Malone May Have Bigger Plans Beyond Lions Gate Purchase of Starz

What's In the Starz for Lions Gate in $4.4 Billion Deal?
  • Analysts predict further deals with AMC, Discovery, Scripps
  • ‘Scale is very important’ for media, cable billionaire says

John Malone has orchestrated another big media deal and he probably won’t stop there.

On Thursday, Lions Gate Entertainment Corp., the studio behind “Mad Men” and “The Hunger Games,” agreed to buy Malone’s Starz in a $4.4 billion deal, adding premium cable networks serving 56 million homes to its film and TV production businesses.

If the past is any guide, Malone, 75, has even bigger ideas. The cable billionaire, who amassed an $8 billion fortune buying and selling pay-TV companies, has talked openly about the need for smaller media players to combine to survive a challenging entertainment landscape marked by sluggish advertising sales and shrinking audiences.

“The most optimistic read of the deal is that it brings Lions Gate one step closer to being the vehicle for a rollup of a much larger content company, such as a Discovery or CBS, per some of John Malone’s comments last year,” Doug Creutz, a Cowen & Co. analyst, said Thursday in a note to investors.

Analysts say Malone likely has several possible targets in his sights, including AMC Networks Inc., Scripps Networks Interactive Inc. or even Viacom Inc., which could end up for sale depending on the outcome of a legal battle over Sumner Redstone’s empire.

Malone’s Holdings

Malone’s other investments could be part of the plans as well. He holds a stake in Discovery Communications Inc., owner of the namesake pay-TV channel and other networks like Animal Planet. He has a 25 percent voting interest in Liberty Global Plc, Europe’s largest cable company, where he’s chairman, and also has stakes in Charter Communications Inc. and Liberty Media Group.

“In the content world, scale is very important,” Malone told CNBC last year. “Clearly there is still room in the media sector to create some bigger and more global entities.”

Malone provided clues to his deal-making plans in a series of moves in 2015.

In February of that year, Lions Gate acquired a minority stake in Starz and Malone joined its board. Liberty Global and Discovery later acquired shares in Lions Gate and licensed rights to the studio’s films and TV shows.

Trans-Atlantic

Those deals have led some analysts to think Malone is laying the groundwork for cross-Atlantic media deal-making.

Such deals could happen quickly. At a Liberty Media shareholder meeting last fall, Malone said favorable borrowing conditions make “this a very attractive period for purchasing.” Starz CEO Chris Albrecht said this month that a union of Lions Gate with his company would create a “domino effect” for further media deals. He’ll have an enlarged role at the combined company.

TV and film companies like Lions Gate are under pressure to combine following the mergers of some of their biggest customers. Charter Communications acquired Time Warner Cable Inc. in a deal Malone helped orchestrate, and AT&T Inc. purchased DirecTV to become the largest U.S. pay-TV distributors. That’s given those players added leverage in negotiations for entertainment programming.

That’s why AMC or Discovery may be interested in teaming up with Starz and Lions Gate, said Robert Routh, an analyst at FBN Securities.

Ideal Combination

“Having all those businesses together allows you to leverage them off each other, save money on the cost side, create the content,” Routh said. Being part of a bigger company would be “a safe place to be for a lot of these entities that aren’t big enough.”

Routh added that an ideal combination would resemble Time Warner Inc., which owns the Warner Bros. film and TV studio, the premium channel HBO, and basic cable networks including CNN, TNT and TBS. Time Warner has navigated the choppy waters of the media industry better than many of its peers by acquiring popular sports events and creating TV shows at a time when demand for them has never been greater.

Web TV

Malone’s thinking may also be shaped by the evolution of internet TV. Tech giants including Google’s YouTube and Facebook Inc. are hosting video entertainment that’s stealing viewers from traditional TV. AT&T and Verizon Communications Inc. are also producing video programming for consumers to watch on their mobile phones and tablets. That’s left traditional media companies like Starz, AMC and Discovery looking small by comparison, Malone has said.

The cable mogul has also said it’s no longer enough to just make hit TV shows or own cable channels. A successful company has to do both globally, in case one of the businesses falters. With entertainment assets and a distribution capability, Malone could create a company similar to Comcast Corp., which creates films and TV shows through its NBCUniversal division and delivers pay TV to about 22 million cable subscribers.

“Even Disney is small in market cap when you compare it with Apple or Facebook,” Malone told CNBC last year. “Traditional media companies are looking pretty small. You could argue there’s going to be some combinations.”

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