No End in Malone’s Game

Mere mortals can only muse about any given maneuver by John Malone.

For the past few months, those mortals – call them “analysts,” call them ”journalists” – have tried to figure out what could possibly be John Malone’s motivation for taking over what is roundly seen as a business in decline.

This, of course, would be the satellite-delivered pay television business. The primary knock is that it’s a “one-way” business in a two-way world. It can deliver video, but not much else. No Internet access. No telephone calls.

This, in a world of communications and entertainment where the “triple play” now rules: $100 combinations of video, phone and Internet services that may soon become “quad plays” with mobile telephony bundled in.

Subscribership is slowing at the two main players, DirecTV and EchoStar Communications’ Dish Network. And crystal-ballers often think that growth is limited for the foreseeable future, as cable companies in particular make hay of not just phone service, not just Internet access, but network-based services, such as delivering video programs of all types on demand.

But let’s not forget how successful these satellite TV companies have become. DirecTV now has 15.5 million subscribers.

In effect, if Liberty Media winds up with a controlling stake in DirecTV, Dr. Malone once again could be the so-called Darth Vader of the video-distribution business.

The only larger distributor is Comcast, with 24.1 million subscribers. When Malone was first considered some kind of iconic villain in video, he was head of the nation’s largest cable operator, Tele-Communications Inc. Back then, he oversaw “only” 13 million subscribers.

And what if the next step is for Malone to sit down one-on-one, as he apparently did with Murdoch, and talk transaction with fellow Denver resident Charlie Ergen? You have to believe Malone would love to pick up Dish Network and its 12.8 millions subs, as well, and leave the country with just one satellite service.

That would again make Malone the operator of the largest video-distribution business in the country.

He just might be able to pull it off with antitrust regulators and policymakers. Liberty is much smaller than News Corp. And in a couple of more years, there likely will be three serious video players in almost any significant market: one from the cable column, one from the telephone column and one from the satellite column. That’s a pretty good amount of choice.

Would Liberty then need to be in the Internet-access business and the phone business to compete?

Maybe not. This is why Malone’s play bears close watching. He could just decide to use all of the satellite capacity he has commandeered – and all the transponders he has freed up from duplicate carriage of channels between Dish and DirecTV – and compete head-to-head with cable and phone rivals on video alone. He could try to blanket the country with more high-definition channels at just the time consumers are trading up to HD sets and try to break the back of cable and phone companies that can’t keep up. And if they keep up in quantity, he can compete on cost, with a single standardized high-capacity system to operate

In 2003, when Murdoch and Malone together contemplated buying DirecTV from General Motors, satellite service was seen as the future, pushing the envelope with set-top boxes that digitally recorded shows for playback. Cable was on the defensive.

Now, the roles are reversed. Cable’s the future, with so many new revenue streams to draw on and services to deliver.

But John Malone never makes an $11 billion blind bet. It’s “analysts” and “journalists” that are blind to what the end game ultimately will be.

Partly that’s because with John Malone, there is no end. It took hundreds of deals to build TCI into the nation’s biggest cable operator. He hasn’t been inactive in the last eight years, even if he’s not worked on center stage. He’s probably done more deals than anyone in the media business, save perhaps his one-time and potentially once-again friend, Mr. Murdoch.

He could just want to build Liberty in an operating business that rivals Time Warner or News Corp. If he gets DirecTV, he will have programming channels (like Discovery), a premium TV service (Starz), a movie studio (under construction) and a distribution network — just like Time Warner.

And if he decides that Internet access and telephony are services Liberty has to own and roll into the DirecTV business, he has WildBlue, he could buy Clearwire or Covad or even an operation like Sprint.

Or, he could sell out to a telephone company. He did it before, with TCI. Its name was AT&T.