Cable Cowboy- John Malone & the Rise of the Modern Cable Business

• Creating value and reporting income are different. If you hold the long view, you can focus on the former.
  • "”If you’re going to ask about quarterly earnings, you’re at the wrong meeting, and you probably own the wrong stock,” he told one group of TCI investors. “What we care about is value. We want to create value for our shareholders. And I think the best way to create value is to have a very long view, so that’s what we do. So when we have the opportunity to expand into an area we think is going to have long-term value, we do it. We don’t have to worry about the impact on earnings. So it makes a different kind of organization.”9 Malone wanted to change how investors defined profit-and he would, opening doors to capital for cellular telephone business and, later, hundreds of dot-com companies.”
  • "”Forget about earnings. That’s a priesthood of the accounting profession,” he would preach, unrelentingly. “What you’re really after is appreciating assets. You want to own as much of that asset as you can; then you want to finance it as efficiently as possible.” 6 And above all else, make sure that the deals you do avoid as much in taxes as is legally possible. And then some.”
  • “Longtime TCI investors were richly rewarded. TCI excelled not because it was a great cable operator and friendly corporate citizen. Those were promises Malone never felt compelled to make or keep. True, it was the largest cable operator in the country, but Malone never pretended to be the best cable operator. TCI built wealth and made its shareholders wealthy by investments and complex financial engineering.”
• Owning the pipe and the water running through it creates big opportunities
  • “Malone did, indeed, have everything figured out, business-wise at least. Only a decade earlier, TCI was a tiny company with a rural base of subscribers, shackled with costly, floating-rate debt and a liquidity problem. Between 1973 and 1989, Malone closed 482 deals, an average of one every two weeks.” TCI had become a national titan and the biggest cable operator in the United States. From the low point that TCI stock had hit in late 1974, a year after Malone joined the company, up to the summer of 1989, TCI shares had posted a stunning rise of 55,000 percent. Hell, the payoff actually ran to 91,000 percent, from a low of $1 to $913, if investors held on to every stock that TCI had spun off, then tracked Malone’s own buy-and-sell decisions.”
  • Unanswered question:: what does this look like in software + energy?
• Finance-based operational leverage creates opportunities outside of your own company.
  • “Malone’s strategy was simple: Get bigger. After more than a decade at TCI, Malone could tally a cable system’s budget with precision and predict costs and returns with uncanny accuracy. Because of that insight and because of the company’s sheer size, TCI could now buy a cable company and begin to improve the performance dramatically within a few months. TCI could buy programming and equipment on the cheap, and it could get cheaper financing rates. Malone focused on long-term growth, eschewed dividends, and handsomely rewarded management.”
  • “But risk was a function of skill and knowledge. If you know you can exert control on the outcome, Malone reasoned, the risk is far less than those who jump into a deal with no expertise or facts.”
• You’re never too small to watch the budget.
  • “Despite phenomenal growth, though, TCI was still a lean company. A dozen senior executives ran the whole shebang. When they flew to New York, they slept in the company’s spartan two-bedroom apartment, doubling up two to a room. The headquarters of TCI was a square, flat, one-story brown building on the outskirts of Denver. Faux-wood paneling lined the offices, which were furnished with brown-plaid chairs and couches that looked as if they had been lifted from the lobby of a Motel 6. A lone receptionist greeted visitors in a carpeted area, and a door opened to a wide linoleum-tiled hallway that ran just inside the outer rim of offices. This way, the heads of engineering, operations, and accounting were mere steps from one another, and they were all close to Malone’s office.”
• Gas station business (user experience) v. pipeline business (network, infrastructure)
  • “Hindery’s favorite analogy for TCI’s problems was that TCI was a gas station company acting like a pipeline company. Pipelines deliver fuel in bulk. But gas stations sell it to retail customers, a far more service-oriented business. Customer service would win the day, and no one could argue that TCI didn’t need to pay more attention to its customers. “Running a pipeline business is a pretty easy business-you just turn on a pump. Running gas stations is a really hard business,” Hindery liked to say.’”
• Decentralized organizations make faster decisions and have more empowered employees
  • At Disney, Bob Iger did this with the team of analysts that were tasked with analyzing any big decision Disney would make. It rendered department heads, those closest to the business, powerless.
  • “Instead of scores of TCI cable systems taking orders from Denver, Hindery wanted to put marketing and purchasing decisions back in the hands of local operators. “You market from the bottom up, and not the top down. What works in Birmingham doesn’t work in Bozeman,”’ he told the troops. With haste, Hindery lopped off the heads of 25 executives at TCI, including Brendan Clouston and his team, and replaced virtually all of the positions from within. He began remaking TCI into a collection of local companies that tended to their own markets, based on the simple idea that no single manager can manage more than 2 million subscribers.”
• “All deals come down to a few points that matter for each side”
  • “Malone accomplished this consolidation of power largely by doing what he always did: picking up the phone and reaching out to the other side to look for the common ground where he could put together a mutually agreeable deal.”
  • “Deals are courtships in the business world. Each sale or investment is different, a reflection of the personalities involved and the strengths and weaknesses in their logic and motivation.”
• The ultimate freedom is the ability to decide which obligations and problems you want to tackle.

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