Mike Fries

For all the talk of malaise in the cable industry, with cord-nevers and cord-cutters gaining momentum, and streaming services luring subscribers away from large channel bundles, Liberty Global, the largest international TV and broadband company outside the U.S., continues to grow. Although its subsidiaries have been traditional cable operators, from Virgin Media to Unitymedia to UPC, as Liberty Global CEO Mike Fries points out, cable is a bit of a misnomer. The group’s driving force is providing connectivity: high-speed broadband to businesses and individual customers. In addition to broadband connections, Liberty Global offers telephony, increasingly mobile, and video content—a “supermarket of content,” as Fries describes it.

Liberty Global is present in 12 European countries, serving customers through Virgin Media in the U.K. and Ireland; VodafoneZiggo in the Netherlands; Unitymedia in Germany; Telenet in Belgium; and UPC in Austria, Czech Republic, Slovakia, Poland, Hungary, Switzerland and Romania. The group also has operations in 20 countries in Latin America and the Caribbean, including the consumer brands VTR, Flow, Liberty, MásMóvil and BTC.

Liberty Global plans to spin off its Latin American and Caribbean business, LiLAC, before the end of the year. While the move will give LiLAC its own management and balance sheet and allow it to better take advantage of opportunities and raise capital, LiLAC will remain connected to Liberty Global’s European businesses. The two will continue to jointly buy content and secure equipment and technology, where possible.

If connectivity is one of Liberty Global’s priorities, innovation is another. It wants to offer customers a seamless, user-friendly digital experience. One product that exemplifies that convenience is Horizon, which allows subscribers to watch programming on any screen—TV, computer, tablet or smartphone. And for subscribers who want to watch Netflix content, Liberty Global includes the SVOD service as part of its offerings in six countries.

Next-generation products and an openness to OTT platforms have helped Liberty Global slow video subscriber churn. So have broad and varied programming offerings. Liberty Global has made several investments in content. In 2014, it formed a fifty-fifty joint venture with Discovery Communications to acquire all3media, a leading international producer and distributor of TV content. It owns a 9.9-percent stake in ITV, the U.K.’s largest commercial broadcaster, and a 3.4-percent stake in the U.S. studio Lionsgate. Liberty Global has also made numerous investments in sports rights, including the English Premier League.

Fries sees numerous opportunities for expansion. As he tells World Screen, Liberty Global is always seeking to increase its scale in the markets in which it operates. With revenues of $17.3 billion from its European operations in 2016 and 48 straight quarters of gains, Fries is looking at organic growth as well as mergers and acquisitions as the company focuses on fixed-mobile conversion to offer broadband, telephony and programming in whatever configuration customers want.

WS: What is the state of the cable industry in Europe?
FRIES: The European cable industry right now is healthy and at the epicenter of all the exciting things happening in our ecosystem. The primary business of cable systems today is broadband, and it is providing an invaluable service to businesses and consumers. Demand for broadband is doubling every couple of years, so we’re in a great position to grow with that consumption in both B-to-B and B-to-C markets. As things get more exciting around the Internet of Things [interconnected devices that can send and receive data], fixed-mobile convergence and 5G, the cable industry is in the right position. There are a lot of things happening around our business, and the question for European cable operators is how we innovate and how we evolve to stay relevant in the home and in businesses with content and bandwidth. Interestingly, today only about a third of our revenue comes from video. So cable TV is a bit of a misnomer. Our business is driven by broadband, B-to-B services, increasingly by mobile and then, of course, by video. We have reinvented the business over the last ten years and that is a function of many things, not the least of which is the strength of our networks. In Europe, we’ve built 50 million homes that are capable of gigabyte broadband speeds. That’s fast. And that’s a huge driver of economic growth and innovation throughout our European markets. That is the foundation of our industry—the superfast broadband networks, the incredible connectivity we provide with WiFi and mobile. The content and the platforms are also important, but the foundation of our business is connectivity and we’re in a great spot.

WS: What are consumers looking for?
FRIES: Consumers want a number of things from cable operators. Most importantly, they want value—they want a great product for a great price. In Europe, as opposed to other markets, the price-value relationship is great for consumers. In any market we’re in, we offer 100-megabyte broadband, hundreds of digital channels, an innovative video platform that allows you to watch television on any device, anywhere you are. We’ll bring a mobile phone into the package and maybe we’ll charge you €40 ($48). That is a screaming good deal! So European consumers are in a great position and are benefitting considerably from the investment we are making in networks, product and content. Consumers want value and freedom. They want to know that when they are watching television at home, they can pause that show and pick it up on their iPad. Then they can order up another show and watch it on their cell phone. And then when they are on their mobile, they can schedule something else and go home and watch that in the evening. They want it all to work seamlessly and to look incredible and that’s what we provide. They want the freedom to have super-fast connectivity, whether they are in the car, in the park, or at home. That freedom is really important. We provide what we call a connect-and-play portfolio. First, we provide ubiquitous, seamless super-fast connectivity wherever you are. Then we add the features of entertainment that work across those platforms.

Finally, consumers want to trust their providers. [We live in a] complicated digital world and our relationship with consumers is very sound and integrated, meaning that we are in their homes or their businesses. We have a very strong relationship with them as opposed to Google, which is providing an incredible search function but doesn’t necessarily have a credit card or understand what consumers need in their homes. We value our relationship with our customers. We need to build that trust, especially as privacy and complexity continue to be critical in this business; trust is super important.

WS: What investments have you made, and what increased demand do you see for broadband?
FRIES: Broadband is one of the few products where demand grows 100 percent every two or three years. So in five years’ time, it should be five times what it is today. Consumers are watching more video over the internet. They are watching it on multiple devices. Tens of billions of devices will be connected to the internet at some point in time, many of those in your house, so our decision has been to invest in gigabyte speeds over our existing plant and then to extend our networks to reach more and more homes and businesses. We’re spending billions extending the reach of our networks to millions of homes in the markets where we operate, while at the same time investing in the capacity of those networks so that we are always providing the fastest speed in any market. We are already two to three times faster than any telco. We know that consumers want reliable, fast internet and that consumption is growing by leaps and bounds and therefore quality and speed need to be the drivers. That’s a huge competitive advantage for us. The other aspect of connectivity, of course, is wireless, not just in the home, but out of the home. We have invested a lot of money in WiFi technology so that when you buy that 100-megabyte or 500-megabyte broadband service from us, it works in every room of the house. That’s been taken for granted because the fixed network has advanced faster than the wireless network in the home. So we have millions and millions of what we call connected boxes in our customers’ homes that provide up to a gigabyte of speed inside the home so that you get what you pay for in every room. And thirdly, we’re investing in mobile where we either own or rent mobile networks and we’re able to provide customers with a great mobile experience for that relatively small period of time when they are only on a mobile network. Remember, 75 percent to 80 percent of the time that you’re on the internet you’re on a fixed network. When you come home, typically your mobile roams to your WiFi network at home. If you are at work, you’re using a WiFi network. If you are at Starbucks, you often roam to a WiFi network. Those WiFi networks are connected to fixed networks, so only about 20 percent to 25 percent of the time are you using a cell tower. But you need to be in that space, too, and that is important to us.

WS: People are increasingly using their mobile phones for everything. How are you serving these consumers?
FRIES: First of all, we are believers in fixed-mobile convergence. We are coming from the fixed space and expanding into mobile. From our point of view, we want to provide a comprehensive package of fixed and mobile services to customers. In Belgium, we offer WIGO; it’s a product that has a fixed element of entertainment and broadband connectivity but also five SIM cards, the ability to use bandwidth across those SIM cards and the ability to watch content on those mobile devices. It’s a fully integrated fixed and mobile product. That will be in every market at some point. In Switzerland, we’re coming up with a product for the millennial users, the new digital consumers who generally want to start with the mobile phone. We’ll provide them with a terrific mobile product with fast internet and lots of capacity but also a super-fast fixed network and perhaps not a video product. So they can watch video at home or on their mobile device but the principal pitch is mobility and fast broadband, and then we’ll help them find content—ours or others’—in a way that suits them. So it’s about committing to mobile first, and secondly understanding the consumer and what they want. If you have both components—fixed and mobile—you can solve that problem.

WS: What products or services have been helping you slow the loss of video subscribers?
FRIES: Some time ago, we set out to develop a video platform that was best in class. We realized early on that services like Netflix were providing a cool user experience. The content wasn’t necessarily much different back then, but they allowed you to watch video on your cell phone or your iPad or wherever. We have invested a ton of money in a unique and cool user experience. We’ve cooperated with Comcast and are using the same software stack. We call it Horizon, they call it X1, but it is a video platform that works seamlessly with your tablet and your cell phone and your TV. It looks and feels like Netflix or Apple. It allows you to push all of the amazing content you pay for onto any device, anywhere you are, and the TV screen is only one place to enjoy great content. That platform is a game changer. When people use this platform they churn less; their NPS [net promoter score, used to measure customer loyalty] is higher, they watch more video. The second thing we’ve done is we’ve embraced OTT. From our point of view, Netflix is a partner. We offer Netflix in six countries already, so when you are watching our content, or you’re on our platform, getting to Netflix is a click of a button and it feels like part of our environment. People who utilize Netflix within our environment are happier customers; they watch more television and they are stickier both for Netflix and us. We’ve partnered with the best OTT apps and we also integrate YouTube into the user experience. You can go back seven days and watch any amount of content you might have missed on any device, for free. The functionality has gotten to the point where the huge supermarket of content we offer, combined with the best OTT content providers, can be viewed on any device at any time beautifully and elegantly. That’s a killer app.

WS: Is there less demand for skinny bundles in Europe than in the U.S. because the price gap between a pay-TV subscription and an OTT subscription is smaller in Europe?
FRIES: There are several reasons why OTT has had a slower start in Europe. One of them is that the price differential is not as material. Our implied price for video is inexpensive; it’s 75 percent less than the U.S. price. That’s partly because of our content relationships and what we pay for content, but the OTT price is not as competitive or inexpensive as it looks compared to our price. The second issue is that the content market is somewhat fragmented in Europe. What people like in France is very different from what they might like in Austria, or what they might like in Hungary, so it’s harder to get scale in Europe than it might be in the U.S., where one show can work across a large market. Free-to-air broadcasters still dominate in Europe; they generate between 70 percent and 80 percent of viewership. That makes it harder for new direct-to-consumer services to pierce through the relationship viewers have with traditional television. So there are a number of reasons why OTT services have been slower to reach any reasonable penetration. It’s going to happen over time, but it’s going to happen at a different pace among different content providers compared to the U.S. If we do our jobs right, we will partner with most of those OTT providers, and if they have great content, we want to deliver it.

WS: Liberty Global’s investments in content have included stakes in Lionsgate, ITV and all3media; what has been the strategy?
FRIES: I would describe our content strategy as tactical and opportunistic up to this point. We haven’t fully vertically integrated, and I don’t know that we will anytime soon. One of the reasons is because the European market is so fragmented we have to pick our shots. We’ve had great success with sports services in Holland and Belgium and soon in Switzerland. We have been able to acquire rights and build important regional sports networks that work in those countries. We have made investments and developed strategic relationships with a number of very successful content producers and, in many instances, we are developing content with them. We like the idea of partnering with the producers of targeted content, and I think we’ll do more of that. We have successfully acquired some free-to-air broadcasters, in Belgium and Ireland, where we own and operate competitive and important broadcast networks. That has allowed us to expand our reach in a market but also develop and license content for our free-to-air and pay-TV platforms, as well as develop some important exclusive content experiences for consumers in that same market. Our content strategy will include a combination of things for the near term. Over the long term, I think you’ll see more vertical integration by distribution players, and we are likely to be part of that.

WS: What other types of acquisitions would you be interested in?
FRIES: Our business has always been built around scale, so our M&A strategy on the cable-TV side has always been first about driving scale within a market or a country. If we can build more scale in Poland, where we’re trying to close an acquisition, or as we have done in Holland where we combined with Ziggo, we’re going to do that. Building scale in countries is the most important thing because we are competing with phone companies that have national reach. We will look beyond a particular country to try to drive regional scale if that’s a possibility, but for us, it’s all about national scale within a marketplace. There are many countries where we’re not present in Europe, but we think we’re in the best ones.

WS: What’s the state of the cable industry in the Latin American countries where you are present?
FRIES: We’re excited about Latin America and the Caribbean. These regions are far less developed than Europe. Average broadband and pay-TV penetration in these markets might be in the 40-percent range, versus 80 percent or 90 percent in Europe and the U.S., so it’s an emerging region, not just economically, but also from a digital media point of view, and we like getting into those markets early. These are also markets that need to build scale. We have good businesses in the 18 countries where we operate and we are generally the number one or number two provider. But there are a number of markets where we can have greater scale, and a number of countries where, if we were present, we would be improving our regional scale. So the M&A opportunity looks pretty interesting over the next five years. We will probably bring the same European playbook: first have robust, fast networks, both fixed and mobile, so we can offer consumers and businesses all the sophisticated applications and platforms we’ve developed for Europe. Then top that off with the best content available in the country and the region. We own the English Premier League rights in the Caribbean. We have a great sports service called Flow Sports. We’ll look for similar content strategies as we have in Europe to offer in the region.

WS: And LiLAC is being spun off?
FRIES: We have announced plans to spin off our Latin American and Caribbean business by year-end and are well under way to doing that. There are a number of benefits for value creation. First of all, having a capital structure and a management team focused on this part of the world will help us to take advantage of opportunities, raise capital and diversify risk. Over time though we will keep a strong relationship between Europe and Latin America. We intend to buy content together whenever possible. We will procure equipment and technology together wherever possible. We will ensure that best practices around products, packaging and services are shared across regions. We are going to have a lot of connective tissue between the businesses, but they will be separate companies with separate balance sheets and separate management teams.

WS: What are the biggest challenges and opportunities for Liberty Global in the next 12 to 24 months?
FRIES: Our industry has always viewed the regulatory environment as one of the factors we have to pay a lot of attention to and isn’t always easy to predict. We’re vigilant about building good relationships with regulators both at the EU level and in the countries in which we operate. We want to be sure that regulators appreciate and understand the investment we’re making and the importance of our infrastructure to consumers and businesses. We always watch the regulatory environment closely and we want to be sure it is level and fair for all operators. We feel like we have a good handle on the digital disruption that occupies so much of the press and people’s time. We have a good handle on how we’ll fit in this ecosystem over the next five or ten years, so I’m not as worried about digital disruption as others might be. We have to take care of our business first, which means making sure we have organic growth opportunities in each market, that we are able to drive not just customers but also ARPUs and margins because fundamentally we are a growth company—we’ve had 48 straight quarters of growth. We expect to continue to grow for the foreseeable future and that’s the number one goal. But also we want to remain opportunistic about M&A, growing inorganically and monetizing assets that might not fit our strategy anymore. So there are a lot of interesting things that our business represents.