Brought to you by TheJudge13 contributor Mattpt55
Who exactly is John Malone, the American multibillionaire would be owner of F1?
Though fairly reclusive through much of his life, in the past year both he and his company Liberty Media have been garnering a great deal of press attention with massive acquisitions globally and domestically, culminating in a fascinating interview on CNBC.
John Malone grew up in the blue-collar town of Milford, CT. His father was an engineer with a strict work ethic, and his mother was a championship swimmer with a Masters degree in education, but a reportedly distant manner. He attended Hopkins Grammar School in New Haven, CT where he was awarded a scholarship.
As a result, his childhood saw him torn between friends on the both sides of the tracks, as he struggled to find a place where he fitted in. Cars were a hobby with him as a teenager, and he recalls both working on and cruising the boulevard, a la American Graffiti. He also lettered in fencing, track and soccer, though according to Malone, it was more drive and less skill.
His intellectual interests finally won out and he attended Yale where he graduated in 1963 with a degree in Electrical Engineering. Shortly thereafter he married his wife, Leslie, whom he had met in 1958 and settled down as an engineer for Bell Labs. Through Bell he also acquired further degrees, a Masters in industrial management from Hopkins and a Masters in Electrical Engineering from NYU. He moved to management consulting in 1968, working for the firm McKinsey & Company.
However, the hours were long and the travel was fierce. Seeing the effect this had on others’ families, he promised his wife he would find a new job and so he did, joining General Instruments in 1970 and working for Jerrold Electronics. Jerrold made set top boxes for the infant cable industry and thus Malone gained his introduction to many of the pioneers in the field, including Bob Magness who would subsequently convince him to join TCI as President in 1972. TCI was a small rural outfit struggling to survive as the industry began to grow.
Based in Denver, TCI almost went bankrupt after Malone joined, but by 1977 he was able to begin acquiring other operators, allowing him to bargain with content providers. The advent of Ted Turner and HBO sent shares of TCI soaring and with real market capitalisation TCI was on its way to being the biggest cable provider in the country.
Ultimately a merger with AT&T would provide him with the fortune he sought. As he took control of Liberty Media it was spun off from AT&T and so he began creating a new empire, one which today sees him as a major player on the world stage.
But what does this really mean for F1?
Examining that question yields a Rorscharch-like answer that threatens to overwhelm reality with the desperate desire of fans to see the sport updated to the realities of the 21st century. The truth is, it will all change and though his history and interviews yield some clues, the stark fact remains that if Liberty Global and Discover Media do purchase the rights to F1 from CVC, the one person sure to benefit from that will be John Malone.
What kind of owner he might be for F1? The city council of Vail and TCI could not agree on rates. This led to Malone pulling all the programming from the town and instead he ran a screen with the name and numbers of the council members. They caved in less than a week and paid what he wanted.
He has also been accused of being less than forthcoming in negotiations, and not entirely trustworthy. Of course, given the recent shenanigans of various teams, and the utter hopelessness of the FIA that sort of hard headed negotiating might very well be what F1 needs at the moment. Malone is also an engineer, and will not be befuddled by the techno whiz nature of F1.
He is also known for a focus on the long term, something that will no doubt come as a shock to the current regime running the sport and a delight to the fans who are concerned for its health.
Malone is also, by nature, not an outgoing person and certainly not one, given his devotion to his family, to be travelling the world running the F1 circus. Once again, history gives us a possible clue. In 1997, TCI hired a new CEO as Malone became chairman. That CEO was one Leo Hindery Jr., who by all accounts did an excellent job for Malone and TCI, staying on as it became AT&T broadband to run it after the merger.
And yes, that would also be the very same Leo Hindery Jr. that is still trying to organize the NYNJGP at Port Imperial. He too has worked extensively in media and cable, but where Malone is an engineer at heart, Hindery is a very much a face time meet and greet sort. Very much the yang to Malone’s yin.
Hindery is also a licensed racing driver, having run in the 24 Hours of LeMans and winning his class in 2005 with a Porsche 911 GT3-RSR.
In his most recent interviews, Malone has spoken out about his belief that the traditional cable bundle is dead and instead he is focusing his attention on over-the-top content delivery. Basically, any time you hear the words over-the-top you should simply think NetFlix and you’ll have it. Malone is also convinced that sports in particular are in for some severe budget tightening, as people not willing to pay for sports as part of their bundles give up cable altogether and move to the internet to stream the content they are interested in.
Given these views, it may be somewhat surprising to learn that he has still been acquiring cable properties in Europe under Liberty Global, as well as in the States under Liberty Media. In fact, by subscriber, Liberty Global is by far the biggest cable operator in Europe.
That’s because Malone sees the value in cable not being in bundling, but in being the access point of high speed internet to people’s houses. He believes that high speed access is the most addictive substance known to man, and cable offers the lowest cost and highest speed to most houses. He thinks that content will either be offered in boutique bundles over-the-top, or even a la carte.
Either way, by owning the access points as well as content (sports being the most lucrative) he has fingers in both pies.
But finally, and probably most important, what does this potentially mean to fans of F1? First it should be noted that with the still unsigned Concorde agreement, there is no longer any requirement to offer F1 Free-To-Air.
In fact, the potential loss of this provision was what originally caused the schism where 7 manufacturers threatened to set up a competing series. While it might be good enough for Ferrari and McLaren to sell cars to a small group of very rich people, manufacturers like Mercedes, Renault and Honda need a larger audience to justify their investment in the sport.
The teams and drivers will lose too, as sponsors will pay less for fewer and fewer eyeballs which is why they threatened to walk the first time. Of course losing the FTA requirement makes the sport itself more valuable to CVC as they look to sell their stake and abscond with their profits.
In the best of all scenarios, Liberty Global will see F1 as a way to develop an Over-The-Top sports provider that will compete like NetFlix. For a modest monthly price, you will gain access to streaming of whatever content is provided, likely with step up options such as HD content or extras like pit-wall cameras and onboard video at all times.
Hopefully to draw in subscribers F1 would be offered in the basic, least expensive package. This would also have the effect of increasing internet subscriptions for Liberty Global and decreasing TV subscriptions for his rival and sometimes partner, Rupert Murdoch.
Of course life is not all kittens and rainbows and it is also very possible that Malone would do a deal that would see F1 segregated behind an increasingly expensive paywall, a very real possibility now that there is no Concorde Agreement to require FTA broadcasting of F1. For example, Telenet, owned by Liberty Global, stuck the Australian GP behind a pay wall with no warning (thanks Bruznic) and charged Belgians €20 to see Qualifying and the GP (€10 per event). Times 19 to 22 races probably equals more than many fans would (or could) pay.
The teams, too, will likely have new realities to face as well. Given their inability to keep FOTA going, much less produce a signed Concorde agreement, it is a certainty that they will be no match whatsoever for Malone. Whatever direction he heads in, he has been very clear that he sees the current level of spending on sport unsustainable, which will likely translate to less TV revenues and, therefore, prize money for the teams.
Whether or not he wishes to enforce a spending cap is another matter. Philosophically, it would seem unlikely given his political views, however as a matter of expediency if he thought it was necessary he would not hesitate to impose one. One also wonders what will become of Ferrari’s “special arrangement” if Malone, a notorious cost cutter, gets his hands on the sport.
This raises the very real possibility that he would call their bluff and they might walk away from F1.
It is clear from the omens and portents that CVC will sell, and wish to sell quickly before the price of their shares can be adversely affected by the ongoing global decline in TV audience as more and more millenials (and others) choose to pull the plug altogether.
Liberty Global is in some ways the perfect answer, as Malone likely sees F1 as a tool to further his plans rather than solely as a profit center as did CVC.
Although TJ13 did repeatedly contact Liberty Media and Liberty Global for statements about their acquisition, as of this time they have yet to reply. But regardless of whether the deal is done with Liberty or someone else, change is coming, and what that means to those who love the sport remains to be seen.
You can find Part 1 here
“What kind of owner he might be for F1?”
CVC have said that they sell their shares they intend to keep around 5% and possibly 10% of their ownership in F1. That means Malone can only own 25% – 30% of F1, which hardly puts him in a position to leverage F1 simply to grow his cable / internet business’s without the consent of the other shareholders who would actually own 70% -75% of F1. Added to that is both Ferrari and Mateschitz have said they each would be interested in owning 5% – 10% of F1’s shares, which would further erode Malone’s possible holding to the point that it wouldn’t make a of of sense for him to buy.
“First it should be noted that with the still unsigned Concorde agreement, there is no longer any requirement to offer F1 Free-To-Air.”
But the Seventh Concorde Agreement, which would run to 2020, which could be signed before CVC sells does have financial performance clauses which make a purchase somewhat risky. If profits drop to $750M the agreement becomes void and teams can leave F1. If a change of ownership occurs and profits drop 10% in consecutive years Ferrari can leave. And regardless of what you think of Ferrari, without them F1’s value drops by probably half.
I personally think Malone, like Haas is a BS artist when it comes to F1, and both are using F1 simply for publicity.
I dunno cav, he may be a BS artist, but if so he’s put $4billion on the line. CVC owns 35.1% with Lehman owning another 15% and the reports from Bloomberg are that he’s bidding for half the F1 business.
CVC are the sports controlling shareholder with 35% of the shares, one would assume Malone would become the controlling shareholder if he picked up the majority of their shares, in addition to whatever he can get from Lehman, with whom he is also reported to be negotiating. And Malone has a history of maintaining control while selling shares, so I’m sure if he gets the shares, he’ll wind up controlling the sport if that’s what he wants.
Beyond that, Virgin Media have invested 100 million pounds to double the internet speeds of BT, while not bidding various portions of their anatomy on football rights. Also, Discovery and BSkyB (Malone and Murdoch, natch) were potentially buying Channel 5 in Britain, though I don’t know if anything came of it.
Should we add eurosport in, too? Because Malone has a piece of that as well.
As far as profits from F1, I would think that it would be easy to maintain given how much of the annual take is kept by Bernie and Co. This assumes the value in the sport for Malone is something beyond straight up ROI, of course. Though, as you point out, it’s only an issue if the agreement is completed.
I know for sure that if F1 went to pay TV then I’d be looking for something else to watch. Even more concerning if it was on Virgin Media only as there are vast swathes of the country that aren’t cabled and – unless policy has changed since I enquired last year – they have no intention of expanding their network.
Hopefully there would be coverage on via any internet service, not just VM, and hopefully there would be a ‘budget’ package, even if it was highlights only or catch-up.
It does strike me there is a lot of fragmentation going on with sports programming. F1 is on Sky, WRC on Motors – ITV seem to have stopped covering it from what I can gather, BTCC on ITV4, Nascar on EPSN, no idea if Indycar or whatever it is called is even shown in the UK at the moment and also no idea what happened to the IRC.
Most people can only justify one subscription, I struggle to even justify that as I watch so little TV. There is a serious risk of reducing the audience by a factor of 10. Granted that 10% who keep watching will be passionate but I’d guess that a good portion of the 90% the sport loses are also passionate…
I hope cable and contentproviders will offer more ‘custom-packages’, I mean I love F1 but not soccer. In most current packages I pay for both, which makes it too expensive for me.
Being dutch, I still have German RTL and BBC, but for how long?
I believe Matt made that point about Malone – a la carte content, not the BS bundles to which we’re accustomed.
Ultimately though, it’s going to end up on the internet.
Yes indeed, in fact it’s already there. The difference is right now, if you stream an event live, it can unexpectedly disappear whereas if they made it official, they could make money with ads and a subscription and we could have better service with tiered levels of access no doubt. Of course, no guarantees that Malone will be the one to take over, but thus far he’s the only one to make a serious offer
when things end up on the internet they become heavily pirated. wonder how that would be mitigated.
Livestream content I think is different than pre-recorded content. Right now, if I want to to torrent, say todays quali, I can’t do that till after the event’s ended. The value is in watching in real time. Besides, if i watch a recorded broadcast to which I’m not entitled after the fact, I’m still seeing the same ads.
NBC would let you watch online but only if you logged in with your cable subscription. I would imagine a variation of that, possibly with him selling a global pass and letting the customer pick the coverage they wish to view while still serving local ads. Or possibly, they would do standard coverage per language maybe, there are a lot of different ways to go. Unfortunately I gotta run, have a gig tonight. But it’s fascinating to speculate on, no doubt.
but there are many websites that stream live the sky f1 broadcast pirated. tons of bs pop up ads but after closing them out it works great
They stream the live TV channel.. so far I don’t think you can livestream a livestream, but I wouldn’t be surprised if someone hacked the site producing it and made it possible…