It was a deft move, directed less against Diller than the man allegedly behind him. John Malone, head of mighty Tele-Communications, Inc., the nation’s biggest cable company, controls a big chunk of Diller’s QVC Home Shopping Network and is partly bankrolling his bid for Paramount. As the struggle for the studio intensified last week, Malone’s top aides huddled with Diller in the background, scripting key plays. Though not as rich as Redstone, Malone has grown almost invisibly to become one of the most powerful and hated men in American business. Many in the industry would like to see him humbled, With last week’s legal offensive, Redstone will try just that. He thrust his secrecy-loving rival out of the shadows and into the national spotlight. His hope: that publicity and U.S. trustbusters will chop Malone down to size–and perhaps even scare him and Diller away from Paramount.
How fearsome is Malone? As a senator, Al Gore once called him “Darth Vader,” a “godfather” of a communications “cosa nostra.” That’s more than a little exaggerated, but clearly Malone exercises formidable geopolitical reach. The Denver tycoon has stakes in two dozen cable operations from QVC to Turner Broadcasting Systems to the Discovery Channel–and controls roughly a fifth of the U.S. market. More intimidating still, some say, is the way Malone uses that power. As tough as he is brilliant, TCI’s chief is regularly accused of bullying those who do business with him–and everyone in entertainment and communications has to. A typical example: several years ago Malone found himself in a bidding war over The Learning Channel with Lifetime Television Network. When Lifetime put up $38 million against his $30 million, his company allegedly threatened to suspend Learning Channel’s programming–a move that would destroy its value–unless the network backed off. (It did.) Should QVC win Paramount, Redstone fears, rival programmers like Viacom could similarly be denied access to Malone’s systems. That amounts to an illegal restraint of trade, his suit alleges, and is “just one of a long series of monopolistic actions” that has intimidated the entire entertainment industry,
Not everyone agrees. Diller’s QVC said the suit was “without merit.” A Malone spokesman called it a “ruse” to divert attention from Diller, who publicly leads the raid, to the vastly more controversial TCI chief. Either way, the move was a clever counterstroke. Says one Wall Street dealmaker: “It confuses the opposition and buys Redstone time” to raise more money and plan his next move. Redstone has used the courts before. Four years ago be sued Time Inc. for not carrying Viacom’s Showtime movie channel on many of its cable systems, allegedly to protect its competing HBO. Last year Time Warner settled, ponying up $75 million and agreeing to include Showtime in more of its cable offers.
Warner may have surrendered because of the publicity. Redstone’s HBO suit not only exposed its parent to unwanted scrutiny but focused public attention on the entire cable industry and its freewheeling practices. The Paramount challenge will be even more visible and comes at a bad time. (Lawyers expect Viacom to depose top managers at the Malone firms, TCI and its spinoff Liberty Media, which partly owns QVC.) There is talk in Washington that the cable industry should be more closely regulated. TCI has already been the target of several state-level investigations into its pricing and services. Redstone clearly hopes his suit will trigger more and was in Washington last week to lobby his cause.
The battle for Paramount is going to be a tough, ugly, no-holds-barred affair. “These guys are total gutter fighters,” says one Hollywood insider. By the time the duel is over, probably months from now, the contenders will be badly bloodied. So might their prize. A protracted dispute could seriously diminish Paramount’s value. “You watch,” says a big entertainment-industry player, who estimates that the studio has some $1 billion in cash on its balance sheet. “After the breakup fees and legal costs, every penny of that money will be gone.”
But that’s for the future. Diller and Malone’s bid is on the table, and it has grown steadily larger. Reason: the deal is essentially a stock swap. Traders have bid up the price of QVC shares as Viacom’s have sunk. (By the weekend, QVC’s original $9.5 billion offer had risen in value to $9.9 billion; Viacom’s original $8.2 billion bid had declined to roughly $7.8 billion.) Unless Redstone boosts his offer, Paramount’s board, scheduled to meet early this week, could tilt toward Diller and Malone. He might vet do that–unless he’s betting that the courts will stop “Darth Vader.”
