Paul Allen: Caught In The Middle -- His Varied Business Ventures Sometimes Collide With Those Of Microsoft, The Firm He Helped Found

Ticketmaster Chief Executive Fred Rosen didn't hold back.

He had tried selling Microsoft the rights to use Ticketmaster's online ticketing service. But when the deal fell apart over how much Microsoft would pay, Rosen went to a competitor, Pasadena, Calif.-based start-up CitySearch. Then Rosen discovered Microsoft had still included an electronic link from its entertainment Web site, Sidewalk, to Ticketmaster's site, allowing people to order tickets indirectly from Sidewalk.

"They are monumentally arrogant," Rosen told the Los Angeles Times last week. Last week, Ticketmaster filed suit against Microsoft in Los Angeles, charging Microsoft with "electronic piracy" by linking viewers to its site, bypassing advertisements and other content contained on Ticketmaster's home page.

The lawsuit seeks a court order barring Microsoft from using the Ticketmaster name on the Seattle Sidewalk site as well as unspecified damages and fees.

Caught in the middle is Paul Allen, a majority shareholder in Ticketmaster who as co-founder of Microsoft still sits on its board.

The case illustrates how Allen's varied business interests either overlap or collide with those of Microsoft, the company he helped start 22 years ago with school buddy Bill Gates.

Ticketmaster is just one example. Another of his companies - Starwave - is gearing up for a head-to-head battle against Microsoft's Internet news operation.

A third company, WebTV Networks, one in which Allen holds a 9 percent stake and plays a regular advisory role, recently negotiated a $425 million sale to Microsoft, providing Allen and other shareholders handsome profits.

When Allen left Microsoft in 1983 to devote his time to his own

investments and technology start-ups, he held on to his Microsoft stock and his seat on the board. He now owns 102 million Microsoft shares, making him the second-largest shareholder next to Gates.

Allen's interests have always been eclectic, and that has shown in his business dealings. He owns some traditional software companies but also owns the Portland Trailblazers and nearly half of Ticketmaster. He started the Web-site publishing company Starwave, now part of the Disney-ABC-ESPN family. He's building a museum in honor of the late rock guitarist Jimi Hendrix. Recently, he made a bid to buy the Seattle Seahawks football team.

What has changed in the past two or three years, though, is that Microsoft's interests have become almost as varied as Allen's, as the company has moved into television broadcasting, magazine publishing, news gathering, banking, airline ticketing and music and film production.

As Allen and Gates, who has led Microsoft on his own for 14 years, began running in the same crowds, the odds grow greater that the two men will rub - or scrape - elbows.

Increasingly, that could mean that Allen will have to recuse himself from discussions taking place in the boardrooms of Microsoft and the other companies in which he invests. Already, an Allen deputy said, Allen and his representatives sometimes abstain from board votes or meetings during sensitive discussions.

"We go out of our way to tell people what's going on," said Bill Savoy, president of Allen's investment arm, Vulcan Ventures, and Allen's representative on the boards of Ticketmaster, Web publisher C/Net and other companies.

Savoy acknowledged Allen's business interests can "overlap" but insisted there are no conflicts of interest.

In the case of Ticketmaster, Allen knew of its problems with Microsoft and knew Rosen wanted to explore options including suing Microsoft, according to a source close to the company. Both are said to understand that Rosen has a responsibility to shareholders and can't be concerned about Allen's attachment to Microsoft. Allen has recused himself on issues relating to the Ticketmaster dispute, according to a spokesman.

"Fred runs the company," Savoy said. "He rarely checks his script with Paul."

Savoy pointed out that Vulcan discloses its overlapping interests early on to the boards involved.

When Allen bought Ticketmaster in 1993, he told Gates. He informed Microsoft when he invested last year in WebTV Networks, a California company that enables Internet-surfing over television and that was just bought by Microsoft. And he did it back in 1992 when he started Starwave - even though that was years before Microsoft itself would begin building businesses for the Internet.

In addition, Savoy said, Allen publishes a brochure outlining his investments and now has a World Wide Web site publicizing them.

"As long as you're above-board with everything, no one is troubled," he said.

Gates shares that philosophy, believing that Allen makes a valuable Microsoft director precisely because he's involved in so many facets of business and technology.

"Paul Allen was a part of the founding vision of this company and, like Bill, is a true visionary in terms of technology and its possibilities," said Microsoft spokesman John Pinette. "He's been a tremendous asset as a board member in directing Microsoft's development."

Pinette said Allen and other Microsoft directors are required to disclose any self-interest they might have in particular decisions or discussions.

Jim Breyer, a venture capitalist with Accel Partners in San Francisco, said many start-ups solicit corporate investors who could be potential competitors. In those cases, board members have to trust each other to keep secrets inside the boardroom.

Some observers said the high-tech industry in particular is filled with examples of companies competing and partnering at the same time.

"No matter what you do, if you're going to invest in high-tech you're going to be competing with Microsoft," said Bill Bass, an analyst with Massachusetts-based Forrester Research. "You can't get away from that. Microsoft has very broad ambitions. I mean, who the hell would have thought if you'd started a news service you'd be competing with Microsoft?"

Microsoft's MSNBC, its cable- and Internet-news venture with NBC, has been operating for nearly a year. Now Allen's Starwave is forming its own Internet news site with ABC, a division of Disney, which just bought a one-third stake in Starwave.

Neither Savoy nor Microsoft officials would discuss details of that competition, except to say that in all cases Allen discloses his interests to both parties.

In one case, the issue facing Allen wasn't competition but courtship.

An Allen representative had to abstain when WebTV's board voted to approve a sale to Microsoft for $425 million - the largest acquisition in Microsoft's history. Allen had bought a 9 percent share of the company just last year for $10 million, as one of its first investors. The company makes technology that allows people to browse material on the Internet using their television sets - an area that has long held Microsoft's interest.

With WebTV's sale to Microsoft, not only will the start-up get access to Microsoft's deep cash reserves, but Allen will receive about $38 million on his investment.

WebTV co-founder Steve Perlman described late-night telephone negotiations between WebTV and Microsoft, saying WebTV had teams of lawyers and business people in three cities. Though Allen's representative had been a steady adviser on past business decisions, he had to sit out the talks.

-------------- Crossing paths --------------

Several of Paul Allen's ventures operate in some of the same business markets as Microsoft.

Starwave, Bellevue

Business: Publishes World Wide Web sites, including the ESPNet SportsZone site and soon a general-news site with ABC.

Allen's stake: He started the company and recently sold a third of it to Disney.

Intersection with Microsoft: Microsoft is spending more than $400 million on MSNBC, a cable-TV and Internet news venture with partner NBC.

WebTV Networks, Palo Alto, Calif.

Business: Running an online service that allows users to access the Internet with a television set.

Allen's stake: He invested $10 million last year for a 9 percent stake.

Intersection with Microsoft: Microsoft recently announced it will acquire WebTV for $425 million. Allen will make about $38 million in the deal.

TicketMaster, Los Angeles

Business: Selling tickets for sports and entertainment events.

Allen's stake: Once as high as 80 percent, now just under 50 percent.

Intersection: TicketMaster began selling tickets online in November. Microsoft wanted to use the service in its online entertainment guide, Sidewalk, but talks fell through.

Harbinger, Atlanta

Business: Develops technology for online electronic commerce. Allen's stake: 12.5 percent.

Intersection with Microsoft: Microsoft is developing similar technology.

Telescan, Houston

Business: Publishes online financial/investment information.

Allen's stake: 12.6 percent.

Intersection with Microsoft: Microsoft runs an online investment service.

C/Net, San Francisco

Business: Web publishing, including news, entertainment and computer-industry information.

Allen's stake: About 20 percent.

Intersection with Microsoft: Microsoft provides news and industry information online.