John Malone’s Liberty Global is making a bid for Virgin Media and the press somehow manages to work it up as a Malone versus Murdoch showdown. The notion of two aged Titans facing off in one of the world’s most developed media markets is tantalising, but is far from the reality.
The world’s most experienced media entrepreneurs have worked together and against each other at various times over their long careers and claim only the greatest of respect for each other. Malone recently revealed that although some encouraged him to do so, he never considered taking advantage of Murdoch’s hacking woes to make a counter bid for BSkyB.
Malone’s cable strategy has long been gloriously simple: only be in markets where you can be number one and benefit from economy of scale and market dominance. If that is through acquisition make sure you pay the keenest price possible. This is often achieved by being the only viable game in town for private equity owners badly wanting to cash in their shares in often profitable but highly indebted cable companies.
This is the profile of Virgin Media and, while it won’t be won cheaply – the £12bn rumoured price seems unlikely based on pre-tax of £124m -, if the private equity owners want out they’ll be anxious not to miss this exit as an alternative may be a long time coming.
A long process of attrition has made Virgin the UK monopolist on broadband cable; a position Liberty, presumably through its UPC subsidiary, will inherit. From a low base it has steadily grown a market of 3.78m TV subscribers and 4.2m broadband. That means it isn’t anywhere near as big a Sky in TV or BT in broadband, but it has begun to turn a profit despite its punishing debt repayments.
Since the sale of UKTV it also owns little content. All the spats with Sky have been about the price of Sky’s programmes – particularly movies and soccer – that Virgin has to buy; ultimately it has called regulators to its aid.
Now Liberty has the opportunity to leverage global demand for some content and become a serious bidding rival to Sky. But, neither Murdoch nor Malone is inclined to line further the already stuffed pockets of rights holders. What price bidding cooperation for premium content as a consequence of a Malone and Murdoch showdown?