Liberty Interactive Corp, Liberty Broadband Corp and Liberty Media Corp at Moffettnathanson Media & Communications Summit
May 18, 2016 AM EDT
FWONA - Liberty Media Corp
Liberty Interactive Corp, Liberty Broadband Corp and Liberty Media Corp at Moffettnathanson Media & Communications Summit
May 18, 2016 / 07:00PM GMT
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Corporate Participants
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* Greg Maffei
Liberty Interactive Corporation - President, CEO
* Shane Kleinstein
Liberty Interactive Corporation - IR Manager
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Presentation
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Unidentified Participant [1]
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So, first of all, thank you all for coming. And for those of you listening to the webcast, thank you for joining us for the third annual MoffettNathanson Media & Communications Summit. And I am delighted to be joined by Greg Maffei, who is with us for the third consecutive year.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [2]
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Actually, that's not quite --
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Unidentified Participant [3]
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I'm sorry, second time (multiple speakers) --
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Greg Maffei, Liberty Interactive Corporation - President, CEO [4]
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I was there for the inaugural. (multiple speakers)
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Unidentified Participant [5]
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And then he took a -- you took a hiatus last year.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [6]
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Exactly.
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Unidentified Participant [7]
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I was remembering that movie Quiz Show, and I thought maybe I was going to try to trip you up, and --
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Greg Maffei, Liberty Interactive Corporation - President, CEO [8]
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It's easy to do.
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Unidentified Participant [9]
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Just like tripping up the guy when they asked him his Social Security number, I was going to see if you could name all of the Liberty tickers.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [10]
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You know what we have?
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Unidentified Participant [11]
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These are eight new ones this morning.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [12]
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We have a -- it's the 25th anniversary of Liberty. Liberty is about 25 years old in like two months. And for the 25th anniversary we put together a T-shirt. And if you buy $10 billion of Liberty stock I'll get you one. But the T-shirt has a Liberty logo. It's a very nice, athletics, wicking T-shirt. On the back it has a 25 in white, and inside the white outline 25 is all of the tickers we've had in history.
Now, the research project of some lawyer who had to figure out all of our tickers -- that would be the real quiz show. But it's -- Shane, are you in this room? Shane, how many tickers was it?
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Shane Kleinstein, Liberty Interactive Corporation - IR Manager [13]
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A lot.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [14]
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Shane, that's an imprecise number for you. Anyway, there have been a lot of tickers in Liberty's history.
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Unidentified Participant [15]
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It's actually perfect timing, because we are quickly after the Charter deal. We will start on Charter in a second. But first, can you just talk a little bit more about the specifics of the tracking stock recap and what catalyzed it and where we are now?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [16]
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Well, look, if you look, Liberty Media itself is really -- and remember we, as you point out, have spun off Liberty Trip. We have Liberty Interactive and we have Liberty Broadband. But let's just look at Liberty Media itself. It's got one primary element, which is Sirius XM. It's got a very different kind of element in the Atlanta Braves. And then it has a mishmash of things which are in Liberty Media Group, LMG.
And for those who have some history with us, it's the version of Liberty Capital, 2016, the last one that's left; it doesn't make a lot of sense. But we tried to provide clarity around the other two, so that we have Sirius XM and LSXM, and we have BATRS representing our interest in the Braves. And they are relatively pure.
And part of the reason why is most of the time -- and it's anathema, I'm sorry, for you hedgies. We don't care about the mark to market because we are playing for the day when we get liquidity. And the fact that it's trading at a discount is usually an opportunity.
We have been huge net purchasers of stock over our history. And I think if you look back to LM, Liberty Media itself, since we spun it from Liberty Interactive we bought back 55% of the Company in the nine or 10 years.
And if you look at Liberty Interactive, we bought, I think, 42% of the Company back or something like that. So big percentages. So trading at a discount is a buffer for value for us.
The time we care about is when you have to do something. And we have made it clear in the future that we would like to consolidate the rest of Sirius XM. So having a fully valued security would be interesting.
At some point I think the Braves would be fair to be on their own. So we have set that in place, but we'll see what happens in the interim.
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Unidentified Participant [17]
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I'm not sure it's going to be reassuring to people to hear it, but it sounds like the fact that it trades at a discount to NAV is actually a good thing. Right?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [18]
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In the short term. I recognize it creates a little tension. I've been in these sessions before with investors and explained John Malone's holding period is forever. The average hedge fund's is however many minutes you guys want to talk about. And John's job has been to stretch me to at least be five or seven years.
And really what we care about is the day that we get full value on liquidity. And I recognize that creates a tension between some of our holders and us. But that is the way we have basically run the place, to try and be as if we are long-term owners and, if there are discounts, take advantage of them, make sure we get full value on the day we seek liquidity.
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Unidentified Participant [19]
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So it looks like, of the trackers, the Sirius tracker looks like it creates some ability to leverage that for additional financing. Can you add some color, maybe, to the kinds of things you might do with that?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [20]
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Yes. I think you are right in that analysis. And we've talked about these things before, and I may very well expect to see them. An obvious one would be some kind of an exchangeable, where we sold a security convertible into the underlying shares of Sirius XM, and we bought back LSXM because it's trading at, I don't know -- 11%, 12%, 13% discount, depending on how you look at it. So that would be an obvious way to try and capture some of that value.
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Unidentified Participant [21]
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And lastly, so you noted in the past, I think, that Vivendi has used up all of your tax shields. But suffice to say I think there's anybody thinking you're about to start paying a lot of taxes. So, what are some of the additional opportunities that you've got to preserve tax efficiencies?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [22]
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Candidly, it's very difficult at Liberty Media. At Liberty Interactive we've done a whole series of these solar deals and coal refining deals and those things which have a lot of positive tax attributes. But that is a cash taxpayer; QVC, massive cash taxpayer, which we try and shield.
Most of the taxes that are to be paid at Liberty Media post Vivendi are not really like we are earning net income. We don't consolidate for tax purposes anything but a very few companies, including the Braves, which is not a huge earner.
The gains that we are looking at there are largely gains that would result from a sale of an interest, something like if we sold Sirius XM, given we have a very low tax basis in that. We pay corporate level tax and then we'd have to distribute money to our shareholders and they would pay some level of tax.
There is zero chance of that happening. We're not going to pay that corporate level tax.
So I don't think there's that many ways we are going to create more shields at Liberty Media, per se. But what I think is, is anything we do to realize value is likely to try and be tax efficient on any of the main assets, which would be primarily Sirius or the Braves.
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Unidentified Participant [23]
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Okay. So now, obviously, today is a pretty auspicious day for you because the biggest transaction -- I guess the biggest transaction you've done closed this morning. So I promise --
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Greg Maffei, Liberty Interactive Corporation - President, CEO [24]
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I tried to orchestrate my coming (multiple speakers) this day.
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Unidentified Participant [25]
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We did it that way; we scheduled the conference for today with that in mind. I promise you nobody from the SEC is listening.
What were the surprises along the way from the DOJ and the FCC? And what do you make of that process now, with all the freshness of being one day in the rearview mirror?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [26]
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I think that my observation would be that Silicon Valley has a lot of influence at the FCC and that they have a lot of voice. I read somewhere that the Google lobbyist had visited the White House 128 times during the course of this administration.
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Unidentified Participant [27]
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No, it was 427, I think, was the number, or something like that. Wasn't it?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [28]
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Some massive number.
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Unidentified Participant [29]
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Yes, it's an unbelievable number.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [30]
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And cable --
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Unidentified Participant [31]
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Still waiting for the invitation.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [32]
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Has not -- Brian playing golf didn't help (laughter). So I'm not sure why the voice has been clearly stronger for some groups than others with that administration. That's my observation.
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Unidentified Participant [33]
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I think everybody is breathing, is saying, okay, it worked the way it was supposed to this morning when the stock price stepped up by 10%, exactly as expected, in the current exchange ratio. But can you put some just color on what was the motivation for that current exchange ratio change?
I think it dated back to last June or something like that when you talked about it. But what was the motivation for that?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [34]
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I think it was just the math and how it worked with Time Warner in terms of 100 or 115 versus our share count into New Charter.
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Unidentified Participant [35]
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Okay. Because my understanding is why -- shrinking the share count overall was driven at the Liberty level for some reason.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [36]
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No. No, no. The things that we drove, which I -- were we obviously pushed to have a fixed price we were buying in at, and we were buying in at something like $176.95, which we thought was pretty attractive for Liberty Broadband to commit. And our partners, some of whom are probably here, committed alongside. We thought that was a pretty attractive price to be buying Charter at.
And that $176.95 is now not $176.95; that's $191 or something like that or $190, whatever the math is. I've got to get my head -- I knew very well the old numbers --
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Unidentified Participant [37]
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(multiple speakers) call it 10%.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [38]
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$56.23 and $176.95. But I don't have the share count adjusted.
But our big pushes were to have all of our Time Warner stock and all of our Charter stock convert into New Charter and not into a cash split. So we bought in, and not only that, we converted those we had into all stock.
Why? A, we like the valuation, we like the price. And are bullish on the stock. And, B, we wanted to have as much as we could for regulatory reasons around the Investment Company Act and the like.
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Unidentified Participant [39]
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Now, let's dig into the deal a little bit. And I want to start with the conditions on the deal.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [40]
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By the way, just to say, it was three years ago next month that I had lunch with Glenn Britt, the late Glenn Britt, that started that whole -- so it was a long, long process.
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Unidentified Participant [41]
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It really was. I think I remember talking to you at the very beginning of that process and a couple of times along the way. And there were a lot of twists and turns to end up where -- in some ways, to end up where we started.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [42]
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Right. The amazing thing is that I think when it started we didn't believe Comcast would be able to overbid, that they would have a regulatory issue. And then we all became convinced, once they bid, oh yes, they will get this done. Until the moment like a month before they couldn't get it done.
It was amazing how we all had a herd mentality one way, including us, Liberty including Charter, and then we had a whole herd mentality the other way. They can't do it, they can do it; oops, they can't.
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Unidentified Participant [43]
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Well, so you got it done but with conditions that you described last week on your call as -- the word you used was meaningful but not entirely harmful, I think, was a paraphrase.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [44]
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That's more articulate than I -- I wish I had thought of that.
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Unidentified Participant [45]
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Can you talk about -- in the context of $800 million of transaction synergies just on the TWC side, do the conditions affect that at all, the concessions that you had to give?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [46]
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No, I don't believe they really go to that point. I think I talked about on that call, they really go to optionality. If you are asking the question -- making agreements that go seven years or, in the best case, if there's a change in the marketplace, perhaps five years where you can get reevaluated on what your business can do, that's not a preference. You'd rather have optionality to have flexibility. You don't know how the market is going to evolve. You don't know how you are going to want to change how you price, how you go to market.
And so I think it's not a question of against those $800 million, which are primarily cost synergies, but against what you might want to do with how you manage the business.
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Unidentified Participant [47]
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I was surprised in reading the document, and I'll admit that at 500-and-some-odd pages I haven't gotten through every page yet. But I'm getting there. But I was surprised in reading the document that there was a flavor in the report and order -- or the order, that suggests you were very close to doing, in the FCC's mind, close to doing usage-based pricing.
I didn't get a chance to ask Tom that question yesterday. But is that right? That usage-based pricing was maybe more on the business plan than I would've thought?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [48]
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You know, I think I go back. There's not a lot of that in the marketplace. I think people are going to experiment and people have experimented, including Time Warner, in diverse places. It's just a question of how the market is going to evolve.
I use the analogy -- I came from Microsoft. And for a long time, when the Wintel duopoly was going on, you knew you had a 286, you knew you had a 386, you wanted to get a 486 and a Pentium. And today I guarantee you have no idea what clock speed your processors are. It's just not what is relevant.
In a way, it's the same thing. We are going to go from a world somewhere down the road where, hey, I got 25 meg, I got 60 meg, I got a gig, to you are not going to know or care. And so, the ability to price and sell people up on packages with broader speeds, faster speeds, is not going to be the metric.
So I think having some ability to say, look, it's going to be consumption-based would be nice flexibility. I don't know when that date is but it's nice flexibility.
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Unidentified Participant [49]
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Does the fact that Comcast, 48 hours after the memo about your deal came out, raised their caps from 300 to 1 terabyte, does that push that off so far in the future that it becomes irrelevant, though?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [50]
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Again, I start with I don't know how it's going to evolve. And I don't think anyone knows with certainty how the market is going to evolve. It's just a question of at what point are you no longer able to sell faster speeds to upsell it; you've got to move to another kind of model.
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Unidentified Participant [51]
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Talk to me about the competitive overbuild commitment.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [52]
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Yes; I think you were correct in your reading. I reread the Charter piece you wrote, and I think you were right that some of the marketplace -- not so much, I think, a sophisticated audience like this, but the popular press, like the papers or something -- wrote that we had to overbuild 1 million homes.
And there is a commitment to build out 2 million homes, of which in a 50 million passing that's not an enormous commitment. And the million home is really into a competitive marketplace where the definition of competition is if there is another provider of 25 meg or more.
And that could be a telco, that could be -- frankly, I think you could make a case it's a 5G offering. There are lots of ways you could get to 25 meg. It doesn't necessarily mean we're going to go into East Hampton and overbuild Dexter Goei over at Cablevision. I don't think that's necessarily -- not necessarily a requirement.
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Unidentified Participant [53]
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Let's talk about the cable business in the US. Q1 results -- it wasn't just Comcast, it wasn't just Charter. Everybody seems to be doing pretty well in cable right now. Broadband results, video results, whatever the metric.
Is that a surprise to you in the US? Or is that what you and John always said, look, the infrastructure is going to win and we want to get ahead of that?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [54]
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John, probably more than many, has been a longtime believer that the cable infrastructure was the winner and that the ability to do relatively low-cost upgrades on broadband, with DOCSIS, was a great model for increasing cash flows in the cable business in a way probably that the cable business has always been, oh, next year we are going to have free cash flow or more free cash flow, finally comes to pass. And that model has worked.
We have been fortuitous -- we were fortuitous in our timing I think on the initial investment. And then on the subsequent one I still think we are pretty fortuitous. But we do think we have a competitive advantage in infrastructure. It's not an infinite advantage but it's a competitive advantage.
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Unidentified Participant [55]
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Upstairs I was talking about wireless. And I was making the argument that in the future this idea that there is a wireless network and there's a wireline network and maybe there's a way to cross-sell products is going to be the wrong way to think about it. There's just going to be a network. And enough density in the wireless network, it starts to look like a wired network anyway.
So aren't we just talking about convergence of networks? Is that the way you think about the evolution of the network, too?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [56]
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I think your analysis is right in the sense that I don't think you are going to see pure purity in one way or another, and there's going to be a need for last-mile connectivity that require wireless and there are going to be the ones that are favored by wired. But I would note that in a lot of cases even providing wireless is going to need some form of distributed network to backhaul traffic.
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Unidentified Participant [57]
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Yes.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [58]
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And the cable infrastructure is pretty effective at that.
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Unidentified Participant [59]
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That's one, right?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [60]
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Pretty effective.
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Unidentified Participant [61]
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But if I extrapolate from that, doesn't that mean that ultimately the question of whether cable is in the wireless business is self-evident, of course they are?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [62]
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Well, one of the questions is how much will we be a provider of wireless in a way that customers think about it today. I go to the AT&T store or the Verizon store, buy a handset, do all those things. My friend John Stanton, a very smart guy in wireless, rightly points out that cable really doesn't have a brand for that that stands for great stuff, doesn't have a lot of retail stores, doesn't have a --
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Unidentified Participant [63]
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Thank goodness DirecTV does.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [64]
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Doesn't have that perspective. Now, we have a network that's very effective. But there are other parts of that chain, the way the market is constructed today, we are not very deep in at all.
Where do you go to buy your cable box? Well, before the FCC changes it, that's not something consumers think about, going to the spectrum store.
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Unidentified Participant [65]
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So is that the big hurdle?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [66]
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No, I just think it also -- it's not an easy business with handsets needing to be subsidized or being quite expensive. And that's obviously evolving, too, but that's -- they (multiple speakers) value being sucked out of that handset market.
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Unidentified Participant [67]
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But there's one argument that would say, as backhaul becomes the primary source of competitive advantage and the wired network becomes the source of competitive advantage, on the other hand, the other big source of competitive advantage is your retail distribution network, where we are sorely lacking. Which of those things is a bigger problem?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [68]
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I think that will be the challenge. I think you are dead right that there are elements that we don't have, like that retail presence, like the brand. And there are other elements where, when you read about 5G, you are going to need a hell of a lot of network density that I don't think some of these providers have without help. So that will be the tension.
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Unidentified Participant [69]
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I asked Mike on this stage a couple of minutes ago whether he likes the US regulatory environment or, as somebody who sees both -- the US regulatory environment or the European regulatory environment. What about you?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [70]
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Well, I think he made some comments last year already about that.
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Unidentified Participant [71]
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He did, yes, at the cable show.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [72]
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But not as helpful, probably, as it could be. So I don't know enough about the -- he obviously prefers the European one. So I'm living in the US one, so we will leave it at that.
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Unidentified Participant [73]
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Okay. Let's talk about OTT for a second, as somebody who has straddled media and distribution. Everybody has said that this is a big year for OTT, now that Hulu is coming. I guess I could play devil's advocate, though, and say, well, I know everybody is saying it's a $40 product for Hulu because that's what the market demands, and therefore they will.
To say, really? Are they going to declare war on their existing distribution model and then have to raise prices to consumers 10% every year and have to staff up a marketing organization and have to prepare for the customer service transaction machine that adds and drops create? How is it going to play out, in your mind? What are you expecting to see?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [74]
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With respect just to Hulu or with respect to the broader market?
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Unidentified Participant [75]
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Well, Hulu is in some ways the perfect petri dish because the content owners -- because content owners own it, you can skip over a lot of the licensing issues.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [76]
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Yes, but it has its own set of problems. A three-headed Cerberus; I mean they're directionally challenged by who goes which way. And obviously, though Comcast may not be a -- supposed to be an active voice in that, they do have a distribution arm as well. So I think that's not necessarily perfect.
Do you really think HBO is prepared to -- let's take someone -- HBO is prepared to give up on their MVPD distribution? That would seem like a very hard row for them to hoe.
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Unidentified Participant [77]
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And what about a Fox or a Disney or a --?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [78]
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I think they will -- sometimes cases talk the talk, but they will walk that line very slowly. There's a lot more at risk, it strikes me, if you are Disney and Fox, then there is to gain. You're going to have to be very careful about how you try and slice the baloney thinner without cutting -- without the customer basically saying, I'm not buying.
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Unidentified Participant [79]
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So what do you expect to see, then? In the real world, what does that product look like, assuming that they deliver on the time frame they've set?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [80]
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Well, it will be fascinating to watch. Look at CBS here, right? CBS has made some statements about where they think they will be by 2020 and how many homes they will have. We'll see.
How much HBO really has gained at that $15 price, how much demand is there for HBO? I think it's interesting. If you invert the model, you can make a good case why the premiums -- like Starz, like HBO -- have a real incentive, because they are trying to get in front of a big bundle. And so for the premiums I get the story. They have a lot easier time to sell.
But for the traditionals, it seems to me a much harder model for the basics to try and say where the extra value is here. And ESPN strikes me as the prime case of it's a hard, hard row to hoe, to see how they've got it better.
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Unidentified Participant [81]
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Well, let's stay with ESPN, because until recently it was something everybody carried. Now it is maybe the place where people ask the most questions about what role sports will play. What are some of your observations about sports carriage now, as owner of the Braves and basically what you know from Atlanta?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [82]
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Well, we are in a different situation with the Braves. When we bought the Braves, we paid what was relatively a low price for the Braves. It was a structure that was particularly attractive. We got a bunch of tax advantages.
But the low price was in part because it had a 21-year deal which was the longest deal ever allowed. And subsequently went back and parts of it were recut because baseball doesn't like the idea that you are sucking all the value out of the team and sticking it over here on a network.
And Time Warner effectively did that with a low, long-term rate both to the regional sports network and to Fox, where they sold that rights off and baseball didn't get its share. Some of that subsequently got recut. So now, instead of being 21 years out, we are 10 years out or 11 years out from finding out what a free market price for the Braves is or getting another chance to bid on that. So we are in a little bit of a different position.
Do I think the RSN market is going to change quite a bit? I think you can make the case; look what happened out there in LA, where the -- we are on the other side of it where -- because in the purchase of Time Warner Cable we inherited that Dodger contract at a price which is a very large price. Such that only -- then there's politics around it, but only 30% of the market is getting the Dodgers. That's probably not a long-term sustainable condition. So we will see how it all evolves.
But ESPN was the ultimate AAA bond, right? Priced to perfection on everything, full carriage, full prices, good rates, good viewing, good ad rates. And every element of that is getting ticked a little.
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Unidentified Participant [83]
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Is that your way of saying you are short the bond market?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [84]
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No, actually. It's just a way of saying (multiple speakers) no, it's like Mike Millikan. AAA bonds can only go one way, right, so that's his argument.
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Unidentified Participant [85]
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By the way, you will have cards on your seats and you can pass the cards to the center and Robin will pick them up and bring them --
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Greg Maffei, Liberty Interactive Corporation - President, CEO [86]
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Look, I'm jealous. Was there a better business than ESPN ever? One of the all-time great businesses; still a great business but maybe not priced quite to perfection the way it once was.
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Unidentified Participant [87]
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Last question on Charter before we move to Sirius, and that's -- now that the deal is already a couple of hours old, it's time to start looking out to the next deal.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [88]
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I don't think that's right. I think there's a lot to be done with this team, as I think they are well-equipped to do it. Tom, John Bickham, Chris Winfrey, the whole team there is well-equipped to do it all.
But they now have to go out and deliver on that which was promised. And that's not without -- that's not -- it doesn't come totally easy.
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Unidentified Participant [89]
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Are there small opportunities? Now, I know there are small opportunities for -- that were specifically highlighted around meeting the condition for the overbuild, for example. But outside of that, is it attractive to say I want to do rollups, or is the burden of doing billing systems and things like that not worth it?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [90]
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I think rollups could be attractive. But let's be real. There's not much left to roll up, of scale. Right? You've got, assuming -- let's assume Altice is off the table with what they've got. And I can't make my joke about the three ways we made money there again, for Dexter's benefit. But you've got Cox, then you drop an awful long way. You've got [Rocco]; there's not that much left of scale.
Cable ONE, that's not even -- they are sort of exiting the deal business slowly. Right? So they made a conscious decision to go another way. I'm not commenting on the strategy; it's just not consistent with Charter's strategy.
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Unidentified Participant [91]
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And I think it's fair to say, just seeing Tom -- someone mentioning the idea to Tom yesterday, he can roll his eyes about -- you got to be kidding.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [92]
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We are tacking right, they are tacking left. It doesn't seem like the logical play.
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Unidentified Participant [93]
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Let's spend some time on Sirius now. Now, I think your ownership stake is now north of 62%.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [94]
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Probably even higher, yes.
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Unidentified Participant [95]
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And you said you are interested in getting to 100%. But the price is obviously an issue to your appetite.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [96]
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Isn't it always?
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Unidentified Participant [97]
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Can you talk about that? And what are the tax issues when you hit 80%?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [98]
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So look, we would love to own the whole business, but it's price contingent. I think we've made that statement publicly. The issue when we get to 80% is that there would have to be some rejiggering because we could then consolidate for tax purposes. We already consolidate for accounting purposes, but we'd do so for tax purposes.
We could utilize some of their NOLs for the benefit of Liberty's assets, not just for the Sirius shareholders. So there would need to be some negotiation about how that sharing agreement worked. That's why 80% is somewhat of a trigger point.
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Unidentified Participant [99]
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I want to go back to a question on Charter here, just before we move off. For LVNTA and for Liberty Broadband, can you just talk about the specific scenarios where the Charter stake could be consolidated?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [100]
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I'm not sure I understand by the meaning of consolidate. You don't mean consolidate from an accounting standpoint? You are saying -- is the question going to whether we merge Liberty Broadband?
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Unidentified Participant [101]
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That's right.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [102]
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So, if Liberty Broadband were merged into Charter, the most logical seeming play is that Charter would hand out shares in Charter for Liberty Ventures shares, effectively. Get the shares in, hand the shares out, just kind of unwind. In that case, Liberty Ventures would end up with owning Charter shares rather than Liberty Broadband shares. I assume that's the question in the --
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Unidentified Participant [103]
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Another one on Charter is, how is it possible that Suddenlink at their tiny scale, just given the quarter that they just reported, has higher EBITDA margins and is targeting going even higher than that versus anybody else in the US?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [104]
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Jerry Kent has run it well, I guess. That would be my argument. I don't think it's -- it's hard to point -- you think it's Altice has already done so much to the benefit of them?
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Unidentified Participant [105]
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So what is your take on Altice? Dexter is not listening.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [106]
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Dexter sent me a nice note saying congratulations.
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Unidentified Participant [107]
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I'm sure you sent him one when --
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Greg Maffei, Liberty Interactive Corporation - President, CEO [108]
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I will, definitely.
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Unidentified Participant [109]
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Are you waiting to --?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [110]
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I'll wait until they've disclosed it, yes.
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Unidentified Participant [111]
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-- until the Public Service Commission meets. m
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Greg Maffei, Liberty Interactive Corporation - President, CEO [112]
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Exactly.
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Unidentified Participant [113]
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What are the lessons that you can take away from Altice? It's obviously too early to draw lessons from Suddenlink. But what are the lessons from what you've seen in Europe and --?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [114]
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Actually, I look -- it's amazing there are people like Altice. And I've spent time with Xavier Niel, who has the same view that the US guys are big and fat and you can run them really well. We'll see.
Chris Winfrey has done quite -- who spent a lot of time in Europe, as the CFO of Unity -- thinks a lot of it is just time and place about what's different about the European market versus the US market. They are not really a fair comparison. We will see.
Believe me, we will go to school all day long on whatever they do that's smart. I made that joke last year about we are going to profit if they do well. And I mean it. Certainly at the Board level, everyone is very focused on watching. And if they are doing something smart, we are going to try and copy it.
That's the beauty of having these regional territories. We are not head to head with them.
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Unidentified Participant [115]
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One last Charter question before I go back to Sirius. And that's is a cable-wireless confederation a real possibility, or is it just too complicated to try? You described before the Hydra or the multiheaded beast that is Hulu. Is it possible to be the same kind of multiheaded beast in US cable-wireless?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [116]
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It will be interesting to see. There will be regulatory issues around that, but I think you could also show a lot of consumer benefit.
The benefit, the clear edge advantage that AT&T and Verizon have is ubiquity. And we are regional players. Even though we're distributed regional players, we are regional players. To the degree that we and Comcast could operate together on some kind of wireless offering, that's clearly going to be stronger. Because we approximate, by no means get there all the way, more of a national offering. There's no doubt. So there's a lot of compelling reasons why working together would be interesting.
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Unidentified Participant [117]
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And I assume the same answer is probably for enterprise as well, right?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [118]
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Yes. And, frankly, probably easier.
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Unidentified Participant [119]
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Easier for enterprise?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [120]
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Yes.
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Unidentified Participant [121]
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And there's already some of that going on because you serve multiregional clients?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [122]
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Yes. We already have ways where we hand people off and share.
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Unidentified Participant [123]
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Let's go back to Sirius. This is a big strategic question, and we will have David here tomorrow. But the big strategic question, I guess, is, has been forever, Spotify and Pandora, and what role streaming music in particular plays as a competitor. Has your confidence on that score changed at all?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [124]
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No. If you look, I continue to be impressed with the execution of the Sirius XM team, Jim and team. How many subs we added last year, how many subs we continue to add in Q1, how the business had churned -- even in the face of some price increases, how the churn has declined or stayed level.
People like Sirius XM. And sure, a lot of our customers, we know, use Pandora. Some of them use Spotify. They still subscribe to Sirius XM.
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Unidentified Participant [125]
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And has your outlook for the business changed as you think -- you tend to think about the business, I think -- all the businesses you look at, in a way that's probably much more similar to the way people in this room look at businesses than most of the leaders that I get up in these chairs. Where you tend to think about interim cash flows and terminal values and what have you.
Has your view on the terminal value of Sirius changed, or the transparency of what the terminal value might be?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [126]
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So I think our view is -- on the interim cash flows, obviously, to start with that -- has only gotten better. The interim cash flows are well ahead of where we would have thought along the way, for some of the reasons we've talked about: faster, increased number of subscribers, better traction around the used car market, lower churn. All those have been great factors. Some efficiencies around customer handling, a lot of good things there.
On the terminal value, I think you could rightly say our solidity into the cars has only gotten better. Our relationship with the OEMs has only gotten better.
You certainly do fear; there are a lot of players on the streaming side, so that risk is out there. But on the other hand, there are some offsets that I probably feel better about than I would have, historically.
If we ever go to a world where everything, everybody streams, including us, we have two offsets. We pay those OEMs an awful lot of money. And if we are not preinstalled in that car and front and center, that's money that comes back to us. And if we eventually free up, as we intend to already do, half of our spectrum, that's an awful lot of value that could be repurposed in some way that I don't think is in a lot of people's terminal value.
So those are two offsets that are, A, the current success pushes the problems of the terminal value out. And, B, there are some offsets in the terminal value I feel better about.
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Unidentified Participant [127]
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Let's talk about Trip for a second. What role does Trip play? And how does that fit with your ownership stake and voting interest in Expedia?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [128]
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It doesn't, at all. They are apart, and we have a division of labor in the sense that John is on the Expedia Board. And that's still a part of Liberty Ventures. And when we spun Liberty Trip out, subsequently John sold me the B shares in Liberty Trip.
So I'm focused on Liberty Trip. I know a little about what goes on in Expedia, but I don't have the insights he does.
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Unidentified Participant [129]
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Let's move over to Starz, because you were talking about premiums for a second or a couple of minutes ago. Is the mix of original programming and acquired film -- are you getting to the point where that's starting to feel good to you? Or is there still a lot of heavy lifting to do?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [130]
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Well, we've stated our mix in the sense that we are losing to Disney Films, and we have gone from 25, 50, up to -- we're on our way to 75 episodes per year on the original side. And I think, frankly, if we were to put our foot on the gas, it's more on the originals. So we've got not only a stated change which is out there but probably a predilection towards more originals, not less.
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Unidentified Participant [131]
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Does Starz make sense as an independent, standalone entity?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [132]
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Well, I'd treat that question two ways, and I've said this. Starz has done a great job and continues to make an awful lot of money and grow and profit, add subscribers and the like, as an independent entity. Do I think, as a part of the right kind of organization, the right kind of partnerships, it could be more valuable and do more? Probably.
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Unidentified Participant [133]
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Any takeaways from the OTT deal in April?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [134]
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With Amazon?
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Unidentified Participant [135]
------------------------------
Yes, yes.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [136]
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I think Amazon is proving that -- you see, if you can go down and you are in Prime and you see Showtime and Starz down there, we are getting quite a lot of traction from customers of Prime who are happy to sign up for Starz. And I would guess Showtime is getting the same. I'd be surprised if they weren't.
Prime is a big animal and there's a lot of demand in there. A great version of a new kind of distributor, that I think it is going to be disruptive to the market.
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Unidentified Participant [137]
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What about Live? Does Live Nation make sense as a long-term holding, or is that a rent? Can you describe -- sometimes I buy, sometimes I rent.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [138]
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I think Live is a long-term holding. It's got a great position, obviously, in the concert market promotion. There's a whole lot of synergies around being the biggest promoter, to being a ticketer, and the management side. And I think over the long-term, as I've stated, I think there are things we can do with some of the originals there, the content that they have there, that are only going to grow on the media side and maybe be helpful to other parts of the business.
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Unidentified Participant [139]
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I guess it has been about a year ago that Live Nation did the Yahoo deal for --
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Greg Maffei, Liberty Interactive Corporation - President, CEO [140]
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Probably even a little more, yes.
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Unidentified Participant [141]
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A little more than a year for streaming live concerts. How big is that?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [142]
------------------------------
That is not enormous. And frankly, that was a great example of walking in where Live was able to do a test case and have Yahoo pay the vast majority of the costs and prove out the model.
But they have continued to do other things. They have done things with Vice, they are working with Snapchat and Facebook. So they've got lots of ways and lots of places where I think the content that they have, which is unique and exclusive, can be very valuable.
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Unidentified Participant [143]
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While we're on the topic of Yahoo, would there be a scenario where you would have an interest in owning Yahoo?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [144]
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We are probably not a buyer of all of Yahoo. Some people have suggested that there are things that we have done and some expertise and some credibility we have in terms of splits and spins and the like, where we could add value to Yahoo. And I think that's not crazy. In that scenario I could see a Silver Lake PIPE-type structure or something.
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Unidentified Participant [145]
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Interesting. That brings me to the place I want to wrap up, where, because you and John play -- this is sort of the Warren Buffett question, if you will. Asking you, with your investor hat on, if you look around the world, where are and John saying I want to put more money there? Is it LatAm because of the valuations right now? Where in the world are you saying -- or whether it's a vertical or a geography?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [146]
------------------------------
I think there are a lot of places where we are looking on the -- I should start with the geographies. We play largely in the US; not exclusively, by any means. And John has obviously got disparate interests with Global and Discovery. But a lot of what we had which had more of an international flavor, like the one time we had the half of Discovery, got spun. DirecTV obviously had a big business in LatAm.
We have some business through QVC in some of those markets. And we have done some tentacles and feelers into LatAm, particularly Brazil.
And we looked at something recently of decent size in Brazil and couldn't quite come up with the nerve on what the real was going to do. And we thought, actually, the underlying business was fine. But we were worried about trying to -- the fact that we operate in dollars and translating it back, what would be the net effect to us.
We were not worried; this was a business we thought they would do fine regardless of what happened to the real. The real was 3, the real was 5, it was going to operate fine. And if we priced in real, we reported in real, we lived in real, we would've been fine. Unfortunately, we live in dollars and it would have been -- we were just too worried about what might happen there.
On the vertical side, I think John has had a theory about content. It has been expressed publicly. And we have been looking at some content plays.
The reality is, the more distribution there is, the more people competing -- and there are new forms of distribution coming up all the time in the digital world -- more bidders for your content is a valuable thing. And that's not a huge, deep insight. But we are trying to find ones that may have underexploited that, where the new forms of distribution may still be coming on that we can see bidding. And I think that's one of the things we've been looking at.
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Unidentified Participant [147]
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There was a lot of saber rattling in the Charter deal about John's interest in distribution and content. And a lot of us wondered whether the FCC or the DOJ would ultimately make that an issue.
There's not much, if anything, about that in the ultimate order. Was that all a red herring?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [148]
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If there's anything that convinces you that the process around these things is ridiculous. We have people coming in, making claims left and right. It's like being in a court of law. There is no libel. You can claim anything you want in front of the FCC or argue anything you want. And ultimately, all of that was a nonfactor.
But there are people who have different ideas about what ought to exist. And fortunately, while we didn't get everything we wanted, some of those at least didn't appear.
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Unidentified Participant [149]
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It's obviously not a flashing green light to say therefore go ahead and combine content and distribution. But assuming that (multiple speakers) --
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Greg Maffei, Liberty Interactive Corporation - President, CEO [150]
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No, I didn't mean that. (multiple speakers) looking at what we, Liberty Media, looking at our part of about content.
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Unidentified Participant [151]
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But let's pretend that it is. Let's pretend that it is the FCC -- by not raising that issue the FCC has effectively said, if you want to, go ahead.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [152]
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Well, I think, if that were true --
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Unidentified Participant [153]
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(multiple speakers) the FCC really interested in doing it?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [154]
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The thing the FCC said most of all was we believe in over-the-top content. Do not do anything to foreclose it. If there's anything that screams out in those 500 pages, that is what screams, I think you would agree.
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Unidentified Participant [155]
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No question. Absolutely. And do no harm to Google. But is the idea of content and distribution still a worthy idea?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [156]
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I don't think it's the old idea or the -- and I think John was the first one who saw it and drove it hard -- or not the only one who saw it but drove it the hardest -- of combining a traditional MVPD with a traditional cable network. I think that day, that ship has sailed.
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Unidentified Participant [157]
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That's gone; okay.
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Greg Maffei, Liberty Interactive Corporation - President, CEO [158]
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But the lines are drawn; there is probably not a lot of upside. There may be upside in some cost savings. But frankly, there's more, probably, benefit in trying to merge cable networks and get the synergies that way rather than the other way.
I think we are just saying there's new forms of distribution out there. There are new forms of content. There are existing forms of content which are going to get distributed to those new forms of distribution. Trying to find the ones that are going to profit from that that may not yet have been fully exploited.
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Unidentified Participant [159]
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Got it. All right, we have just about a minute and a half left. So in the -- as a final word to all these investors or would-be investors in your stock, what's the one thing that is misunderstood about your business that says there's more value here than people think?
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Greg Maffei, Liberty Interactive Corporation - President, CEO [160]
------------------------------
I don't know if it is misunderstood by any means, but we spend a lot of time thinking about where to put our capital and we spend a lot of time thinking about the long-term value. And when we see these things trading at discounts, we treat that as an opportunity, not some badge of negativity. That's an opportunity for us to find ways to profit from it.
If you are willing -- if you have a long-term hold period, and I realize not all of you are incented that way or have that opportunity, just because of the nature of the capital you have. If you have a long-term hold period, it's been a pretty good ride. And stick with us, we will capture those discounts over time. We have a lot of confidence in the managers we have invested in and we are going to put more capital behind them.
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Unidentified Participant [161]
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It's a great way to end it. Greg, thank you very much for spending the time with us today.
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