John Malone sees M&A activity in media stepping up in a significant way now that regime change is coming in Washington, D.C.
The renowed investor and chairman of Liberty Media took part in a wide-ranging Q&A Tuesday morning to kick off the Paley Center for Media‘s annual International Council Summit held at Paley Center’s New York headquarters. The discussion with Mike Fries, CEO of the Liberty Global international cable company, touched on everything from the impact of inflation and interest rates on market activity to the threats posed by Big Tech’s massive balance sheets and even bigger ambition.
He discussed the future of sports on TV and once again he lamented that entertainment and cable business leaders did not work collaboratively enough to stave off the on-demand streaming challenges posed by Netflix. He noted that regulatory policy around internet access and speeds — defined under the heading of net neutrality — gives the digital giants a free ride through internet distribution that doesn’t cost them anything.
But for broadband providers — aka cable operators — the demands on the grid are becoming unsustainable. Malone cited a stat that a live U.S. sports broadcast on a streaming platform can take up 30% to 40% of a broadband provider’s available bandwidth. Cable operators have hard costs, not to mention other regulatory restrictions, that make it impossible to compete.
“Streaming is just a technology, and there’s no reason why the content that people were were consuming on a linear program basis couldn’t easily also be consumed on a random access [on-demand] basis,” Malone said. “So really, the technology is not what caused this shift. It was the combination of this regulatory network neutrality, where new entrants would have access to distribution at zero cost, which created this structure favoring the new entrant over the incumbent — the incumbent being sort of locked into traditional contractual relationships between program suppliers and distributors. Some of the program suppliers decided it was better to jump in and and go the direct-to- consumer route, as opposed to continue to evolve the traditional wholesale-retail distribution approach in order to take advantage of this network neutrality free ride and bypassing their traditional distributors.”
During the virtual session — Fries streamed in from London while Malone spoke from Colorado — Fries pressed his boss on M&A specifics now that the industry is abuzz with dealmaking possibilties. Donald Trump’s election as president promises to bring a sea change to the Federal Trade Commission and Federal Communications Commission, which have kept a tight lid on large-scale dealmaking for the past three years.
Could Comcast and Charter — the nation’s largest and second-largest cable operators — finally come together as one? Comcast tried to buy Time Warner Cable (which eventually sold to Charter) in 2014 but the deal was nixed by D.C. regulators.
“Why not?” Malone said. He drew a non-media analogy to express his frustration with government imposed limits on consolidation in a maturing business. “With discount airlines, they don’t make each airline built its own airport, and so there ought to be a lot of places where these competitors can can work together,” he said. He also pointed to cable’s satellite TV competitors, which are also struggling with the massive shift in consumer behavior and embrace of streaming platforms.
“I believe that Dish and DirecTV should have been allowed to merge five years ago. I believe that competing with each other versus having a cost -ffective platform to offer their services at lower cost and still compete with the other distributors was probably a better solution. Hopefully the government will allow that that combination to happen,” he said.
In his low-key way, Malone raised the concern about Big Tech’s financial firepower and ambition to disrupt various sectors. Wall Street has enabled them with roaring stock prices.
“I don’t want to call them monopolies — but they’re almost monopolies. They’re global in scale. They have enormous breadth of franchises and balance sheets, and they have been the principal beneficiaries in recent years of the equity rise. You could add the AI stimulus on top of it, which clearly the biggest tech companies are in the best position to benefit most from from AI, and so this concentration of economic value and power in the hands of relatively few global industries is quite a phenomenon and an enormous challenge for regulators.”
Malone also sounded a warning for the fate of local broadcast television as Amazon, Google and Apple dive deeper into buying sports rights — bringing war chests to the fight that no traditional media company can match. He sees Amazon et al as “experimenting” with sports to see if they help bolster their subscription streaming platforms.
“The big tech guys who are paying outrageous premiums for sports right now are still experimenting,and they’re experimenting with sports … but in the long run, they won’t keep doing it if it’s not sustainable. In other words, it doesn’t bring enough economics to pay for itself. In the short run, you excuse these things as marketing expenses. In the long run, it will sort itself out. … There’s going to be a lot of roadkill on the way, though. I think local broadcasters and probably the retail distribution by cable of sports will be the victim.”
Other highlights of the discussion included:
Malone was a big player in the merger of WarnerMedia and Discovery. He acknowledged that he company has had the burden of a heavy debt load but noted they have paid down as much as $18 billion since the deal was sealed in 2022. “That’s a big debt pay-down from organic [cash flow] generation. I do believe now they’re starting to experience what the original theory was, which was to take under- exploited Warner Bros. programming and library content, create a brand and then distribute it globally,” Malone said. “It’s not going to work overnight, but it’s starting to work… with very rapid global growth.”
He addressed the idea floated earlier this month by Comcast that it was exploring spining off its basic cable channels to shareholders — a move that would allow them to be sold or to merge with another entity. Comcast in its Q3 earnings conference call suggested that the spinoff could be a vehicle for acquiring other cable channels that are in melting ice cube-mode — they still turn out profits but they are shrinking every year as more consumers abandon traditional cable service. “If the industry needs to be consolidated on some basis, then you got a vehicle that could play that role to be the consolidator of similarly situated assets,” Malone said.
Why is Hollywood is strugging to build direct-to-consumer platforms? “It’s like somebody trying to compete with Coca-Cola by selling directly to the consumer. Coca-Cola has got a powerful brand. They spend a fortune on it, but there you don’t buy Coke from Coca-Cola. You buy Coke from Walmart. So to go direct to the consumer and and make it sticky so that the consumer will renew periodically — it’s pretty tough.
Malone is worried about what he described as “this united front that’s forming against America, reaching from Russia, Iran, China and North Korea, is very dangerous.
In closing, Fries led Malone through a rapid-fire series of buy-sell-hold questions about the shares of major media and tech congloms.
Comcast: “A buyer.”
Charter: “I’m a buyer.”
AT&T: “Yes.”
T-Mobile: “Red hot.”
Verizon: “Great dividend.”
Paramount Global: “Larry Ellison’s one of the smartest guys on the planet so I might speculatively own some of it one day.”
Netflix: “Terrific executive, probably a little overpriced in the market so I wouldn’t be an owner of it but respect the hell out of it.”
Amazon: “I don’t see what stops them.”
Google: “Same.”
Meta: “Same.”
Apple: “Same.”
Microsoft: “Same.”
And finally, Fries asked the 83-year-old executive who is considered one of the biggest brains in media what he is most curious about these days. Malone didn’t hesitate: “How Elon Musk’s brain works.”
Fries ended by asking if Malone there was anything he’d do differently if he could roll back gtime. First, Malone said he wished he’d spent more time with his children while they were growing up. And second, he regrets the $48 billion deal he orchestrated in 1998 and 1999 to sell his Tele-Communications Inc. cable empire to AT&T (which sold those cable assets to Comcast two years later).
“I knew that one was coming,” Fries said.