Equity Stakes for Distribution Leverage

“The conversation was always the same: What is your programming service worth? If the answer was, say, $20 million, we’d say, “Okay, we’ll pay you $5 million for a 20 percent stake, and we’ll pay you 5 cents per subscriber home per month—but we want to freeze that rate flat for the next fifteen years.” An implicit part of this discussion was TCI’s reach as the biggest cable operator in the country. By signing on with our cable systems, new channels instantly could reach 20 percent of the nation from the get-go. I personally wanted to encourage the programming companies and entrepreneurs to create content exclusively for cable TV. The industry had been feeding on leftovers from the broadcasters for nearly twenty years; in the early 1980s, the top-rated cable programs included ancient reruns of *The Andy Griffith Show* from the sixties. I knew if the new cable networks had access to the same scale and financing as we did, they could exceed the quality of what the broadcasters were producing.”

“I almost hung a poster that said, “We listen to all ideas for networks.” Our rationale at TCI was that if your network comes to us to be carried, we’ll pay you like everyone else, but we will expect a meaningful volume discount as in any other business. So then if someone had a good idea, and they were looking for an equity holder, why not strike a deal for TCI to own 20 percent of that company instead? We reached roughly 20 percent of the industry’s subscribers. Over time, that became a model for several such deals.”