John Malone sizes up the menace to cable posed by fiber overbuilders


US cable operators are more and more threatened by the huge sums of cash being plowed into fiber overbuilders, however cable business legend John Malone believes that MSOs reminiscent of Constitution Communications are well-prepared to deal with the hazards of extra succesful competitors.

Malone, whose Liberty Broadband unit holds 26% of Constitution and owns Alaska’s GCI, stays upbeat about Constitution’s prospects within the face of recent and rising competitors from fiber overbuilders.

CNBC’s David Faber (left) carried out a wide-ranging interview with John Malone on Thursday, November 18.

(Picture supply: Display seize from interview on CNBC)

“I imagine they will defend their territory fairly successfully,” Malone stated Thursday in a wide-ranging interview with CNBC’s David Faber. To amplify that time, he stated Constitution has carried out effectively defending in opposition to AT&T’s surge in FTTP buildouts and community upgrades. Whereas AT&T has actually gained clients from that work, each corporations are rising.

However he additionally likes Constitution’s place with cellular providers, and its capability to “step on the accelerator” with aggressive pricing and extract a premium when cellular is bundled with high-margin house broadband service.

“I believe if this grows to turn out to be a secure duopoly within the US…Constitution has much more to realize on the wi-fi aspect,” he stated. “And the [mobile] incumbents have much more to lose on the wi-fi aspect than the [cable] incumbents do within the overbuild aspect.”

In the meantime, he believes the menace posed by fiber overbuilders will differ by market and be gauged partially by how dedicated they and their traders are to the lengthy recreation.

“Definitely when you have capital that is prepared to accept very low returns, it is a massive menace,” Malone stated. “The largest menace has all the time been the silly man with some huge cash coming into your corporation. They may not find yourself with numerous profitability, however they certain as hell can injury the profitability of the incumbent.”

However Malone additionally believes that historical past is on Constitution’s aspect, because the “final returns [for overbuilders] have been very poor.”

On that time, he recalled a dialog with former Verizon Chairman and CEO Ivan Seidenberg when Fios was all the craze. “His remark to me was: ‘We is probably not very good, however we’re massive. And if we fall on any person, we are able to harm ’em.’ Properly that is not an important motivation for funding return.”

Malone additionally acknowledged that fiber applied sciences and buildout prices have improved since these early days of Fios, however notes that it is only one piece of the puzzle. There is a larger, complete price of constructing a enterprise, advertising and marketing it and gaining share from the incumbent supplier, he defined.

“We have seen this play earlier than,” Malone stated. “And actually it comes all the way down to how low a return on capital a brand new investor is prepared to [accept].”

Favors a ‘hybrid’ mannequin, extra niche-based strategy for streaming

Malone, who performed a major position in brokering the proposed mixture of Discovery Communications and AT&T’s WarnerMedia unit, additionally had heaps to say about the way forward for the direct-to-consumer streaming business.

He acknowledged that the markets proceed to reward development and scale over profitability, and that gamers might want to give attention to a balanced “hybrid” mannequin targeted on subscriptions and promoting help. A few of that’s already in play, with the likes of HBO Max, Discovery+, NBCU’s Peacock, Paramount+ and Hulu all providing subscription VoD providers outfitted with each ad-supported and ad-free choices.

Malone additionally believes that streaming providers must spend extra effort creating niche-based providers, as all-encompassing, be-everything-to-everyone OTT providers will wrestle to turn out to be worthwhile.

“I believe the actual concern it’s important to begin pondering by way of is what’s going to be the profitability profile of those companies as they more and more go international, as they obtain numerous ranges of scale and numerous ranges of stickiness or content material prices,” Malone stated.

On that time, he believes the DTC market can study from the teachings of cable TV, which realized the right way to cope with bundling, churn and pricing, and finally ended up with a hybrid service providing based mostly on promoting and subscription revenues.

“I believe these are the teachings that these direct-to-consumer corporations are going to be studying and competing over,” Malone stated. “And that may finally decide issues like profitability development and financial worth of the enterprise.”

Malone believes that the varied DTC gamers might want to evolve their providers into “defendable niches” fairly than focusing an excessive amount of on all-encompassing, supersized providers.

“I am an enormous believer that there shall be many choices, not only one gigantic providing,” he stated. “Attempting to fulfill each style and each curiosity in a single omnibus providing goes to change into unprofitable.”

However he is additionally cautious that the market continues to use big valuations on Netflix, a service that does take a broad strategy and, up to now, has stayed away from growing cheaper, ad-supported choices.

“It is all about development. It is a land rush proper now, and profitability to be decided later,” Malone stated.

And talking of Netflix, Malone stated he as soon as made a play for the corporate in days of yore.

“I attempted to purchase Netflix from Reed Hastings when the inventory was $8,” he stated. “However he would not promote it to me. Rattling that unhealthy luck.”

Unhealthy luck, certainly. Netflix, which ended Q3 with 213.56 million streaming subs worldwide, was buying and selling at $677.86 in mid-day buying and selling Friday, down $4.16 for the day.

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— Jeff Baumgartner, Senior Editor, Mild Studying