Mark Cuban's End Game
Forget the small-screen caricature you see on The Benefactor. The boisterous dotcom billionaire behind Broadcast.com is building an HDTV empire.
By John Heilemann

(Business 2.0) – Sometime in the middle of 2000, as he watched the Internet bubble that made him rich implode, Mark Cuban turned his gaze toward a more appealing sight—and saw the kernel of his next startup. What Cuban found himself staring at was his brand-new HDTV set. And what made him view that box as a business opportunity was the skepticism swirling around it. "At the time," Cuban told me, "all the traditional media guys were looking at sets costing $8,000 and saying, 'Why should we create content for this? HDTV is never gonna happen.' But I looked at the sets and saw PCs. I knew prices were gonna come down and performance was gonna go up. And if the traditional media couldn't see that—well, it just opened the door for me."

In the years since Cuban's HD epiphany, the billionaire co-founder of Broadcast.com has been a busy guy. As the owner of the Dallas Mavericks, he has emerged as one of the most visible and voluble owners in professional sports. And as the star of The Benefactor, he's become a prime-time celebrity—despite proving a less bankable blowhard than the incomparable Donald Trump. But even as Cuban has devoted Trumpian energies to making a spectacle of himself—and I say that with admiration—he has also been pursuing his preoccupation with the business of digital media. Indeed, Cuban and Todd Wagner, his Broadcast.com partner, have assembled what Variety calls "a full-service entertainment company that encompasses development, production, distribution, exhibition, and broadcasting."

When Cuban and I sat down to talk, I remarked that it looked as if he were laying the foundations for a new kind of media empire. The 46-year-old grinned and said, "I'm just having fun." But for Cuban, fun means challenging the conventional wisdom, and it frequently leads to profit. Which is why his approach to what he calls "bit blasting" deserves examination.

The cornerstone of Cuban's incipient empire is Dallas-based HDNet. Broadcasting a pair of channels—general-interest HDNet and HDNet Movies—the network is Cuban's bid to create a brand synonymous with HDTV. (Think HBO in the formative years of cable.) It's also his bid to seize scarce real estate before competitors rush in. "There's not a lot of excess bandwidth; there won't be room for everyone," he explained. "So if we didn't want to be left off the island, we needed to get carriage early on." And so they have. Except for Comcast and Cox—and, trust me, Cuban is working on them—almost every digital cable or satellite provider carries HDNet. And provided his channels attract an audience, they will prove almost impossible for the carriers to dislodge from their lineups.

At the same time, Cuban and Wagner have gone Hollywood, snapping up an assortment of Tinsel Town properties. They formed a joint venture, 2929 Entertainment—a nod to Broadcast.com's original street address—and then proceeded to buy Rysher Entertainment (a film and TV library), Landmark Theatres (a cinema chain), and Magnolia Pictures (a distribution company). They also took a stake in Lion's Gate Entertainment and started up two moviemaking ventures: 2929 Productions, which is working on projects with George Clooney and Steven Soderbergh's production company, Section Eight; and HDNet Films, which aims to produce lower-budget fare shot on high-definition video.

The obvious question: How do these pieces fit together? The obvious answer: Vertical integration. As Cuban explains it, "We'll create content digitally, display it digitally, and distribute it digitally, regardless of form factor or method of transport—we'll deliver it however consumers want to get it. Being vertically integrated makes that possible, and it also allows us to experiment in ways traditional media would never dream of."

For example, Cuban and Wagner plan to buck the Hollywood system of releasing movies over many months, through separate windows for theaters, pay-per-view, DVD, and broadcast TV. Instead, Cuban said, they intend to attempt "day-and-date releases," in which their films premiere simultaneously on Landmark screens, HDNet, and DVD. "We think it's a way of maximizing our revenues, controlling marketing costs, and adding value to our brands," he said. "And we don't think giving people alternatives to going to the theater will hurt us at the box office. It's just like with the Mavericks: We still sell out the games even though they're on free TV."

Even more heretical is Cuban's opinion of DVDs, which is that they suck—or, at least, that they're inferior to hard drives as a medium for storing digital content. "Why would we invest in DVD," he asked, "knowing that hard drives are going to grow in capacity, shrink in size and price, and can also be erased and rewritten?" He imagines selling HD movies stored on key-chain drives—or putting multiple films on larger drives, "like software used to be packaged on PCs." Moreover, he added, "with ever-expanding storage, we can increase picture quality for years to come by taking advantage of new cameras and better compression schemes. With DVDs, we can't."

Much of Cuban's vision depends, of course, on a future living room in which DVRs, set-top boxes, and media servers have USB or FireWire ports, or can otherwise connect to hard drives. But Cuban reasonably assumes that such a future is coming, and coming soon. "We're on the brink of a war for the living room between the PC and electronics companies," he said. "And the thing we know about death wars like that is that the consumer always wins."

Cuban's predictions will come true or not. His experiments will succeed or fail. But what interests me most is the perspective behind them—one in stark opposition to that of almost every potentate in the industries where he is a rising power. In the upper echelons of media and entertainment, digital technology is poorly understood, rarely loved, and often feared. Yet Cuban is at heart a stone-cold geek. He knows technology—and embraces it fervently. The Internet is killing the content industry? Digital piracy is Hollywood's bête noire? Run these canards past Cuban and get ready for a loud and contrarian earful.

"It's all bullshit," he said. "A bunch of pathetic excuses. I personally have more than half a billion dollars invested in content. And I'm a lot less worried about piracy than I am about technological communism. I don't want Orrin Hatch's 'help.' I want technology unconstrained. Because if technology wins, content companies will benefit dramatically, like they always have."

Not that Cuban is in any hurry for the media establishment to catch on—or for the changes he sees unfolding to play out. "Slower is actually better for me," he said. "If HD penetration was like a hockey stick, everyone would dive in like they did with DVD. But if everyone keeps saying there's not enough, then my ass just keeps getting bigger—I get to build my reach, build my libraries, until my butt looks like Charles Barkley's. And by the time everyone else wakes up, I'll be sitting pretty."

The dimensions of Cuban's HD ass notwithstanding, size will never be an advantage of his in competing with Disney, News Corp., and Viacom. Instead he'll get his edge from their congenital inertia—and his own tech savvy and street smarts. This assessment, I'll admit, flies in the face of the prevailing view about his success at Broadcast.com: that it was mostly dumb luck. But as Cuban knows, being persistently underestimated is itself no small advantage.

"Lucky? Hell yeah, I'm lucky," he said. "But I'm not going to say that I'm stupid." And after listening to him riff and ramble, you know what? Neither am I.

HDTV is starting to hit critical mass now that prices have dropped.

[*] Projected. Note: Includes HD-ready sets. SOURCE: isuppli