The chairman of Liberty Media compares the growing sense of bitterness in pay TV to the dysfunction in Washington: There’s so much tension lately between programmers and distributors — especially over pricing — because “like [in] the political system, the moderates have been driven out of the business,” John Malone told an investor gathering. Internet video services led by Netflix have become so popular that they’ve pressured traditional pay TV companies to focus on short term gains instead of deals that would create long term value. Netflix has an advantage using the Internet because it reaches the entire country and its “local distribution is incrementally free.” Hollywood programmers sell to Netflix because it’s “found money.” Yet cable operators are hamstrung. “As big as Comcast is, it has a 25% footprint. You can’t buy national programming when you have that kind of footprint.” Distributors also shot themselves in the foot by waiting so long to roll out their TV Everywhere streaming services. If they’d moved more quickly then ”we’d be looking at new revenue streams and the ability to manage ad skipping and so on.” Instead, they’ve “created this window of opportunity” for Netflix.
That’s a big reason why Malone wants to see mergers between cable operators — including Charter, where Liberty’s the top shareholder. “Fewer rational players generally work better together than more,” he says. Back in the days before he sold Tele-Communications Inc to AT&T — and was widely considered to be the king of cable — “we were able to organize the industry on a broad set of joint ventures….We created things like Discovery and Black Entertainment Television and Telemundo” and supported Ted Turner. “That can be done again. I see no reason why a vehicle such as [Comcast's] Xfinity can’t be syndicated, or Hulu, or whether an entrepreneur can come in and start [a national streaming service for cable] from scratch.” He recalled that HBO got its start because Hollywood studios “couldn’t work together” to distribute their movies directly to pay TV subscribers. “And once HBO had scale, they didn’t need all the studios.”
Malone seemed wistful in recalling the old days of cable. After Microsoft’s $1B investment in Comcast in 1997 “we saw valuations in the cable industry pop.” The vote of confidence in the industry as it sought to become a broadband power “was a message of a coming technological change that had broad possibilities…It transformed the business.” He added that “old cable guys” including himself “never die. They just become investors and philosophers.”