Liberty Media Corp at Citi Internet Media & Telecommunications Conference

Jan 07, 2014 AM EST
FWONA - Liberty Media Corp
Liberty Media Corp at Citi Internet Media & Telecommunications Conference
Jan 08, 2014 / 12:30AM GMT 

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Corporate Participants
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   *  Greg Maffei
      Liberty Media Corporation - CEO

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Conference Call Participants
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   *  Jason Bazinet
      Citi - Analyst

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Presentation
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 Jason Bazinet,  Citi - Analyst   [1]
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 We are very fortunate to have Greg Maffei, CEO of Liberty Media, with us this afternoon. Thank you as always for coming.

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 Greg Maffei,  Liberty Media Corporation - CEO   [2]
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 Thank you, Jason.

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 Jason Bazinet,  Citi - Analyst   [3]
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 I always tell you this is my favorite fireside chat.

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 Greg Maffei,  Liberty Media Corporation - CEO   [4]
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 Really?

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 Jason Bazinet,  Citi - Analyst   [5]
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 Yes, it is.

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 Greg Maffei,  Liberty Media Corporation - CEO   [6]
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 Your expectations are low for other choices.

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 Jason Bazinet,  Citi - Analyst   [7]
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 You're just feisty, that's all. So I have to start with Friday's announcement that you made regarding the bid for the minority of the shares in Sirius. I guess the presumption on the part of the marketplace, and I think you've said this on CNBC or whatever, is it's not crazy to assume that a large part of this is to get access to the capital on Sirius' balance sheet to maybe pursue other opportunities. Is that fair?

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 Greg Maffei,  Liberty Media Corporation - CEO   [8]
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 Well, I think first and foremost it's to put in place what we think is a more rational capital structure going forward. And that allows Liberty to access the cash flows that Sirius has and whether that's to devote them into new opportunities, buying things like Agero as we did recently in Sirius, or whether it's to do share repurchases at Liberty, which effectively is 70% going to be Sirius, or whether it is to look at other opportunities we find attractive, it is more rational.

 But I think it's broader than just saying, as some have speculated, means we are going to go do a bid for another cable company. I think it says in the future there's a lot more flexibility to do all sorts of things and to have more efficient capital raising. One of the related points is today if we were to, as we recently agreed, seek to have -- sell some of our shares in Siri or have a dividend be paid by Siri, all those have tax leakage. Pulling this together as one entity removes all that leakage.

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 Jason Bazinet,  Citi - Analyst   [9]
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 It does, but isn't there a trade-off? I mean it seems like the history of Liberty has been spinning things off to create visibility for the buy side so they can recognize the value inherent in assets. And this seems like the first step backwards after many steps of what I would call moving forward.

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 Greg Maffei,  Liberty Media Corporation - CEO   [10]
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 Well, I would not use the analogy of backwards and forwards. I would use the analogy of, look, eight years ago when I joined, Liberty Media was a complete mishmash. We traded at a huge discount to net asset value. It was as high as 35% or 40% at various times. We didn't have controlling stakes in pretty much anything other than [of size], those in QVC, which is now over in the other side of the house. And we had an enormous amount of tax problems with trying to unwind some of those stakes.

 So over the last eight years, we have cleaned up most of that stuff, or virtually all of it. We bought back 52% of the Company at something like $40 a share. We've done two major transactions which were value creating that were subsequently spun recognizing that discount, the DirecTV deal and the SiriusXM deal in the case DirecTV being spun.

 That game is over. The game worked great. 35% IRR for eight years. Really hard to replicate going forward. But we need a new game. The game we did then is not going to serve our shareholders well because we don't trade at a 40% discount or a 35% discount. And we need to pursue new ways to create value. We think they're out there, but they aren't going to be following the same path.

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 Jason Bazinet,  Citi - Analyst   [11]
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 Okay. Well, let me start with this hypo -- it's not a hypothetical, just give me the luxury of this. If we assume that one reason of pursuing the balance with Sirius was to get access to their balance sheet for whatever reason, if this deal doesn't go through, what other opportunities do you have?

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 Greg Maffei,  Liberty Media Corporation - CEO   [12]
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 Well, I think we have talked about being willing to look at other opportunities including investing in Charter if they pursue a deal and we have lots of ways to fund that. We funded a portion of that Charter purchase through a margin loan. We subsequently cleaned it up by agreeing to sell -- pro forma cleaned it up by agreeing to sell some of our stock back by issuing a $1 billion convert by doing a -- at the same time we did the transaction with Comcast where we repurchased stock.

 So we cleaned up our balance sheet and locked it up and there are still the same ways to go forward -- whether it be more equity issuance in a directed way, whether it be more converts, whether it be more straight debt, whether it be loans from some of our sister companies on a short-term basis, whether it be borrowings against some of our holdings like Sirius, like Live Nation. I think there are a lot of ways to fund our needs going forward.

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 Jason Bazinet,  Citi - Analyst   [13]
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 All right, and so one of the questions -- and this may be an unfair question to ask you but that's really my job, but I will sort of lean on your intellect; you can help me out. What I really struggle with is on a pro forma basis, assuming the Sirius transaction goes through. As I look at it in step one Sirius as a percent of LMCA's NAV goes up to 80-something-percent. But then if you do end up pursuing something with Time Warner Cable and Charter to hold your 25% stake it drops back down to 60-some-odd-percent. And so I struggle with how --.

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 Greg Maffei,  Liberty Media Corporation - CEO   [14]
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 That math doesn't sound right to me.

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 Jason Bazinet,  Citi - Analyst   [15]
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 You don't think that's right? Okay.

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 Greg Maffei,  Liberty Media Corporation - CEO   [16]
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 It depends how much you assume we are funding of some hypothetical cable bid, but it has to be a very large number, right? Because you're looking at roughly a $25 billion asset. Our current Charter stake is a $4 billion asset or just under something like that, stock traded up today, maybe it's $4 billion now but it's $4-billion-ish. It is de minimis as a percent. And you have to assume an awful lot of funding to make it go against the 25.

 I'd also point out that there are some who've suggested we love the Sirius pure play. The sophisticated investors in this room know that if they so chose, there are ways to effectively neutralize those other public stakes and have the benefit of a Siri pure play or nearly pure play, we have a couple of small private assets, and get paid a premium because whatever we do here likely it's a premium to induce the holders to vote for and get the benefit of both worlds.

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 Jason Bazinet,  Citi - Analyst   [17]
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 Okay. So do you think will still use a sort of a NAV -- will use NAV to value Liberty Media? Or do you think they will do it the way they do with Siri which is more of a levered equity return (multiple speakers)?

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 Greg Maffei,  Liberty Media Corporation - CEO   [18]
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 I suspect it will probably move toward the latter. And that's probably right because the NAV story was really a story about the discount. And that discount, as we said, has largely faded.

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 Jason Bazinet,  Citi - Analyst   [19]
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 Okay. All right more broadly, outside of all the moves that you've made over the last year or so, do you think the pace of change will slow down at Liberty, I mean you've been moving at a pretty frenetic pace.

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 Greg Maffei,  Liberty Media Corporation - CEO   [20]
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 I hope so. I don't know. We will see what opportunities are presented to us, right. I mean I'd like to think we're doing these not just to keep a perpetual motion machine, but because we have seen opportunities along the way that were valuable to our shareholders.

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 Jason Bazinet,  Citi - Analyst   [21]
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 Okay. So one thing that I think is the hallmark of Liberty broadly is you as a Company have been very good at exploiting opportunities where the buy side gets terrified about some way an industry is going to evolve. And you take the other side of that and express it by getting bigger in a particular asset. Right? Sometimes you sell an asset outright because you see some threat on the horizon the buy side doesn't see. And you've rattled off examples in the past where you've done this.

 My question for you today is we are at a very interesting moment with Sirius because when I talk to the buy side, they are terrified of a connected car threat. They see very significant threats in terms of all sorts of players coming into the car. And right at that moment when we're here at CES and everyone is making announcements about how the connected car market is going to involve, you effectively double down.

 So there must've been some discussions inside Liberty about how this business is going to evolve, but whatever conclusion you came to is a pretty firm conclusion that the buy side is wrong.

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 Greg Maffei,  Liberty Media Corporation - CEO   [22]
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 Well, I'll say a couple things. First, I think the connected car is going to be a change and I think Jim [Meyer] and his team have thought an awful lot about it, have a lot of great strategies including the acquisition of Agero, our work in telematics, [SXM20], other things down the road that are going to be very effective. I believe that there is a great opportunity at Sirius.

 I would note the somewhat of a disconnect between the buy side -- and I don't think it's generically fair to say the buy side -- but the disconnect in the one hand to say, oh my gosh, you guys are stealing the Company and [you all know how] Ralph Nader defending you in that position. That we're steeling the Company at the same time you're worried about the death of the Company because of the connected car. These seem like disconnects but maybe that's just my feeble --.

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 Jason Bazinet,  Citi - Analyst   [23]
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 Half the guys are short, the other guys that own it are long, I mean --. So all right, so you're not nervous. You think --.

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 Greg Maffei,  Liberty Media Corporation - CEO   [24]
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 Hey, everyday we're nervous. There's something -- I sat with John Malone yesterday, we talked -- we sat ruminating for an hour -- and talking about durable assets. Finding durable assets, something you say I am going to own that for 10 or 15 years and have a high level of confidence that it will be a valuable, more valuable asset in 10 or 15 years. You know that may work if you are Coca-Cola. But finding things in the digital space that you have that level of confidence in, that's a hard thing to do. And if you are having that level of confidence, the price of entry to get there today is awfully high.

 So one of the reasons we've tried to be agile across the last few years is because there are various times when either it seemed to us that the durable assets were being either overpriced and we should sell them or spin them, or we'd better off trading in somebody else's hands. And there are other times when they seem to be underpriced.

 And fortunately the best example for us was the SiriusXM transaction in February/March of 2009. You don't find all those disconnects, you don't find all those discontinuities when you see one side so high or so low, but you have to keep moving forward with your best bet and you have to know that it's unlikely that everything that sits in the Company today is going to be sitting there in five or 10 years just because there will be change.

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 Jason Bazinet,  Citi - Analyst   [25]
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 As it relates to cable consolidation, a lot has been talked about and written about, are there any messages that you would like to just amplify or correct or clarify? Or do you think everything you want to say has been said?

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 Greg Maffei,  Liberty Media Corporation - CEO   [26]
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 Well, a lot of things have been said, I'm not sure they're all right. But look 15 or 20 years ago you did not have scale national competitors in either wireless or the satellite companies and you didn't have the over-the-top and other technologies which have changed.

 So the cable business has new threats, but it also has new opportunities. Most of those new opportunities are enhanced not only through scale on the cost side, but through scale on being able to create ancillary opportunities. 15 years ago that was done by things like at home, the rescue of Turner Broadcasting, lots of other great transactions.

 A new set of reinvigorated cable opportunities I think comes and John thinks and Tom[Rutledge] thinks and I believe [Brian Roberts] and others think comes from working together and building scale. Some of that is from consolidation and some of that is from confederation, just working together more closely. And that's the opportunity we endorse. That's what we really believe. Part of it is the cost side, but a lot of it is looking forward to new opportunities.

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 Jason Bazinet,  Citi - Analyst   [27]
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 Okay. How, if you had to take a gander on how all this plays out or when, when do you think the set of investors in here will sort of have an idea of (inaudible) the answer is?

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 Greg Maffei,  Liberty Media Corporation - CEO   [28]
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 I don't, I wish it was yesterday just like you.

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 Jason Bazinet,  Citi - Analyst   [29]
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 Okay. Is it fair to say that -- when I read the press there seems to be this bid as spread that seems reasonably narrow to me, particularly in the context if there is an equity component of any offer that is made. Is that reasonable?

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 Greg Maffei,  Liberty Media Corporation - CEO   [30]
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 I think there are more complicating factors around this than just that. But we will see.

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 Jason Bazinet,  Citi - Analyst   [31]
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 Okay. Can you talk about your other plans for the strategic stakes in Live Nation and Barnes, is or any sort of update there?

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 Greg Maffei,  Liberty Media Corporation - CEO   [32]
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 Well, I think Live Nation continues to prosper. Had a good 2013 fueled in part by a strong touring calendar and the right set of artists who we had either their promotion or their management. 2014 looks to be off to a good start but there clearly -- given the strength of 2013 there some challenges just on will you see the same calendar. There are secular other trends, the technology upgrade, the work around Ticketmaster Plus in the secondary market which I think are very positive.

 But we will see how the business goes forward. That stock has obviously had a great run. Things go up 100%, they may be already forecasting out a few opportunities or assuming a few opportunities. Barnes & Noble's is more challenging. Retail business remains fairly strong. But obviously the tablet space, the e-reader space has been very difficult. I think they've got some good plans and ideas, but I am comfortable with our position given the kind of security we hold and the option we have on that upside.

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 Jason Bazinet,  Citi - Analyst   [33]
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 And what about non-strategic stakes, any update there?

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 Greg Maffei,  Liberty Media Corporation - CEO   [34]
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 I am hoping the Braves make some good trades, I don't know. I'm not sure what other plans we have in there. They are mostly a source of liquidity.

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 Jason Bazinet,  Citi - Analyst   [35]
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 Okay. Can I shift gears to Liberty Interactive?

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 Greg Maffei,  Liberty Media Corporation - CEO   [36]
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 Sure.

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 Jason Bazinet,  Citi - Analyst   [37]
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 You mentioned at your Investor Day you highlighted 2.5 turns of leverage as sort of the target for QVC. When do you think you can reach that sort of target leverage? And outside of buybacks, are there any other sources or uses of cash that we should be thinking about?

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 Greg Maffei,  Liberty Media Corporation - CEO   [38]
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 Well, if you look, buybacks have been far and away the largest use of cash there. There will be somewhat a use of cash for example upon the Liberty Digital Commerce tracker where some cash gets moved over to that side, but that's relatively de minimis. Buyback is the big scale opportunity.

 I think we're traded -- we're roughly at 2.1 or 2.2, something on that order today. And I expect we will continue to buy at a rate which drives that up, but we are probably judicious trying not to chase the tail. There has been a lot of multiple expansion at the pro forma QVC -- the new QVC tracking stock. So we are cautious about how hard we chase that up.

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 Jason Bazinet,  Citi - Analyst   [39]
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 It still seems -- maybe my math is wrong, but it still seems like one of the more attractive or lower multiple stocks I would say, at least within my coverage universe.

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 Greg Maffei,  Liberty Media Corporation - CEO   [40]
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 You know, I think it's all relative. The free cash flow yield is good but it has come down quite a lot compared to where it was say two or three years ago.

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 Jason Bazinet,  Citi - Analyst   [41]
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 True. Okay. How would you characterize the recent holiday season? There's a lot of trepidation about retail sales were at large going into Q4. Do you think caution was the right call on the part of the buy side?

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 Greg Maffei,  Liberty Media Corporation - CEO   [42]
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 You know, I think that QVC's US holiday was good, weaker -- and a little weaker in other markets, Germany. UK had been hot, probably tailed a little. Germany and Japan still challenged. But the US probably had a pretty good season.

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 Jason Bazinet,  Citi - Analyst   [43]
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 Okay. International on QVC has been one of those opportunities I feel like has sort of been out there just over the horizon for longer than I would have thought. I would've thought -- it feels like it's been, I don't know, half a decade or something you've been talking about pursuing international. And you have made some moves with your China JV but the countries I am thinking about are sort of France and Spain and Brazil. And those seem like they have just been a long time in development. Were there things that got close and then something changed or has your thinking changed or you've gotten more risk-averse about the --?

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 Greg Maffei,  Liberty Media Corporation - CEO   [44]
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 No, I think if you look there was a long hiatus where QVC did no international, new international markets. Did in relatively quick order going back into the 1980s, did UK, did Germany, did Japan and then there was a long hiatus when the prior management was basically headed towards retirement, didn't do any new ones.

 Mike [George] came in and has had a more systematic approach. We did Italy. The company probably was not as geared up to do new markets so Italy took a lot of focus. Has been, as you rightly noted, did the joint venture in China which I think actually has very interesting upside. How that is growing is very appealing.

 But the European markets have been challenged, right, based on those European economies. Italy has probably not turned out on a very exciting plan, has turned out to be not as interesting as the exciting plan. I still think it's going to be a good return on capital but not what was ritually forecast. You mentioned some of the markets. We looked at France, we got close, then that opportunity kind of faded, now I think it's back in focus.

 Spain we spent a lot of time, there were some regulatory changes in Spain. I had an old boss say you build businesses in recessions. So it was very appealing, the opportunity to go into Spain and secure distribution at a relatively low cost, but that opportunity kind of faded. So I think France is more front and center. Brazil is a difficult market given the regulatory environment, but we've been looking and working with some of the larger players down there. We will see how that comes to pass.

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 Jason Bazinet,  Citi - Analyst   [45]
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 Okay. You announced last year that Liberty Digital Commerce was a spinoff from Liberty Interactive.

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 Greg Maffei,  Liberty Media Corporation - CEO   [46]
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 That we would track.

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 Jason Bazinet,  Citi - Analyst   [47]
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 Sometime in the first half of 2014. Still on track for that tracker?

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 Greg Maffei,  Liberty Media Corporation - CEO   [48]
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 I still think that is a Q2 event. Yes.

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 Jason Bazinet,  Citi - Analyst   [49]
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 Okay. And then can you talk about the EBITDA? The revenue growth has been phenomenal for that collection of assets, but the EBITDA growth has been choppy --

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 Greg Maffei,  Liberty Media Corporation - CEO   [50]
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 Spotty. Yes.

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 Jason Bazinet,  Citi - Analyst   [51]
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 -- a number of reasons -- weather, legal settlements, management turnover.

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 Greg Maffei,  Liberty Media Corporation - CEO   [52]
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 All sorts of challenges.

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 Jason Bazinet,  Citi - Analyst   [53]
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 Is your sense that when the tracker exists that it's sort of a cleaner runway going forward or do you think investors that own that tracker stock will still to have to face undulation?

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 Greg Maffei,  Liberty Media Corporation - CEO   [54]
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 I hope they don't but I suspect they will. I do think we've cleaned up a few of the challenges. But I think we have learned those are tough scale businesses and you need -- scale definitely helps in those businesses as well to spread warehouse costs, to spread software development costs, the cost is the widest platform possible.

 And I'm hoping -- we are talking about new management for that. I'm hoping that that will help drive synergies across those groups. But I also think there are opportunities for each of those individual companies to do incremental acquisitions or incremental partnerships to drive that scale.

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 Jason Bazinet,  Citi - Analyst   [55]
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 If you had to postulate a narrative for what the story will be on Liberty Digital Commerce, is it going to be very rapid top-line growth with not a lot of free cash, it's a sort of like an Amazon light? Or you think it's more about a significant ramp in free cash and equity shrink, something like that?

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 Greg Maffei,  Liberty Media Corporation - CEO   [56]
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 Well, I think it will very much depend on what the asset looks like as it comes out. At typical Liberty we won't know whether we will like it to be high or low. If it's low obviously we'll treat it as an opportunity to share shrink. If it's high I think we will try and use it as an opportunity to use the currency for different things. There are, as I noted, I believe partnerships out there for many of those individual assets. And they probably will get more focus and more attention as that's its own company, its own stock.

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 Jason Bazinet,  Citi - Analyst   [57]
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 Okay. Can I move over to ventures?

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 Greg Maffei,  Liberty Media Corporation - CEO   [58]
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 Sure.

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 Jason Bazinet,  Citi - Analyst   [59]
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 Do you have any update on Expedia? That's been one that we've been sort of -- I guess I would have expected something would've happened on that and nothing's happened, but --.

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 Greg Maffei,  Liberty Media Corporation - CEO   [60]
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 Stock has gone up.

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 Jason Bazinet,  Citi - Analyst   [61]
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 That's true. Do you feel like you're any closer to anything happening either gaining control or tax efficiently monetizing the stake that you have in (inaudible)?

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 Greg Maffei,  Liberty Media Corporation - CEO   [62]
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 No, no change.

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 Jason Bazinet,  Citi - Analyst   [63]
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 No change. Interesting. What about other potential uses of ventures cash?

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 Greg Maffei,  Liberty Media Corporation - CEO   [64]
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 Well, we look for something that fits in our wheelhouse of a strategic asset; we haven't yet found that. We have done some we believe are attractive sort of tax motivated green energy deals. We did a large one for a solar plant in Arizona. We've done some smaller ones around a wind farm in Tehachapi, California. We did another one for Detroit Edison for a coal cleansing facility, coal refining. Those have been one-off's, those are attractive they are not a strategic asset.

 Hard to find strategic assets that we look and say -- going back to the example earlier, some discontinuities occurred. There's some reason why it is a particularly good time to be a buyer with cash. It's hard to find those assets. Hard enough to find in the stock where you're buying a small piece, much harder to find it in an asset where you're buying a whole company or a control -- at least harder for us.

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 Jason Bazinet,  Citi - Analyst   [65]
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 Are there any questions for Mr. Maffei? if you have one raise your hand and we'll get you a mic.



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Questions and Answers
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Unidentified Audience Member   [1]
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 Hey Greg, two questions for you. One, on cable consolidation, can you discuss some of the risks? I think the upsides are pretty obvious, but some of the risk (inaudible) on your balance sheet and also operationally.

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 Jason Bazinet,  Citi - Analyst   [2]
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 Sorry -- cable consolidation, discuss some of the risks of --

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Unidentified Audience Member   [3]
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 Both on your balance sheet and also operationally. And then also could you talk about some of the synergies between Sirius and Charter and perhaps some other cable companies?

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 Greg Maffei,  Liberty Media Corporation - CEO   [4]
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 I think that -- look, cable consolidation, we are being asked to be pay for a bunch of assumed synergies. Do those synergies come in at the rate and timing that we want? We will see. The synergies are largely around content costs, around marketing costs, around G&A and around networking costs -- all of those I think are achievable and to some degree and fashion and some timeframe. Can they happen fast enough will be the real key, right?

 I think there also is probably an opportunity to run that asset better, the reported or rumored asset better than it's been run. It has not been performed as well as say Comcast. I give [Neil Smith] credit for how he has run it. It hasn't necessarily performed as well as what Tom and his team and they've been able to do. Some of that is because of the nature of the plant and what they have invested, some of that's just how it has been run, the peers just look at the math. We will see how that all plays.

 What is the risk on our balance sheet to the degree they don't come in and we've paid cash. It's one thing if we are paying stock, it's another thing if we are paying cash. That we are levered up to do that and they don't come in at that rate obviously that could potentially strain. Now I don't believe any bid that has been discussed has been about having such a high level of leverage we think that we are really exposed. But obviously there are issues around that potentially. I hope that answers the question. David?

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Unidentified Audience Member   [5]
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 Can I go? Thanks, Greg. Could you discuss how you think about Google and particularly their, if you will, science projects they've done in KC, Austin, Salt Lake --

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 Greg Maffei,  Liberty Media Corporation - CEO   [6]
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 Provo, yes.

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Unidentified Audience Member   [7]
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 -- Provo as you map where cable is headed and possible new entrants?

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 Greg Maffei,  Liberty Media Corporation - CEO   [8]
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 Well, I think Google is a large company, it reminds me back to my days at Microsoft. They can pretty much do whatever they want financially. I say at Microsoft we are very good at entering businesses and screwing up the other guy's profitability, less good at making great returns ourselves. Maybe they will prove to be different.

 If you look at those cases, each of those were somewhat one-offs, they were existing municipal facilities, there was something that was going on. I tend to be dubious that Google will be an over builder across the entire country. No over builders made respectable profits yet. Google may be the one that defies the historical trends.

 I think mostly -- as you called it a science project, I think mostly that may be a little dismissive. I think it's a lab, I think it's proof that there is benefit to consumers of high-speed access and that new and interesting applications will arise. And I think they also want to show that an unlimited access non-tolled, non-usage based pricing has benefits and that probably has a political statement and value to them in DC as much as anything else.

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Unidentified Audience Member   [9]
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 And does it have any effect on CapEx and just general pricing do you think on the cable industry?

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 Greg Maffei,  Liberty Media Corporation - CEO   [10]
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 I don't think yet. I mean it may in certain markets like Kansas City, but in general I don't think so. I mean the question is, does it -- I think it's more worrisome not that they just take and overbuild 50 markets, I think it's more worrisome that the threat of it remains a specter on valuations around cable as a broadband carrier, probably more than the actual build out.

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 Jason Bazinet,  Citi - Analyst   [11]
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 Any other questions for Greg?

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 Greg Maffei,  Liberty Media Corporation - CEO   [12]
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 Well, thank you very much, have a great CES.

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 Jason Bazinet,  Citi - Analyst   [13]
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 Thank you.






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