On Thursday, Liberty Media chairman, cable legend and "outsider CEO" John Malone talked to CNBC's David Faber. He did solast yearas well.
Malone is about as knowledgeable as it gets about the media industry and it is very valuable to get his insights into the industry. To follow is a summary of some of the most interesting points he made.
The interview started off with the streaming wars between the different over-the-top platforms. Malone believes Disney (DIS, Financial) and Netflix (NFLX, Financial) will definitely be around in five years.
Disney's new service will be around because it has a great global brand and a lot of great content. Its challenge is it has no direct-to-consumer relationship. Malone has no questions whether or not it will be successful with the OTT platforms. In the end, it will be quite successful. He reminiscenced about the silly moment when Netflix had a bigger market cap than Disney, but believes it is a sign. The street gets it. The relationship with customers is key.
Netflix will be around because it is so far in the lead. It has such a large user base built up. The company may not be as profitable with all the competition coming in, but it will definitely be around.
Apple (AAPL, Financial) will surprise everyone with how fast it will grow. It already has credit cards (also known as consumer relationships). If Apple gives away something for free and after a year put it on your bill, thats an interesting way to get a lot of users. It doesn't have a lot of content, so it will take a content-light route. That is the model all tech companies would prefer to take.
Amazon (AMZN, Financial) will either step on the accelerator or on the brakes. Amazon should evolve toward a bundle of other players' content. All the tech guys want to have the platform business. Let others waste their money on content. You want to have and monetize consumer relationships. Amazon has that and doesn't need to make money on the content distribution. It is focused on growing the Prime user base.
For companies in the future to be as profitable as cable was in the past, you need a monopoly or duopoly situation. Ultimately, these businesses end up becoming regulated. The curse of life is that if you are too successful, you end up being regulated. Malone believes Alphabet (GOOG, Financial) (GOOGL, Financial) and Facebook (FB) will end up being regulated, which means he thinks these are fantastic businesses.
Google has a de facto monopoly. Sooner or later, there will have to be a level playing field. Either created by Google itself or by regulators. It has to be careful not to own assets it then favors in its own search engine.
Discovery (DISCA, Financial) generates $3 billion in cash flow. It is dramatically undervalued. Malone screens for market cap against levered free cash flow. The company owns all its content. It has an investment-grade balance sheet and trades at a 5.5 cash flow multiple. Very cheap for a good company. Malone is buying. He just bought $75 million worth of shares. He is very satisfied with the talented management team that came over from Amazon.
These are the most important stock-specific highlights, but it is absolutely worth watching the entire interview if you are a media investor.
Disclosure: No positions.
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