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Billionaire John Malone made a fortune off of a big bet that cable was going to revolutionize television, and in less than a decade, Malone grew the company he ran, called Telecommunications, Inc. Into one of the largest cable operators in the United States. That attracted the attention of lawmakers, who summoned Malone to Capitol Hill in nineteen eighty nine and accused him of overseeing a monopoly. Cespan aired the hearing in its entirety.
May I call on mister Malone, Yes, sir, I guess it's warnings like this that I wish I had studied public speaking instead of thermodynamics in school.
Malone studied electrical engineering at Yale, and while he started his career at Bell Labs, it didn't take long for him to pivot to business. Malone has a gift for making deals. Estimates He's done more than one thousand of them during his lifetime mergers and acquisitions, and at that congressional hearing, he responded to one of his fiercest critics, Al Gore, who said Malone was as ruthless as a Star Wars villain.
I know, Senator Gore has referred to me in public as Darth Vader, the cause of great humor, I guess to a lot of my friends and employees. My wife told me the other day that she found me to be more like the Wizard of Oz, credited with a lot more power.
And influence than I really wield.
But back then Malone was well on his way to becoming the media mogul he is today, someone whose empire grew from cable distribution to content. Malone helped launch channels like CNN and BET, and the companies he's run have invested in satellite TV and satellite radio, and live events, including Formula One. Today, Malone is the chairman of Liberty Media, Liberty Global, and Liberty Broadband, and he's chair emeritus of
Warner Brothers Discovery. Malone has written a new memoir, and at eighty four, he's still on the lookout for new opportunities. I'm David Gera, and this is the Big Take from Bloomberg News Today. On the show, a conversation with John Malone about the deals he's done, mistakes he's made. Malone's appetite for risk, and how he sees the future of media.
Well. Thank you very much for doing this.
I pray you.
It strikes me as I look at the world today, where there is broadband and five G and refrigerators are connected to the Internet and I can watch any game I want on my phone, that we tend to forget what underpins all of that, what gave birth to all of that, And that's the work that you and others did really just a few decades ago, stringing coaxial cable around towns and cities around this country. As you look back on that, what do you think of that arc of progress?
I just think evolution of technology is unstoppable and accelerating. By the time I got through at Bell Labs, we already had integrated circuits. My doctoral dissertation was artificial intelligence. So these technologies have deep roots, but the technologies available have paced really the industry.
I don't want to say that TV is in your DNA. I think it's more nurture than the nature. But your dad worked at General Electric on televisions a very seminal moment in their development. What got you into cable made you think it was something where there was a lot of promise, just.
Luck, really, I went to work for Bell labs because they would send you to graduate school and pay for it, which allowed me then to get married and go to graduate school. That put me into a certain category at at and T went on to McKenzie consulting for technology companies, ended up consulting for a company that offered me a job. Took the job that put me into cable TV.
That company was Telecommunications, Inc. And at the time, Denver based TCI was one of the largest cable operators in the country. It wired towns and cities with coaxial cable so customers could watch TV in better quality.
By the end of the seventies, stationary satellites had provided the industry with scale, with the capability of scale and to deliver a differentiated content. And that is really when the industry took off, because once we had a product the public wanted, the funding became available, and then it became.
A race for scale.
It was then ca you get big enough, fast enough to have scale advantages.
Back then, the cable industry was what Malone called a patchwork of tiny local operations rather than a handful of conglomerates. Malone saw the potential of scale. TCI could grow and make money by buying up these independent cable systems.
If you got a franchise, then you were essentially the sole provider in that community for probably fifteen years. And so the faster you could accumulate that, the more leverage that gave you over the content suppliers, because you were important became an important customer, and the more important customer, the better deal you could cut, the better economics you had to go to the next acquisition. And we found ourselves doing an acquisition about every two weeks.
Every two weeks.
Some were large and I would personally do and many of them were virtually pro forma as long as they could check the box.
We delegated the ability to buy the guy next to.
You, And I think I made the comment it's the most fun in life in businesses to have a monoperai, which we were sort of. Now, so was every cable operator, I have to say, in his territory.
You mentioned scale a moment ago. Economics at scale that was certainly the driving factor at the beginning. As you look at sort of how you've built your portfolios over the years since, is that still your biggest motivators or how do you approach growth?
I had a great mentor most of Shapiro at General, he was the chairman and he was a tough old bird, but he would teach me about the Talmud, and he said, one of the things that Talmud teaches you is ask yourself the question if.
Not, if not?
If not?
So if your model, if your business plan works, great, but ask yourself the question, well, what if it doesn't. What if your assumptions are wrong? What if this doesn't work but that doesn't work? Where are you at that point? What's the downside? How much risk are you really taking? So you really try and look risk very hard. In terms of how you finance something. Do you have partners
in it? The government's always your partner from a tax perspective, So don't forget that you can deduct your failures from your successes. Don't ever get to where you can't. You're going to have lenders. They're going to help you make
sure that you're not taking too much risk. So you become good partners and assessing risk and if you structure it properly, if you do get in trouble thereby and launch, you're not right kind of an attitude, you know, don't ever count on it anything being for sure, and so that has colored the structure of the organizations that I've put together over time.
We could talk about any number of successes, but let me ask you about Serious XM, where you made an incredible amount of money on that bett and on that investment, and in the book you write the way music is owned and monetized is undergoing continuous evolution. Begs the question where do you see opportunity in that space today?
Well, a couple of points I want to make there. First of all, on Serious ExM, we were an early founding investor in EXAM, but when we saw the competitive environment emerge, we got out of it. Then we got the phone call that said, are you interested in Serious They've had their deal with EXAM approved for merger, but we're in the middle of the financial collapse, and we said, we don't have to have control, but we want options for forty percent cheap options, and we'll loan you enough
money to get you over the hump. And it worked out great. So that was a great a great transaction. But the home run in music, frankly is live nation, live performance in a world of random access, where you can bay sickly have anything at any time and generally affordable live has become a very important component.
After the break, I asked Malone about Rupert Murdoch and Fox News and what lies ahead in.
The age of streaming.
Billionaire John Malone was a fencer in high school and in business, He's crossed swords with many other big name media mobiles, including Barry Diller and Charlie Ergin. He was a key advisor to David Zaslov in Discovery's acquisition of AT and t's Warner Media. You categorize Rupert Murdoch as someone you have been friends in business with and occasionally kind of a corporate adversary of, and I wanted to ask you just about why you think the Fox News channel has been successful as it has been.
Well, I can tell you. Rupert called me up.
I was already heavily in television news at TCI. We had McNeil Lair, which we actually owned, We owned I think eighty percent of it, and we supported that in the public interest. I had helped start CNBC, and not only did we carry CNN, but we had bailed Ted Turner out when he got a little bit of financial distress, and I was on Ted's board then from that point forward, so I knew that that side of it. Rupert called me up and he said, John, do you think there's a place in America.
For another video news channel?
And I said, in all honesty, Rupert, I think if you came down on the conservative side of the middle, I think there is an appetite for a video news service because Ted and CNN are tending to go a little more liberal culturally and politically. And I said, the reason I think that is Rush Limbaugh has got a massive radio audience. It's extremely loyal, and he mixes politics
with humor and he's been very successful. After giving up the advisory role, I put my financial hat on, said you know, we'd be happy to carry you, but we need an economic interest in its success. And so we cut a deal that we had warrants to purchase twenty percent of Fox News at whatever the net invested capital was at the time. We chose to exercise that warrant.
And that was the deal.
And he said, well, why don't you go talk to Limbaugh and see if we can make him our anchor.
And I did.
I had two delightful luncheons with Rush, and I was unsuccessful in talking rush into going on television again.
But he suggested Roger Ayles.
And so we recruited Roger. But the deal from the beginning was there's going to be successful because it's a hybrid of entertainment and news.
We're at this moment where Newsmax is suing Fox News, alleging that Fox News has used hardball tactics, and I thought of how in the book you detail how Fox News at the beginning was paying distributors to carry the channel. There's also this kind of delicious inversion of what's happening here, which is Rupert Murdoch soon time Warner, if I remember correctly, for not carrying the station in.
Los Angeles and New York?
Correct?
What do you make of that suit? Do you see any foul play here? Or is this just kind of a continuation of the tactics we've seen, kind of the Murdock enterprise you use from the beginning.
I think you know the issue of exclusivity and carriage and bundling. To me, okay, I got to take you back in Notch. There was a time when John McCain he sponsored the concept that programming above a certain cost should be alacrte, right, which I wholeheartedly believed in. And his idea was his grandmother is paying for a lot of sports she doesn't watch, and so if anything over fifty cents a month was going to be on, it should be on optionally as an ala carte service, which I totally believed in.
We could not convince the bulk of.
Our industry to get behind McCain and support him, and I think that was the beginning of the end, frankly, of the cable industry's success as a video distributor.
It's funny because in the book there's a chapter in which you say you were surprised that DJ never went after came bundling at a bundling, and yet I think of you as the father of the cable bundle in somebody who's decried a lot of government regulations. So just to explain that to me, your surprise and why it sounds like you might be in favor of that happening.
Oh, I was.
Yes, we bundled, of course, but the ability to al cart in order to control cost, to me was an essential ingredient. And what happened to the industry was that once these guys, these big guys, could bundle you couldn't say no, and so there was never a successful new cable channel that wasn't owned by somebody.
Who had market power.
And the crime for the cable guys was allowing their video bundle cost to get so high. When I was sharing DirecTV, I don't know what the numbers are now, but we were up to one hundred and eighteen dollars was our charge for service based service, and it was at a point where a big percentage of Americans couldn't afford it. So Netflix succeeded really because the big bundle
was too expensive. You bought it all or you didn't get any of it right, which to me was suicidal for the industry, especially as sports bidding became so aggressive.
So I think we just as an industry.
Got caught ourselves with a product that was just too highly priced with too little margin.
According to Deloitte's Digital Media Trends Report, the average American spends close to seventy dollars.
A month on streaming.
That's less than the one hundred and twenty five dollars a month that cable or satellite TV subscribers say they spend on those services, But almost half of those streaming customers say they pay too much. We have seen the proliferation of streaming services, now the bundling of streaming services.
How do you see all of that play out?
Well?
I think other than live sports and maybe news, this random access capabilities, particularly if it can be curated by an intelligent curator, an AI curator, I think is a huge public service. It gives enormous flexibility, quality, and potentially efficiency to it. With sports, I've got a big hostility toward network neutrality as it's applied to live because to send out a NFL game is one channel, right, linear cold Country one channel, and yet streamed it's forty or
fifty million channels. Why does that exist other than government intervention? And the answer is well, for the big tech guys, it gives them a chance to sell advertising at a higher because they know more about the customer at a higher price.
Malone is chair emeritus of Warner Brothers Discoveries Board. Now that company is planning to split into two separate companies, one that'll be studios and streaming, the other that'll be its networks. Earlier this month, Warner Brothers Discoveries CFO announced it could sell a twenty percent stake in its studios and streaming business. Before that split happens.
Who do you see as a buyer of that?
Where would the interest be in that kind of equity stake in public investors?
Public investors?
Yes, I think that the reality is the Warner Studio library and rapidly growing streaming business will have a much higher valuation than it is attributed in the combined company.
And the reason is it's overlevered.
You have a declining a linear video business and you have a growing streaming business. I think the public investors' institutional investors will value that quite highly, that growth and that potential. Once that I laugh about it, But once that pickle is out of that jar, there are going to be a lot of people interested in doing business deals with that pickle.
People asked me, was I stupid to do the Time Winner deal?
And the answer is, Discovery, while it was doing great, was facing exactly the same future that Warner Brothers was. We were both confronted with having to make a transition to a new technological platform and a completely different form of consumer behavior, and Discovery would have found itself way too small in that trajectory. If you actually had sat there even last year and looked at the economics of Netflix in the US and the economics of HBO in the US.
They look almost identical.
One trade sit two hundred billion, in the other trades at twenty billion. You know, I mean, it's about growth, right future, because the real secret of Netflix is global, is international seventy percent.
I believe their customers.
Are outside the US, and that's where the growth has to come. And you know, we think Discovery's brand, which is well known, combined with Warner Brothers content, which is pretty well known, should succeed in growing internationally much faster than people generally think.
Last question in the book, you address legacy and retirement. You write retirement is going to be an imperceptibly slow transition.
Is it happening?
Are you simplifying the business shying away from.
She says, You've been planning. You've been telling me you're going to retire since you were thirty. No, it is slow because I've been involved in so many things to me, and retirement is primarily extricating myself from the public corporate roles that I play. I have a ton of private businesses, everything from ranching, farming, forestry, multifamily, horse racing.
You know, I got a lot of things that I'm.
Still saying grace over, and I intend to continue with my control positions in the various enterprises from which I will be slowly leaving the boards.
This is the Big Take from Bloomberg News.
I'm David Gerrat.
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