Finance

Malone: Politics Is Making Deals Harder to Predict

At investor meeting, Malone offers thoughts on consolidation, wireless 11/16/2017 2:41 PM Eastern

New York – Liberty Media chair and cable legend John Malone stood before a rapt, standing room-only audience at his company’s annual investors meeting here Thursday, telling analysts and investors that politics appears to be clouding what once was expected to be a more streamlined merger approval process.

Malone didn’t mention AT&T-Time Warner by name, but the chances of that merger passing regulatory muster have been under a cloud in recent weeks, as reports have said the government could move to block the deal if certain assets like CNN aren’t divested.

Related: Missed Connection for AT&T-Time Warner?

“I personally have very little insight into what the Antitrust Division is smoking these days,” Malone joked at the investor meeting. “Normally, verticals [mergers] have always been regarded as pretty straightforward, low-risk. To the degree politics gets into it, it becomes difficult to predict.”

Malone said that he hasn’t experienced much push back from regulators in his own business, although he added that the approval process for Discovery Communications’ (of which Liberty is a major shareholder) purchase of Scripps Networks Interactive has taken longer than expected.

“It has been a little bit delayed, more than I would have guessed,” he said.

Read More: Complete Coverage of the Discovery-Scripps Deal

But Malone still believes that smaller content companies, so-called “free radicals,” will be able to combine with little resistance from the government. But he said the current regulatory environment could be spurred by Justice Department officials wanting to rectify perceived misses in the 2011 approval of Comcast-NBC Universal. Comcast agreed to about 150 conditions for that deal, most of which expire in the middle of next year.

But those conditions were largely behavioral, centering on ensuring that Comcast did not favor its own networks more than others in terms of carriage and that it made those network available to all distributors.

“We have a new Antitrust Division, the FCC has gone more flexible, more capitalistic,” Malone said, adding that he wasn’t sure what the department’s concerns may be. “The only noise I picked up is that the professionals at Justice were not happy with the behavioral agreements they reached with Comcast on the NBC Universal deal. So they’re kind of rethinking behavioral versus structural change.”

But he added when Charter, another big Liberty holding, purchased Time Warner Cable last year, the cable operator agreed to “a number of rigorous agreements, some of which the government has voluntarily backed away from.”

Malone said the content business, both on the linear and social media side, appears to be more politically sensitive now than ever.

Liberty Media CEO Greg Maffei put the situation more bluntly, adding that consolidation in the content business is happening because of obvious pressures on the model.

“In my judgment, the traditional linear content business is severely challenged,” Maffei said. “I get the idea that there should be limitations on ensuring Starz [another Liberty holding] for example,  should get carriage on DirecTV. But the content business has gone from 200 original shows five years ago, 450 this year, the cost per hour at least doubled. We’ve seen a 5x increase in content. These guys can’t pay for it, we’re not going to pay for it at Charter, I suspect. Guys like Netflix have an amazingly advantaged model compared to the traditional guys. …The traditional content business is really challenged. The idea that you’re going to block consolidation here is crazy.”

Malone also touched on the wireless business, adding that despite his continued belief that a cable company will eventually acquire or be acquired by a wireless company, Charter’s decision to offer a wireless product through an MVNO with Verizon was the right move.

Malone added that MVNO’s effectively create “more competition instead of less,” and is probably the best way to get into the wireless space.

Malone said he isn’t particularly in love with the wireless business, but over time it becomes an important part of the connectivity picture.

European cable operator Liberty Global already has a strong wireless component and Malone said the synergies are “ultimately enormous.”

Malone was particularly high on Charter’s prospects, adding that cable’s two-way capabilities and broadband business will win the day.

“When you stick stuff out there and don’t have some kind of two-way path with the consumer, how do you know who’s watching, who’s paying?” Malone said. “…The reason got we out of the satellite business when we did was because it’s a one-trick pony – video only, very high ARPU and no return path. It was clearly going to come under assault.”

But Malone added practically every new communications technology, voice, video, internet search, 5G wireless, will need some kind of robust terrestrial network to make the final connections.

“The wind is at our back,” Malone said. “And all this noise about everybody wants to buy Charter, everybody wants to have some deal with Charter, well it’s actually true. It’s a fabulous company. It’s going to go in a great direction.”

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