01 May 2005

When people talk about John Malone, the phrase "financial restructuring" always figures prominently. The US cable baron is renowned for "unlocking value" by spinning off assets, and also for hoovering them back up again, if that's what it takes to make the financial markets and his investors (including himself) happier.

This year has been no exception. It has seen the re-configuring of Malone's Liberty Media Corp, the beefing up of its international assets to create Liberty Global and the IPO of Liberty's Japanese cable assets. But there is also a change. Malone is thinking about businesses and assets well beyond cable and satellite networks and their attendant programming services. The veteran cable entrepreneur is widening his brief to consider much more seriously the internet and technologies such as VOIP.

Malone perceives a growing threat from the iPod generation that financial engineering alone will not assuage. This generation is using the internet to bypass traditional suppliers such as cable operators to find their news and entertainment, and this puts a question mark over Liberty's traditional businesses. Malone brought the threat home to broadcasters and distribution companies when he told reporters that online search engines such as Google and Yahoo! pose a significant threat to broadcasters. With technologies like these, consumers will have complete access to content and, increasingly, they will only pay for what they consume.

Of course Malone's epiphany has not come overnight. Liberty Media already owns stakes in Sprint, the telephone company, and in Barry Diller's Interactive Corp, which most recently agreed to buy search engine Ask Jeeves. Dr John has been contemplating the internet and its attendant threats for a while now. But his concerns about how entertainment distribution will evolve are starting to influence Liberty's international assets as well. The creation of Liberty Global can be seen in part as a bid to get out in front of the growing threat from the internet.

Malone's restructuring of his assets will give the UGC cable group access to new cash - to the tune of €250m to €300m - to fund what is in my mind a belated move to all-digital cable networks.

Digitisation was sidelined when the company overspent on cable assets in the dotcom era, a strategy that propelled UGC into bankruptcy. Now with access to cash from the restructuring, UGC's current Denver-based CEO Mike Fries was able to give the recent European Cable Communications Association (ECCA) annual gathering a rallying call, saying that cable must stick together, innovate and "drive the telcos into the sea".

It won't be easy. UGC's digital upgrade move kicks off on October 1, but the competitive pressure is already on. European-based Liberty Global executives admit that UGC needs two million addressable homes in the Netherlands alone before it can effectively grow the business there. Today there are only 60,000 digital set-top boxes in the Netherlands. UGC as a global entity does count nearly a million digital subscribers but the bulk of its subscribers are analogue.

The problem is that the company is facing threats from digital rivals, both telcos and, increasingly ISPs and internet portals such as Google. And then there is mobile.

The triple-play of TV, telephone and high-speed internet is becoming old-hat in the face of mobile. Smart phones and wireless handhelds are becoming the "fourth screen" for information, games and, increasingly, entertainment. UGC is testing a couple of different mobile models in Europe, including renting frequencies from a licensed operator to create its own mobile brand. Mobile has a lot of upside; as a business it dwarfs pay-TV globally. UGC has put mobile and VOIP at the front of its "new products" strategy.

Taking a leaf from Malone's playbook, Shane O'Neill, UGC's chief strategy officer, says acquisitions are also on the agenda, with targets including Belgian cabler Telenet (already part-owned by Liberty Global), Cablecom in Switzerland, NTL Ireland and others in central and eastern Europe. Putting all this all together should lead to a "doubling of the business" over the next three to five years, says O'Neill.

Scale is good if you know what to do with it. Just as important are partnerships to keep pace with changing content consumption patterns. The traditional model of broadcasters "pushing" content on set schedules to audiences is clearly eroding. Can companies such as Liberty adapt fast enough to the new world where consumers will increasingly "pull" their preferred content onto the device they want, when they want? It's a future where the consumer is truly king. It's up to the current media aristocracies to create a role for themselves there.