I read Atlas Shrugged in 1994. It was also in 1994 that I first read about cable television visionary John Malone. He was in the news quite a bit thanks to the growing prominence of cable, but also because Al Gore had formerly referred to him as “Darth Vader.” It’s hard to say why, but Malone was the person I associated Hank Rearden with.
Unhappy that such a prominent doer was routinely under attack by government, but also of the view that Malone must be brilliant if the small minds in government disliked him so much, I made it a point from 1994 on to own shares in Liberty Media, the media investment vehicle that Malone created while CEO of cable giant TCI. Which means today, over thirty years later, I own tiny amounts of the many commercial entities that Liberty has a stake in, which includes AT&T, the Alanta Braves, Warner Brothers Discovery, SiriusXM, and many more. Which makes me think even more of Malone.
You see, Malone is a libertarian. And while it didn’t make it into his excellent memoirs, Born to Be Wired: Lessons from a Lifetime Transforming Television, Wiring America for the Internet, and Growing Formula One, Discovery, SiriusXM, and the Atlanta Braves, Malone was a long-time board member at the libertarian Cato Institute after having been courted by the recently deceased co-founder of Cato, Ed Crane.
All of this is being mentioned because there’s a reason that Liberty shareholders from the 1990s now own so many different Liberty properties today. It’s about taxes to some degree. Malone isn’t a fan. As he puts it on p. 234, when asked one day (as though a criminal) if he paid any taxes, Malone replied, “Sure, I’ve paid taxes – as little as possible, and as late as possible.” A few pages later (p. 238), instructs readers to “Never pay taxes you legally can avoid paying. It is as simple as that.” The Liberty spinoffs and investments that led to the various spinoffs were very much about avoiding pure cash transactions that are frequently taxable events. If only all billionaires were like Malone.
As is frequently conveyed to the very rich by your reviewer, “a tax on you is tax on me.” Which shouldn’t be an insight. Every dollar the federal government takes in is an extra dollar of centralized control it has over the U.S. economy, not to mention that growing tax incomings enable even more borrowing by the taxing entity. At Cato today, it’s sadly become accepted wisdom that the path out of the U.S.’s national debt hole is more tax revenues flowing into Treasury. One guesses Malone, were he still on Cato’s board, would instruct the scholars that they have it backwards, that the excessive taxes levied on Americans (the rich most notably) are precisely what is enabling all the borrowing. Malone’s career instructs.
To see why, it’s important to travel back in time to the cable television business Malone entered in the early ‘70s. About it, it’s often said that “real” American businesses are small and populate the “Main Streets” of America. It’s a nice thought, though one divorced from reality.
Nike’s early offices were above a bar in a bad part of Portland, Amazon’s early days were spent next to a porn shop, a pawn shop, and a needle exchange, while Malone reports that cable television began (p.34) “in the foggy hills of and wooded hollows of Pennsylvania, Oregon, and Arkansas, which broadcast signals struggled to reach.” As for TCI’s offices, they were housed (p. 1) in a “brown, flat, single story” office building situated “on the outskirts of Denver.” What’s great never appears that way at first, and surely lacks the funds to open on Main Street, which is why the origins of the businesses that ascend to greatness are rarely – if ever – hatched anywhere close to Main Street.
How all of this relates to the debt commentary that preceded it can be found in the endless struggles TCI endured to get to the point where it could run up the debt necessary to take cable from “the foggy hills and wooded hollows” (the description is a reminder that businesses frequently form to serve the unserved) to most Americans.
As Malone recalls about the early days of cable (he arrived at TCI in 1973), (p. 3) “we were minding every nickel at the office, and my wife, Leslie, and I were counting pennies at home, using coupons at the grocery store, never eating out, and going for a month without a home phone at one point.” Malone adds that (p. 6) that “the imminent prospect of crushing failure has never really left me.” If only all politicians were required to read Malone’s memoirs as a way of understanding the immense struggles entrepreneurs endure ahead of reaching the point that people like Gore can witlessly describe them as “Darth Vader.”
Of course, the fact that you’re reading about a memoir by John Malone indicates that his and TCI’s early business struggles didn’t last forever. No, they didn’t. As Malone writes closer to memoir’s end, (p. 235) “a single dollar invested in TCI in 1973 – accounting for spin offs and stock splits – grew into an astonishing $900 by mid-1998.” To grasp just how successful TCI was (AT&T purchased it for $48 billion in 1999), the “same dollar would have reached $180 in peer cable companies” from 1973-1999, and an even more modest $22 if exposed to the S&P 500.
Hopefully readers can see why Malone, Malone’s family, and TCI formerly had to scrimp so much. No one saw its success coming. Re-read the previous paragraph if you don’t understand, and keep re-reading it until you do. Markets are way too efficient to not price a known. In TCI’s case, the upside was for the longest time invisible.
Which almost brings us to the debt story. TCI did eventually start to become what it became, and in doing so, the debt situation changed for it. In Malone’s words, (p. 58) “increased cash flow allowed TCI to borrow more money and pay the higher total interest costs on it, which we used to buy still more cable systems.” What you just read has hopefully caused you to rethink not just debt, but a silly Fed narrative that just won’t die.
TCI’s ascent reminds us firstly that no one borrows money, rather they borrow what money can be exchanged for. In TCI’s case, debt was necessary for it to expand. Next, hopefully readers can see that credit isn’t decreed or offered by governments and central banks that produce nothing, rather it’s created: we seek money to purchase real market goods, services, businesses and labor (in TCI’s case, cable companies), and crucially we’re able to attain the credit necessary to enter the market for resources via our own production. Quoting Malone again, “increased cash flow” was the production TCI needed to demonstrate to attain credit. The Fed can’t give these things out.
Which means we’re finally at the debt part. Why was TCI able to run up ever more debt? Precisely because its incomings continued to grow. This is why it’s speculated here that if still on the Cato board, Malone would instruct the scholars there about the fatuity of the debt solutions they’ve crafted. In a broad sense, they believe that spending cuts, entitlement reform and tax increases will shrink the national debt.
Except that as Malone’s story, and that of ALL individuals, businesses and governments vivifies, market expectations of increased incomings are what enable the borrowing. Which means Cato and countless other institutions of deep thought are glossing over why the U.S. Treasury can and does borrow so much: it’s about abundant tax revenue now, and the expectation of quite a bit more in the future that renders the U.S. Treasury such a credible borrower. Malone lived it at TCI. As revenues grew, so grew its borrowing power. Governments are once again no different in a borrowing sense, though much worse when it’s remembered that politicians are borrowing on the backs of others while facing none of the pressure of paying monies borrowed back: since tax revenues continue to grow, Treasury owners know they’ll be paid.
Exactly because the federal government’s taxable access to people like Malone is what enables so much spending and debt, it seems the libertarian in Malone would agree that showering the borrowing entity with even more tax revenue will do nothing to stop all the borrowing. Quite the opposite contra Cato, and so many others.
What adds to the excitement of what Malone and TCI were creating along with other “Cable Cowboys” around the U.S., is that even they weren’t aware of just how much their work in the 1970s would shape the future of commerce, and life. Malone writes (p.1) about “hanging coaxial cable across the country to provide rural areas with better reception of broadcast signals from CBS, NBC and ABC.” On its own, the latter was exciting and further evidence of what ambitious businesses do for potential customers, after which Malone adds that the laying of the cable was the foundation “for the likes of Amazon, Facebook, and Google, and unlocking immense value in a new digital economy.” Which requires a pivot to data centers.
Presently hundreds of billions are being spent on their global (space too?) rollout, with trillions more planned. Presently we’re enjoying the fruits of the data centers as more and more information artfully put together is at our fingertips within seconds. But as Malone’s recollections indicate, the potential within those data centers to transform our present and future has almost certainly not been realized when we see that the dividends from work done in the early 1970s were still paying out in abundance decades later.
Which is a comment that trillions aren’t being invested in data centers just to so that we’ll achieve quick, informative, elegant search results. There’s so much more transformative power in what’s being built. Malone would almost certainly agree. All commercial investment is rooted in enabling businesses to pivot, and pivot some more. Absent the unrelenting change, there’s the stasis that is what invariably comes before obsolescence.
Malone saw this up close. After Yale undergrad, he was at Bell Labs, followed by McKinsey. Malone exited Bell Labs soon after an older colleague (p. 28) told him that “if in your whole career, you can do a single thing that changes the Ma Bell system in even the smallest way, you would be very successful.” It’s fortunate for all of us that Malone left. What a loss if he’d stayed. It was at McKinsey, at the age of 27 (p. 31), that Malone first flew on an airplane.
It brings up another brief digression in a review that will be full of them. Libertarians and conservatives frequently lament the quality of teaching in schools, along with the ideological lean of teachers and professors. The view here is that the fear is overstated. Think Malone, along with another former Cato board member, the late Fred Smith.
Both Smith and Malone attended Yale, crucially and notably both emerged from Yale with ideology intact (Malone recalls on p. 25 that “I didn’t buy Samuelson’s Economics”), and before readers say it was different then, remember that William F. Buckley penned God and Man at Yale in the 1950s. Schools and universities have always leaned left, and it’s something we should rejoice.
That’s because schools are quite a bit more stuck in their ways than even the most calcified businesses. More realistically, they’re rewarded for remaining stuck in the past. “Old” sells with education, unlike with business. It’s a long way of conveying how tragic it would be if people possessing the genius of Malone and Smith spent their productive years on campus instead of transforming exponentially more lives for the better in business. The best advertisement for freedom and free markets is doers like Smith and Malone in business, not classroom instruction.
There’s so much that’s so interesting in Malone’s memoir, but arguably one of the most fascinating business lessons comes to readers on p. 56. It was 1979, and Malone along with top lieutenant J.C. Sparkman was out at the annual Western Show in Anaheim, this the convention that long attracted the originals of cable along with a growing number of early arrivals to what was then a nascent concept.
What Malone saw bowled him over. So much so that he, Sparkman, and everyone else in their group left the show right away and returned to Denver. What did Malone et al see that most didn’t: they saw in the booths for HBO, Showtime, ESPN, and Nickelodeon that (p. 56) that cable was poised to be much more than a connection to network television for rural viewers, that “millions of homes in America would want more choice in the channels they watched.” Nowadays this is of course something that reads as quite obvious, but consider yet again what a dollar invested in TCI in 1973 was worth ($900) by 1999. From the previous number it’s plain to see that Malone saw something that few did about the future of television. The conclusion upon return to Denver was “We’ve got to get a lot bigger.”
Readers already know how they were going to grow: acquisitions of cable companies from owners who didn’t necessarily see what Malone saw. His timing was brilliant. He reports (p. 64) that it took the cable industry 30 years to sign up 13 million subscribers, but by 1982 13 million had turned into 27 million, by 1988 it was 54 million, and even at 54 million there was much more growth on the way. I know because I lived it growing up in Pasadena, CA. Right into the 1990s there was only ON or SelectTV in a cable sense. Real cable that included some of the channels hawking their slim wares in 1979 didn’t reach Pasadena until the 1990s. We weren’t alone.
With the growth of subscribers came ambition to provide subscribers with exponentially more channels. Malone’s aim was always 500, which meant that investment was always about reaching more homes at falling costs. He writes on p. 65 about fiber optics that are actually “glass wires the thickness of a strand of a human hair, with hundreds of times the capacity of coaxial cable.” Remember what you’ve just read when economists tell you that economic growth causes “inflation.” No, economic growth is just another way of describing productivity increases born of investment. Remember the investment part when politicians tell us “big corporations” can afford big tax increases. Never forget that shareholders pay all those taxes, which we all suffer through reduced investment meant to give us a great deal more for less.
Malone’s investment in a rapidly evolving cable future was made increasingly possible by the great Michael Milken. In Malone’s words, the (p. 66) “rise of Milken and the firm Drexel Burnham Lambert created a revolution in deal financing for us,” and crucially “saved me incalculable hours in front of clients on road shows.” Yes! What made Milken the greatest financier ever was that he understood the businesses he was financing so intimately. The understanding is what made him so successful when it came to matching visionaries like Malone with capital. Please stop and think about the labor division. Truly this is Adam Smith’s pin factory, though in a financial sense.
Malone describes himself (p. 8) as “a high-functioning autistic,” and despite that gradually developed a skill with clients. Still, his greatest genius was deploying precious capital in ways that coincided with TCI’s growth. Which means Milken’s financing positioned him to do what he did best, while Milken did what he did best. As always with Milken, how many great businesses and industries were never funded because of the witch hunt he endured, and that removed his unrivaled genius from finance? The unseen with Milken staggers the mind, and sickens it.
Ted Turner was another visionary financed by Milken. Malone’s affection for the great Turner is very evident. Though Turner once told Malone (p. 177-78) “you’re far too right-wing for me,” Malone rightly devotes lots of pages to him. Politics surely didn’t get in the way of Malone’s regard for Turner, whom he describes (p. 76) as “one of the most driven, iconoclastic, irrepressible, hilarious, unrelenting, and visionary leaders I have ever encountered.”
Turner taught Malone so much, about the importance of ownership (p. 76) “versus just drawing a paycheck,” but also risk-taking. He writes (p. 77) that “Ted’s life seemed to be a string of risky bets based on the instinct and impulse of a mad, creative genius.” So, while some spend their days lamenting this and that regulation, (p. 79) “Ted waved his hand, swatting away the pesky regulations like a fly in the room.”
Only for Turner to persist. The energy was on another level. Memory from a Jane Fonda interview was that she couldn’t stay married to Turner because she couldn’t keep up with him. Malone recalls (p. 79) a visit from Turner to the TCI offices when he was looking for distribution for TNT/TBS. He told J.C. Sparkman “I’ll kiss your feet if you carry this station! Please carry my channel!”
Turner didn’t just captain a winning America’s Cup team (including pounding down a bottle of vodka during the subsequent press conference), but also (p. 84) won Fastnet, “the most dangerous race in the history of sailing.” When Turner won, 15 participants literally died, and only 84 out of 303 boats entered in the race finished it. Cato’s Crane recalled criticizing Turner to Malone, and Malone correcting him.
Turner’s brilliant career requires more study. Malone to this day attends at least one Atlanta Braves game per year, during which he trades Turner stories with some of the executives who were around for when Turner was more involved. Where it becomes somewhat sad is that Malone offered to buy Turner’s businesses from him, including CNN. Much as Turner revered Malone, he turned him down. Malone was once again far too right wing. Malone adds that Turner needed the prestige of Time, and thus sold to the entity that was on the verge of a long decline (in 1999 a Time Warner share was worth $254, in 2009 the same share was worth $25 – p. 186) for a variety of reasons related to print media’s struggles, along with the reality that nothing is forever, including the once insurmountable AOL. Malone sadly notes that if Turner had just sold to Liberty, he would not only be in control of what he built, but (p. 180) “a hell of a lot richer.”
What has made Malone so successful, and by extension Turner, Barry Diller (p. 10) whom Malone describes as “a bona fide genius,” and Rupert Murdoch (“gave me a master class in business strategy.”)? They’re all great risk-takers for certain, along with the fact that there’s seemingly a recognition within them all that the present is a terrible way of gauging the future. As Malone put it, (p. 111), “Nothing is forever. Not even cable.” This recognition combined with a persistent fear of failure has driven Malone to constantly look around the corner, to see what things can be. Nothing stays in place. Think televisions alone.
Malone recalls being told in 1991 (p. 129) by Akio Morita that Sony could build 10,000 HDTVs for $7,000/per. Today HDTVs are primitive relative to UHDTVs that have surely been lapped by other something better for a few hundred dollars, if that. There was always something coming whether satellite TV, the Baby Bells using their own pipes into the home to get into cable, not to mention the internet pipes into the home created by cable that in many ways are vanquishing it today. Important in all this is that in recognizing the reality of constant change, Malone kept investing. He describes failed investments not as failures, but (p. 155) as “tuition” that makes continued positive advance possible. In his words, “You either adapt to new technology, or die with ‘this is the way we’ve always done it.’”
Malone is regretful about Turner’s decision to sell to Time, but doesn’t hide the fact that he similarly erred. Despite seeing the bureaucratic writing on the wall and exiting AT&T (Bell Labs) early in his career, Malone as mentioned early on sold TCI to AT&T in 1999. He recalls (p. 248) that “I have made many mistakes in business and in life, and selling TCI to AT&T might have been the biggest whopper of them all.” Not only did he lose half of his wealth, he had to watch his wealth decline owing to his decision to stick around. Wanting his readers to avoid the mistakes that he made, Malone warns them (p. 249) to quickly move on after any sale: “Don’t go on the board. Don’t even hang around. It will make you miserable, because the company you bought belongs to someone else now.”
Fortunately for Malone, he still had Liberty Media to fall back on. With Barry Diller (“programming skills born of real passion, the type of creativity that is impossible to learn.” – p. 268) he entered into all manner of internet ventures with home shopping as the vehicle for much of this, and then a fortuitously timed investment in a near-death SiriusXM resulted in “one of the biggest returns on investment in the history of business.” – p. 285). All that, plus Malone continued with a variety of domestic and global cable ventures. Two million cable subscribers in 1970 had turned into 98 million by 2010 (p. 302), but of crucial importance, 98 million was down to 52 million (p. 304) by 2023. Say it repeatedly, the present is a lousy indicator of the future in business.
While it’s accepted wisdom to “buy and hold” as an investor, the reality is much more than nuanced. Consider the blue chip corporations when the 21st century dawned (GE, Enron, Tyco, Lucent, AOL, Yahoo!) versus those of today. It’s a comment that if all your wealth is tied up in the Magnificent 7, be careful. The stock market doesn’t gain strength from the Federal Reserve no matter how many op-eds you read by pundits and think tank experts, but it does gain enormous strength from the fact that the present is a lousy indicator of the future. Translated, bull markets are given life by the blue chips of the present being relentlessly put out to pasture by the afterthoughts of the moment. Malone not only knows this, he chronicles it beautifully through the rise of Netflix.
In 2010, then HBO head Jeff Bewkes was asked in a New York Times interview about the prospects for Netflix, only for Bewkes to quite wittily ask (p. 303), “Is the Albanian army going to take over the world?” Words Bewkes no doubt regrets, though it would be unfair to tether him to a thought that was the consensus in business. And if you doubt the previous sentence, simply Google a chart of Netflix’s share price starting in 2010.
Malone himself is considered the smartest individual in all of media, but he admits that Neflix founder Reed Hastings (p. 308) is part of an “elusive group of those I sure wished I had been able to join.” Getting right to the point, what was the Albanian army in 2010 is the “undisputed victor” in the present, with Netflix having left “Disney, Amazon and Apple in the dust.” Not only did the visionary in Malone not see Netflix coming, the (p. 309) “really hard part to swallow” is that “Netflix’s business was using the wires that cable operators strung and spent hundreds of billions of dollars to upgrade.”
Malone’s discussion of Hastings and Netflix is in many ways one of the most interesting aspects of his memoir, particularly in consideration of how Hastings used wires created by the cable industry and the content created by the entertainment industry to eventually lap them all. Malone admits that cable and entertainment alike were thrilled to take in the revenue that Netflix provided them with through relentless content purchasing, only for them all to eventually wake up to the fact Netflix was able to build a massive audience with the content and wires of others that ultimately positioned Netflix itself to not just get into content, but with the subscriber base Netflix already had, Hastings positioned the former minnow as the go-to for every actor, director and producer in Hollywood. Malone is revered by the biggest names in media, but Malone reveres Hastings.
Still, there’s a disappointing irony to all of this. Interesting as Malone’s discussion of Hastings is, it leads to conclusions that this reader never expected from the libertarian in Malone. He writes on p. 334 that “We need a new regime of government regulations designed to rein in and monitor the gigantic companies of Big Tech…For the good of the country and our people, it is critical that we defang FAANG.” He adds on p. 335 that “The problem is that the gargantuan heavyweights in Big Tech now are too big to assail.” Malone’s commentary wasn’t just disappointing, it didn’t ring true. How could he write this?
In particular, how could Malone write or believe this knowing what he knows about TCI’s own meteoric rise from unknown status on “the outskirts of Denver” to the most successful cable company ever? How could Malone believe what he’s saying right after describing so interestingly Netflix’s rise from nothing to victor? Precisely because the present of commerce never looks like the future of it, Malone should know more than anyone that government isn’t needed to defang FAANG exactly because free markets will do as they’ve always done, and the defanging will enrich the replacements for FAANG at a level that will make their billions, tens of billions, and hundreds of billions seem a bit poor by comparison.
Where Malone’s detour into antitrust embracing statism becomes even less explainable can be found in future pages toward book’s end where he provides readers with even more statistics showing how change is the only constant in business, with the change relentlessly altering the team picture at the top of business. While pay tv subscribers were 87 percent of households in 2010, by the publication of Born To Be Wired the percentage (p. 377) was down to 35 percent. ESPN was once the seemingly insurmountable king of cable with 100 million subscribers at its peak, but by publication of Malone’s memoirs (p. 377) 100 million was down to 66 million, and falling…
As Malone’s career and his excellent business memoir make more than evident, success begets its vanquishing exactly because success powers the individual ambition and investment that ensures no one stays on the top for too long. If only Malone had concluded that? For sure, but the fact that he didn’t doesn’t detract from a great read. Even when Malone writes something disagreeable, his thinking forces even better thinking from his readers.
