|
Re: Interview with John Malone and Mike Fries
Full interview:
Boss Talk
For Liberty Global, the Next Step Is the Content
CEO Mike Fries, Chairman John Malone Talk About Media Consolidation
By
Sam Schechner and
Simon Zekaria
connect
July 29, 2014 4:59 p.m. ET
Cable magnate John Malone and his protégé Mike Fries helped light the fire in Europe's telecom consolidation. Now they are on the prowl for media.
Liberty Global LBTYA -1.72% PLC—of which Mr. Malone is chairman and holds a roughly 27% voting stake and Mr. Fries is the longtime chief executive—has spent tens of billions of dollars in recent years buying cable operators including Virgin Media Inc. of the U.K. and, if regulators agree, the Netherlands' Ziggo ZIGGO.AE -1.10% NV. Its assets are mostly in Europe.
Amid a global race to keep up with Google Inc. GOOG -2.69% and other technology companies, Liberty Global needs media assets to complement its cable empire and keep subscribers paying their monthly bills. Earlier this month, it bought a 6.4% stake in ITV Group PLC, Britain's No. 1 commercial broadcaster, which airs the popular drama series "Downton Abbey," for more than $800 million.
(Liberty Global, whose legal headquarters are in London, is separate from Mr. Malone's Liberty Media Corp., a media and communications holding company where he is also chairman.)
On the sidelines of a board meeting in Brussels, Messrs. Malone and Fries discussed industry consolidation, their acquisition plans and competition with U.S. tech giants. Edited excerpts:
WSJ: What's behind the current wave of consolidation in telecommunications and media?
Mr. Malone: It's the "eat or be eaten" drive of capitalism. Scale economics are compelling in the media space where you have high fixed and very low marginal costs. The consumer's appetite for convenience and a full menu of services is compelling, along with the synergies.
Mr. Fries: Consolidation is king. Scale has always been critical for the industry, and I think it is more critical today than it has ever been. The pace will accelerate and it makes good sense. Consolidation supports our thesis that in a globalizing digital world you need to have great scale to compete with Google [or] Netflix.
WSJ: Liberty has played a big role buying up cable operators. Is there more in store?
Mr. Fries: That story line is not coming to an end, but it is slowing down. The acquisition opportunities in terms of cable television assets are fewer, and our market expectations in terms of how many more markets we want to expand into is a smaller universe. Portugal is too small. Italy doesn't have any cable. And we wouldn't get into the satellite business.
There are a couple of markets in Central and Eastern Europe that still require some consolidation. Poland would be one of them. It is a pretty competitive market with lots of fragmented [cable] operators.
Opportunities around content and other media assets [also] look to us to be interesting. Those opportunities look to be becoming more plentiful, not less, over the next 18 to 24 months.
WSJ: Why more media-deal opportunities?
Mr. Malone: [Mike] has done the major obvious acquisitions that have been available. And now they're looking for ways to make those businesses that they are in better. Either considering certain vertical investments that would enhance their service offerings, their competitive posture, or moving forward on a whole series of technological innovation.
In some cases it is defensive; in some cases it is offensive. In the [case of ITV] it looked like a good investment and would enhance our relationship with ITV and its management. They have a very large production studio whose output could be very interesting with respect to program needs in other jurisdictions.
WSJ: Would you be interested in increasing your ITV stake beyond 6.4%?
Mr. Fries: Are we committing today that we'll never, ever own more shares? Of course not. [But] we don't have any intention to do anything. There is no smoking gun there.
WSJ: What's the status of Liberty's efforts to buy a majority of motor racing series Formula One jointly with Discovery Communications Inc.?
Mr. Malone: We have been engaging in discussions for what seems like an endless period of time. We continue to be interested, but when we have something to announce we'll announce it. You have got to kiss a lot of frogs before you find a prince. At this stage we are still kissing the frogs.
WSJ: Why invest in Formula One?
Mr. Malone: Sports has been elevated as an area of interest in content because of its real-time nature. The industry has a long tradition of paying up for sports and that becomes even more important as other elements of entertainment programming commoditize.
WSJ: You offer mobile service to your customers through other operators. Why not buy your own mobile operator?
Mr. Fries: We are not buying mobile companies that are, in some instances, falling knives—struggling in this competitive environment.
It makes a lot more sense if you are mobile operator to buy a cable operation. That I get. You need all the things a cable operation provides, which is why Vodafone bought in Germany, why Vodafone bought in Spain.
WSJ: So would there be a logic to Vodafone buying Liberty Global?
Mr. Fries: There have been no conversations. Our core organic business—I have never felt better about it in 20 years in the industry. We don't need to make acquisitions. We certainly don't need to be acquired to make shareholders happy in this company.
Mr. Malone: As a practical matter, this company is not for sale because it represents a very unusually high long-term return on invested equity capital. It's an approach towards wealth building that I totally believe in.
WSJ: Long-term, how can Liberty compete with U.S. tech giants like Google or Facebook as they become bigger distributors of content?
Mr. Fries: I don't see them as competitors, quite frankly. They are changing the landscape but they are also furthering our own business strategies. They are not in the connectivity business. They are apps. But we are certainly thinking about the business differently today because of the evolution of these apps.
WSJ: How about Netflix, which is preparing a September launch in several additional European countries? Are they a competitor or partner?
Mr. Fries: Both. We distribute them in the U.K. We compete with them in Germany and the Netherlands. We see them as enabler of our broadband business, and that is a good thing. But also they are competing for content rights and competing for share of the video wallet.
Mr. Malone: "Frenemies" is the term of art. Almost all the communication companies compete with each other and supply each other and drive each other. It is sort of the nature of the beast.
|
Join CF
You are here: 
