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WHEN: Today, Thursday, November 16, 2017
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Liberty Media Chairman John Malone and CNBC's David Faber. Clips have aired throughout CNBC Business Day programming today Thursday, November 16th. Following is a link to the full exclusive interview on CNBC.com: https://www.cnbc.com/video/2017/11/16/watch-cnbcs-full-interview-with-liberty-medias-john-malone.html.
All references must be sourced to CNBC.
DAVID FABER: John, I'd love to start off-- big picture. Sorta where we find ourselves. You and I, I can mark the years down by our interviews, which I always enjoy, and we've done them for so many years now. But I-- it does occur to me this last year-- there's a lot of tumult in what we call the, for lack of a better term, old media world.
JOHN MALONE: Right.
DAVID FABER: And-- you know, I'm curious, given your experience, having been one of the founders of that world to a certain extent 40-some-odd years ago, this ecosystem, are we at a point that's sort of unlike anything you've seen in the past?
JOHN MALONE: Well, I would say the biggest change is the globalization, which was really empowered by the standardization of the internet. I mean, we never used to have a global footprint and global standards against which you could create software, hardware services. We have that. And I think that probably is the most powerful impact. And then those people who have developed services that ride on that platform and that global ambition explode in size. The Facebooks of the world, the Amazons and so on, because they have this now interconnectivity that is essentially the whole planet. And the penetration of that is— is growing every day. And the sophistication of the services is growing every day. So I'd say in my—in my career, that's the biggest change, is the denominator is up by at least a factor of ten to one in terms of scale. And what that does is it makes scale even more important in a media business where scale always was important. So it's all about scale. And it's all about, you know-- can Netflix get enough scale that nobody really can challenge them? Can they figure out how to use that scale?
DAVID FABER: How far along are they in doing that?
JOHN MALONE: I-- my own personal opinion, the only—the only outfit right now that has a chance of overtaking them would be Amazon. And the reason being that Amazon has an entirely different monetization strategy. But, you know, Reed is a very smart guy and he's not wasting any time. You know, he's pouring the coal on the burners.
DAVID FABER: They're spending fortunes and they're—
JOHN MALONE: Spending fortunes.
DAVID FABER: Expanding globally at a much more rapid clip, obviously investing--
JOHN MALONE: And he's been, you know-- God bless him, he has been successful in throwing Hail Mary passes and then growing into them. And I think he's gonna continue to do that.
DAVID FABER: Now, you--
JOHN MALONE: He's got--
DAVID FABER: --you will--
JOHN MALONE: --he's got a great service. He's disintermediating the studio industry by going directly to the talent and the producers ahead of the studios. So he's-- he-- he's a disruptive force. And-- you know, he's kinda the first wave. And I think-- Jeff is gonna be the most disruptive.
DAVID FABER: He already is—
JOHN MALONE: That's—
DAVID FABER: --Bezos, you mean, of course?
JOHN MALONE: Yes.
DAVID FABER: Yes.
JOHN MALONE: As the-- as-- you know, as the Death Star moves into striking range of every industry on the planet--
DAVID FABER: Every-- there's not a conversation at this point that I have that doesn't end up with Amazon being the threat to your business.
JOHN MALONE: Correct because they have-- if you're in the B2C business, if you're selling anything to any consumer anywhere on the planet, right, you gotta believe that Amazon is gonna have a look at that opportunity to decoma-- to-- to commoditize you, to use scale to serve the public. So-- he's in the very enviable position. The winds are at his back because, in effect, he is-- a commoditizing factor. He's reducing the cost to the consumer and providing great convenience. So, you know, you—you just gotta— got to—take your hat off and envy what he has built.
DAVID FABER: Everybody does--
JOHN MALONE: It's-- it's a wonderful--
DAVID FABER: --for the most part.
JOHN MALONE: --wonderful construct.
DAVID FABER: I-- I wanna get to the end game here about those players with scale, but back to Netflix for a second. You had been arguing for years that the cable companies should have banded together, figured out a Netflix-like service. It's too late now?
JOHN MALONE: It's way too late. But, you know, cable at one point could have done it. As you know, when I was-- DirecTV I tried very hard to buy Netflix for-- for DirecTV. Stock then was, like, 17 bucks, you know, pre-splits and-- and Reed was pretty clear that-- that his ambitions were to build a much bigger global company. And he was right to do that. So, you know, his scale, the ability to create content to scale. I mean, if you think about it, three years ago, HBO was the biggest, most powerful thing in the-- in the-- premium entertainment category. They spent I think two and-- $2 billion to $2.5 billion on content. They're now dwarfed.
DAVID FABER: Dwarfed. Netflix will spend $8 billion next year.
JOHN MALONE: Correct. And-- and beside that, HBO is essentially only a domestic distributor. So they don't have the global platform under them. And, while they can syndicate or sell their content to foreign distributors, it-- it-- it is not nearly as strong a business model as being able to know the customer, deliver the stuff directly, and control the pricing at which your product is delivered. So-- and having all the information about the consumer and their habits-- which in Reed's case, he's not using for advertising at this point, but he certainly can use that to optimize his programming. So I-- I think he's done a brilliant job of-- of building that business.
DAVID FABER: And scale will beget scale? It will only--
JOHN MALONE: Scale is-- is very, very powerful when you're producing something that has a high fixed and very low variable cost. So when you get to a point where your marginal cost is $0, profitability is enormous as you scale up. And he's on that-- on that track. So, you know, whether or not his stock is ahead of itself, I don't really have an opinion. But there's no question, he's built one wonderful company.
DAVID FABER: I wanna talk a bit more about scale in relation to a story I broke last week, which involved Disney and Fox.
JOHN MALONE: RIGHT.
DAVID FABER: And whether or not Fox does eventually sell its entertainment assets to Disney is unclear. But the very idea of it, that the Murdochs have embraced the idea that they can't get enough scale because Facebook and Google and Amazon and Netflix have just exactly what you're describing, what does that say about a traditional media company in this environment?
JOHN MALONE: Scale. Two things I think. One is that-- Disney, of-- of all the guys in the studio business, Disney is the most unique in the sense that it owns its IP on its most importantentertainment product. So if you think that the whole— that whole structure is gonna be under stress— why wouldn't the Murdochs wanna put their stuff in and ride along in something that they've helped make bigger scale, and that-- that has this protective element of intellectual property ownership, right? Between Marvel and Star Wars--
DAVID FABER: Right. I don't know how they'd ride along though. Now, maybe you could give 'em advice--
JOHN MALONE: They'd take –
DAVID FABER: --on how to tax advantage or make that work--
JOHN MALONE: My unders—
DAVID FABER: --that deal work--
JOHN MALONE: My guess is they would end up-- that-- Fox shareholders would end up being Disney shareholders-- in some tax efficient--
DAVID FABER: Although the--
JOHN MALONE: --structure.
DAVID FABER: Well, the tax efficient structure's very difficult here.
JOHN MALONE: Not necessarily.
DAVID FABER: You don't think so? I mean, 'cause that's what I've heard-- you know.
JOHN MALONE: There's usually a way, David. Sometimes it takes patience.
DAVID FABER: Well, nobody knows that better than you do.
JOHN MALONE: But—
DAVID FABER: Nobody has structured more things to—
JOHN MALONE: There's usually ultimately a way to avoid corporate level gain taxes on appreciated assets. So my guess is if they study it, they'll be able to figure that one out.
DAVID FABER: Does it make sense to you, the deal? And have you spoken--
JOHN MALONE: I'll tell you what--
DAVID FABER: --to Rupert about it 'cause-- you talk to Rupert, I know.
JOHN MALONE: Scale makes a lotta sense. From a Disney-- and-- my understanding was this was initiated more by Bob than it was—
DAVID FABER: That's right.
JOHN MALONE: --the other side. And when-- if I was Bob, I would be looking at that because th-- the crown jewel right at the moment for the U.S. would be Hulu. If he can get hard control of Hulu, sort of a government approved collaboration and of some of the majors-- it gives him a jump start on a direct consumer entertainment product. And then internationally, if he-- if he was to get the sky assets and Europe and the star assets in Asia, it gives him-- massive presence-- a platform of content that has positive cash for big – positive cash flow, and is great for promoting the leap to direct consumer. And ultimately-- the challenge that he has in sports, right, where-- where-- you know, everybody beats him over the head because ESPN, you know, is seeing-- subscriber reach drop. The ability to have a massive global direct consumer business on the entertainment side with light sports, and then transition sports over to it over time, to me makes a lotta sense as-- as a solution. So--
DAVID FABER: Is it too late? Did Disney move too late? Some critics certainly out there say this should've been done years ago.
JOHN MALONE: Well, you know-- when I look at it, I-- you know, probably when they licensed Netflix, I mean-- if you really take the financial view, you would say, "When Disney was willing to move their exclusive product in premium TV to Netflix, Netflix was, on paper, bankrupt. And yet, Disney was willing to take credit-- their credit worthiness without getting any equity-- I think it was a five year contract," right? So if you wanna be critical, you would say, "Disney could have taken advantage of Netflix and gotten a slug of equity, gotten their foot on it, let's say, at that point in time, and they didn't." So that was either because Bob was feeling merciful or, you know, he didn't really see how big this thing could become. You know, I don't know which, but definitely-- you know, -- in that space, Disney-- is the big player.
DAVID FABER: They have the ability still to be able to play with the biggest boys--
JOHN MALONE: I think they do.
DAVID FABER: --in scale?
JOHN MALONE: And you could see. look, they got-- they took the position in BAMTech to give 'em the technology, a technology base that could go direct consumer. They have great consumer brand recognition. Probably nobody has better on a global basis. You know, they don't have the content quite put together on their own--
DAVID FABER: No. Well, and that's why Fox would conceivably--
JOHN MALONE: --to launch on a worldwide basis. And that's why Foxwould supplement it. And-yeah, no, I can see the logic of it. If I was, you know-- there's two ways to-- if you're sitting in Rupert's seat, there's two ways to look at it. One is, you know, they can pay me a premium and I can get a ride on their platform, where I'll benefit from global scale. And-- I won't be running as much, but what I'm not running will perform, you know, better than I can make it perform. And meanwhile, I can focus back on my defensible boundaries.
DAVID FABER: Sports and news and--
JOHN MALONE: Sports and news in the U.S. with a broadcast network. And-- that's a defensible U.S.-- business where I don't have to worry about global scale, right?
DAVID FABER: Right. Right. To the extent that--
JOHN MALONE: 'Cause-- 'cause sports is local, news is--I mean, local in the sense of national. News is national. He's got a very strong and defensible position in that--
DAVID FABER: In that world.
JOHN MALONE: And he--
DAVID FABER: Conceivably, he could get together with News Corp again and take the whole thing private, I don't know--
JOHN MALONE: And--he's not at a scale disadvantage, right. So-- whether he rides along with a more scale efficient platform as a co-owner, big-- probably the largest single shareholder if he wanted, or if he wants to take the capital out and, as you say, double down on his own domestic business, he would have that optionality. So-- to me, it's a logical thing for them to be studying. I'm big on looking at every combination. It's all a Rubik's Cube, you know? And-- not everything fits, but you want to consider probably every combination when an industry is in as much-- transition as our industries are.
DAVID FABER: But if a Rupert Murdoch is making that decision to the extent that I can't attain the scale I need to be competitive without doing this, doesn't everybody then need to be considering that-- if you are-- I mean, I can go through all the names of -- other than Disney. I mean, every single one of them is-- every single media company--
JOHN MALONE: Is sub scale.
DAVID FABER: Yeah, is sub scale.
JOHN MALONE: Not only sub scale, but their functionality is being challenged.
DAVID FABER: NBCUniversal I guess sort of fits in a different part of that? I don't know.
JOHN MALONE: Well, you know, Brian has enough strong distribution muscle that they can be protected to some degree in the U.S. by the-- by the distribution balance that Brian has built. And keep in mind, NBCUniversal is, as a practical matter, Brian generally and NBCUniversal, Comcast, the whole collection, is almost the most domestic company in our industry. The least international. So- it's-- in a sense, keeping the focus domestic-- is a more defensible boundary. But Universal Studios definitely would be under stress. But keep in mind, he's part of Hulu. So if he has an outlet for his product to a Hulu and you have a Disney that's gonna drive Hulu globally, you know, that may be sufficient scale for his content creation that-- that he doesn't have to go do it independently. That he's riding on another platform that will provide economics and scale.
DAVID FABER: Before I asked you about Brian, then you said something about functionality deficiency essentially among-- what did you mean by that amongst these other-- these companies that are sub scale?
JOHN MALONE: Well-- most studios are essentially funding mechanisms, promotional mechanisms, for ideas that-- that they don't create. So when you have the Netflix and the Amazons going to the idea creator and saying, "You don't need those guys," right? "We'll fund you-- we'll support you, we'll promote and market you. And by the way, you don't get to keep any of the rights," right? It's a change in the historic function of what we call studios, right? And, you know, a number of studios got their back up two years ago when Netflix started wanting to keep pay more, but they wanted more and more of the rights. More-- less and less retained rights by the studio. And--some of the studios even refused to sell to Netflix for that reason, 'cause they saw that we're just gonna become a factory and then our factory function can even go away because we really don't even own the factory, we license, you know? And so I'd say that that whole food chain-- you know, is under some restructuring pressures.
DAVID FABER: So what do you do-- I mean, let's bring it back to a company that you own a significant economic stake in and a larger control stake, Discovery. What do you do if you're Discovery? You do the Scripps deal. You--
JOHN MALONE: Well-- that--
DAVID FABER: you expand domestically, but-- are you still--
JOHN MALONE: Well, first--
DAVID FABER: --at that scale disadvantage, or not 'cause you're global?
JOHN MALONE: Well, yes. I think Discovery-- did two things that most other guys in the space didn't do. First of all, they went global, big time. More than half their revenue is offshore. And they're in, I don't know, 1.2 billion households watching their stuff. They have good brand recognition globally. Number two, they're not really in the middle of what I would call the scripted programming food fight, right? Where-- the costs are going through the roof-- where the number of scripted television shows, movies is going through the roof. It's very tough in that space to be financially successful, and particularly up against the guys who are now becoming so large. Discovery's more over here in the non-scripted programming, reality programming, documentary programming-- personality driven. And so David is not seeing his production cost, you know, going through the roof, A. And B, he owns all of his content. He doesn't just license it, he actually creates it, produces it and owns it, all rights in all markets.
DAVID FABER: And it's portable across borders, as he would say, many times.
JOHN MALONE: Correct. So if you look at Scripps-- first of all, big synergy. Second of all-- relatively cheap. Free cash flow engine. You know, if you buy-- post synergies, if you buy-- something that's generating a 12% cash return and you buy it with 3.5% money, right, it's-- it creates a lot of free cash flow, David, you know? And it gives you market power in the U.S., okay, with advertisers 'cause you now have a bigger percentage of the audience. Now, you have this attrition going on as the big bundle-- as people are "Cord cutting." But what they're really doing is going from the big bundle to buying connectivity services and going out and figuring out where else to get their content, right? And so, you know, as that process continues, Discovery needs to make sure they're in every small bundle. They have to make sure that they're in a position to transition to direct consumer platforms. Either their own-- which they would be the core of, or somebody else's. And that process is underway--
DAVID FABER: Is ongoing.
JOHN MALONE: It's an ongoing process. It's underway. And-- o, you know, I would look at the positive of Discovery is in their great position to go direct consumer on a global basis. Outside the U.S., they're in very good shape because you don't have this big bundle comin' apart phenomenon, you know? Video in Europe is cheap.
DAVID FABER: Right. Much cheaper—
JOHN MALONE: Compared to video—
DAVID FABER: --than it is here.
JOHN MALONE: --here. So you don't have that sports pricing pressure in Europe. And where-- even in the U.K., where sports is expensive, it's an a la carte service. It's not bundled in with basics. So you don't have people saying, "Oh, this is gettin' too expensive." If you don't want the sports, you don't buy the sports.
DAVID FABER: But John, the market has hated this deal. And the stock has just been—
JOHN MALONE: I'm look—
DAVID FABER: --gettin' crushed.
JOHN MALONE: David-- most of the money I've made in my life has been when other people don't like what's going on. When things are cheap, that's opportunity.
DAVID FABER: So what is the market—
JOHN MALONE: So I'm not—
DAVID FABER: --list here? What has-- I mean-- you know, the minute they announced the Scripps deal, that thing started goin' straight down.
JOHN MALONE: No, no, what you h—
DAVID FABER: It only exacerbated—
JOHN MALONE: Let me explain a little of short term market phenomenon. First of all-- in this world-- "What have you done for me lately," right? So when you get a whole bunch of investors where are dependent upon the company doing periodic buybacks in large volume and that becomes sort of an addiction and the investor, the guy, the young man who's makin' that decision turns to his boss and says, "We got no downside risk. The company's got a lot of free cash flow and they're soakin' up the stock, so how bad can it get," right?
DAVID FABER: Well, it can get bad 'cause you're not reinvesting in your business and you're buyin' your stock at highs that you shouldn't be.
JOHN MALONE: That's the long term view. I'm talkin' about short term mentality, right? So when a company like Discovery that's been on the track of massive stock buybacks with its free cash flow goes out and buys Scripps and part of the deal is we're gonna have to suspend the buybacks for a period of time because we want to borrow the money, it's a 70% debt deal, right, we wanna be able to borrow the money at investment grade rates, (which were very attractive. Sub 4%, long money. If we're gonna do that, and that's important, right-- we don't wanna junk the company. In other words, we don't wanna pay a lot more money for interest going forward. So we stay investment grade. The quid pro quo with the rating agencies is, okay, until your debt ratio drops below 3.5 let's say, you agree that you won't do any more buybacks, right? So all of a sudden, you got the investment community saying, "Oh my God, they're not gonna do any buybacks." Okay. So people who feel like they don't have that support, right--
DAVID FABER: So you don't think it's a function of investors in-- to our conversation about scale, feelin' like Scripps simply does not answer that question in terms of—
JOHN MALONE: No, no—
DAVID FABER: --scale domestically, and they won't be able to do a direct to consumer offering that really is robust enough?
JOHN MALONE: It depends on how you phrase the question. It gives 'em a great domestic scale, okay? In the-- ihistoric space, right? It gives 'em personalities, it gives 'em throwaway in the advertising community. It actually gives 'em leverage with their existing historic distributors, right? 'Cause now - well, you got 20% of your viewing audience is watchin' this stuff, and this stuff is cheap in terms of affiliate fee per eyeball. You know, those are all positive things. And Scripps is one of the cheaper historic services, affiliate fees. You got huge synergies in puttin' these companies together. So you're buyin' somethin' that already has a lot of free cash flow, okay? The synergies are gonna add a lot more free cash flow. If Trump's tax thing gets through, all of a sudden the tax..goes down.
DAVID FABER: Right, we'll talk about that.
JOHN MALONE: This thing becomes, on a run rate basis, a cash flow monster. A huge, free cash flow. So they would be able to get backto investment grade leverage quickly, okay? Some people are skeptical.
DAVID FABER: Some are skeptical—
JOHN MALONE: Okay? Now, you also look at it and say, outside the U.S., they grew almost 10% EBITDA this year. I don't see anything negative going on outside the U.S. Inside the U.S., I think they grew 5% this year. Better than any of their peers, right? So I look at it, you know, and to me, it looks cheap. It looks—
DAVID FABER: You wouldn't be buyin' more?
JOHN MALONE: Well, I would possibly buy more.
DAVID FABER: You would?
JOHN MALONE: Okay. Yeah. Now, keep in mind, when you're an insider, you have all these rules and windows and—
DAVID FABER: Understood, but you seem to certainly be articulating a point of view that says, "This is a time."
JOHN MALONE: For me, I'm always a long term guy. And I'm gonna bet that Discovery, with its ownership and control of its content, right, will be able to transition to direct consumer platforms in a reasonably efficient way, okay? And if they successfully do that, then they are dirt cheap right now. If--they can partly get there, they're still cheap. So-- and I-- you know, you know David quite well.
DAVID FABER: Yes.
JOHN MALONE: I have a lot of confidence in David and his team. And I think that they will figure this out. And I think Scripps is an important piece of that 'cause I don't think the scale throwaway of Discovery's content alone was sufficient. I think with Scripps, they're much closer to being the gravitational center of the non sports, independent content guys. And so, you know, I think they got a good shot. there is no guarantees in that—
DAVID FABER: There are never any guarantees. I wanna move onto some other-- since there're so many different companies to discuss. In fact, 13 different companies that you're deemed to have some level of control.
JOHN MALONE: That's right.
DAVID FABER: Significant level. Let's talk about Charter a bit, John.
JOHN MALONE: Sure.
DAVID FABER: You know, talking about the long term, and I know this from experience. You give your managers, so to speak--and obviously, Rutledge is a bit different than Zaslav-- in the sense of your control level. But you give them a lot of leeway, you're focused on the long term. But SoftBank and Masa Son has been-- I mean, I know he visited you in-- at Sun Valley probably a number of times.
JOHN MALONE: He was very—
DAVID FABER: Kept increasing—
JOHN MALONE: --visible, wasn't he—
DAVID FABER: --his offer.
JOHN MALONE: Sometimes that visibility has a message just-- all into itself.
DAVID FABER: It does.
JOHN MALONE: But let me say about Charter, you know, the reason I made the investment in Charter initially, right, was Tom Rutledge and his management team. I think he's a terrific manager. So, you know, we had an opportunity to come back into the U.S. We bought the initial position from Apollo. And Tom had a very clear vision. He's executed flawlessly on his vision. You know, we had this huge fight where Brian was our friend, then he was our enemy, then he was our friend, then was our enemy. But we ended up with Time Warner and—
DAVID FABER: Yes you did
JOHN MALONE: and Newhouse into Charter. Massive operational challenge for Tom and his team to integrate and take over and change essentially the philosophy of a company four times as big as they were, you know? And he's doin' it and it's workin'. So I have absolute confidence in Tom and his team. You know, at the Liberty level, you know, we're out there. We're-- you know, we're shareholders, investors.
DAVID FABER: Economic animals?
JOHN MALONE: Economic animals. And so, you know, this is the good news, the bad news. The good news is we've had at least three or four approaches by credible companies who had ideas about how some relationship between them and Charter—
DAVID FABER: I can-- I think Verizon, Altice and SoftBank certainly would be three
JOHN MALONE: on the list, yeah.
DAVID FABER: On the list.
JOHN MALONE: So, you know-- the fact that people have an interest and see big synergies, okay. The fact that they know I'm a believer in the consolidation of wired and wireless networks, right? So-- so—
DAVID FABER: But Rutledge is not. He doesn't like Sprint.
JOHN MALONE: No, no. No. Back up.
DAVID FABER: Okay.
JOHN MALONE: Tom believes, as Brian believes-- go interview Brian. They both believe that ultimately, we have to supply wired and wireless connectivity—
DAVID FABER: Yes. understood—
JOHN MALONE: Now—
DAVID FABER: So I may have expressed that incorrectly.
JOHN MALONE: Correct. Now, both of those guys and me, we all believe it's a terrible business, okay? It's-- like the airline business with overcapacity. So it's no place to go invest a lot of money and hope you're gonna get a good return at this point. If you're a cable guy and you say, "Eventually, I need to be there. But in the short run, you know, in this food fight that's goin' on, what assets do I bring to the table as I start to go into that space?" And-- number one thing is convenience to our consumers. You know, one stop shopping, seamless-- which we can do with an MVNO. And in fact, Brian had negotiated a wonderful MVNO with Verizon. Perpetual good terms-- you know, cost of transport floats with retail. So it's really a very good deal that Brian has done. So the idea of deploying wireless using Verizon as the carrier, right, you're starting with the best—
DAVID FABER: Network.
JOHN MALONE: --brand, the best network. You know, in-- in a lot of ways, the s-- most simple approach. And you start developing it that way. And you build up and you learn and you provide that service to your customers, not expecting to make a lot of margin. But expecting to reduce churn, provide convenience and learn, right? Now, this is a process we're probably three years further along in Europe, okay, than the U.S. cable operators.
DAVID FABER: At Liberty Global you're talking about—
JOHN MALONE: At Liberty Global. Yeah. If you look at Liberty Global in Europe, you know, we have-- we're 50/50 with Vodafone in a converged network in Holland.
DAVID FABER: In Holland.
JOHN MALONE: We--started with an MVNO in Belgium. We ended up-- buying out the number two network. And so, we're now experiencing the synergies of consolidating the network. So--this is a learning curve. And I think in the U.S., the thing that makes me feel the best is that Tom and Brian are working together, okay, in figuring out the entry of the cable industry into the wireless space.
DAVID FABER: But that--
JOHN MALONE: And that's-- that is wonderful, okay, from my point of view--
DAVID FABER: Understood.
JOHN MALONE: --as an investor.
DAVID FABER: I just wanna get back to the track of Charter itself and Rutledge and Masa and all of that--
JOHN MALONE: Oh yeah. So a guy comes--
DAVID FABER: Well—
JOHN MALONE: --along and he makes-- he talks--
DAVID FABER: He makes--
JOHN MALONE: --to us. He talks to--
DAVID FABER: He makes--
JOHN MALONE: --Greg, right?
DAVID FABER: He talks to Greg. And he says, "540 bucks cash in stock, but we're gonna value Sprint at a lot more than the market's valuing at." So the back end is not worth $540. But does--
JOHN MALONE: Well--
DAVID FABER: Don't you go, "Well, all right. Tom, talk to 'em"?
JOHN MALONE: Well, we did.
DAVID FABER: And what did--
JOHN MALONE: No--
DAVID FABER: --Tom say?
JOHN MALONE: But we started by saying, "Okay, Masa, you're-- you're throwing some concepts at us, right? First of all, some of the concepts you've thrown at us-- you know, might work for Liberty, but might not work for everybody else, okay?" So you have to understand, in our relationship with Charter, I call it a three tier situation. First of all, we have our holding company that owns 21%--
DAVID FABER: Liberty Broadband.
JOHN MALONE: --22% of Charter indirectly, okay? Then-- we have a partnership with Newhouse, right? So if it's something -- if Masa comes and-- and throws-- a proposition at us, right, then we go talk to the Newhouse guys. We say, "You know, we've studied it. We don't know. What do you think?" It's one of those, right? And if they think it's-- it's-- it's worthy of further look, okay, then we both call up Tom and we say, "Hey Tom, would you meet with these guys, you know? They got this pitch, they got this, they got that," right? And-- and so far-- and this has happened with, as I say, four different approaches.
DAVID FABER: I don't know what--
JOHN MALONE: And--
DAVID FABER: --the fourth is, by the way--
JOHN MALONE: Well--
DAVID FABER: I only got three of them em--
JOHN MALONE: I'm not gonna tell you. But-- but the problem is that none of them at this point have made a pitch that was worthy of bringing it to the board and-- and proposing it seriously to the board, okay?
DAVID FABER: Why not?
JOHN MALONE: Well, simply because some of them, they're-- we look at-- w-- when we-- when we look at Charter as a standalone and we look at a projection of what we think the next four or five years are gonna look like and we value that, we come to some sense of value, okay? And if these other propositions can't get us substantially beyond that value on a risk adjusted basis, then, you know, why would--
DAVID FABER: What about some--
JOHN MALONE: --you be interested?
DAVID FABER: --something that starts with a five in front of it for a stock that right now is trading at $340, would seem to me--
JOHN MALONE: Well--
DAVID FABER: --to be--
JOHN MALONE: --here's the--
DAVID FABER: --potentially compelling.
JOHN MALONE: Well, yeah, no--
DAVID FABER: For-- for--
JOHN MALONE: --look—
DAVID FABER: --a capitalist like you who's--
JOHN MALONE: Okay, where's the check? Okay? Is Masa talking about a $540 check?
DAVID FABER: No.
JOHN MALONE: No.
DAVID FABER: No. He's not. He's not.
JOHN MALONE: So--
DAVID FABER: What about the Altice guys?
JOHN MALONE: So, like I said--
DAVID FABER: I mean, well, they can-- I don't know--
JOHN MALONE: --when you value-- now, you know, with Altice, if-- if-- if Patrick wants to come and offer us-- a huge premium, his stock, our stock, right, then in effect, we're buying Cablevision at a discount. That, I would be interested in. Patrick, on the other hand, is not interested in giving up control--
DAVID FABER: No.
JOHN MALONE: --of his empire.
DAVID FABER: And meanwhile, with his stock-- what's going on with--
JOHN MALONE: Well--
DAVID FABER: --his stock lately, it's--
JOHN MALONE: --it's gone the wrong way for him lately. But yeah, there's a lotta synergy between Cablevision and Charter. And Patrick bought -- bought Cablevision while Charter was still all tied up in Time Warner. Otherwise, maybe-- you know, Tom used to run it. So-- so, you know, all of these things-- I mean, part of the problem, and the reason you get rumors, is 'cause-- 'cause we're open.
DAVID FABER: Yeah, sure. People wanna--
JOHN MALONE: You know? Anybody who's credible, you know, we're happy to talk about almost anything, right?
DAVID FABER: But it doesn't mean--
JOHN MALONE: And that starts rumors. But it doesn't mean that we're anywhere near a deal. And, you know, I-- the last time there was a board discussion and sort of a sense of the board on this stuff, it was unanimous.
DAVID FABER: It was unanimous, right. In other words, saying no -- no interest or--
JOHN MALONE: Saying-- no interest in this conceptual deal.
DAVID FABER: Is there something that could change in terms of the performance of the company or –
JOHN MALONE: Sure.
DAVID FABER: --or--
JOHN MALONE: Lowell could-- Lowell could lose his mind and offer us something that he can't really afford.
DAVID FABER: Well, he can if he wants to stay investment--
JOHN MALONE: He--
DAVID FABER: --grade or keep his --
JOHN MALONE: No, you know what I mean.
DAVID FABER: I do. Of course--
JOHN MALONE: No, I mean, these are all subject to limitations.
DAVID FABER: But what about on the Rutledge side?
JOHN MALONE: And-- but this is all driven by the fact that we believe with have a wonderful business and a wonderful business plan that Tom has just started to exploit, you know? So if you believe that you've got-- a high single digit grower in EBITDA and you have a leverage philosophy that you're gonna keep that-- that cash flow leverage and you're still running under a big NOL, right, and you just project any kind of fair multiple for your cash flow four or five years out, you end up with a number up here, okay? And you're not taking the risk of trying to fix somebody else's business, right? You're not running the risk of being over-levered, right? You don't have to change control relationships. So the point is, is Charter for sale? Anything I'm involved in is for sale every day of the week. The store's always open. Have we seen anything yet that gets even close to ringing the bell? No. Does Masa have the resources if he wanted to, to ring the bell? Yes. Okay--
DAVID FABER: Well, he-- he certainly thinks that the numbers he's put out there were enough to get Tom's attention. But apparently not--
JOHN MALONE: No, no. Hi-- the numbers he put out were enough to get Greg's attention because what Masa was talking about was a much better deal--
DAVID FABER: For you guys.
JOHN MALONE: --for some of us, than for everybody--
DAVID FABER: That you'd roll in, you'd get some sort of--
JOHN MALONE: And I-- I--
DAVID FABER: --CVR or, you know--
JOHN MALONE: And so, you know--
DAVID FABER: --upside--
JOHN MALONE: So A— unless there's a proposition that is-- is good for everybody, you know, I can't go take a transaction that's good for me, good for-- for my 21% or even us in Newhouse's 34%, but bad for the rest of the shareholders. You know, can't do that. I couldn't vote for that as a director. For one thing, I'd be conflicted right off the bat. So-- so no. I mean, wh-- what has not yet been presented is something that is fair and good for all shareholders. And better than we believe Tom can deliver on a risk-- weighted basis. So, you know, the door's open. You know, Masa has plenty of resources. It's just, at this point, nothing has been proposed yet. And, you know, the challenge-- y-- you don't just take the number four cellular business, fix its problems, okay, in the context of where you're trying to integrate--
DAVID FABER: With an enormous—
JOHN MALONE: --this huge, other company where you're only part way there. I mean, it's-- it's-- there's a lotta risk associated with that and a lotta capital to spend.
DAVID FABER: Yup, needs to be.
JOHN MALONE: Right?
DAVID FABER: Time Warner AT&T, the government conceivably gonna try and block this thing. Any reaction to that?
JOHN MALONE: Well, I-- I would say a month ago I-- I gave it about 100% probability of getting done with behavioral agreements, right? I mean, I would quite surprised to see that-- that divestiture-- was-- was proposed or offered. I still think they'll get it done on behavioral agreements--
DAVID FABER: You do? You do-
JOHN MALONE: I do.
DAVID FABER: --'cause the government seems poised to--
JOHN MALONE: I do.
DAVID FABER: --bring an action here, even though--
JOHN MALONE: But I would put it--
DAVID FABER: --most people say it goes way out there in theory in terms of--
JOHN MALONE: Yeah. Today--
DAVID FABER: --anti-trust law.
JOHN MALONE: -- I would be 75%, you know, of it getting-- getting done.
DAVID FABER: Of it getting done?
JOHN MALONE: On the current terms, yeah. Without divestiture. So I-- I still think these-- these vertical-- deals generally get done. But-- you know, I-- I-- frankly, I have not read what the government's case is. I had expected that they would do remedies similar to what Comcast did when they bought NBCUniversal--
DAVID FABER: That's what many people anticipated.
JOHN MALONE: Right. And if you look at the parallel situations-- and the only thing that I could say is I know that there was rumbling when we were fre-- friendly with Comcast and trying to do the Time Warner deal, it was thrown back that-- that some of the professionals at Justice felt like Brian had not honored some of the behavioral-- or didn't feel that the behavioral agreements were sufficient--
DAVID FABER: Yes. That seems to be part of--
JOHN MALONE: --to control behavior. And so, you know, it's-- it's-- you always look mean and tough if you do divestiture. So-- so that's all I know. I mean, I really don't know--
DAVID FABER: No, I just wanna get your take--
JOHN MALONE: But I do expect it-- I expect that it will happen. And I think what's really interesting is that-- AT&T, whereas three years ago HBO was the biggest thing in the space, now it's sub scale. And domestic only. And so, what does Randall do, you know, with-- with that asset?
DAVID FABER: Which is still the crown jewel, to a certain extent--
JOHN MALONE: Which is still--
DAVID FABER: --but is not--
JOHN MALONE: --the crown jewel, yeah.
DAVID FABER: Staying in Washington for a minute here and tax policy, obviously something near and dear to your heart--
JOHN MALONE: Yeah, yeah.
DAVID FABER: --the estate tax may go away. Does that change any of the plans and things that you've spent years putting together?
JOHN MALONE: Well, I think the odds of the estate tax actually goin' away are slim to none.
DAVID FABER: You do?
JOHN MALONE: I do. I mean, I think it was put out there by the House as, like, the carrot that you can't ever reach five years out, right? They did up the exemption--
DAVID FABER: Yes.
JOHN MALONE: --which I'm sure is great for people with medium sized farms and businesses. But I certainly, in my planning, I'm not counting on there being no estate tax. Now, yes, if there was a change in the estate tax-- then our estate plans would change. Right. But, you know, how dramatically? Who knows?
DAVID FABER: Yeah. So--
JOHN MALONE: You always have to be adaptive to what the government does. But on the broader question, look, I-- I'm 100% in favor of what they're trying to do on the corporate side. I think America really needs to reinvigorate our industrial base. You know, tax law would be a big help. It's not sufficient. It's important, but not sufficient. We need training programs, apprenticeship programs. And I don't think we can fix the income distribution problem that we have in the middle and lower classes in this country with the taxes. It's very hard to cut-- people who pay little or no taxes, it's very hard to take care of their financial situation with-- with taxes, by cutting taxes further. We really need-- it's all about supply and demand for labor and productivity. And so you gotta go straight at those-- at those issues, in my opinion. So, you know, Trump is right—. You know, Trump's right to hold down immigration 'cause that's supply. And he's right to try and re-- reinvigorate industry in America. And he's right to go put pressure on trade imbalances, you know? And if we could add an improvement in the educational system, then I think we would have a formula to make America great again. But without--
DAVID FABER: John--
JOHN MALONE: --touching education--
DAVID FABER: You're not gonna do it?
JOHN MALONE: --I don't think you're gonna get there.
DAVID FABER: The music is building here. You've gotta go. But I wanna one final sort of broad question. We've-- we sit down to do this interview every year and we talk about your holdings, Liberty and so many other things, although we don't get to a lot of 'em either. When you think about sort of what you've got to come in terms of your life and your expectations, is this where you wanna be? Are you-- do you ever think that-- well, you've said everything's for sale. How do you think about it?
JOHN MALONE: No. Everything's for sale. That's my duty as a director, right, of-- of a public company. That you can't say, "No, I love this one. I'll never sell it." I think that's wrong. If I have public shareholders, I have to be in a position of saying, "If-- if somebody will pay more than I think I can make this thing worth, I owe it to my shareholders to accept and negotiate-- a deal." So, I mean, that's just nature. Personally, you know, I've become more philanthropic. I'm involved in a lotta different-- charitable efforts. Some of them are very much in education, some of them are in health.
DAVID FABER: And you're gonna keep doing that and--
JOHN MALONE: Yeah.
DAVID FABER: --sort of--
JOHN MALONE: Yeah. Well, and-- and under the current-- estate scheme, you know, our wealth will go into the Foundation Forum and will pursue health and education goals. And that's kinda what we do.
DAVID FABER: John, we gotta end there.
JOHN MALONE: Good.
DAVID FABER: We could go on forever. Thank you.
JOHN MALONE: You bet.
DAVID FABER: John Malone.
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