New York – Cable legend and Liberty Media chairman John Malone said the future of the cable industry will depend on its participants’ willingness and ability to co-operate to help solve the pressing issues of the day, and that consolidation could be just the way to do that.
“The fewer big players, the easier it is to align them,” Malone said at Liberty’s annual Investor Day meeting here Thursday.”The smaller players are already willing and able to affiliate with technology schemes and brands, but they have to be underwritten by the biggest players who have more in common than they have to fear from each other.”
Malone has been by far the biggest catalyst in the consolidation frenzy of the past several months, after Liberty invested $2.6 billion for a 27% interest in Charter Communications. Malone has said publicly that he considers Charter to be an acquisitions machine. Liberty reportedly approached Time Warner Cable in June about a possible combination with Charter, but those efforts were rebuffed.
He added that most of the innovations in the cable industry – the digital set-top box, MPEG video compression and the Hybrid-Fiber Coax (HFC) architecture – were all made possible through industry joint ventures and consortiums.
“In content, we created things like Discovery and Black Entertainment Television and Telemundo,” Malone said, adding that at one point cable operators collectively had invested in and helped create more than 20 cable networks. “The history of the business is replete with the industry solving its balkanization and scale problems through joint efforts.”
Malone added that cable could create its own rival to Netflix by creating a national brand that could buy programming and distribute it over the Internet.
”I see no reason why a vehicle whether it’s XFinity or the equivalent can’t be syndicated, whether Hulu couldn’t be bought and syndicated or whether some entrepreneur comes in and starts something from scratch that the industry at large can get behind and give it the ability to purchase content on a ubiquitous basis,” Malone said, adding that even Comcast which covers 25% of the country, doesn’t have enough scale to buy national programming alone.
“You can’t buy national programming when you have that size footprint, even if you are the biggest,” Malone said.
Malone added that the recent increase in tension between programmers and distributors over the high cost of content has been exacerbated by the entrance of over-the-top distributors like Netflix.
“For years we have always enjoyed very good relationships with the content side,” Malone said. “There’s always a tension, but it was all about who could create new economic value. And we always historically found a way in which the interests of the distribution business would be driven by the creation of content. Clearly the over-the top threat is creating an unusual tension in the business.”
Malone added that a successful TV Everywhere offering could be the difference.
“Had TV Everywhere become TV Everywhere as we sit, we would be looking at new revenue streams, we would be looking at a way to manage the issue of ad skipping and elimination. The content side and the distribution side still have a huge monetization system to defend. I think at some point they will realize that.”
But whether Malone’s vision will become reality depends on several factors, including the industry’s ability to work together. While Comcast chairman and CEO Brian Roberts has considered licensing its X-1 user interface to other operators, thus creating the ubiquitous platform to launch products Malone was talking about, the Liberty chief said there are other issues at play that could throw a wrench in those plans too.
“I think that would be wonderful,” Malone said after the meeting, adding that depending on the terms and conditions, he would encourage Charter to license X-1. “I don’t think Charter is big enough to put the R&D into consumer interfaces that Comcast can with other’s support. It would be magnanimous of Brian to be that kind of a leader and offer his technology to everybody.”
Malone conceded that some operators may be reluctant to entrust something as important as their technology platform to an outside company, but added that in order for the cable industry to move forward, it needs to get past that kind of thinking.
“If the industry is in a situation where nobody trusts anybody, then there is no leadership and nothing is going to happen,” Malone said. “Hopefully people can be brought to a level of ‘trust but verify’ that will unify the industry and create some upward momentum in some of these business opportunities.”