Tele-Communications Inc. (TCI) was a cable television provider founded in 1958. It grew to be the largest cable company in the country, owning both cable providers and content programming. It was acquired by AT&T in 1999 for $43.5 billion in stock and, through a series of transactions, would ultimately become Comcast.<\/p>\n\n\n\n
As CEO from 1972 to 1991, John Malone<\/a> pursued a virtuous cycle strategy<\/strong>\u2014grow subscriber count through acquisitions of cable providers, which would give scale to negotiate lower fees with content providers, which would make acquisitions of cable companies further cheaper. <\/p>\n\n\n\n\n\n\n\n From 1973 to 1998, Tele-Communications Inc. (TCI) showed a 30.3% annual return rate, compared to 14.3% for the S&P 500 and 20.4% for public cable companies. <\/p>\n\n\n\n $1 invested at the beginning would have been worth $900 by 1998. This outperformed the S&P by 40 times, and his peers by 5 times. The TCI performance <\/p>\n\n\n\n TCI company was founded in 1956 by Bob Magness and had gone public in 1970. In 1973, when Malone joined as CEO, it had 600,000 subscribers and was the #4 cable company in the US. It had taken on a troubling amount of debt\u201417 times revenue\u2014and was dangerously close to bankruptcy.<\/p>\n\n\n\n Malone\u2019s first priority was to keep Tele-Communications Inc. out of bankruptcy.<\/strong> He instituted a new lean culture focused on financial discipline, estimating that growing subscribers by 10% per year while maintaining margins would keep them out of bankruptcy. He maintained frugality at headquarters, keeping just a single receptionist and grouping multiple executives in the same motel room when traveling.<\/p>\n\n\n\n Characteristic of outsider CEOs, Malone had a COO, J.C. Sparkman, who enforced budgeting and cash flow benchmarks at the operating divisions. Managers who underperformed were fired.<\/p>\n\n\n\n Over his first 4 years, Malone pushed TCI to produce the highest margins in the cable industry and saw consistent subscriber growth and cash flow.<\/p>\n\n\n\n Once Tele-Communications Inc. stabilized, Malone could pursue his master strategy: a virtuous cycle of growth. <\/p>\n\n\n\n At cable companies, the largest expense<\/a> (40% of operating expenses) was paid to content suppliers<\/a> (called programmers) like HBO and MTV. Larger cable providers were able to negotiate lower fees per subscriber. Malone realized that the key was to increase size, which would allow for increasingly better business economics, which would in turn allow for increased size.<\/p>\n\n\n\nTCI Performance<\/strong><\/h2>\n\n\n\n
History<\/strong>: Tele-Communications Inc.<\/h2>\n\n\n\n
1973-1977: Stabilization<\/strong><\/h3>\n\n\n\n
1977-1990: Growth<\/strong><\/h3>\n\n\n\n