX. "It'll make us the clear leader in HD," DirecTV CEO Chase Carey boasted to NEWSWEEK. "We'll have a lead probably triple what anyone else has." Malone's cable rivals are unable to expand quickly, because high-def hogs too much of their existing bandwidth. In short, Malone is poised to become the King of HDTV (which, despite the hokey-salesman sound of it, is a nicer nickname than his "Star Wars" moniker). "He certainly wouldn't be out of line in calling a crown maker to take his measurements," says media billionaire Mark Cuban, who controls HDNet, the all-high-def network that is on DirecTV.
Immortalized in the 2002 book "Cable Cowboy: John Malone and the Rise of the Modern Cable Industry," Malone led the charge that dethroned broadcast TV and the Big Three networks as the rulers of mass media. His knack for imagining the future helped position cable as the broadband option of choice. Wall Street celebrated his wheeler-dealer flair, and even after leaving cableland, Malone remained a significant financial player as CEO of Liberty Media, which assembled massive stakes in Time Warner and Rupert Murdoch's News Corp. To acquire DirecTV, which is controlled by Murdoch, Malone agreed to swap his News Corp. holdings.
Yet this time Malone faces a media universe that's infinitely more challenging. There's a frenetic race among old-media broadcasters to compete in cyberspace with digital giants like Google and disruptive newcomers like YouTube. Comcast, Time Warner and other cable titans now offer phone service and broadband, luring customers with their "triple-play" packages of TV, Internet and telephone services. AT&T, Verizon and other telcos are retaliating by storming into television and Internet access. Meantime, DirecTV and Dish--who've been unable to offer phone and Internet connections for technical reasons--are partnering with the telcos to offer those services. "The competitive fires are burning brightly" across the industries, says Marty Franks, a top CBS exec, "and HD is a large part of the fuel." Malone, he adds, "shakes up any business sector he enters."
Television officially entered the high-def epoch in the mid-1990s after the federal government, as steward of the public broadcast airwaves, mandated a shift to the digital spectrum from analog. Haltingly, and despite technical and economic challenges, high-def has been spreading into the mainstream. HD television sets, which used to cost the equivalent of a down payment on a house, can be had this year for $900 on average, according to the Consumer Electronics Association. Most major TV series are in HD, and sports have long been plentiful in the format. A wave of major networks, including USA and MTV, are going HD this year.
The would-be King of HD seems to be building his new empire the same way he did in the'90s: by wooing competitors to the Malone side. His Liberty Media refused to comment for this story. But in a surprisingly candid interview with the trade magazine Broadcasting & Cable after announcing the DirecTV deal, Malone floated an intriguing trial balloon: a new, all-HD service jointly operated by DirectTV and Dish. Another idea: the two services could start producing their own high-def programs, currently the province of Hollywood studios and TV networks. He downplayed the possibility of an acquisition of Dish parent EchoStar by DirectTV.
Malone is also hunting for existing HD channels to buy, reportedly including those of Rainbow Media, a unit of Cablevision that operates the 15-channel Voom HD network, which is partly owned by EchoStar and carried only on that service. Carl Vogel, EchoStar president, says his company "would have no problem" with Liberty's acquiring Voom. He says the two companies have "similar aspirations for what we think broadband can be on satellite. A way to potentially do that together makes sense." Still, EchoStar and DirecTV will remain fierce rivals. At last week's Consumer Electronics Show in Las Vegas, where DirecTV announced those new HD channels, EchoStar was touting an aggressive new pricing structure that bundles high-def offerings with an HD digital video recorder and other sweeteners, like a monthly $10 rebate. "We'll continue to be as aggressive as we can on pricing," says Vogel. "We cut our teeth on being competitive." Then again, so did Malone.
Intimately familiar with his style, the largest cable operators, Comcast and Time Warner, already offer most of the 28 networks currently available in HD, like ESPN and HBO. Since they operate as local franchises, cable services can offer practically every local station, not just the national networks--a big advantage over the cross-country satellite services, which are limited in their ability to carry hometown outlets. DirecTV and Dish hope to bridge the gap when they launch new satellites this year that will give them the capacity to handle more local channels--and lots more HD. "They have newly abundant shelf space," says John Hendricks, chairman of Discovery Channel, a leading HD programmer. "Wherever there's shelf space, we'll be there." At the same time, cable has come up with a clever solution to its own technical constraints: on-demand HD movies and TV shows, which don't eat up as much bandwidth as an entire HD channel. Comcast launched HD VOD last September and plans to double programming for it to 200 hours this year.
Sure, the Force may be with cable at the moment. But Vader is building a Death Star. And it'll be a vivid showdown to watch--especially in high-def.