Cable Giant to Spin Off Programming Unit

Cable television stocks rose Friday on the hope that Tele-Communications Inc.’s plan to spin off assets in a separate programming company would ease political pressure on the cable industry.

Yet the Denver cable giant and its programming offspring may still carry enormous clout, particularly if they are managed in tandem by overlapping teams of officers and directors.

TCI said Thursday that its board had authorized company managers to develop a plan for a new concern to be spun off to TCI shareholders. The new company would include some $3 billion in TCI assets, including its ownership stakes in Turner Broadcasting System, the Discovery Channel, the QVC Networks home shopping network, American Movie Classics and other programming operations.

Apparently, TCI would keep the vast majority of its cable holdings, which include stakes in systems serving about 25% of the country’s cable subscribers.

In a statement, John Malone, TCI’s president and chief executive, said: “The purpose of the restructuring is to create a new growth vehicle for TCI shareholders, unencumbered of potential regulatory constraints or conflicting objectives and focusing on its growing businesses.”

TCI’s Class A common stock shot up $2.375 a share Friday to close at $17.375 in over-the-counter trading, while other cable stocks rose on expectation that the surprise spinoff would reduce concerns in Congress and at the Federal Communications Commission about the growing market power of the nation’s larger cable companies.

United Artists Entertainment, which is 56% owned by TCI, closed up $1.25 at $17.75.

American Television & Communications Corp., which is 82% owned by Time Warner Inc., rose 62.5 cents to $40.25; Cablevision Systems Corp. rose $1.625 to $34.125; Turner Broadcasting edged up 37.5 cents to $45.50, and other cable stocks posted gains.

Most of those stocks, including TCI’s, had slumped last year as the FCC began preparing a congressionally mandated review of the 1984 law under which the cable industry was largely deregulated. The commission expects to file a report by July to Congress, where a number of members have been militating for new restraints on cable company pricing, market share and integration with program producers.

“This doesn’t solve the political problem. But it blunts that side of it,” said John Reidy, a cable analyst for Drexel Burnham Lambert Inc.

Reidy said his firm believed that new legislation governing cable was unlikely before 1991, regardless of any actions by TCI, the nation’s largest cable concern. FCC chief Alfred Sikes expects to hold regional hearings on cable reregulation in Los Angeles on Feb. 12.

Some pressure for reregulation has come from entertainment executives, who complain that TCI, because it controls so many cable systems, has the power to keep new program services off the air unless it owns a piece of them.

Yet it remained far from clear that the planned spinoff would leave TCI any less powerful when it comes to negotiating to buy programming or stakes in the companies that produce it.

“I don’t think they’re headed in any direction, other than to be the owners of more and more pieces of software,” one top Hollywood executive said of the new company. Referring to a persistent push by telephone companies for permission to enter the cable TV business, he added: “The real question is whether TCI merges with Bell South.”

According to Thursday’s announcement, the new company, at least initially, might have “many” of the same directors and officers as TCI. The announcement also said the new company would have “the same shareholders as TCI.” Company officers, including Chairman Bob Magness, own about 58% of TCI’s Class B shares, which convey control of the company through special voting rights.

Even if the companies work closely together, TCI’s massive cash flow from its cable systems would not be available to pay for expanding programming services. This may well signal the end of any ambitions the Denver giant had toward acquiring a major movie studio. “Simply put, it absolutely reduces the likelihood of that,” Drexel’s Reidy said.

One TCI shareholder, who asked not to be identified, said TCI’s Malone had long been wary of integrating his cable system with a movie studio. But last year’s acquisition of Warner Communications, with its big movie and TV studio, by Time Inc., with its massive cable interests, had been pushing Malone toward a studio purchase, the shareholder maintained.

Supposedly, TCI representatives looked closely at Columbia Pictures before Sony purchased it last year, explored a possible merger with Paramount Communications and expressed interest in MGM/UA Communications. For a time, with TCI’s approval, Turner Broadcasting actively pursued plans to buy MGM/UA, but those discussions appear to have disintegrated in recent weeks.

Lisbeth Barron, an entertainment analyst at McKinley Allsopp Securities, said she was “quite shocked” that TCI didn’t press harder to merge with Columbia last year.

Now, she said, the company seems more interested in letting the market put a high multiple--the ratio of stock price to earnings--on its existing program services than in overpaying for a movie company.

“Maybe their view is that the entertainment industry is overvalued at these levels. This lets them get some of that value on their own stock near the top of the market,” Barron said.