Liberty

The presentation was updated on May 6, 2014. Link above still works.

Yeah, still rather small. But it also launched just 4 months ago. I think what matters more is whether it's better than the competition. Everybody has the same 22 million songs or whatever, so the real differentiators are curation, interface, OS integration, brand, algorithms, exclusive content, etc. In other news:

I also sold a while ago, when it rallied about 40% in a couple days and ended above $4. Still a big loss. The company could yet make money for people at some point, especially those who got in very low, but I had other opportunities and I wanted to move on. I put that one into the 'I learned a lot' bucket. I wish it had turned out differently, but I'll certainly avoid businesses with lots of capex and commodity price exposure in the future... I'll leave these tough businesses turnarounds in battered industries to investors who are better than I am at sniffing deep value and I'll concentrate on high-quality at reasonable price to hold for the long-term. Now that I've said this, of course there's going to be the 'I sold' effect and it'll become a multi-bagger :-\

Who is Chad? http://altiusminerals.com/people Scroll down a bit.

Hilarious: http://theoatmeal.com/comics/tesla_model_s http://theoatmeal.com/comics/tesla_model_s2

Scroll up a few posts and notice that Apple is the #2 headphone brand behind Beats for teens. I don't think that'll be a problem. Teens love iPhones and other Apple products. I think it's because almost all other headphone brands are boring and don't focus on comfort and/or design that appeals to young people, or even older but design-conscious people (don't make you look like a 50-year old accountant). Many sound good, but most people - especially young - wouldn't be seen in public wearing them. Or they weren't even convinced that good headphones were worth paying for, which is another thing that Beats pioneered with a whole generation (a whole generation that was born in the 90s and 2000s and has always had iPods and Napster/Kazaa/iTunes and only ever heard music on earbuds on mobile devices, not on big stationary stereos, so mostly had no idea it wanted better sound). It's like shoes. Many might do the job, but they have no brand and bad design, so they won't sell with certain demographics. These Sennheisers are in the $200-300 range, and they sound awesome: http://en-de.sennheiser.com/images/713/all/square/6008/square_louped_hd_558_01_sq_sennheiser.png These Sennheisers are over $400: http://en-de.sennheiser.com/images/716/all/square/3055/square_louped_hd_600_01_sq_sennheiser.png The Grado SR60i is a classic, sounds great: http://www.gradolabs.com/products/f4ba8830232696b5f580bd531134b668.png Here are $500 Sonys: http://store.sony.com/SNYNA_27/pimg/pSNYNA-MDR1RNC_main_v786.png Here are some Beats: http://demandware.edgesuite.net/aajh_prd/on/demandware.static/Sites-beats-CA-Site/Sites-beats-master-catalog-CA/en_CA/v1399974913403/images/large/Large-1000x700-O/overear-studio-2-black-standard-quarter-right-retouch-O.png

Thanks abyli, I really appreciate you sharing your notes.

http://www.bizjournals.com/albany/morning_call/2014/05/commercehub-plans-to-expand-to-europe.html

Optimizing the capital structure again, and considering another special dividend: http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=1929518&highlight= http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=1930106&highlight=

I'm also planning to read it. In the meantime, if you have Netflix there's a documentary titled ‘Hank: Five Years from the Brink’ that is basically an hour-and-a-half long interview with Hank Paulson that is pretty interesting.

Apple is held to impossible standards. Nothing they ever do is good enough. Even the old Apple under Steve Jobs couldn't meet the standards that Apple is being held to lately (can you imagine how people would bitch about the 6 years wait between the iPod and iPhone? About the iPhone selling only around 6 million units during its first 4 quarters on the market while RIM and Nokia had all the market share?). The good news is that there's a disconnect between how well they execute as a consumer product company and how the market perceives them, so that's an opportunity (though the opportunity was higher at $380...). They're already in the streaming business. They have iTunes Radio. They just seem to think that Beats has a better approach. And Beats is a lot less expensive than Pandora if you consider that Pandora would probably go for like 6-7 billion at least in a takeover and doesn't have a high-margin consumer product business that comes with it. Pandora also doesn't have good relations with the music industry (content producers really dislike Spotify and Pandora), which will matter a lot as long as they don't own the content that they stream. Pandora is a lot bigger than Beats? Sure, but how big will Beats streaming be if it ships by default with every new iOS device and is installed on all the old ones in a software update and is part of an Apple marketing push? Update: Found this:

Thanks for sharing!

I'm also new to this, but here's some advice that Wellmont posted: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/lmca-liberty-media/msg165946/#msg165946

They are likely selling down to around 1B. Check the 8K filing for the most recent earnings release. There is a letter attached at the end from Mason Morfit. Letter is last page here: http://valeant.q4cdn.com/d2673257-6028-4e57-a183-690d66644189.pdf?noexit=true

Update from Glenn: http://glennchan.wordpress.com/2014/05/12/lmca-update-may-2014/ Glenn, what's your view on the Liberty Broadband offering? A good deal, or do you see a reason to not partake?

You could say that. Most estimates of their revenues are around 1-1.5bn, so that's a lot of headphones. And who knows what their margins are, but they are probably very very high (one estimate I've seen is that there's $14 of materials in one of their headphone pairs). But what is the streaming service worth if you suddenly plug it into an installed base of many hundreds of millions of devices? And what is it worth if Iovine can get content deals for Apple TV? Apple usually acquires for talent and technology that they can plug in their existing stuff (f.ex. PA Semi, or the recent mapping companies they bought). What's interesting about this case is they also got a brand. They must have felt that Beats was different enough from what they want to do with their main brand to be useful to them; you'll never convince an average person to spend a lot on headphones, but the kind of people who will do that happens to care that their favorite artists endorse them, just like the kind of people who spend $300 on sneakers cares that their favorite athletes endorse them. Once again, it's the difference between market share and profit share. If you can better target the profitable segment of the market and leave the rest to commodity players, that's a big plus. The music world isn't the same as the consumer electronics world, and Beats obviously gets that world better than most... Another interesting aspect is that Beats appears to have mostly created its market from nothing. Audiophile-type stuff was usually a bunch of middle-aged men talking about how their open back Sennheisers are a bit more neutral than their Grados but they prefer the definition of the bass on their SR-60s. The hardest thing Beats had to do was convince so many (young) people to care about getting something better than the headphones that came with their phone, or whatever they found on the rack at Best Buy, and start caring enough about how they sound and look to pay up. A few years ago nobody would have bet on a headphone company doing that (many have been trying for decades). Yet within a few years, this young company went from nothing to selling over 60% of the above-$100 headphones (which is where the must be -- not in $10 earbuds).

It doesn't remind me of that at all. Skype wasn't making much money iirc and has zero synergies with ebay and few with microsoft (pure add on, not helping microsoft leverage this small company into making a much bigger product more profitable). It also wasn't doing great in mobile, so not very forward-looking. This was pure empire building, this was Coca Cola buying shrimp farms. Beats is probably very profitable already. The company appears to be growing at 50-75% a year lately, so the value changes quickly. And it's probably worth a lot more inside Apple than as a standalone (which is how others were valuing it) because Apple can use it to improve all kinds of much bigger businesses; iTunes, iPhone ecosystem, Apple TV maybe, on top of just the future growth in headphones/speakers. If Sony had bought Beats, 10 years from now they most likely would have gotten only a fraction of the value that Apple could get from it because they don't have these very big, very profitable businesses that can benefit from Beats' assets. That's like valuing Doubleclick as a standalone company and inside Google. Of course Google will be ready to pay a lot more for the whole thing than someone else will pay for a piece of it to keep it operating as a standalone, and conversely, the Doubleclick/Beats people know what they're worth to Google/Apple so that gives them negotiating power. Doesn't mean that the valuation is jumping for no reason and it's a mistake for Google to pay more for it than others if they really can use it to make more money than others because of the characteristics of their business. (I'm not saying Beats is like doubleclick for Google -- I'm just illustrating the principle of certain things being worth different amounts to different people. A sword is more useful to a ninja than to my grandma.) In any case, Beats is a tiny acquisition for Apple, and unlike skype for eBay, it appears to make sense. It doesn't mean it'll succeed, but it certainly has more potential than many other acquisitions.

Like Nike you mean?

http://mobile.bloomberg.com/news/2014-05-10/allergan-said-to-be-rebuffed-by-sanofi-j-j-as-it-seeks-bids.html

What do they bring? Um, they're really good at what they do? Ahrendts -> Experience quickly building a huge high-end retail operation around the world, but especially Asia, where Apple needs to do more. Also experience doing luxury retail online well, which isn't easy because you have fewer ways to differentiate and make it upscale. There's tons she could do to improve Apple retail. In fact, that's not a part of the company that has been doing as well as it could in past years IMO, mostly because of the revolving door of retail leaders probably. They've been way too slow at opening new stores in Asia and the presentation online and offline could use a refresh (like iOS 7 did to iOS). Iovine and Dre -> Tons of contacts in the music and film/TV biz, which definitely helps a lot in these industries. And if the killer feature of Beats compared to other streaming services is curation, getting access to the best people to do that (through contacts) helps, and getting cooperation from artists for exclusives and such will matters. They got freaking Trent Reznor to run part of the show! But I think that Ahrendts was hired purely because of her skills and track record. I don't really see her as a 'celebrity'. And Iovine and Dre might be famous (I guess It's hard to make hundreds of millions in the arts and not be a celebrity), but they've also proved their talent as entrepreneurs and dealmakers many times over. They're there because they built a business that seems very fast-growing and very high-margin and well positioned for the music streaming-wave (and Iovine could be very useful to get more content for Apple TV), not because Cook is star-struck. In the Iovine interview I posted in the AAPL thread, he says something like: "In the same way that culture companies always get the tech wrong, tech companies will get the culture wrong." Well, Apple has always been more in touch with the arts and other 'soft' aspects of products than most, and this is just a continuation of that, IMO. It's a real competitive advantage when so many other tech companies are tone deaf to a lot of that stuff.. I have no doubt that Cook can control these people. Has he ever done anything that makes you think he couldn't? He fired Scott Forestall, the guy who was supposed to be the next Steve Jobs according to some, and he's resisted a lot of external pressure to do all kinds of things and hurry things out before they are ready, etc... So they're about on schedule, maybe a bit ahead, right? Look at the timing of the iPod, iPhone, and iPad... They don't have a quota of new categories to enter every decade. Making arguably the best, and certainly the most profitable phones, tablets, laptops, and desktops is already pretty good... I'm sure they'll do more soon, but they won't release stuff before it's ready. There's no real lasting glory gained by rushing to be first (Galaxy Gear anyone?). You can release software as beta and fix it later, but not hardware, and Apple is never first anyway.

;D

http://www.dailydot.com/technology/apple-beats-jimmy-iovine-dr-dre/ This is interesting. There's the whole Apple TV angle that I hadn't thought of (didn't know Iovine was so connected on the TV/film side too). And this is interesting too: Also saw this on Twitter: From the WSJ, sales "more than 1 billion in U.S. alone": Another source pins sales at 1.2bn. Walt Mossberg interview with Iovine from 2013: Some stats on the growth of streaming: http://www.bloomberg.com/news/2014-05-09/why-apple-may-need-beats-music-streaming-more-than-trendy-headphones.html "Downloads still dwarf streaming — 67 percent versus 27 percent worldwide last year — but tastes are changing. Revenue from streaming has more than tripled since 2010, surpassing $1 billion for the first time last year, IFPI data show." "RBC Capital Markets analyst Amit Daryanani pointed to estimates that subscription-based music revenues rose 50% to US$1.1-billion in 2013, while downloads fell 2% to US$3.9-billion – the first decline in history"

No problem. For the record, I really respect your opinion and thought process tx. I happen to think you're wrong, but you also think I'm wrong, and I hope you respect my thinking despite that. There would be nothing to discuss and no mispricings if everyone agreed. So it goes, as Vonnegut would say...

Just like computers, digital music players, phones, and tablets, right? :) And shoes of course. I think rkbabang said it well. If opportunity cost didn't exist, sure. But I'd rather they keep their best people working on other things (Apple has a relatively small team of engineers and designers, despite their huge market cap). By using cash found under a sofa cushion, they get a dominant position in the high-end high-margin headphone market and get rid of a dominant competitor in that market and get potentially useful assets and people in the streaming music biz. Not too bad, especially if this deal accelerate the growth of this business by giving it exposure, integration into iOS, and some of the halo effect from being under the Apple brand umbrella. Success isn't that Beats transforms Apple is some significant way -- it doesn't need that and I don't think they want that. Success is just to create more than 3.2bn in value and making the user experience better for Apple customers. I think that's definitely plausible, especially at Apple-scale. It's possible I'm misremembering it, and it's also possible that from my point of view you seemed to like it more than you actually did. I can't read minds, I just came away with the impression that you were overall pretty positive on it, despite also having some complaints. Either way, I was just teasing you because you opened the door wide, not trying to do a big 'gotcha' or anything. I hope it didn't come across that way :)

That entirely depends on their sales, margins, growth rate, and how what they have can be used by Apple, no? I don't think you can say if it's expensive or cheap yet without having more information about what it is and what is done with it. Yes, and awesome isn't the word I would use. I'm not saying it can't happen to consumer products. I'm saying the factors are different, and I don't see Apple being much vulnerable right now. That might change in the future, though, but lately I've more noticed that the competition has been losing steam rather than gain ground when it comes to the field where Apple plays. Maybe. You seemed to really like that Blackberry phone at the Fairfax AGM 2 years ago ;) Let's just agree to disagree and see what happens.