liberty

By Ragnhild Kjetland and Brett Pulley April 15 (Bloomberg) — John Malone is on the prowl again in Europe. Two decades ago the 69-year-old billionaire tried and failed to replicate his U.S. cable TV success in Europe by buying up and consolidating local carriers. Now, undeterred by losses in his international operations in 14 of the past 16 years, including in 2009, he’s ready to try again, Bloomberg BusinessWeek reports. In January, Malone’s Liberty Global Inc. bought Germany’s No. 2 cable operator, Unitymedia GmbH, for about 2 billion euros ($2.7 billion). After raising $3.9 billion in February from the sale of its stake in Jupiter Telecommunications Co. in Japan, Liberty Global Chief Executive Officer Michael Fries says the company is looking for more European opportunities. Liberty may bid on Germany’s No. 3 cable operator, Kabel Baden-Wuerttemberg, as well as Aster City Cable in Poland, company executives say. Analysts also mention carriers in France, Sweden, and Denmark as possibilities. Fries says the company may seek broadband radio spectrum in the Netherlands, Belgium and Chile where it owns cable operations. Liberty may face competition from others — particularly private equity groups — that are interested in the same properties. On Jan. 27, prior to the March initial public offering of Kabel Deutschland Holding AG , people familiar with the matter said Advent International Corp., BC Partners Ltd. and CVC Capital Partners, among others, submitted bids for Germany’s biggest cable television operator. “It’s a race,” says Manuel Kohnstamm , Liberty Global’s managing director of public policy. Digital Technologies The race today is for dominance in newer digital technologies for both on-demand TV and Internet access. Homes in Europe subscribing to digital cable are projected to more than double to 46 million by 2014, says Guy Bisson , an analyst at media researcher Screen Digest, based in London. The proportion of those that will use cable to access the Web will increase to 41 percent from 31 percent, he says. To fully tap that potential and gain economies of scale, Liberty must add to its European base of 16 million cable subscribers. With the purchase of Unitymedia, Liberty now has operations in 11 European countries. Last year, before the acquisition, its European arm had $6.2 billion in revenue. “Cable operators need scale to effectively compete and innovate,” says Fries. “Several European countries have already consolidated to one single cable operator competing against the telco incumbent, multiple mobile operators and satellite platforms.” ‘Very Wrong’ Fries says digital will entice consumers to spend more. When it comes to paying for television, Europeans are famously cheap, with much programming and Web services provided for free. Average revenue per cable user, called ARPU, has lagged behind that of the U.S. In Germany, for instance, ARPU is about $20, the country’s cable operators say. It is $118 in the U.S., according to SNL Kagan , a cable industry researcher based in Charlottesville, Virginia. That’s one reason why Liberty pulled back from its European growth plans after the dot-com bust in 2000 and sold operations in Norway and France. Like other U.S. investors, Liberty had hoped Europeans would spend like Americans. “They were very, very wrong,” says Bisson. This time around, Liberty says fiber and other digital technologies will deliver more attractive services and generate new audiences. “The digital uptake — we call it a ‘runway’ — is kicking off in Europe and with that comes the potential to generate greater earnings and growth,” says Caroline van Weede, managing director of Cable Europe , an industry group. Moving Up “Currently one-third of the TV base is digital, but it already makes 50 percent of the revenues,” she said. Instead of getting about 30 analog channels, Liberty’s 10 million analog subscribers may seek the digital option. Those customers “have yet to make the decision: maybe we want 150 channels, maybe HD television would look good in my living room,” says Fries. “So we have 10 million untapped homes that we are running as fast as we can to connect.” After buying properties via TeleCommunications Inc., his U.S. cable operation, Malone sold it to AT&T Inc. for $54 billion in 1996. Today, his U.S.-based flagship Liberty Media Corp. owns TV shopping channel QVC, the Starz pay-TV channels, and stakes in Sprint Nextel Corp. , Sirius XM radio Inc. and Time Warner Inc. Malone, who declined to be interviewed for this article, may not make money as quickly from European cable as he did from his operations in the U.S. Old Continent Liberty may benefit from cheaper prices on equipment and some programming, says Bisson. Still, differences in European languages, laws, program tastes and pricing make getting cost efficiencies from consolidation in Europe more difficult than in the U.S. A Spanish bull fight finds few viewers in the Netherlands, while an ice-skating championship that’s a hit among the Dutch gets a yawn from Spaniards. There’s little appeal for broadcasts of Finnish theater into Portugal while the same is true of Portuguese soccer matches in Finland. Media laws on the advertising of liquor or targeting children remains another point of divergence. Targeting children is banned in Sweden while allowed in the rest of Europe. Television liquor ads are barred in France while allowed in Germany with restrictions on when they’re broadcast and what they can show. During the last three decades of the old century across the Atlantic, cable may have been Malone’s “best wealth-creation model,” as he has called it. On the old continent in the new century, that may take some time. To contact the reporters on this story: Ragnhild Kjetland in Frankfurt rkjetland@bloomberg.net ; Brett Pulley in New York at bpulley@bloomberg.net