Liberty Media Investor Day

Oct 10, 2013 AM EDT
FWONA - Liberty Media Corp
Liberty Media Investor Day
Oct 10, 2013 / NTS GMT 

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Corporate Participants
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   *  Courtney Ulrich
      Liberty Media - IR
   *  Gregory Maffei
      Liberty Media - President, CEO
   *  Chris Shean
      Liberty Media - CFO
   *  John Malone
      Liberty Media - Chairman
   *  Jim Meyer
      SiriusXM Radio - CEO
   *  Tom Rutledge
      Charter - President, CEO
   *  Michael Rapino
      Live Nation Entertainment - President, CEO

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Conference Call Participants
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   *  Richard Greenfield
      BTIG - Analyst
   *  Benjamin Swinburne
      Morgan Stanley - Analyst
   *  Adam Schwartz
      First Manhattan - Analyst
   *  Craig Moffett
      Moffett Nathanson LLC - Analyst
   *  Jeffrey Wlodarczak
      Pivotal Research Group - Analyst
   *  John Tinker
      Maxim Group - Analyst

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Presentation
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 Courtney Ulrich,  Liberty Media - IR   [1]
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 Hi. Good morning. Welcome to Liberty's Investor Meeting. I'm Courtnee Ulrich. The question I've gotten most of the past couple of weeks is whether or not we'd have any news today. So, hopefully, you've all seen our news this morning. And we'll talk about that more.

 Just a couple of logistical things. We have the [experience] downstairs. That'll be open until 1.30. We have our Liberty bags. You can pick those up until 1.00. And we have specials through the weekend. So we hope you guys use those and shop at some of the Liberty store.

 And with that, I'd like to introduce Greg Maffei, Liberty's President and CEO.

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 Gregory Maffei,  Liberty Media - President, CEO   [2]
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 Well, we've tried to put together a few things to talk about today. And I hope, as Courtnee said, you saw some of our announcements. But one of the things we'd like to talk a lot about is our new Channel 72 on SiriusXM, Malone's Melodies.

 Since we took control of Sirius, we've taken a few liberties with the programming. And at 72 on your SiriusXM dial you can find some of John's favorite ditties.

 Now John has an eclectic set of music tastes, songs that evoke favorite places, times, things to do and hobbies. Here's one of his oldies but goodies. (Music playing). That's John with the wind in his hair up in Maine, one of his favorite places.

 But John has a diverse set of interests. One of his interests is, obviously as some of you may know, ranching. (Music playing). As you can see, he's been adding to his modest pastures with his own personal green investment. He bought most of Ireland.

 Now it's never been clear to me whether the Beatles were the inspiration for John and turned him on or (Music playing) or really whether he was their muse.

 Now I don't want you to think that John is somebody that just listens to the oldies. He also likes some more recent tunes. And maybe this is another one of our hot inspirations (Music playing).

 Sometimes, John is kind enough to let me DJ on the channel. And I like to send John some positive thoughts about things that might benefit me as well. (Music playing). John, you look awfully good in that G650.

 Now John is not as much as a twerker. But I personally have been known to do a little bit of the Harlem Shake. (Music playing). John himself, he prefers the (inaudible).

 Now this channel, Malone's Melodies, tries to stay relevant, tries to stay up on the latest. And we can also stay up on what's in the news. (Music playing). It's an eclectic mix and we hope you enjoy it.

 Anyway, on to the more relevant stuff on today's announcements. Three things at LMC that we announced this morning. First, we bought back a little over 5% of our shares in a tax-free exchange with Comcast that we agreed to sell, and basically a forward transaction with SiriusXM, 500 million of their shares back to them. And that we would launch this morning a issuance of convertible bonds into Liberty with a 15% greenshoe capability. So I'll talk a little bit more about each of these.

 First, on the LMCA share repurchase, it is a 355 exchange and, therefore, tax free -- or intends to be tax-free. And they had a bunch of our shares back to the old days of QVC purchase that we -- they had a nice gain in and we did a swap with them to avoid their gain for them, or help them. And gave them Leisure Arts, a small subsidiary, the CNBC Web sharing agreement that we have had back to our TCI days and $417 million in cash.

 It's a little over 5% of our shares, as I noted. And the price per share is about $132 per share. So it's a pretty good discount to today's price.

 And if you look at the multiple that we got on the CNBC web share, it's about 13 times. After all this is done, we'll still have an authorization of about $327 million in the share buyback.

 Now if you look back over the history of Liberty, we bought back over half the stock at an average price of $43 per share, give or take. It's a little complicated because some of these are misleading.

 If you look at the period with the green bars, Starz was in there. So if you think about that and you look at those prices, really have to think about what's, effectively, a $28-plus number inside that imbedded that you've also got. And the later ones, the last bars, only just pure LMCA without Starz in it. But by any measure, it's been a pretty good run in the share repurchase.

 The second thing I think I noted was that we were agreed to sell -- and thank you to the Sirius board for their approval. Five remain of shares SIRI backed them. Now, for a variety of reasons, we have not participated in SIRI's share repurchase. LMC has not participated in SIRI share repurchase throughout 2013.

 And therefore, our percentage, which was a little over 50%, had been driven up to well over 53%-plus -- almost to 54% -- would these transactions announced today, pro forma will be back down to about 52% -- a little over. Tax efficient deal, because it's the high basis stock, effectively, we get dividend treatment. And what we have left is still worth a fair amount.

 The pay schedule is expected to be over three tranches. And positively, I think, for you all for the stock and for us, the SIRI board announced an increase in their repurchase program of another $2 billion.

 So that's incrementally on top of -- effectively, with our transaction, I think it's about $2.1 billion they will have bought back or agreed to buy back in 2013.

 Now when you take the net effect of these and the convert, that we'll talk a little bit more about, we had a margin loan balance when we began, largely due to the charter repurchase. But also somewhat due to the Comcast transaction -- a cash portion of that, which was about $1.370 billion.

 We paid down about $250 million of it. We, as I mentioned, during Comcast we added about $180 million pro forma for the convert. We'll do $500 million

 Now, as you note -- or we noted, rather, that Convert has a greenshoe potential to be upsized by the underwriters. And, if successful, there's some potential that demand is high we might sell a little more and use it to pay down even more of our margin loan.

 But with the SIRI repurchase, we should have a very de minimis amount of margin loan given the amount of securities that are underlying that, including SIRI, Charter, Live Nation, et cetera.

 Now if you look, this has all turned out pretty well. These nice, pretty charts we get to show, hopefully, we'll come back next year and get to show you again. But it's been a good run, both this year and if you take a longer timeframe.

 Now since we were here last year, we've had a series of things -- not just this morning's announcements. But we had a year that I think has been productive and hopefully good for you all as Liberty shareholders.

 First, we completed the separation from Starz and Starz has traded very well since it began trading, I think about January 11. It's effectively about a double. We took hard control of Sirius. As I said, we now own 53% prior to the announced repurchase. And that stock is up about 45% year-to-date.

 Our investment in Charter, which closed in early May, has been quite attractive, certainly on a compounded annual rate of return. I'm not sure if it's sustainable. But we like what they're doing and we like where we are going with that investment as well.

 Live Nation, for which we also increased our stake in it just prior to year-end '12, those incremental shares have done well. The whole package has done well. The Company's performing well. And the stock has been a killer.

 And lastly, as I noted, if you include the shares in the deal with Comcast today -- what we're announcing today, rather -- we'll have bought back about $1 billion worth of stock at an average price of about $1.27. So, all in all, on an investment basis, it's a pretty effective year.

 Now that doesn't happen just because we're in Colorado pulling the trigger. It happens because we've been very lucky that many of our portfolio companies have performed very, very well. And we want to thank them first and foremost for their operating performance, which makes our investment performance possible.

 But at SiriusXM we've been busy. We've been adding Board members who I think can bring things to the party at Sirius and help grow that even further.

 They've returned capital shareholders. They did a cash dividend at year-end. They did over $2 billion this year, year-to-date, including our buyback transaction that's been announced. And they announced another incremental $2 billion going forward.

 They refined their capital structure through a whole series of debt issuance. Debt issuance is extending maturities and reducing rates. And they are very much focused on the connected car and IP. You'll hear a lot more about that from Jim Meyer. We think there's a lot of interesting upside in that. And towards that end, they announced the Agero acquisition, which they expect to close some time in the fourth quarter.

 Charter has also been busy. We're excited about its network, it's opportunities as it continues to upgrade to all digital.

 It's the opportunity to increase with compelling products and services, increase its residential penetration, both on the video side and the data side and the Web side. It has lower video penetration than satellite in many of its markets. That's a very unusual condition and creates opportunity.

 And it has limited exposure to probably the most difficult competitor cable in FIOS. About a 4% exposure. Very low relative to most of the major cable companies.

 You know, in a world where it used to be viewed that having concentrated big mass markets in cable was appealing, one might argue that it's upside down. Less is more. Having a distributed primarily world, less competitive marketplace is the appealing set of cable assets. And Charter is well positioned.

 They've also got a growing commercial footprint. You'll hear more about that from Tom Rutledge. Significant tax assets. I know you'd be surprised if you thought that was appealing to us. And the deal that we did in early May has proven to be very attractive.

 Live Nation -- great investment performance, partly due to removing the cloud of a CTS litigation or arbitration. But also really due to underlying improvements in the business, both the launch of the new Ticketmaster platform, which includes Ticketmaster Plus, the opportunity to sell in the secondary market, improving the fan experience.

 And I think you'll see more of that over time as they move and drive off that technology platform, improving their experience in mobile. And really taking the differential between whether it's a primary ticket or a secondary ticket off the table. You're a fan and you want to buy a ticket. And you're indifferent to whether it's primary or secondary. And you'll hear Michael Rapino talk more about that.

 They are leveraging their ticketing and concert scale. They're driving on, and with that driving increase sponsorship, increasing commerce, increase advertising. And they've got a great concert calendar for the rest of this year and into next year.

 And lastly, Barnes and Noble. While they certainly had challenges around the NOOK, a very competitive space, low-end tablet, retail continues to be strong. College continues to be strong. They continue to expand in certain markets. And they have innovation that we think is coming and will put them in good shape. We're excited about where that still stands, despite the tough challenges of that marketplace.

 So to sum up -- what are we looking at? First, completing a capital raise, the announced convert. Working with Sirius on the preowned vehicle market opportunity. And again, you'll hear a lot from Jim Meyer about how big that opportunity is. Expanding their exclusive content.

 Most great distribution companies, if not all, have been built around exclusive content. Nobody in the audio space has more than Sirius. And extending that lead is a key part of their strategy. The connected car and IP I talked about already a little it. And the continued plan to return capital to shareholders.

 On Charter, we love their business plan. Go all-digital, improve service quality, increase ARPU. It's a great plan. Incremental to that is the creative acquisitions. But it's only incremental. It's not a requirement. We like what they have on the table.

 Live Nation. Rolling out Ticketmaster Plus in the used market, the secondary market. And driving their technology platform -- Project [Jetson] that we've talked about in years past. And leveraging the scale that they have.

 And finally, at Barnes and Noble, refining the NOOK strategy. And continuing to drive where they have strength in education through things like their partnership with Pearson.

 So with that, I'm going to turn it over to Chris Shean to talk about some numbers.

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 Chris Shean,  Liberty Media - CFO   [3]
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 So as we mentioned, we launched the convertible note offering this morning. I don't have a ton of details at this points since we're still in the pricing for it. But as Greg mentioned, we can upsize it. We expect it to be a ten-year maturity.

 We're going to enter into some financial instruments with the expectation that it will increase the conversion price on the convertible note synthetically. And we're going to use the money to, in part, pay down our margin loan. More details to come.

 This is a pro forma look. It requires a little bit of explaining. Pro forma for the transactions announced today. This balance sheet is a fair value look, effectively, as of today. Obviously, the SIRI position is treated here as an investment rather than as a consolidated business, which is the way we report it for accounting purposes. But you can see the sell down of the SIRI position. Then the borrowing of the convertible note, pay down of the margin loan.

 So just kind of a quick snapshot of that. And then over on the left hand side you can see what the capacity would be on the margin loan after this.

 And if you drill down even a little bit further and focus on the liquidity at LMC, this, I should point out, is a [2.28] high basis series share -- that's not exactly basis. That also includes the appreciation that we've experienced since we acquired those shares. So there would be some minimal tax leakage if those shares were sold. In addition, he same concept with the $1.21 billion. That is a pretax number.

 But as you can see by this, we have a pretty significant amount of liquidity that is available to us without having to tap into any of our other assets. So pretty solid financial picture for LMC. And that's it on the numbers. I guess we're going to turn this over to Jim.

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 Courtney Ulrich,  Liberty Media - IR   [4]
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 Next we have Jim Meyer, CEO of Sirius.

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 Jim Meyer,  SiriusXM Radio - CEO   [5]
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 Good morning. The question I get most often from people since Liberty took hard control of Sirius is "Well, what's it like?" And I have to tell you, I run the company. I had no idea that John and Greg had taken over one of our channels. So that may tell you a little something right there.

 Let's jump right in. So first, I want to start with our competitive strengths, which is where I think we should start. And I really think it comes down to three things. Obviously we're focused on delivering audio entertainment and in-car services. But we're built around three things.

 One, our superior content, which we continue to invest heavily in. Two, and as importantly, are long term agreement with the OEMs and their commitments for factory-installing our radios in two-thirds of the new cars. And finally, a subscription model , which is consistent and yields predictable cash flow. And of course, the one delivery you'll probably like the most are $7 billion of gross NOLs.

 So, as you look at our content, people always ask me, "Well, what about Pandora, what about this?" And I think one thing I want to make sure is clear to you we are not a music company. We are an entertainment -- audio entertainment content company -- delivery company. And we concentrate on music, talk and sports. And in those areas we think we have an unbeatable lineup where we've brought in the leaders in all those categories. And here's a video to take a quick look.

 (VIDEO PLAYING)

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 Jim Meyer,  SiriusXM Radio - CEO   [6]
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 Okay. So let's start with first a chart I want to spend a moment on, which is what is the size of the total pie of radio revenue? And in fact, which I think is a misnomer and that is it's declining. And as you can see, since 2001, it's actually grown from about $18 billion to $20 billion.

 The second question I get a lot, obviously, is, "Well, what about all the streaming companies and their impact on you?" It's a genuine concern. But if you look at it, the gorilla in the room is still terrestrial radio.

 You know we all get excited about advertising models that generate $0.5 billion like Pandora. But look at the top. Terrestrial radio still generating $15 billion in advertising. And, quite candidly, for me that's still the real competition.

 We are, we believe, the largest paying subscriber digital music service in the world. We have over 25 million subscribers. You can see there's virtually no one close to us right now in paying subscribers.

 Perhaps the best thing about our model is that if you look at, for instance, this is sample of two, obviously fast-moving new company, Pandora, who monetizes their revenue per listener at a rate of about $6.50 a year to a well-established company who's been around forever, Clear Channel who monetizes their revenue at about $13 per year per listener. And our model generates about $142 per subscriber. We think this is a superior position and a great strength.

 Steady subscriber growth. You can see that since 2009 we've had very steady growth. Obviously it's been great to see the economy recover. And the new car business come back to healthy levels. Obviously we finished the end of the second quarter at 25.1 million and we expect to finish the year at over 25.4 million.

 As importantly, our revenue has been a sustained 10% growth over the last four years. And we expect to finish 2013 at slightly more than $3.7 billion.

 More importantly, then, is our EBITDA growth. And this is something that we promised to investors that stayed with us years ago. And I've been with the Company since 2004. I can't tell you how happy I am to finally see this curve growing the way it's growing. And thank investors that stayed with us and had patience for the investments it took to grow.

 But now you can see we're growing EBITDA at a CAGR rate of about 25%. And we'll finish this year at $1.14 billion

 More importantly is we believe the operational leverage of the volume of additional subscribers has a very healthy impact on driving adjusted EBITDA margins. Our contribution margin is approximately 70%.

 But more importantly, if you look at our history, as our volume has grown and what it's done to our EBITDA margin is that we now predict that we can safety -- and I can look you in the eye and say "safely" -- at maturity, run this business at 40%-plus EBITDA margins. More importantly, at the end of the second quarter we crossed over 30% EBITDA margin.

 So we're on our way to this march. And I think if you'll examine our business model and the scalability of it, you'll see that the 40% is indeed doable.

 Couldn't help but put this chart up. You know, we think versus all those other great opportunities out there, we're a fabulous opportunity with plus 40% EBITDA. We think this is a real strength for investors. And something that we're really, really focused on driving as we leverage our model up with additional subscribers.

 More importantly is our free cash flow. And as you saw, our revenue is up low double digits. Our EBITDA is up -- call it 25%, 23%. But our cash has been growing at a CAGR of 50%.

 And we have now changed this company from a company who is trying to become profitable to what we believe to have very strong free cash flow potential. We'll clearly finish this year with over $900 million of cash flow -- $915 million is our guidance. And that's a healthy increase as you look at just over 2012.

 As important, though -- and this is what people ask me, "Well, Jim. Are you focused on subscriber growth, revenue or EBITDA?" Simple answer there. Yes. Okay. But what we're really trying to focus the Company on is free cash flow per share growth.

 Here we think we have a very unique story and a really, really strong story as we grow over the next three and four years. And in 2013, you see we expect that to be over $0.14. As importantly, when you look at our free cash flow as a percent of our EBITDA, you really realize how efficient our model is.

 Now, I'll agree that we're in a sweet spot right now, meaning that we've invested heavily in our satellite network. And we don't have any meaningful investments in our satellite network again until 2017. But you can see the efficiency of our free cash flow versus many other established successful big companies. And we really think this is a strength that our investors ought to focus on. It's a very efficient model in that most of our EBITDA flows right to cash flow.

 With that said, there's been a lot of questions about new auto sales and what's going on. I will tell you that 2013 is about where we thought it would be. It's been healthy. It's in the mid-$15 millions. There's some people that are slightly higher than that. There's some that are slightly lower than that.

 Obviously September came in right where we expected. There was some negative press in September. It really is a matter of how you count the days and the Labor Day holiday. And so the third quarter, in terms of industry sales, was strong. And again, what we expected.

 And we expect a strong fourth quarter. And quite candidly, I meet with many, many auto executives many, many times over the months. And I can tell you almost all of them see a strong fourth quarter ahead.

 We think that bodes well for 2014. Certainly, most analysts have the new car sales going back up over 16 million, and then kind of leveling off there. We'll see. We'll see whether it levels off or grows a little more. Oh, I'm sorry. And as importantly, you see our penetration of those new cars are at an all time high of 60%.

 This is a great chart. And this is really another, I think, unmonitized asset of our business model. And that is while we're growing subscribers, we're also growing our imbedded base. And we're growing it at a very impressive rate.

 And those of you that are familiar with the auto industry realize these guys don't turn on a dime. Okay. They put their auto plans in place and they stay with them. For instance, my team is having conversations with many auto companies today on their 2017 and 2018 model year plans -- years away.

 So we have a good snapshot of what their penetration of our service will look like in their vehicles. And I can safely tell you that given the economy stays where it's at, meaning those new car sales stay around 16 million, I can safely tell you that we'll have an imbedded base of well over 100 million by 2018.

 And there's a big challenge for us. Obviously, if our subscribers grow -- pick any number you want up to 2018 -- there's a big number left over of unactivated imbedded vehicles. And we have a real opportunity to figure out what to do with that imbedded base and see if we can build a third leg to our stool to drive more revenue and more profitability.

 It also, though, gives us a great opportunity -- which I'd like to tell you we thought a whole lot about three years ago, but we didn't. Okay. We were very focused on driving the new car business.

 Well, guess what? Every new car becomes a used car. And what you may not know is every car in this country gets owned by slightly more than three owners over its lifetime.

 Go back to that imbedded technology chart and our technology built in those cars, that's a clear way of saying we can get three bites of that apple if we're clever and we figure out how to do it well each time it's turned over.

 By the way, the new car market -- call it 15 million to 16 million this year, 16 million next year -- the used car market -- 46 million.

 So there is a great opportunity now to sell to second owners of our radios, which are just in the process over the last 18 months in volume being sold and turned over. And, in fact, we're off to a great start in 2013. We have guided that we will add over 1.5 million gross activations in this area. And we're certainly on track to do that.

 By the way, our agreements with the OEMs in that, in many cases, allow them to share revenue for the life of the vehicle says that their vision in helping us in this area is aligned with ours.

 A lot of conversation about connected vehicles. You know, what I can tell you for sure is that every major auto company in the world is very focused on what is a connected vehicle going to look like in the 2017 through 2022 range. I can also tell you this is not going to happen overnight. This is evolution not revolution.

 And it's important that SiriusXM play in that evolution of that platform strategically, both to protect our core business and to give us opportunities to participate in some businesses we see today like safety and security and businesses that, quite candidly, haven't been defined yet that we think will offer us additional revenue opportunities.

 I think another strength for us is that we obviously have a North American-wide satellite network. But we can also take advantage of all of the IP networks that are being built wirelessly across North America. And we think that we're the only one that can marry those together to create a solution where one plus one is more than two.

 We announced last year that Nissan had selected us as their exclusive telematics provider. This was our first entree into the business. We wanted to pick OEM and get legitimate. It strengthens our OEM relationships.

 But as importantly, as we've grown and as the OEMs have told us how important this is to them, we made the decision to acquire Agero late this summer. And we're just waiting for the government to come back to work so we can get this closed and move on.

 Agero is a leader in the connected vehicles services area. They are particularly strong with the Asian OEMs. But today they offer safety, security and convenience to customers like Honda Acura, Toyota Lexus and Kia. We see that as a really nice compliment to our business with Nissan and then our audio business with every OEM, bringing them another strong platform that we can help them with this transition to the connected car.

 And, as importantly, I think it gives us a strong position where if we do our job right with Agero and we hold our position right, while we have 100% of the auto companies and two-thirds penetration in new cars -- 69% -- after the acquisition. And if we can do a good job, we'll have 45%, roughly, of the OEM share for the connected vehicle architecture, which is a great base to jump off and grow from.

 Our 2013 guidance has not changed. We are very comfortable with it. Revenue of over $3.7 billion. Adjusted EBITDA of approximately $1.14 billion. Free cash flow of approximately $915 million. Self-pay net subscriber additions of approximate 1.6 billion -- I wish -- 1.6 million. And total net subscribers of approximately 1.5 million. And, as I said, we're comfortable with our guidance for 2013.

 Get a lot of questions on our debt to adjusted EBITDA leverage target. Get a lot of questions from Greg on our debt to adjusted EBITDA target. I've been very consistent, which is our target is 3.5.

 I want to be clear. That does not mean that we will always be 3.5. We may swell that or shrink that, depending on certain conditions over the next 12 to 18 months. But what I am confident in is that if you take analyst consensus, not mine, for what the next three or four years look like and you build into that a 3.5 EBITDA -- debt to adjusted EBITDA ratio, it leaves a lot of returns for cash to shareholders.

 So that's our story quite simple. We're focused very much on free cash flow per share. And I think the charts that I just presented are very clear. Number one, we still see strong sustainable subscriber growth.

 More importantly, we see strong revenue growth. That revenue growth leans to sustainable growth of our EBITDA margin as we scale our model from 30% to 40%.

 Cash savings from those NOLs that we earned the hard way, which is several years of building this business, lead to stock buybacks. And finally, a very strong story and free cash flow for share growth. Thanks very much.

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 Courtney Ulrich,  Liberty Media - IR   [7]
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 Thanks, Tim. Next we have Tom Rutledge, President and CEO of Charter.

 (VIDEO PLAYING)

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 Tom Rutledge,  Charter - President, CEO   [8]
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 So at the end of last year, Charter was a company that passed 12.1 million homes. In July of this year we actually purchased the former Bresnan properties, or Optimum West Properties. And now picked up another 650,000 homes and businesses passed. 98% of the homes that we passed have a fully upgraded, two-way interactive, high capacity broadband network, and cable TV network, and phone network in front of them.

 As Greg said, we operate, though, in 29 states. We're all over the place. And with the employees we've picked up and the change in the ratio of contractors and employees that we've been implementing, we now have over 21,000 employees, unlike the end of last year. And 5.8 million customer relationships. And more than 4 million video customers, more than 4 million data customers, more than 2 million phone customers.

 And if you take our second quarter revenue and add the Bresnan revenue to it, we're now an over $8 billion year annualized business.

 So what's the Charter story and what's the thesis about Charter? You know, Charter was assembled by Paul Allen more than 10 years ago. And, essentially, he bought assets all over the place at very high prices.

 The Company then spent an enormous amount of capital building a fairly sophisticated, if not state-of-the-art, network. And got into trouble because of what they paid, essentially, for the properties and how they managed them. And went bankrupt.

 So in the process of that bankruptcy, Charter did not do well relative to its peers. And did not provide good service. And cut costs in places that shouldn't be cut. So Charter has some of the lowest product penetration in the industry, if not the lowest. But it does have, as Doug said, a very limited competitive overlap.

 Our primary competitor is satellite. We do have AT&T overlap in about 26% of our footprint. And FiOS in about 4%. But 70% of our footprint, we're up against plain old telephone and satellite. But in terms of utilization of the assets, we're well below the rest of the industry.

 So we have, from my point of view, a tremendous upside. We have this advanced network that, properly run, is superior to our competitors. We have better video, better data, better voice. Two-way interactive products that can't be replicated by our primary competitors. We have service issues that have resulted from the way the Company was run as it was trying to husband cash in its long decline.

 So we've been spending money to put the Company's main product, which is service, back into a competitive mode. And we have this tremendous commercial opportunity. There's a $9.4 billion commercial spend inside our footprint. And we're taking out about $800 million a year right now growing at more than 20% a year. So tremendous upside as we penetrate that market.

 From an industry perspective, as I said, satellite is our major competitor and our major opportunity. It's a one-way broadcast network. But relative to our two-way interactive capacity, it's an inferior product. But we have work to do in terms of the service proposition. The telecos really are not expanding inside our footprint. There's continuous wireless substitution of phones, but nearly 70% of people still have a wire line phone.

 Wireless, while as a broadband product, is a potential competitor. It hasn't really been substitution yet. But economics at the margin could cause the wireless business to be more competitive on a broadband basis. People simply can't afford all of the products they want to buy. And online, over the top competition, the Netflixes and the Hulus of the world, so far, are really ancillary products as opposed to substitutions.

 We do have a regulatory environment that's fairly benign. If you can't pass a budget, it's hard to regulate us. And from a programming perspective, it is an issue. Costs are rising. There are large programming companies. But relatively speaking to our competitors, we have three lines of business. And we can have better products.

 So it's an issue. But one that we can deal with as a business. And capital costs, while rising at Charter, are actually declining systemically in the business because of the way -- from a long term perspective -- we're riding the technology curve.

 As you think about growing penetration on a big fixed asset, yes you have incremental capital to grow. But the fundamental capital that underlies the business is not growing. And so as you think out in a growth environment, our capital intensity continues to decline as we go forward.

 And Charter has a unique financial profile because of its history. Therefore, we have great tax assets. From a leverage point of view, we're very comfortable between 4 and 4.5. We're currently at 5 because of the opportunity that Bresnan presented or Optimum West presented us. So we'll be -- while we have a point of view, we're also opportunistic. And we're comfortable with the current leverage that we have.

 This chart just illustrates some of what I just said and how we stack up against the rest of the industry. You look to the left there in the blue, cablevision top left, has 50% video penetration, 56% internet penetration, and 46% phone penetration to homes passed. The rest of the industry is less so. And Charter is the orange on the right.

 So our biggest opportunity, from a financial point of view, is the right hand side of that chart. The difference between the cash flow or the EBITDA being generated for homes passed. Cablevision generates $450 -- they did anyway under prior management. They generated about $450 of cash flow last year per home passed. And Charter generated about $220.

 The difference between those two numbers is the opportunity. And that's really not a price difference. That's a penetration against the physical asset and product per customer penetrations.

 There's very little actual price variation in the business between any of the companies. There may be marginal pricing differences in the way packages are put together. But in terms of the actual nominal price, they're fairly similar. And the commercial opportunity, as I said, is huge. Our takeout is relatively small. It's even, in percentage terms, a greater opportunity than the rest of the residential marketplace.

 So what do you do when you have an under-leveraged asset that needs to be developed? We do the fundamentals and we create Mazlow's hierarchy of cable success. And you start at the bottom and you reorganize the Company.

 So last year we reorganized essentially every activity in the business and every reporting relationship. And fully centralized the business. And are running it as a singular business today.

 Historically, cable has been cable systems, cable legions based on DMA. And we have essentially pulled the entire business into a single unit. And had to align all of our people and processes as a result of that.

 Then we put in uniform pricing and packaging across the Company. And we offer really rich products. That's the difference between our pricing and packaging and the history of pricing and packaging and step-up in pricing in the industry.

 We put really rich video products in the home. On every connect we put the fastest data product in the home that you can buy on every connect. And we put the voice product that's fully featured and relatively low priced relative to the competition. And we try to bundle that into every package we sell.

 Today, almost 60% of every video sale we make has a triple play associated with it. That's risen from 20% a year-and-a-half ago. We changed our business practices once we had a uniform price structure and an aligned organization so that we could measure our activity in every locale and ensure uniform success across our entire platform. And began to improve service.

 And the fundamental margin driver in the cable business -- and, by the way, cablevision had a 40% margin. Jim's chart had them at 27%. When I left, it had a 40% margin.

 And the big way you drive margin in the cable business, in light of increasing programming costs and other cost factors, is to take transactions out of the business.

 And the way you take transactions out of the business is you price and package appropriately so that you put as many activities in one transaction as possible. You put value in those transactions so that the average subscriber life extends so that per dollar of revenue you have less transactions in a business with longer life, less churn.

 And you take service calls and other transactions out of the business by improving the way you go to market, the way you service your customers. And the quality, the craftsmanship that you have inside the business, in your workforce. And that comes from structure of the organization and the ability to measure the success of the organization across 29 different states.

 So the network capacity -- Charter is a singular unit. We have, essentially, one head in and a big ring architecture across the whole country. We can ingest all of our contents in one location. We do have backups, but it is a single cable system across the entire country.

 And as a result of that, we can manage the business in such a way that we can provide uniformity of product across our footprint. And as we get better at managing the network, actually introduce products in a faster set once you have a uniform approach to managing that network.

 The other big thing that we're doing in our network is turning off analog. You know, we've built these fantastic networks in the cable business but we're competing against satellite in many cases with still analog products. And as a result of that, we have inferior pictures on large screens and on additional outlets.

 And we have an opportunity to buy CPE at much lower prices than it was historically purchased at. We have an opportunity to free up our spectrum, our plant, by going all digital. We are going all digital as a result of those opportunities.

 That means that we have to put out a lot of CPE, though. But we are -- and it's transactionally intensive. But when you do that, you free up the plant and make your network capable of going faster and faster from an internet point of view.

 So the extra spectrum that's generated by freeing up analog gives you better pictures, better quality and lots of capacity to stay competitive for as far as the eye can see without really spending additional capital on infrastructure.

 Then on top of all of that, we've developed a product approach that is consistent with our operating approach and integrated with it.

 One of the things that we want to do is go to cloud-based user interfaces so that we can be state-of-the-art. And at the same time take all of our existing assets and use them effectively so that old setup boxes don't have to be changed out to have new high capacity guides on them. And we think we've found a way to do that. We're testing that in Fort Worth almost immediately.

 And as we go forward, we'll be delivering user interfaces in IP and in [mPeg] and we'll be doing it on new boxes and old boxes. And we'll have uniformity on every outlet across our network.

 So as we free up the spectrum, the chart on the left here shows how we were using spectrum in the past and currently. You can see that the big blue bar at the bottom of the two left columns is the analog spectrum. That's the capacity that we're freeing up. So in the places where we've already gone digital -- all digital -- like Fort Worth and Long Beach, California, Saginaw, Michigan, and currently Greenville, South Carolina.

 And by the end of next year, every market that we serve, we end up with 170 channels of high definition TV. We end up with a big white space inside of our network -- meaning unused capacity. We add additional channels and go up to 24 channels of data capacity, which allows us, ultimately, to get on a current configuration, up to about 500 megabits of capacity to our network.

 And we have a pathway going forward to go to 10 gig over a several-year period, if we need to go that way, from a high speed data perspective.

 So it's really taking advantage of the physical assets that we have. And that's our biggest opportunity. We have a really superior platform. We just need to use it to drive ourselves into the marketplace.

 So far, through the first half of this year, we've gained 100,000 residential customer relationships. Charter's been losing video subs for years, so its competitors -- we've essentially reduced that video loss.

 And it continues to flow from an expanded basic customer point of view -- meaning those customers who take ESPN and CNN, not just over the air TV, we're actually growing. Which means in the multi-channel video provider marketplace, satellite, cable -- the bulk of the population -- we are growing market share even in video now with the strategies we've just implemented. And that's the first time that's happened in many, many years at Charter.

 Internet growth continues to be strong and accelerate. Our operating and capital investments are driving growth. And our revenues are increasing. And they're increasing sequentially and they're increasing mostly based on volume, not on price.

 And we've been able to grow our EBITDA in spite of the fact that the physical assets that we have were not maintained for a number of years. And so we had to go out and essentially walk out our 200,000 miles of cable systems and examine it and repair it where maintenance hadn't been done.

 And those projects are mostly behind us. So I think we'll begin to see our EBITDA come up along with our revenue. And then, ultimately, EBIT will grow faster than our revenue. And our CapEx has been high, relatively speaking, as a percentage of revenue. It's flat year-over-year, not accounting for the Bresnan acquisition.

 We continue to think it'll remain that way for the duration of at least 2014, in the sense that we've got a huge project to do in terms of going all digital. But other capital we've had to spend like trucks for people that subcontracted out, tools and test equipment. Those kinds of costs beginning to come out of our plan.

 So we see, ultimately, a less capital-intensive business going forward with higher revenue growth and higher EBITDA.

 So Charter is well positioned, we've got a great network. We're now at almost 13 million homes past the acquisition. We've got a great big commercial market. We've got the ability to offer best-in-class internet, superior video to our competitors. Fully provisioned, fully featured voice products in both the residential and commercial marketplace.

 We've got a go-to-market approach that's national. Operating strategies that are national. And those operating strategies and operating practices are designed to be a competitive differentiator. We've got the opportunity to create the penetration that comes from that. We've got a big runway in terms of opportunity. Great products, great packages.

 There's, obviously, inertia in the business, but we think that we can drive our products into the market given their inherent capabilities. You know, if you think about what we're competing against in the satellite footprint, the average satellite revenue between the two satellite companies is about $90, a little less than $90. And DSL is about $40. And 70% of the people are buying phone at $40.

 And our triple-play product initially goes in at a $90 price point but an actual selling rate closer to $120. And steps up at reasonable rates over several years. That is a compelling product from a consumer point of view. Every one of those three products in that package is superior to what the competitors are offering.

 And finally, because of the nature of our plant and the under penetrated nature of physical fixed asset we have great opportunities to drive returns on invested capital and cash flow for home passed. You can see the difference between us and our competitors in terms of -- I mean our peers in terms of what the opportunity is.

 We have a moderate leverage target that we're comfortable with. A return on investment orientation toward cash. A great maturity profile we've been able to, essentially, refinance the whole company twice over the last several yeas. And we've actually gone to market with $25 billion of debt on a $12.5 billion, $13 billion debt basis because of the opportunity the market has given us.

 We pushed out our maturities for a significant period of time. And we have a great position when it comes to taxes. So that's our story. And thank you for giving me the chance to talk about it.

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 Courtney Ulrich,  Liberty Media - IR   [9]
------------------------------
 Thanks, Tom. So next, we have Michael Rapino, President and CEO of Live Nation.

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 Michael Rapino,  Live Nation Entertainment - President, CEO   [10]
------------------------------
 Thank you. So Live Nation. Start off with the industry. On a global perspective, this is an industry that has been growing for the last 15 years. And as you can see from the emerging markets, over 20% growth in the last 10 years.

 So this is an industry that has had great growth for 15 years. We expect for it to continue to grow. You also see here why Live Nation talks about its global business. We're in 41 countries and counting. And we believe that the emerging markets, which we've started in the last couple of years, will continue to be a large part of our growth.

 And one of the reasons the market is growing, as you can see here, is the fans are demanding it from around the world. Historically, fans didn't know about an artist unless it was driven by the record distribution model.

 Today, a fan sits in Colombia, watches You Tube, goes on Facebook and finds out about Rihanna or Miley's Wrecking Ball long before the traditional system gets there.

 So today we have fans from Colombia to South Africa that want Rihanna to come and play. Historically, we centered around Europe and North America. But every day we're spending more time meeting that demand of the market. And you're going to see that continually drive new activity from the emerging markets and the rest of the world on a global basis.

 Now in 2013, not only are we continuing the growth, it's going to be one of our record years. We're up over 27% on a global basis. And as you can see on the other side, the best part about it is every market around the world is having incredible growth. So we think not only are we going to beat the trends of the past, it's going to be a record year in '13.

 The best part about it is we think it's sustainable. Why? Because we always get that question -- whose going to replace U2 and the Rolling Stones? Well, that's a long old question at this point.

 In 2013, record growth has come form the new stars. Every day there is a new Miley Cyrus or one DJ filling a stadium somewhere in the world. And we have no doubt that this will continue sustaining itself over time.

 So Live Nation -- our business model. At the core of our business model our mission is simple. We're going to monetize the live experience. And we've created an ecosystem to monetize it.

 At the core is our flywheel. It's the concert business. We do over 20,000 shows a year, which is the scale. It's the lower margin part of our business. But in order to get into these three high margin businesses and be competitive, we have to have that scale. So those 20,000 shows, as you can see, leadership position drives the three high margin businesses that are driving our true cash flow and EBITDA.

 On the top part, let's call it on-site, whether it's a venue or whether it's a festival, we give JZ the money at the door, or most of it, that we're making in the food and beverage, that we're making in the parking, that we're making in the sponsorship. And anything that kind of sits on-site.

 A huge business for us. And we're a leadership in it in terms of the amount of people that walk into the building. If you look at the amount of fans that walk into a Live Nation venue, 55 million, that makes us larger than the NBA, NHL or NFL -- or NBA -- Sorry -- in terms of the number of turnstiles. So we are a league in itself. We're monetizing that.

 Second sponsorship. We're the leader by far. We would be the largest entertainment sponsorship agency in the world with over 800 clients, growing at double digits. And Ticketmaster, as you know, world leader in what it does.

 All those businesses succeed on their own, but magically grow at higher levels from the scale of our concert division. And Artist Nation. You've heard about our management division. Still a high margin business. And it's a support vehicle that helps drive continual scale in our concert business.

 So to grow that model, I'm going to take you through three or four of our key strategies that will continue to be our focus. At the core, it's continually making sure that we protect our competitive advantage. Scale in our concert division is something that we want to make sure on a global basis we're continuing to protect and grow.

 So in the last couple of years one of our [holes] has been North America festivals. Over the last couple of years we've been plugging away at filling that portfolio. And are making great progress at mirroring our leadership position in Europe with our North American goal to be the leader in festivals.

 And EDM is just another segment. We kind of manage a wide portfolio from country to pop to EDM. We want to be the leader in all those segments.

 With our scale in capital, we can quickly move into those new markets. And in the last year we've assumed the leadership position in the EDM market. So from that scale of our concert division, those 22,000 shows, we've been able to leverage and create a world class digital online business.

 Historically, sponsorship at Live Nation had been on-site venue, name and title. And over the last few years, we've assembled a world class team. Put our fragmented digital business under one banner of Live Nation.

 And now we are at scale and considered by Madison Avenue a top choice in the music space. And the numbers show in the last three years we've doubled that business. And we think that'll be a continual high digit growth business for us. And one of the reasons and drivers behind the growth in the last year has been our content and video.

 One of the advantages we have is when you have 22,000 shows, you have lots of opportunities to create content. Whether it's a live show or whether it's backstage interviews, or what we recently announced with Ford, our first original content series online.

 So we have a studio division, wakes up every day talking to our 800 sponsors. And we believe we can add consistent scalable online video and original content based off our 22,000 shows, which will e a big part of our digital growth.

 The next piece of the, really, catalyst to our ultimate high end growth is going to come from our Ticketmaster platform. We've talked about it the last two years. We're well into redesigning our platform. We're on budget and on time. The platform is at the basics. It's going to be incredible for our per-ticket cost. We're going to operate a much more efficient platform, which is going to drive our bottom line.

 But, really, the advantage, obviously, similar to what Tom talked about, when you have a world class ecommerce platform, you start to create movement to market and develop products, then actually recognize revenue.

 And probably the first proof-of-concept on do we have the new technology DNA to deliver products to capture the marketplace, is what we've launched called Ticketmaster Plus. It is built on our new platform by our new engineers.

 A year ago, I showed you a mockup of what we dreamed it would be. We've launched this live over the last couple of months. And I'm going to show you a quick demonstration of how the product comes to life.

 So if we go to Ticketmaster today, the JZ show, you will see primary and secondary all together. You can select the blue or the red, buy it instantly. You can price shop against the secondary market. Once you buy that ticket, you can obviously print it at home, digitally transfer it.

 One of the advantages we've launched under the transfer strategy is we now not only know the person that bought the ticket, but we're going to know those three people that you are taking to the show, which we have not known historically.

 So you can instantly now transfer that digital ticket. You have four tickets. You want to resell two of those tickets, you can instantly post it back on Ticketmaster. It goes right back into the system onto that seat map. Price it at any point you want. Change the price. Come back to My Ticketmaster at any point, see if it's sold. If it is, money goes into your account. And you can continually kind of repost, buy, transfer. Huge movement for our business.

 You think about Ticketmaster, for thirty years it was buy the ticket, print it at home. We didn't know who the four people were. Scalper took the ticket, maybe went to Stubhub and resold it. Or maybe you had to courier it to your friend.

 Ticketmaster Plus not only brings the secondary and the primary together so we have a shot at both sides, it also enhances our experience. We can digitally transfer the ticket. We can get all the data. We can make sure you can repost it. So we've really brought together the echo digital system here.

 The advantage that we're finding after the last two months of beta is we're getting high, high conversion on our primary tickets. One of the realities about secondary is when you just shop in a secondary market, there's a naturally inflated marketplace.

 But when you actually put secondary beside primary, you start to realizes there's a lot of $100 primary you start to realize there's a lot of $100 primary seats that are available still.

 So we're seeing huge conversion upswings in our primary sales. Given we're partners with the artists and the sports teams, huge alignment there to make sure we first maximize our primary. And then second, take advantage of the secondary sale.

 So this has been running on a beta version for the last two-and-a-half months. We have most of our NFL business up. A lot of NBA, NHL. And over the last two months, we've started to put all of our concerts -- JZ, Justin Timberlake.

 Conversion is working. Scale is happening. And we believe this, long term, is a huge advantage to us to truly bring that $4 billion business -- $4 billion secondary business onto our side of the ledger.

 The other advantage to our replatform and the technology investments we've made is not only this business about Ticketmaster, but maximizing its consumer, converting and maximizing the secondary. This is a business that's going to mobile. We need to make sure we are the leaders in that. Have the technology that can take us there.

 You look at that chart on the left. It's amazing with Ticketmaster we are one of, if not the highest ecommerce site being driven by our mobile business. It makes sense if you think about it intuitively. A fan doesn't need to run to his desktop to buy a ticket. He can grab that map any time of the day. He wants those tickets to Justin Timberlake while he's on the run. So we're seeing our mobile business explode.

 Everything I've showed you on that map for secondary also happens today on our mobile phones. So they're both on desktop and mobile. We expect mobile, which has now been growing at 10%, to continue to grow in high digits.

 We like it because as many industries struggle with how do I move my business from online to mobile, our business actually gets enhanced. First, because we keep the economics, both on mobile and online, no change in the fees, no change to our financial model. But, too, it starts to get us really closer to that consumer.

 As I've referenced, our data now just goes to new levels. We know everyone that goes to the show. They can transfer the ticket. We can also start marketing and engaging with those consumers at a higher level.

 All that means, we believe, as we've done over the last three years, we will continue to deliver our AOI growth. We outlined last year our 2015 target. We've delivered the bacon in 2013. And we project that we will continue to deliver and march on on our AOI growth. And more importantly, the free cash flow is going to continue to grow at an even higher rate as we start to leverage our cost basis.

 The investment thesis is simple at this point. One, we got a very dynamic industry. This is an industry on a global basis that is growing, will continue to grow with a strong supply of fresh artists driving the ticket sales.

 Two, we have a superior competitive advantage. Nobody has the vertical integrated ecosystem that we have. And nobody has it at the scale and capital level that we do.

 So we can continue to grow those businesses over the next few years, not only at the rate of the market growth, but above and beyond that as the scale turns into bottom line for three of those main businesses.

 We think the technology then just takes us to new heights as the new products are being rolled out across Ticketmaster. You look at Ticketmaster today, we're running it over 105% renewal rate on our 12,000 clients.

 As I said last year, if you can deliver 100% renewal rates on current business as we start rolling out best in practices ecommerce tools, we believe that we can not only continue the high level of market share, but we're going to actually be able to increase our per head spend.

 Finally, our expenses start to come down over the next couple of years as the investment comes to life. All of those deliver. We have shown you in the last two years continued high AOI and free cash flow growth. Thank you.

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 Courtney Ulrich,  Liberty Media - IR   [11]
------------------------------
 Thanks, Michael. So next we have Q&A with Greg and John. So we'll have some microphones in the audience if you want to ask some questions. I think Greg will moderate it. And if we can, keep these questions, please, to Liberty Media. Other media companies we'll save the others ones for the next meeting.



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Questions and Answers
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Unidentified Audience Member   [1]
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 So I was wondering if you could give us an update on your thinking about your holding in Sirius. You know, why do you continue to hang onto the stake in Sirius? Why not split it into a separate entity so the market could evaluate that way?

 Is there some strategic reason, short of liquidity, that you think it makes sense for Liberty Media to continue to hold Sirius?

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 Gregory Maffei,  Liberty Media - President, CEO   [2]
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 Well, we kind of like it. It turned out Okay. I mean, there's -- I'm sure john can add. But I think we don't have many big free cash flowing assets outside Liberty Media. In fact, it's really the only one even though the Braves had a pretty good year financially.

 Its ability to generate capital that we may use at Liberty is interesting. I think there's things that we can help them with still. We try to stay out of their way mostly. But once in a while we might be able to contribute.

 And, you know, our history has been that we fund some assets when they reach a point where the value is not being fully recognized inside Liberty or they're reached their own apogee. And I think neither of those is really happening. We've pretty well reflected Sirius inside Liberty. And they're not at apogee. A lot of upside, I think, is as Jim showed.

 So those are some of my thoughts. I don't know -- John, would you add anything?

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 John Malone,  Liberty Media - Chairman   [3]
------------------------------
 No. I think that's right. We love it. It's a great asset. As you saw on that chart earlier, we still have about $2 billion of high basis equity in Sirius. We still think there may be some synergies in the music business that have not yet been exploited.

 And, really, Liberty at the moment is two large investments and one smaller one. And then some miscellaneous non-strategic investments. So I think it's a work in process is the right way to look at it.

 I think when you look at the Charter opportunity, it's going to require incremental capital to pursue it. And that's not to get Liberty too small, too soon. So we have the financial flexibility to chase a few more rabbits. Yes, Richard?

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 Richard Greenfield,  BTIG - Analyst   [4]
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 Thanks. Richard Greenfield from BTIG. When you look at the cable industry broadly -- and you kind of jokingly put up a comment about cable at the very start of his whole presentation --

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 John Malone,  Liberty Media - Chairman   [5]
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 We have to have some fun, don't we?

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 Richard Greenfield,  BTIG - Analyst   [6]
------------------------------
 Absolutely. But this is an industry that historically, while they may never have been what I would call a close friendship between programmers and distributors and it was always a business, tension certainly seems a lot higher now whether it's on retransmission consent or, obviously, cable one with some very strongly worded comments from your friends at Turner, I get the point that with everyone working together and the gravy train making money for everyone. Now it seems to be more complicated and aggressions seem to be growing.

 Do you think, I guess, when you look at what you're talking about in terms of consolidation, does that actually have the potential to change that? Or is there other reasons for consolidating?

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 John Malone,  Liberty Media - Chairman   [7]
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 Well, if you mean that, sort of, like the political system, the moderates have been driven out of the business. For years we enjoyed very good relations with the content side. And there's always tension.

 But it was all about who could create new economic value. And we always historically found the way in which the interest of the distribution business would be driven by the creation of content vehicles, and vice versa. Clearly, the over-the-top phenomenon is creating an unusual tension in the business.

 So whether or not what I believed, which was that random access television would be a major incremental benefit to the terrestrial distributors has not happened yet. Probably has been most successfully executed in the US so far by Comcast. But my guess is ultimately that capability will create new income opportunities for both content guys and distributors.

 I would have expected, had TV everywhere become TV everywhere as we sit, we would be looking at new revenue streams. We'd be looking at an ability to manage the issue of advertising, skipping and elimination, and so on.

 So the content side and the distributor side still have a huge monetization system to defend. And I think at some point they'll realize that, I think.

 Old cable guys never die. They just become investors and philosophers. And so part of my role is to point out those anomalies.

 Would consolidation of the business make that situation easier to deal with? I think so. Fewer rational players generally work together better than more. But I don't think that's a primary reason to consolidate.

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 Benjamin Swinburne,  Morgan Stanley - Analyst   [8]
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 Good morning. Ben Swinburne from Morgan Stanley. So today's financing activity largely just refinances the margin debt, I believe, at Liberty. Is that correct?

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 Gregory Maffei,  Liberty Media - President, CEO   [9]
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 Well, I think it's a series of paired transactions. I mean, frankly, we did a bigger purchase at $132 million. We took some capital out of SIRI while keeping control. Took some capital out of our high basis shares. And announced the convert, which will convert with, effectively, well over $250 a share with an inherent warrant that we're purchasing there.

 And the fact that it's likely going to get upsized based on seemingly good demand. And thank you for those in the room that are buyers. That means that we're likely to wipe out that margin debt. In some ways it reloads the gun for us to do new things that have -- you know -- see what's ahead.

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 Benjamin Swinburne,  Morgan Stanley - Analyst   [10]
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 Okay. Which is actually where I was to go with my question. So you have 27% of Charter. How do you guys think about managing that position and the potential dilution that would come form a big equity issuance in Charter. And the deal everyone's talking about -- the Time Warner Cable.

 How important is that number? How do you think about managing that? What are the other sources of financing that you could pull through at Liberty to help sort of stay, hopefully, at or maybe close to that number as you think through possibilities in cable?

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 Gregory Maffei,  Liberty Media - President, CEO   [11]
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 Well, I think there's nothing magic about [27.3], or something, which where I think we are.

 We invested there because we had a sizeable stake. But, importantly, we had a fair amount of influence with four out of 11 board seats. And compatible, or simpatico directors and management. So the combination was very appealing. It wasn't hard to control but it was enough influence and headed in the right direction.

 You know, in any kind of combination with anybody to speculate, we'd probably want to maintain influence. I don't think, as I said, 27.3 is a magic number.

 And the sources of capital could be many. I'd like to think that we could raise incremental debt capital. I would like to think that if the opportunity was attractive enough we would be able to convince the marketplace that equity capital was warranted. Certainly not been our path. I think as I showed, we bought back over half the Company at pretty attractive prices.

 But if we saw something, we're certainly not adverse to raising capital, whether in a special purpose vehicle or however. And while they have their own appropriately chartered, or appropriately directed board representation and management, we have other vehicles around which could be suppliers of capital on a short term basis. Or if there was an attractive opportunity for them even (inaudible).

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 Benjamin Swinburne,  Morgan Stanley - Analyst   [12]
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 Thanks a lot. A lot of opportunities.

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 John Malone,  Liberty Media - Chairman   [13]
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 It is, I think, important for future flexibility to keep our interest at or above 25% for various governmental reasons.

 And I think we would be prepared to make incremental investments to support what would otherwise be a diluting transaction.

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 John Malone,  Liberty Media - Chairman   [14]
------------------------------
 Matthew?

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Unidentified Audience Member   [15]
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 (inaudible) over the top and just looking at the facility base, guys. When you look at the template for competition to cable, is there anything that gives you pause or sort of shifts the scheme on either the revenue or the cost side? If you look at stories of Telecom trying to do things with [XDSL] and LTE and pretty messy engineering.

 Is that something that would change in terms of the cost assessment, let's say a white paper one of your guys did a four or five years ago for NCTA. And yet looking at Google, you have -- presumably, they had some value to customer relationship. I don't know if Google Wallet or something else.

 But could maybe make the revenue costs trade off a little bit different. Is there anything that gives you any pause? You and Tom both seem to express a lot of confidence in where things are for your launch competitor (inaudible).

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 John Malone,  Liberty Media - Chairman   [16]
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 Well, I still believe that the deployed cable terrestrial network, the hybrid fiber network, is still a tremendous creation and it has a lot of flexibility. And we can take up, as Tom mentioned, by increasing the digitization of the video business, you can at relatively, or very low cost, I might say, take up your speed and capacity of your internet delivery machine.

 So you have a real marginal cost advantage, I think, in terms of -- and flexible advantage when it comes to your base network.

 What happens in terms of programming, you know, is probably, I think, going to be the differentiating thing in the market shares in the terrestrial network.

 It's very important. I'm not sure if this audience knows but in Germany, Deutsche Telekom put in, essential, a volume cap on their internet service. And anything you buy from Deutsche Telekom does not count against that capacity cap. Anything you buy outside does.

 It's currently being digested by the regulators in Europe. I believe eventually the US terrestrial carriers are going to have to have some kind of volume based pricing structure. Otherwise, there's no correlation between their revenue and pricing and their capital pressures.

 But that said, cable is in an enviable position of being able to take up their speeds to at or equivalent to fiber to the home levels for relatively few incremental capital dollars. And I think that's a tremendous technological advantage.

 The other thing is that once we allow to all digital in our devices become increasing IT, the opportunity to do things from the cloud, the opportunities for devices in the home to be much less expensive from a capital point of view. I think Tom mentioned that. But those are all pretty compelling benefits of the terrestrial network.

 But in terms of the consumer right now one would expect cable market share to grow simply because the over-the-top services are pretty compelling, even though cable doesn't participate in some of them.

 You know, were cable able to participate or organize themselves to where those were services offered on a wholesale-retail business and bundled with the broadband offering, think you would start to see a meaningful claw back of market share against the satellite competitor.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [17]
------------------------------
 Tom, you want to add anything?

------------------------------
 Tom Rutledge,  Charter - President, CEO   [18]
------------------------------
 No, good explanation.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [19]
------------------------------
 Good.

------------------------------
 Adam Schwartz,  First Manhattan - Analyst   [20]
------------------------------
 Good morning. Thanks. Adam Schwartz, First Manhattan. I'm interested in hearing John's thoughts on current market valuations of the larger Liberty pieces versus what a concept of intrinsic value for these pieces would be. And how that may impact Liberty's ability over the next three-plus years to create this great value that you've created in the past?

------------------------------
 John Malone,  Liberty Media - Chairman   [21]
------------------------------
 Well, I've always been a leveraged cash flow investor. So I would always look at the discounted value of future cash flow that I'm comfortable with at whatever my interest rate is.

 So to a very large degree, it's a function of the degree to which you can lock in today's very low interest rates for extended periods of time.

 It seems like if you successfully lengthen the maturity of your balance sheet and your interest costs are reflecting today's artificially low rates, then the multiple things we're trading at seem low to me pretty much across the board on predictable recurring revenue businesses.

------------------------------
 Adam Schwartz,  First Manhattan - Analyst   [22]
------------------------------
 Thank you.

------------------------------
Unidentified Audience Member   [23]
------------------------------
 Thank you. (Inaudible). So, John, I wanted to pick up on your comment that the distribution has been driven by creation of content vehicles in the context of industry consolidation. I think your views are well articulated in terms of the importance of scale in driving consolidation on the distribution side.

 But what I'd like to understand is the role that content acquisition might play in this consolidation? I mean, when you look at what Comcast has done with NBCU, does that kind of begin to change your perspective of the importance of acquiring content?

 And as you move to IT-based solutions and the comment you made about the role of over-the-top players and cable not participating arguably enhances the argument about more content. So can you speak to how, philosophically, your thinking is evolving in that context? Thank you.

------------------------------
 John Malone,  Liberty Media - Chairman   [24]
------------------------------
 Sure. I think I kind of invented -- or at least the Justice Department thought I did -- vertical integration in the cable business. So I clearly believe that controlling uniqueness of content is an important determinant of market share and competitive advantage.

 When I joined the cable industry way long ago, what occurred to me it was an enormously balkanized business. It was subscale and had no ubiquity. No single operator had any level of ubiquity in any market. Right?

 The golden -- the silver lining to that cloud was that they also didn't really compete with each other. They had geographically defined operating areas. And so the opportunity for cooperation amongst them to gain scale ubiquity was pretty obvious.

 And some of that was achieved through consolidation. I mean, at one point, TCI was doing an acquisition a week for about ten years in order to consolidate and get scale. And the synergies of consolidation were pretty strong.

 But we also, recognizing that we wouldn't gain ubiquity across North America through acquisitions, we would, as an industry, get together and joint venture or support third parties who would bring propositions to the industry.

 And we were able to organize the industry on a broad set of joint ventures. Technology ventures. You know, the digital set top was basically created. Cable [apps] was created. The [m-Peg] video compression scheme was created. And so on, in technology by the joint efforts. The hybrid fiber coaxial architecture was created by created by joint ventures across the industry.

 Similarly, in content, we created things like Discovery and Black Entertainment Television. And Telemundo. You know, I think we had at one point something in the vicinity of 23 or 24 programming vehicles that the cable industry collectively was invested in.

 So we had a combination of vertical through that. But we also had entrepreneurs like Ted Turner who had an idea and went around and got consistent support. And that process, actually, continued, in my experience, up through the time that we merged TCI out into AT&T. And the last big one I can remember creating was Fox News in which TCI was a very substantial founding investor.

 So the history of the business is replete with the industry solving it's balkanization and scale problem through joint effort. I think that that can be done again. I see no reason why a vehicle, whether it's Xfinity, or the equivalent, can't be syndicated. Whether Hulu could be bought and syndicated.

 Or whether you've got some entrepreneur is going to come in and start something from scratch that the industry at large could get behind and give it the ability to purchase content on a ubiquitous basis.

 I mean, as big as Comcast is, their 25% footprint and they probably have 50% video share in it. You can't buy national programming when you only have that size footprint. Even if you're the biggest. So it falls to either joint venture efforts or third party entrepreneurial efforts to organize and offer these services on a scale efficient basis.

 When it comes to providing random access platforms, essentially, TV everywhere, you've got to be pretty big to have the R&D and the capital to put it into the servers and the distribution systems to be able to handle it. Smaller operators just are not able to produce fully in TV everywhere.

 So somebody has to do it for them. They can align with it. They can support it. They can bundle it with their broadband offerings. But they can't create it. And they can't buy the content for it. So it remains, I think, for organization development to be able to solve that issue.

 And that has created a great opportunity for Reed Hastings and Netflix because the fact is he buys programming on the national footprint. And he distributes it ubiquitously over the internet. And at the moment, his distribution -- local distribution is incrementally free to him. That's not a situation that I think can persist indefinitely.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [25]
------------------------------
 There's one over here. (Inaudible) we go back in the middle.

------------------------------
 Craig Moffett,  Moffett Nathanson LLC - Analyst   [26]
------------------------------
 Hi, Greg and John. Craig Moffett at Moffett Nathanson. John, can you just expand a little bit more? You were talking about the opportunities for cooperation and collaboration in the industry a la at home or cable ads.

 Are you suggesting that that is an alternative paradigm to M&A? Or how do you see the two of those together?

------------------------------
 John Malone,  Liberty Media - Chairman   [27]
------------------------------
 They're complimentary. The fewer big players, the easier it is to get alignment. I mean, that's fundamentally it. And so the smaller players are already willing and able to affiliate with technologies, schemes and brands. But they have to be essentially underwritten by the biggest players who have more in common than they have to fear from each other. And that's a management leadership and organizational challenge.

------------------------------
 Craig Moffett,  Moffett Nathanson LLC - Analyst   [28]
------------------------------
 If I could just expand then. Do you see a preference among the two or you say that they're complimentary, that more cooperation would in any way reduce your appetite for consolidation or not?

------------------------------
 John Malone,  Liberty Media - Chairman   [29]
------------------------------
 No. I think the idea is that the industry can get together and solve the issues that I've been referring to. Ubiquity in scale. You know, certainly increases my appetite as an investor to be willing to invest in the business through consolidation is the way I look at it.

 If it's a fragmented, balkanized, subscale industry -- right -- then you're going to be much more cautious about your incremental investment dollar than you are if you think it's part of, and hopefully a larger part of, a broader evolution that's dealing with the industry issues, broadly speaking. And not just what each individual company can do for itself. I mean, that's the way I look at it.

 When in -- I guess it would have been the late '70s, early '80s, when HBO came forth with a satellite delivered service offering that transformed the cable industry. Right? And we all got behind it and we all marketed it. We all carried it. And we all sold it. And it made all of us rich, okay? That was good, okay?

 So fast forward to 2014, if there was something the equivalent of that just around the bend, we could see the leaders in the industry getting behind a brand and a service offering that was transformative, both offensive and defensive, of course, we would be far more enthusiastic about increasing our investment in the business. And that almost always comes with synergies through consolidation. Okay. So I think they go hand in hand.

 And, you know, when we went up to Microsoft with the cable executive committee, which was basically mostly Brian and me, and we had dinner with Bill. And Brian -- first of all, Bill said, "You bet we can build you guys a digital set top for under $300 bucks, I'm ready to do it. I'll sign the contract tonight."

 And then at dinner, Brian turns to Bill and says, "Bill, the cable industry is undervalued. Why don't you buy 20% of every public company in the cable industry?" That was a wave. We saw the valuations in the cable industry pop because there was a third-party endorsement.

 But it was also a message of a coming technological change that had broad possibilities. The digitization of the industry. And Bill bought a big stake in Comcast. Shook hands on it that night. Transformed the business.

 Greg was over there at the time. He had to execute it.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [30]
------------------------------
 Yes. We made a lot of money. We were Microsoft. Jason?

------------------------------
Unidentified Audience Member   [31]
------------------------------
 Let me just follow up on Ben's question. Can you elaborate for a second on why it's important for Liberty to maintain at least a 25% stake in Charter?

 And my second question is since you all are tax experts, if for some reason there was a transaction or Charter owned less than 50.1% of the pro forma, is there any change in the value of Charter's tax assets, given the change of control?

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [32]
------------------------------
 So on the first point, I think 25% is not a magic number but it gives us an increased flexibility on some issues.

------------------------------
 John Malone,  Liberty Media - Chairman   [33]
------------------------------
 There is a nasty little thing called the 'Investment Company Act' that says if you own 25% or more, you're the largest. It's a good asset. And if you don't, it's a bad asset. And believe me, you don't want to have too much of your portfolio in bad assets. I tried those every day.

 You can work your way around it. Okay. But to be really comfortable, you want your biggest assets to be at least 25% (inaudible).

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [34]
------------------------------
 And I think we defer to Chris Winfrey. But our understanding is that the tax assets at Charter, they were [382 barred]. It's already happened. And, effectively, we have a fair amount of flexibility going forward. Tom, would you agree?

------------------------------
 Tom Rutledge,  Charter - President, CEO   [35]
------------------------------
 (technical difficulty)

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [36]
------------------------------
 He said he agreed. They can be handled in a variety of structures. And he's really happy to be here today. Other questions?

------------------------------
 Jeffrey Wlodarczak,  Pivotal Research Group - Analyst   [37]
------------------------------
 Good morning, guys. Jeff Wlodarczak from Pivotal. You talked about chasing a few more rabbits. Can you talk about the areas where you're seeing attractive investment opportunities that are getting you excited there?

 And I guess, specifically for John, as you look across all your holdings, where do you see the largest disconnect from the market value that's holding to what you think it's worth?

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [38]
------------------------------
 I'm sorry. The first -- we chase a few more rabbits?

------------------------------
 Jeffrey Wlodarczak,  Pivotal Research Group - Analyst   [39]
------------------------------
 That was a comment that John made.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [40]
------------------------------
 (inaudible) that one.

------------------------------
 John Malone,  Liberty Media - Chairman   [41]
------------------------------
 Well, Sirius was the last really good rabbit that we --

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [42]
------------------------------
 Charter's looking pretty good.

------------------------------
 John Malone,  Liberty Media - Chairman   [43]
------------------------------
 -- that we caught.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [44]
------------------------------
 Our increment -- and Live is looking pretty good.

------------------------------
 John Malone,  Liberty Media - Chairman   [45]
------------------------------
 Charter was very opportunistic. Live has been a longer experience, but it's working out great now.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [46]
------------------------------
 Yes. But to be fair to our firms (inaudible), you know, we inherited about -- we were 30 when Ticketmaster emerged. We were not in control. Right? We got the [libertas], the shares that merged. We got down to about 14 when we merged with Live Nation.

 And on the incremental capital, we've only been -- I mean, the average life we've been in can't be more than a year-and-a-half on the incremental capital. We've effectively doubled our stake from 14 to 27. And that has been a very good IR.

------------------------------
 John Malone,  Liberty Media - Chairman   [47]
------------------------------
 And ultimately, it's a great business. I mean, that's the international. And one of my things is globalization. Don't have all of your eggs in the US basket, both personally and corporately.

 So I think a lot of the opportunities are international, okay? In terms of rabbits that one could get involved in. And there are areas where the technologies we play in have not been developed or fully exploited. So I'd say some of these rabbits are outside the US that look attractive to me.

 Obviously, I'm not going to delineate what we think are good targets. But I would say you have to look at growth opportunities outside the US.

 And as I look across the various businesses on there, including the two that we're here today discussing, that's where the marginal returns look the most attractive where you can expand or recapitalize businesses outside the US

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [48]
------------------------------
 Yea. Jim, we'll go to the back after that.

------------------------------
Unidentified Audience Member   [49]
------------------------------
 Good morning. Jarrod (inaudible), Young Co-Partners. Looking at how consumers consume data and video users have vast increase going on in mobility. Can you talk about how you guys are positioned to take advantage of that? Or what you might be considering?

------------------------------
 John Malone,  Liberty Media - Chairman   [50]
------------------------------
 I was just going to say if you look at mobility and data consumption and the cost of bandwidth, which governments seem to lease to communication companies that have a higher charge cost, and the fact that -- I think 75% of what we call mobile traffic right now is actually Wi-Fi originated and going up.

 There is a strong need for close working relationships between, quote-unquote, "mobile" and terrestrial transport. And we're seeing signs of that. We saw KDG bought by [mobile] phone in Germany. A few years ago we sold our Japanese terrestrial business to KDDI.

 So it looks to me like, from that perspective, there is an opportunity in the terrestrial networks to work more closely with mobile in terms of traffic, carrying traffic, and so on and back, and so on.

 In the US, the balkanization once again is an issue because the big cellular companies are ubiquitous. The cable companies have small footprints. So the idea is that you would see a combination of those businesses I think is unlikely -- you know -- you don't buy the dairy to get a quart of milk.

 I mean, it's more likely that that will be a contractual relationship for transport. Or some kind of joint marketing enterprise rather than an acquisition because it really doesn't do a big national cellular operator a lot of good to have an 11% footprint.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [51]
------------------------------
 I totally agree with John's comment. From another way, if you look and imagine that it's really not mobile in the sense of cellular. It's mobile in the sense that the device that you are sporting with you, a huge percentage of the time is on Wi-Fi.

 And it's going to be an increasing percent to the degree to have ubiquity. And no plant is better set up in terms of distributed leveraging the co-ax and distribution to the house that the cable networks have. Again, it's going to take Federation -- I don't know, Tom, if you'd add anything to that? Or you're just happy -- sorry.

------------------------------
 Tom Rutledge,  Charter - President, CEO   [52]
------------------------------
 I agree. You know, when you think about that big [Docsys] platform as ubiquitous and the Wi-Fi cellular network, which is -- if you think about Wi-Fi as small cells, you can have lots of small cells and reuse the same spectrum over and over again.

 So from a utilization of spectrum perspective, having a distributed terrestrial network means you can have faster throughput with less spectrum. And that's a huge economic advantage if utilized.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [53]
------------------------------
 And if the constraint today is spectrum in a lot of cases, you would think there's a partnership opportunity somewhere in between the mobile companies and pushing that stuff off. They've got space limitations and you don't have. And the same way in cable.

------------------------------
 Tom Rutledge,  Charter - President, CEO   [54]
------------------------------
 That's right. And if you think about incremental bandwidth usage and the nature of it. If you think about television and display devices, whether they're phones or tablets, and where that is actually being consumed, it's being consumed in sedentary environments, not mobile environment.

 Which means that the high capacity of a wireless world is actually in the home and in the office in most locations.

------------------------------
 John Malone,  Liberty Media - Chairman   [55]
------------------------------
 Well, most of the phones today will switch over to the Wi-Fi network if they can get connected. So the idea you have an only Wi-Fi phone that could be pretty damn cheap. I don't know.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [56]
------------------------------
 Well you already have that. In a sense, John, (inaudible). Exactly. Wi-Fi tablets are out there.

------------------------------
 John Malone,  Liberty Media - Chairman   [57]
------------------------------
 Versus how many are roaming, right?

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [58]
------------------------------
 Yes, John. John and then in the middle in the back.

------------------------------
 John Tinker,  Maxim Group - Analyst   [59]
------------------------------
 Thank you. John Tinker, Maxim. Could you just talk a little about Google and where you see them playing going forward?

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [60]
------------------------------
 Well, I don't think we claim to know -- you know -- Google fiber is what I think -- I assume you're referring to.

 You could paint a very negative scenario about them rolling out lots of fiber. You know, a flat rate pricing, being funded by their other initiatives because it's a strategic acquisition and not needing return on capital on the fiber itself.

 I kid, I was at Microsoft. I know a lot of ability of large technologies companies and their businesses screw up the other guy's profitability and not make a lot of money.

 I think this is more of a science experiment, personally, partly. If you look at the three they've done, they've all been leveraging either in existing things they haven't done like FiOS, the hard work of actually digging up streets and laying fiber to a home.

 And I think they have some jaw boning benefit, that they have some test benefit. But I'm not yet convinced that it's a plan to roll out the United States.

------------------------------
 John Malone,  Liberty Media - Chairman   [61]
------------------------------
 Well, according to Eric, their primary goal is to force the current terrestrial distributors to massively increase their speed and capacity, which would then create a much better marketplace for Google products and services.

 Failing that, i.e., if they overbuild the industry and nobody reacts, they might keep overbuilding the industry. And if they're competing with two megabit DSL services and nobody does anything, then I think they see the opportunity to build the business.

 I don't believe they really believe they're going to go into an industry that doesn't react by taking speeds up to at least competitive levels. And so I think this is, to a large degree, intended to be enzymatic. You know, an enzyme forcing the terrestrial industry to take speeds up.

 And it's also a political vehicle. They're very political. And what they really want to say is the cable industry is artificially restraining capacity so that they can raise prices and inhibit access as a political view, which is something that the valley has always had about the telecom and cable industries.

 So to some degree political. It gives them a showplace. They can say "look what we can do. You know, those darn cable guys won't do it."

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [62]
------------------------------
 The Nike store?

------------------------------
 John Malone,  Liberty Media - Chairman   [63]
------------------------------
 Yes. Yes. So I think it's a mix of those.

------------------------------
Unidentified Audience Member   [64]
------------------------------
 [Rich Tulo], (inaudible). Getting back to your comment before. As we look at the future of over-the-top TV everywhere, whatever you want to call it, why do consumers need aggregation platform like Netflix or Hulu when geographic user interfaces are being rolled out by companies like Charter or other streaming models like [Rocu]? Or for that kind of aggregation without the economic rent of having to pay, let's say Netflix or --

------------------------------
 John Malone,  Liberty Media - Chairman   [65]
------------------------------
 I think the answer is they don't. Okay. I mean, it's kind of the reason you could ask the question why did HBO come into existence? Why couldn't the Hollywood guys just deliver their movies for the cable operators and keep all the money? Right?

 Well, the reality was they couldn't work together. And so it created the opportunity for HBO to get scale. And once HBO had the scale, right, they didn't need all the studios. And so the pricing power shifted.

 So I think the answer to your question is if cable gets around to offering random access video, TV everywhere with a good consumer interface and reasonable pricing and good quality, the reason for the existence of these over-the-top guys would be that they have been able, through their scale, acquire unique and excusive content at a scale that allows them to continue to buy unique and excusive content and build a business.

 That would be my answer. And I think that's what you see happening is Netflix has sufficient scale now to go out and get levels of exclusivity on various components of its content. And at that $8, $9, or $10 put together a product offering that makes them nicely profitable, particularly if they have no transport cost.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [66]
------------------------------
 What's amazing is not only is it in some ways the failure of TV everywhere, the hole creator or the gap -- because it didn't meet, as John called it, the random access need. But it started out selling mostly library, old movie content that was not highly valuable.

 It's actually the first -- not the first. One of the few that I can think of where it was the strength of their technology platform and the ubiquity, not their content, which allows them to build a great distribution vehicle. Now they've begun to get it, but for the longest time, it was not particularly compelling.

------------------------------
 John Malone,  Liberty Media - Chairman   [67]
------------------------------
 Well, think about their start. They basically built the business based upon the first use doctrine which gave them ubiquitous access to everything on DVD at no marginal cost. And the US Postal Service was their distribution system.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [68]
------------------------------
 Free. Or nearly.

------------------------------
 John Malone,  Liberty Media - Chairman   [69]
------------------------------
 So heavily subsidized.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [70]
------------------------------
 Right.

------------------------------
 John Malone,  Liberty Media - Chairman   [71]
------------------------------
 So they built the customer base on that. And that was a pretty unique product because no cable operator could deliver it. Right?

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [72]
------------------------------
 But with any product, you need a delivery system.

------------------------------
 John Malone,  Liberty Media - Chairman   [73]
------------------------------
 Well, yes, no, it was a unique product in the sense that those DVDs, once they were in the market, were free to them. Right? But really not available to the cable guys or HBO or anybody else on a marginal basis for free.

 So because of the delivery mechanism being the delivery of the DVD, right - multiple use. And then, they were able to migrate that into a streaming digital service by bundling the two together and almost all of their product at that point that was streamed was not exclusive. They were just going to programmers and saying, you are already selling it - sell it to me too.

 And so for the programmers, it was found money. It's a two-fer, right? And by the way if Amazon wants to buy it non-exclusively also, we'll sell it to them too. That was how they got started and they gained scale because of the convenience of the consumer interface and the ubiquity of the presence. And Reed is a very smart guy and he understands this.

 And now the question is, can they transition to enough exclusivity in their content so that they have a hook into the consumer and a big enough check that they can write so that programmers can't ignore them.

 And that's kind of where they are right now. You see them start to buy content exclusively or start to demand that even on off-network shows, that they get various levels of exclusive windows.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [74]
------------------------------
 Cable can't offer the whole season. Cable offers a portion of the season. They are trying to differentiate.

------------------------------
 John Malone,  Liberty Media - Chairman   [75]
------------------------------
 Yes, so Netflix is rapidly trying to differentiate and build scale, so that when they do face a consistent competition in the US, they've already got something unique to sell and my guess is, it's just the fact that the cable industry has been very slow and very uneven, even in the definition of what TV everywhere is, that's created this opportunity, this window of opportunity for the over-the-top guys. And then they have no distribution costs.

 So the combination of network neutrality, i.e. a free incremental distribution system, plus scale early, and all platforms, because they went IP, you know, they've built themselves quite a nice business.

 And I think if you, it was about a year ago when everybody was writing them off and I sure as hell didn't. It was clear to me that if they survive that was good for the industry rather than seeing them get bought by somebody with infinite capacity to underwrite their strategy, which would have been quite a bit more dangerous I think had somebody with deep pockets been able to go out and tie up a lot of product exclusively.

 So, we'll see. I mean, I think the jury is out. I think he will have a good business no matter what now because he's got enough scale and he's got enough uniqueness that I think he will continue to do reasonably well.

------------------------------
 Gregory Maffei,  Liberty Media - President, CEO   [76]
------------------------------
 So, I think that's all we have time for. We've filled out allotted 45 minutes of joy. And I want to thank you for joining us this morning, all of you, and for your continued interest in Liberty Media. Please go shop and help us pay for the day. Thank you.




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