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Liberty Media's John Malone Touts Charter Stake, Cable Power

John Malone
Matthew Staver/Bloomberg via Getty Images
John Malone

He predicts that cable companies will eventually offer broadband tiers, which will affect Netflix, and comments on Dish boss Charlie Ergen's "kamikaze" style.

Liberty Media chairman John Malone on Tuesday once again touted the company's recent deal for a 27.3 percent stake in cable operator Charter Communications.

At Liberty's annual shareholder meeting in Colorado, he also lauded the cable industry's strength in broadband subscriptions and hinted at the possible introduction of cable broadband usage tiers, which would affect Netflix. Plus, he also commented on Dish Network chairman Charlie Ergen's latest deals and his "kamikaze" approach to business.

Asked about Netflix, Malone said it "has done a wonderful job" of showing people's appetite for content from nontraditional providers. But he also predicted that in the future, cable operators could offer "various tiers of connectivity," possibly with built-in video offerings or bundles. Netflix CEO Reed Hastings will in that scenario have to keep in mind some of the cost of broadband capacity "that he is burning," Malone said.

Some Wall Street analysts have suggested that cable operators could eventually start charging subscribers or broadband video providers based on broadband usage.

Malone also predicted that traditional cable content bundles could over time come unbundled, touching on Senator John McCain's recent push for a la carte offerings of networks amid the continuing rise in the cost of sports channels.

Saying that he loved the politician, Malone called him a "modern-day Don Quixote" for his efforts on behalf of a la carte offerings. Instead of change driven by politicians, Malone said this change would have to be evolutionary.

The Liberty Media chairman on Tuesday also discussed Ergen. "Every industry needs a guy like Charlie," he said. "We just all rely on him being the kamikaze" and just yanking networks he feels want too much money to be carried. The remarks drew some laughs from attendees of the annual meeting.

He also addressed Ergen's acquisition of wireless spectrum. "Charlie is out in the wilderness to piece together" a broadband solution that can compete with cable and other providers, Malone said.

Asked about why Liberty took at stake in Charter now, Malone on Tuesday lauded the cable company for having "probably the best operating team in the business," led by CEO and former Cablevision Systems top executive Tom Rutledge.

In addition, Charter has "massive" tax loss carryforwards," he said in reference to the practice of applying previous years' losses to reduce current profits for tax purposes. Given Malone's known focus on avoiding taxes, he gave a shoutout to a former Charter investor and chairman, as well as Microsoft co-founder. "Thank you, Paul Allen."
 
Malone also lauded Charter's stock for trading at a premium to others in the sector. That will help give Charter the "opportunity to be a horizontal acquisition machine" with a focus on cable companies that lack scale," he said.

But Charter also has the chance to "grow through superior interior growth" given it has in the past lacked investment and is facing less competition intensity than its peers, according to Malone. He pointed to low overlap with Verizon's FiOS and AT&T's U-Verse pay TV services.

E-mail: Georg.Szalai@thr.com
Twitter: @georgszalai