Liberty Media Corp at Deutsche Bank Media, Internet and Telecom Conference
Mar 10, 2014 AM EDT
FWONA - Liberty Media Corp
Liberty Media Corp at Deutsche Bank Media, Internet and Telecom Conference
Mar 10, 2014 / 10:00PM GMT
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Corporate Participants
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* Greg Maffei
Liberty Interactive Corp - President and CEO
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Conference Call Participants
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* Doug Mitchelson
Deutsche Bank - Analyst
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Presentation
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Doug Mitchelson, Deutsche Bank - Analyst [1]
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Very, very pleased to have with us tonight from Liberty -- so, Greg, I'm losing track of how many titles you have.
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Greg Maffei, Liberty Interactive Corp - President and CEO [2]
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You didn't really need to put them all out there.
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Doug Mitchelson, Deutsche Bank - Analyst [3]
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I -- well, but otherwise I can't remember them all - President and CEO of Liberty Media Corp, President and CEO of Liberty Interactive, Chairman of Starz, Chairman of Sirius XM, Chairman of TripAdvisor, Chairman of -- so, I'm assuming you're paid per company.
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Greg Maffei, Liberty Interactive Corp - President and CEO [4]
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I don't remember.
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Questions and Answers
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Doug Mitchelson, Deutsche Bank - Analyst [1]
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Well, thank you very much for coming, Greg. It's always a pleasure to have you every year. Thank you for coming.
All right. So, yes, you were sort of laughing at my first question, but I did want to start and sort of take a step back and say can you help us at this point in time, because I do think it's an interesting moment in time for all of the companies that you're involved in, try and understand what your vision is and what the mission is at this point.
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Greg Maffei, Liberty Interactive Corp - President and CEO [2]
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Well, I don't know -- sure there's an over-arching mission that all of the companies are following. There's no Prime Directive, or something along those lines. I mean, we're in a time when a lot of the companies are generating high free cash flow and growing pretty well. If you look at those -- certainly all the ones down on that -- that are the Chair list that you've got there, what do you do with that capital?
Also, you're in a time when financing and extending interest rates is extending out maturities, taking advantage of low interest rates is attractive, so there's a conundrum. And I think in all these cases, we're trying to figure out what is attractive that we can build and grow. Some of that's internal, but a lot of it is looking outside, as well.
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Doug Mitchelson, Deutsche Bank - Analyst [3]
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So, what do you see that's attractive that you can build and grow?
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Greg Maffei, Liberty Interactive Corp - President and CEO [4]
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Well, as I said, I think all these businesses have good free cash flow and growth characteristics, so I'm pretty pleased with that. But, it's difficult, given the pricing of other kinds of assets. You're -- it's [reflective] in asset values, equity values that [vary]. It's not easy to buy things. And we -- you try and take advantage of synergies but, in many cases, that's already priced in. It's a very difficult environment to be a buyer.
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Doug Mitchelson, Deutsche Bank - Analyst [5]
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So, as the -- well, it just -- it feels in some ways, if you look back across the last seven, eight years, a lot of big pieces have been put to bed, not all of them. The -- Dr. Malone has made some changes. And so, I guess the question is, has the timeframe changed at all, the way you look at deals, the returns you're looking for? Has anything changed?
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Greg Maffei, Liberty Interactive Corp - President and CEO [6]
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Well, I don't think the timeframe has changed. Hopefully the way we look at deals, hopefully we've gotten smarter over time. You have to recognize the interest rate environment and the environment we're in, where equities are -- look, in '09, that's a very different period in what we could do, and you're unlikely to find another Sirius XM, a seriously valuable asset that's apparently so troubled, which has all positive underlying characteristics at a reasonable price. That's very hard to do today. So, you do have to look at -- recognize financing is a heck of a lot cheaper. The offset is, all these assets are a heck of a lot more expensive.
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Doug Mitchelson, Deutsche Bank - Analyst [7]
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So, look, you mentioned the financing environment being attractive, and you see things like Tesla convert up 70% on a stock that was just a couple hundred dollars, right, low coupon rate. Is the answer to change your return criteria and just take advantage of these markets before they change?
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Greg Maffei, Liberty Interactive Corp - President and CEO [8]
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Well, I don't -- you try and balance that, because we're not required to swing at every pitch. So, everything that comes along -- and yes, it may be less expensive to finance, but you've got to look and say there's some amount of our equity's going into it, too, and we've got to make a decision about how that return is.
Now, that return can be bolstered by low-cost financing, but we're financing [in] still an enormous percentage of it with equity, and you're not going to be able to say that you're going to generate high enough returns. So, we don't have a set return characteristic that's some degree based on opportunities we see, what else is out there, but also the risk profile and what we can do with it. There are a lot of factors. There's not a number. But, you clearly have to adjust that downward in this environment, recognizing alternatives and recognizing cheap sources of financing.
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Doug Mitchelson, Deutsche Bank - Analyst [9]
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Yes. Well -- and I guess the other way you could approach it is you could just raise capital now. Like, at a Liberty, you could do converts, [like skin] some of your equity holdings and just hoard the capital until there's dislocation in the markets.
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Greg Maffei, Liberty Interactive Corp - President and CEO [10]
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We did do a big convert back in the fall at Liberty. Many of our companies have gone out and either done -- mostly debt-related, but some equity-related financings, and we're certainly thinking about others. As you noted, the convert market is pretty attractive right now, so we'll see how it goes.
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Doug Mitchelson, Deutsche Bank - Analyst [11]
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In the past, sort of keeping along the lines of capital and M&A, you've talked about a penchant for subscription-based businesses versus ad businesses. Both of them have done well sort of post-recession, both for sort of similar and different reasons. Is that still the case? Is there still a bias towards subscription businesses?
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Greg Maffei, Liberty Interactive Corp - President and CEO [12]
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I just think it's the set of businesses we know better, not that it's particularly one or the other, but we're more familiar with cost of subscriber acquisition, churn, that -- the math that works around that is more intuitive to Liberty probably than the ad math.
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Doug Mitchelson, Deutsche Bank - Analyst [13]
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Domestic versus international, anything -- I mean, I know we're talking about across a number of companies, but--.
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Greg Maffei, Liberty Interactive Corp - President and CEO [14]
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--Yes. If you take all of these companies, many of them have a lot of international assets. TripAdvisor has a huge international portfolio. Live Nation has a huge international portfolio. Sirius and Starz are both domestic-oriented companies today. They'll both -- are looking at opportunities outside. One of the challenges for Liberty is, is we were -- if you take the Liberty family, we were probably the most international media company, with the possible exception of News Corp, given that they started out internationally.
But, a lot of the businesses that were more internationally focused - Liberty Media International becomes Liberty Global, Discovery gets spun out from Discovery Holdings, becomes Discovery Communications, DirecTV, all of those that were more mature had much larger international portfolios and much larger international pieces. In many cases, the things that we were left behind with were more domestic focus.
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Doug Mitchelson, Deutsche Bank - Analyst [15]
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So, it's always an unfair question. I recognize that, but I'm going to ask it anyways. Is there anything you could tell us about what you would call the activity level of the M&A market? Should we expect that you guys will be active in the deal market, or is there really not a lot that you're seeing right now?
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Greg Maffei, Liberty Interactive Corp - President and CEO [16]
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You know, I think we try to be both strategic and opportunistic, and that by definition says it's very hard to predict exactly how much you're going to do.
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Doug Mitchelson, Deutsche Bank - Analyst [17]
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So, a lot of value at Liberty has come from structuring, right? So, is there any more -- and I know we need more companies and titles on the page -- any more structuring opportunities at Liberty?
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Greg Maffei, Liberty Interactive Corp - President and CEO [18]
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I won't have time to come to Palm Beach.
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Doug Mitchelson, Deutsche Bank - Analyst [19]
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[You've got to] make time for the important things, Greg.
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Greg Maffei, Liberty Interactive Corp - President and CEO [20]
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I think I've discussed. I mean, if you look at the success of Liberty Media as an equity, four big things I think did it. One is we cleaned up a lot of the really low-hanging fruit, things that we had minority interest in that we didn't -- weren't able to influence and-or we thought had a less attractive direction. We got rid of Open TV. We got rid of a lot -- On Command. We got out of our half of Court TV, which we couldn't really influence. It was being driven by Time Warner, and they had a -- far more synergies. We got out of minority positions in CBS, not that there was anything wrong with it, but it just wasn't -- we had no influence, and we got out of minority positions in Time Warner on both of those attractive [bases] -- on an after-tax basis, so sort of cleaning up the low-hanging fruit.
Secondly, we did two really attractive deals. We've done some smaller ones, but the two large ones really made the difference, Sirius XM and DirecTV, and both of those were very attractive trades for our shareholders, one of which we still hold control of, and the other one which we spun out to them.
And then, the last thing we did is we bought back 52% of the Company, something like that, since Liberty Capital, then renamed Liberty Media, became an independent stock. We bought back 52% of it for something like $45 a share. And if you put the pieces back together, including Starz and Liberty Media, and I exclude the DirecTV spin, but if you just look at the two pieces, you're looking at combined value of something like, what, 163? It's been as high as 180. So, that's pretty attractive on an NAV basis. Part of that was because we traded at a big discount to NAV at various times, as high as 30% or 35%, depending on how you looked at it. Today, that NAV discount's probably down to 10, 10%, 12%, something like that. So, the attractiveness of that is way down.
As a practical matter, for most of the time that I've been at Liberty, we always had excess capital on the balance sheet, and we were always bemoaning the lack of opportunities. Today, we do not have nearly that amount of excess capital. You can raise capital with the right opportunity, and whether it be debt capital or equity-linked capital or pure equity capital, as people offered us things, for example, in the -- alongside [SM Charter], going after Time Warner, many people came and offered us things, offered opportunities to invest. So, lots of ways to raise capital, but that's very different than sitting with cash in the balance sheet. And for most of the time, we had big cash balances.
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Doug Mitchelson, Deutsche Bank - Analyst [21]
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So, there's a few things in there I want to hit on, but you've mentioned sort of Charter and DirecTV. You control both a satellite TV company. You have a lot of influence at a cable company. Which is the better business?
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Greg Maffei, Liberty Interactive Corp - President and CEO [22]
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If you just look at where it is in its lifecycle, Sirius XM is a very attractive business. I mean, the growth in free cash flows and the fact that it has unique content, exclusive content that's much broader than any satellite or cable TV company, and the fact that it has relative leverage over both its distributors, the OEMs, and its content suppliers makes it a very attractive business model. But, it's also arguably priced more like an attractive business model in the marketplace than a cable company is today, or a satellite TV company.
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Doug Mitchelson, Deutsche Bank - Analyst [23]
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And then, to have you compare DBS to DirecTV to Charter, satellite TV versus (multiple speakers)-- sorry about that. I feel like the [Siri] (inaudible).
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Greg Maffei, Liberty Interactive Corp - President and CEO [24]
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Well, it's just difference in the cycle. I'm blessed to be three or four years away from DirecTV, so I'm not going to -- I still hold some shares personally, but I don't have nearly the insight in DirecTV that I had at one time compared to Charter.
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Doug Mitchelson, Deutsche Bank - Analyst [25]
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Is there a vision at Liberty around the future of television that you've got, QVC, Starz, Charter? You've got different stakes and different aspects of the US television business one way or the other, sort of a vision of what it's going to be in five years?
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Greg Maffei, Liberty Interactive Corp - President and CEO [26]
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No. I think I -- we wouldn't claim to have the pure "Alice in the looking glass" view. I think there's a lot of turmoil that's going to happen, like Wonderland, but I think there -- fundamentally, there are -- an asset like Charter is attractive because of multiple ways it supplies and touches the customer, and that pipe is worth a lot. And I think many of you might have heard today Tom Rutledge's plans and the success -- he's moving to an all-digital network and taking advantage of a relatively less competitive environment, so we're -- still remain enthusiastic about that.
And then, many of the content or transaction companies we have, like Starz or QVC, have shown a good ability to [molt] and change in the environment. If you look back at QVC, you had a world where it really only succeeded initially in the analog television world of 35 channels, everybody was desperately afraid, and without -- with some fair reason that a world of digital channels, 500 channels, was going to kill DirecTV. It's adjusted to that. And the Internet was going to kill TV. It's adjusted to that.
So, I think you need to believe that managements can find a way to take advantage of the opportunities that new technologies present and try and minimize the damage from those new technologies.
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Doug Mitchelson, Deutsche Bank - Analyst [27]
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The -- you know--.
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Greg Maffei, Liberty Interactive Corp - President and CEO [28]
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--But, I mean, I just -- just to finish the one last point, we have at certain times recognized there are people who are just fundamentally challenged by the new technologies, and I point to the example of on-command. I mean, we got out of that business because we were fundamentally of the belief that in-room hotel was going to be a very tough space in an Internet era where you had, frankly, cheaper, harder adult entertainment and many other choices -- of choice that were going to undermine that business, and it's very difficult to restart and redo, and that's why we got out. Not every business can adapt, but many can, and that's our goal, is to stay and invest in the ones that can.
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Doug Mitchelson, Deutsche Bank - Analyst [29]
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So, walking through some of the assets at Liberty Media, you have Charter, you seemed to have Time Warner Cable right where you wanted them. What happened?
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Greg Maffei, Liberty Interactive Corp - President and CEO [30]
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Well, I think we always recognized that there was -- whether Comcast entered or Comcast just sat on the sidelines, the fact that they were as large as they were, sat on the sidelines and held themselves (inaudible) as a potential alternative, that was the thing that probably most threatened our ability to move on Time Warner. I think the fact is, from the beginning, people were probably very surprised that we could achieve what we did in terms of getting Time Warner to sell, they being considerably larger than Charter. So, in one sense, half the goal was accomplished in the fact that Time Warner felt the need to sell, and thank you to the many people in this room who were enthusiastic about the idea of them selling to us.
But, we'll see where that goes. I think, if you want to take the -- what's happened there, the cable industry has been re-rated, to a degree. Charter stock is higher than it was when this began. Comcast stock is higher than this was when it began. Time Warner's stock is obviously much higher than it was. And I think we've helped unlock some of the value. On a more permanent basis, you're going to see change in the cable industry, whether it's through Comcast disposition of three million subs or perhaps more, whether it's because people in response to that decide they need to merge up and come together, or whether it's because Comcast at some point down the road decides that the cost of completing this deal is too high because of whatever strictures the government and others put on them. Change is coming, and that change is probably not a bad thing for Charter at the end of the day.
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Doug Mitchelson, Deutsche Bank - Analyst [31]
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You used some terminology on the last -- fourth quarter conference call. Tom has used it, and did again today, something about keeping all options open. And you sort of referenced it a little bit right now. But, when you think about sort of the Comcast-Time Warner Cable deal, one thought would be is if Charter causes any trouble, deal gets through, might impact their ability to win any of the divestitures. Any sort of thoughts on this dynamic?
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Greg Maffei, Liberty Interactive Corp - President and CEO [32]
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Comcast has a lot of levers, and you obviously need to recognize that, and that they are the kingpins of the industry. That's the fact. On the other hand, the deal trading significantly below the nameplate price, Time Warner stock is trading significantly even below that in price. And I've said before, it's a highly cynical deal. There's no break-up fee. Both parties found it attractive to cut a deal with 158.82 as the nameplate price, but whatever value is actually delivered, we'll see. There's a long way between here and there, and I -- Brian or Mike Angelakis was in the room, I'd say the exact same thing, right? They have optionality.
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Doug Mitchelson, Deutsche Bank - Analyst [33]
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And again, sort of another question that I'm not sure which way you'll take this, but the -- well, not in a bad way, but just--.
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Greg Maffei, Liberty Interactive Corp - President and CEO [34]
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--I'll try and keep my thick skin on.
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Doug Mitchelson, Deutsche Bank - Analyst [35]
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No, I mean more in just a -- you know I hate asking questions that I know you can't answer, but in terms of keeping all options open, how long can you remain flexible with your financing? How long can that persist?
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Greg Maffei, Liberty Interactive Corp - President and CEO [36]
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I think we're blessed that it's a financing market that doesn't go away. And as I said, we had many people approach us about either providing equity capital or other forms of capital to help us pursue the -- any kind of a combination, and I -- long as the environment remains relatively benign, that's likely to continue.
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Doug Mitchelson, Deutsche Bank - Analyst [37]
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Was the interest that you found from third parties to sort of help finance innovative structure something that can be applied to other deals, or do you think it was really sort of specific to this particular case?
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Greg Maffei, Liberty Interactive Corp - President and CEO [38]
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No, I think it's a function of a couple things, first is I'd like to believe confidence in Tom Rutledge and his operating team, some confidence in Liberty's choice, as if we thought it was an attractive investment, others might want to follow. I hope that's the case. But, I also think it's -- we are living in a time when media, subject to whatever the government allows, there's a heck of a lot of value through consolidation, whether that's on the distribution side or on the content side, or the quasi-content side if you take a -- these cable networks. I think there's a lot of value to potentially be creative through those synergies, and I think that investors see that, as well.
I mean, it's been pointed out, I'm sure you've noticed it, you're in an environment where the acquirer's stock is going up all the time now, not just the acquiree stock. And the function of people believing, whether it's the environment or whether they believe in the thesis, in general the consolidation thesis is working.
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Doug Mitchelson, Deutsche Bank - Analyst [39]
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So, that leads me to my last Charter question, which is how attractive is your investment in Charter now compared to when you first made the investment in May of 2013?
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Greg Maffei, Liberty Interactive Corp - President and CEO [40]
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Well, I mean, we invested at $95.50. The stock was something, I don't know, $129 today, so in that sense it's moved nicely. And I think we -- I talked about, I think some value, investors have re-rated the cable sector. They've re-rated other businesses, as well. But I think, fundamentally, cable's looked upon more favorably than it was perhaps a year ago, or 10 months ago when we closed.
The fundamental thesis that we thought was that under-invested network that was -- had the opportunity to go all digital, that the capital required to do that was a far more effective use of capital today than it had been historically, for a bunch of reasons why, Moore's law and other things have driven the cost of those upgrades down, that there was a great operating team, not only Tom but John Bickham and others in that team were very strong, had done it before, could do it again, and they're in the process now of doing it again. It had an attractive capital structure with high leverage but that was tranched out nicely so there was not a huge amount of refi risk.
And frankly, lastly, a big NOL and an opportunity for us to invest at a modest premium and get, if not control, a fair amount of influence, four of 10 Board seats, two Board members in the form of the Chairman and CEO, with whom we were quite simpatico and like-minded. So, all those theses remain the same. Acquisitions were the icing on the cake, and they may still be in the future, but I think the fundamental investment thesis is proving true, and I'm looking at how the operating results are coming. [I] remain convinced of it.
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Doug Mitchelson, Deutsche Bank - Analyst [41]
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So, [Siri's] at 26 million subs, give or take, up 7% year-over-year, 1.7 million. How big can the market for that company get?
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Greg Maffei, Liberty Interactive Corp - President and CEO [42]
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I think if we -- you can come up with all sort of analogies. We'll see. How big is the market for pay television? There are a lot of free alternatives out there. Nonetheless, pay television grew to that. We'll see whether Siri has that kind of leverage. Frankly, part of it is, is how much do you want to price -- take price increases and take cash flow growth versus sub growth. I think there are a lot of things that get weighted in there, but there's a lot of room left to run.
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Doug Mitchelson, Deutsche Bank - Analyst [43]
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So, if you say nice things about Siri, Siri goes up in value. But, if you say bad things, Liberty Media goes down in value. This whole circular reference era that comes with the deal--.
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Greg Maffei, Liberty Interactive Corp - President and CEO [44]
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--Liberty Media never knows whether we want a stock to go up or down. If it goes down, we're buying more. If it goes up, we're happy. I don't know.
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Doug Mitchelson, Deutsche Bank - Analyst [45]
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So, you were selling into the Siri buyback, and now you've talked about buying Siri in.
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Greg Maffei, Liberty Interactive Corp - President and CEO [46]
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A little different.
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Doug Mitchelson, Deutsche Bank - Analyst [47]
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Little bit of a--.
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Greg Maffei, Liberty Interactive Corp - President and CEO [48]
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--Little bit of -- no, not quite a complete straight analogy, apples and oranges a little bit.
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Doug Mitchelson, Deutsche Bank - Analyst [49]
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Right. Well, I tell you what, first, can you just sort of walk us through the change, and then I'll follow up?
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Greg Maffei, Liberty Interactive Corp - President and CEO [50]
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Well, I think we invested a bunch of capital to buy the last 11%. Part of our strategy was to try and clean our own balance sheet up to do that. We also had other financing needs to go after when we bought Charter. Part of it was cleaning up our own balance sheet. We did that in part through some of the early money, through -- and we also did a big share repurchase of some stock from Comcast. All those put more stress on the Liberty balance sheet. We cleaned part of that up from money from Siri. We cleaned part of it up from doing a little bit of convert. And we looked and said, well, wait a minute, this is really going the wrong way. The larger question is, what do we want to do with that cash flow? What is the right thing to do with that cash flow at Siri, and how do we create maximum flexibility for Siri shareholders and the Liberty shareholders? And I think that fundamentally through the fall, that changed our mindset.
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Doug Mitchelson, Deutsche Bank - Analyst [51]
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How do you figure out the right pricing between the two stocks, given Liberty -- the majority of the value comes from Siri, Siri's obviously Siri?
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Greg Maffei, Liberty Interactive Corp - President and CEO [52]
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[And then] there's a special committee that gets that job.
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Doug Mitchelson, Deutsche Bank - Analyst [53]
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Is there, I don't know, any math that you can walk Liberty shareholders through? When we think about paying a premium to bring in Siri, the value of bringing in Siri is access to that cash flow, I guess greater control, even though you already have control.
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Greg Maffei, Liberty Interactive Corp - President and CEO [54]
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Yes. I don't think the control, to your point, is a big thing. It's access to the cash flow. To some degree, it's simplifying. There is a reduction in tax drag today. We have access to that cash flow, but there is a tax cost. Effectively, any capital that, again, comes out of Siri to Liberty gets treated as a dividend, so we -- even with -- we have a dividends received exclusion or deduction, but nonetheless, there's still some leakage. So, there is a reduction in that.
If we went out and sought financing from other places, there'd be some leakage. So, you weigh some of those things. But, it's not a -- to your point, it's not an infinite cost. We could find other sources of capital, and we control the business already. There's a little bit of a -- I think a false idea out there that, oh my gosh, if this deal goes through, Liberty will stop buying back the stock. Siri will stop buying back its stock. There's a sort of perfect momentum machine that's going on.
[Lent] -- I mean, there are two falsehoods to that idea. One falsehood, as I think I pointed out already, Liberty's already bought back a lot of its own stock, and there's no reason to think we won't at various times, if we find it attractive, repurchase stock at the Liberty. And two, we control the cash flow of Siri. And if we don't think share repurchase is the right strategy for Siri, it's not going to buy back stock. So, that -- they're orthogonal questions about whether we're owning 52% or 100%. Control is control. It's already there.
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Doug Mitchelson, Deutsche Bank - Analyst [55]
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Any other opportunities for Siri to apply capital other than to buy back stock?
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Greg Maffei, Liberty Interactive Corp - President and CEO [56]
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I think there are. I mean, you've seen an acquisition of Agero. I think there are other acquisition potentials out there that may be necessary, both to protect the franchise and, more importantly, to grow the franchise. This is a domestic franchise. It's a car-oriented franchise. There are other places that I think are opportunities for Siri, which are attractive, and it has to weigh those.
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Doug Mitchelson, Deutsche Bank - Analyst [57]
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No international?
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Greg Maffei, Liberty Interactive Corp - President and CEO [58]
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Well, we have limited today. We're up in Canada, and we have relationships with the OEMs that push us to do more international. But, we don't have birds sitting over Europe. We don't have birds in Brazil. So, we need a different strategy in some of those markets.
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Doug Mitchelson, Deutsche Bank - Analyst [59]
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So, switching to Live Nation, are there other ways Liberty can help Live Nation? And how do you feel about your ownership stake, and is your sort of control versus ownership stake at the optimal level?
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Greg Maffei, Liberty Interactive Corp - President and CEO [60]
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(Inaudible) a little different there. Unlike Siri, where we had negotiated the freedom to buy our way into card control at the time we did the original deal back in '09, Siri, we -- because of a function of a prior deal with IEC and the like, we're captive 35%. We could offer to go higher, but it's a little different situation.
At various times probably during the last year or before, we were interested in probably going higher. We did -- as you may recall, we bought our way from about 14% to 27% on a very attractive basis. That's worked out very nicely. Other times, when we wanted to go higher, they had a bunch of litigation or an arbitration, rather, with CTS that sat over our heads, and every time we wanted to buy more or less there, we were conflicted because there was the potential for inside information. So, that froze us in a lot of cases.
Obviously we've been very happy. I think our average cost on the incremental capital invested is something like 10, and the stock's 22, 23. It's worked out very nicely. And more importantly, I feel very good about what Michael Rapino and his team are doing and where they're headed, good growth, increasing EBITDA faster than revenue and increasing cash flow [yet] faster, and lots of places where they're extending the franchise. So, I feel pretty good about it.
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Doug Mitchelson, Deutsche Bank - Analyst [61]
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Do you think now that sort of operational execution and the capital investment plan is pretty far along, there's some visibility, they should start leaning into M&A more aggressively?
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Greg Maffei, Liberty Interactive Corp - President and CEO [62]
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Well, I think you've seen them do a few pieces of that, right? They bought 51% of an EDM company, Insomniac. They'd bought some -- they've done some other things they folded in. They bought a management company that related to [U2]. They've done some tack-ons, but not any huge ones. And I think they weigh cleaning up the balance sheet, share repurchase and some of those strategic acquisitions.
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Doug Mitchelson, Deutsche Bank - Analyst [63]
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So, before we turn to LINTA, anything else at Liberty? We've got Barnes & Noble.
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Greg Maffei, Liberty Interactive Corp - President and CEO [64]
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The Braves?
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Doug Mitchelson, Deutsche Bank - Analyst [65]
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We've got tax asset. We always need to talk about the Braves. You have a [lawsuit] with--.
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Greg Maffei, Liberty Interactive Corp - President and CEO [66]
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--Yes. The Braves have been actually a nice -- not only just were they part of a tax-oriented transaction with Time Warner, but the reality is two big upticks, a recut TV deal for a bunch of reasons, and a new stadium. Both are very helpful and increasing value for the Braves.
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Doug Mitchelson, Deutsche Bank - Analyst [67]
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What are the Braves worth?
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Greg Maffei, Liberty Interactive Corp - President and CEO [68]
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You have to read what analysts write. What do you say, Doug?
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Doug Mitchelson, Deutsche Bank - Analyst [69]
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I think it's worth whatever a really rich guy will pay for it.
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Greg Maffei, Liberty Interactive Corp - President and CEO [70]
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We're hope -- somewhere I'm sure that'll happen. What have you got it listed in your NAV for us?
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Doug Mitchelson, Deutsche Bank - Analyst [71]
------------------------------
I think we're up somewhere around 650.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [72]
------------------------------
Oh, that's way light. No, seriously, honestly.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [73]
------------------------------
Thanks for the help.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [74]
------------------------------
That is way light.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [75]
------------------------------
Thanks for the help, really appreciate it. So, the--.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [76]
------------------------------
--If you've got another Braves to sell me at 650, I'll buy them, let's put it that way.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [77]
------------------------------
How many? So, Barnes & Noble, the venue lawsuit, any tax assets, anything else we're missing?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [78]
------------------------------
Barnes & Noble stock is up nicely, 21-something today, and looks like the Nook losses are contained. Retail remains better than most people had forecast. We'll see.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [79]
------------------------------
LINTA, so what's the greatest source value creation at LINTA, do you think, from here?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [80]
------------------------------
Well, it's got to be QVC, just because QVC is so much larger. QVC is 93% or something of the EBITDA, 94%, something like that, of the EBITDA of LINTA, hard not to be the big driver.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [81]
------------------------------
I mean, what particular at QVC do you think will drive the most value?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [82]
------------------------------
Well, I think we've got nice tack-ons, things like China is kind of an off-balance sheet option that's growing nicely that could be valuable over time. The US remains solid. Frankly, probably if you look over the next year or two, the thing that would create the most value is fixing Japan and Germany. Those are probably the source of the biggest upside.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [83]
------------------------------
Does that happen naturally as sort of -- well, I think, in the case of Germany--.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [84]
------------------------------
--Germany, we changed out management. We've had the gentleman who runs QVC Europe move two-thirds or three-quarters of his time to Germany to try and help turn it around. I don't think it's necessarily a quick fix, but that's -- it's a large business with -- that has clearly been underperforming for a while.
Japan, a bunch of factors there, some of which are outside of our control, a reduction in TV time related to regulatory issues, some factors like that. I think some things we can do to make it better, but Japan has been a fast grower for a long time and has really slowed. That's hurt us. But, those are probably the biggest near-term sources of change. I don't think the US is going to have a massive movement up or down. I mean, it's going to sort of continue, I suspect, on the same path.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [85]
------------------------------
Do you hold back from anything else internationally until you feel better about Germany and Japan, or are those sort of isolated, you're on the case, and it's an individual decision whether you go into a new market?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [86]
------------------------------
I think you -- when you're presented with the opportunity for these new markets, we've got to take it if we find an attractive situation. It's really dependent on finding the right amount of distribution, TV household distribution, the right situation, often with a local partner to get that. So, I think we've talked about in the past, we've -- at various times we were very close on Spain.
And Spain looks very tough as an economy but it was a relatively low-cost entry that was proposed. And you're not going to get a chance to buy into the TV distribution when an economy's booming. The fact that the economy is in trouble is when people are wanting to sell you that, and you make the bet. And these bets are $150 million, $200 million kind of bets over several years. They're not billion of dollar bets.
And I think, if you want to tack on growth, that's what we need to do, with [the] cautionary tale is, Italy has probably had the most aggressive business plan of any new startup we had, or a new country we had, and it's performed okay, not nearly to the level we first hoped or thought. And I think we've learned from that, and the way we've looked at Spain or at France or Brazil is a much more asset-light strategy with less capital investment.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [87]
------------------------------
So, as you expand in Europe, I mean, isn't there a crossover point where it just makes sense to blanket the entire area just for distribution reasons, physical distribution?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [88]
------------------------------
Each one of those countries -- first of all, our ability to manage them is not on a pan-European basis. It's a country-by-country basis. Each of those countries has different situations in terms of our ability to get distribution, TV household distribution. So, you really -- you wish you could just say we're going to be a pan-European country. That is not how it works -- or European company, excuse me.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [89]
------------------------------
We're always trying to put QVC in a box of one sort or another, and it doesn't quite fit in any. But, I'd just sort of ask the question this way. I mean, is it an e-commerce company, or just a very nimble traditional retailer that's taking advantage of every channel that's out there?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [90]
------------------------------
Oh, no, I think it's an e-commerce company that has the benefit of having an enormous media arm that is almost unprecedented. It's got a 24-hour in the United States and approaching 24 hours in most of the other countries, promotion vehicle that is relatively low cost. It allows it to differentiate itself, and its strategy of providing both differentiated access to the customer and exposure to the products through the TV and its assortment, which is -- lends itself to more explanation, closer attachment to the customer, a curation factor, all those have led it to have margins which are higher than the average retailer and remain durable. So, yes, I think it's a very -- it's got a durable franchise that it protects in a very interesting way, and yet it's been able to adapt to changes in the environment.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [91]
------------------------------
Is there anything else in the numbers? I mean, not expecting you would -- do you have staff certainly at your fingertips, but whether it's customer growth, retention, revenue per customer, business mix, margin, is there anything in particular that you're seeing in the QVC business that you think needs some work or that you're particularly encouraged by?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [92]
------------------------------
The thing that I remain the most encouraged by, and it's not totally new but it's been a positive trend that continues on, is not only how much of it's Internet, here about 44% in the United States, but how much of it's mobile. Over a third of that's mobile. And if you look at what are traditional retailers who are not born in the Internet era, or who were not created as Internet startups, I think you'd be hard-pressed to find anybody who had those kind of stats who've been able to [molt] their business.
And think about who the customers are, primarily middle income, upper middle income women, 90%, 95% women. We're not talking about Android tech-nerds. We're talking about mainstream America who has adapted, and we, as they've moved to SmartPhones, as they've moved to tablets, we've been not only with them, but in many cases in front of them and pushing them and helping them on that. It's been very successful, and I give a lot of credit to the management team for being out in front of that trend.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [93]
------------------------------
What are the e-commerce companies worth?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [94]
------------------------------
What do you have them at?
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [95]
------------------------------
It's just -- they're so valuable.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [96]
------------------------------
They're so what?
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [97]
------------------------------
I said they're so valuable. It's just hard to put a price on them.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [98]
------------------------------
Well, you did a good job on the Braves, kind of.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [99]
------------------------------
That's why I'm looking for more help on this one.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [100]
------------------------------
What do you have for that?
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [101]
------------------------------
You know, it's -- what's the cash flow now? You know I don't cover LINTA directly, right? So--.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [102]
------------------------------
--So I have to educate you? Okay, no.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [103]
------------------------------
Take any help we can get.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [104]
------------------------------
Oh. Look, they've had some disappointment, certainly to us, over the last 18 months. After a long growth cycle, they've slowed down. If you take a multiple of revenue, they're worth many billions. If you take the EBITDA and look at it inside of how -- the EBITDA was probably just over $100 million last year, and if you look at the inside of LINTA, that says they're under $1 billion, or about $1 billion. I suspect that, as we get out there with a tracker, it'll be somewhere between those two numbers.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [105]
------------------------------
So, a year ago when you were here, you were talking about Trip, and there was going to be explosion in traffic, and followed by great monetization. I think the stock was in the 30s, Lloyd's telling me, and now $108, give or take. So, how--.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [106]
------------------------------
--So, I get credit for that one?
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [107]
------------------------------
Well, this is a forward-looking (inaudible). So, what's next for Trip? How do you feel about the -- how do you [place about] the value now?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [108]
------------------------------
Well, I mean, Trip is -- let's start with the -- I don't have -- your job to write about value even if it's off the few times than the Braves, or whatever. The -- all kidding aside, look, it's an amazing asset. The number that blows my mind, which Steve Kaufer quotes regularly, is in July they had 260 million unique visitors.
Now, it's a little misleading, and I'll stipulate that, if you came on an iPad and a SmartPhone and a PC, you might be three, but not that many people use all three devices to come to that site. But, it's still hundreds of million unique people in a month. It's really a massive site, and with a ton of growth continuing not only on hotel traffic, which they monetize well and have the opportunity to monetize better, but in restaurants and flight, which they monetize very poorly, or on activities, which they monetize very poorly. And it [creates] -- not to say it isn't valuable and that user-generated content helps create an aura around the site and an authenticity and a uniqueness and strength around the site, but it does not -- it's not currently monetized.
So, there's lots of ways you can look to see that growth continue, and I think it's a testimony to the fact that they -- the user-generated content is so deep and so rich that it's been able to, even as it's molted to this [meta] -- through this meta-transition, continue to grow the business, and now move from -- and you'll hear -- I saw Julie Campbell -- Julie's on tomorrow. She'll be more articulate than I will, but the CFO -- but how their ability to go from net of negative to net of neutral to net of positive in terms of incremental revenue on the site, it's going to be very -- it's a great story.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [109]
------------------------------
So, let's switch to Starz, the last couple questions, then we should have time for a couple from the audience. On Starz, I mean, I think the big sort of long-term question everybody struggles with is, when the Disney movie content goes away, will the original TV content sort of be sufficient to sustain the value of the Starz service. Where do you come out on that as you sort of look at your long-term plans?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [110]
------------------------------
Obviously we are believers in the original content story. I think, if you look at what's happening in a lot of television, not just in the premiums, the push on originals is very large, and for a good reason. Consumers want it. And there's a multiplicity of places to get movies. If anything, movies are being commoditized after the first window, certainly, but arguably even into the first window, or nearly right up to the first window between it -- whether it be Netflix or Red Box or a lot of other things.
On the other hand, originals in general are being valued more highly, and sought after, and binge viewing is not about movies. Binge viewing's about lots of great originals. So, I think we're enthused about this is the right strategy, and I think our -- not only our end users in terms of viewers, but even our customers -- direct customers, the cable companies, the satellite companies, and then Telcos agree that that investment's a wise investment.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [111]
------------------------------
I don't know if you've had a chance to look at sort of the Disney personal subscription service that they sort of started with Dish. That [in theory] will be available to everybody, single stream, IP, Internet over the top, pay service, they're hoping will serve cord-cutters but not cannibalize traditional pay. So, that's the theory. Is that something that you think Starz would find interesting? I mean, it's obviously sort of an ala carte question away for Starz, but would they be willing to start to retail online or [join a] bundle for other providers online?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [112]
------------------------------
Look, I think you've got to do it in a way where you have a traditional distribution arm, which has been the vast, vast majority of our revenue, and you need to do it in a way where you're simpatico with them, and they look at it as a positive. Could you imagine more attempts by cable companies or satellite companies to sell this product direct? Absolutely. And so, as long as you're doing it in a way where you're not undermining the pricing of the -- where it's in the bundle and you're maintaining a minimum amount of channel conflict, absolutely you'd (inaudible).
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [113]
------------------------------
So, you and Dr. Malone have been talking a lot about the need for the cable industry to consolidate and the benefits of that. At what point would consolidation make you on the Starz side say, "Oh, those guys have a lot of power, I have to start thinking about my Starz business?"
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [114]
------------------------------
I think we already are in that place. But, Starz proposition's a little different than the average cable company -- excuse me, an average cable network, rather, in the sense that it's not being a part of basic, it's a consignment business primarily, which we're aligned with those distributors trying to sell product and trying to split the revenue from that. And so, it's a little different model. That's not to say big guys don't cut bigger rates. But, in general, we're trying to be their partner in selling more of it.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [115]
------------------------------
Any questions from the audience? Can you wait for the microphone, please?
------------------------------
Unidentified Participant [116]
------------------------------
Hi. I just wanted to know if you could try and re-answer the Siri question. So--.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [117]
------------------------------
--What, you didn't like my first one?
------------------------------
Unidentified Participant [118]
------------------------------
I guess I'm still puzzled, or trying to understand the circular issue.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [119]
------------------------------
The circular issue in what sense?
------------------------------
Unidentified Participant [120]
------------------------------
Well, that you're being diluted as a Siri shareholder into another entity that owns other assets, and then if Liberty pays more, then Liberty's worth less, so the asset that I'm getting is worth less. So, if you increase the price to Siri 10% with Liberty stock, it's--.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [121]
------------------------------
--Yes. Let me start out with how -- in what sense are you being diluted, in the sense that you're no longer a Siri pure play? I'll stipulate to that, but there's fair value in those assets. You're not being diluted and asked to take assets that are undermined, or under-value -- or not valuable. In fact, in some cases, we could look and say -- and that Liberty's trading at a discount, so you're getting a premium on top of a premium, a premium against the nameplate price when we named it, and then a premium because the NAV is actually higher than the stock price. So, I'm not sure I accept the dilution idea, right?
------------------------------
Unidentified Participant [122]
------------------------------
So, I liked Siri as it was, so -- but that might just be me. But, the question is, is there room for a different solution where there is cash added to the value?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [123]
------------------------------
Well, we'll see what the negotiations and the deliberations with the special committee and their advisors brings. It's not unusual that these things get a bump or a change. In fact, it's pretty much the required usual, and we'll see what that brings. But, I'll stipulate to your point, we are mindful that we trade at NAV. Why would we pay a big premium? And if this deal doesn't get done, we're still in control of Siri. That's not going to change. We own 52%. I'm Chairman up there, as Doug was quick to point out a few times, and I think we have a good relationship with the Siri management that's going to go forward regardless.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [124]
------------------------------
Any more questions?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [125]
------------------------------
It's a active table.
------------------------------
Unidentified Participant [126]
------------------------------
Greg, can you talk about the M&A opportunity within Cable away from Time Warner Cable? So, within the 250,000 subs to million-sub market, how active is that? What could be a two-year goal in terms of Charter rolling up those smaller cable [subs]? And then, also talk about what seller expectations are for valuations in that space.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [127]
------------------------------
Yes, I think there's a great potential. These things, they're -- the world is pretty easy to measure, right? There's a guy at 20-something, there's a guy at 11-something, there's a guy at 12, 11, but dropping fast between 11 and 12. There's three people at the 3.5 to 4.5 range, and then you start to get to the guys who are all a million, and then it's a big drop. I mean, there's -- but there are a lot of companies out there at the -- below the million, half a million, 250,000, as you point out. I think there are a lot of those guys, and that some amount of turn is not -- would not be unexpected. And they really see a benefit of rolling into a larger guy and getting some of the benefits.
Just as we saw upside and synergies into a larger company from their perspective, a guy with 4.5 million subs is a much larger company with a lot -- series of contracts. So, I think that's quite possible to be quite active.
Second part of the question?
------------------------------
Unidentified Participant [128]
------------------------------
(Inaudible - microphone inaccessible.)
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [129]
------------------------------
Yes, multiples. I think I mentioned that. I forgot, because I was trying to forget. The negative of re-rating and helping the cable go up is, guess what, all those guys can read the same tables about how multiples -- the sellers can read the same tables about multiples going up, too. So, I'm sure that'll be the tension.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [130]
------------------------------
Well, as you said before, your entire career has been getting cable stocks higher, right?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [131]
------------------------------
For me (inaudible).
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [132]
------------------------------
Back to the Microsoft days. Anyone else in the audience? Yes, in the back?
------------------------------
Unidentified Participant [133]
------------------------------
Hi, Greg. Just wanted to know your option about the EDM business, how you see it evolving. Are you guys going to be involved, and kind of your view of the future?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [134]
------------------------------
Well, EDM, Electronic Dance Music, for those of you who are not as up on the stuff or don't have kids in that age, is an enormous trend, and it's a very attractive trend because the cost of putting on the performance can be very low relative to having a traditional band. So, there's a lot of leverage in it for the promoter. We are deep into EDM. There are other companies out there which are also in EDM. I don't think anyone's bigger than us, though there's a fair amount of hyperbole about who's what. It's obviously -- while it's gotten some negative press for the kind of events that EDM has been, it's a very attractive part of the business. It's one that Live Nation's committed to, and one that Live Nation's performing very well in.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [135]
------------------------------
Anyone else? Well, I guess my last question would be what the Braves are worth, but I'm not going to get an answer on that one, so -- how about a billion, if we could (inaudible)?
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [136]
------------------------------
That's a good number.
------------------------------
Doug Mitchelson, Deutsche Bank - Analyst [137]
------------------------------
That's good. Thank you very much.
------------------------------
Greg Maffei, Liberty Interactive Corp - President and CEO [138]
------------------------------
Thank you very much. Have a good conference. Thanks, Doug.
------------------------------
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