He's Turned Around a Toughie: TCI

Leo Hindery didn't sign a formal contract when he agreed to become president of the nation's largest cable company about a year ago. The terms he worked out were boiled down to a one-page letter from his new boss, John Malone, the chairman of Tele-Communications Inc.: Hindery would abstain from race car driving as long as he was president of the Englewood, Colo.-based giant; in return, Hindery would not have to stay in the dormitory-style TCI apartment in New York when he traveled there for business.

The pact, partly a joke, between the two friends set the stage for what some on Wall Street are calling the most significant corporate turnaround of the last year--the transformation of the nation's fifth-largest media empire.

Since Hindery's arrival in February 1997, TCI's stock price has nearly tripled from an all-time low, fueling a resurgence of the entire cable sector to record highs. TCI shares closed Monday at $31.87, up 9 cents, on Nasdaq.

"He's the best thing to happen to TCI maybe ever," said Brian Roberts, chief executive of Comcast Corp., who says Hindery had a bigger effect on cable stocks than Microsoft Corp.'s industry-endorsing $1-billion investment in his company last summer.

TCI's health is important to Hollywood, where the company is influential not only as a cable operator but also as an owner of programming through Liberty Media Corp. Liberty controls Starz and Encore, which have multimillion-dollar deals with studios for movies. Liberty also is part owner in a slew of other channels, including fX, Discovery Networks, BET, the Fox regional sports networks and Barry Diller's USA Networks. Liberty recently struck a deal with Sony Corp. to jointly buy Telemundo, the Spanish-language TV group.

This week, analysts, lenders and members of the media will get a more complete picture of the scope of the recovery and TCI's plans for an encore during a three-day conference that starts in Denver today.

Hindery swept TCI's ailing balance sheet clean by a clever restructuring that sacrificed its No. 1 ranking to Time Warner Inc. but reduced its $17-billion debt to manageable levels. After a blistering pace of deal-making, the company has shed nonstrategic assets and spun off subscribers into 25 partnerships with other operators in urban "clusters" that make it easier to deliver new services.

After years of broken promises, TCI is partnering with Microsoft and Sun Microsystems Inc. to deliver advanced digital TV set-top boxes offering hundreds of channels as well as Internet and phone service.

Hindery, who is 50 and says he took the job only out of "a deep affection" for Malone, has changed the personality of the organization from bullying to collegial. Malone, meanwhile, has returned to his preferred role as technology visionary and strategist.

"Leo gets a screaming A-plus," said Robert "Dob" Bennett, the president of Liberty Media. "It's a different company today, both inside and out. The organization is charged up, and no one here can say they are working harder than Leo, who puts in 60% longer days than anyone."

A chronic workaholic, Hindery typically arrives in the office before 5 a.m. and often has a working dinner before returning to his desk at night. He crisscrosses the country twice a week doing deals, meeting local cable franchise authorities and speaking at industry functions as part of a mission to change the perception of TCI and give direction to the industry. Saturdays are reserved for his wife and teenage daughter.

Sources say he has been feverishly negotiating to have an announcement for analysts and lenders this week. Hindery, who has a habit of dropping hints about coming news--sending Wall Street and the media scurrying to solve the mysteries--has promised that if 1997 was the year of the fix, 1998 will be marked by major alliances for new businesses such as telephone service.

TCI, for example, wants AT&T; Corp. as a partner in a new effort to use the Internet for phone service. Though talks have bogged down, sources expect some deal to be fashioned.

Perhaps the more difficult negotiation for Hindery was between Primestar Partners and ASkyB, which involved at least eight parties. The resulting agreement removed a cloud over cable stocks by eliminating Rupert Murdoch as a cable competitor. Sources say Hindery was instrumental in persuading Murdoch to abort a merger of his ASkyB satellite upstart with EchoStar Communications last February in favor of joining the cable-owned venture Primestar.

Hindery is widely praised for a deal-making style that has begun stripping away the image of TCI as a secretive and bullying corporation. Years of customer neglect, unkept promises, rate gouging and the piling on of new debt to establish itself as the industry Goliath had left TCI isolated and arrogant--the very embodiment of a cable monopoly.

In negotiations with programmers, it had used its size as a hammer, often demanding equity in channels it carried and favoritism on its systems for the ones it owned. Malone himself, a private and enigmatic figure with a talent for ticking off Washington, took on a mythic air as an industry Darth Vader.

Hindery says it was like getting a punch in the stomach last spring when, after having delivered his first opening address at the industry's annual convention, Gordon Crawford, the influential Los Angeles analyst for Capital Group, told him the company had become paralyzed by its own arrogance.

"Hubris in anything you do is the greatest sin," Hindery said.

He pushed out 25 senior managers in the ensuing month, replacing all but four from within. He gave stock options to 480 middle and senior managers and decentralized the corporate structure to put programming and pricing decisions closer to the customer.

The moves raised morale. "Leo went in there and blew out Malone's fair-haired boys, the sacred cows," said one cable executive. "He's not afraid of making enemies and doesn't tolerate people who are abusive or bullying. It comes from his upbringing. He had it pretty rough."

Hindery left home when he was 13, picking crops to support himself until he joined the Merchant Marine. He held two jobs to put himself through college and Stanford University's Graduate School of Business.

He met Malone when he was a top financial executive at Chronicle Publishing Co., which publishes the San Francisco Chronicle and owned a cable system that is now part of TCI. He wrote Malone about his interest in becoming a cable entrepreneur, and in 1988, with backing from TCI, formed InterMedia Partners, today's 10th-largest operator.

Hindery's youth has made him sensitive to discrimination.

"He's a real advocate for equality and a great promoter of women," said Kate McEnroe, the head of Cablevision Systems Corp.'s American Movie Classics and the Romance Classics channel, in which Liberty owns a stake. "He wants to be the hero and make it work for everyone. I've never witnessed anyone like him. I call him St. Leo."

Early results of Hindery's changes look promising. After several quarters of subscriber declines, TCI added an estimated 155,000 new customers in the final quarter of 1997. The defections were caused in part by steep rate increases for cable, and holding the line on rate increases has been one of Hindery's key goals.

TCI still faces enormous challenges, however. Whereas most leading cable companies have placed heavy bets on high-speed modems that provide fast connections to the Internet, it's gambling on digital boxes that rely on compression technology rather than system upgrades to deliver more channels.

TCI systems in many markets still deliver only 30 channels. And it will be more expensive for TCI to upgrade, because of its heavy concentration in rural areas.

To reduce its exposure to rural markets, TCI has swapped many of its small systems with those of other cable operators, reducing its count to 10.5 million customers from 14.8 million. It shifted about $4.5 billion in debt to the new ventures, but it has no management power over them.

What's next for Hindery? When he recently bought a ranch in Colorado, a red Dodge Ram pickup truck and a pair of cowboy boots, speculation circulated that he might have his sights on a congressional seat.

Hindery says his focus remains on TCI, but he says politics is interesting, though he would rather be appointed than elected.

"You want to be remembered for the people you hire, not what you do. The people who will be running this company are right here. My destiny is not to stay forever."

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