Streaming Video ‘A Terrible Business,’ Malone Says, But Overseas Better

John Malone, the long-time media executive and investor, has a few ideas about how to save the swooning business of cable television, though it may already be too late, even as putative successor streaming video seems to have hit its own limits .

Malone – a major shareholder and power behind the throne at Warner Bros. Discovery, Charter Communications and Liberty Global – sat down with research company MoffettNathanson co-founders Michael Nathanson and Craig Moffett and senior analyst Robert Fishman for a wide-ranging conversation released this week that looked at cable, streaming, satellite TV, and wireless, and their increasingly messy interplay.

Among other key thoughts, Malone said, the subscription streaming sector that has reshaped Hollywood media companies the past five years is "a terrible business."

"In Dr. Malone's view, 'There shouldn't have been a Netflix,'" the analysts wrote in their not-quite-a-transcript of the conversation. "Instead, the transition to an on-demand world should have been a routine morphing of a linear business, adding random access to its content, and then going more a la carte, breaking it down to affordable bundles."

None of that happened, at least in the United States, in part because the media companies making so much money from cable TV deals for four decades refused to allow a la carte bundles or other approaches that might have stranded some of their lesser or specialized networks.

"He said he wished that the late (U.S.) Sen. John McCain (R-AZ) had prevailed in his quest to force something like a la carte on the programmers and distribution industry; if he had, then we probably wouldn't have evolved the way we've evolved," the MoffettNathanson analysts recounted. "The fact that we got broadcast retransmission consent, combined with the greed of sports-rights owners who drove the cost of the bundle through the roof, at a time when sports content was only wanted by about 30% of households and yet was forced down the throats of 100% of video customers, led us to an unsustainable place."

Sports have been particularly ruinous for the legacy mediacos as they try to keep pace with the deep pockets of tech giants such as Netflix, Amazon and Apple.

The NFL signed a $110 billion, 11-year deal, including with Amazon and Alphabet's YouTube TV, then added lucrative side deals with Comcast, Amazon and Netflix for one or two games in special slots.

CNBC reported this week that TV executives are already "freaking out" over the "look-in" provisions in the NFL's mammoth deal.

The reason for the network freakouts? The NFL could tear up its deals with all the linear networks but Disney as soon as 2029, taking away the last thing anyone watched on traditional TV watches in large numbers. Already, the NFL occupies more than 90 of the top 100 most-watched shows on linear TV each year. Loss of the NFL at decade's end would finish off whatever was left of the linear carcass.

The just-announced NBA rights renewal topped $76 billion, while ending a four-decade partnership with WBD, which was outbid by Comcast and Amazon. WBD is challenging terms of the new contract in court.

Malone suggested that Comcast CEO Brian Roberts may come to rue the $2.5 billion-a-year it bid to wrest away WBD's NBA rights: "Huge money for 11 years into an uncertain future at an escalating price."

But more generally, Malone has a nostrum: tweak the net neutrality laws that so advantage the tech giants, tilting the playing field back to the mediacos.

"If I had my druthers, I would talk to the regulators about making network neutrality non-existent when it comes to live events," Malone is quoted saying. "I would take that tool away from big tech, because talk about a giveaway. If you give big tech the opportunity for free access to stream on the Internet live events of massive demand. who's going to be able to outbid them for sports content?"

As Malone is quoted later saying, "Big tech will end up eating everything - our industry and every other one - simply because they have such immense scale, immense economic power. Anything they want to get into, they're going to be very hard to keep out of, because they can buy their way in. The old world used to be you can't take over another guy's business by cross subsidy. That seems to be totally forgotten."

It's worth noting that kind of mammoth policy shift likely would require a different administration, a different Congress, and certainly a different regulatory regime, to be even a possibility.

While Malone called streaming a terrible business, he acknowledged it did solve a crucial problem that consumers badly wanted fixed for years.

"The (streaming) technology solved the issue of a la carte friendliness," MoffettNathanson wrote. "But instead of giving that capability to the customer, the content guys decided they wanted to go direct to consumer, turning their backs on the wholesalers. They decided that they'd rather save the two or three bucks by going direct to the consumer, and ended up essentially damaging, if not destroying, what was a very strong industry."

The better approach, in Malone's view, was to integrate "random access" with the linear bundle. To some extent, that's what the CEO of another Malone company, Charter's Chris Winfrey, is trying to construct over the past year with new kinds of cable carriage deals.

"(Malone) argued that they've should have done this five years ago," MoffettNathanson wrote. "The curse has been the inability of the content industry to deal with the distribution industry and come up with win-win solutions. He noted that it's very frustrating as an investor to have seen this unfold."

Charter has pushed through a string of transformative carriage deals with major media companie s – including WBD, Disney, Paramount Global and AMC Networks –that integrate the on-demand and build-your-own-bundle flexibility of direct-to-consumer services with the traditional cable package. Now, Charter cable subscribers can get free access to ad-supported tiers of Disney+, Hulu, AMC+, Paramount+ and Max, a bundle worth $60 a month.

Malone has a lengthy, and detailed, prescription for what might have been, if only the industry, and sports-rights holders, had gone a different path. It's possible it's too late to salvage the linear business, but "Now, the media companies are scared to death that they're seeing nothing in the future but a struggle," Malone is quoted saying.

Better approaches are taking place in Europe, free of some of the regulatory, legislative and operational limits on broadcast and cable that still hobble changes in the United States.

"In most cases, the video packages available to consumers from the wholesalers, the connectivity suppliers, are hybrid; they include both streaming and linear services, bundled, packaged, and discounted," MoffettNathanson recounted. "(Malone) noted that Liberty Global CEO Mike Fries likes to point out that now less than 10% of Liberty Global's revenue is video, but that it's still very important and improves stickiness. And if you don't supply it, he noted, 'the other guy will.'"