Liberty Media Corp Investor Day
Nov 19, 2014 AM EST
FWONA - Liberty Media Corp
Liberty Media Corp Investor Day
Nov 19, 2014 / 05:30PM GMT
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Corporate Participants
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* Chris Shean
Liberty Media Corporation - SVP and CFO
* Courtnee Ulrich
Liberty Media Corporation - VP of IR
* Greg Maffei
Liberty Media Corporation - President and CEO
* Jim Meyer
SiriusXM - CEO
* John Malone
Liberty Media Corporation - Chairman
* Michael Rapino
Live Nation Entertainment - President and CEO
* Tom Rutledge
Charter Communications - CEO
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Conference Call Participants
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* Jeff Wlodarczak
Pivotal Research Group - Analyst
* Rich Greenfield
BTIG - Analyst
* Vijay Jayant
ISI Group - Analyst
* Tuna Amobi
S&P Capital IQ - Analyst
* Craig Moffett
MoffettNathanson - Analyst
* Ben Swinburne
Morgan Stanley - Analyst
* Barton Crockett
FBR Capital Markets & Co. - Analyst
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Presentation
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Operator [1]
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This presentation include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potential, future financial performance, new service and product launches, and other matters that are not historical facts.
These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These forward-looking statements speak only as of the date of this presentation and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any such statements to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based.
Please refer to our publicly filed documents, including the most recent Forms 10-Q and 10-K, for additional information. At today's meeting, we will discuss certain non-GAAP financial measures, including adjusted OIBDA and adjusted OIBDA margin.
Please refer to the appendix at the end of this presentation for definitions and applicable GAAP reconciliations. The appendix will be available on our website throughout this meeting.
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Courtnee Ulrich, Liberty Media Corporation - VP of IR [2]
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Good afternoon. Welcome. I am Courtnee Ulrich, VP of Investor Relations. This afternoon, we are going to be talking about Liberty Media and our newest stock, Liberty Broadband.
A couple things I just wanted to talk about first, though. So as you noticed when you walked in, you probably saw David Faber in CNBC. And he has been doing interviews live today.
He also taped an interview with John this morning that will air tomorrow. Michael Rapino will be on air tomorrow. And if you want a wrap-up of the day, Greg will be on a little after 3 o'clock today. So make sure you catch that.
We do have the experience downstairs. That is going to close down at 1:30. But that's okay, because you are all here, anyway, watching the presentations. That is also when you can get the gift bag until.
We do have a lot of specials running for the weekend. And we have a website -- there is a QR code. It is libertyexperience.com. So check that out. If you are thinking about next year, we are planning to hold this meeting November 12 of next year.
And with that, I will introduce Greg Maffei, Liberty's President and CEO.
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Greg Maffei, Liberty Media Corporation - President and CEO [3]
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Well, thank you for joining us this afternoon to talk about Liberty Media. For some of you who were here this morning as well, I know it's a long day. Hopefully, we fed you well and the goody bag was deep.
Some of you I know are disappointed. We had no meaningful, strong press release this morning, like last year. But I would like to remind you that we have done a few things in the last year to keep busy.
We increased our ownership stakes in Sirius, Live, and Charter. We completed the spinoff of Charter most recently with our stake into Liberty Broadband. We settled, earlier in the year, our previously contracted sale back to Sirius of a group of their shares.
We monetized the bulk of our investment in Barnes & Noble at a nice profit, with about a just under a 15% after-tax IRR. We continue to move forward with the Braves stadium that you saw in Cobb County that was discussed. It'll be open it in 2017.
We created flexibility at Liberty Media by distributing a new class of nonvoting C shares. And a year ago today, we upsized a convertible offering that priced while we were all here.
Why do we do those C shares? We are sometimes constrained by our financial vehicles and the things that we are, so we built this in as a way to do more acquisitions, more capital raising, and with more flexibility. They have created incremental liquidity, in our judgment, in the shares of themselves, and they are trading at quite a tight premium, versus the As.
And since we have spun Liberty Broadband, that has even tightened further and reduced the discount to NAV. You will see some numbers from Chris Shean in a bit about that.
Looking first at Sirius -- and you will get much more details in probably a much more interesting manner from Jim Meyer -- Sirius had a great year. Revenue up 10% year to date, driven by a nice SAAR growth in the United States; a strong, continued new car conversion; an increase in our US car network to 14,000; leading to a record $1.25 million self-pay new net adds, better than we might have forecast back in January. And quite strong.
Adjusted EBITDA up almost 30% year to date on increased revenue, leverage on and decline in subscriber acquisition costs, and leverage on many other costs in. And you will see some numbers from Jim about the how the margin has grown and where we -- how excited we are about that.
Sirius has also been aggressively returning capital. Its buybacks have increased our ownership to about 57.5%. The Sirius Board increased its authorization by $2 billion in July, and year to date has bought back over $2 billion as well.
Finally, at Sirius, on the capital structure side, we continue to optimize that, extending at lower costs the debt and still have remaining leverage capacity there against our stated target of 4 times.
Why do we at Liberty like SIRI and why do we still think there is much room to grow and create value? First, Sirius is a truly appealing product to the consumer. It has ease-of-use, being in the car, simple to use, and working well seamlessly.
It has exclusive content and commercial free music, curated in many categories that interests our customers, whether it be Howard Stern, or whether it be MLB, or whether it be CNBC -- Faber out there. Give him a nod. Or the EDM channel, or the Jazz channel, something for everybody.
It has a credibly valuable in-car real estate and strong relationships with the car companies. We have unique satellite and spectrum assets. The subscription model we have allows consistency and allows us to put financial leverage on, something Liberty always appreciates.
And we have revenue growth on a fixed-cost base, which has given us margin expansion. All of those conditions remain the same. All those conditions are attractive to us going forward.
Some of the opportunities -- the connected car, and you will hear more about this as well. All new cars will be connected in the future and we are developing a position of providing incremental services to them, not only through our own efforts, but through -- accelerated by the Agero acquisition to provide security, safety, a platform, for many of the new services. And we think a real revenue opportunity for us, and we have had some valuable wins in that space and expect more.
Streaming -- streaming is both a threat and an opportunity. There are clearly streaming companies out there, which dream to develop the position we have. And they are probably stronger outside the United States and stronger off the car.
Fortunately, our position in the car and in the United States remains the most valuable position to be in from a revenue and cash flow perspective.
We worry about streamers. I worry about streamers and what they could do to our model. And I am far from convinced that it's an enormous opportunity. It may be something we need to do to provide incremental services to our customer.
But I am far from convinced they have great business models. And I am much more worried about differentiating and continuing the advantages we have in our model and continuing the appeal of our product.
Finally, we have an installed base of unsubscribed vehicles that is going to grow. You can do the math -- if we are in 70% of cars and then how many convert. You keep continuing to see new cars on the road that are either previously were subscribers or in many cases, never were subscribers. And there is an enormous opportunity for us to go out and do something clever with those cars.
Live Nation. You will hear more from Michael Rapino in a minute as well. Record year. Strong growth on all metrics, financial. On track to hit its 2015 target. Several targets.
This Company has been renewed over the last several years. Michael, he talks about the Soviet area technology they had. They now have leading-edge technology, both in the backend for the venues and for the consumers. And you will see some demonstrations of that today.
That has enabled them to become a top 10 global eCommerce site. It enables them to improve the customer experience and drive incremental revenue, both for the benefit of the venue, for the benefit of the artist, and for the benefit of Live.
That technology upgrade also gives us a whole bunch of information that allows us to target customers better, allows us to provide better value for all of our artists and for all of our revenues.
Digital monetization of content has just begun. We have enormous amount of streamed, live content. We have begun to monetize that through a partnership with Yahoo!. And you have most recently announced a joint venture with Vice that is going to be a multiplatform, include eCommerce and ticketing.
Above all, Live Nation is a global play. And we talked earlier this morning about leveraging scale. Few companies have the opportunity to do that as well as Live Nation, whether it be in concerts, where it is the largest player; whether it be in ticketing, where it is the largest player; whether it be in the secondary ticketing market, where it is growing dramatically.
And some of you may have listened to some of the results of eBay and what's happening at StubHub. And it's clear we're taking it to them. And lastly, as an advertising platform.
When you put all that together, over the last several years, Liberty has generated a pretty attractive return, about 30% compounded since we created the separate -- what was Liberty Capital and now has become morphed into Liberty Media. We are up about eightfold since that time.
If you look at the components, there have been a lot of things that contributed, and most of them have worked out pretty well. The addition of Starz, DIRECTV, the reincorporation of Starz, and then how Starz has traded since.
You get the split off of your K shares. And now Liberty Broadband. We have built up quite a lot of value in the various pieces and we hope to keep going on that basis.
More recently, we have had a pretty good run as well. Not perhaps as strong as that average, but in the face of some declining multiples at some of our underlying companies -- not declining performance, but change in multiple.
We have still been able to grow value since the beginning of 2013. And I think all of our companies are well positioned to do that going forward.
And here you can see, more recently, just the shorter-term build up of value since we created the spin, created the pure LMC without Starz, when we spun that in the beginning of 2013. And then the dividends of the K shares, the nonvoting shares, in July of this year. And most recently, the spin of Liberty Broadband's assets.
So with that, I'm going to turn it over to Chris Shean and let him give you a little more details about the financials.
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Chris Shean, Liberty Media Corporation - SVP and CFO [4]
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As you can see here, we've had a lot of good work that we've done to narrow the discount of our trading value to the sum of the parts through the years, the pinnacle of which was reached at the end of 2013. But we do note that it has widened back somewhat in 2014, so let's take a look closer look at that.
More recent picture. So even though LMC is as simplified and as transparent as ever, after the broadband spin, we still see a gap of over 10% on most days, which represents about $4.00 a share of missing value. So still opportunity to be had.
This slide highlights LMC's potential liquidity, inclusive of the $300 million that we received as part of the broadband spin. The top levels of the chart represent the most easily accessible capital. The other public fund -- public holdings generally have a lower tax basis that we are reticent to trigger. We'll get into that in a little bit more detail on the next slide.
And the higher base of Sirius shares, they are available in a pinch, but they would also have some tax leakage if we were to sell those as well.
So looking at the debt at the corporate level for LMC, I think it's important to note that these instruments are kicking off roughly $35 million to $40 million of interest deductions, which we can use -- that's on an annual basis -- which we can use to offset sales of some of the other public holdings that are sitting there with the low tax basis.
So while we can't -- or wouldn't -- necessarily blowout of all of those at one time, there is a matching exercise that you might see us take place, where we make periodic tactical sales of these securities. And also contributing to that is -- stock option exercises does provide, or do provide, some additional tax deduction for us.
So that's all we had on the corporate level at LMC. Now I would like to ask Jim to come up and -- Jim Meyer to come up -- and go through SIRI.
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Jim Meyer, SiriusXM - CEO [5]
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Thanks, Chris, and good afternoon. I would like to take you through an overview of SiriusXM today and conclude with talking about what a lot of you ask me about constantly, which is where do I think the connected car is going and what role will SiriusXM play? And we will touch on that as we get to the end.
But first, what are we all about? And what we are all about is audio entertainment, which you all know. You may not know we are the leading provider of traffic services to vehicles in North America; leading provider of weather.
With our acquisition Agero last year, we are now, with the exception of OnStar, the leading supplier of safety, security, and convenience services to OEMs. And in our core audio business, we are just about at 27 million subscribers and I am very confident we will surpass 27 million this year.
What do we sell them? Obviously, 140 to 150 channels of commercial-free music, talk, news, sports, and sport content.
Everybody wants to talk to me about music. And the point I want to make to you is that's not what our subscribers buy. What our subscribers buy is a bundle. And that bundle is really, really important to them.
Obviously, we have a nationwide network that is private, that we 100% own, which is our satellite network. And then we make our service available as well over the Internet and via apps for Android and Apple.
What are the unique value drivers of our Company? Number one, it is a growing subscriber base with high variable margins that drive predictable cash flows. And that's really it.
And the key is when you look at the way our subscriber base has grown and you look at our fixed-cost base, I can literally tell you the next subscriber we get will be the most profitable subscriber we have. And I think that's a great place to be in.
Second, we are factory installed in over 70% of every new car made in the United States today. And we are very committed to make sure that number stays in that high 60%s, low 70% range for many years to come.
Wasn't easy to get here. We lost a lot of money building this business to where we are. I get to stand up here and take all the credit for the good part of that, now that we have $5 billion still of unused NOLs. And finally, we are in the process in the middle of what I think will be a long return of a substantial capital return program to our shareholders.
I think, though, when you talk about SiriusXM, quite candidly, everything starts and stops with content. And let's just took take a quick look at this video first.
(video playing)
I do have to tell you, I showed that video to one of my daughters. And after she watched it, she goes, Dad, I defy you to name who every one of those artists are. And I failed the test. So I stand up here like I really know, but there's a few I don't know.
Let's talk about how we are doing this year. Greg gave you an overview. I'd like to dig into it a little bit more. We ended the third quarter at 26.7 million subscribers, up 5%.
Revenue, almost $3.1 billion, up 10%. I love the next line. Adjusted EBITDA of over $1 billion, up 29%. And I think most importantly, [is standing] our EBITDA margin in the third quarter was 35.1%, which we think is, if not the leader, close to the leader in the media business.
Free cash flow of over $800 million year to date, up over 30%. And also a statistic we track quite a bit -- I hope you pay a lot of attention to -- which is free cash flow per share, which you can see is accelerating faster than our free cash flow as you build into it our buyback program.
We are off to a great start through three quarters. We have reaffirmed; in fact, we have raised our guidance, I think, twice this year. And we are very, very, comfortable with achieving the guidance that is out there today.
I start every presentation, whether it is with our employees or with investors, with this chart for one important reason. Number one, we are a very large subscription business now. We will end this year with over 27 million subscribers -- paying subscribers.
More importantly, more importantly, is the slope of that curve. And I'm here to tell you that I don't see this business slowing down in its subscriber growth, certainly in the next three to five years.
A really, really easy way to think about this -- there's 240 million cars in the United States. Take out fleets and collectors, gets you down to about 200 million. If I came to you and said I have a great idea for a premium product and I think I can sell it to 15% or 20% of the audience out there, I think you would see that's a reasonable goal. And you will see we are not even at 15% yet.
And so I see sustainable growth in subscribers and I have our organization very focused on that metric now and you could assume for the years to come.
Our revenue obviously trails very, very nicely with our subscriber growth, with a CAGR of 11%, which we are particularly pleased with. And this year for the first time, we will go over $4 billion in total revenue.
Strong adjusted EBITDA growth. And I have been with the Company 10 years. I was here when that number in 2009 had brackets around it, if you go back far enough. Really, really proud of the growth we have had in adjusted EBITDA growth and we are very comfortable this year with our guidance of $1.425 billion in adjusted EBITDA for 2014. Very strong 25% growth.
And finally, among the best margins in media. Those of you who were here last year, I had this chart and I put the best margins in media. And where is Tom Rutledge? Tom reminded me that when he ran Time Warner, he had a better than -- I'm sorry, Cablevision -- he had a better than 34% margin.
I went and checked and it he is right; he did. So he is my new target to knock over now as we improve in the future. And you see we are already over 35% in the third quarter. So I do believe this chart better than any illustrates how strong our business model is.
And obviously, that leads to very significant free cash flow. Two things going on here: number one, our earnings accelerating quite a bit. This year, we will do over $1.1 billion in cash flow.
And number two, we have kind of come to the end of a major replacement curve for both of our satellite networks. And we are kind of like in a five year lull, hopefully. And that gives us a really, really sweet spot.
When you take that and you combine it with what percent of our cash flow are we actually harvesting as a percent of EBITDA, it is an extraordinary 79%. What drives that is our strong business model and the fact that we are in a position today of not paying income taxes. And so that position certainly stays true until later on in this decade, in the late 2017, 2018 timeframe.
This is a very, very important chart if you are an investor in our Company. And it is really, really a simple chart. This is the number of cars that have been made at the OEM level that have satellite radio built into them.
And if you go across on 2014, you can see I expect to end the year at just a little over 70 million. Okay? Well, why is that chart important? What is important is we don't know what new car sales will be every year, because we don't control the economy.
But because of the long lead times in the OEM industry, we have a very good idea of what our penetration will be in those cars and what our rate will be. And if you overlay that on a reasonable set of assumptions of what will happen to new cars, you can see very quickly our base grows to 100 million in 2017 and over 120 million in 2019.
Why is this important? I'm going to touch on in a moment. But I want to make one other point here, which is people ask me a lot what's the risk of new technology in the vehicle and how much will it impact your business?
And believe me, it is something we will talk about in a moment and something I spend a lot of time worrying about. But what I want to remind you is we started satellite radio in about the 2003 timeframe. If you go from 2003 to 2019 -- let's call it 15-plus years -- you will see that we are in 120 million cars.
And you heard me say earlier there's 240 million cars in America. Think about that. In a very successful, proven model, with a very close relationship with the OEM industry, in 15 years, we still only penetrated 50% of the enabled vehicles in this country.
And I think, one, it tells you how slow technology really changes in automobiles; and number two, I think it tells you, if you go beyond this planning horizon, how strong I think the opportunity for our Company still is.
What is the number one thing that is driving, besides new car growth, and why that chart is so important is in this country today, if you ask a lot of people how many cars are SOLD, they will say 16.5 million. And that is exactly right for about how many new cars will be sold in the United States.
What most people forget to answer is there is actually 56 million cars, 56 million cars sold a year in the United States. 16.5 million new, almost 40 million used. The average car in this country is owned for about 11 years and has slightly over 3 owners during its lifetime.
Why is that great for us? Why that is great for us is that first vehicle, we spend a significant amount of subsidy to incorporate our technology and we win that back on the first owner.
When we get to the second, and pretty soon the third, owner of those vehicles, our upfront investment is zero, which gives us a lot of flexibility to take a very different set of yield from the funnel and how we convert trials and what those customers ultimately do.
I'm pleased to report to you we are doing extremely well now in getting to the second owner. Okay? And this year, as you can see in the chart, I expect to do around 2.1 million adds from this channel.
By the way, today, we have 14,000 dealers reporting to us every day -- not new car sales, used car sales at those dealers every day who brought their vehicle in, it is turned over, put it in a trial -- demo mode, and then when those cars sell, here is the name and address and contact information. Please put them in a free trial mode.
And it is really turning about to be a strong, I think, a strong second pillar to our growth. If you do the math, from what I said earlier -- and most of you are financial people, you are really sharp numbers -- if the new car business is 16.5 million, the used car business is 40 million, if we keep up our 70% penetration, inevitably, the used car opportunity for getting subscribers has to be bigger than the new car. Opportunity for subscribers. And it is why I am pretty bullish on subscriber growth for many years to come.
We are doing other things in our business that are really, really important. Our churn rate this year is about 1.9%. We work really, really hard. And that includes -- that includes our number one source of churn today is I sold my vehicle, which can't do anything about to stop the sale. We can do a whole lot to make that transition easier, which I will talk about in a second.
What really matters in our business, quite candidly, is engagement. I can tell you that a customer who simply sets the presets before they leave the dealer lot convert at a higher rate than those that don't. And if you think about, it's really duh.
I mean, the more you get people to engage with something, the less worried they are about paying for it. And we are very focused today on our efforts to engage the customer.
By the way, the great news about the turnover in those vehicles to second owners is also a little bit of sobering news, which means all of those subscribers who have been our subscriber in vehicle one now bought a new vehicle. And there's no reason we should lose one of those subscribers during that transition.
And so we are really focused on a new initiative called service continuity, which is when you trade in your vehicle or sell your vehicle and buy a new vehicle, how do we make that seamless for you?
And I am pleased we are making good progress there. We are also making it much easier for our customers to deal with us online to do the kinds of things they want to do.
Second key focus for us is improving the onboarding experience. Think about it. I bought a new car about six weeks ago. I picked the car up on Saturday. The dealer spent about a whopping 30 minutes showing me how to use the vehicle.
I spent maybe another whopping 35 minutes trying to read the instruction book and learn how to use that vehicle. I haven't looked at it once since I left that lot. And what I am telling you is that onboarding process and ease-of-use early on in the process really matters.
And finally, we are looking at expanding our pricing options. Think about it. As we move further and further into the demographic curve with second and third owners, we face a whole lot of different kinds of subscribers.
And we need different price points and different packages to address them with the key, the number one key being that growth there doesn't in any way shake the base of those great 27 million customers we have now.
So what do we have? I think we have a best-in-class business model. Number one, we have -- I would almost call it an annuity of growing vehicles -- enabled vehicles. 68 million go into 120 million, certainly within the planning horizon.
Second, a very strong business model. First and foremost, unbeatable content. Absolutely the number one requirement. But by the way, the one everybody overlooks -- ease-of-use. Really, really critical, particularly when you are in the vehicle.
Our customers in the vehicle are looking for a lean back experience, not a lean forward experience, which is a whole lot different than they do with their phone or anything else in their home.
Steady fixed costs, which we can leverage. High variable margins, which I took you through. And certainly low CapEx and low taxes for many years to come.
And finally, what are we doing with that cash flow? Well, we have earmarked it for two things: strategic initiatives -- we bought Agero last year for $500 million, who we think was the leader in the connected car business.
I am thrilled with that acquisition. We are off to a great start. We fully absorbed that business into ours now. And we will talk about that a little bit more in a moment. But we are using the vast majority of our cash flow today to return it to our shareholders.
Our capital return program. Our Board has authorized $6 billion of stock repurchase as of today. As of the end of October, you can see we had returned about $3.8 billion of that back to our shareholders, including a transaction with Liberty earlier this year. That remains about -- that leaves us about $2.2 billion left to go on our authorization.
I want to address one issue. Many of you asked me after our third-quarter financials, gee, your buyback looked a little light. Or has anything changed? The answer is no.
This chart is as transparent as we could be about what we're doing. And we are moving along on our buyback, just like we have told you, and we certainly will continue through this $2.2 billion.
Okay. So the real question is, well, what is out there on the horizon and how nervous should we be about it? So the first thing I will say to you is the connected car is here. It might not be here for you, but because of the lead time on technology and vehicles, we are fully engaged right now with OEMs for the product they are going to roll out, believe it or not, in 2018 and 2019.
And I can tell you, those vehicles will be connected. Okay? But I will also tell you, broad implementation of connectivity in vehicles will take many years. Investors are going to have to be patient here as this technology rolls out.
OEMs will pursue two kinds of connectivity -- one called tether and tether is relatively really easy. Most of you use it every day in your vehicle today, which is hands-free Bluetooth, to connect your phone to the vehicle, to the microphone within the car, the speakers within the car, and you can control it from your steering wheel.
You should assume that capability will get better and better and better. Okay? And certainly, we need to be a player and will be a player in that space.
But as importantly, embedded connectivity. And what do I mean by embedded? That means they are taking the modem that is in that phone and actually embed it in the vehicle. Well, why do they do that?
They do it for a very simple reason: they want to put it behind the digital firewall so it can never be hacked. That's as simple as it gets. And they want to do that because they want to do a lot of things with the vehicle and they need it to be an absolute secure connection. By doing that, they also enable a lot of things to enhance services. And I believe our service moving forward.
We have a clear strategy to maintain a dominant position in the connected car. You'll hear more and more about it over this year. But I am confident we well.
What I will tell you is I firmly believe, as we move towards the end of this decade, 70%, the vast majority of new cars, will contain an embedded modem, which is a great opportunity for SiriusXM.
There are many opportunities. The most obvious one in the short term is to provide what we are calling connected vehicle services that are not entertainment-oriented. These are mostly safety, security, convenience features -- door unlock, find my vehicle in a parking lot, those kind of things. We are off to a good start here.
As I said, we are -- with the exception of OnStar, we are the largest supplier of these -- which is only GM -- we are the largest supplier of these services to the OEMs in the US.
And I can tell you, right now in this business, our focus, quite candidly, is gaining share. It is to establish ourself in the footprint and then figure out how these services and features can be used to both make more money and bolster our service.
They are beginning to roll out. It is going to take time. But I think there is a real opportunity here for organic growth. As importantly, it gives us a really strong relationship with the OEM, which is critical.
Because if you go back to the model I've just spent 20 minutes talking to you about, it starts with content, but it also starts with distribution. And that distribution starts with maintaining our position in the vehicle. And I see this as another great opportunity for us to do that.
What's next? Well, we could spend a lot of time on this chart, but I will try to sum it up in about a minute and a half. Number one, we own our own private network. No one is ever going to use it. And it has many, many advantages to it.
It also has some disadvantages. Number one, it is not two-way. This explosion of broadband into the vehicle, which you all know is a public, a public network, is going to allow us, in our opinion, to match satellite and mobile Internet in the vehicle to create an unmatched in-vehicle experience.
And the simplest example I will give is if you -- I hope you are a subscriber, by the way -- if you get out of your car and you come around the corner and you drive up to Sixth Avenue to go home and you're listening to satellite radio and you say, God, I really like satellite radio, you are not even getting it from the satellite.
You are getting it from a terrestrial repeater that is 10 blocks from here on top of a building. Guess what? You don't care. You don't care because we have made the network transparent to you.
And that's what we have to do in the five to seven years ahead as we combine broadcast and IP to create an unmatched in-vehicle experience. It will allow us to do a lot more with consumer facing features than we are able to do today -- for instance, seamless on demand. Obviously, you can sort different things different way, the way you might want to listen to them or customize.
But as important, it will allow us a whole lot to manage -- which -- people who are not on the subscription business forget how much work there is to do after you get a subscriber to maintain that subscriber.
Think about that. In these new vehicles, why do you need to call us to subscribe? You ought to be able to do with the push of a button. You ought to be able to renew with a push of a button.
By the way, we ought to be able to easily identify high mileage vehicles that people are driving who don't subscribe and target offers directly to them -- who should be one of our best audiences -- in a very efficient matter.
So I am really excited, not afraid, of the connected car. I think it is going to be a great opportunity. I have said too many that I don't see streaming as a competitor. I see streaming as a technology. There are streamers who compete with us.
By the way, I will remind you, all these conversations on connectivity and streamers, by far, by far the biggest audio media in-car centric service is terrestrial radio, with still over 220 million people listening to it. And that is, quite candidly, where we are still taking customers from in a major way.
I want to sum up by saying I don't think things have changed as much as some do. And that is when satellite radio was formed, I think there were kind of two simple questions: one was will you get people to put it in -- will you get the carmakers to put it in? The answer is yes.
Same question today. The technology is transitioning -- will you get the carmakers to put it in? I'm here to tell you, yes.
But by far the more important question 10 years ago was will people pay for radio? And I'm here to tell you today, 27 million do. And the challenge for me and my organization is not do they want to stream or do they want to broadcast or do they want to sort it? Or what do they want to do?
The fundamental question is what content and services do we need to give them to make sure they pay? And that's what we are focused on very, very, heavily.
Thank you very much.
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Courtnee Ulrich, Liberty Media Corporation - VP of IR [6]
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Next up, we have Michael Rapino, President and CEO of Live Nation.
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Michael Rapino, Live Nation Entertainment - President and CEO [7]
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Thank you. And Jim, given you've got about $1 billion there annually, we have some content for you. Now Mark and Scott tell me he can't afford my content -- $10 million, $20 million a year. We can light you up.
All right. Thank you. I'm proud to take you through Live Nation Entertainment.
2014 is going to be another record year. We've been able to grow the business on all three levels -- revenue, profitability, and cash flow -- and across all of our business lines. So, last year being a record year, we're thrilled to be able to top that this year.
And when we look back at history, we spun this Company out in 2005. We had a couple of businesses. And our model over the last nine, 10 years has been consistent. We've been able to deliver both on the topline and bottom-line better than the S&P. And our business model has been very simple along the way.
We continue to consolidate the global concert business. We do most of our business organically. We use a lot of tuck-ins to excel our expansion. And every now and then, there's a House of Blues or Ticketmaster that lets you excel your platform to higher levels. We see no reason why this trend won't continue for the foreseeable years to come. And I'll take you through some of those divisions.
We are also proud that not only are we building the business, we've been rewarding the shareholders. Along the way, we've been able to deliver higher than the S&P. And we continue to believe that the shareholder value has a great upside. And being a large shareholder, that's my main purpose and the mission right now.
And then 2015, we will continue to deliver plan. We have given you a consensus guidance over the last couple of years on where we would deliver our three years. We believe 2015, we will continue to deliver and grow this business on all levels.
Our business model and our growth has come mostly because I believe we have a very concise and clear business strategy. Our business model is all about at the core, taking our flywheel of concerts and scaling that on a global basis. If you look back on that chart in 2005, we did about 2,000 concerts in two markets. Today, we'll deliver over 23,000 concerts in 40 markets. And then five years from now, that number could be 40,000 or 50,000 concerts in 75 markets. It's a global business with no boundaries.
From that, we've always believed that if you have the content, and the 23,000 shows and the 60 million fans, you can build high-margin-adjacent businesses. Again, to give you comparison, in 2005, we had a concert business doing a couple-thousand shows and we had some signs at an amphitheater. We now have a very vibrant on-site business. And what we talk about is leveraging those 23,000 shows in venues.
Sometimes we manage the venue or sometimes we are just delivering that content to a venue for an annual rebate system. So the content is king, because there are way more venues than there are content. So, the more content, the more Tom Petty shows and U2 shows we have, the more we can leverage that scale across a vast venue distribution platform.
Second, obviously, is Ticketmaster. This is -- we are very proud of. Again, nine years ago when we started this, we believed we had to own the ecosystem; we needed to own the customer and shake that hand, and own all that data. And we are very proud of what we've been able to deliver in Ticketmaster in the last few years.
Third, we've really, really evolved our highest margin business. And this is our advertising sponsorship business. Again, eight years ago, this was a sign at the Jones Beach Amphitheater; and today, this is a global advertising network. We'll take you through the details of that.
And our artist management business is something that we took some remnants of, we invested in, and we see it as actually a very high potential business. It's high-margin. We're the global leader in this. And again, being close to that content has enabled a lot of our core businesses to excel.
And going forward, we continue to believe that the concert business has incredible opportunity ahead. As large as we are, it's still a global, fragmented industry. You can see on the right side there, there are still lots of players on a global basis. And we think we can continue to consolidate this space on a global basis.
One of the beautiful parts about the music business, unlike any other media business, is there's no boundaries. Jay-Z is a relevant concert in any country in the world. And Live Nation can enter any country in the world with zero regulations and no factories. We entered Indonesia last week. The more places that we enter, the more U2 shows that we can distribute and monetize locally, our model grows.
Obviously, the second part that's kind of the wind at our back, as you read about all the time, is the concert business is where the artist is making 90% to 95% of his annual revenue. As the record label and the economics have collapsed on that side, the live show is where that artist needs to go to pay the bills and to reach his fans.
That earlier slide we talked about, us delivering over $3.4 billion annually to artists and their shows; use those numbers in comparison, you hear a lot of this Spotify versus Pandora, and maybe over five years, they paid $1 billion to artists or Taylor Swift got paid so much on a song. Taylor Swift is making $1.5 million a night on a show. So, the economics on the live business are incredibly strong. It's where the artist needs to go to deliver his economics.
The best part about the live business is the Internet has enabled that global fan to know who Taylor Swift or One Direction is. The gatekeepers for many years controlled what that 17-year-old listened to or bought in Colombia. Today, if you are a 17-year-old girl in Colombia, and you're on YouTube and Facebook and Twitter, you know who One Direction is; you became a fan of them. Thus, then we can bring One Direction to Colombia and sell a stadium out the same gross that we could do in Miami.
So, the connected global world has created a great demand for these artists, and the artist now looks to a global economy to tour. So we see continued great strength on a global concert basis. We are in 40 markets. We're going to continue to grow organically. And we'll continue to pursue our capital allocation against consolidating where we think that can expand our platform.
And Ticketmaster, again, one of the greatest ways that we truly monetize that concert scale. And I put these charts up because Ticketmaster is one of those brands that is just incredibly resilient, and we've also, I think, done a fabulous job the last three, four years injecting new life into the technology. But look -- some of our recent data shows Ticketmaster is still by far the number one site that a consumer goes to, to find a ticket.
But just as compelling, it's also higher than Facebook or Google as the number one site a fan goes to, to say, what's happening in New York? What event can I go to? It's incredible brand power. The economics have followed. We have the highest renewal rate at Ticketmaster that we've ever had. Last Thursday, we had our single biggest sales day that we've had in 10 years. And the business continues to grow year-over-year. So, a very, very strong business. The concert Live Nation content has helped empower that position while we've rebuilt the platform.
And one of our great successes at Ticketmaster in leveraging that scale, and building a consumer-facing product was what we launched and talked about here last year, was Ticketmaster Resale. We took that scale of Ticketmaster, all of those consumers that show up at Ticketmaster at 10:01 and couldn't find the Beyonce ticket and went elsewhere for those three months; now at 10:01 when you show up and want to find a ticket, if the great seats are gone, we are giving you an interactive seat map with both secondary and primary. And since we've launched this product over a year ago, we are now going to hit $1 billion in GTV.
So we think the biggest advantage in the scale we have is the top consumer traffic. The customers coming to our site looking for the ticket -- we just didn't have the shelves stocked. Now that we have that shelf stocked from 10:00 right till the minute before that show, whether it's primary or secondary, we've been able to increase the business.
The real advantage, and why the content loves this, is because, one, it's being bought and sold on a verified platform. So you're not showing up at the Madison Square Garden's with a fake ticket that you bought somewhere. I had a great customer call last week. Customers find my email, I get tons of them, and the lady was livid that she bought two fake tickets at craigslist, but it was to a Live Nation show, and I should refund her.
So we love those stories, because obviously, I get to say if you had bought at the verified site, that would have been an easy entry. But putting those tickets together has increased the consumer product reach at our site. And most importantly, it's actually increased our primary conversion.
So the number one selling point that we have for artists and teams is, if you put those red dots on there, at $210, that $100 primary seat actually looks better and will sell at 4% to 6% higher. So it's helped our core business as well as our overall proposition.
In 2015, we are just going to continue this push with our resale strategy. We are currently in the UK and Australia. And in 2015, we'll roll out to 10 countries across the globe, and continue to use our Ticketmaster scale to integrate the resale proposition and expand our business.
And at the core of Ticketmaster, we've been investing in the platform, the products, and the user experience. And so it's been a modular process. So the Ticketmaster resale product that you saw is built on our new platform. It would not have been able to happen on the old platform. And with our platform, we've been releasing new products to help and empower our customers.
One example here is a product that we've released recently for artists and venues, is a real-time event analytic ticket sale app. So, finally, that artist, manager, and that venue on an app can see how many tickets are selling livestream. They can get CRM data through that. They can get demographics. They can know male, female; did it come from Google?
Real power by putting that information in the decisionmakers' hands, because our 17,000 clients, if they have better decisions, they end up pricing the product better, and we end up selling more tickets together. So, all that great data we have at Ticketmaster, we are starting to come to life, both in a consumer and a business-to-business strategy, to empower our client base.
And like concerts, Ticketmaster has another great global runway. Ticketmaster is in 20 markets. At minimum, we should be in 40, matching our content where Live Nation is. We continue to see great global runway here. This is a business where we've just got to keep hitting it straight down the fairway, consolidating what we are great at. And again, because it's global, there's no regulations. We can drop Ticketmaster platform and products in Taiwan to Colombia at a very low cost.
So our goal is continue to build those 40 countries and concerts. When you have the content, you can enter that market a lot easier by either organic or acquiring someone in that market, and then excelling your growth through your Live Nation platform.
And the other piece of our business, and the highest margin business for us in how we monetize this scale, is our advertising platform. This is something we've spent a lot of energy over the last few years upgrading both our technology from our ad servers and our ad networks to our skill set. But we have a very compelling proposition. Our competitive state usually is another music site.
If a big brand or Madison Avenue wants to invest in a digital or music program, they look to the obvious choices where there's some other scale -- the Vevo's and the Pandora's, et cetera. The one advantage we have is, we have a large network and a digital reach. The other advantage we bring is, we have the on-site. We are touching that customer on a Thursday night. We know who they are. We have data on them.
So when you look at the scale of Live Nation on-site larger than the NBA, NFL and NHL combined, plus online, that proposition becomes very compelling to Coca-Cola and other 800 brands that want to spend against that target. They want to have an on-site to online experience. So the network has been growing. And our sponsorship strategy and the CPM value has been increasing, as we have strived to continue to drive our digital part.
So, one of the biggest things we needed to do is to add video content to that platform. The good news was we've started to get a whole lineup of RFPs from Madison Avenue saying, you're a real legitimate advertising option for us to reach the music fan. But, you know, it's a little easier to buy a 30-second spot on Vivo than it is to figure out where to put a banner ad on Ticketmaster. So our strategy has been, we have the reach, we have the engaging content; we just hadn't yet harnessed that video content to deliver a consistent message.
So our first proof-of-concept was with Yahoo. We launched our streaming channel in August. Incredible success to date. The artists have jumped onboard. We've done 125 so far, one every day. Artists like the proposition because we are paying for a high quality production, delivering it to a lot of eyeballs on Yahoo and Live Nation. And we've reached over -- delivered over 18 billion impressions. So I think you'll see Yahoo and Live Nation continue this relationship, and even get deeper in the amount of live shows that we can deliver to the consumer.
Number one advantage to this was, it gave my advertising team now a legitimate ad unit and the next level of a proposition to the platform. And from that, it provoked the next level of content that we need to get involved in, and that's just creating some better content from our platform. There is a livestream which has a great, great engagement; but we knew that between the livestream of the show, some original content we can create around the show, and our commerce, we had a shot to relaunch a Live Nation TV app to a much more dynamic platform and across many.
Finding someone that had the DNA that could create content to meet the millennial mobile smallscreen mandate, Vice was the perfect option. So we launched a venture last week with Vice, where we will create a new platform together, a new channel. It will be distributed on a global basis from mobile carriers to the Apple TVs to online to YouTube. And we think this is the next evolution of leveraging our content and delivering our advertising -- advertisers, a real media channel.
And with that, I'll show you a quick video of what this will look like.
(video playing)
Thank you. So we are excited about that. We believe that there is an opportunity in the marketplace. From our perspective, we needed to find a way to deliver video from an ad perspective, to add to our portfolio. Greg Maffei and I looked at many options. We looked at something to buy that we could bolt on. But the cost of some of the existings didn't make sense. We thought getting with someone that really understands the new millennium, the voice of live music, and could deliver consistently across our brand on a global platform, was the best route. And we are very excited in 2015 to launch this and add that to our ad network.
So, as we sum up, we think Live Nation is in a great position. We think, first and foremost, the industry in general on a global basis, live music is a growing and dynamic industry. It's going to have years of growth as those emerging markets and those billions of young adults discover Rihanna.
We think that, number two, we are the market leader in every category, the largest ticketing concert artist manager and advertising network in live music. And we think we're going to continue to drive great, great growth amongst those four businesses.
We've demonstrated we know how to use scale. And the more scale we create, the more new business units we will generate. And for 10 years, we've been consistently consumed with shareholder value. And we think, from that, we've got a long runway ahead to create continued long-term value.
Thank you.
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Courtnee Ulrich, Liberty Media Corporation - VP of IR [8]
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This presentation includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potential, future financial performance, new service and product launches, and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
These forward-looking statements speak only as of the date of this presentation, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any such statements to reflect any change in our expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is based. Please refer to our publicly filed documents, including our form S-1 registration statement, and any subsequently filed Exchange Act reports for additional information.
At today's meeting, we will discuss certain non-GAAP financial measures, including adjusted OIBDA and adjusted OIBDA margin. Please refer to the Appendix at the end of this presentation for definitions and applicable GAAP reconciliations. The Appendix will be available on our website throughout this meeting.
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Greg Maffei, Liberty Media Corporation - President and CEO [9]
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Great. I think it was pretty exciting to see -- I'm trying to get a little humor out of this. So, we -- obviously, a lot of great stuff happening in media. One of the things I talked about earlier that we did most recently was to take our stake in Charter and create a new company, Liberty Broadband.
Reviewing where we've been on that, we bought our stake in Charter about a year and a half ago. Pretty attractive price in hindsight. Why did we do that? How did we move as quickly as we did? It was an industry we had a lot of history in. Obviously, our Chairman was pretty integral. We had a lot of contacts in and a fair amount of knowledge.
Fundamental to our thesis was not only that it was a great standalone business -- with a lot of opportunity to upgrade its network and profit from that, and NOLs, and many other things -- but perhaps, most of all, it was very well-positioned to build value through consolidation and scale. There was a great management team who had done that previously, both the upgrade cycle and done consolidation.
We took advantage of the fact that there was a private equity fund, which -- a couple which wanted to get liquidity. And it was a rather large check, and we could write it relatively quickly. They were motivated to return capital and we were in a position to exercise on that. We completed that spinoff, as we said earlier, in the month. And just in a small note, we did exercise our warrants in Charter for another 1.1 million shares that we had received back with our investment in May. We exercised those warrants on Monday.
A little more on consolidation. If you look ahead, Comcast pro forma for the transaction is clearly the leader on the cable side, and AT&T/DirecTV on the satellite/telco side. That creates an interesting opportunity for Charter.
While we were well behind those two leaders, we are substantially larger than the other cable companies out there -- we will be. And we are a natural consolidator with many advantages, and an ability to help them fight cost inflation on the content side, and an ability to help them drive operational efficiencies in networking and marketing, et cetera. Charter has a great capital structure with flexibility to do incrementally more acquisitions quickly as it pays down debt, and as a tax asset NOL that actually benefit from further consolidation and scale.
Just to reiterate a little more on why we chose Charter, I think I mentioned already, Tom and his team had done it. They are best-in-class operators; had a successful record not only of upgrading and building networks at places like Cablevision, but also had had successful record of acquisitions, like the Bresnan/Optimum West deal.
They are a superior product offering, led by the fact that they are the largest all-digital -- they will be the largest all-digital cable company when they complete it by year-end. Gives them a better video experience and upgraded speeds. And the consumer clearly wants both. And you are seeing the result of that desire and the results of their good, clean offering, simplified offering, with improved service in both their growth, their better ratings on JD Power and the like, and many other metrics.
They are leading industry-leading growth. They have industry-leading growth. Penetration and triple play are both up dramatically. For years, Charter had suffered from being sort of the last guy assembled and going through financial duress. Now, that lack of investment created the opportunity and set the stage for a better return on invested capital today with cheaper, lower-cost technologies. And they are beginning to pay off.
Attractively, no overlap -- or virtually no overlap -- with fiber-based overbuilders. Today, about 4% FiOS pro forma for the Comcast/Time Warner transaction is even lower -- something sub-1% -- and no overlap with any announced Google fiber footprints. Not to say that Charter doesn't have a strong offering that can be competitive with those, but on the margin, why would you rather fight?
Clustered footprint that we've now assembled pro forma for the new deal is a lot more attractive; improved marketing efficiencies, improved opportunities to offer business consumers a unified footprint in that West/Midwest territory, reaching into the South. Large NOL, as I mentioned; going to shield taxes and drive cash flow for a long period. And we are well-positioned to drive further consolidation.
And this is my public service announcement for any of you who didn't know. We are -- as a part of that offering of the -- or spinoff, rather, we are going to have a -- distribute to you some Series C rights to the shareholders of December 10th; one Series C right for every five shares of Liberty Broadband. The record date for those will be 12/4. That's been amended from a prior announced record date of 11/19.
We estimate the commencement date for the Series C rights offering will be the 11th of December; last for 20 trading days. Basically, the Series C right gives you an opportunity to buy at a 20% discount to the Series C common price, though using the VWAP over a period. And while the ex-dividend date will still be determined, it will be announced via a press release shortly.
There is pro forma, for that rights offering, a fair amount of liquidity at Liberty Broadband. We have some margin loan capacity as well. We have some Time Warner Cable shares, which pro forma for the deal will be converted into some amount of cash and some amount of Time Warner -- excuse me -- Comcast stock and actually some amount of Charter stock. And we have some cash.
We have some liabilities on the other side. We are underwater on some TWC call options because the TWC stock traded up so well. And we have a margin loan that we have drawn $320 million on. The most likely use of proceeds there is probably some day Greg cleaning off the margin loan potentially, or, as we've indicated, potentially buying more Charter stock.
So, with that, I'm going to introduce Tom Rutledge. Thank you.
(video playing)
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Tom Rutledge, Charter Communications - CEO [10]
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Finally got a sizzle tape. So, what is Charter? Charter is, today, almost 13 million homes passed in 29 states with 23,000 people. That's 200,000 miles of physical infrastructure spread out on the highways and byways of a lot of communities.
We have 6.1 million customer relationships; 4.3 million of them are video; half -- or 5 million of them are Internet and 2.6 million are telephony voice customers. And we are throwing about $8.9 billion of revenue and $3.1 billion of EBITDA.
So when I went to Charter at the beginning of 2012, Charter had come out of a process -- a bankruptcy process. And through that process, had been husbanding cash and underinvesting in the kinds of things you have to do to run a normal cable operation, let alone a growing operation. And so, we had a slow-growing, underutilized plant and an underpenetrated asset. But it had been fully upgraded from an infrastructure perspective.
So it had the capability to provide all the modern services, but it was in a state where it needed to be operated correctly. And the deferred maintenance that hadn't been done through the years had to be done. So we had to go walk that 200,000 miles of physical assets and find out what the state of the plant was, and put those into projects. But at its core, it had the assets it needed to compete. It had a relatively uncompetitive wireline footprint, but it actually had more satellite video customers in its footprint than there were Charter customers, which, to me, was the opportunity.
So, what we've done over the last three years is we've brought in a new operating team and a new strategy. We've developed a highly competitive product set with new pricing and packaging. And we've restructured the business itself. Every single reporting relationship in the business has changed. It used to be a fairly local and regional business. We've turned it into a singular business, a single centrally-managed service infrastructure, which meant that we had to retrain ourselves, reorganize ourselves.
And because of the capital situation that had been through all those years, Charter didn't have the call centers it needed; it didn't have the trucks; it didn't have the tools; it didn't have the test equipment. We've hired 6,000 people in the last two years, and we've capitalized those people and bought new call centers. We bought new trucks and new test equipment. And we took the plant, which had been filled with analog signals, and digitized it.
So, essentially, every customer in Charter has received a new piece of customer premises equipment. And on every outlet that we provide -- and there are about 2.5 outlets per household -- we have now put two-way interactive digital boxes. And by next month, that project will be complete.
So, as a result of all of the activities we've done, we've now ended up with a fully-maintained, fully-featured cable system with all the capacity of the network unleashed. It has taken us a substantial amount of capital to get there and it's taken us time. But through that process, we've been growing. And our growth has been accelerating. We've been driving market share. And we've gained in all of our product sets.
And the reason our products work in the marketplace is that our two-way interactive video service is superior to satellite. Satellite is a one-way broadcast medium. And we now have a more fully-featured two-way product that can't be replicated. Our data speeds have been taken up to a minimum 60 megabits. So that -- and in some markets, 100 megabits, meaning the slowest speed we sell. And that's 20 times faster than DSL. It's 10 times faster than U-verse. And it's a superior product.
We've also taken our Wi-Fi platform, which is what people connect to the Internet with in their house, and taken that up to very high speeds. A lot of companies, including FiOS, actually connect a very powerful network to a relatively low-capacity Wi-Fi network. So we have the fastest Wi-Fi network in the country deployed in consumer homes. And it's relatively powerful, because it has a powerful network connected to it, and it also has the capacity inside.
And all of that has made our products together superior. Our voice product, too, is fully featured and inexpensive. And so, when you mix and match it all together, Charter has the superior product to what a customer can replicate. If you think about what they can buy in our footprint, they can buy satellite from Dish or DirecTV, and pay in the mid-90s for video. They can buy DSL and pay $40 for DSL. They can buy traditional phone lines and pay $40 for that.
So, a customer in those markets is paying anywhere in the range of $170 to replicate what we are now marketing for $90, selling it at $120, and stepping up in increments over a two-year period to $160. So, we have a superior product with a packaging and pricing offer that is better than the current ARPU that we currently get out of customers, and is driving us, with additional revenue and superior products, deeper into the market.
And we have a team of people who know the playbook; they can do acquisitions. We have a big acquisition that we are absorbing at the moment. And I'll talk about that later in this presentation. But we have people now who can do it, take advantage of the scale, and get the efficiencies for additional growth.
What we are marketing today is 200 channels of high definition, 100% digital; VOD on every outlet, 60 megabits, fastest Wi-Fi, and fully-featured voice, as I just said. What has happened over the last three years is that we've gone from a sell-in of 27% triple play to now over 60% triple play sell-in on every incremental customer. 85% of our customer base is now in that new pricing and packaging. That pricing and packaging steps up through time. And it steps up -- and it can hold the customer base, because each of the component pieces is superior to what the customer can get elsewhere.
Our HD channels are up over 200-plus. We are almost complete with the all-digital project. It will be complete in December. And our expanded basic video growth, the product that contains CNN and ESPN, and all the services that people call cable, is growing at a 2% growth rate, which is taking back market share. And we're really the only cable company that's doing that today in the country. And we expect to continue to do that.
66% of our customers are now at 60 megabits-plus. And incrementally, no customer is being sold for less than 60 megabits-plus; whereas three years ago, that was as low as a megabit. And Internet penetration has come up 8% from 32% to 40% in the less-than-three-year period.
Where we are going from a product set and a development perspective is to an all-IP service that's in the cloud, which is currently served by the Charter TV app. The Charter TV app works on phones and smartphones, and on tablets, and on stationary devices too, like Xbox's and so forth. It allows you to get the full cable TV service in IP in the home on those devices. And when you're outside the home, with a different rights structure, you can get TV Everywhere, or any other services where we have rights outside the home.
1 million of our customers have already downloaded that app. And we can see -- we see continued adoption, and expect continued adoption, through time.
World Box is our downloadable security strategy. We were fortunate, as we went on this all-digital project, to cut our cost of CPE in half. We're able to do that by getting a waiver from the FCC, which currently bans integrated set-top boxes, meaning you have to have a cable card through -- by regulation, separate from -- or security separate from the box. We've been buying integrated boxes through that waiver. And in the meantime, while the waiver has been in force, we've stood up a new technology platform, which is downloadable security -- which is compliant with FCC rules.
And downloadable security allows you to separate yourself from your historic security vendors, and buy CPE from any vendor anywhere on earth, which is why we call it World Box. But what it really means is that we can get world pricing on our CPE, and continue to drive down the price of CPE. And as we've done that, our traditional vendors have followed the pricing, and we've been able to do our current digital upgrade at very low cost of CPE.
And as we look forward to the acquisitions we are making, we'll be able to take those projects up all-digital as well at much lower cost than any company to date has been able to do from an all-digital capital perspective. And when I say all-digital, I mean two-way all-digital on every outlet. That's different than some of the other projects that have been implemented throughout the industry.
The other thing we've been doing is creating an IP-like guide called Spectrum Guide. And it uses the capabilities of the DOCSIS platform, which is in some of our set-top boxes. But it also uses the Video-On-Demand streaming capability of our legacy boxes. And what this allows us to do is take our complete deployed base of boxes, and give them a state-of-the-art user interface that looks like something you would see on the latest machine.
And so our goal next year is to begin to roll that out. We've tested this year in Texas. We are confident that it scales, that it works. And so we're going to roll out this modern user interface across our entire footprint. Every box we have, every outlet we have, every TV connected to our network, will have a modern customizable and programmable user interface. And the word programmable, I mean we can change it as perceptions change about whatever the modern user interface is, and we're not tethered to the box and the processing power of the legacy box.
We essentially turn our boxes into thin clients. And we take the intelligence up into our network, and use the network to create the look and feel that we have, and to ultimately create the modernization process that we need, and the continuous improvement we need.
And lastly, we are doing the same thing with our service delivery platform. And service delivery is the handling of customer transactions -- which, in a cable operation, is enormous. The reason we brought our employees back onshore and built new call centers, and the reason we eliminated contractors where we could, and hired people and trained people to be our employees, is that customer service matters. It matters in what your costs are in the business.
Transactions cost money. And the more transactions you have, the higher cost your business is. And it actually saves you money to pay people domestically and train people -- and pay them well, but provide quality service with less transactions per customer. Furthering that goal is our new service delivery platform, which allows us to begin to do online provisioning of all customer activity.
And right now, we have 15,000 people in the new Company that will be in call centers, but substantial groups of our employees want to be able to have Uber-like applications when they interact with us. They want to know where our trucks are. They want to know where they are coming. They want to be texted ahead of time. They want quality state-of-the-art service. And we are standing up the platforms to do that, which is integrated into our overall network strategy, which is intelligence in the network and the ability to service the network electronically.
How has all this development played out? Well, we are growing nicely. We are continuing to grow not only our customer count up in the upper left-hand quadrant there, but we are accelerating the rate at which we are growing. So over 0.25 million connections to Charter this year so far, and over 0.5 million primary service units.
As I said earlier, our expanded basic service which is the core cable TV service, which is the core cable TV service is growing and accelerating. Revenues are accelerating both residential and total. And EBITDA follows it, and EBITDA is growing as well, as you can see.
So the transaction, we, as you know, wanted to buy Time Warner Cable. And time is on our side I guess (laughter). But it wasn't quite the way we'd hoped, but it actually came out quite well.
So we did this deal where we traded 1.5 million subscribers of ours and we are going to pick up 3 million historic Time Warner subscribers. And we're going to pick up in GreatLand in a spin co, which we'll own 1/3 of it, 2.5 million customers. So -- and Charter's relationship to spin co is that we'll own 1/3 of it. We'll also do the operations for that business through a services agreement.
The assets are located in a highly concentrated way which gives us all sorts of economies of scale for both companies and both sets of shareholders. Charter essentially pulled itself out of the coast, out of New England and out of California and the Pacific Northwest, and is now the primary service operator in 10 states.
And the DMAs that we are in are also DMAs that GreatLand will be in. And the two companies together will use the Spectrum brand and the Spectrum product set to market a uniform product in the DMAs where both sets of assets exist.
So we go from a Company where we were in 29 states, and only 48% of our footprint was capable to be marketed with mass media. And what that means is because we'd have an asset in LA with a couple hundred thousand customers, we couldn't afford to buy the Los Angeles TV stations to reach those customers.
So that was true throughout the United States. We had some markets where we could do it, but many markets where we couldn't, and some markets where we did it, but it was less than efficient. And now, will be able to market more than 95% of our footprint through mass media both to GreatLand and to Charter.
And both companies will use the same brand strategy with a flanker brand like Xfinity is used in Comcast or Optimum is used in Cablevision. And so we'll have Spectrum services brought by GreatLand. We'll have Charter services, or Spectrum services brought by Charter. And in some markets that's 50/50 and in some places it's 80/20. But the calls will go into one location into a virtual call center. The provisioning, the intelligent networks that I talked about earlier will all be used for the benefit of both companies and allocated based on actual cost.
Charter gets 4.25% revenue share with GreatLand and provides administrative services as well. So we get these economies of scale through marketing. But we also get economies of scale at the local level in the sense that we fill out the DMA, and we can operate efficiently in the towns where we operate and use our workforce in an efficient way from the service infrastructure perspective, and get higher quality service in a more economic way.
And then lastly, we get the economies of scale of programming purchasing by being a larger company and the economies of scale from purchasing at a larger size.
So, the new Charter will have 5.7 million subscribers and 5.9 million Internet customers and 3 million voice customers. But we will be servicing 8.2 million customers in the total combined footprint, but with 8.2 million Internet customers and 4.1 million voice customers. And we'll be the leading operator in 10 states. And as I said earlier, we'll get marketing efficiencies. We'll get the fees and Charter will be on the Board of GreatLand, and be able to have a role in that company in a significant way.
And we did the deal at 7.125 times EBITDA, carved out EBITDA, which we think is a good deal and we get to leverage our significant tax assets across a bigger footprint.
So the new Charter is well-positioned, we have a highly capable network. We've got superior products, better video, better voice, both in the residential and commercial markets. Our new and legacy assets benefit from our operating strategy.
We have a similar footprint from a growth perspective. When I looked at Charter initially, I thought the fact that it was low penetrated and satellite was high penetrated was the upside of Charter. The upside of Charter and the upside of the new business is the size of its ultimate footprint. All of the unsold homes past inside the fixed infrastructure that has already been deployed, which is superior to the competitors' capabilities in those same areas.
And lastly, we have great tax assets. We have levered equity returns and we think we know how to use our cash effectively. And that's it, thank you very much.
==============================
Questions and Answers
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Courtnee Ulrich, Liberty Media Corporation - VP of IR [1]
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(technical difficulty) to Q&A with Greg and John.
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Greg Maffei, Liberty Media Corporation - President and CEO [2]
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They used to put these out for us, John. I don't know what we did wrong this year. Cost savings (laughter). Vijay?
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Vijay Jayant, ISI Group - Analyst [3]
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Obviously, the prospect of broadband legislation -- regulation is talked about. I just want to get your perspective on what do you think is happening, and how do you think this plays out and the appetite for Charter and Liberty to -- for the consolidated cable?
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Greg Maffei, Liberty Media Corporation - President and CEO [4]
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Sure, not sure what it implies for a couple of things. One is delay in getting the Comcast deal completed. There may be a timing issue while the FCC studies the issue further.
You know, it's unpredictable what government does. My view is it would not change our behavior. We are in a race to get this kind of service into the consumer's home and lock up that opportunity as fast as we can, before other people overbuild this -- upgrade their networks and compete for that same opportunity. So I don't think it will materially affect behavior.
Financial returns could be affected. I doubt that they will be. There's nothing broken about the Internet right now. And it seems to me it's kind of far-fetched to come up with a monopoly theory for broadband. The idea that you can differentiate speeds above 25 megabits from speeds below 25 megabits seems pretty artificial to me in terms of defining a market.
I'm not -- I don't have a degree in antitrust theory, but it does seem to me that that distinction is a reach. And my guess is that Tom Wheeler will be able to thread the needle here and do something that satisfies some cosmetic concerns. But there's really been no abuse that anybody can point to that is material that would justify a heavy-handed government intervention at this point. So that's my guess.
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John Malone, Liberty Media Corporation - Chairman [5]
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It's assured that the way to lower the average increase in broadband speeds in the United States is to talk about more regulation. We've already seen job-owning about people on that. But I'm sure that the spectrum, more government is going to provide less investment. We may capitalize on that by actually moving forward on some things, but I don't think it's going to fundamentally do anything other than lessen the opportunities for consumers.
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John Malone, Liberty Media Corporation - Chairman [6]
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And cable, by the way, is in an enviable position to take its speeds up with much lower risk capital than in a shorter period of time then most of the incumbents.
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Greg Maffei, Liberty Media Corporation - President and CEO [7]
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Tom is offering 60 meg minimum now in his digital footprint and the incremental cost to go above that is fairly attractive. Where's Tom?
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Tom Rutledge, Charter Communications - CEO [8]
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I'm right here.
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Greg Maffei, Liberty Media Corporation - President and CEO [9]
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There --
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Tom Rutledge, Charter Communications - CEO [10]
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Well below any other alternatives. The incremental cost of a cable company, now that we've positioned our spectrum the way we have, which our actual theory was we would go to 100 right now. And we have a pathway through our CableLabs development platform to get to as high as 10 gig over the next several years in terms of capability out of the existing network.
So there's lots of capacity left and the relative capital required to do it is really pump capital as opposed to physical network capital. So it's relatively small dollars in proportion to the size of the business.
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Greg Maffei, Liberty Media Corporation - President and CEO [11]
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Rich?
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Rich Greenfield, BTIG - Analyst [12]
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Thanks, Rich Greenfield, just staying on the theme of broadband. Whether or not we go [Title 2] or not, and hopefully we don't, but assuming whatever happens there, the idea that certainly the government seems to be working very hard to prevent fast lanes or any former prioritized access. And at the same time you're ramping up your underlying speeds to places that I think a few years ago people never foresaw. I mean 60 megs is essentially the standard.
How do you actually charge consumers for differentiated speeds or services when the base level is so high, and the government doesn't want you to have kind of dedicated fast lanes the way you actually do for video services today like HBO and Showtime? How does that play out in terms of the long-term potential of the business?
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John Malone, Liberty Media Corporation - Chairman [13]
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Well, I think you have to differentiate, if you understand the architecture of the hybrid fiber coax plant or actually the fiber plant. You have two issues. One is speed and the other is capacity.
The real issue here is it somebody decides to dump a huge amount of data into the Internet without a funding mechanism to pay for the capacity. In other words, if there's no correlation between pricing and pressure on capacity, then you're pretty well going to have a problem of heavy users dominating use of the transport and squeezing out lighter users. So there has to be some mechanism.
If it's proposed that one-size-fits-all forever at the consumer end, okay, that's socialism. That's a political judgment, not an economic or engineering one. I believe that where this will evolve is the consumer will end up paying for capacity.
Right now, speed levels which are heavily used in Europe as a differentiator, where you can buy multiple tiers of speed, is a proxy for capacity, but not a closely correlated one. And as the Internet becomes faster and faster, and more and more content -- particularly video content goes through it, the pressure is really going to be on network capacity as opposed to peak speeds.
So, you know, somebody in Wheeler's position has got to find the balance to say, on the one hand, we have to have incentives for people to increase speeds and also increase capacity. On the other hand, what we really should be striving for is nondiscriminatory access.
It's really two different things, and a lot of times they get confused in the public dialogue. And I have to -- if I had to bet, I'll bet will end up with a consumer volume charge above some certain threshold of use. And if that's implemented soon and affects very few people, the market will grow into it both from a consumer perspective and a political perspective.
But there has to be some mechanism that ties revenue to pressure on capacity. And unless you really as a political theory want a socialistic system, one-size-fits-all, grandma who seldom checks her email is paying for the neighbor who's got seven TV sets receiving 4K Netflix. It just seems to me inappropriate for the government to make that resource allocation decision.
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Unidentified Company Representative [14]
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Do you think the President was really worried about that, John?
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John Malone, Liberty Media Corporation - Chairman [15]
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I don't think he's thought it through thoroughly (laughter).
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Unidentified Company Representative [16]
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Sir, I'll serve those softballs up for you okay? (laughter)
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Rich Greenfield, BTIG - Analyst [17]
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Just a follow-up, do you think the ISPs should be paying or the consumers? Right now (multiple speakers)
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John Malone, Liberty Media Corporation - Chairman [18]
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I think it probably will evolve to where the ISP pays some nominal thing to improve the connectivity. Right? That's really what went on between Netflix and carriers, right, was peering as opposed to some kind of a charge for fast lane, which is the way it's been described. And that's nonsense. It was a peering arrangement that -- normally in a peering arrangement you've got traffic going both ways.
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Unidentified Company Representative [19]
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Equal traffic.
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John Malone, Liberty Media Corporation - Chairman [20]
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Okay? And your trading off I'm giving you my traffic and you are giving me mine, and we are netting it. In other words that's a normal arrangement. But since Netflix is a one-way only traffic delivery mechanism, but they wanted peering treatment as if they were AT&T versus Comcast, okay, there was a resolution. But I think that publicity is a huge overreach in terms of describing what was really going on there.
At the end I think the consumer pays. Whether the consumer pays the distributor or whether the consumer pays the product supplier, the consumer is going to pay. If it requires more investment and more capacity, the consumer will end up paying. The question is will all consumers pay the same or will some consumers pay more because they are using a lot more. And I think that's kind of the balance that I see has to be reached.
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Greg Maffei, Liberty Media Corporation - President and CEO [21]
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Well, and these content providers were cutting deals with traditional ISPs, not consumer-facing ISPs, but in many cases traditional ISPs, paying for peering because they had unbalanced peering. And they decided it was more attractive to cut the deal directly with Comcast. And then to say, oh, my goodness, the deal we cut was wrong -- well, you'd be paying some other ISP or you're paying Comcast. I think it's wonderful verbiage. Jeff?
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Jeff Wlodarczak, Pivotal Research Group - Analyst [22]
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I wanted to get your thoughts on DVDs and a lot of noise (technical difficulty) -- thanks. I wanted to get you all's thoughts around pay-TV and effects of digital OTT, and what you view as sort of the long-term outlook is for pay-TV. Thanks.
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Greg Maffei, Liberty Media Corporation - President and CEO [23]
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Pass it to you, John.
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John Malone, Liberty Media Corporation - Chairman [24]
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Yes, well, I think the current model where consumers have to buy $70 worth of video before they can buy a pay service has got to come apart, because we now have the Netflix equivalent going direct to the consumer, and therefore the marginal cost to the consumer of Netflix looks very cheap as a video service. So, the marketplace has got to find a solution for that.
HBO has announced kind of an over-the-top effort. It's not really a Netflix effort, it's more supplemental. But that business, the appetite of the public to watch original content primarily and first-run movies is a pretty strong demand. The question is what's the business model? And historically the business model is to stack premium as a buy through from the big bundle.
And I predicted that model will change over time. And in some cases, it will change with the cooperation and involvement of the distributor, particularly as you make the transition from linear to random-access. It does change the character of the service offering, even if the content is essentially the same. So there's got to be an adaptation to that.
The cable industry had an opportunity for TV everywhere four or five, six years ago and unfortunately didn't accelerate the implementation of that. If they had done that, it would've been much less appetite for Netflix.
Now what you see in, say, Xfinity or what Tom is doing, is increasing the free VOD offering. So there's going to be a lot of random access television offered on a free basis, on an incrementally free basis as well as on a premium basis. And I think the consumer will have to sort this out and decide how much and what they want.
I don't believe that we are going to see 27 different over the top services that the consumer is going to have an additional relationship with. I just don't see it going that way. I don't think the consumer wants that much trouble in their lives.
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Greg Maffei, Liberty Media Corporation - President and CEO [25]
------------------------------
And this trend or this pressure is being caused by two things. You have seen content costs in the bundle increasing at rates faster than inflation by big percentages, particularly for sports. So you're driving a huge umbrella under which new technology offerings with wide scale and low cost, Netflix, provide a very attractive alternative.
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John Malone, Liberty Media Corporation - Chairman [26]
------------------------------
Yes, and I think it's important on behalf of the pay services which we happen to be involved in, one of them, that they have relatively low penetration and zero marginal cost. So, on the one hand, it's a wonderful opportunity for them to get out from under the stack and offer their services at a much lower perceived cost to the consumer, and therefore expect volume market share increases over time.
So, it cuts a lot of different ways. A lot of it is just industrial relationships that have to be worked through as consumer demands shift.
------------------------------
Greg Maffei, Liberty Media Corporation - President and CEO [27]
------------------------------
One over here, right here, sorry.
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Tuna Amobi, S&P Capital IQ - Analyst [28]
------------------------------
Tuna Amobi, S&P Capital IQ. So, John I wanted to get your sense on scale. I know that Charter has standstill provisions up until year four, for GreatLand, and I'm wondering what's your view beyond that and how -- what role do you think you can play, and how big you think you need to get to realize all of the scale economies that you've talked about the past.
Then separately for Greg, I wanted to get your take. You mentioned earlier in your presentation that Spotify and Pandora, that you know you were raising questions about their business model. I don't know if you meant that literally or figuratively, but I wanted to -- (multiple speakers)
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Greg Maffei, Liberty Media Corporation - President and CEO [29]
------------------------------
We are only literal here (laughter).
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Tuna Amobi, S&P Capital IQ - Analyst [30]
------------------------------
With regard to Sirius and streaming, how do you view the streaming opportunity? Clearly there is work that's been done. But the monetization seems to be lagging, and that's one of the concerns is how big of an opportunity, so that Sirius can keep up with the trends in there.
------------------------------
John Malone, Liberty Media Corporation - Chairman [31]
------------------------------
Well, first of all, on scale, as Charter sits right now -- assuming the deal as discussed goes forward -- they will have pulled off what I regard as somewhat of a miracle. They've doubled the size of the company and they are going to issue roughly 10% incremental share dilution. So that's scale, okay?
The world box that Tom is talking about is scale. You don't have to consolidate ownership necessarily to benefit from scale. Cooperation in amongst players is an important ingredient in scale. I'm going to bet that there's more efficiency and synergy in the market consolidation of the trades that Tom is doing, than there is in just the absolute increase in the size. So that's another element of scale local market rationalization as opposed to universal scale.
That said, I believe that as these technologies become more complicated, just the ability to offer them to a consumer in a rational way is going to drive consolidation of ownership. Small guys just can't do what Tom's doing, because there's just no way. They're not going to have the ability to have virtual call centers. They're not going to have the ability, even if they had the scale, to buy world equipment, world boxes. They're not going to have the technical staff to be able to keep up with it.
So all of these things are driving toward a larger ownership. And then within that, the whole thing has to go global, because the people you are ultimately competing with our selling their products and services on a global, a world scale, not just a subset of a nation, but a global.
I mean when you look at the extra zero, one or two zeros that all of the Internet-based guys are looking at as their target markets, these are huge numbers. And we have to think in terms of global scale for cost, for technology development, and so on. So it has multiple layers.
Some of them can be achieved just through cooperation. B2B for instance, should be a branded cooperative thing across the national footprint. Wi-Fi, I mean for instance Liberty Global that we are involved in has already done a Wi-Fi universal deal with Comcast.
So if you're roaming on Wi-Fi in Europe or in the Comcast footprint, it all works. It's all authenticated, and so you can bring your video package with you, for instance, when you travel with -- seamlessly. Those kinds of scale-driven corporations will enable what is otherwise a balkanized cable industry to more effectively compete with the big guys.
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Greg Maffei, Liberty Media Corporation - President and CEO [32]
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As far as the pure streaming businesses, I think that model is a very tough model when you look at both what they are paying for their paid subscribers, what they owe in content costs, when you throw in carriage costs and the like. And then you look at their ability to actually convert and, A, first monetize; and, B, convert their free to that pay, which is still relatively low margin, and that's not clear.
You're seeing the artists unhappy with what they perceive as the continued commoditization because yes, Spotify might have $50 million; $10 million or $12 million are from pay, $40 million plus of whom are free, what are you training the consumer to do? We're back almost to piracy. They don't -- the average 15-year-old doesn't think to pay for music.
It's not a long-term good trend for Taylor Swift. It's not a long-term good trend for Universal Music, it's not a long-term good trend for the health of the Spotify business, I would argue. So I think that those models are inherently unstable and have lots of issues.
Sirius, as I think Jim Meyer articulated this morning, has a very different model where content is clearly valued, artists are clearly valued. Do we need to extend our capabilities and be able to do more to provide our customers, our capabilities in the home, in the office, mobile-ly. That's probably something that's important to us. But I think that's as much about our customer retention. It's almost like HBO Go as it is about building a great opportunity on top of what's out there.
Okay. We've got one over here, Matthew.
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Unidentified Audience Member [33]
------------------------------
Can you talk about small cell opportunities and cable's potential role in these head nets? I know I guess it's even more dark matter in terms of the long-term complexity, but it feels like it's an interesting opportunity longer-term at least.
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Greg Maffei, Liberty Media Corporation - President and CEO [34]
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Tom, I know small cell, do you want to talk about small cell in your territory?
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Tom Rutledge, Charter Communications - CEO [35]
------------------------------
Sure. Well, first of all, Wi-Fi is small cell, if you really think about it. It's just unlicensed spectrum with very small cells. And there are opportunities to do that in the home and pole mounted or strand mounted with both licensed and unlicensed spectrum.
So Cablevision has done really a significant infrastructure project business rolling out over 40,000 whole mounted Wi-Fi hotspots in places where people work and gather and play. So that the broadband relationship that they've established is carried out into the public space. And then your voice product can ride on that as well.
There are opportunities for cable companies to own spectrum which it can use with other unlicensed spectrum in small cells and have relationships with large cells. And the products that we have can work in a hybrid fashion. And I think if you look at the way Charter's assets were put together in this latest deal, one of the thought processes is that ultimately we want to go into the business where we are selling a mobile service. And if you have a regional presence, your ability to do that is probably greater, both to acquire spectrum and to manage the subscriber relationships.
So I think our future is in some sort of small cell relationship with licensed spectrum selling products. And I think the most interesting thing about the whole business today is that Verizon's customers who buy LTE from them get the majority of bits they use on their service through our Wi-Fi network. Meaning, they've established a billing relationship for a data service which we are providing. And that seems --
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John Malone, Liberty Media Corporation - Chairman [36]
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Seems like an opportunity to me, exactly. (multiple speakers) We might say Tom the trend, of course, has been for some of the wildest companies to do and acquire terrestrial network footprint. Vodafone is the most noteworthy recently; KDDI in Japan.
So this idea that to be a really successful wireless company you might need the capacity of terrestrial presence and interconnect and backhaul cable and wireless is a good example that -- [I don't know the first thing about it].
This coming together and essentially recognizing that a huge proportion of the bips that are going over and being built for our actually Wi-Fi bips. And the ability to transport the bulk of it on the terrestrial network with no spectrum cost is an important potential issue for the pure cellular companies. So it's an interesting long-term cost efficiency capacity equation that people are trying to solve for.
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Unidentified Company Representative [37]
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Right here.
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Ben Swinburne, Morgan Stanley - Analyst [38]
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Ben Swinburne for Morgan Stanley. I wanted to ask a question on media and on broadband. So, on Liberty Media, Greg, is there a number at which Liberty's ownership of SIRI becomes sub-optimal structurally as they buy back stock and participate? Is there some collapsing of their structure down the road that might make sense?
And on the broadband side for both of you, Greg this morning you had a post fund at the end of the media bundle and Viacom a little bit. I'm sure it was all in good --
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Greg Maffei, Liberty Media Corporation - President and CEO [39]
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We, josh around here? What? (laughter)
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Ben Swinburne, Morgan Stanley - Analyst [40]
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But, I'm curious if you think this [sudden link] decision to drop Viacom is a one-off or a real sign of change? Charlie has got Turner up right now, and he certainly sounding like someone who doesn't know if he's going to go sign the contract. So is this -- are we really seeing a fraying of the bundle or is this more noise from your perspective?
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Greg Maffei, Liberty Media Corporation - President and CEO [41]
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So, on the first question, I think once we are over 50, which we are at SIRI, I'm not sure there's anything fundamentally that changes until you get to 80, and tax consolidation -- needs to be some adjustments in the value between ourselves and the other SIRI shareholders. I'm sure the SIRI independents at some point might ask when does liquidity decline enough that the changes fundamentally the nature of the stock.
Fortunately, that's not my problem. That's theirs. I'm being a little bit flip, I don't think -- it's a continuum, that's not a clip for something. So I don't think there's a number other than that 80 of that tax consolidation. On the second point about the bundle fraying, do you want to go first, John?
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John Malone, Liberty Media Corporation - Chairman [42]
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Well, I think you're seeing increasing friction because of the price pressures on content. And you know, so much of the oxygen has been taken out of the room by sports and the rising cost of sports that it's putting pressure on the distributors who are attempting to control costs wherever they can. And they are more likely to put pressure back on the weaker suppliers than the ones that they'd like to retaliate on, but they can't. I think that's the phenomenon you see going on.
And it's a challenge to diversity, basically. But it really is the phenomenon that we are seeing. If 80% of the incremental price pass-through is going to the sports supplier, right, there's very little room for inflation or budget -- budgetary increases for the non-sports driven.
And keep in mind broadcast television re-trans is basically sports driven. I think the numbers wouldn't look anything like they are, if it wasn't for the major sports that are on the broadcast distribution.
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Greg Maffei, Liberty Media Corporation - President and CEO [43]
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I think this is sort of back to one of the second or third questions. The combination of that increasing bundle, driven in part or in main by sports but not only, and then exacerbated by new technologies.
You mentioned Charlie, who has been the most vocal about my kids don't watch, they think I'm stupid. I'm going down this road. I'm going to create an over-the-top service and I'm going to buy a lot of spectrum. Charlie has voted with his dollars about where he thinks the future is.
I don't know, Tom, if you'd add anything to this discussion?
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Tom Rutledge, Charter Communications - CEO [44]
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Well, the only thing that I would add is that -- I think what John said is right. Somebody punches you and then you punch someone else (laughter). But the one you punch is the one who is weakest.
And what weak means is if the product is available elsewhere, if they've sold their relationship to you to other people, and your customers can go get that and actually get the perceived value of it because they enjoy the product, they've put themselves in a position where it's costless to take them out. And some people have pushed that envelope.
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Ben Swinburne, Morgan Stanley - Analyst [45]
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Thank you.
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Craig Moffett, MoffettNathanson - Analyst [46]
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Craig Moffett of MoffettNathanson. If the Comcast deal were to break for any reason, would you resume your pursuit of Time Warner Cable?
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John Malone, Liberty Media Corporation - Chairman [47]
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Hell, yes. (laughter)
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Greg Maffei, Liberty Media Corporation - President and CEO [48]
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We are going to be a little more circumspect. Time, we'll see what this thing looks like and whether it's attractive at that moment. How does it look? (laughter)
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John Malone, Liberty Media Corporation - Chairman [49]
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But that said, we're totally happy with the deal that's been negotiated. And in many ways -- and I'm speaking now from a Liberty Broadband perspective. We're perfectly happy with the deal that's been negotiated. And in many ways, from our point of view, it's a better deal than going after 100% of the deal.
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Greg Maffei, Liberty Media Corporation - President and CEO [50]
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Take the mic from Tom in case we get another answer (laughter).
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Craig Moffett, MoffettNathanson - Analyst [51]
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And then just a follow-up if I could, in the event that it does proceed as expected, then the follow-up would be as you think about consolidation targets, how do you prioritize the screening of potential targets? Is it the clustering benefit with what you already have? Is it the fiber overlap that you talked about in your presentation? What are the criteria that you would say make the potential targets most (multiple speakers)
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John Malone, Liberty Media Corporation - Chairman [52]
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I'm sure it's all the above. It's marginal investment for anticipated return. And obviously, it's always a target of opportunity. You can't buy things that aren't for sale, and you pay too much if you try. So it has to be a coming together of needs on the part of the current investors, and opportunities to improve the economics overall on the part of Charter.
And I think you would normally add bandwidth of management. But I think in the case of Charter, bandwidth is infinite and -- (laughter).
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Greg Maffei, Liberty Media Corporation - President and CEO [53]
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One last question and I think we'll finish with you, Barton.
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Barton Crockett, FBR Capital Markets & Co. - Analyst [54]
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I was interested in Liberty Media. So you have capacity there, liquidity if you wanted to tap it to do other investments at Liberty Media. What's your appetite to do that? It's clear at Ventures, you're looking at things. Broadband, Liberty Broadband, you've got your kind of roadmap laid out. Liberty Media -- is there anything appealing or how would you describe that?
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Greg Maffei, Liberty Media Corporation - President and CEO [55]
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Well, Liberty Media, the other title for the slide, which was shaken off was -- the subtitle was for Liberty Media was Liberty Media, and by that we mean music and the Braves.
Look, we are concentrating far more. You can see the incremental investment we made in Live Nation's business. Effectively, we're making incremental investment by not participating in the buyback at Sirius XM. It isn't an incremental investment of cash but it's an incremental opportunity where we are not taking our pro rata share.
I think we are looking for things that are synergistic around there. We are opportunistic about times when those businesses are attractive to put incremental capital in. And we'll try and be helpful for them. If they want to extend their business, we've had those kinds of discussions Michael about places where we might be helpful and we'll see how that goes.
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Greg Maffei, Liberty Media Corporation - President and CEO [56]
------------------------------
So with that, I think we're just a couple minutes past our designated end time. I want to thank you for your interest in Liberty and joining us, and hopefully we'll see you next year, if not before.
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