TCI Plan to Buy America Online Stake Is Stalled by Microsoft
Tele-Communications Inc., the nation’s largest and most influential cable company, was poised to acquire a 9% stake in America Online Inc. until Microsoft Corp. Chairman Bill Gates intervened, according to sources close to TCI.
The acquisition is now on hold while TCI Chief Executive John Malone and Gates discuss whether the Vienna, Va.-based cable behemoth can invest in Marvel, the code name for the on-line service that Microsoft has been secretly developing, according to sources. The service, expected to be launched next year, would be a major competitor to America Online, analysts said.
TCI and Microsoft declined to comment. One source close to Microsoft dismissed the idea that a deal was imminent between Microsoft and TCI.
With sales of on-line computer services booming at the same time that the much-hyped interactive television experiments are stumbling badly, companies such as TCI have been looking to make major investments in on-line firms. At the same time, on-line companies have been seeking cable partners to help them push into new markets. They want to use the cable networks, which are better designed than phone lines to carry material such as video and color graphics, and are looking to cable companies to provide expertise in entertainment.
On-line services enable computers with modems to use telephone lines to communicate with other computers. Worldwide sales of on-line services are expected to reach $17.8 billion in 1998, a 57% increase from 1993, according to Simba Information Inc., a New York-based research company.
America Online learned of TCI’s interest a few weeks ago, one source said. TCI was considering buying the 9% stake in the company owned by billionaire Paul Allen, a co-founder of Redmond, Wash.-based Microsoft. Allen at one time owned almost 25% of America Online, but when he failed to gain management control he decided to sell his stake.
TCI officials wanted to know if America Online executives would look favorably on a TCI investment, sources said. America Online heartily endorsed the idea, seeing it as an important endorsement by a company that is expected to be a key player in the interactive entertainment world.
About a week ago, all the parties were ready to sign an agreement, and America Online was revving up its public relations machine to announce the new investor, sources said. But TCI negotiators, noting that the cable company had partnerships with Microsoft, said it needed to check those contracts to make sure a stake in America Online would not present a conflict.
“Microsoft got nervous when they heard” that TCI was thinking of investing in America Online, sources said. America Online is one of the fastest-growing of the on-line services and would be a key competitor for Marvel.
In the past week, Gates and Malone have started discussions about a TCI investment in the Microsoft on-line service, sources said, putting the acquisition of the America Online shares from Allen on hold.
