Book review: Cable Cowboy: John Malone and the Rise of the Modern Cable Business

“Inspired” by Gannon’s post about the book and indirectly Whopper, I read the book, partly also to understand why I got the Kabel Deutschland short wrong.

The book is sketching John Malone’s business history from the early 70ties, when he joined the almost bankrupt regional cable company TCI until the early 2000s when he already was a billionaire.

For me, especially the following points stood out:

Malone as CEO/cable operator
+ Malone is rather a “financier” and deal maker than an operator, although he certainly knows his stuff about cable and media

+ very early, even at university he already developed the concept to use maximal leverage for regulated “quasi monopoly” businesses

+ at his time at TCI, he perfected this business model even further. He used depreciation/amortization aggressively in order to be able to “compound” cable assets without paying a single cent of taxes

+ he was one of the first CEOs to convince investors to disregard earnings and focus on cashflow

+ in his first 15-20 years at TCI, he managed to increase the share price by several thousand percent without ever showing a single cent of profit

+ he perfectly understood competitive behaviour, effectively running a “cable cartel” for many years and extracting the maximal gain for shareholders (would be maybe a very good study for the Bruce Greenwald book..)

Malone as an investor

+ as an investor he is being quoted rather as an “asset collector”

+ this implies that he has extremely long time horizon’s, sometimes 20 years and more and no hurry to cash out

+ his “exits” were usually tax optimised stock swaps into more liquid shares of acquirers

+ his first “genius” stroke was the early spin-off of Liberty media which made him rich. This is also one of the very prominent spin offs Joel Greenblatt wrote in his “You can be a stock market genius” about. I think it also explains a lot why such a special spin off worked so well. Malone structured the spin off in a way that people were not really interested in the spun off shares. With a loan of his employer, he then bought up as many shares as he could.

+ some investments he made were either genius or sometimes monopolistic, for instance buying a struggling network and then allowing it to be distributed over his cable systems. One example was the “BET” network, were he invested 500 tsd USD in the early 80ties as the founder was struggling, distributed it via his cable network and then sold the stake for close to 1 bn USD to viacom in 2003. This shows his patience with such investments and might be one of the best “angel investments” in history.

Although the book clearly has some lengths, I found the book very interesting and highly recommendable from many perspectives. It offers good insights into the cable business as well as into “cutting edge” corporate finance and long term investment thinking.

John Malone is also someone you definitely you want to follow. So if John Malone aggressively buys into German cable, it is maybe not the best timing to short Kabel Deutschland at the same time.

I wish I had read this book much much earlier…….

9 comments

  • “John Malone is also someone you definitely you want to follow.”

    This is a late comment, but do you follow John Malone? And if so, do you have an opinion on LiLAC (a Liberty Global tracking stock with an option to get spun off, maybe in late 2017)? I also re-read some of your Kabel Deutschland and John Malone posts today, recognizing that you had difficulties to grasp the Kabel-business in the first place – like me.

    The LiLAC-trackers got crushed in the last months or so, but I think this could be due to “John Malone confusion”. What happened there is something I really have never seen before…

    If you don’t follow, well… it will consume much of your time to get into this. I am just interested, because I like your blog, and because of the quoted sentence above.

    Value seeker has an excessive slide deck on LiLAC as a (possible) starting point, if you are interested: https://valueseekerinvestments.blogspot.co.at/2016/09/lilac-lilabk-liberty-latam-287-slides.html

    lg
    Tom

  • Welju Grouv :

    As we all know, the European Telecommunications Acts led to more competition.

    Other examples include the US REIT Act of 1960, the US Tax Reform Act of 1986, the German Postal Act of 1997, and full liberalisation of the European postal market which came into force at the beginning of 2013.

    Yes, there are many examples, alos for instance the “EEG” or graning a 4th mobile license in France…

    mmi

    • I am not sure if you can derive a conclusion from reading the acts alone. In my opinion the structure of the regulating body is very important, too. You have to enforce your laws.

  • Thanks for the review.
    My last “cable”-book was Connie Bruck’s “Master of the Game. Steve Ross and the Creation of Time Warner.” (1994). Ok, more about Hollywood and Mafia than cable television.
    In 1984, there was a “Cable Act”, allowing operators to raise there rates without local approval.

    • … to raise their rates…

      • Welju,

        yes, the 1984 cable was the big bonanza. Steve Ross was mentioned in the book several times. He and Malone did quite a number of interesting deals.

        “mAster of the game” seems to be an interesting book as well…

      • Probably, the long-term effects of regulation and deregulation are often underestimated.

        Examples in addition to the Cable Act:
        UK’s Big Bang (1986)
        US Telecommunications Act of 1996 (led ultimately to less competition)
        Germany’s Telecommunications Act of 1998 and the like in France and other EU countries.

        One should take care of that, whether it relates to utilities or where ever.

      • As we all know, the European Telecommunications Acts led to more competition.

        Other examples include the US REIT Act of 1960, the US Tax Reform Act of 1986, the German Postal Act of 1997, and full liberalisation of the European postal market which came into force at the beginning of 2013.

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