Suit Seeks to Thwart QVC : Viacom Moves to Block Rival Bid for Paramount

In a move that could have sweeping consequences for the cable television industry, a bidder for Paramount Communications Inc. on Thursday sued giant Tele-Communications Inc. for allegedly trying to monopolize the cable TV business through “bully-boy tactics and strong arming competitors.”

The suit filed by Viacom Inc., which has offered $8.2 billion for Paramount, is a direct challenge to the cable supremacy of TCI chief executive John Malone, who is backing a rival bid by the QVC Network.

The immediate aim of the suit, filed in U.S. District Court in New York, is to block QVC’s unfriendly offer for the entertainment giant. But it also focuses attention on the balance of power in the fast-growing cable TV industry, which is dominated by a handful of players.

TCI said it was studying the suit, but QVC issued a statement saying that the allegations were “without merit” and “an attempt to deprive Paramount shareholders from considering the best proposal for the future of their company.” QVC, headed by Barry Diller, has offered $9.5 billion to acquire Paramount.

Malone, as head of the largest cable company in the country, is a lightning rod for criticism of the concentration of power in the industry.

TCI controls 20% of the cable subscribers nationwide and Malone, through his affiliate Liberty Media Corp., has stakes in 25 different cable networks, including 22% of the QVC Network. TCI also is a partner with giant Time Warner Inc. in Ted Turner’s Turner Broadcasting System.

These far-reaching investments give Malone considerable power in deciding everything from what programs get made in Hollywood to picking what channels are carried on local cable systems. The lawsuit, which Viacom said it began preparing long before QVC made its bid for Paramount, accuses Malone of “conspiring to engage . . . in an integrated series of predatory acts and strategies,” such as favoring Malone-controlled networks over rival networks.

An affirmative ruling by the New York federal judge could cause to unravel the complicated web of interlocking ownership interests among cable operators and programmers.

As part of the campaign against Malone, Viacom Chairman Sumner Redstone and Paramount Chairman Martin S. Davis traveled to Washington on Thursday, where they pressed their case with Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, and Edward J. Markey (D-Mass.), chairman of the House telecommunications subcommittee. Both lawmakers are important voices in the shaping of national telecommunications policy.

Lawmakers, who last year adopted a tough new cable TV regulation bill, were said to have given Davis and Redstone a warm reception.

But it will take more than lobbying Washington lawmakers to blunt QVC’s bid for Paramount. QVC stock jumped $1.75 Thursday, to $61.75, in over-the-counter trading and Viacom A shares rose $1.375, to $60.25 on the American Stock Exchange, while Paramount slipped $1 to $76.875 on the New York Stock Exchange.

Meanwhile, Tele-Communications A shares fell 50 cents to $25.25 Thursday in NASDAQ trading. Wall Street traders continued to throw their weight behind the QVC bid and predicted that Redstone will have to sweeten Viacom’s proposal by enhancing the cash portion of the offer, despite his statements to the contrary.

“My reaction to that is Redstone is blowing smoke,” said one Wall Street trader about Redstone’s insistence that he would not revise his bid. “This guy is going to need some more cash and stock. We expect him to bump and bump soon to keep momentum out of Diller’s hands.”

Analysts worried that the lawsuit could delay either bidder from getting Paramount by creating a drawn-out legal battle. “This is very smart of Redstone,” one analyst said. “It buys him some time while he figures out what to do next.”

The suit, which accuses Malone and his affiliates of a broad range of monopolistic practices in the cable industry, is revelatory because it publicly lays out what many in the industry have said privately for years about Malone and TCI.

The suit names TCI, Liberty Media Corp., Satellite Service Inc., Encore Media Corp., Netlink USA and QVC Network Inc., as defendants. All of the companies are affiliates or subsidiaries of TCI.

“It would seem to me that by the kind of things they are charging they are asking the government to review the antitrust laws,” said Jessica Reiff, an analyst with Oppenheimer & Co. in New York. “It could take five to 10 years if the government wanted to review it.”

TCI spokesman Robert Thomson said the company “anticipated frivolous lawsuits in connection with the Paramount acquisition, given Mr. Redstone’s routine use of the court system to gain advantage in business disputes.”

In 1989, Viacom sued Time Inc., which was then in the process of merging with Warner Communications, alleging antitrust violations in the pay television industry. Time Inc. owned HBO and was a major operator of cable TV systems.

The suit, which sought $2.4 billion in damages, was settled last summer after Time Warner reportedly paid Viacom $75 million and agreeing to buy a Milwaukee cable TV system.

In the meantime, Time Warner and Viacom had become partners in several ventures, including joint ownership of the cable TV network Comedy Central.

Times staff writer Jube Shiver in Washington contributed to this story.

War for Paramount: Wall Street’s View

The bidding war between Viacom and QVC Network for Paramount Communications has so far benefited Paramount shareholders in a big way--but not necessarily Viacom and QVC holders. The stocks’ trends since June 1:

QVC:

Thursday close: $61.75

Paramount:

Thursday close: $76.875

Viacom:

Thursday close: $60.25

Source: Dow Jones