Malone's on the Prowl Again5/15/2003 10:05 AM Eastern
New York -- Liberty Media Corp. chairman John Malone made it official
Thursday: He is on the acquisition trail.
Liberty has access to about $10 billion in capital -- not including $5.3
billion in cash and marketable securities -- to make acquisitions. At the
company's investor meeting here Thursday, Malone named at least two potential
targets: cable shopping channel QVC Inc. and Vivendi Universal
"The issue for Liberty is: What do we do with all this firepower?" Malone
said. "We are certainly hopeful that we can acquire QVC from Comcast [Corp.].
Despite all of the fisticuffs going on in the industry right now, we have the
greatest respect for Comcast and its management team."
But Malone added that Liberty gains even if Comcast decides to buy its stake
in the network. "Nothing would thrill me more than to end up with a large block
of Comcast stock," Malone said.
As part of the QVC agreement, up to 4.9% of Comcast's outstanding shares -- roughly 115 million -- would go toward the purchase price. However, that stock would be nonvoting.
Analysts have estimated that the entire network is worth
between $13 billion and $14 billion.
With VUE, Malone said Liberty has been in discussions with Vivendi Universal
He added that one possible scenario could involve combining VUE -- which
includes cable channels USA Network, Sci Fi Channel, Trio and NewsWorld
International, as well as Universal Studios and theme parks -- with Liberty's
premium-cable-network unit, Starz Encore Group LLC.
Malone said having control of VUE would make other programming acquisitions
more sensible, including perhaps acquiring the 50% of Courtroom Television
Network it doesn't already own.
"That's the reason why we're interested in Vivendi," he added. "It gives us
not just the opportunity to buy Vivendi, but also to have a platform on which
the programming business becomes more valuable consolidated than not."
Regarding general industry issues, Malone said the balance of power has
shifted to cable operators rather than programmers. He added that with the
recent high rate increases of sports-programming networks, something has got to
"There will be some compression on growth rates achieved through affiliate
fees," Malone said. "It's going to be different for different players. If [The
Walt] Disney [Co.] needs 20%-per-year compound growth rates on its affiliate
fees for ESPN, there is going to be a war."
That war could lead to government intervention, Malone said, adding that it
would be good for cable operators but bad for programmers.
"The most likely outcome would be some provision that says if a channel costs
more than 50 cents [per subscriber, per month], it's got to be a la carte,"
Malone said. "End of story; end of Disney."
However, he added that he would prefer that the industry resolve the dispute
"Getting government to resolve intercorporate disputes may have a tactical
advantage, but it's a strategic disaster," Malone said.
Malone added that Comcast president Brian Roberts would have to step up to
force change, however. As the head of the largest MSO (with 22 million
subscribers), Comcast has the muscle to force programmers' hands.
Roberts could do that by selling QVC, Malone added.
"If Brian sends a big signal, if he sells the most profitable cable network
in the world, QVC, rather than buying it, one of the strategic reasons for him
to do that is to get rid of the horizontal/vertical rules that apply to him,"
"If he does that, you can also look for him to get out of E! [Entertainment
Television]," he added. "Because then he's clean. Then he can beat the crap out
of everybody on rates and he won't have any antitrust issues related to
Malone said retransmission consent was the biggest mistake to come out of the
Telecommunications Act of 1996.
"It gives the broadcasters too much power, and they can use that to extract
noneconomic prices from operators," Malone said. "The irony is that if they
overuse it, ultimately, somebody big, with guts, says, `Fine, we can live
without your TV station and your six cable networks.' I'm waiting to see that
Malone added that it almost happened with him, just before he sold
Tele-Communications Inc. -- then the largest MSO in the country -- to AT&T
He said that prior to the AT&T deal, TCI's contract with ESPN was set to
expire. As part of that agreement, TCI had the right to place ESPN on a tier for
five years following the termination of the carriage agreement.
"We rolled on that issue," Malone said. "We signed a new deal with ESPN, and
the industry lost its only true defender."
Malone added that now, that mantle falls on Roberts.
"Somebody has to say no to the underlying sports machine," Malone said.
"Unless something is done to break that chain, either by Congress or by a
courageous Brian Roberts, you're going to continue to see this happen ... We'll
be waiting and watching Brian defending the industry and being the champion