Liberty Media topper John Malone made some ripples in the cable pond Friday by disclosing to hundreds of Wall Streeters that AOL Time Warner has, as suspected, made a proposal to merge its cable business with AT&T Broadband.
“It’s not yet public,” Malone said during a meeting of Liberty investors and media analysts at the Hudson Theater in Gotham.
Nor is it official. Reps for AOL Time Warner and AT&T, who are known to have held talks, declined comment.
Malone also said Liberty is planning a tracking stock for its fast-growing international operations and described a future where the Denver investment company’s aggressive move into overseas cable will turn it into a powerful gatekeeper.
An AOL offer would turn up the heat on Comcast, which made a highly public and unsolicited bid for AT&T Broadband, the nation’s largest cable company, in July. Seeking to extricate himself from Comcast’s bear hug, AT&T chairman C. Michael Armstrong has been sounding out other potential buyers or investors. AOL Time Warner has a huge cable biz of its own.
It’s also a good fit because AT&T owns 25% of HBO, Warner Bros. and other Time Warner entertainment assets that it badly wants to shed and that AOL Time Warner wants to roll up. Regulators, however, may well be leery of the nation’s top two cable operators merging.
Backing both sides
Malone said he’d be happy with a victory for either Comcast or AOL Time Warner. Also, he surprised a few investors present by saying he’d consider joining up with a group of other players to invest in AT&T Broadband.
Malone is AT&T’s single largest shareholder. Liberty owns large stakes in Comcast and AOL Time Warner too, as well as big holdings in News Corp., USA Networks and others.
Asked if he was concerned about the distribution clout of a Time Warner-AT&T cable combo, Malone said, “If they want distribution in the 67 million households (Liberty will control internationally), they damn well better give us distribution in their 24 million” homes.
Liberty’s main programming assets include Starz Encore and the nets owned by Discovery Communications. Discovery topper John Hendricks said Friday the flagship net will see ad revenue for the current third quarter grow 2% to $152 million, despite the weak advertising climate. Privately, he dismissed recurrent rumors that Discovery is for sale.
Liberty, along with Comcast, also owns stakes in QVC and E! Malone said Liberty eventually will convert its E! stake into Comcast equity, giving Liberty a bigger stake in Comcast and Comcast a bigger piece of the showbiz net.
But Liberty’s focus now is clearly overseas, where it just finalized a deal to buy German cable systems with 10 million subscribers from Deutsche Telekom. Liberty indirectly owns United Pan-Europe Communications, Europe’s biggest cabler, as well as a chunk of U.K. cabler Telewest (which Liberty CEO Dob Bennett said he’d love to see combined with rival NTL).
Malone sees little competition on the horizon as he sweeps up across the Atlantic. National telecom providers are busy tending to their own wobbly finances. As for deep-pocketed U.S. congloms with international ambitions like AOL and Microsoft, a tough-talking Malone said, “Everything that I see indicates they would rather play through us, not against us.”
Malone acknowledged that Liberty’s ownership of both content and distribution concerns German regulators but noted Liberty has no obligation to close the DT deal if local regulators throw up last-minute roadblocks. Liberty is avidly seeking German partners and German management for that biz.