Media magnate John Malone is one of the most interesting people you’ll ever read about.

For one, the man has a wall full of degrees: Bachelor’s Degree in Economics – Yale (Magna Cum Laude), Master’s Degree in Electrical Engineering – New York University (NYU), Ph.D. in Operations Research – Johns Hopkins.

Any one of those prestigious degrees would open a few doors. All three? Well, it’s not surprising that this distinguished scholar has gone on to do great things.

Among other accomplishments, he has been named to the board of directors at Expedia, Charter Communications, Warner Brothers, and DirecTV. Today, this octogenarian sits in the Chairman’s seat at Liberty Media, a massive conglomerate with ownership stakes in everything from SiriusXM satellite radio to the Atlanta Braves baseball team.

With a net worth approaching $10 billion, Malone is firmly ensconced on the Forbes list of the world’s wealthiest individuals. He is a noted philanthropist, yachtsman, and thoroughbred horse breeder. He is also the nation’s largest private landowner, surpassing close pal (and TBS founder) Ted Turner by accumulating 2.2 million acres of farms and ranchland.

It’s an impressive bio. But we’re not here to read about the lifestyles of the rich and famous. You see, Malone is also a legendary dealmaker. In fact, he could be the architect of the next big round of media consolidation.

The King of Cable… And A Cash Flow Crusader

Source: Warner Bros. Discovery

Much like Warren Buffett, Malone was thrust into the leadership role of a failing company at a very young age (29). After brief stints at Bell Labs and General Instruments, he took over as CEO of a near-bankrupt cable company called Tele-Communications Inc (TCI) that mostly served rural markets. The year was 1973, and TCI had just 600,000 subscribers.

Priority one was to placate creditors and get financial affairs in order. Side note: Malone revolutionized the analysis of telecom companies by rationalizing tax shelters and explaining the importance of recurring cash flows over short-term earnings (this is literally the guy who invented EBITDA).

He was keenly aware of scale and operating leverage. Malone also knew that growth would drive down costs per subscriber and boost margins. And the bigger the subscriber base, the more negotiating clout with content providers (just like Wal-Mart flexes its muscles with suppliers). In turn, those profits could help add more subscribers, discounting costs even further.

The textbook virtuous cycle.

So Malone expanded the old-fashioned way: via acquisition. He spent the next two decades engineering hundreds of takeovers and partial acquisitions. TCI took control of smaller regional operators like Heritage Communications, steamrolling into Pittsburgh, Buffalo, Chicago, and Dallas, assimilating local assets and systems.

Malone closed 482 deals between 1973 and 1989 — an average of one every two weeks. By then, TCI had become the nation’s largest pay TV provider, controlling over 1,000 local systems through its affiliates. The subscriber base would eventually reach 14 million, a 30-fold increase from the early days.

The sheer size enabled TCI to extract favorable terms from programmers. Even better, Malone bargained for minority ownership stakes in several of the most popular cable networks he carried, including the Discovery Channel and Black Entertainment Television (BET). So for every dollar TCI paid them, he got a piece of it back.

Brilliant.

As you might expect, investors were handsomely rewarded. Calculating returns is a bit tricky thanks to Malone’s penchant for tracking stocks and spinoffs, but Fortune magazine tallied a 91,000% gain, from a low of $1 in 1974 to a peak of $913 in 1989. And it didn’t stop there.

A Media “Mastermind”

It would be another decade before Malone took advantage of industry deregulation and brokered a deal in 1999 to sell TCI to AT&T for approximately $50 billion. It was a massive transaction, even by today’s standards. Ironically, the long-distance carrier saw the takeover as a golden opportunity to break into local phone service (then dominated by the Baby Bells) by piggybacking on TCI’s home cable wiring infrastructure, a motivation that seems quaint today.

Malone cashed out a bundle. But his gamesmanship didn’t end there.

AT&T would soon spin off Liberty Media, TCI’s independent programming arm, to appease anti-trust regulators. Liberty was an even more aggressive buyer than TCI, famously completing a deal every ten days on average for most of the 1990s. With Malone calling the shots, Liberty acquired chunks (or full outright ownership) of numerous cable, telecom, music, entertainment, and local broadcasting properties.

The Hallmark Channel, Sprint, QVC, Fox Sports, TBS, Starz, News Corp. The list goes on.

Source: Amazon

Malone has a reputation as a shrewd bargainer and can, at times, be ruthless. When a marina wouldn’t sell him fuel (insisting it was for harbor regulars), he bought the entire boatyard. His battles with the Federal Trade Commission (FTC) are legendary, earning him nicknames such as Darth Vader and the Cable Cowboy on Capitol Hill.

But to quote the Wall Street Journal, Malone is also a “master strategist” pulling strings in the evolving media world as it copes with seismic changes. A Citigroup analyst called him “the genius behind the curtain.” Time magazine used the term “Mastermind.”

As a top shareholder, Malone joined Charter Communications and Time Warner in a game-changing $78 billion merger, creating a cable and internet powerhouse.

Shortly after, he helped steer Discovery Communications’ takeover of Scripps Network. That deal put cable real estate such as Food Network, HGTV, and Animal Planet under one corporate umbrella. Explaining the benefits, he cited a larger global reach, enhanced negotiating power, and the simple cash flow logic of “buying something generating a 12 percent cash return with 3.5 percent money.”

Incidentally, Discovery just added HBO and Cartoon Network to its lineup last year after subsuming Warner Brothers.

Concurrent with these other deals, Malone was also busy stalking another buyout, this time at Lions Gate Entertainment, the nation’s largest independent film studio. He hinted at a possible interest in “free radicals” such as AMC Networks or Starz. It turned out to be the latter. Less than a year after toying with the idea, Lions Gate pounced on Starz in a $4.4 billion deal.

The Next Chapter In Media Consolidation

But that union looked better on paper. Today, the two companies are preparing to part ways. The mechanics of the split are still being worked out, but a separation is expected to be finalized by the end of next quarter. Why does this matter?

Because an independent Starz will soon be able to chart its own course and start dating again. Starz was once owned by Liberty, and its former parent continues to hold a sizeable stake through Lionsgate (NYSE: LGF-A). (Although Malone has since sold his personal holdings.) There are strong indications that Starz will be back on the prowl once the divorce is final.

Frankly, it’s facing an uphill battle on its own. The pay television industry has been disintermediated, cutting out the middleman between content creators and audiences. Subscription bundles are coming undone. Everyone knows it. And many fatigued consumers simply don’t want another streaming service.

But one thing hasn’t changed since the 1970s. Size still matters. That’s why Amazon paid $8.5 billion for MGM studios last year. Why Disney invested $71 billion in 21st Century Fox. Why CBS teamed up with Viacom…

Such consolidation makes it difficult for Starz to compete with Netflix, Disney, and Prime Video, all of which have between 150 to 250 million subscribers and a deep well of entertainment titles.

Closing Thoughts

If you want to invest alongside the Liberty Media empire, you have three choices in the form of tracking stocks: Liberty SiriusXM Group (LSXMA), Braves Group (BATRA) and Formula One Group (FWONA).

As the company states on its website, a tracking stock is a type of common stock that the issuing company intends to reflect or “track” the economic performance of a particular business or “group,” rather than the economic performance of the company as a whole.

And while Starz isn’t publicly traded, you can bet that we’re about to see even more media consolidation in the coming months.

I’m betting John Malone will have a heavy hand in it.

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