John Malone Streaming – “There’s a Lot of Blood Flowing” – Deadline
Freedom Media President John Malone slammed AT&Trented Hastings Reed and affirmed his faith in the Discovery of Warner Bros. team led by David Zaslav amid the drama and red ink of today’s streaming wars.
“Right now there’s a lot of blood flowing down the gutters of people streaming. Some of them can afford it, some can’t. So I guess those who can’t will eventually have to look for a sort of consolidation or exit,” Malone said during a Q&A at the end of Liberty Media’s annual Investor Day in New York. It’s one of the company’s few regular public appearances. long-time media savvy investor, major shareholder in Discovery and now WBD.
A question: What makes him confident that the merger will be a success and not “an LBO [leveraged buyout] went wrong?” The company missed expectations in the last quarterr on the slowness of publicity and the high costs of mergers.
“One thing that gives me confidence is the management. I have enough confidence in [WBD CEO] David Zaslav and his guys, having seen the Scripps integration with Discovery a few years ago,” Malone said.
Second, the balance sheet, which is “very light on short-term maturities” despite heavy debt.
Third, “even in her worst year, she generates a 10% cash return on her net worth. So staying as an investor and looking to the future, where the cash return is almost certain to increase significantly, is a pretty good upward-pointing vector,” said the billionaire electrical engineering and economics graduate. . The company is generating “significant” free cash flow and is targeting $3.5 billion in synergies.
Under no circumstances can WBD be sold for at least two years because the deal was a tax-free spinoff, Malone noted. “So I don’t waste time or energy thinking about who [WBD] might merge or what corporate transaction might take place. He did refer, however, to a jolt. “There are a ton of smaller streamers, who are very specialized, who…might have to consolidate into the bigger ones if their content is unique and relevant.”
“Let’s face it. Everyone went through that crazy land rush in Oklahoma. I’m not going to call the AT&T management fools, but they sure did…throw away everything but the kitchen sink and put the pace of running the business in a bit of stress,” he said of the former Warner Media relative.
He doesn’t know how easy it will be to replicate the dual revenue stream of a declining linear business that still generates plenty of cash. And largely blames the sport for cutting the cord by driving up the price of the wire harness. “A lot of consumers weren’t giving up content, but price, over what Netflix and others were offering for entertainment.”
“As long as there is competition between distributors, the sport will continue to have disproportionate market power,” he said.
Even Netflix is getting into sports. Malone called this streamer a “fundamental service” and said that “Reed Hastings shareholders should build a huge monument to him…He came out on top, saw the opportunity, took the opportunity, and went for it. the scale.” Netflix was there early and did a great job. But expanding the service “by spending so much on so much content is unlikely to succeed,” Malone said.
Netflix started a huge scare earlier this year when it lost subscribers for the first time. A previously rah-rah Wall Street chilled out business with a much sharper eye on spending and profitability. Continued profits depend on discipline, cost control and “rational growth expectations,” Malone said.
Meanwhile, experimentation, particularly around the cluster, will continue. “Disney is trying a set of three different streams serving three different audiences [with Disney+, Hulu and ESPN]. HBO Max is trying to regroup with Discovery+ to see what kind of stability that creates,” he said. WBD plans to roll out its combined service this spring.
“If you can buy a sporting event exclusively, you can always gain users.” But given marketing costs and churn, in the long run, the service with the best package and the lowest costs will be the most profitable,” Malone said.
Malone even addressed Zaslav’s salary packageafter a participant called him “overpaid”.
“Yes, on paper he is quite overpaid. But remember that almost all of his compensation is made up of options that are priced at multiples of the current stock price. So unless the stock is really performing well, he really isn’t overpaid.
Zaslav’s total salary was over $246 million for 2021, inflated by an option award valued at $202 million. But options require stocks to hit certain metrics over seven years before they’re in the money. Discovery shares were at $23 when the package was announced and would have had to reach $35, for example, for the first tranche to be exercised. It hasn’t been a great run and shares closed today at just under $11.
WBD itself can’t be sold for at least two years because it was a tax-exempt spin-off, Malone noted. “So I don’t waste time or energy thinking about who [WBD] might merge or what corporate transaction might take place. He did, however, hint at offers. “There are a ton of smaller streamers, who are very specialized, who…might have to consolidate into the bigger ones if their content is unique and relevant.”
Malone’s Q&A, also chaired by Liberty CEO Greg Maffei, followed presentations by executives from Liberty’s various holdings, including the Atlanta Braves, Formula 1, Charter Communications, SiriusXM and Live Nation. The Braves will become a public company. And Liberty Live, a new tracking stock, will house Liberty’s Live Nation holding. The Ticketmaster division of this company is currently immersed in her own Taylor Swift drama/concert ticket.