Liberty Media's Malone: Cable Faces 'Modest' Cord Cutting

John Malone, chairman and controlling shareholder of Liberty Media Corp. (LINTA, LCAPA, LSTZA), said the cable industry may lose some pay-TV subscribers to online video alternatives--a phenomenon known as "cord-cutting"--but he said the damage is likely to be modest.

"If you're a cable operator, there's going to be some modest siphoning from the traditional model" to random online video services, Malone said at an investor conference Wednesday. "Most people will choose to take both."

Currently, Malone said, "there is a small amount of cord-cutting going on--probably on the margin. Not that much."

The comments came as the pay-TV industry faces a barrage of online video offerings from popular tech brands like Apple Inc. (AAPL), Google Inc. (GOOG) and Netflix Inc. (NFLX), and they hold particular weight, since Malone made his fortune as a pioneer of the cable industry.

Pay-TV has grown to become the most lucrative business in television, as broadcast has suffered an erosion in audience and ad dollars. The industry, however, suffered the first overall subscriber decline in its history in the second quarter, according to SNL Kagan, due to the weakened U.S. economy. Meanwhile, investors are concerned that cord-cutting may gain momentum with consumers as technology advances, putting the TV business in the same bind suffered by the music and publishing industries as the Internet enabled customers to enjoy their products without paying for them.

Malone said he'll be interested to see if tech companies like Google and Apple will be able to cobble together enough quality content to provide a competitive alternative to the traditional pay-TV business. He said it would surprise him if large content owners allowed smaller online video aggregators, like Netflix, to disrupt their relationship with consumers, but he said such things have happened before in media and could happen again.

"The most important content will demand a premium price and will want to be controlled by its creators," said Malone.

He said he agrees with News Corp. Chief Executive (NWSA, NWS.AU) Rupert Murdoch that consumers will have to pay for online access to premium media content such as news and entertainment, adding that advertising revenue alone won't be able to support a healthy content creation industry. News Corp. owns Dow Jones & Co., publisher of this newswire.

"For content owners to give [their content] away is just stupid," said Malone.

As for his own remaining interest in the pay-TV business, Malone was bullish on his stake in cable network operator Discovery Communications Inc. (DISCA), in which he holds effective control along with the descendants of publisher S.I. Newhouse.

"If the Newhouse family wanted to combine with someone else for some reason, I certainly would listen to the story, but my preference would be to see [Discovery] grow through acquisition and particularly organically on the international side," said Malone.

He said even if consumers drop their cable TV subscription, they'll still be subscribing to broadband--a business where he believes the cable industry holds a winning hand.

"I think the cable guys really do have the better mousetrap there," Malone said, noting cable's ability to add speed to its broadband networks while keeping prices affordable.

He said the greatest threat to cable's broadband business comes from government regulation--a reference to the Federal Communications Commission's recent proposal to beef up regulation of broadband networks in order to enforce so-called "net neutrality" principles, which govern how operators can manage content traffic on their networks.

"They ought to dissolve the FCC and go away," said Malone. "Any time the government gets involved, it usually messes things up."

Malone said he thinks mobile media offers some of the most attractive growth prospects of any business in media.

"You have to be serious now about mobile," he said. "The explosion of devices people will have will allow them to use content in a mobile environment."

Meanwhile, Malone praised Comcast Corp. (CMCSA, CMCSK) Chief Executive Brian Roberts for his deal to buy a majority stake in NBC Universal without paying a premium price. He said the deal should provide Comcast, the nation's largest cable operator, with protection from the threat of cord-cutting, as well as a hedge against rising programming costs for cable companies.

He said Roberts will likely be proven right in his push to combine media content assets with major distribution assets even as Time Warner Inc. (TWX) was busy spinning off its cable arm, Time Warner Cable Inc. (TWC).

"If I had the opportunity to do the NBC deal, I would have done it," said Malone. "Those opportunities only come along once in a lifetime."

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

Liberty Media Corp. - Liberty Cap Class A Common Stock (MM) (NASDAQ:LCAPA)
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