In an interview at Lionsgate’s first investor day, Liberty Media chairman John Malone praised Netflix as having a “nirvana business model” while calling out traditional pay-TV distributors for being “asleep at the switch” as their legacy “toll gate” video business models were disrupted. Malone highlighted Netflix’s direct-to-consumer, global scale and complete control as key benefits.
However, Malone wasn’t all doom and gloom about traditional pay-TV distributors, which he sees as morphing from being “video delivery businesses” to “connectivity businesses.” Malone thinks this change in mindset will lead to distributors breaking with tradition and offering premium networks such as Starz in combination with broadband, as opposed to being available only on top of multichannel bundles. But he would not provide any timetable for when this shift might occur.
Underscoring their important place in the ecosystem, he noted that Netflix itself has aggressively courted pay-TV operators to be integrated with their services and set-top boxes, recognizing the power of bundled billing and promotions.
Malone made the remarks in an interview with investor (and fellow Lionsgate board member) Gordon Crawford.
Malone said linear TV is confronting two key problems: first, that they’re dealing with a broader set of competitors than ever, and second, that consumers are showing a “real appetite for random access” to programming as on-demand viewing gains momentum. He also observed that re-runs are losing value in an environment where more scripted originals are being made than ever.
Not surprisingly, Malone is bullish on Lionsgate’s potential, given its recent acquisition of Starz, which Liberty controlled. Malone likes how Starz’s predictable cash flow mitigates the more hit-driven nature of Lionsgate’s studio business. Improved balance sheet stability will allow Lionsgate to take on greater leverage than a traditional studio could, potentially enabling acquisitions. Malone also believes Starz has a big untapped international opportunity that the combined company could pursue.
Separate, Malone also commented on ESPN’s well-publicized shrinking subscriber base, advising that Disney should consider selling ESPN to private equity investors who would place a higher value on ESPN than public markets.