Smart Money Bets On New Communications Media

The smart money says it’s time to make some choices.

Barry Diller, former chairman of Fox Inc., recently invested $25 million in a home shopping cable TV company, QVC Network Inc.--scotching expectations that he would buy into the NBC network. By investing in home shopping, Diller became a partner of John C. Malone, boss of the important cable companies Liberty Media and Tele-Communications Inc., and one of the prime movers in the emerging media-telecommunications business.

Sam Ginn, chairman of Pacific Telesis, announced Dec. 11 that the phone company will split up and he will go with PacTel Wireless, the relatively tiny segment that owns Telesis’ cellular phone operations. That is, Ginn could be boss of a company with $9 billion in revenues and $1 billion in profit, but chose instead to take the helm of a company one-twentieth that size for which he must raise capital.

What these smart guys see is that communications and media are changing rapidly, and the time to move to tomorrow’s winners is now.

It’s also time to figure out what these changes can do for you or your business--and which technologies or companies are worth a look for investment purposes.

Change is cascading. The Federal Communications Commission recently approved a new microwave technology, dubbed “wireless,” to bring competing phone and video services into homes. The FCC will award wireless licenses in 1993, and is getting bids from companies in cable, newspapers, telephones and other fields.

The FCC is trying to provoke competition for traditional phone companies, which have been slow to adopt new technologies, and for cable companies, which got in the bad habit of boosting profits by raising prices.

As a result, U.S. homes and businesses will have hundreds of channels of digital, interactive video and telecommunications services within two to five years. The mall will come to your living room, if that’s what you want.

Some developments are surprisingly near. We’ll see video on demand in 1993, says William Davidson, head of Mesa Research, a telecommunications consulting firm in Redondo Beach. Such dial-a-movie innovations could spell doom for video rental stores.

But technological change is about more than movies. Initially it means lower costs. Wireless will deliver voice and data communications cheaper than the phone company; later it will bring TV services competitively with cable.

The result will be a mushrooming of communications options--and productivity increases. We may get wider access to college lectures, maximizing the reach of universities at lower economic and environmental costs; we will get more efficient communications for business.

Change is so rapid that even Malone, 51, is hedging his bets. On Liberty Media, which has stakes in the Discovery, Black Entertainment and Family cable channels, Malone will use entertainment programming to bring in revenues while he awaits further advances in technology.

Malone also is pushing Tele-Communications Inc., the nation’s largest cable provider, into local telephone service.

Meanwhile, Ginn, 55, is going to raise $750 million to position PacTel Wireless in cable and he may get an FCC license for wireless and compete with Pacific Telesis, his old firm.

Professional investors play the fields. Dan Miller runs Putnam’s New Opportunities fund, which owns Pacific Telesis stock because Miller agrees with the break-up and thinks Ginn is smart to go with the new technology. He also owns stock in Liberty Media, Viacom and Rupert Murdoch’s News Corp.--because of 20th Century Fox studios, not the firm’s newspapers in Britain and Australia. “I favor companies that can deliver programming,” Miller says.

The newspaper business faces both threats and opportunities. Expanded cable capacity will allow operators like Malone to invade local advertising markets, where newspapers are already struggling with recession. Part of the problem for newspaper companies is that they repeatedly raised advertising rates in the early ‘80s to produce the rising earnings that made them darlings of Wall Street.

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But those days of effortless profit are gone, and newspapers must think anew. Newspapers should see themselves as providers of information programming, suggest analysts today.

“I’d love to see newspapers form partnerships with local Bell companies,” says consultant Davidson. “The phone companies have the wires but are casting about for programming, the newspapers have the information services.”

Media partnerships will be a trend, and some companies will try to go further into new technology. Washington Post Co. and Cox Enterprises--owner of the Atlanta newspapers--are bidding for wireless licenses from the FCC.

The outlook remains unpredictable. When technology changes, even the smart money can only make an educated guess. Six years ago, General Electric buying NBC, Laurence Tisch with CBS and Capital Cities acquiring ABC were seen as the smart money, capable of revitalizing the networks.

But that didn’t happen. While TV investments worked out variously for each buyer, the networks are certainly not on the cutting edge of media or communications.

No surprise that Diller, Malone and Ginn are making their moves elsewhere.