Friday, July 7, 2017

Cable Cowboy

John Malone is so popular among value investors, but I could never quite figure out what he was up to. I finally get it now, having read the fantastic Cable Cowboy: John Malone and the Rise of the Modern Cable Business.

The book takes you back through the history of cable tv, which was started by a bunch of entrepreneurs all over the country using large antennae to grab signal and wire up homes that couldn't get reception. Now this industry is anything but entrepreneurial, having become an oligopoly nationally and a group of monopolies locally. It got there in large part thanks to the wheeling and dealing of John Malone.

I have found the Malone entities too complex to understand. Lots of leverage, little free cash flow, and tons of equity interests and partnerships have made things really opaque. But now I understand what he's about.

Malone hates paying taxes. As a result, deals are often done with stock rather than cash, and leverage is put to work to increase assets while simultaneously reducing taxes payable.

He also loves partnerships because they reduce competition. Why go head to head with a threat when you can help each other out? This leads to various interests in a lot of different companies, and some of them turn out to be home runs.

Unfortunately, some of these moves tend to be monopolistic, raising the ire of anti-trust regulations. For example, he has cut off access to viewers from promising cable networks when they don't let him buy in as an owner. From his libertarian viewpoint, he has every right to do so. But he has built some monopolies, so society doesn't necessarily believe he should be able to wield so much power.

This was a highly entertaining and very educational book. I recommend Cable Cowboy: John Malone and the Rise of the Modern Cable Business to anyone interested in business.


Anonymous said...

Has the book made you reconsider investing in any of the Malone universe of companies? The complicated structure and leverage has always put me off...

Saj Karsan said...

No, I'm still not interested. I just get now why some people are.