Liberty Media (Contraction), Disney (Consolidation) & John Malone's Incomplete Vision for Media's Future
This has been a week of headlines about legendary media dealmaker and Liberty Media chairman John Malone. On Tuesday he spoke at the Paley Center for Media’s annual International Council Summit in New York, where he argued for more deals leading to media consolidation.
On Wednesday, Liberty Media announced he would return as interim CEO and current CEO Greg Maffei would be stepping down into an advisory role at year’s end.
The press release outlined the (wonky) corporate reasons for Malone's return are “transactions to simplify corporate structure.” Those include a split of Liberty Media into two entities, Liberty Media and Liberty Live.
Both headlines hint that a "next wave of consolidation and contraction" for media conglomerates—which I wrote about last August—has started. According to a report from CNBC, the Liberty Media conglomerate is now “in its final act”.
However, Malone’s vision for Liberty and arguments for consolidation offer mixed messages about any forthcoming wave emerging. It also seems to discount the technological shifts underfoot.
Key Takeaway
Malone's vision for the future of media seems to discount the speed of technological disruption and the positioning of companies like Meta to shape demand for generative AI. That makes it flawed, regardless of whether the future of media conglomerates is consolidation or contraction.
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Contraction
Over the past 24 hours, we have had two market signals about media conglomerates contracting.
First, Maffei said in a press release that Liberty Live’s spin-out “should reduce the discount to net asset value of our Liberty Live stock and enhance trading liquidity at both entities.” Meaning, its Live assets should be valued more by investors outside of the Liberty Media conglomerate than within it. The Liberty Media conglomerate has hit a wall.
That rationale mirrors a proposal from Comcast’s Q3 2024 earnings call from President Mike Cavanagh. He shared that Comcast is exploring whether a new well-capitalized “spin-off” company—owned by its shareholders and composed of NBCUniversal’s “strong portfolio of cable networks”—would be in a better position “to take advantage of opportunities in the changing media landscape.”
Second, on this morning’s earnings call Disney management was asked about whether it would divest its cable networks because CEO Robert Iger floated the idea last summer.
Disney CFO Hugh Johnston responded that the company has ruled out divestitures to create shareholder value, and shared that he considers two variables when evaluating a divestiture:
Prices Disney can get for the assets, and
Any resulting operational friction from the divestment process.
A divestiture of cable assets did not meet those criteria. Disney needs to remain a media conglomerate because the divestiture costs are higher than the value that could be unlocked from spinning those assets out.
The takeaway from both market signals was that contraction may not be in the cards for many conglomerates except for those with businesses that the market currently values. Media conglomerates are likely persist in one form or another. There may not be an anticipated wave of contraction.
Consolidation
In Monday’s essay I wrote about how a “big” media company that emerges from megamerger-type consolidatin will not need to look like Disney's enormous library of intellectual property (“IP”) or“flywheel” of business divisions built upon that IP. Instead, it will need the scale of its owner to compete like a Sony Corporation or Comcast with a studio integrated into a broader ecosystem.
Iger told investors that Disney was not pursuing consolidation. It has “already consolidated” via its merger with Fox’s entertainment business and does not need more assets “right now from a distribution or a content perspective to thrive in basically a disrupted media world.” Instead, the story was operational efficiency: Iger and Johnston promised double digit growth in adjusted earnings per share and in cash provided by operations.
Warner Bros. Discovery has been a candidate for consolidation since April, the WBD merger’s complicated tax structure (a Reverse Morris Trust) was legally permitted to unwind. But, a recent S4 regulatory filing with the SEC about Skydance’s acquisition of Paramount reveals that Warner Bros. Discovery engaged in merger talks with Paramount Global. Those talks fell through after a few months in February 2024.
Malone told the Paley Center that Warner Bros. Discovery was burdened by debt but now is “starting to experience what the original theory was, which was to take underexploited Warner Bros. programming and library content, create a brand and then distribute it globally. ” He believes the bet is “starting to work… with very rapid global growth.”
The sense from both companies is they believe they have enough to fight and succeed on their own. At the same time, though, both Warner Bros. Discovery and Disney are doing so through operational efficiencies while battling to build compelling growth stories for investors (Both stocks are up 6% since their respective earnings calls).
Notably Malone did not discuss the type of consolidation that Sony Entertainment Pictures CEO Tony Vinciquerra recently envisioned: A studio needs the scale of a Sony Corporation or Comcast to maximize the value of its IP. It can be ruled out for Disney, which has a $200 billion market capitalization. But, it cannot be ruled out for Warner Bros. Discovery, which has a market cap at $24 billion or 12% of Disney's.
The Disconnect
The key variable that differentiates consolidation and consolidation in Malone's vision is ownership of IP. If the conglomerate owns IP, it should remain as is. If it does not own IP, it should rethink its corporate purpose and contract.
Monday’s essay asked and answered, “How can a merger or acquisition create more opportunities for IP to be monetized than within the closed marketplaces of walled gardens?”
Emerging technologies will increasingly enable creators to monetize this IP. That seems inevitable. However, Malone’s vision seems to discount conglomerates' need for cash flows from beyond traditional distribution and their ability to evolve under legacy media management (Warner Bros. Discovery struggles with gaming). It may just be that Malone has confirmation bias towards traditional distribution, even if he sits at the heart of efficient markets of information as a shareholder in multiple media businesses.
That said, Malone's vision seems to discount the speed of technological disruption and the positioning of companies like Meta to shape demand for generative AI. That makes it flawed, regardless of whether the future of media conglomerates is consolidation or contraction.