Peter Barton’s biggest industry contribution was helping John Malone assemble Liberty Media from scratch into one of the greatest holding companies in the entertainment industry.
“Barton was critically important in building Liberty into what it was." - John Malone
After graduating from Harvard, Peter Barton went to a library and researched the most interesting people to work for. He said, '‘I sent a direct-mail piece to 235 people, saying, ‘Would you consider hiring me for 90 days.’’’ He offered to work for free for them for 90- days. After 90-days they could part ways no strings attached.
For Barton this was a huge decision because he was broke. 90-days was a long time to work without compensation. He had 106 responses, including one from Mr. Malone, who was in the process of building a company of cable holdings known as Tele-Communications Inc. (TCI) . Mr. Barton flew to Denver to meet with Malone and Bob Magness. He liked the concept and joined TCI.
Years later after helping Malone and Magness build TCI, Barton was assigned the task of assembling TCI’s assets.
Below Peter Barton recounted the story of how he and John Malone started Liberty.
In the fall of 1990, I was sitting, on a Saturday morning, in John Malone’s pool house, fetid pool house, it was too hot, and it was closed. And it was too chloriny (sic). It was hard to sit in there, but it was quiet. And we could talk. I had done the research in preparation for this meeting, which was research to get a list of every one of the miscellaneous assets that TCI had in this portfolio and let’s talk about that.
So I talked it over in the pool house. And you know, we had from years and years of buying stuff. We said, ‘Oh, yeah, this is what this company has… Well, what the hell, let’s take it.’ I mean, at one point, we were the largest shareholders of Resorts International, because one of the cable companies we bought was the largest shareholder in Resorts. So there were buildings and cars and little pieces of cable systems. We had pieces of US Cable and pieces of Lenfest, and a very long list of stuff and pieces of programming services.
And what can we do with all that? Do you think since the market is not giving us any value for this, and if you were to take all that stuff and toss it in the rubbish, the stock price of TCI wouldn’t have changed a bit.
So you come to the conclusion where the market is not giving you any value for it. Let’s sweep it all up. Let’s clean out the attic and in the basement. Let’s see if we can’t organize a separate little company here and take it public. Let’s see whether or not we can’t manifest value for these dogs and cats one way or another. That was the beginning of the Liberty Cooperation.
At that time it was called wisely, cleverly, New Co. So New Co. took form as was my Saturday, Sunday job. While we’re still hurrying to get programming deals done before anyone really caught on to what we were doing. Or could resist it or whatever we were afraid of. You know, we were hurrying to start sports businesses, we were hurrying to start other new businesses, we wanted to now own cable equity. So if somebody wants to start a second channel, 'Well, we will help them start it. And we’d like to own it. And we’ll help you with some distribution and help you with this.’ And we also have something to say about what the service outta look like and how it can capitalize itself.
We had to take everything
We had all these assets, and I was trying to hodge podge them together so that we could maybe form a company but at the same time, simultaneously, we were very aggressively now trying to acquire programming assets.
Interviewer: I want to focus on those bits and pieces that you were talking about, as you would combine those into whatever the corporate entity was, or whatever your plan was to combine those. Was it to put all of them in or only those that were profitable and discard the others?
Peter: Well, no, we couldn’t be that cute about it. In order to have a heavy reasonable story, we had to take all the wheat and all the chaff and make it into one pile. I don’t recall we might have left a few things out. But the problem is if you left them out and they were clearly dogs, then the question is as a TCI, shareholder, why shouldn’t I feel like you’ve taken advantage of me with Liberty, and sue you? So to do the right thing, to be Solomonic about it, we took the better and the worse. And put them all together. But the genius of Liberty was not mine. The genius of Liberty was the structure and was the conception of it. And that was vintage 100%, Malone.
That was my postgraduate course in financial engineering. It was all unique, all original. And obviously very smart.
Liberty - Looked Complex, Not Intentional
Well, it was barely doable. I mean, we had to ask the SEC to consider forms of equity, that were entirely original. And we had to do a lot of educating. And to this day, there’s still a lot of people who, and this is of course has been litigated now and thrown out, who claimed it was intentionally done in a way that was so complicated that we would bamboozle investors into not investing somehow. And all of that is poppy cock. The problem was, it was just so complicated to comply with all the federal reporting requirements, that we ended up with a prospectus that was this thick. And I recall that we had an analyst meeting before we went public a few days or weeks prior, all of which has been the subject of great, great many depositions. And John and I stood up and we tried to explain Liberty to a packed house of analysts.
And so we stood up and we tried in very simple terms to explain Liberty, which was relatively a simple concept. Just didn’t write that way. Once you comply with all the SEC requirements for reporting. And we went out of our way, John and I to say, “Well look, forget what you read. There’s only this many pages that matter.” I think we even said which pages read those. The rest of this stuff is, you know, is not important.
We went on and tried to explain as simply, as cogently as possible. In fact, you know, there’s tapes of this someplace the whole concept of Liberty. And I thought this was going to be a gangbuster success. We had it organized, where if a lot of people participate, remember this was a participation, right? Then we had this, not we, Malone invented, this C preferred, which was a rubber joint, it would get very small if a lot of people came in. It would be very large if very few people subscribe. And we explained all that. And you know, we encouraged people to make their choice and their participation rights and so forth. And then throw it over.
I explained what all the assets were. John explained all the tax elegance. It was really very, very clever. And he was explaining his cleverness.
Still No One Understood Liberty
So I went to the back door. And as everybody walked out all the major analysts, I asked 23 of the top analysts, “Are you participating or not? Are you recommending or not?” 21 said no. I was astounded. It was jaw dropping to me. And I was wondering how in the world they come to that conclusion, if I honestly had a personal panic, because I was committing my heart and soul and life, to this new little gadget. And 21 out of 23 of the smart people in the world were telling me it was a dog.
It just goes to show you should listen to your internal soul. So I had this identity crisis. I mentioned this to John. I don’t know whether he emoted or not. I just couldn’t believe my ears. A few days later the thing goes public. And it didn’t do much. We didn’t expect it to do much, you know, it kind of went up. And then I had this theory that we ought to just go underground. Because we had this enormous portfolio of junk. Some good pieces, you know, a lot of them weren’t great pieces. Including sports, which was hemorrhaging, and you know, little tiny bits of cable systems and no one had ever heard of before. And yes, some of them were hemorrhaging, and some weren’t. And I wanted to get it organized so that we could create value by making this into a rational group of assets that would make each other more valuable somehow. So the first and probably most intelligent decision we made early on in Liberty was I went and begged Marvin Jones to come out of retirement.
Temple For Entrepreneurs
And he’s a one man operation. Not that Liberty had a lot of people. I really had 14 people that included all secretaries and all the accounting people and every single thing you need to have a public company in terms of jobs, and Vivian Kairos had 46 hats on. She was head of PR and head of financial reporting and head of investor relations, and head of everything else. And Marvin was in charge of the entire cable portfolio.
A year later, Marvin was running the third largest MSL in the country. And his revenues per sub were the highest in the industry. And his cash flow per sub was the highest in the industry. And we began to realize that what we were really good at was managing this very strange, weird group of people that are true entrepreneurs.
We were really a temple for entrepreneurs. We could provide them with financing and some scale economics because we could buy for them and aggregate them and buy them in scale. But we also knew how to lead Malone. We also knew how to talk to him a little bit saying, ‘You could be a little smarter if you did this, and this and this.’
And Marvin had a beautiful demeanor about him. And he looks like a drill sergeant, and he looks like your worst nightmare boot camp. But he’s got a heart of gold. And he knows what the hell he’s doing with cable. He really knows his stuff. And he turned that little group of investments quietly, unassumingly into the best running entity, aggregation of entities. So that was going well. That didn’t require much supervision on my part. I wasn’t that keen on cable. I was very happy to have him do it. I went to all the quarterly meetings and so forth. I said no to stupid capital and said yes to under capitalization and all that stuff.
On the programming side, we had a high degree of urgency to continue the acquisition binge that we had been on with TCI. Buy as many programming services as we could. Buy them as well as we could, but buy them anyway. Because my theory, and John’s theory was that these things haven’t even begun to peak in terms of their value.
Why? Because the dual revenue stream programming business is only going to succeed at a factorial level of growth. Why? Because if it’s good, it will have pricing power, because it has brand monopoly. And if it’s good, It’ll have pricing power with advertisers, and the dual revenue stream and pricing power associated with branding. Make these things evergreen.
So we led the way in some acquisitions paying too much for things that ended up in retrospect being awfully cheap. We also encouraged all the programming services that we were involved with to clone themselves, not just once, but X number of times. Let’s start a second thing. Family Channel, you need a second channel. Discovery, John Hendricks took this to heart. I mean, John now has 8 or 10 services not even including all of his international brands. Little Ol’ Discovery is worth maybe six or seven or $8 billion today. B, for Billion.
We encouraged a lot of that rapacious behavior. We encouraged rate increases. We encouraged as friendly a deal as we could do with TCI. But as far as everyone else is concerned, get as much as you can. And TCI basically paid pretty much what everyone else paid because usually there were other interests in each partnership. The one be sure they got as much as they could out of TCI. But those were all arm’s length deals. And TCI became our absolute most difficult affiliate,which was ironic.
In the meantime, Liberty was sailing right through all these prime star consent decrees because it was a separate entity. We signed our own consent, but it was substantially better than everybody else’s. The legislation came and forced us to have to deal with competitors to cable, which was wonderful leverage for us. Because until then everybody wanted exclusive deals. And if you were dealing in New York City, you only got to charge as much as Time Warner would pay. But once there was satellite and few other competitors, you could establish new rate cards and establish your favorite stations levels and so forth. So the whole thing started ratcheting up.
In about November of the following year, we had our first analyst meeting. Since there were very few people following us because not many analysts bought in, we had Gordie Crawford and maybe Mario Gabelli and a couple other people who were the only ones following us and who cared. And so we just treated them like friends of the family. We have board meetings, and we invite our analysts to the board meetings, and ask them to help us figure out, ‘Well, what else could we do here?’ Can we get a piece of A&E by doing this and doing that.
We became famous for doing very, very, very complicated deals. Not because we like complication, but because we are capable of doing it. The reason we were capable of doing is we had a shop that in the first six years did a deal every 10 days. Put that in perspective, most big companies do a deal a year, maybe two deals a year. So we had the skill and alacrity in this group of guys and women at Liberty where we could sit down at a table and do a deal.
The decision making process was very on binding. Somebody was at a meeting, they could call me or they could call John or they could get an answer right there on the spot. Whereas other companies would have to go back and have a meeting and this and that we were getting deals done. Lots of overnights.
So we were accumulating and merging and rationalizing this portfolio. And we wouldn’t talk to anybody. And when people would call, and they weren’t friends the family, we’d say, ‘Well, we’ll have an analyst meeting will talk to you about it later.’ When? ‘Well, I don’t know. But I’ll call you…’ and then we would just push it all off.
So that gave us and that’s very important. It was a key component to our success was the willingness and ability to operate under cloak of darkness, so that you didn’t have a lot of people trying to emulate our strategy. So it gave us the opportunity the first at the table at a lot of deals.
And that was okay with me. I don’t seek publicity. It’s not important to me, For some reason. In fact, eschew it. I actually hired at my own expense for almost my whole time at Liberty, a PR person to keep me out of the press. But that goes into my own set of craziness. So I was very happy - I called myself the second banana. I was happy to let him Malone be the front guy, and the top guy. The person everybody writes about. And it freed me up to basically operate. I could get off a plane or walk into an office building and nobody would really know or care. Whereas John walked into an office building and somebody would notice.
A Year Later - First Analyst Meeting
And then our first analyst meeting. We didn’t know what to expect. It was at some Hotel in New York. And I told them to get not too big of a room. Maybe for 200 people. Set up 200 chairs. I didn’t think that many people would come to this thing. The stock had been coming up a little bit.
And it was on a Tuesday I remember because it is one of these things where I wanted John to sort of make an appearance. And he had to leave because he had to go to his Tuesday Bank of New York meeting. That’s why I remember it was a Tuesday.
So we show up at the ballroom I think it was an 8:45 start or something early from New York. And people were bitching about that. And we can get into the ballroom.
It’s not only SRO (standing room only), there are people jammed and pissed off, out in the hallway trying to get into get their nose in so you can see what’s going on. I was stunned. I just couldn’t believe it. So John did is he in a little opener, and then he left. And we did a two or three hour analyst meeting, where we just basically explained item by item by item, what we had in the portfolio. Why we had done this merger with that. What we had gotten out of it. And it was a fairly boring recitation of facts. Because I didn’t want to hype the stock. I just wanted to do my duty to sort of tell shareholders, if they were interested. Here’s what we’re doing.
Well the stock just went (shoo). It wasn’t even a hockey stick. It was like straight up. That day we created 4 or $500 million in market value for the company. And it never looked back. And unfortunately, from that day on, we began to be hounded by hundreds of people that wanted an inside scoop or strategy or, you know, I’m going to write a report.
And it would be interesting for people who want to follow Liberty just to go back and read the analyst reports. They’ll give you a sense of of tamber, an understanding of what the tonality was like through the evolution of Liberty.
We very, very, very carefully managed our appearances, managed the mood by either appearing or not appearing by being available, not available. Splitting the stock, not splitting the stock. Creating a dividending device through the preferred. We spent a lot of time developing and managing what I thought of as a closed end mutual fund.
Liberty was very, very focused. And we were very, very good at what we did. A lot of people try to liken us to Berkshire Hathaway. Because in fact, one or two of my annual reports, reads like one of Warren Buffett’s, although I don’t pretend to be anywhere near as eloquent as he. But our theory of making money was very similar to the Berkshire way. But the big difference was, we were very focused. We were in the business of creating software assets in television programming, and entrepreneur driven cable assets.
And we were highly nurturing of entrepreneurs to run all these things. In fact, one of the speeches I was giving at the time was the speech that I called “The Power Of Will.” The headlines of which are if you give a good entrepreneur a bad idea, he will will it to succeed. Or she will. He will force it by sheer force of will to succeed.
So what we did was we nurtured those kinds of people. One of my admonitions to these people was, if you’re going to make a mistake, make it with your foot on the accelerator, and we will back you. If you’re going to drive with your foot on the brake and the accelerator, you’re not for us. And if backing means we’ll put some more money into it, we will do it. If it means we’re not getting our 30 or 40% compound growth rate, we will fix that.
And we’re very good at helping these people without interfering with them. And there is probably I don’t think any one of them ever complained about our interference.
Members can read the full 2-hour transcript here.
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