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U.S. cable companies should create Netflix rival: Malone

Liberty Media Corp. chairman John Malone arrives at the annual Allen and Co. conference at the Sun Valley, Idaho Resort July 12, 2013. REUTE
Liberty Media Corp. chairman John Malone arrives at the annual Allen and Co. conference at the Sun Valley, Idaho Resort July 12, 2013. REUTE

By Liana B. Baker

NEW YORK (Reuters) - Cable pioneer John Malone said on Thursday that cable companies should team up to create a rival to Netflix Inc that would deliver programming over the Internet on a national basis.

Cable companies could "solve the problem" of high programming costs by acquiring content for an Internet-based service under one brand that they would sell in a bundle with broadband, Malone said at Liberty Media Corp's annual investor conference.

Malone, who is chairman of Liberty Media, used the example of Comcast Corp's Xfinity video streaming product one day being shared with the rest of the cable industry to become a national brand.

He added that another alternative would be for Hulu to "be bought and syndicated" by cable companies or for an entrepreneur to create a new product from scratch that the cable industry can get behind. He had said previously that cable companies should make a joint bid for Hulu, the Internet streaming service that was for sale at one point.

The cable industry has a history of working together, and he pointed the creation and funding of HBO, saying it "made us all rich."

A national Internet-based TV service could help the cable industry get back market share from satellite and telecommunications competitors, and also give a boost to smaller cable companies that lack infrastructure.

When asked about whether he still has an appetite for a merger or acquisition, Malone said that, if cable came up with a transformational product to rival Netflix, it would "increase my appetite as an investor to be willing to invest in the business through consolidation."

Malone, whose media holding company has an investment in cable provider Charter Communications Inc , made an offer for Time Warner Cable Inc over the summer, but it was rejected, Reuters has reported.

Time Warner Cable shares closed up $6.68, or 6 percent, on Thursday at $116.95 per share.

During a question and answer session with investors, he praised Netflix Chief Executive Officer Reed Hastings and launched into an analysis of Netflix's business model, saying it was big enough to buy exclusive national content at good prices, something the cable industry has struggled with.

"The cable industry has been very slow (which has) created a window of opportunity to the over the top guys," he said, referring to Internet based TV services such as Netflix.

Wunderlich securities analyst Matthew Harrigan said that Malone's cooperation idea was a good one. But he added it would be difficult to get all the players on the same page because the large companies such as Comcast and Time Warner Cable have more advanced technology than the smaller players.

"It's kind of like herding cats," Harrigan said about cable companies working together

Earlier on Thursday, another one of Malone's companies, Liberty Interactive Corp , said it would split into two tracking stocks, and also create a new company made up of its stake in TripAdvisor Inc .

(Reporting By Liana Baker; Editing by David Gregorio, Ronald Grover and Andre Grenon)

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