Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Billionaire John Malone made a fortune off of a big
Speaker 2: bet that cable was going to revolutionize television, and in
Speaker 2: less than a decade, Malone grew the company he ran,
Speaker 2: called Telecommunications, Inc. Into one of the largest cable operators
Speaker 2: in the United States. That attracted the attention of lawmakers,
Speaker 2: who summoned Malone to Capitol Hill in nineteen eighty nine
Speaker 2: and accused him of overseeing a monopoly. Cespan aired the
Speaker 2: hearing in its entirety.
Speaker 3: May I call on mister Malone, Yes, sir, I guess
Speaker 3: it's warnings like this that I wish I had studied
Speaker 3: public speaking instead of thermodynamics in school.
Speaker 2: Malone studied electrical engineering at Yale, and while he started
Speaker 2: his career at Bell Labs, it didn't take long for
Speaker 2: him to pivot to business. Malone has a gift for
Speaker 2: making deals. Estimates He's done more than one thousand of
Speaker 2: them during his lifetime mergers and acquisitions, and at that
Speaker 2: congressional hearing, he responded to one of his fiercest critics,
Speaker 2: Al Gore, who said Malone was as ruthless as a
Speaker 2: Star Wars villain.
Speaker 1: I know, Senator Gore has referred to me in public
Speaker 1: as Darth Vader, the cause of great humor, I guess
Speaker 1: to a lot of my friends and employees. My wife
Speaker 1: told me the other day that she found me to
Speaker 1: be more like the Wizard of Oz, credited with a
Speaker 1: lot more power.
Speaker 4: And influence than I really wield.
Speaker 2: But back then Malone was well on his way to
Speaker 2: becoming the media mogul he is today, someone whose empire
Speaker 2: grew from cable distribution to content. Malone helped launch channels
Speaker 2: like CNN and BET, and the companies he's run have
Speaker 2: invested in satellite TV and satellite radio, and live events,
Speaker 2: including Formula One. Today, Malone is the chairman of Liberty Media,
Speaker 2: Liberty Global, and Liberty Broadband, and he's chair emeritus of
Speaker 2: Warner Brothers Discovery. Malone has written a new memoir, and
Speaker 2: at eighty four, he's still on the lookout for new opportunities.
Speaker 2: I'm David Gera, and this is the Big Take from
Speaker 2: Bloomberg News Today. On the show, a conversation with John
Speaker 2: Malone about the deals he's done, mistakes he's made. Malone's
Speaker 2: appetite for risk, and how he sees the future of media.
Speaker 5: Well. Thank you very much for doing this.
Speaker 4: I pray you.
Speaker 2: It strikes me as I look at the world today,
Speaker 2: where there is broadband and five G and refrigerators are
Speaker 2: connected to the Internet and I can watch any game
Speaker 2: I want on my phone, that we tend to forget
Speaker 2: what underpins all of that, what gave birth to all
Speaker 2: of that, And that's the work that you and others
Speaker 2: did really just a few decades ago, stringing coaxial cable
Speaker 2: around towns and cities around this country. As you look
Speaker 2: back on that, what do you think of that arc
Speaker 2: of progress?
Speaker 1: I just think evolution of technology is unstoppable and accelerating.
Speaker 1: By the time I got through at Bell Labs, we
Speaker 1: already had integrated circuits. My doctoral dissertation was artificial intelligence.
Speaker 1: So these technologies have deep roots, but the technologies available
Speaker 1: have paced really the industry.
Speaker 2: I don't want to say that TV is in your DNA.
Speaker 2: I think it's more nurture than the nature. But your
Speaker 2: dad worked at General Electric on televisions a very seminal
Speaker 2: moment in their development. What got you into cable made
Speaker 2: you think it was something where there was a lot
Speaker 2: of promise, just.
Speaker 1: Luck, really, I went to work for Bell labs because
Speaker 1: they would send you to graduate school and pay for it,
Speaker 1: which allowed me then to get married and go to
Speaker 1: graduate school. That put me into a certain category at
Speaker 1: at and T went on to McKenzie consulting for technology companies,
Speaker 1: ended up consulting for a company that offered me a job.
Speaker 1: Took the job that put me into cable TV.
Speaker 2: That company was Telecommunications, Inc. And at the time, Denver
Speaker 2: based TCI was one of the largest cable operators in
Speaker 2: the country. It wired towns and cities with coaxial cable
Speaker 2: so customers could watch TV in better quality.
Speaker 1: By the end of the seventies, stationary satellites had provided
Speaker 1: the industry with scale, with the capability of scale and
Speaker 1: to deliver a differentiated content. And that is really when
Speaker 1: the industry took off, because once we had a product
Speaker 1: the public wanted, the funding became available, and then it became.
Speaker 4: A race for scale.
Speaker 1: It was then ca you get big enough, fast enough
Speaker 1: to have scale advantages.
Speaker 2: Back then, the cable industry was what Malone called a
Speaker 2: patchwork of tiny local operations rather than a handful of conglomerates.
Speaker 2: Malone saw the potential of scale. TCI could grow and
Speaker 2: make money by buying up these independent cable systems.
Speaker 1: If you got a franchise, then you were essentially the
Speaker 1: sole provider in that community for probably fifteen years. And
Speaker 1: so the faster you could accumulate that, the more leverage
Speaker 1: that gave you over the content suppliers, because you were
Speaker 1: important became an important customer, and the more important customer,
Speaker 1: the better deal you could cut, the better economics you
Speaker 1: had to go to the next acquisition. And we found
Speaker 1: ourselves doing an acquisition about every two weeks.
Speaker 5: Every two weeks.
Speaker 1: Some were large and I would personally do and many
Speaker 1: of them were virtually pro forma as long as they
Speaker 1: could check the box.
Speaker 4: We delegated the ability to buy the guy next to.
Speaker 1: You, And I think I made the comment it's the
Speaker 1: most fun in life in businesses to have a monoperai,
Speaker 1: which we were sort of. Now, so was every cable operator,
Speaker 1: I have to say, in his territory.
Speaker 2: You mentioned scale a moment ago. Economics at scale that
Speaker 2: was certainly the driving factor at the beginning. As you
Speaker 2: look at sort of how you've built your portfolios over
Speaker 2: the years since, is that still your biggest motivators or
Speaker 2: how do you approach growth?
Speaker 1: I had a great mentor most of Shapiro at General,
Speaker 1: he was the chairman and he was a tough old bird,
Speaker 1: but he would teach me about the Talmud, and he said,
Speaker 1: one of the things that Talmud teaches you is ask
Speaker 1: yourself the question if.
Speaker 5: Not, if not?
Speaker 4: If not?
Speaker 1: So if your model, if your business plan works, great,
Speaker 1: but ask yourself the question, well, what if it doesn't.
Speaker 1: What if your assumptions are wrong? What if this doesn't
Speaker 1: work but that doesn't work? Where are you at that point?
Speaker 1: What's the downside? How much risk are you really taking?
Speaker 1: So you really try and look risk very hard. In
Speaker 1: terms of how you finance something. Do you have partners
Speaker 1: in it? The government's always your partner from a tax perspective,
Speaker 1: So don't forget that you can deduct your failures from
Speaker 1: your successes. Don't ever get to where you can't. You're
Speaker 1: going to have lenders. They're going to help you make
Speaker 1: sure that you're not taking too much risk. So you
Speaker 1: become good partners and assessing risk and if you structure
Speaker 1: it properly, if you do get in trouble thereby and launch,
Speaker 1: you're not right kind of an attitude, you know, don't
Speaker 1: ever count on it anything being for sure, and so
Speaker 1: that has colored the structure of the organizations that I've
Speaker 1: put together over time.
Speaker 2: We could talk about any number of successes, but let
Speaker 2: me ask you about Serious XM, where you made an
Speaker 2: incredible amount of money on that bett and on that investment,
Speaker 2: and in the book you write the way music is
Speaker 2: owned and monetized is undergoing continuous evolution. Begs the question
Speaker 2: where do you see opportunity in that space today?
Speaker 1: Well, a couple of points I want to make there.
Speaker 1: First of all, on Serious ExM, we were an early
Speaker 1: founding investor in EXAM, but when we saw the competitive
Speaker 1: environment emerge, we got out of it. Then we got
Speaker 1: the phone call that said, are you interested in Serious
Speaker 1: They've had their deal with EXAM approved for merger, but
Speaker 1: we're in the middle of the financial collapse, and we said,
Speaker 1: we don't have to have control, but we want options
Speaker 1: for forty percent cheap options, and we'll loan you enough
Speaker 1: money to get you over the hump. And it worked
Speaker 1: out great. So that was a great a great transaction.
Speaker 1: But the home run in music, frankly is live nation,
Speaker 1: live performance in a world of random access, where you
Speaker 1: can bay sickly have anything at any time and generally
Speaker 1: affordable live has become a very important component.
Speaker 2: After the break, I asked Malone about Rupert Murdoch and
Speaker 2: Fox News and what lies ahead in.
Speaker 5: The age of streaming.
Speaker 2: Billionaire John Malone was a fencer in high school and
Speaker 2: in business, He's crossed swords with many other big name
Speaker 2: media mobiles, including Barry Diller and Charlie Ergin. He was
Speaker 2: a key advisor to David Zaslov in Discovery's acquisition of
Speaker 2: AT and t's Warner Media. You categorize Rupert Murdoch as
Speaker 2: someone you have been friends in business with and occasionally
Speaker 2: kind of a corporate adversary of, and I wanted to
Speaker 2: ask you just about why you think the Fox News
Speaker 2: channel has been successful as it has been.
Speaker 4: Well, I can tell you. Rupert called me up.
Speaker 1: I was already heavily in television news at TCI. We
Speaker 1: had McNeil Lair, which we actually owned, We owned I
Speaker 1: think eighty percent of it, and we supported that in
Speaker 1: the public interest. I had helped start CNBC, and not
Speaker 1: only did we carry CNN, but we had bailed Ted
Speaker 1: Turner out when he got a little bit of financial distress,
Speaker 1: and I was on Ted's board then from that point forward,
Speaker 1: so I knew that that side of it. Rupert called
Speaker 1: me up and he said, John, do you think there's
Speaker 1: a place in America.
Speaker 4: For another video news channel?
Speaker 1: And I said, in all honesty, Rupert, I think if
Speaker 1: you came down on the conservative side of the middle,
Speaker 1: I think there is an appetite for a video news
Speaker 1: service because Ted and CNN are tending to go a
Speaker 1: little more liberal culturally and politically. And I said, the
Speaker 1: reason I think that is Rush Limbaugh has got a
Speaker 1: massive radio audience. It's extremely loyal, and he mixes politics
Speaker 1: with humor and he's been very successful. After giving up
Speaker 1: the advisory role, I put my financial hat on, said
Speaker 1: you know, we'd be happy to carry you, but we
Speaker 1: need an economic interest in its success. And so we
Speaker 1: cut a deal that we had warrants to purchase twenty
Speaker 1: percent of Fox News at whatever the net invested capital
Speaker 1: was at the time. We chose to exercise that warrant.
Speaker 4: And that was the deal.
Speaker 1: And he said, well, why don't you go talk to
Speaker 1: Limbaugh and see if we can make him our anchor.
Speaker 4: And I did.
Speaker 1: I had two delightful luncheons with Rush, and I was
Speaker 1: unsuccessful in talking rush into going on television again.
Speaker 4: But he suggested Roger Ayles.
Speaker 1: And so we recruited Roger. But the deal from the
Speaker 1: beginning was there's going to be successful because it's a
Speaker 1: hybrid of entertainment and news.
Speaker 2: We're at this moment where Newsmax is suing Fox News,
Speaker 2: alleging that Fox News has used hardball tactics, and I
Speaker 2: thought of how in the book you detail how Fox
Speaker 2: News at the beginning was paying distributors to carry the channel.
Speaker 2: There's also this kind of delicious inversion of what's happening here,
Speaker 2: which is Rupert Murdoch soon time Warner, if I remember correctly,
Speaker 2: for not carrying the station in.
Speaker 5: Los Angeles and New York?
Speaker 4: Correct?
Speaker 2: What do you make of that suit? Do you see
Speaker 2: any foul play here? Or is this just kind of
Speaker 2: a continuation of the tactics we've seen, kind of the
Speaker 2: Murdock enterprise you use from the beginning.
Speaker 1: I think you know the issue of exclusivity and carriage
Speaker 1: and bundling. To me, okay, I got to take you
Speaker 1: back in Notch. There was a time when John McCain
Speaker 1: he sponsored the concept that programming above a certain cost
Speaker 1: should be alacrte, right, which I wholeheartedly believed in. And
Speaker 1: his idea was his grandmother is paying for a lot
Speaker 1: of sports she doesn't watch, and so if anything over
Speaker 1: fifty cents a month was going to be on, it
Speaker 1: should be on optionally as an ala carte service, which
Speaker 1: I totally believed in.
Speaker 4: We could not convince the bulk of.
Speaker 1: Our industry to get behind McCain and support him, and
Speaker 1: I think that was the beginning of the end, frankly,
Speaker 1: of the cable industry's success as a video distributor.
Speaker 2: It's funny because in the book there's a chapter in
Speaker 2: which you say you were surprised that DJ never went
Speaker 2: after came bundling at a bundling, and yet I think
Speaker 2: of you as the father of the cable bundle in
Speaker 2: somebody who's decried a lot of government regulations. So just
Speaker 2: to explain that to me, your surprise and why it
Speaker 2: sounds like you might be in favor of that happening.
Speaker 4: Oh, I was.
Speaker 1: Yes, we bundled, of course, but the ability to al
Speaker 1: cart in order to control cost, to me was an
Speaker 1: essential ingredient. And what happened to the industry was that
Speaker 1: once these guys, these big guys, could bundle you couldn't
Speaker 1: say no, and so there was never a successful new
Speaker 1: cable channel that wasn't owned by somebody.
Speaker 4: Who had market power.
Speaker 1: And the crime for the cable guys was allowing their
Speaker 1: video bundle cost to get so high. When I was
Speaker 1: sharing DirecTV, I don't know what the numbers are now,
Speaker 1: but we were up to one hundred and eighteen dollars
Speaker 1: was our charge for service based service, and it was
Speaker 1: at a point where a big percentage of Americans couldn't
Speaker 1: afford it. So Netflix succeeded really because the big bundle
Speaker 1: was too expensive. You bought it all or you didn't
Speaker 1: get any of it right, which to me was suicidal
Speaker 1: for the industry, especially as sports bidding became so aggressive.
Speaker 4: So I think we just as an industry.
Speaker 1: Got caught ourselves with a product that was just too
Speaker 1: highly priced with too little margin.
Speaker 2: According to Deloitte's Digital Media Trends Report, the average American
Speaker 2: spends close to seventy dollars.
Speaker 5: A month on streaming.
Speaker 2: That's less than the one hundred and twenty five dollars
Speaker 2: a month that cable or satellite TV subscribers say they
Speaker 2: spend on those services, But almost half of those streaming
Speaker 2: customers say they pay too much. We have seen the
Speaker 2: proliferation of streaming services, now the bundling of streaming services.
Speaker 5: How do you see all of that play out?
Speaker 4: Well?
Speaker 1: I think other than live sports and maybe news, this
Speaker 1: random access capabilities, particularly if it can be curated by
Speaker 1: an intelligent curator, an AI curator, I think is a
Speaker 1: huge public service. It gives enormous flexibility, quality, and potentially
Speaker 1: efficiency to it. With sports, I've got a big hostility
Speaker 1: toward network neutrality as it's applied to live because to
Speaker 1: send out a NFL game is one channel, right, linear
Speaker 1: cold Country one channel, and yet streamed it's forty or
Speaker 1: fifty million channels. Why does that exist other than government intervention?
Speaker 1: And the answer is well, for the big tech guys,
Speaker 1: it gives them a chance to sell advertising at a
Speaker 1: higher because they know more about the customer at a
Speaker 1: higher price.
Speaker 2: Malone is chair emeritus of Warner Brothers Discoveries Board. Now
Speaker 2: that company is planning to split into two separate companies,
Speaker 2: one that'll be studios and streaming, the other that'll be
Speaker 2: its networks. Earlier this month, Warner Brothers Discoveries CFO announced
Speaker 2: it could sell a twenty percent stake in its studios
Speaker 2: and streaming business. Before that split happens.
Speaker 5: Who do you see as a buyer of that?
Speaker 2: Where would the interest be in that kind of equity
Speaker 2: stake in public investors?
Speaker 5: Public investors?
Speaker 1: Yes, I think that the reality is the Warner Studio
Speaker 1: library and rapidly growing streaming business will have a much
Speaker 1: higher valuation than it is attributed in the combined company.
Speaker 4: And the reason is it's overlevered.
Speaker 1: You have a declining a linear video business and you
Speaker 1: have a growing streaming business. I think the public investors'
Speaker 1: institutional investors will value that quite highly, that growth and
Speaker 1: that potential. Once that I laugh about it, But once
Speaker 1: that pickle is out of that jar, there are going
Speaker 1: to be a lot of people interested in doing business
Speaker 1: deals with that pickle.
Speaker 4: People asked me, was I stupid to do the Time
Speaker 4: Winner deal?
Speaker 1: And the answer is, Discovery, while it was doing great,
Speaker 1: was facing exactly the same future that Warner Brothers was.
Speaker 1: We were both confronted with having to make a transition
Speaker 1: to a new technological platform and a completely different form
Speaker 1: of consumer behavior, and Discovery would have found itself way
Speaker 1: too small in that trajectory. If you actually had sat
Speaker 1: there even last year and looked at the economics of
Speaker 1: Netflix in the US and the economics of HBO in
Speaker 1: the US.
Speaker 4: They look almost identical.
Speaker 1: One trade sit two hundred billion, in the other trades
Speaker 1: at twenty billion. You know, I mean, it's about growth,
Speaker 1: right future, because the real secret of Netflix is global,
Speaker 1: is international seventy percent.
Speaker 4: I believe their customers.
Speaker 1: Are outside the US, and that's where the growth has
Speaker 1: to come. And you know, we think Discovery's brand, which
Speaker 1: is well known, combined with Warner Brothers content, which is
Speaker 1: pretty well known, should succeed in growing internationally much faster
Speaker 1: than people generally think.
Speaker 2: Last question in the book, you address legacy and retirement.
Speaker 2: You write retirement is going to be an imperceptibly slow transition.
Speaker 5: Is it happening?
Speaker 2: Are you simplifying the business shying away from.
Speaker 1: She says, You've been planning. You've been telling me you're
Speaker 1: going to retire since you were thirty. No, it is
Speaker 1: slow because I've been involved in so many things to me,
Speaker 1: and retirement is primarily extricating myself from the public corporate
Speaker 1: roles that I play. I have a ton of private businesses,
Speaker 1: everything from ranching, farming, forestry, multifamily, horse racing.
Speaker 4: You know, I got a lot of things that I'm.
Speaker 1: Still saying grace over, and I intend to continue with
Speaker 1: my control positions in the various enterprises from which I
Speaker 1: will be slowly leaving the boards.
Speaker 2: This is the Big Take from Bloomberg News.
Speaker 5: I'm David Gerrat.
Speaker 2: To get more from The Big Take and unlimited access
Speaker 2: to all of Bloomberg dot com, subscribe today at Bloomberg
Speaker 2: dot com slash podcast offer. If you'd liked this episode,
Speaker 2: make sure to follow and review The Big Take wherever
Speaker 2: you listen to podcasts. It helps people find the show.
Speaker 2: Thanks for listening. We'll be back tomorrow.