AT&T Inc. (NYSE:T)
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6 Months : From May 2018 to Nov 2018
By Shalini Ramachandran
Comcast Corp. and AT&T Inc. have made audacious moves to become media distribution and content conglomerates, but one of the industry's most powerful players is skeptical of that approach and doesn't plan to follow suit: cable tycoon John Malone.
In an interview this week, Mr. Malone, a pioneer of the cable industry who owns significant stakes in No. 2 U.S. cable operator Charter Communications and cable-channel owner Discovery Inc., said he doesn't plan to consolidate his empire into a vertically integrated content and distribution player any time soon.
"Why would I put Discovery together with Charter? Apples and oranges," Mr. Malone said. "If you are just forming a conglomerate by putting everything in the same bucket, it eliminates your flexibility, you've got tax problems, regulatory problems and a lot of problems that these companies operating autonomously don't have."
Mr. Malone said there may be smaller content opportunities for Charter, including teaming up with other distributors in a joint venture to own content companies. It could also buy regional sports networks, regional news or Spanish-language assets, he said.
AT&T's acquisition of Time Warner Inc. is on the brink of closing after the companies defeated an antitrust lawsuit this week. Comcast, which already owns NBCUniversal, is bidding for 21st Century Fox Inc. entertainment assets against rival Walt Disney Co. The two companies have said that marrying content and distribution will help them create streaming products and give them access to consumer data that will allow them to better compete against tech giants for ad dollars.
Mr. Malone, a deal maker guru whose ideas carry weight in the industry, said AT&T and Comcast face a challenge in deriving financial benefits from such deals. He said AT&T would have an easier time reaping benefits because of its national footprint, which would allow it to use Time Warner's entertainment content, including cable channels like HBO and CNN, to drive revenue growth in its wireless business.
Comcast, in contrast, still only operates in some regions of the country. "If I was [Comcast Chief Executive] Brian Roberts, I would probably have a content company and a cable company instead of one company. Maybe I would have done better, maybe not," he said with a laugh.
Charter, like Comcast, is regional. It is only available in "maybe 30% of the U.S.," while the content business today requires global scale, he said.
Targeting Spanish-language media would make sense for Charter, he said, because Hispanics are "heavily concentrated" in the company's markets. One such asset is Univision Communications Inc., the largest Spanish broadcaster in the U.S., whose private-equity owners have been eager for an exit.
Univision is "a valuable asset," Mr. Malone said. But "is it worth what people will sell it to you for?"
Last year, Mr. Malone and Discovery Chief Executive David Zaslav made an unsuccessful run at Univision, offering more than $12 billion for the company, which Univision rejected, The Wall Street Journal has reported.
Other U.S. content companies, including Viacom Inc., CBS Corp., AMC Networks Inc. and Hollywood studio Lions Gate Entertainment Corp., are ripe for a roll-up, Mr. Malone said. "How do these companies evolve in this world of giants...where Disney can buy this piece of Fox and they are still tiny compared to Facebook and Apple?"
Mr. Malone helped shaped the modern media and cable industry, helping fund the creation of networks such as CNN and BET. Though he sold his then-No. 1 cable company Tele-Communications Inc. in 1999 to AT&T, he has made a comeback in recent years, including by orchestrating Charter's acquisition of Time Warner Cable Inc. in 2016.
Besides Discovery and Charter, he also has interests, personally and through various holding companies, in companies including Hollywood studio Lions Gate, international cable operator Liberty Global PLC, Sirius XM, Formula One, internet-radio service Pandora and home shopping channels.
"There are some synergies amongst companies that we have a stake in that we're still exploring" that could lead to deals, Mr. Malone said.
Last year, Verizon Communications Inc. and Japanese conglomerate SoftBank Group Corp. made merger offers to Charter, which Charter rebuffed as too low. Verizon bid in the $350-a-share range while Softbank's offer was at $540 a share in cash and stock, which included contributing Sprint shares at roughly $10 a share, people familiar with the matter said. Now, Charter's shares have fallen sharply on cord-cutting worries and are trading at around $295 a share.
Mr. Malone said "there was a logic" in a Verizon-Charter combination to accelerate the deployment of the next-generation wireless broadband technology called 5G. He said Verizon hasn't recently made another approach.
SoftBank, he said, was offering a "a complex transaction" and in the end it required Charter to acquire wireless carrier Sprint Corp., which is controlled by SoftBank. "There were real questions about the value of Sprint," he said.
While Charter's internet business is strong, Mr. Malone said its challenge is managing through cord-cutting and developing direct-to-consumer streaming products beyond the big cable bundle. "The big question is: How does the video part of their business evolve?" Mr. Malone said.
(END) Dow Jones Newswires
June 14, 2018 19:22 ET (23:22 GMT)
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