Paul Allen Seeks Stake in Oxygen Media Venture

Computer billionaire Paul Allen is negotiating an agreement to invest $100 million in Oxygen Media for less than 10% of the venture, which was formed last year by cable veteran Geraldine Laybourne to produce women’s programming for television and the Internet.

Neither party would comment on the speculation, but sources close to Allen say the deal underscores the Microsoft Corp. co-founder’s growing appetite for content as a result of a one-year buying blitz that has made him the nation’s fourth-largest cable operator. It could also ensure the launch by Oxygen of the first head-to-head competitor to Lifetime Television, a 50-50 joint venture between Hearst Corp. and Walt Disney Co., one of the few cable networks specifically targeting women. Although they have fewer services devoted to them, women watch more television than either children or men, industry studies show.

While Laybourne is respected in the cable industry as the executive who built Nickelodeon into a forceful children’s brand for Viacom Corp., the February launch of her new cable channel has been uncertain because of the lack of space on overcrowded cable systems.

Cable operators also have been reluctant to pay Oxygen a licensing fee without the typical upfront financial enticements that have become standard practice among new networks looking for carriage. Oxygen has been offering no “launch support.”

But under the deal with Allen, his investment arm, Vulcan Ventures Inc., would take an equity stake of about 7%, and his cable company, Charter Communications, is expected to distribute the channel to some or all of the 5.5 million subscribers it will serve once pending acquisitions are completed.

That deal, along with another that sources say is in advanced negotiations with Cox Communications, could help lock in distribution promised last year by Tele-Communications Inc., which is now owned by AT&T.;

Laybourne wants to get the deals done in time for announcements at an annual cable conference in Chicago later this month, although sources warned that talks could stall or break down.

To jump-start the new channel and improve cable choices for women, TCI agreed to carry the channel over time to 7 million of its 11 million subscribers. But the deal was contingent on Oxygen securing 5 million additional subscribers from other cable operators.

Sources say Cox, which has 5 million cable customers, might also take an equity stake as part of its deal.

It is not unusual for new cable channels to give up equity stakes to cable operators to get carriage. That is how John Malone, who controlled TCI until its March sale to AT&T;, extracted stakes in Discovery Communications Inc., BET Holdings, QVC Inc. and other cable programmers to build Liberty Media Corp., which today also holds stakes in Time Warner Inc. and News Corp. as a result of such transactions.

But Oxygen has until now refused to give up equity to cable operators, hoping to charge them the sizable licensing fees to carry the channel and underwrite start-up costs that could swell beyond $200 million. Laybourne, who resigned from Viacom to become head of cable at Walt Disney Co. in 1996, left Disney last spring to form Oxygen, eager to build a media company focused on an audience she calls underserved and economically underappreciated.

Laybourne has some gold-plated partners in the venture, including America Online, talk show host Oprah Winfrey and the principals of prime-time television’s Carsey-Werner Co., the producers of such hit shows as “The Cosby Show,” “Roseanne,” “3rd Rock From the Sun,” and “That ‘70s Show.”

Sources say Oxygen is also putting the finishing touches on a deal with actress Candice Bergen to host a nightly talk show. Paradoxically, Bergen’s series, “Murphy Brown,” airs in reruns on Lifetime, on whose board Laybourne served before she left Disney.

The deal with Vulcan would place a value of about $750 million on Oxygen--not much less than some profitable cable networks such as E! Entertainment Television and BET, based largely on the four online services operated by Oxygen, three of which were purchased last year from America Online. Laybourne hopes to use the cable channel to drive traffic to the Web sites and vice versa.

Sources say the high valuation could also be linked to an eventual public offering. They say Laybourne is enamored of the highflying public offering of IVillage Inc., the online women’s network that investors valued at $1.86 billion after its first day of trading in March. (A recent downturn in Internet stocks has reduced its value to below $1 billion.)

While Vulcan has a passel of interests in new media and technology companies, Allen’s 13-year-old investment firm has only recently started investing in cable channels. Vulcan has substantial minority positions in DreamWorks SKG and in USA Networks. Last year, Vulcan invested $54 million for a third of the upstart technology channel, ZDTV, owned by Ziff-Davis.

Sources say Allen, who owns two professional sports teams and once considered buying Seagram Co.’s 15% stake in Time Warner, has much bigger Hollywood aspirations as part of his “wired world” strategy of delivering entertainment and information to consumers anywhere, any time.

While Vulcan owns interests in other distribution technologies, including satellite television, his biggest bet is on cable. During the last year, Charter has bought several mid-size cable companies, with pending deals and others in negotiation making it one of the two largest operators in Los Angeles.

While Oxygen has been seeking a licensing fee of 19 cents a month for every cable customer served, it is unclear whether Charter and Cox have agreed to such a rich price. The fee is higher than Lifetime’s charge of an average of 13 cents a month per subscriber. Lifetime already reaches 60 million cable customers.

One source said Charter and Cox would pay the fee, in part because AT&T; has a clause in its deal guaranteeing the best rate as a protection against Oxygen’s giving better terms to others to bring in the matching subscribers. AT&T; does not have or want any equity in the channel.

Big payments by cable operators would be extraordinary if for no other reason than that Oxygen enjoys none of the leverage of such cable programming giants as Viacom, Discovery and Time Warner.