TCI offers high-def tax plan

Revenue sharing would lower taxes legally

ATLANTA — Tele-Communications Inc. chairman John Malone said he’s talking to the broadcast networks about a revenue-sharing deal for six to 10 new broadcast-originated high-definition pay TV services. The aim, he explained, is to give broadcasters a legal way to circumvent possible heavy tax levies from the government.

Speaking informally Monday to an overflow audience of reporters following a presentation by Microsoft chairman Bill Gates at the opening session of the National Cable Television Show, Malone said that the broadcasters and cable operators could hold down the cost of programming these services by time-shifting some of the most popular current network-primetime programs “to give potential viewers more than one bite of the apple.”

Malone is pushing this scenario with broadcasters as one way for all parties to make money out of the “millions of dollars a year” broadcasters will have to shell out to employ the digital technology that will allow them to transmit high-def signals.

The transmission of these signals would be “free, over the air,” but — by agreement — the cable operators would intercept them and, through digital set-top boxes installed in cable homes, put them on a separately priced tier that would cost subscribers $10 a month, Malone said.

Net plan assessed

The broadcasters would be making a mistake, Malone said, to try to set up a 10-channel pay service on their own and get it into people’s homes exclusively over the air.

Such a plan would induce the government to slap a heavy compensation tax on the revenues because the networks did not have to bid at auction for the additional spectrum — they got it for free (although sometime in the next decade they’ll have to give back their by-then obsolete analog channel to the government).

The premise of the Malone strategy is that each TV station owned by a broadcast network, or affiliated with it, is making a deal with the cable system in its market: In exchange for cash, the cable system is agreeing to retransmit the TV station’s digital pay service.

That transaction, Malone implies, is a free-market arrangement that the government has no business getting involved in.

No broadcaster has agreed to Malone’s blueprint yet because “everybody’s tentative right now,” he said.

But Malone found it positive that none of the Big Four broadcast networks has endorsed the demand of the National Assn. of Broadcasters that all of the digital services also be subject to must-carry rules.

If the NAB’s interpretation prevails, Malone said many of TCI’s systems would have to get rid of a whole group of cable net-works just to indulge a small minority of viewers paying up to $10,000 for the high-def TV set that would provide the startlingly clear images and sound the new technology can deliver.

New digital stations key

What could spur a revenue-sharing arrangement like the one revealed by Malone is the advent of 26 new broadcaster-owned digital TV stations in the top-10 markets on Nov. 1, according to an ambitious timetable set forth by the Federal Communications Commission.

Although they may not meet the deadline, these 26 stations will eventually have to negotiate with the cable systems in their markets for carriage.

Some of the other points Malone made in his conversation with reporters:

– A&E and public broadcasting will eventually lose all of the BBC programming they have contracted for over the years because the new cable network BBC America will become the exclusive outlet for these programs.

Malone has a direct interest in BBC America because his Liberty Media owns a 49% stake in Discovery Communications, which recently signed a global partnership deal with the BBC.

– MTV got some bad news from Malone when he said that the network’s “Digital Suite” package of seven pop-music channels will not be a candidate for the digital tiers TCI plans to create. “We’re not going to add any more pop-music services,” he said.

– Malone’s HITS (Headend in the Sky) is getting a good reception from TCI’s cable systems as a low-cost way for them to start offering at least 30 more channels of digital programming.

But it’s too early to tell whether pay-per-view channels, multiplexed pay TV networks, or digital-network clones of existing basic channels (such as Disney Channel’s Toon Disney, Nickelodeon’s Noggin or Discovery’s Wings) will end up being the revenue drivers of the digital tiers.

– The robust American economy could be a boon to the new digital high-definition plans of the broadcasters and cable operators because “in good times the public is willing to try new things,” Malone said.

“You can’t imagine how much money is out there,” he added. “We can finance almost anything,” including a recent $750 million project that TCI floated for a breathtakingly low 6.5% interest rate.

(Chris Stern contributed to this report.)