Viacom, Cable Giant TCI Discuss Joint Venture : Television: The deal would allow Viacom to generate needed cash, and would give TCI access to big city markets.

Viacom Inc. and Tele-Communications Inc. are discussing forming a joint venture to pool Viacom’s cable TV assets with some of those of TCI, sources said Tuesday.

The deal, which would involve well over 1 million subscribers scattered throughout the nation, would allow Viacom to generate the cash it needs to reduce debt it has taken on to buy Paramount Communications.

For its part, TCI gets access to the big city markets, including San Francisco, Seattle and Nashville, that Viacom now serves. In addition, the deal would settle out of court the acrimonious antitrust action Viacom filed last fall against TCI in the heat of the Paramount takeover battle.

The suit is considered potentially damaging to TCI because it lays bare the alleged monopolistic practices of the nation’s largest cable operator that have already caught the attention of federal regulators.

According to sources familiar with the talks, the deal calls for Viacom to merge its Showtime Networks unit with rival TCI’s pay TV affiliate, Encore. Finally, Viacom might also extract a pledge from TCI not to join with its music video rivals who are planning to launch channels to compete with Viacom’s lucrative MTV operation.

The tax consequences and other mechanics of the deal are still being studied, one knowledgeable source said.

Both before and after the Paramount takeover battle, Viacom has searched for ways to wring new cash from its cable holdings, which rank 13th nationally in subscribers. The division generates about $200 million annually in cash flow.

Last summer, for example, Viacom considered a proposal to form a venture with Crown Media and Southwestern Bell, and one source insisted Tuesday that TCI is not the only company that Viacom is talking to now.

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At the center of the deal would be a pooling of Viacom’s and TCI’s systems in San Francisco, Seattle and Nashville where the two operators are the major cable TV providers. Viacom and TCI have already worked together to coordinate construction of fiber loop to serve both the Seattle and San Francisco markets.

Although a deal with TCI would close the Viacom lawsuit, it might not be the end of TCI’s legal woes. In a separate development, a spokesman for the attorney general’s office in New York confirmed Tuesday that it launched an antitrust investigation late last year into TCI-backed Teleport Communications Group, which operates an alternative access telephone service for businesses. Cox Enterprises, Continental Cable and Comcast, three other large cable operators, also have stakes in Teleport.

Viacom appears eager to shed assets that are not crucial to its merger with Paramount. On Tuesday, for example, the company said it sold its one-third stake in the cable TV channel Lifetime to partners Capital Cities/ABC and Hearst Corp. for $317.6 million.

By spinning off assets, analysts said, Viacom is signaling Blockbuster Entertainment that it doesn’t need the home video retail giant’s money badly enough to renegotiate the merger agreement it made to generate enough money to buy Paramount.

As Viacom’s stock price has dropped steeply since the deal was struck, Blockbuster Chief Executive H. Wayne Huizenga has been withholding his recommendation on the merger, making Viacom nervous.