New York -- Cable legend and Liberty Media Corp. chairman John Malone didn’t want to comment on the negotiations surrounding Time Warner Inc.’s purchase of its 50% interest in cable channel Court TV at Liberty’s annual investor meeting here Thursday, but he said that if a deal was done, Liberty has enough operating losses to lessen the tax blow of a sale.
Speaking after the meeting, Malone would only say that a Court TV deal was “close.”
“I can confirm that we’re close, but I can’t confirm that we have a deal,” he said.
However, asked about how Liberty would deal with the potential tax issues of a sale -- Time Warner chairman and CEO Richard Parsons said negotiations to buy the rest of Court TV for cash were ongoing on an analysts’ call earlier this month -- Malone said Liberty has accumulated billions of dollars of capital losses from various businesses over the years that could ease the tax burden.
Court TV is estimated to be worth $1.4 billion-$2 billion, making Liberty’s half valued at $750 million-$1 billion. Given that Liberty’s cost basis in its original investment in Court TV is likely minimal, the tax implications could be huge.
“We have NOLs [net operating losses],” which would shelter the Court TV gain, Malone said after the meeting. “We also have a lot of capital losses. We’ve attempted to accumulate capital losses over the years in many ways. Some of them were money we actually lost, but most of them are transactions where we’ve imported tax losses. We have several billion dollars of capital losses that we either have or can trigger, not necessarily today, but maybe tomorrow.”
Malone also hinted that Liberty would be open to accepting the Atlanta Braves Major League Baseball team as part of a swap for its 4% interest in Time Warner stock, estimated to be worth about $3 billion.
He said that while a baseball team would not be a strategic business for Liberty, the Braves are “a fine asset.”
Malone also offered his take on cable’s competitive position.
“I still think the cable business has an awfully strong hand in the United States,” Malone said. “If the public turns out, as we’ve always believed, to want random access, satellite is not in a great position to offer that -- that, plus the bundling capability that cable has.”
He continued, “Then you’re going to ask me about the telcos. My experience is that overbuilds have never done very well for the overbuilder. Yes, I know the telcos are big companies with big balance sheets, but historically, they’ve chickened out when the full P&L [profit-and-loss] impact of trying to overbuild a cable operator hits them. You may remember [that] Bell Atlantic [Corp., now Verizon Communications Inc.] tried to overbuild Adelphia [Communications Corp.] back in the early 1990s. It was a disaster.”
Malone also built on comments by Starz Entertainment Group LLC president Bob Clasen about wanting to expand the premium channel’s slate of original programming.
At the meeting, Clasen said Starz is looking into original programming, and it already does some limited originals -- interstitials between movies, the half-hour B-Side show on its Starz InBlack channel and a video and teen soap block that its Encore WAM! channel runs in the afternoon.
“I’ve always been a proponent of Starz trying to own content,” Malone said. “This is one that [Starz founder and former chairman] John Sie and I have always disagreed on. He wanted to make it movies, movies, movies, and I’ve always said, ‘Isn’t there some way that we can actually build an inventory of assets?’”
Malone compared Starz to another Liberty holding, Discovery Communications Inc.
“Discovery is on the other side,” he said. “They pretty much own everything. Their library is like 100,000 hours of video programming that they own. So they’ve got that huge residual asset that they add to every year. It’s global in scope.”
He continued, “To the degree that Starz could get into an environment where they were creating evergreen assets, I would feel much more comfortable thinking that we’re really, in addition to just growing the business, growing the core asset base that was merchantable away from the business -- an insurance policy. We may have something to say on that subject before too long.”