CNBC LEADERS: John Malone 11/10/23

SPEAKER_1 (0:00)

What do you see on the horizon for financial markets?

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David Faber (0:33)

John Malone has been at the center of the media industry for 50 years as the architect of a cable and broadband ecosystem that defined the way Americans consume media for generations. With that world undergoing great change, the 82-year-old Malone has some definite thoughts about where things are headed. And if you need a reason to listen, consider this. $1 invested with Malone in 1973 would be worth $3,750 today. He joined me from Liberty Media's headquarters in Colorado.

Well, a year ago, we talked, and you were not a believer necessarily in the ad-supported streaming tiers as much.

John Malone (1:13)

I am not on entertainment, okay? Because I think most people feel that the big breakthrough of Netflix was no ads. So you notice Netflix is not getting a huge take-up of save a couple bucks and take ads.

Now, Amazon right now, on Prime, is thinking about going the other way, put ads in everything, right? Because they're building a big ad business.

David Faber (1:38)

They already have an enormous ad business.

John Malone (1:40)

Netflix tried to outsource their ad business to Microsoft, and so far, I don't think it's created any big buzz. So you have an Amazon monster. But I think the question you and your viewers have to focus on is the distinction between library entertainment services and live, whether it's sports or news or other kind of talk shows, things that are like you, okay?

Financial news, live, real time, okay?

David Faber (2:15)

Completely necessary at all times, John.

John Malone (2:17)

Yes. Well, here you have a real anomaly, okay? Because when it comes to live, which has really always been the backbone of broadcast, and broadcast continues to survive, but under real pressure as big tech competes for sports, so whether the economics of sports continuing to drive broadcast, the anomaly is that network neutrality, the government policy creates this crazy world in which Amazon can go buy Thursday Night Football for multiples of what the industry has been paying.

And for distributors like Charter or Comcast, instead of it being one linear channel, which consumes, you know, which is everywhere and consumes perhaps one thousandth or one percent of the capacity of the network, suddenly it becomes 30 million streams, okay, on Thursday night, essentially choking the networks with enforcing the distribution companies to spend a lot of money on expense and money on expanding capacity rapidly, and yet it costs Amazon nothing for the transport. So what we've created here is an open path for big tech to essentially decimate, let's call it.

David Faber (4:02)

Not to mention their endless balance sheets anyway, which they don't even get judged on.

John Malone (4:06)

Well, they have two things when you really look at it. From an antitrust point of view, they have cross synergies.

So they can argue that they're not under pricing. This isn't a loss thing, okay, because they get synergies with prime out of adding this. And they make so much money with prime that the money they lose looked at on a stand-alone basis.

And they also have cross subsidy. So yeah, they make a lot of money. They got a big balance sheet. They can take some of that, and they can buy a Thursday Night Football, or a Sunday ticket on YouTube, or a Sunday ticket. So you can see the conversion. What's happening now is the fight is no longer for entertainment library services. That has kind of settled down to where one company is making money.

David Faber (4:56)

Netflix.

John Malone (4:58)

Netflix. Warner Brothers now is making money. Not a lot, but they're making money. And then you have Disney losing a lot of money.

Peacock losing a lot of money.

Paramount losing a ton of money that they can't afford. At least Brian can afford to lose the money. It makes a lot of elsewhere.

David Faber (5:18)

It's not fun losing $2.5 billion a year.

John Malone (5:19)

It isn't. But until he sees light at the end of the tunnel, I mean, that's where he's at. And so he'll be trying to figure out solutions too.

And all the other guys are just seeing their viewership. They're still only in the linear space. They're seeing their revenue streams and their viewership.

David Faber (5:42)

So how do you pay for the NBA, for example, if you are Warner Brothers Discovery?