In High-Tech Derby, Bet on the Jockey With Vision
To understand the race, it’s often best to watch the jockey. And that being the case, a good question after all the cheering over last week’s Bell Atlantic-Tele-Communications Inc. merger deal is: Why are the two most visionary entrepreneurs in communications selling their companies?
Craig McCaw, the cellular phone pioneer, agreed in August to sell McCaw Communications to American Telephone & Telegraph. And cable impresario John Malone is selling TCI to the Philadelphia-based regional Bell phone company.
Do the deals, which make billionaires of McCaw, 44, and Malone 52, mean the two entrepreneurs have doubts about the multimedia vision--that television, telephones and computers will combine to usher in a new world? No, it means that having been the agents of change, they know when another change is coming.
McCaw and Malone are examples of the power of personality in American business, where individual visions--not corporations or governments--create industries. That’s why the so called information highway is being formed from an enormous variety of private business ventures and not out of a government plan.
Vision works and plans don’t. At every stage of this new communications business--from movies to supercomputers--there are patterns emerging. Successful entrepreneurs see those patterns and act on them while planners are writing memos suggesting another study.
McCaw was way ahead of large telephone companies in seeing the demand for cellular phones. He built a $2-billion company in an entirely new business within a single decade. Malone saw the possibilities in alternative television, while giant TV networks went to sleep over business lunches in New York. He built TCI and an offshoot, Liberty Media, into a $4-billion complex. (Curiously enough, both had help from the junk bond financing of Michael Milken, who now teaches math in high school and corporate finance at UCLA).
But to go on from here takes more capital than their entrepreneurial companies can easily muster. Malone said earlier this year that TCI would invest $2 billion, almost twice its shareholders equity, to lay fiber optic cables. But Bell Atlantic, with more than $5 billion a year in cash flow--income plus depreciation--is much better able to handle such investments.
As if to underline that, Bell Atlantic now is having 1 million video-computer terminals built for it, with Intel microprocessors and Microsoft Windows software. It will hand those terminals to its phone customers next year in the largest test yet of multimedia services, such as interactive TV shopping and movies on demand.
Other Bell operating companies will invest in cable, possibly reducing short-term profits. But the stock market will back them because they’re pursuing future growth.
In a sense, today’s new communications system is where the telephone business was in 1907, the year Theodore Vail
took command of then-troubled American Telephone & Telegraph. The phone business then was a mass of small ventures, with a reputation for poor service and speculative stock plays. Vail saw the need for a new pattern of service, spanning the country and backed by research of the renowned Bell Laboratories. His vision built the phone network that served for 75 years.
What are the patterns of the new era? Another visionary, William Gates, the 38-year old founder and chairman of Microsoft, described them in a recent Newsweek interview. “This is a very layered thing and nobody’s sure which is going to be the most valuable piece. Is it controlling the wiring to the home? Is it making great software? Is it making great movies?”
Gates knows Microsoft’s role--making the operating software for new networks and for computer-video machines that will appear in homes and offices. And he has further ambitions. Microsoft, Gates says, is already creating “digitized movies that we can call up on our screen.”
Microsoft making movies is an indicator of one kind of change coming to Hollywood. Another is that powerful telephone companies will be in charge of film and program distribution. Film industry patterns are shifting, and that hasn’t happened since the late 1940s with the coming of television.
At that time, Lew Wasserman, visionary head of an agency company named MCA, saw that studio power would fade and leverage in the business would pass to individual performers and contracts. Wasserman, now 80, built MCA, owner of Universal Studios, into an industry leader, and sold it three years ago to Matsushita, in a deal put together by another entrepreneurial agent, Michael Ovitz of Creative Artists Agency.
What will the new industry pattern be? Mass production to feed an even hungrier market seems a certainty. That’s why movie studios are at a premium, as the bidding by Barry Diller and Sumner Redstone for Paramount shows. That’s why Disney is gearing up to turn out 60 films a year and entrepreneurs Rupert Murdoch and Ted Turner see the need to make more movies at lower costs.
But the new industry pattern will go beyond traditional studio production, because multimedia involves the computer. And computers mean variety and incredible diversity.
“There are 100,000 bulletin boards on the Internet now,” notes communications consultant William Davidson of Mesa Research in Redondo Beach.
Programming will come from everywhere, in every form--from George Lucas’ Industrial Light and Magic company, from Silicon Graphics, the firm that made six computerized minutes of dinosaur footage in “Jurassic Park” and from thousands of entrepreneurial producers. Requirements of the business will be low overhead and high imagination.
And yet, all that variety means that key players in the business will be packagers of information products for the multimedia distributors--that is, agents and producers. Wasserman’s 1940s vision may still prevail.
