Tuesday, December 22, 2015

Liberty Media (LMCA/QVCA/LBRDA) comments (CEO Greg Maffei) from 43rd UBS Conf. (12/08/2015)

43rd Annual Global Media and Communications Conference
Liberty Media Corp. (LMCA)
Speaker: CEO & President Greg Maffei
Tuesday: 12/08/2015

Notes:
  • Consumption trends, a lot of change taking place, from high level what are greatest opportunities to take advantage of consumer behavior? Doesn’t stay in a vacuum. Most things not that inexpensive. Netflix gaining a lot of scale in OTT world but that doesn’t mean we should go buy Netflix stock, have to weigh what you are already in and what you are seeing and relative value. Very excited about a bunch of things, very excited about Charter (CHTR), excited about TripAdvisor, both of those have good growth prospects. Sirius has good success, having hell of a year, raising net adds.
  • Look at Netflix (NFLX), but other opportunities to compete with Netflix? Other things in video space? What I look at is short form video is exploding. YouTube, Snapchat, a lot of that is millennials, not only short form, not sure which device consumes their focus – small screen or the big screen. Millennials want to create stories and the like, it is a huge trend. Like this area a lot.
  • Reality is that this trend is participatory over time
  • Traditional video assets you have, does this view about millennials and short form, does it make you concerned about the value of traditional video assets? You know, these things tend to take a lot longer than people think. The models go a long time. But have to be aware of this trend.

Liberty Interactive (QVCA)
  • Transformation in e-commerce business last 12-18 months. QVC has been acquisition, CommerceHub, etc. What are you seeing in marketplace? If you look at moves we made, originally got in these businesses because they were niche, had some moats. Have done well on a number of them. If you look at bodybuilding.com, our entry price versus current value, we have made a lot. Scale is attractive. ProFlowers merging with FTD. We have been moving and shifting trying to get scale.
  • Small mid-cap internet name like Zulily, is that reverse, is that saying QVC already has scale? I think it does a lot of positive. Scale advantages that QVC has to bring to Zulily, such as: shipping and handling, many elements of the supply chain, around some procurement, also some things on the revenue side – cross selling, bringing the youthful audience of Zulily up to the QVC universe. Actually tested last night – Zulily was on QVC plus, already done a lot of things, where promote things on Zulily. Entering new markets, having Zulily’s experience, being asset light to enter market where they aren’t as strong.
  • CommerceHub – where is this as an asset inside Liberty to stand on its own? Very low tax basis, came up inside QVC, moved it out and became bigger company. Smaller than we would like to be a public company, but there are advantages it has being a public company in being an acquirer or to be acquired. Much more flexibility being a public company.

SiriusXM (SIRI):
  • SiriusXM (SIRI/LMCA) – from here, to create value going forward, do you need to own connected car? There are a bunch of value drivers inside SiriusXM. We continue to have a good SAAR, which is a positive. Net sub adds are up enormously this year, both in the back of growth in new cars and improved penetration but also in used cars. Probably not a lot of further growth potential in the SAAR from here, not like we will see 25 million, or we aren’t counting on it getting to 25 million SAAR. Enormously long tail of growth in used car market that won’t peak for 10-15 years. Long train of growth in that. Way underpenetrated, continue to add new cars in because of the SAAR, at a much higher rate than the old cars are dropping off because they’ve aged out of this population. So that’s an opportunity (used car market). Another is the connected vehicle. Another opportunity is in the “zombies”, which are cars that are approaching 100 million within 3 years on the road that are not subscribers, will never be subscribers, that Sirius has radios in them that we can light up and provide a free service. If terrestrial radio is good but SiriusXM is “best” then this service we would offer would be in-between, more content that is ad-based. Another opportunity is we have a lot of spectrum capacity with S-XM 17 we can free up over time, either to create new services inside of SiriusXM or to find alternative uses for it outside of Sirius. Think there are a lot of ways that value grows over time for SiriusXM.
  • We’ve been hearing about the used car opportunity for a number of years, you’re starting to make some progress on that, are you gaining traction? We have 32% penetration in this market this year, maybe it’s the low hanging fruit, but it has been huge for us, over 2mm growth.
  • Content side, do you get involved with negotiations with Howard Stern? Yes, I do, and I’m confident we will have a deal with Howard Stern.
  • How do you think about the ownership stake of LMCA with SIRIUS? We are not splitting, instead creating 3 trackers, goal to reduce discount to NAV. Hasn’t reduced the discount to NAV yet, maybe moved a point or two, but we haven’t created the trackers yet. If there is a discount to NAV, would think they all would have an equal discount, but possible they don’t. If one tracker has a larger discount to NAV than the others, we can attack that one through a repurchase or something else. Other opportunities have opened up as well, been some speculation in the past, such as SiriusXM buying LMCA stock due to the discount in NAV and we are a significant portion of the value, to the point we have a pure SIRI tracker, where they can buy the LMCA-SIRI tracker stock.
  • Don’t see the need to close the gap in the near term unless there was some activity going to happen, such as merge them together…Why the timing now? We were just annoyed at the discount and wanted to do something about it. We conjure up stuff. This creates more flexibility for us. If we want to spin-off the Braves, we can. Just creates more flexibility for us, but no rush for this otherwise. Everyday SIRI buys back stock and LMCA doesn’t sell, we increase our ownership stake. Inevitably it points in that direction.
  • SIRI is a big one where a lot capital can be accessed. Not wrong or a bad thought. We think that the SIRI use of cash flow to repurchase stock is a good thing. Good thing for shareholders and for LMCA because our % increases ownership. If you look at options today, don’t think there are better options than that repurchase. Now, down the road, alternative market environment, maybe a strategic acquisition in SIRI, is there another market SIRI where we can buy and take it to the next level, maybe at some point in the future.
  • Spectrum? Spectrum valuation, hard thing to know. Some restrictions on its use, maybe that changes over time. It doesn’t get freed up until mid-next decade, but when it does it can create new opportunities for SIRI or for someone else. We are not trying to get rid of it but there are prices for spectrum that may be good.

Expedia (EXPE) and TripAdvisor (TRIP)
  • Expedia stake? Spinning off <20% stake in Expedia in new Holdco., with bodybuilding.com, creates more flexibility. Ultimately what happens over time it combines with Expedia but no certainty with that.
  • Proxy vote – Mr. Diller & Mr. Malone? TripAdvisor has no proxy, 22% of economic, and 56% is vote is Liberty-Trip. No proxy in that deal.
  • TripAdvisor (TRIP) , a lot of changes last 36 months. 7 of top 10 hotels, and largest OTA. Sits at top of funnel, especially for leisure travelers, for people who are investigation where to say, what to do, while on a trip. It is the largest travel site in the world by visit, has 375 million unique monthly visitors.  Challenge is to move from place where there was vertical search to where you can make transactions.  Have gone through 2 transitions for that. (1) One was to move from multiple screens to metasearch, which was required to improve the customer experience but was necessary to operate in a mobile world. (2) Other is where you move from cost per lead or per referral by the OTAs to where you can book with hotel, take credit cards. Enormous two transitions. All while business is still growing at very fast rate. Some trade-offs, such as where you are fully paid-out for the lead by the OTA, who monetizes better than we do in short term, for commission we get paid by the hotel. Challenge is working new way into business model, is attractive, may have some headwinds next 12-18 months. Also allowing closer relationship with customers. Long term opportunity is to have the lowest cost per customer acquisition, where we have hundreds of million reviews, which are free to us, are an enormous moat, to convert those to new customers or a higher percentage.
  • Travelers come to us, we want to improve their experience. How? One is to improve the number of properties,  add depth of information on those properties. Booking.com has helped. Another is confidence in the booking process.

Liberty Broadband (LBRDA/K) and Charter Communications (CHTR)
  • Liberty Broadband, a lot of changes taking place in Pay-TV ecosystem. Thesis still holding?… We are very excited about initial purchase that created our interest in Charter, it is about half of current price. Remain very interested. We have stepped up and put $3b of our capital and raised $2b of new capital from 3rd parties to buy more Charter stock upon the close of the 2 transactions at a price of about 6-7% less than the current price, maybe $11 per share less (note: $176.95 per share). Very bullish it will prove to be an  attractive entry point to put incremental capital in Charter, upon the close of that deal. How do we realize value? 2 ways…(1) someone could buy Liberty Broadband. (2) Other is Charter could merge with Liberty Broadband (LBRDA/K). Why would they want to do that? We have a bunch of governance rights, pre-emptive rights, have some things about governance that makes it attractive for them to eliminate. They could offer us a premium to market, which more closely reflects NAV.
  • What kind of premium? Those things get negotiated.
  • Tax issues for merging LBRDA with CHTR? LBRDA has been freely traded company for >1 yr, so anything tax-wise has likely already passed.
  • We have governance things that are beneficial for us with LBRDA and Charter.
  • Any leverage shifting back from content creators to distributors? Distributors have gained some relative hands than 6-12 months ago, are scaling faster than the content guys. Talk about sports costs, skinny bundles, helping distributors. Recognize third models (NFLX) that need to compete with.
  • First Charter Communications (CHTR) needs to complete the merger. Then execute on the plan that has been executed very well at Charter (CHTR) and do this at BHN and Time Warner Cable (TWC). Completing digital upgrade, simplifying pricing and packaging, approve minimal speeds for internet, improving TV experience, streamlining customer service, improving systems.
  • Part of thesis for Malone was that “TV Everywhere” was sub-par and that it really could change everything, and if he got that right it would be accelerated in timing? Think that’s right, but don’t think that’s the only way this works (deal being successful). The deal could work well even if “TV Everywhere” doesn’t take off. That’s just one option.
  • How big can the CHTR-TWC-BHN company be? Pretty big. $115-$120 billion in EV right out of the block.
  • How close are you following Yahoo situation with IRS? Guidelines are already in place by IRS. Everything we’ve announced at Investor Day is consistent with IRS guidelines.
  • QVCA – 38% of HSN, Zulily, 100% of QVC. Some where customers compete, some overlap.
  • Vivendi SA litigation proceeds, interested in swapping assets? Sure, depends on the price. Things we can help with Universal Music, such as things with SiriusXM and Live Nation. We have $1.1 billion judgment against them up on appeal. Goes to trial in March 2016. They’ve already lost once, so we will see. We are trying to get this under New York “contract law” and that the interest paid to us shouldn’t be treasury rates but instead 9% simple interest, that would be another $700 million for us. Think we have a good cause.

On Live Nation (“LYV”):
  • Live Nation Entertainment (LYV): up 37% for the year, massive amount of growth, More room to grow in secondary market. Largest purveyor of big tours. In other markets, like Latin America, we don’t own the tours and have to outsource in those markets. We’ve grown festivals as well, have 4 of the top 5. A lot to be done organically in M&A.
  • What to do with Live Nation (LYV)? We are used to this kind of stake from a percentage of total company ownership. We are up to 34.4% (some limitations with this).
  • Liquidity access, how to size this if something big came along? We would need more money. Believe bigger is better. The $5b for CHTR is unique. We brought in $3 billion, asked $2 billion from outside investors. Not a lot of investors play in our space, good to see Warren Buffett not involved much in TMT. This helps with less competition, so we build relationships with these investors. In future can have LBRDA add capital and have outside capital.
  • Why sell Viacom in Q1 2015? Sold at average price of $69, so that looks good.
  • Content model vs. distribution? Think the content model more challenged right now, am seeing ESPN have more pain. Distribution stream is around a void, high speed data, those needs. Would rather be in latter right now.

Atlanta Braves:
  • Atlanta Braves - $1.15 billion? Point is fair that assets are at increasing multiples, hope to add value with mixed real estate for valuation. The Forbes valuation was conservative in our view.
 
  • Sports Rights peaked in value? Don’t think so, depends on what team, look at EPL in France in which continues to get bid up. How this all plays out, think the RSNs (Dodgers, for example) are asking too much for what they are trying to achieve. Is it sustainable, probably not, but not to overall sports yet.
  • Liberty Ventures – top priorities? Complete spin of Expedia stake, spin of CommerceHub, close on $2.4b investments in LBRDA, new investments, potentially liquidate non-strategic investments.

John Malone:
  • John Malone said at Investor Day as what surprised him in 2014: – how much the market has overreacted to cord-cutting has been surprising. Some things are challenged, but cord-cutting won’t happen super quick. Advertising revenues won’t collapse in short time frame.

Consolidation in “Media” space:
  • Think there will be more consolidation in media space next 1-2 years….

Other notes:
Liberty Broadband (LBRDA) to add $5b to CHTR deal
Vivendi SA & Liberty Media articles from lawsuit
Liberty Media interested in Vivendi SA’s “Universal Music Group”


2 comments:

  1. Thank you for all this information which is pretty much to digest. These companies are making big profits each year by investing in various ventures but who is checking their rising profits?

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