Cable legend and Liberty Media chairman John Malone said his attempt earlier this year to gain control of Bresnan Communications was largely sentimental, but added that his bid fell short because he lacked the needed scale to survive in U.S. cable.
Malone controls media giant Liberty Media and its various tracking stocks and serves as chairman of international cable giant Liberty Global. In June, through another of his entities -- Ascent Media -- Malone was among the final bidders for Bresnan, which was ultimately won by Cablevision Systems for $1.4 billion.
"Our little foray into trying to acquire Bresnan, some of that was sentimental because those were the systems that we started TCI with," Malone said at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Newport Beach, Calif. "But as a practical matter, what we found as we got into it, and we were in the final round of bidding, we don't have the scale economics in the U.S. to be a serious player in cable as an operator. The scale advantage of a large operator -- programming purchasing in particular -- are just overwhelming in terms of the impact on cash flow. When it came down to the final strokes, our bid was pretty much the same multiple of cash flow as Cablevision, but Cablevision had a lower projected programming cost going forward and we just couldn't get the returns we were looking for. So we had to lose."
Malone is still bullish on cable. Although he said DirecTV (another of his holdings) is the most compelling video service provider, cable's broadband opportunity is tremendous.
He also is bullish on Discovery Communications -- saying he would prefer to see that holding continue to grow independently rather than be acquired -- and home shopping network QVC, which he called a huge generator of free cash flow.
Liberty also holds a 33% stake in No. 2 home shopping channel HSN Inc. Malone said while there are obvious synergies in combining HSN and QVC, a high stock price for HSN and planned changes to its Liberty Interactive tracking stock (which houses QVC and other assets) would prevent any near term deal.
"That said, don't expect us to be bidding for HSN anytime soon," Malone said.
Malone said the company will have to make a decision on its Starz premium channel relatively soon. Starz, which was spun off as part of the Liberty Starz tracker in November, has about $1 billion in cash on its balance sheet and no leverage, two Malone investment no-nos.
"We are not well noted for underleveraged enterprises" Malone said. "It's unlikely we will sit with Starz paying a full statutory tax load for long. We've got to do something. Exactly what we're going to do is in deliberation right now."
Possible scenarios include making Starz a core assets and building around it with other Liberty entertainment assets like Live Nation and Sirius, or spinning it off in combination with another entity.
"Those are all works in process, we don't really have a specific structural plan, but every time we go to the white board, those are some of the considerations," Malone said.
Malone added that other constraints -- mainly regarding the planned conversion of its Liberty Interactive tracker into an asset-based stock -- would prevent Liberty from making any moves until at least the first quarter of next year.