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Liberty limp as merge dirge plays

Patience running out for Dr. Malone

NEW YORK — Has John Malone lost his media Mojo?

Denver’s daring dealmaker, renowned for three decades of financial engineering, has enjoyed rock-star status on Wall Street. His rise to cable titan in the 1970s, when he was called the Darth Vader of the biz, assured Malone a seat at the table in every big media deal.

But he sold the sprawling TCI cable systems to AT&T in 1998. That left Liberty with no distribution clout and no apparent strategy beyond a string of unsuccessful forays into post-production and European cable.

Five years after the cable sale, in a clear sign the tide has shifted, Malone was recently wrestled to the ground by Comcast in a legal settlement in which no one can find a single benefit for Liberty.

“He’s got no cable pipes, no output. Media moguls aren’t afraid of him anymore,” says one fund manager.

“I question the strategic importance and direction of Liberty Media,” adds another.


Many still won’t openly criticize Malone, 62. But a number of top entertainment execs privately call him a pure financial player with little operational skill or interest in running the businesses he acquires.

That Malone never consolidated his influence into a coherent media company was fine, as long as Liberty’s stock stayed buoyant. But now the shares are down and the chorus is growing that a hodgepodge of holdings does not a company make.

Throughout, Malone’s choice of managers may have been one of his weakest links.

Liberty’s skeleton staff, heavy with financial managers, was never positioned to find and exploit synergies between Liberty’s disparate showbiz holdings, which include Starz Encore, QVC, half of Discovery, a big non-voting stake in News Corp., plus holdings in Time Warner and Barry Diller’s InterActive Corp.

His tax shelters may be pure genius, but his personnel choices have raised eyebrows. In 2002, many were surprised when he hired Peter Boylan, a former top exec at the corporate disaster called Gemstar-TV Guide, to run a subsid called Liberty Broadband Interactive Television.

Malone is known for intense loyalty to his execs. Wall Streeters attribute the recent, controversial $275 million payout to Starz Encore topper John Sie to just that. Sie cashed in half of his 10% stake in the cable net shortly before Liberty revealed financial risks that sharply reduced the value of Starz.

The dirty work

“You wouldn’t think it, but he’s a softie in that way. He had to get Leo Hindery to come in and fire people for the first time,” says one portfolio manager, referring to the former second-in-command at Liberty.

Those things didn’t matter so much when Malone owned TCI. But they’ve been an issue ever since.

In its heyday, Malone’s Liberty was part “incubator,” swapping cable carriage for equity in new programming or tech concerns. He was an early backer of QVC, BET, Discovery and Turner Broadcasting. He gave Diller $320 million in seed money to build a new TV, commerce and Internet company (now called InteractiveCorp.) in 1996.

Malone functioned chiefly as a savvy portfolio manager. According to the company’s Web site, “The mission of Liberty Media is to manage our assets to maximize per-share value of our stock.”

Despite recent promises to transform Liberty from a hedge fund into a strategically coherent media conglomerate, Malone’s heart isn’t in it. He still prefers to put cash into other people’s ventures — like Rupert Murdoch’s DirecTV play — while awaiting the next opportunistic swap.

But his weakened hand was evident in recent weeks as cable giant Comcast forced Liberty to publicly cry “uncle.” Liberty agreed to settle a lawsuit with Comcast on terms that will decimate the finances of Starz Encore.

Contractually, many think Malone had a good case to take to court. “But now (Comcast CEO) Brian Roberts has the big stick,” says one media fund manager.

Roberts had originally inked a deal to buy TCI from Liberty back in 1998, but AT&T swooped in with a richer offer. Comcast walked away with a stunning $3 billion breakup fee and other perks. When AT&T’s cable acquisition strategy stumbled, Comcast snapped up a greatly expanded AT&T Broadband in 2001.

Sans cable, Malone embarked on a series of ventures.

His attempt to cobble together a post-production empire by snapping up assets in the U.S. and U.K. was a miserable failure.

His foray into overseas cable was derailed by German regulators. He did not become, as some had breathlessly anticipated, a pan-Euro gatekeeper destined to strike terror in the hearts of content companies like Time Warner, Viacom and Walt Disney.

Liberty aggressively courted Universal this year, but alienated the French with lawsuits and veiled threats of its strong ties to Diller, who holds a potentially disruptive veto power.

Some Wall Streeters stand by Malone. They’re glad he cut his losses in Euro cable instead of pouring even more cash into the ailing industry. And they say cash bidders for U had no chance once GE entered the auction.

“Most of the businesses they are in are the right businesses, and I still feel good about the stock and the company,” says Mark Greenberg, portfolio manager for Invesco Leisure Fund.

Some things simply don’t work, Greenberg adds, comparing such decisionmaking to that of a studio topper: “One ‘Spider-Man’ covers up a lot of ‘Giglis.’ ”

Viv Ul would have been a nice get. But not only was the asking price too rich for the good doctor (a former McKinsey consultant with a Ph.D. in engineering),the reality of trying to manage it may have been as daunting.

Liberty has contented itself with buying control of QVC. While Liberty now fully controls the cash-rich home shopping net, the company has few new ideas about how to grow business. QVC’s domestic sales are slowing, and Diller’s Home Shopping Network is starting to take share.

QVC now accounts for nearly a quarter of Liberty’s total value, with a large chunk of the balance tied up in nonconsolidated companies in which it owns anywhere from 1% to 75%.

This labyrinthine web of publicly traded and private holdings ranges from stakes in Motorola and Sprint to the Game Show Net and Sky Latin America.

So has Liberty simply run out of things to buy on the cheap?

There may be fewer media properties to choose from, but the company has $4 billion in cash on hand, plus another $11 billion in public securities and other instruments that could be monetized in short order.

Either way, the company needs to make a move. One analyst suggests a merger with one of its biggest holdings — News Corp. or InterActive Corp. — or a strategic deal along the lines of VUE, with the right people to run it.

“There’s a lot you could do to turn it into an amazing” company, says one former studio head.

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