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Paul Allen Gets a Little Respect
He was one of the big draws at the cable industry's annual gathering in June. But for Microsoft Corp. co-founder Paul G. Allen, who is rapidly emerging as a new and powerful player in the cable industry, it was an awkward coming-out party. Shifting nervously onstage alongside such media heavyweights as Time Warner Chairman Gerald M. Levin and Viacom Inc. head Sumner M. Redstone, the 46-year-old Allen mumbled as he spoke, underwhelming the crowd with his platitudes about how "technology will make our life easier."
With his retiring manner and Buddy Holly glasses, Allen, the third-richest man in the country behind Bill Gates and Warren Buffett, is still more at ease playing his electric guitar in private than giving speeches. But make no mistake. In short order Paul Allen has built an online empire. Over the past 16 months, he has snatched up cable and Internet companies worth at least $25 billion, betting along with AT&T chief C. Michael Armstrong and Gates, Allen's old friend and schoolmate, that cable-TV systems will soon win the race against phone lines and satellites to bring high-speed Internet access to consumers. Now, Allen, who was unavailable for an interview, is pushing to raise $3.5 billion more in an initial public offering of Charter Communications Inc., his main cable holding.DERIDED. Can Allen really become a powerhouse in the emerging world of online-everything? Remember, despite playing a key role in the launch of Microsoft, Allen was derided most of his adult life as a billionaire dilettante who got rich mainly because he was a high school pal of Gates's. While Gates has built Microsoft into one of the most formidable companies on the globe, Allen left in 1983 to fight off cancer. He beat it, but rather than jump right back into the fray, Allen decided to spend time sailing on his 150-foot yacht and jetting around the globe on his Boeing 757.
For years, meanwhile, Allen talked up his vision of a "wired world," but his strategy was hard to follow. He was an early investor in America Online Inc., but sold his 25% stake in 1994 after a dispute over control with AOL CEO Steve Case. Although he more than tripled his original $30 million investment, had he held on, the investment would now be worth $24 billion. In 1995, after befriending record industry mogul David Geffen, he plunked down $500 million for an 18% stake in DreamWorks SKG, the movie studio Geffen founded with director Steven Spielberg and former Walt Disney executive Jeffrey Katzenberg. The studio is still unprofitable.
Now, however, both Allen and his wired-world idea have grown up. Gone are the scruffy beard and scraggly hair. Gone, too, are the scattershot investments. These days Allen is focused. In 1998, he paid $2.8 billion for Dallas-based Marcus Cable Co. A month later, he shelled out another $4.5 billion for St. Louis-based Charter Communications. A dozen more deals since have turned Allen into the fifth-largest cable operator, with 6.2 million subscribers, behind such giants as AT&T and Time Warner. Says Leo T. Hindery, CEO of AT&T Broadband Services: "He's got enough subscribers to be a very major player."
Owning the pipeline to the Internet is the big play. But Allen also wants a hand in what consumers see once they get there. So, unlike AT&T and other cable giants that are focusing mainly on building delivery systems, Allen has been buying into an array of services and content companies. Key to his strategy is his 24% stake in Denver-based High Speed Access Corp., which provides an AOL-like entry to the Net via cable. Eventually, when Charter subscribers leave home, they will be able to log on to the Net via Metricom Inc., a wireless network in which he has a 49% stake.
Equally important is the battery of content companies he is amassing. While covering the spectrum from shopping and entertainment to information, those companies won't give Allen's network any proprietary access to content. But they will ensure that he has a role in determining what the Net looks like as it evolves. He has stakes in portal company Go2Net, E-commerce site priceline.com, music site Liquid Audio, and Oxygen Media, Geraldine Laybourne's and Oprah Winfrey's cable-TV and Internet company geared toward women.
All told, Allen owns pieces of more than 100 noncable companies, valued at more than $5 billion. "And we still have a lot more to get done," says William D. Savoy, Allen's 34-year-old top lieutenant and president of his Vulcan Ventures Inc. investment fund. Savoy, a former investment banker who has worked with Allen for 13 years, serves as an alter ego. Allen and Savoy huddle over what they want to buy next, then Savoy hunts down the best deals, crunches the numbers, and presents briefing papers to Allen.CLICKING AWAY. It's up to Allen, of course, to make a deal, and he likes to kick the tires before writing a check. When he invested in High Speed Access, the cable modem portal, Allen hooked up his home computer with cable Internet competitors Excite@Home, and Road Runner, clicking away for hours on each, says HSA president Ronald Pitcock Sr. "He is the ultimate consumer," adds Pitcock. "If he likes it, he figures the guy at home is going to as well."
Picking out Web sites to invest in is the fun part. But Allen still has a lot of hard work before his cable empire is up and running smoothly. Industry insiders expect him to use proceeds from the IPO to pay down debt and complete the rollout of fiber-optic cables. One problem: His cable systems are scattered throughout the country, many in hard-to-wire rural areas. So Allen needs to beef up key markets in the Southeast and on the Coast. Already, AT&T's Hindery says he is negotiating to swap or sell off some of AT&T's Los Angeles cable assets to Allen.
To integrate the new content companies, meanwhile, Allen has been gathering execs for the past two years for his annual "Synergy Summit" at a Scottsdale, Ariz., resort. Allen himself rarely shows, leaving much of the brainstorming to Savoy and the CEOs of his partner companies.
In many ways, Allen is as quirky as ever. He lives on an estate outside Seattle where he also has built a house for his mother, Faye. He and his sister, Jody, still spend a lot of time on such Allen pet projects as building a new stadium for his Seattle Seahawks football team. And when he does make an appearance at the Synergy Summit, it's often to do a Jimi Hendrix imitation on his electric guitar. "He plays a very good guitar for a billionaire computer genius," says DreamWorks' Geffen. Then there is paulallen.com, his personal Web site complete with favorite diving spots, movies, and books.
But Allen looks to be on the right track this time. Hardly the typical cable tycoon, he comes from the very different world of PCs and the Internet. That, as much as his deep pockets, may give this cable guy an edge. The ever-shy Allen may not show up at next year's cable convention, but he and his Charter Communications have already made their mark.By Ronald Grover in Los Angeles, Richard Siklos in New York, and Michael Moeller in San Mateo, Calif.Return to top