John Malone Says Pure-Play Content Producers Are Not "Great" Creators of Wealth

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Liberty Media chairman John Malone

As Liberty Media shareholders approve the creation of three tracking stocks, the mogul says Reed Hastings "has built himself a wonderful business" and touts the Atlanta Braves' "major real estate business."

Liberty Media chairman John Malone on Monday once again argued that there has traditionally been more long-term value in distribution businesses built on content than pure-play content producers as Wall Street continues to wait for possible content sector consolidation driven by the media mogul who owns stakes in Lionsgate, Starz and Discovery Communications, among others. 

The value of pure content production companies can go up and down based on hits and misses, and they have generally "not [been] great accumulators of wealth," Malone said at a special shareholder meeting organized by Liberty to approve the creation of three stocks tracking different parts of its business. But companies that build distribution assets using content are “very attractive" assets long-term, particularly in the subscription environment and today's global marketplace, he said.

Malone didn't provide any new insight into what kind of content deals could be on the horizon for him. He has said smaller and mid-sized content companies could benefit from increased scale and more global reach. Earlier in the year, Lionsgate said it would explore a deal with Starz, but then declines in both stocks likely complicated deal conversations, analysts have said. 

Liberty Media CEO Greg Maffei late last year similarly expressed doubt about the attractiveness of pure-play content companies, including film studios. "The worst thing we did was entering the movie business," he said in November. "I've done that three times — always with the same result. It's a good tax-loss generator."

As he has done in the past, he highlighted the success of Netflix, saying that its global reach and subscription focus are exactly why the online video company has been "a very successful business." Netflix CEO Reed Hastings "has built himself a wonderful business," said Malone.

He once again argued that entertainment sector players didn't react to Netflix in the smartest way early enough. “The whole industry," particularly Starz under a former management team, "didn’t take Netflix as seriously" as it should have, Malone said, reminding investors that Starz a few years ago ended a  licensing deal that was seen giving the streamer content on the cheap. “Strategically, [that was] a big mistake," he said. 

Starz, led by CEO Chris Albrecht, not only ended the Netflix deal, but has been building out its subscription and worldwide business with a direct-to-consumer service in the U.S. that recently launched, and which the company has said won't cannibalize its core business, and international streaming service launches.

The special shareholder meeting, which was webcast from Englewood, Colo., approved the company's plan to create three tracking stocks. They are for satellite radio company SiriusXM, the Atlanta Braves and the remaining Liberty Media assets.

Discussing the Braves tracking stock, Malone on Monday said it included not only the team but also “a major real estate business," adding: "These are good real estate assets.” Asked if Forbes’ estimated $1.2 billion valuation of the Braves was correct, Malone said: “I don’t have a clue. We’ll see shortly." He added: "We’ll see what the marketplace puts on it and decide how efficient our monetization thesis is."

With the Atlanta Braves having lost their first five games of the new baseball season, Malone was asked when they will win their first tilt. He replied, "It will be a while. We’re rebuilding."

FBN Securities analyst Robert Routh recently estimated that the tracking stocks could have a combined value that lies 16.6 percent above present levels. "It seems the trackers should create and highlight value for Liberty Media shareholders," he said.

Evercore ISI Media analyst Vijay Jayant wrote in a recent research report that he expects that the tracking stocks would begin trading two to three days after shareholder approval. "The trackers will help in attributing the value of the underlying assets and will make it easier to track the discounts to each tracker’s respective net asset value," he said in explaining their benefit. "Additionally, Liberty Media management has said that it will use share buybacks to take advantage of persisting discounts to net asset value. As such, we expect the discounts to narrow following the creation of the tracking stocks."

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