<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A
                                 AMENDMENT NO.1

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended December 31, 1998

                                       OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from ________________ to ________________.

                         COMMISSION FILE NUMBER 0-22815

                                 TCI Music, Inc.
             (Exact name of registrant as specified in its charter)


                Delaware                                84-1380293
     (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                 Identification No.)

    67 Irving Place North, 4th Floor
              New York, NY                                 10003
 (Address of principal executive offices)                Zip code

       Registrant's telephone number, including area code: (212) 387-7700
        Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, $0.01 Par Value; Series A Convertible Preferred Stock,
$0.01 Par Value

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Unless otherwise specifically indicated, all monetary references in this filing
are in U.S. dollars.

As of January 31, 1999 the aggregate market value of the Series A Common Stock
of TCI Music, Inc. held by non-affiliates was approximately $35,417,296.

Number of shares of Series A Common Stock of TCI Music, Inc. outstanding as of 
January 31, 1999: 18,876,867
Number of Series B Common Stock of TCI Music, Inc. outstanding as of January 
31, 1999: 62,500,000.


<PAGE>   2




                                TABLE OF CONTENTS

<TABLE>
<S>               <C>                                                                            <C>
                                    PART II

ITEM 5.           MARKET FOR TCI MUSIC'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........II-1


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................III-1

ITEM 11.          EXECUTIVE COMPENSATION........................................................III-5

ITEM 12.          SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............III-11

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.........................III-15
</TABLE>




<PAGE>   3


                        TCI MUSIC, INC. AND SUBSIDIARIES
                   (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)


                                     PART II


   ITEM 5.        MARKET FOR TCI MUSIC'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS

   Since July 14, 1997, shares of TCI Music, Inc.'s Series A Common Stock, $0.01
   par value per share ("TCI Music Series A Common Stock") have been quoted on
   the Nasdaq SmallCap Market under the symbol "TUNE"*.

   The following table sets forth the range of high and low sales prices of TCI
   Music Series A Common Stock since July 14, 1997 for the periods indicated as
   provided by Nasdaq.


<TABLE>
<CAPTION>
1997:                                                         HIGH             LOW
-----                                                         ----             ---
<S>                                                          <C>              <C>

Third Quarter (from July 14, 1997)                           7.5625           6.7500
Fourth Quarter                                               7.8125           7.3750

1998:
-----

First Quarter                                                8.1875           7.5938
Second Quarter                                               9.9375           7.6875
Third Quarter (through August 13, 1998*)                     8.0625           7.7500
Third Quarter (from August 14, 1998*)                        7.7500           2.3750
Fourth Quarter                                               6.3750           3.0000
</TABLE>

   The prices reflect inter-dealer quotations without adjustments for retail
   markup, markdown or commission; and do not necessarily reflect actual
   transactions.

   On December 31, 1998, the closing price for the TCI Music Series A Common
   Stock reported by Nasdaq was $4.6880. As of December 31, 1998 there were 374
   stockholders of record of TCI Music, Inc. ("TCI Music") with approximately
   19% of the shares held in "street name".

   -----------------------
   *Until August 13, 1998, each share of TCI Music Series A Common Stock issued
   in the merger of TCI Music and DMX Inc. (the "DMX Merger") traded on the
   Nasdaq SmallCap Market together with a right granted by Tele-Communications,
   Inc. ("TCI") in connection with the DMX Merger (a "TCI Right"). Each TCI
   Right entitled the holder to require TCI to purchase from such holder one
   share of TCI Music Series A Common Stock for $8.00, payable at the election
   of TCI, in cash, a number of shares of TCI's Series A TCI Group common stock
   having an equivalent value, or a combination thereof, if during the one-year
   period beginning on July 11, 1997 the price of the TCI Music Series A Common
   Stock trading with associated TCI Rights did not equal or exceed $8.00 for a
   period of at least 20 consecutive trading days. The TCI Rights became
   exercisable from July 11, 1998 through August 13, 1998. During such period,
   TCI Rights with respect to 7,602,483 shares of TCI Music Series A Common
   Stock were exercised, and such shares were purchased by TCI for cash. All
   unexercised TCI Rights expired at the close of business on August 13, 1998.
   On August 14, 1998 TCI Music Series A Common Stock without TCI Rights
   commenced trading on the Nasdaq SmallCap Market.

   DIVIDENDS

   No dividends have been paid by TCI Music, Inc. as of December 31, 1998. The
   Company does not anticipate paying cash dividends in the foreseeable future.



                                      II-1

<PAGE>   4



                        TCI MUSIC, INC. AND SUBSIDIARIES
                   (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



PART III

       ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


DIRECTORS

         The following lists the directors of TCI Music, Inc. ("TCI Music" or
the "Company"), their birth dates, and a description of their business
experience and positions held as of April 1, 1999. The Board consists of nine
directors. Directors are elected to staggered three year terms with
approximately one-third elected annually.





                                      III-1

<PAGE>   5



                        TCI MUSIC, INC. AND SUBSIDIARIES
                   (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)




<TABLE>
<CAPTION>
      NAME                                                     POSITIONS
      ----                                                     ---------
<S>                         <C>

Robert R. Bennett           Has served as a director of TCI Music since January 1997, and served as acting Chief
Born April 19, 1958         Financial Officer of TCI Music from June 1997 until July 1997.  Mr. Bennett has served
                            as an Executive Vice President of Tele-Communications, Inc. ("TCI"), a subsidiary of
                            AT&T, since April 1997.  Mr. Bennett has served as President and Chief Executive
                            Officer of Liberty Media Corporation ("Liberty") since April 1997.  From June 1995
                            through March 1997, Mr. Bennett was an Executive Vice President, Chief Financial
                            Officer, Secretary and Treasurer of Liberty.  Mr. Bennett served as Senior Vice President
                            of Liberty from September 1991 to June 1995.

Donne F. Fisher             Has served as a director of TCI Music since January 1997.  Mr. Fisher was an Executive
Born May 24, 1938           Vice President of TCI from January 1994 through January 1, 1996.  On January 1, 1996,
                            Mr. Fisher resigned his position as Executive Vice President of TCI and has been
                            providing consulting services to TCI since January 1996.  Mr. Fisher served as an
                            Executive Vice President of TCIC from December 1991 to October 1994.  Mr. Fisher
                            served as a director of TCI from June 1994 to March 1999, served as a TCIC director
                            from 1980 to March 1999, and served as a director of TCI Pacific Communications, Inc.
                            ("TCI Pacific") from July 1996 to March 1999.  Mr. Fisher is a director of General
                            Communications, Inc.

Leo J. Hindery, Jr.         Mr. Hindery served as Chairman of the Board of TCI Music from January 1997 to
Born October 31, 1947       January 1999.  Has served as a director of TCI since May 1997.  Mr. Hindery has served
                            as the President and Chief Operating Officer of since March 1997.  Mr. Hindery has
                            served as President and Chief Executive Officer of TCI Communications, Inc. ("TCIC"),
                            a subsidiary of AT&T engaged in the ownership and operation of cable television
                            systems and the predecessor company of TCI since March 1997 and has served as
                            President and Chief Executive Officer of TCI Pacific since September 1997.  Mr.
                            Hindery has served as a director of TCIC since March 1997, and has served as a director
                            of TCI Pacific, an operator of cable television systems and a subsidiary of TCI since
                            September 1997.  In addition, Mr. Hindery is President, Chief Executive Officer and/or
                            a director of many of TCI's subsidiaries.  Mr. Hindery was previously founder, Managing
                            General Partner and Chief Executive Officer of InterMedia Partners, a cable TV operator,
                            and its affiliated entities from 1988 until March 1997.  Mr. Hindery was a director of
                            DMX Inc. from May 1996 to July 1997.  Until March 8, 1999, Mr. Hindery was a
                            director of United Video Satellite Group, Inc. (now known as TV Guide, Inc.), a
                            distributor of satellite based television services that prior to March 1, 1999 was a
                            consolidated subsidiary of AT&T. Mr. Hindery is also a director of At Home
                            Corporation, a subsidiary of AT&T, TCI Satellite Entertainment, Inc., a distributor of
                            satellite-based television services, Cablevision Systems Corporation Knowledge
                            Enterprises, Inc. and Lenfest Communications, Inc.

David B. Koff               Has served as a director of TCI Music since May 1997.  Mr. Koff was interim President
Born December 26,           and Chief Executive Officer of TCI Music from May 1997 to December 31, 1997.  Since
1958                        December 31, 1997, Mr. Koff has served as a Vice President and Assistant Secretary of
                            TCI Music. He has been a Senior Vice President of Liberty since February 1998. He was 
                            Vice President - Corporate Development of Liberty from August 1994 to February 1998. 
                            From March 1993 to August 1994, he was special counsel to Liberty. From August 1992 to
                            March 1993, he was special counsel to Brownstein Hyatt Farber & Strickland, a Denver law
                            firm.
</TABLE>





                                      III-2

<PAGE>   6



                        TCI MUSIC, INC. AND SUBSIDIARIES
                   (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)


<TABLE>
<CAPTION>
      NAME                                                     POSITIONS
      ----                                                     ---------
<S>                         <C>
Peter M. Kern               Has served as a director of TCI Music since January 1997.  Mr. Kern also provides
Born June 2, 1967           consulting services to TCI.  Mr. Kern has served as President of Gemini Associates Inc.,
                            a firm that provides strategic advisory services primarily to media companies, since April 
                            1996. From December 1993 to January 1996, he served as Senior Vice President of Strategic 
                            Development and Corporate Finance of Home Shopping Network, Inc. and served as its Vice 
                            President of Strategic Development and Assistant to the Chief Executive Officer from March 
                            1993 to December 1993. Prior to Joining Home Shopping Network, Inc., he served as Vice
                            President of Corporate Finance and Strategic Development for Whittle Communications, L.P.
                            and worked at the New York investment banking firm, Bear, Stearns & Co., Inc.

Lee Masters                 Has served as Chairman of the Board of TCI Music since January 1999.  Since January
Born December 26,           1999, Mr. Masters has served as President and Chief Executive Officer of Liberty Media
1951                        Interactive, Inc. and Liberty Digital LLC, affiliates of Liberty.  From January 1990 to
                            December 1998 Mr. Masters served as President and CEO of E! Entertainment television, a cable
                            television program network. From March 1986 to December 1989 he served as executive vice 
                            president and general manager of MTV. Prior to his career in television, Mr. Masters had a
                            20-year career in radio. Mr. Masters' legal name is Jarl Mohn. Mr. Masters serves as a director
                            of NewStar Media, Inc. (formerly Dove Audio), an independent producer of audio books, printed
                            books and television films.

Thomas McPartland           Has served as a director and President and Chief Executive Officer of TCI Music since
Born June 30, 1958          January 1, 1998.  Mr. McPartland has served as Chairman of the Board, President and
                            Chief Executive Officer of Paradigm Music Entertainment, Inc., a subsidiary of the Company,
                            since its formation in November 1995. Prior to co-founding Paradigm, from April 1995 he 
                            served as Executive Vice President and a director for the Zomba Group of Companies, North
                            America, a privately-held worldwide music entertainment company. From October 1985 to December
                            1994, Mr. McPartland held a number of positions of increasing responsibility with BMG
                            Entertainment Group most recently, Senior Vice President and Deputy General Counsel.

J C Sparkman                Has served as a director of TCI Music since May 1997. He served as a director of TCI
Born September 12,          from December 1996 to March 1999. Mr. Sparkman served as an Executive Vice President of TCI
1932                        from January 1994 to March 1995. Mr. Sparkman retired in March 1995 and has provided consulting
                            services to TCI since March 1995. Mr. Sparkman served as an Executive Vice President of
                            TCIC from 1987 to October 1994 and as a director of DMX from 1989 to July 1997. Mr. Sparkman
                            is a director of Shaw Communications, Inc.

Lon A. Troxel               Has served as a director of TCI Music since May 1997.  Mr. Troxel was appointed President and
Born October 14, 1947       Chief Executive Officer of DMX in July 1997.  Mr. Troxel served as Chief Operating Officer of
                            DMX from April 1997 to July 1997, and served as Executive Vice President, Commercial Division
                            from October 1991 to April 1997.
</TABLE>

COMPENSATION OF DIRECTORS

         Standard Arrangements. Members of the Board of TCI Music who are also
full-time employees of TCI Music or TCI or Liberty, or any of their respective
subsidiaries, do not receive any additional compensation for their services as
directors. TCI Music has not established any fees for directors who are not
full-time employees of TCI Music or TCI or Liberty or any of their respective
subsidiaries. All members of the Board are reimbursed for expenses incurred to
attend any meetings of the Board and any committee thereof.

         Other Arrangements. The Board granted, effective as of July 11, 1997,
(i) to each of Messrs. Hindery, Kern and Fisher, options to purchase 833,334
shares of TCI Music Series A Common Stock at a price of $6.25 per share, (ii) 
to Mr. Troxel, options to purchase 200,000 shares of TCI


                                      III-3

<PAGE>   7



                        TCI MUSIC, INC. AND SUBSIDIARIES
                   (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



Music Series A Common Stock at a price of $6.25 per share, (iii) to each of
Messrs. Sparkman, Bennett and Koff, options to purchase 100,000 shares of TCI
Music Series A Common Stock at a price of $6.25 per share. Such options will
vest in 20% cumulative increments, with the first increment vesting as of July
11, 1997. Mr. Troxel's options were repriced to be exercisable at $4.00 per
share on December 11, 1999. See Item 11. "Executive Compensation-- Option/SAR
Repricing."

BOARD MEETINGS

         During 1998, the Board of Directors of the Company held three meetings.
None of the directors attended fewer than 75% of the meetings of the Board of
Directors or of any committee of which he is a member except for Mr. Hindery,
Mr. Sparkman and Mr. Troxel.

COMMITTEES OF THE BOARD OF DIRECTORS

         The Company has an Executive Committee, an Audit Committee and a
Compensation Committee. There is no standing nomination committee of the
Company's Board of Directors.

         The members of the Executive Committee are Peter M. Kern and Robert R.
Bennett. The Executive Committee exercises all of the powers and authority of
the Board of Directors between meetings of the entire Board of Directors, other
than such powers and authority as the Delaware General Corporation Law (the
"DGCL") specifically prohibits an executive committee from performing. During
1998, the Executive Committee did not hold any meetings.

         The members of the Audit Committee are Donne F. Fisher, Peter M. Kern
and Robert R. Bennett. The duties of the Audit Committee are to review and
monitor the Company's financial reports and accounting practices to ascertain
that they are within acceptable limits of sound practice, to receive and review
audit reports submitted by the Company's independent auditors and by its
internal auditing staff and to make such recommendations to the Board of
Directors as may seem appropriate to the Committee to assure that the interests
of the Company are adequately protected and to review all related party
transactions and potential conflict-of-interest situations. The Audit Committee
of the Company did not hold any meetings during 1998 since matters usually
considered by the Audit Committee were considered by the full Board.

         The members of the Compensation Committee are Peter M. Kern and Donne
F. Fisher. The functions of the Compensation Committee are to review and make
recommendations to the Board of Directors concerning the compensation of the
executive officers of the Company, to consider and make recommendations to the
Board of Directors concerning existing and proposed employment agreements
between the Company and its executive officers and to administer the 1997 Plan.
The Compensation Committee of the Company held four meetings during 1998.

EXECUTIVE OFFICERS

         The following lists the executive officers of the Company, their birth
dates, a description of their business experience and positions held with the
Company as of April 1, 1999. Information concerning Mr. Koff, Mr. McPartland and
Mr. Troxel, who are also directors, is listed under the heading "Directors,"
above. All officers are appointed for an indefinite term, serving at the
pleasure of the Board of Directors.

<TABLE>
<CAPTION>
      NAME                                                     POSITIONS
      ----                                                     ---------
<S>                         <C>
Alan R. McGlade           Has served as President and Chief Executive Officer of The Box Worldwide, Inc. since
Born December 15,         January 1995.  From August, 1991 to January 1995, he served as President of StarNet, Inc.,
1954                      an interactive news and interstitial programming company.  From August 1987 to July
                          1991 Mr. McGlade was founder and President of Adlink in Los Angeles, a satellite-delivered cable
                          television advertising interconnect. Prior to joining Adlink Mr. McGlade was Vice President,
                          Programming at Falcon Communications, a cable television operator.
</TABLE>


                                     III-4

<PAGE>   8

                        TCI MUSIC, INC. AND SUBSIDIARIES
                   (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



<TABLE>
<CAPTION>
      NAME                                                     POSITIONS
      ----                                                     ---------
<S>                         <C>
Ralph J. Sorrentino       Has served as Executive Vice President and Chief Financial Officer of TCI Music since May 1998.
Born June 28, 1952        From March 1992 to September 1997, Mr. Sorrentino served at Bohbot Entertainment & Media Inc.,
                          an international television production and syndication company. From October 1994 to September
                          1997, Mr. Sorrentino was President and Chief Operating Officer of Bohbot Entertainment & Media
                          Inc.; from March 1992 to October 1994, Mr. Sorrentino was Executive Vice President/Chief Financial
                          & Administrative Officer of Bohbot Entertainment & Media Inc. While serving as Executive Vice
                          President & Chief Financial & Administrative Officer at Bohbot, in January 1994, Mr. Sorrentino
                          also served as President of Bohbot's Entertainment division before being named President &
                          COO of the overall Bohbot organization. From 1982 to 1992, Mr. Sorrentino served in three executive
                          positions at The Interpublic Group of Companies, a diversified advertising concern. From 1990
                          to 1992, he was Senior Vice President/Director of Finance for its subsidiary, Lintas New York.
</TABLE>


         There are no family relations, of first cousin or closer, among the
Company's directors or executive officers, by blood, marriage or adoption.

         During the past five years, none of the above persons have had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.

       ITEM 11.            EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table shows, for fiscal 1998, a summary of certain
information regarding all forms of compensation for the Chief Executive Officer
and the other executive officers and one former executive officer (the "named
executive officers") whose total annual salary and bonus exceeded $100,000
during fiscal 1998.


<TABLE>
<CAPTION>
                                                                                                LONG TERM
                                                                                              COMPENSATION
                                                                                                  AWARDS
                                                                                      ----------------------------
                                                                                                      SECURITIES
                                                ANNUAL COMPENSATION                                   UNDERLYING  
          NAME AND                          ------------------------   OTHER ANNUAL    RESTRICTED   STOCK OPTIONS/     ALL OTHER
          PRINCIPAL                            SALARY       BONUS      COMPENSATION      STOCK          SARS(1)       COMPENSATION
          POSITION                   YEAR        $            $             $(5)         AWARDS            #              $(6)
--------------------------------     ----   ------------  ----------   ------------   ------------  ---------------   -------------
<S>                                 <C>     <C>           <C>          <C>            <C>           <C>               <C>

Thomas McPartland                    1998      375,000(2)       --              --            --        250,000(7)            --
   President and CEO                 1997          N/A                                                            

Alan R. McGlade                      1998      273,552          --         100,000(8)         --        155,000(7)        10,000
   President and CEO of The Box      1997       88,931(3)       --              --            --         64,200(7)            --

Ralph J. Sorrentino                  1998      174,519(4)       --              --            --        150,000(7)        10,000
   Executive Vice President and      1997          N/A
   Chief Financial Officer

Lon A. Troxel                        1998      285,577      15,000              --         9,230             --           10,000
   President and CEO of DMX          1997      189,660          --              --            --        200,000(7)            --

J. Wendy Kim                         1998      121,630     101,250         125,000            --             --           11,309
   former Vice President and         1997      110,096          --              --            --             --            6,924
   Chief Financial Officer
</TABLE>

         (1) For information concerning these awards see "Option/SAR-Grants in
             Last Fiscal Year" set forth below. There were no grants from other
             long term incentive plans; therefore column "LTIP Payouts" is
             omitted.

                                     III-5


<PAGE>   9
 

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



         (2)      Mr. McPartland began employment with the Company on January 1,
                  1998, the day after the Company acquired Paradigm.
                  Accordingly, the salary information included in the table
                  represents only salary from that date through December 31,
                  1998. 
         (3)      Mr. McGlade began employment with the Company on December 16,
                  1997, the date the Company acquired The Box. Accordingly, the
                  1997 salary information included in the table represents only
                  15 days' employment during 1997.
         (4)      Mr. Sorrentino began employment with the Company on May 11, 
                  1998. Accordingly, the salary information included in the
                  table represents only salary from that date through December
                  31, 1998.
         (5)      Certain perquisites and other personal benefits did not 
                  exceed the lesser of $50,000 or 10% of the total amounts
                  reported in the Salary and Bonus columns during the fiscal
                  1998.
         (6)      Amounts represent contributions to the TCI Stock Plan. The 
                  TCI Stock Plan provides benefits upon an employee's retirement
                  which normally is when the employee reaches 65 years of age.
                  TCI Stock Plan participants may contribute up to 10% of their
                  compensation and the Company (by annual resolution of the
                  Board of Directors) may contribute up to a matching 100% of
                  the participants' contributions. Participant contributions to
                  the TCI Stock Plan are fully vested upon contribution.

                  Generally, participants acquire a vested right in the Company
                  contributions as follows:

<TABLE>
<CAPTION>
                                                                                            VESTING
                  YEARS OF SERVICE                                                        PERCENTAGE
                  ----------------                                                        ----------
<S>                                                                                       <C> 
             Less than 1.......................................................................0%
             1-2..............................................................................33%
             2-3..............................................................................66%
             3 or more.......................................................................100%
</TABLE>


                  With respect to the Company contributions made to the TCI
                  Stock Plan in 1998 and 1997 [Mr. Troxel and Ms. Brown] are
                  fully vested. The TCI Stock Plan also includes a salary
                  deferral feature in respect of employee contributions.
                  Forfeitures (due to participants' withdrawal prior to full
                  vesting) are used to reduce the Company's otherwise determined
                  contributions.

                  Directors who are not employees of the Company are ineligible
                  to participate in the TCI Stock Plan. Under the terms of the
                  TCI Stock Plan, employees are eligible to participate after
                  three months of service. Although the Company has not
                  expressed an intent to terminate the TCI Stock Plan, it may do
                  so at any time. The TCI Stock Plan provides for full immediate
                  vesting of all participants' rights upon termination of the
                  TCI Stock Plan.

         (7)      These options were repriced on December 11, 1998.  See 
                  "Option/SAR Repricing."
         (8)      Represents loan by the Company that was forgiven. See Item 13.
                  Certain Relationships and Related Party Transactions.


OPTION/SAR GRANTS IN LAST FISCAL YEAR

         The following table shows all individual grants of stock options and
stock appreciation rights ("SARs") by the Company to each of the named executive
officers during the Reporting Period.

<TABLE>
<CAPTION>
                                  NUMBER OF                                                            
                                 SECURITIES
                                 UNDERLYING       % OF TOTAL
                                  OPTIONS/      OPTIONS/SARS TO       EXERCISE
                                    SARS           EMPLOYEES            PRICE      EXPIRATION
          NAME                   GRANTED(1)     IN FISCAL YEAR         ($/SH)         DATE        GRANT DATE PRESENT VALUE ($)(2)
          ----                   ----------     ---------------       --------     ----------     -------------------------------
<S>                              <C>             <C>                  <C>          <C>            <C>
Thomas McPartland                  250,000            16.0              4.00(3)      1/15/08                 1,502,500
   President and CEO

Alan R. McGlade                    155,000             9.9              4.00(3)      1/15/08                   931,550
   President and CEO of The Box

Ralph J. Sorrentino                150,000             9.6              4.00(3)      1/15/08                   901,500
   Executive vice President and
  Chief Financial Officer

Lon A. Troxel                           --              --                --           --                         --
   President and CEO of DMX
</TABLE>


                                     III-6
<PAGE>   10

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)

<TABLE>
<CAPTION>
                                  NUMBER OF                                                            
                                 SECURITIES
                                 UNDERLYING       % OF TOTAL
                                  OPTIONS/      OPTIONS/SARS TO       EXERCISE
                                    SARS           EMPLOYEES            PRICE      EXPIRATION
          NAME                   GRANTED(1)     IN FISCAL YEAR         ($/SH)         DATE        GRANT DATE PRESENT VALUE ($)(2)
          ----                   ----------     ---------------       --------     ----------     -------------------------------
<S>                              <C>             <C>                  <C>          <C>            <C>
J. Wendy Kim                          --               --                 --           --                      --
   former Vice President and
 Chief Financial Officer
</TABLE>

     (1) All grants of stock options were options to purchase TCI Music Series A
         Common Stock. All stock options were granted in tandem with SARs. All
         options were granted pursuant to the TCI Music 1997 Stock Incentive
         Plan (the "1997 Plan"), effective January 15, 1998, vest in 20%
         cumulative increments, with the first increment vesting as of January
         15, 1999, with each additional increment vesting on each of the next
         four anniversaries thereof. Notwithstanding the vesting schedule, the
         option shares become available for purchase if grantee's employment
         with the Company terminates as a result of the total disability or
         death of the grantee. Further, the option shares will become available
         for purchase in the event of an Approved Transaction, Board Change, or
         Control Purchase (each as defined in the 1997 Plan), unless, in the
         case of an Approved Transaction, the compensation committee under the
         circumstances specified in the 1997 Plan, determines otherwise.
     (2) The values shown are based on the Black-Scholes model and are stated in
         current annualized dollars on a present value basis. The key
         assumptions used in the model for purposes of this calculation include
         the following: (a) a 5.13% risk-free interest rate; (b) a 88%
         volatility factor; (c) a 60-month expected life term; (d) a weighted
         average expected individual yield; and (d) the closing market price of
         a share of TCI Music Series A Common Stock on the date of grant,
         resulting in a fair value of the options granted during fiscal 1998 of
         $6.01. The actual value the executive may realize will depend upon the
         extent to which the stock price exceeds the exercise price on the date
         the option is exercised. Accordingly, the value, if any, realized by
         the executive will not necessarily be the value determined by the
         model.
     (3) These options were repriced on December 11, 1998. See "Option/SAR
         Repricings" below.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

         The following table shows certain information with respect to the
exercise of stock options/SARs by the named executive officers during the
Reporting Period and year-end value of unexercised stock options/SARs at
December 31, 1998.


<TABLE>
<CAPTION>
                                                           Number of Unexercised     Value of Unexercised In
                                   Shares       Valued     Securities Underlying     the Money Options/SARs
                                 Acquired on    Realize Options/SARs at FY-End (#)      at FY-End ($)(2)
Name                            Exercise (#)    ($)(1)   Exercisable/Unexercisable  Exercisable/Unexercisable
----                            ------------    ------   -------------------------  -------------------------
<S>                             <C>             <C>      <C>                        <C>
Thomas McPartland                    --           --             0/250,000                  0/171,875
   President and CEO

Alan R. McGlade                    21,400       11,771        42,800/155,000              29,425/106,562
   President and CEO of The Box

Ralph J. Sorrentino                  --           --             0/150,000                  0/103,125
   Executive Vice President and
  Chief Financial Officer

Lon A. Troxel                        --           --          80,000/120,000              55,000/82,500
   President and CEO of DMX

J. Wendy Kim                         --           --                 ---                       ---
   former Vice President and
 Chief Financial Officer
</TABLE>


     (1) Based on fair market value of the TCI Music Series A Stock on the
         exercise date.
     (2) The values indicated are based upon the closing trading price on the
         Nasdaq SmallCap Market of one share of TCI Music Series A Common Stock
         on December 31, 1998, or $4.6875.

OPTION/SAR REPRICINGS

         The table below sets forth certain information concerning the repricing
of stock options/SARs held by any executive officer of the Company which
occurred December 11, 1998. Further explanation concerning these repricings is
included in the Report of the Compensation Committee on Executive Compensation,
below.


                                     III-7
<PAGE>   11



                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)


<TABLE>
<CAPTION>
                                 SECURITIES UNDERLYING   MARKET PRICE OF   EXERCISE PRICE AT       NEW         LENGTH OF ORIGINAL
                                     OPTIONS/SARS        STOCK AT TIME OF       TIME OF         EXERCISE      OPTION TERM REMAINING
NAME                   DATE          REPRICED (#)         REPRICING ($)      REPRICING ($)    PRICE ($)(1)    AT DATE OF REPRICING
----                   ----          ------------         -------------      -------------    ------------    --------------------
<C>                    <C>       <C>                      <C>              <C>                <C>             <C>
Thomas McPartland      12/11/98         250,000                $3.90              $6.50         $4.00             9 yrs. 1 mo.
President and CEO

Alan R. McGlade        12/11/98          21,400                $3.90              $6.25         $4.00                 1/2 mo.
President and CEO of                     21,400                $3.90              $6.25         $4.00                 1 year
The Box                                  21,400                $3.90              $6.25         $4.00                 2 years
                                        155,000                $3.90              $6.50         $4.00              9 yrs. 1 mo.

Ralph J. Sorrentino    12/11/98         150,000                $3.90              $6.50         $4.00              9 yrs. 5 mos.
Executive Vice
President and Chief
Financial Officer

Lon A. Troxel          12/11/98         200,000                $3.90              $6.25         $4.00              8 yrs. 7 mos.
President and CEO of
DMX
</TABLE>

(1)  Represents the average of averages of the closing prices of a share of 
     Series A Common Stock over the 60 trading days ending December 10, 1998 
     and the 60 calendar days ended December 9, 1998, rounded up to the nearest
     cent.

EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL 
ARRANGEMENTS

         DMX and Lon A. Troxel are parties to an Employment Agreement dated
October 1, 1991, as amended, for a term until May 31, 2002. Pursuant to the
Employment Agreement Mr. Troxel receives annual salary of $300,000 from June 1,
1998 through December, 1999 and $350,000 thereafter. Pursuant to the Employment
Agreement Mr. Troxel has agreed not to acquire more than a 10% direct or
indirect ownership in any cable company, other than DMX, without the prior
written consent of DMX. Mr. Troxel receives basic and extended benefits
commensurate with other senior management employees such as vacation pay and
other fringe benefits. If Mr. Troxel becomes disabled during the term of the
agreement, he will receive the same compensation he is entitled to under the
Employment Agreement for a time period not exceeding six months.

                      REPORT OF THE COMPENSATION COMMITTEE
                            ON EXECUTIVE COMPENSATION

         Neither the report of the Compensation Committee of the Board of
Directors (the "Compensation Committee") nor the stock performance graphs which
follow such report shall be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933, as amended, or under the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.

COMPENSATION PHILOSOPHY

         The Compensation Committee's compensation philosophy is based on the
belief that a link should exist between executive compensation and the return on
investment provided to stockholders as reflected by the appreciation in the
price of the Company's stock. In applying this philosophy, the Compensation
Committee has developed and implemented a compensation policy which seeks to
attract, motivate and retain highly qualified executives with the business
experience and acumen necessary for achievement of the long-term business
objectives of the Company and to align the financial interests of the Company's
senior executives with those of its stockholders. The Company attempts to
realize these goals by providing competitive compensation and by linking a
portion of the compensation to the enhancement of stockholder value.

         The Company's executive compensation is based principally on two
components -- salary and equity-based incentives -- each of which is intended to
serve the Company's overall compensation philosophy.


                                     III-8
<PAGE>   12

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



         Base Salaries. Base salary for executive officers is generally targeted
at the median for executives with comparable qualifications, experience and
responsibilities at other companies in the industry. In the aggregate, executive
salaries are consistent with this philosophy. Salary levels for executive
officers also reflect the Committee's judgments on appropriate salaries in light
of the duties and responsibilities inherent in the executives' respective
positions. The particular qualifications of an individual holding the position
and his or her level of experience, as well as information concerning
compensation paid by other companies in the industry, are considered in
establishing salary levels. The Committee's assessment of the individual's
performance and contribution to the Company's performance are the primary
criteria influencing decisions regarding salary. For those executives who joined
the Company during the year, the primary factor in setting salary levels was the
Company's desire to provide compensation in amounts sufficient to induce these
individuals to join the Company. Although the 1997 Plan permits cash bonuses and
other performance based awards, the Company pays a limited number of cash
bonuses to its senior executives.

         Annual salary adjustments are recommended by the Chief Executive
Officer of TCI Music by evaluating the performance of each executive officer
after considering new responsibilities and the previous year's performance of
TCI Music and such executive officer. The Compensation Committee performs a
similar review of the Chief Executive Officer's salary. Individual performance
ratings take into account such factors as achievement of specific goals that are
driven by TCI Music's strategic plan and attainment of specific individual
objectives. The factors affecting base salary levels are not assigned specific
weights but are subject to adjustments by the Compensation Committee. Certain
terms of the employment agreements of certain named executive officers are
described in "Employment Contracts and Termination of Employment and Change of
Control Arrangements" above.

         Equity-Based Incentives. A key component of executive officers'
compensation is the grant of equity-based incentives under the 1997 Plan.

         The Compensation Committee grants equity-based incentives to TCI
Music's executives in order to align their interests with those of the
stockholders, primarily stock options and stock appreciation rights ("SARS").
Equity-based incentives are considered by the Compensation Committee to be an
effective long-term incentive because the executives' gains are linked to
increases in the value of TCI Music Series A Common Stock, which in turn
provides stockholder gains. Equity-based incentives also provide executive
officers with the opportunity to acquire and build a meaningful ownership
interest in the Company.

         The Compensation Committee generally grants options and SARs to new
executive officers and other key employees upon their commencement of employment
with TCI Music, and considers stock option awards throughout the year. In
determining the number of options awarded to an individual executive officer,
the Compensation Committee generally establishes a level of award based upon the
position of the individual and his or her level of responsibility and upon
recommendations made by the Company's Chief Executive Officer. The Committee's
decisions concerning individual option awards are based on its judgment
concerning the appropriate amount of long-term compensation that should be paid
to the executive in question. The Company awarded stock options to acquire an
aggregate of 1,560,900 shares of Common Stock, together with tandem SARs, to
certain executive officers and other employees of the Company during 1998. The
Company also has granted a limited number of restricted stock awards.

         Stock options and SARs are generally granted at an exercise price equal
to or near the average market price of a share of Common Stock for a period
preceding the date of the grant. Options granted to executive officers typically
vest ratably over a period of five years following the date of grant and expire
after ten years. The full benefit of the options is realized upon appreciation
of the stock price in future periods, thus providing an incentive to create
value for TCI Music's stockholders through appreciation of the stock price.
Management of TCI Music believes that stock options and SARs have been helpful
in attracting and retaining skilled executive personnel.

         The stock options in tandem with stock appreciation rights and the
restricted stock awards are more fully described in "Executive Compensation --
Summary Compensation Table of the Company" and "Executive

                                     III-9
<PAGE>   13


                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



Compensation -- Option/SAR Grants Table of the Company."

         The Company made the above-described grants after a review of the
exercise prices, numbers and dates of the awards of the stock options, tandem
stock appreciation rights, and restricted stock already held by the Company's
executives and other key employees. The Compensation Committee based its grants
for 1998 in part upon the level of the executive or other key employee's
responsibilities, experience and expertise and the degree to which such person
is in a position to contribute to the achievement or advancement of the
Company's financial and strategic objectives. Specifically, during 1998, the
Compensation Committee granted to Mr. McPartland options in tandem with stock
appreciation rights to purchase 250,000 shares of TCI Music Series A Common
Stock.

CHIEF EXECUTIVE OFFICER COMPENSATION

         The executive compensation policy described above is applied in setting
Mr. McPartland's compensation. Mr. McPartland generally participates in the same
executive compensation plans and arrangements available to the other senior
executives. Accordingly, his compensation consists of annual base salary and
long-term equity-linked compensation in the form of stock options and SARs. The
Compensation Committee's general approach in establishing Mr. McPartland's
compensation is to be competitive with peer companies, but to have a large
percentage of his target compensation based upon the long-term performance of
TCI Music, as reflected in part by the market price of the TCI Music Series A
Common Stock.

         Mr. McPartland's compensation for the year ended December 31, 1998
included $375,000 in base salary. Mr. McPartland's salary for 1998 was based on,
among other factors, TCI Music's performance and the 1997 compensation of chief
executive officers of comparable companies, although his compensation was not
linked to any particular group of these companies.

         The award granted to Mr. McPartland is more fully described in
"Executive Compensation -- Summary Compensation Table of the Company" and
"Executive Compensation -- Option/SAR Grants Table of the Company."

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

         Section 162(m) of the Internal Revenue Code (the "Code") and the U.S.
Treasury regulations relating thereto restrict publicly traded companies from
claiming or receiving a tax deduction on compensation paid to an executive
officer in excess of $1 million, unless such compensation is performance based.
As such, many companies with executive pay levels exceeding the $1 million limit
have revised or amended current compensation programs to qualify the payments
thereunder for deductibility. The Compensation Committee has not conformed the
1997 Plan to such 162(m) requirements.

OPTION/SAR REPRICING

         On November 30, 1998 the Compensation Committee met to consider
repricing of options/SARs granted in 1997 and 1998 to certain officers and
employees of the Company as a result of a significant decline in the market
price of the shares of TCI Music Series A Common Stock after the expiration of
the rights attached to such shares ("TCI Rights"). The Compensation Committee
was concerned that the decline significantly reduced the incentive the
outstanding options were intended to create. When the options were granted in
July 1997, December 1997, May 1998 and July 1998, the TCI Music Series A Stock
was then trading with a TCI Right granted by TCI in connection with the DMX
Merger. Each TCI Right entitled the holder to require TCI to purchase from such
holder one share of TCI Music Series A Stock for $8.00, payable at the election
of TCI, in cash, a number of shares of TCI's Series A TCI Group Common Stock
having an equivalent value, or a combination thereof, if during the one-year
period beginning on July 11, 1997 the price of the TCI Music Series A Stock
trading with associated TCI Rights did not equal or exceed $8.00 for a period of
at least 20 consecutive trading days. The TCI Rights became exercisable from
July 11, 1998 through August 13, 1998 and on August 14, 1998 TCI Music Series A
Stock

                                     III-10
<PAGE>   14


                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



without TCI Rights commenced trading on the Nasdaq SmallCap Market.

         During the period the TCI Music Series A Stock was trading with a TCI
Right, there was no public market for the TCI Music Series A Common Stock
without attached TCI Rights and accordingly, there was no way to determine the
value of the TCI Music Series A Stock without TCI Rights. After the TCI Rights
expired in August, the high sale prices of TCI Music Series A Stock declined
substantially from $7.125 on August 14, 1998 (the first trading day after the
TCI Rights expired), to $4.50 on August 31, 1998, and $2.8125 by September 15,
1998. The Committee determined that repricing of the options/SARs would be
corrective in nature to accurately and fairly reflect the fair market value of
the TCI Music Series A Stock without TCI Rights and to provide the incentives
for optionees that was intended when the options/SARs were granted. The
Compensation Committee considered the market prices of the TCI Music Series A
Stock since August 14, 1998 and the average market prices over various time
frames and determined that a 60-day average was an appropriate measure to
determine the new exercise price. The averages of the closing prices of a share
of TCI Music Series A Stock over the 60 trading days ending November 27, 1998
was $3.85. Accordingly, the Compensation Committee determined to recommend to
the Board that the options/SARs be repriced at $3.85.The Compensation Committee
recommended to the Board that the options/SARs be repriced to become exercisable
at $3.85 per share.

         On December 11, 1999, the TCI Board met and considered the Committee's
recommendation. The Board agreed that repricing was appropriate to restore the
incentives the grant of the options/SARs was intended to create. The Board
considered the average market prices over various time frames and likewise
determined that a 60-day average was an appropriate measure to determine the new
exercise price. The Board then considered the average of the closing prices of a
share of TCI Music Series A Common Stock over the 60 trading days ended December
10, 1998 ($3.90) and the 60 calendar days ended December 9, 1998 ($4.08) and
determined that the option/SARs should be repriced at the average of such
averages rounded up to the next cent, or $4.00. All other terms and conditions
of the options, including grant date and vesting schedule, remained the same.

                                        COMPENSATION COMMITTEE

                                        Donne F. Fisher
                                        Peter M. Kern




       ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF TCI MUSIC

         The following table sets forth information with respect to the
beneficial ownership of the common and preferred stock of TCI Music as of
December 31, 1998 by: (i) each person who is known by TCI Music to be the
beneficial owner of more than five percent of any class of the outstanding
shares of the TCI Music Series A Common Stock, the TCI Music Series B Common
Stock and the TCI Music Series A Convertible Preferred Stock; (ii) each director
of TCI Music; (iii) the named executive officers; and (iv) all of TCI Music's
directors and executive officers as a group. Shares issuable upon exercise or
conversion of convertible securities are deemed to be outstanding for the
purpose of computing the percentage ownership of persons beneficially owning
such convertible securities, but have not been deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Voting power
in the table is computed with respect to a general election of directors. So far
as is known to TCI Music, the persons indicated below have sole voting and
investment power with respect to the shares indicated as owned by them, except
as otherwise stated in the notes to the table. All information is taken from or
based upon ownership filings made by such persons with

                                     III-11
<PAGE>   15


                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



the Securities and Exchange Commission ("SEC") or upon information provided by
such persons to the Company. The address of the directors and named executive
officers of TCI Music is 67 Irving Place North, Fourth Floor, New York, New York
10003.

<TABLE>
<CAPTION>
                                                                                            As of December 31, 1998
                                                                                            -----------------------
                                                                                                                    Amount and
                                                                                                                     Nature of
    Name and Address of                                                       Beneficial         Percent of           Voting
     Beneficial Owner                        Title of Class                    Ownership         Class(1)            Power(1)
    -------------------                      --------------                   ----------         ----------          ---------
<S>                                          <C>                              <C>                <C>                 <C>
Liberty Media Corporation                    Series A Common                  11,704,470            62.0                98.2
9197 South Peoria Street                     Series B Common                  62,500,000(2)        100.0
Englewood, CO 80112                          Series  A Preferred                  84,242             5.6

Shaw Communications, Inc.                    Series A Common                   1,900,000(3)         10.1                  *
630 Third Avenue Suite 900                   Series B Common                        --               --  
Calgary, Alberta                             Series A Preferred                     --               --  
CANADA T2P 4L4                                                                                                   

JR Shaw                                      Series A Common                   2,079,600(4)         11.0                  *
c/o  Shaw  Communications, Inc.              Series B Common                        --               --  
                                             Series A Preferred                     --               --  

H.F. Lenfest                                 Series A Common                        --               --                   *
c/o StarNet, Inc.                            Series B Common                        --               --  
1332 Enterprise Drive Suite 200              Series A Preferred                  501,292(5)         31.0
West Chester, PA  19380                                                                                          

J. Patrick Michaels, Jr.                     Series A Common                        --               --                   *
c/o CEA Investors, Inc.                      Series B Common                        --               --  
101 E. Kennedy   Blvd., Suite 3300           Series A Preferred                  321,379(6)         19.9
Tampa, FL 33602                                                                                                  

Chris Blackwell                              Series A Common                        --               --                   *
c/o Island Trading Company                   Series B Common                        --               --             
400 Lafayette Street                         Series A Preferred                  175,000(7)         10.8           
New York, NY 10003                                                                                               

Louis Wolfson, III                           Series A Common                        --               --                   *
c/o Venture Corporation                      Series B Common                        --               --             
9350 S. Dixie  Hwy., Suite 900               Series A Preferred                   96,651             6.0         
Miami, FL 33156                                                                                                  

Robert R. Bennett                            Series A Common                     100,000(8)           *                   *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

Donne F. Fisher                              Series A Common                     833,334(9)          4.2                  *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

Leo J. Hindery, Jr.                          Series A Common                     833,334(9)          4.2                  *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

Peter M. Kern                                Series A Common                     833,334(9)          4.2                  *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

David B. Koff                                Series A Common                     100,000(8)           *                   *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

Lee Masters                                  Series A Common                        --               --                   *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             
</TABLE>



                                     III-12
<PAGE>   16

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)

<TABLE>
<CAPTION>
                                                                                            As of December 31, 1998
                                                                                            -----------------------
                                                                                                                    Amount and
                                                                                                                     Nature of
    Name and Address of                                                       Beneficial         Percent of           Voting
     Beneficial Owner                        Title of Class                    Ownership         Class(1)            Power(1)
    -------------------                      --------------                   ----------         ----------          ---------
<S>                                          <C>                              <C>                <C>                 <C>
Alan R. McGlade                              Series A Common                     197,800(10)         1.0                 *
                                             Series B Common
                                             Series A Preferred

Thomas McPartland                            Series A Common                     663,471(11)         3.4                 *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

Ralph J. Sorrentino                          Series A Common                     150,000(12)         *                   *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

J C Sparkman                                 Series A Common                     137,500(13)         *                   *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

Lon A. Troxel                                Series A Common                     200,000(14)         1.1                 *
                                             Series B Common                        --               --             
                                             Series A Preferred                     --               --             

All Directors and                            Series A Common                   4,048,773(15)         17.7                *
Executive Officers as a Group                Series B Common                        --               --             
(11 Persons)                                 Series A Preferred                     --               --             
</TABLE>

 ------------
 *  Less than 1%

             (1)  Based upon 18,876,867 shares of TCI Music Series A Common
                  Stock, 62,500,000 shares of TCI Music Series B Common Stock
                  and 1,617,574 shares of TCI Music Preferred Stock outstanding
                  on December 31, 1998.
             (2)  Effective July 1, 1997, TCI transferred 2,587,222 shares of
                  TCI Music Series A Common Stock and 62,500,000 shares of
                  Series B Common Stock (all the shares of TCI Music Series A
                  Common Stock and TCI Music Series B Common Stock beneficially
                  owned by TCI, excluding 1,514,766 shares of TCI Music Series A
                  Common Stock indirectly owned by Liberty and 2,710,406 shares
                  of TCI Music Series A Common Stock indirectly owned by a
                  subsidiary of TCI, Tele-Communications International, Inc.) to
                  Liberty. In exchange for the TCI Music Series A Common Stock
                  and TCI Music Series B Common Stock acquired from TCI, Liberty
                  (i) agreed to reimburse TCI for all amounts paid by TCI to
                  holders of TCI Rights to holders of TCI Music Series A Common
                  Stock issued in connection with the DMX Merger to the extent
                  that TCI Rights were exercised and (ii) issued a promissory
                  note to TCI in the amount of $80,000,000. Of the total
                  consideration, $21,000,000 was allocable to the TCI Music
                  Series A Common Stock (with associated TCI Rights) acquired by
                  Liberty. The note may be reduced by the value of shares of
                  Tele-Communications, Inc. Series A Liberty Media Group Common
                  Stock, par value $.01 per share ("Liberty Group Series A
                  Common Stock") or Tele-Communications, Inc. Series B Liberty
                  Media Group Stock, par value $.01 per share ("Liberty Group
                  Series B Stock") issued by TCI for the benefit of any TCI
                  entity other than an entity within the Liberty Media Group.
                  Liberty also may elect to pay $50,000,000 of that note by
                  delivery of a Stock Appreciation Rights Agreement that will
                  give TCI the right to receive 20% of the appreciation in value
                  of Liberty's investment in TCI Music, to be determined as of
                  July 11, 2002. The Stock Appreciation Rights Agreement will
                  provide that TCI will receive at least $73,500,000 if
                  Liberty's investment in TCI Music is to be valued on that
                  date; if by mutual agreement of TCI and Liberty, such
                  investment is to be valued (and payment made to TCI) before
                  July 11, 2002, the minimum amount payable to TCI will be
                  $50,000,000, plus an accretion to the agreed upon valuation
                  date equal to 8% per annum, compounded annually.
             (3)  Does not include 69,020 shares of TCI Music Series A Common
                  Stock held by James R. Shaw Securities Limited, 32,145 shares
                  of TCI Music Series A Common Stock held by Brasha Holdings
                  Ltd., 29,670 shares of TCI Music Series A Common Stock held by
                  Jay-Shaw Holdings Ltd., 32,145 shares of TCI Music Series A
                  Common Stock held by Julmar Holdings Ltd., and 32,145 shares
                  of TCI Music Series A Common Stock held by Shawana Estates
                  Ltd., which entities are affiliates of Shaw. Shaw is a public
                  company whose non-voting securities are listed on the Toronto
                  Stock Exchange and the Alberta Stock Exchange. Mr. Shaw,
                  members of his family and members of Leslie E. Shaw's (Mr.
                  Shaw's brother) family hold directly and indirectly, a
                  majority of the voting shares of Shaw and such shares are
                  governed by the terms of a voting trust. Mr. Shaw and members
                  of his family do not, directly or indirectly, hold a majority
                  of the publicly traded non-voting shares of Shaw.

                                     III-13
<PAGE>   17

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



             (4)  Includes the following shares of TCI Music Series A Common
                  Stock, of which Mr. Shaw disclaims beneficial ownership:
                  1,900,000 shares held by Shaw, 69,020 shares held by James R.
                  Shaw Securities Limited, 32,145 shares held by Brasha Holdings
                  Ltd., 29,670 shares held by Jay-Shaw Holdings Ltd., 32,145,
                  shares held by Julmar Holdings Ltd., 32,145 shares held by
                  Shawana Estates Ltd. Mr. Shaw holds a majority of the shares
                  of Jay-Shaw Holdings Ltd., Brasha Holdings Ltd. and Shawana
                  Estates Ltd. The remaining shares of each such entities, other
                  than certain preferred shares held by Julmar Holdings Ltd., a
                  corporation wholly owned by Mr. Shaw, are held by children of
                  Mr. Shaw. Each of the children has reached the age of
                  majority. Mr. Shaw holds 48% of the voting shares of James R.
                  Shaw Securities Limited. The balance of voting shares are held
                  by and for the benefit of Mr. Shaw's family members.
             (5)  StarNet Interactive Entertainment, Inc., a Delaware
                  corporation ("StarNet Interactive"), is a wholly owned
                  subsidiary of StarNet, Inc. ("StarNet"), which is a wholly
                  owned subsidiary of Lenfest Communications, Inc. ("LCI").
                  Suburban Cable TV Co. Inc. ("Suburban") is a wholly owned
                  subsidiary of LCI. H.F. Lenfest (together with his children)
                  and TCI each beneficially own 50% of the common stock of LCI.
                  Mr. Lenfest is the sole director of StarNet and StarNet
                  Interactive and President, Chief Executive Officer and a
                  director of LCI. Through contractual arrangements among the
                  stockholders of LCI, Mr. Lenfest has the exclusive right to
                  control a majority of the Board of Directors of LCI and the
                  management and business affairs of LCI, StarNet and StarNet
                  Interactive. StarNet Interactive has sole voting power and
                  sole dispositive power as to no shares and shared voting power
                  and shared dispositive power as to 315,484 shares of TCI Music
                  Preferred Stock. StarNet has sole voting power and sole
                  dispositive power as to no shares and shared power and shared
                  dispositive power as to 447,332 shares of TCI Music Preferred
                  Stock. Suburban has sole voting power and sole dispositive
                  power as to no shares and shared voting power and shared
                  dispositive power as to 53,958 shares of TCI Music Preferred
                  Stock. TCI has disclaimed beneficial ownership of the shares
                  of TCI Music Preferred Stock beneficially owned by Mr.
                  Lenfest, LCI, StarNet and StarNet Interactive (the "StarNet
                  Group"). The StarNet Group has disclaimed beneficial ownership
                  of the shares of capital stock of TCI Music beneficially owned
                  by TCI.
             (6)  Does not include 5,435 shares of TCI Music Preferred Stock
                  held by CEA Investors, Inc. ("CEA Investors"), a Florida
                  corporation, as to which Michaels disclaims beneficial
                  ownership, except to the extent of his pecuniary interest
                  therein. J. Patrick Michaels, Jr. ("Michaels") is the sole
                  director and the President of CEA Investors. Michaels is the
                  sole trustee of The J. Patrick Michaels, Jr. Family Trust, the
                  sole stockholder of CEA Investors. Michaels has sole power to
                  vote or direct the vote and to dispose or direct the
                  disposition of 264,364 shares of TCI Music Preferred Stock.
             (7)  Island Trading Company ("Island") is a wholly owned subsidiary
                  of Island International Limited, the capital stock of which is
                  held in trust by The Island Settlement, both of which have
                  disclaimed beneficial ownership of the shares of TCI Music
                  Preferred Stock beneficially owned by Island. Mr. Blackwell
                  has shared voting power and shared dispositive power with
                  respect to such shares.
             (8)  Assumes the exercise in full of stock options to acquire 
                  100,000 shares of TCI Music Series A Common Stock, 40,000 of
                  which are currently exercisable.
             (9)  Assumes the exercise in full of stock options to acquire 
                  833,334 shares of TCI Music Series A Common Stock, 333,334 of
                  which are currently exercisable.
             (10) Assumes the exercise in full of stock options to acquire
                  197,800 shares of TCI Music Series A Common Stock, 42,800 of
                  which are currently exercisable.
             (11) Assumes the exercise in full of stock options to acquire
                  250,000 shares of TCI Music Series A Common Stock, none of
                  which are currently exercisable.
             (12) Assumes the exercise in full of stock options to acquire
                  150,000 shares of TCI Music Series A Common Stock, none of
                  which are currently exercisable.
             (13) Assumes the exercise in full of stock options to acquire
                  100,000 shares of TCI Music Series A Common Stock, 40,000 of
                  which are currently exercisable.
             (14) Assumes the exercise in full of options to acquire 200,000
                  shares of TCI Music Series A Common Stock, 80,000 of which are
                  currently exercisable.
             (15) Assumes the exercise in full of options held by such persons
                  to acquire 3,597,802 shares of TCI Music Series A Common
                  Stock, 1,242,799 of which are currently exercisable.

                                     III-14
<PAGE>   18


                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)


     ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         Liberty beneficially owns approximately 62.0% of the outstanding shares
of TCI Music Series A Common Stock, 100% of the outstanding shares of TCI Music
Series B Common Stock, and 5.2% of the outstanding shares of the TCI Music
Preferred Stock, collectively representing 98.2% of the aggregate voting power
related to the outstanding Voting Securities.

         DMX, a wholly owned subsidiary of the company, under an agreement with
National Digital Television Center, Inc., an indirect wholly owned subsidiary of
Liberty's corporate parent, AT&T ("NDTC"), has a capital lease to lease
equipment at NDTC's studio and uplinking facility in Littleton, Colorado, with
terms which extend to 2000 at an interest rate of 9.5%. DMX and the Box are is
also obligated to NDTC under various operating leases for uplinking and
satellite services.

         On December 10, 1996, DMX entered into a letter agreement with Sky
Entertainment Services in Latin America ("Sky-LA") pursuant to which Sky-LA was
granted the right to carry up to 40 DMX music formats on the Mexican, Brazilian,
North South American and South American platforms of Sky-LA. Sky Entertainment
Services is


                                     III-15
<PAGE>   19

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



the brand name for the direct-to-home service offered by the strategic alliance
formed by Organzacoes Globo, Brazil's leading entertainment group; Mexico's
Grupo Televisa S.A.; The News Corporation Limited; and Tele-Communications
International, Inc., a subsidiary of AT&T.

         Shaw Communications, Inc. ("Shaw") beneficially owns approximately
10.1% of the outstanding shares of TCI Music Series A Common Stock, which it
acquired upon the consummation of the DMX Merger on July 11, 1997, in exchange
for the shares of common stock of DMX it owned prior to the DMX Merger. JR Shaw,
President and Chief Executive Officer of Shaw, was a director of DMX prior to
the DMX Merger. Mr. Shaw beneficially owns 11.1% of TCI Music Series A Common
Stock, which he acquired upon the consummation of the DMX Merger in exchange for
the shares of common stock of DMX he beneficially owned prior to the DMX Merger.
Mr. Sparkman, a former director of DMX and a director of TCI Music, is a
director of Shaw. In addition, a subsidiary of Shaw and a subsidiary of DMX,
450714 B.C. Ltd., each own a 50% interest in DMX-Canada, Ltd. In March 1992,
Shaw, the second largest cable operator in Canada, entered into a licensing and
distribution agreement with DMX which grants to DMX-Canada Ltd. the exclusive
license and right to distribute DMX's premium service in Canada, which was
amended on November 1, 1994 by the Commercial License and Distribution Agreement
and on April 14, 1997 by the Residential License and Distribution Agreement.
Such licensing and distribution agreement, as amended, provides DMX with a
monthly, per subscriber programming royalty for both residential and commercial
distribution.

         During 1995, DMX and Shaw entered into a series of agreements to
accomplish a reorganization by which Shaw could take full advantage of the
Canadian tax losses incurred in Canada during the market development period and
based on Shaw's commitment to fund such development costs. This was accomplished
through the transfer of each company's respective equity interests and the
formation of a new Canadian partnership (also referred to herein as
"DMX-Canada"). DMX continues to hold an equity interest in the new partnership
through its wholly owned subsidiary, a British Columbia corporation, 450714 B.C.
Ltd. There was no impact from the reorganization on the operations of
DMX-Canada, other than to accomplish the tax structure as outlined above. After
Shaw recoups its initial funding, each company will share in the profits based
on their respective equity interests.

         DMX-Canada and DMX are parties to an agreement to distribute DMX's
digital music services (the "DMX Services") to the Canadian residential cable
market. The service includes a total of 40 formats and is distributed through
Shaw cable systems and their affiliates. DMX received license fees of
approximately $183,000 for the fiscal year ended December 31, 1998 under this
agreement.

         DMX-Canada also distributes the DMX Service to the commercial sector
via direct broadcast satellite pursuant to a license agreement with DMX that
grants DMX-Canada an exclusive license and right to distribute the DMX Service
to commercial establishments in Canada. The license agreement expires March 31,
2012. DMX received total license fees of approximately $508,000 for the fiscal
year ended December 31, 1998 under the agreement with DMX-Canada.

         On April 21, 1994, The Box entered into a Lease Agreement with Island,
pursuant to which The Box leased from Island approximately 16,000 square feet of
space for its principal executive offices. The Lease expires on January 15,
2002. Payment of rent commenced on July 15, 1995 at a base rental of $22.00 per
square foot for the first year of the lease term, increasing to $39.00 per
square foot for the seventh and final year of the lease term. The base rental
rate does not include certain operating expenses to be borne by The Box for the
entire term of the lease and capped for the first three years of the lease term.
The Box has the right to renew the lease subject to the negotiation of a new
rental rate, based upon the then-current market rate.

         The Box is a party to a program affiliation agreement with Satellite
Services, Inc., a wholly owned subsidiary of TCI ("SSI"), pursuant to which The
Box pays SSI affiliate fees.

         The Box is a party to a program affiliation agreements with Lenfest
Communications, Inc., and Suburban Cable TV Co., Inc., companies controlled by
H.F. Lenfest.

         Prior to being acquired by the Company, The Box loaned Mr. McGlade 
$100,000.  In 1997, The Box agreed

                                     III-16
<PAGE>   20

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



to forgive the loan but took no formal action to forgive the loan prior to The
Box Merger. The Company forgave the loan in 1998.

         TCI Music and TCI have entered into a number of intercompany agreements
more fully described below covering matters such as the provision of services
and allocation of tax liabilities. TCI also provides certain administrative,
financial, legal, treasury, accounting, tax and other services to TCI Music and
makes available certain of its employee benefit plans to TCI Music's employees.
The terms of these arrangements were established by TCI in consultation with TCI
Music and are not the result of arm's-length negotiations. Accordingly, although
TCI Music believes that the terms of these arrangements are reasonable, there is
no assurance that the terms and conditions of these agreements, or the terms of
any future arrangements between TCI and TCI Music, are as favorable to TCI Music
as could be obtained from unaffiliated third parties. In addition, TCI Music and
TCI and their respective subsidiaries and affiliates may from time to time do
business with one another in areas not governed by any of the following
agreements.

         Amended Contribution Agreement. In connection with the DMX Merger, TCI
Music and TCI entered into a Contribution Agreement dated July 11, 1997,
pursuant to which TCI agreed to cause certain of its affiliates to assign and
contribute to TCI Music the right to receive the revenue from sales of the DMX
Service net of an amount equal to 10% of the revenue from such sales to
residential subscribers and net of license fees otherwise payable to DMX for a
10-year period beginning July 1, 1997, and to transfer certain equipment to DMX
useful in DMX's business. In consideration of such agreement, in connection with
the consummation of the DMX Merger, TCI Music delivered to TCI, as designee for
certain TCI affiliates, 62,500,000 shares of TCI Music Series B Common Stock and
a note in the principal amount of $40,000,000. Pursuant to the Agreement and
Plan of Merger dated as of August 12, 1997 (the "Box Merger Agreement"), TCI
Music and TCI entered into the Amended Contribution Agreement, as amended,
effective as of July 1, 1997 (the "Amended TCI Contribution Agreement"), which
provides, among other things, for TCI to deliver, or cause certain of its
subsidiaries to deliver, in lieu of TCI's obligation to cause its affiliates to
make contributions to TCI Music under the Amended TCI Contribution Agreement, to
TCI Music payments aggregating $18 million, increased annually by the percentage
increase, if any, in CPI for the prior year, for a term of 20 years. Payments
made by TCI under the Contribution Agreement were approximately $20 million in
fiscal 1998.

         Affiliation Agreement. In connection with the DMX Merger Agreement,
effective as of July 1, 1997, DMX and SSI entered into an Affiliation Agreement
(the "Affiliation Agreement") pursuant to which DMX granted to SSI and certain
of its affiliates the non-exclusive right to distribute and subdistribute the
DMX Service to commercial and residential customers for a 10-year period in
exchange for licensing fees paid by SSI to DMX.

         Under the Affiliation Agreement, SSI will pay an annual fee to DMX of
$8,500,000 for the initial three years, subject to adjustment annually
(beginning July 1, 1998) by the percentage change in the CPI for the prior year
and for changes in the number of subscribers as a result of divestiture or
acquisition of cable systems. During the fourth through tenth years of the term
of the Affiliation Agreement, the annual fee will be further adjusted on a
monthly basis upward or downward, as the case may be, based on an increasing
percentage of the increase or decrease in the actual number of subscribers above
or below a specified number of residential and commercial subscribers, provided
that such fees cannot be reduced below a specified minimum license fee, which
minimum fee is decreased each year in years four through ten. During the fiscal
year ended December 31, 1998, TCI Music recognized $8.5 million pursuant to the
Affiliation Agreement. In addition, the Company received subscriber revenue from
TCI of $3.2 million in connection with the distribution of the DMX Service
through TCI.

         The Affiliation Agreement between DMX and SSI dated July 6, 1989 (the
"Old Affiliation Agreement"), provides for distribution by SSI-affiliated cable
systems of the DMX Service and the Superaudio service (a basic analog music
service provided through a joint venture between DMX and an affiliate of Jones
Intercable, Inc.). Although the Affiliation Agreement supersedes the Old
Affiliation Agreement with respect to the DMX Service, the Old Affiliation
Agreement remains in effect through May 7, 2000, with respect to the Superaudio
service.

         TCI Rights. In connection with the DMX Merger, pursuant to a Rights
Agreement dated July 11, 1997, by and among TCI Music, TCI and The Bank of New
York, as rights agent, TCI issued one TCI Right with each share of TCI Music
Series A Common Stock issued to DMX stockholders in connection with the DMX
Merger. Each TCI Right


                                     III-17
<PAGE>   21

                        TCI MUSIC, INC. AND SUBSIDIARIES
                  (A SUBSIDIARY OF TELE-COMMUNICATIONS, INC.)



entitled the holder to require TCI to purchase from such holder the related
share of TCI Music Series A Common Stock for $8.00 per share (subject to
reduction by the aggregate amount per share of any dividend and certain other
distributions, if any, made by TCI Music to its stockholders) payable at the
election of TCI in cash, a number of shares of TCI Group Series A Stock having
an equivalent value or a combination thereof, if, during the one year period
beginning July 11, 1997, the price of TCI Music Series A Common Stock (trading
together with associated TCI Rights) did not equal or exceed $8.00 per share for
a period of at least 20 consecutive trading days. The TCI Rights became
exercisable on July 11, 1998 through August 13, 1998. During the exercise period
TCI Rights with respect to 7,602,483 shares of TCI Music Series A Common Stock
were exercised and such shares were purchased by TCI for cash. All unexercised
TCI Rights expired on August 13, 1998.

         TCI Loan. On February 6, 1997, the Company entered into a loan and
security agreement with TCI which provided $3.5 million. The loan proceeds were
used to purchase equipment and pay certain costs related to obtaining commercial
customers. The loan was paid in full on March 2, 1998.

         Services Agreement. Pursuant to a Services Agreement between TCI and
TCI Music (the "Services Agreement"), TCI provides services to TCI Music for
administration and operation of the businesses of TCI Music and its subsidiaries
as requested by TCI Music from time to time. These services can include: (i) tax
reporting, financial reporting, payroll, employee benefit administration,
workers' compensation administration, telephone, package delivery, management
information systems, billing, lock box, remittance processing and risk
management services, (ii) other services typically performed by TCI's
accounting, finance, treasury, corporate, legal, tax, benefits, insurance,
facilities, purchasing, and advanced information technology department
personnel, (iii) use of telecommunications and data facilities and of systems
and software developed, acquired or licensed by TCI from time to time for
financial forecasting, budgeting and similar purposes, including without
limitation any such software for use on personal computers, in any case to the
extent available under copyright law or any applicable third-party contract,
(iv) technology support and consulting services and (v) such other management,
supervisory, strategic planning and other services as TCI Music may from time to
time request. Pursuant to the Services Agreement, TCI also provides TCI Music
access to any volume discounts that may be available to TCI for the purchase of
certain equipment. The Services Agreement also provides that TCI, for so long as
TCI continues to beneficially own at least a majority of the voting power of the
outstanding shares of the Voting Securities, will continue to provide, in the
same manner and on the same basis as generally provided from time to time to
other participating TCI subsidiaries, benefits and administrative services to
TCI Music's employees. In this regard, TCI Music will be allocated that portion
of TCI's compensation expense attributable to benefits extended to employees of
TCI Music. Pursuant to the Services Agreement, TCI Music from time to time will
reimburse TCI for all direct expenses incurred by TCI in providing such services
and a pro rata share of all indirect expenses incurred by TCI in connection with
the rendering of such services, including a pro rata share of the salary and
other compensation of TCI employees performing services for TCI Music, general
overhead expenses and rental expense for any physical facilities of TCI utilized
by TCI Music. In this regard, it is anticipated that TCI Music will, for the
foreseeable future, share office space with, or sublease office space from, TCI.
The Services Agreement will continue in effect until terminated by (i) TCI Music
upon 60 days' prior written notice to TCI, (ii) TCI at any time after three
years upon not less than six months' prior notice to TCI Music, and (iii) either
party if the other party is the subject of certain bankruptcy or
insolvency-related events.

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, TCI Music, Inc. has duly caused this amendment to this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                         TCI MUSIC, INC.
                           (Registrant)

By:   /s/ Thomas McPartland                           Date:      April 30, 1999
      ---------------------
      Thomas McPartland
      President and Chief Executive Officer

                                     III-18