LMCA - Liberty Media

[thefatbaboon]

Excuse my ignorance…I'm new to this satellite radio stuff...

 

With GM dropping Sirius paid promotional, and Apple teaming up with various car manufacturers on CarPlay what will be the effect on Sirius?  Are 70% of the cars still going to get installed with satellite radios?  And, even if they are pre-installed, isn't there a risk that people simply use their iTunes  - especially if they're seamlessly integrated into the dash?  I've read that there is often a problem with data requirements being too expensive over mobile, and service is not good enough, and obviously at the moment a lot of good content is with Sirius.

 

This radio content seems so trivially cheap even for the peaks like Stern or NFL I'm afraid I don't intuitively feel the safety you suggest.  A couple hundred million is pocket change for the Apples, Googles, Microsofts of this world. 

 

[thefatbaboon]

Also, even leaving aside Apple…because the big tech companies have traditionally stayed away from content…with the new LTE chips that are going to get embedded in all new cars is there a reason why this doesn't give a new lease of life to Clear Channel?  If you can "tune in" over 4G/internet to any local station?

 

My initial feeling is that this isn't like Directv/Dish.  With satellite tv I get quite comfortable that technology (coax, fiber etc) cannot undermine them easily.  The data requirements are huge and ever increasing, key content is very expensive and controlled by large, rich entities that are going to be very careful about ceding power; furthermore consumers love expensive content  - no one wants "youtube" quality movies, tv and sport.

[giofranchi]

Liberty Media Undervalued

 

http://seekingalpha.com/article/2084513-liberty-media-undervalued?isDirectRoadblock=false&source=email_rt_article_readmore&uprof=25

 

 

Gio

[loganc]

Also, even leaving aside Apple…because the big tech companies have traditionally stayed away from content…with the new LTE chips that are going to get embedded in all new cars is there a reason why this doesn't give a new lease of life to Clear Channel?  If you can "tune in" over 4G/internet to any local station?

 

My initial feeling is that this isn't like Directv/Dish.  With satellite tv I get quite comfortable that technology (coax, fiber etc) cannot undermine them easily.  The data requirements are huge and ever increasing, key content is very expensive and controlled by large, rich entities that are going to be very careful about ceding power; furthermore consumers love expensive content  - no one wants "youtube" quality movies, tv and sport.

 

I think you should invert your question about the competitive position of SIRI.  In other words, how is it possible that SIRI has 26mm subs and growing despite the fact that numerous other ways of consuming content in the car have been and are currently present including: (1) terrestrial radio offered for free, (2) the ipod which could be connected to the car throughout the existence of the device and allow the user to listen to their chosen content, and (3) smartphones which offer traditional ipod functionality, the ability to stream content over a wireless network and can be connected to your car via bluetooth? 

 

I think the answer you come up with is going to include the fact that SIRI offers a unique bundle of content and a superior user experience to other alternatives (e.g. no ads in the music).  With respect to the emerging competition, who is going to offer a bundle of content that even comes close to the current SIRI offering?

 

[thefatbaboon]

logan,

 

Probably you are right….  Bought some LMCA the other day inspire of my concerns.  I've been too annoyed for too long not being a shareholder of Malone's.  But will need to "get" the Sirius story to make it a big position.

 

The major advantages the sat radio have had so far seem to have been: revenue share and partnership with car oems, unique content and ad free, too expensive data and not good enough reception from mobiles.

 

GM has stopped paid promotional, will other oems follow?

Unique radio content seems cheap.  (Stern is $80m, NFL $30m are the most expensive…they're both coming up for renewal in 2015)

Does LTE 4G give mobile the cost effective connectivity which would allow Clear Channel to compete better in the car via the internet instead of terrestrial radio?

 

[DCG]

I think that Sirius XM is a wonderful business with a very strong moat.

 

Suppose you are a content creators like Howard Stern.  Where do you want to broadcast?

a- You can go with Clear Channel, which is advertising supported and reach a nation-wide audience.

b- You can go with Sirius, which is subscription based and reach a nation-wide audience.

c- You can go with some form of Internet radio and make no money.  So this is not really an option and likely never will be.

d- Other.  Stern is a host on America's Got Talent.

 

Basically... I think the only options are Sirius or Clear Channel.  So there is some pricing power there due to the duopoly.  Sirius only has to pay Stern a little more than Clear Channel.

 

 

Don't overlook podcasting. Podcasting can (and is already starting to) disrupt Sirius's business model. It's much easier for content creators to start podcasts than to get shows on Sirius. They can reach a much larger audience than Sirius (potential audience is anyone with a smartphone or computer). Podcasts are a better user experience than Sirius. You can listen to podcasts on any smartphone, computer or tablet anywhere with a wifi or data connection w/out paying any additional monthly fee, you can listen to them at your own schedule, and pause, rewind, and fast forward through them.

 

 

With iPhone's new CarPlay, Podcasts will be easily accessible from car dashboards, further disrupting Sirius.

[loganc]

I think that Sirius XM is a wonderful business with a very strong moat.

 

Suppose you are a content creators like Howard Stern.  Where do you want to broadcast?

a- You can go with Clear Channel, which is advertising supported and reach a nation-wide audience.

b- You can go with Sirius, which is subscription based and reach a nation-wide audience.

c- You can go with some form of Internet radio and make no money.  So this is not really an option and likely never will be.

d- Other.  Stern is a host on America's Got Talent.

 

Basically... I think the only options are Sirius or Clear Channel.  So there is some pricing power there due to the duopoly.  Sirius only has to pay Stern a little more than Clear Channel.

 

 

Don't overlook podcasting. Podcasting can (and is already starting to) disrupt Sirius's business model. It's much easier for content creators to start podcasts than to get shows on Sirius. They can reach a much larger audience than Sirius (potential audience is anyone with a smartphone or computer). Podcasts are a better user experience than Sirius. You can listen to podcasts on any smartphone, computer or tablet anywhere with a wifi or data connection w/out paying any additional monthly fee, you can listen to them at your own schedule, and pause, rewind, and fast forward through them.

 

 

With iPhone's new CarPlay, Podcasts will be easily accessible from car dashboards, further disrupting Sirius.

 

How is podcasting disrupting SIRI?  The last I checked, podcasting existed in 2013 while SIRI added 1.6mm subs.  Clearly, CarPlay may make accessing content that is available via smartphones in a more seamless manner.  However, it is already pretty simple to play content via a smartphone using bluetooth or (gasp!) a stereo cable. 

 

[fisch777]

Interesting that Maffei noted at conference 2 days ago that LMCA shares may be only trading at slight (~10-15%) discount to NAV and as such, "playbook" will have to change going forward.  I find a larger discount to NAV in my calculation.

[thefatbaboon]

Logan,

 

I don't think it's the bluetooth/cable to play mobile content that's the potential issue.  Obviously everyone's been able to do that for some time - and generally speaking, playing a bunch of stuff jukebox style from smartphone memory is no competition to sirius at all. 

 

For me the competition changes if LTE together with unlimited data plans means that the connection point can be the mobile network as opposed to a satellite.  So far the 2G/3G reception has been too bad and the cost too high to do good streaming over the mobile network.  I think that is potentially a very different animal than playing some songs from a mobile's memory.  Then all Sirius starts to look like is a programming package.  Maybe that is enough - but doesn't it become vulnerable?

 

 

[DCG]

How is podcasting disrupting SIRI?  The last I checked, podcasting existed in 2013

 

 

I'm not sure what this means. Yeah, SIRI has around 24 million subscribers. There are over a Billion podcast subscriptions through iTunes alone. Businesses are also putting large amounts of money into advertising on podcasts.

 

 

Here's a pretty good article from last year: [/size]http://www.usatoday.com/story/tech/columnist/talkingtech/2013/08/15/podcast-explosion/2647963/

[moody202]

Doesn't SIRI have unique content like Howard Stern, NFL....that you can't get through any of the music services or podcasts?

[loganc]

How is podcasting disrupting SIRI?  The last I checked, podcasting existed in 2013

 

 

I'm not sure what this means. Yeah, SIRI has around 24 million subscribers. There are over a Billion podcast subscriptions through iTunes alone. Businesses are also putting large amounts of money into advertising on podcasts.

 

 

Here's a pretty good article from last year: [/size]http://www.usatoday.com/story/tech/columnist/talkingtech/2013/08/15/podcast-explosion/2647963/

 

It is my impression that if SIRI was getting "disrupted" by some other service, then SIRI would be bleeding subscribers to the disrupting entity.  SIRI is growing net subscribers.  If they can get "disrupted" by podcasts and grow net subscribers by 1.5mm per year, then bring on the "disruption."

[loganc]

Logan,

 

I don't think it's the bluetooth/cable to play mobile content that's the potential issue.  Obviously everyone's been able to do that for some time - and generally speaking, playing a bunch of stuff jukebox style from smartphone memory is no competition to sirius at all. 

 

For me the competition changes if LTE together with unlimited data plans means that the connection point can be the mobile network as opposed to a satellite.  So far the 2G/3G reception has been too bad and the cost too high to do good streaming over the mobile network.  I think that is potentially a very different animal than playing some songs from a mobile's memory.  Then all Sirius starts to look like is a programming package.  Maybe that is enough - but doesn't it become vulnerable?

 

I think you are highlighting a risk factor, for sure.  However, I don't have an ability to predict the cost of wireless broadband over time.  Again, I think the key advantage of SIRI is the content.  I don't see a threat to their content bundle from Pandora, Spotify, podcasts, etc. but that doesn't mean that one won't emerge at some point in the future.

 

[thefatbaboon]

logan,

 

inclined to agree with you.  But the concern for me is that the data involved with streaming voice is not substantial.  I'm a longtime DTV investor but with sat tv i find it very reassuring that the down way data requirement is huge and every few years seems to get substantially bigger, HD, 4K etc.  and sat is always nicely positioned to adapt quicker and cheaper than coax.  With voice only, however, as soon as mobile coverage can supply 1mb per minute cost effectively and reliably I can't see any reason at all why anyone needs satellites.  At that point Sirius' competitive advantage seems to be only it's programming.  Now I say "only" programming but maybe it is enough.

[DCG]

Doesn't SIRI have unique content like Howard Stern, NFL....that you can't get through any of the music services or podcasts?

 

 

Of course, but there is also an enormous amount of content you can get through music services & podcasts that you can't get through Sirius.

[thefatbaboon]

some new tracking stocks coming our way + sirius exchange gets canned

[ItsAValueTrap]

Look like they are going to do something like what they did with LINTA and LVNTA?

 

http://www.marketwatch.com/story/liberty-media-corporation-announces-creation-of-tracking-stock-structure-2014-03-13

 

I suppose LVNTA did unexpectedly well.  TripAdvisor stock went zoom and so did LVNTA stock.  I missed the boat completely and thought that LVNTA wasn't that interesting when it was trading in the $40s (it is currently around $138).

[ItsAValueTrap]

LMCA/B will be the parent.

LBRDA/B will be the spinoff. 

 

The spinoff will hold:

- Charter

- Time Warner Cable shares

- TruePosition

- note obligation from the Liberty Broadband Group to the Liberty Media Group

- a call option liability associated with Liberty’s Time Warner Cable Inc. shares and liabilities at TruePosition, Inc

- cash from the rights offering

 

a- The spin will weaken Liberty's ability to finance a huge deal involving Charter.  But since TWC is no longer in play, I guess that Charter will not be doing a mega-acquisition.

 

b- I find it interesting that Malone is doing a rights offering.  This will suck his personal capital into LBRDA.

 

c- I'm guessing that LBRDA will be really complicated.  The note obligation from LBRDA to LMCA may be a vehicle for hiding value.

 

I find it very interesting that True Position is grouped into LBRDA.  Neither LBRDA or LMCA will be easy to understand entities.  This means that neither entity is likely to receive a premium for being a pure play company.  I find it interesting that Malone didn't split up the companies into easy to understand + complicated.  Starz was originally spun off as a pure play entity because Malone thought that it would fetch a premium valuation and would be able to use its stock as currency.  I don't think that LBRDA will be using its stock as currency.

[loganc]

LMCA/B will be the parent.

LBRDA/B will be the spinoff. 

 

The spinoff will hold:

- Charter

- Time Warner Cable shares

- TruePosition

- note obligation from the Liberty Broadband Group to the Liberty Media Group

- a call option liability associated with Liberty’s Time Warner Cable Inc. shares and liabilities at TruePosition, Inc

- cash from the rights offering

 

a- The spin will weaken Liberty's ability to finance a huge deal involving Charter.  But since TWC is no longer in play, I guess that Charter will not be doing a mega-acquisition.

 

b- I find it interesting that Malone is doing a rights offering.  This will suck his personal capital into LBRDA.

 

c- I'm guessing that LBRDA will be really complicated.  The note obligation from LBRDA to LMCA may be a vehicle for hiding value.

 

I find it very interesting that True Position is grouped into LBRDA.  Neither LBRDA or LMCA will be easy to understand entities.  This means that neither entity is likely to receive a premium for being a pure play company.  I find it interesting that Malone didn't split up the companies into easy to understand + complicated.  Starz was originally spun off as a pure play entity because Malone thought that it would fetch a premium valuation and would be able to use its stock as currency.  I don't think that LBRDA will be using its stock as currency.

 

I agree with a lot of what you are saying.  Seems like Malone thinks there is no way the CMCSA-TWC deal gets blown up.   

[Yours Truly]

This is great.  Malone and Maffei will be real busy in Q3 with 3 spin-offs amongst the Liberty companies. 

 

I guess this means Siri shares will start rising with the uncertainty being lifted

[loganc]

This is great.  Malone and Maffei will be real busy in Q3 with 3 spin-offs amongst the Liberty companies. 

 

I guess this means Siri shares will start rising with the uncertainty being lifted

 

The LBRD tracker is probably going to provide a pretty interesting way to invest in CHTR, but I must say that I am a little disappointed in the fact that they are not continuing with the SIRI merger.  The prospect of continuing the SIRI capital allocation plan within LMC looked pretty attractive to me.  In other words, they would be buying back SIRI at a lower effective price due to fact that LMC trades at a discount to NAV.  Also, you alleviate some liquidity issues in a few years (assuming the SIRI buyback continues) due to the large percentage of SIRI that is held by LMC. 

 

Ultimately, this move implies the following to me: (1) the CMCS-TWC deal is a lock and (2) Malone/Maffei can't find other interesting things that would require the liquidity that an LMC-SIRI merger would facilitate.  Alternatively, it is possible that the SIRI special committee turned into a complete shit show.  Also, when I think about implication (1), it seems like there is a big opportunity for a DTV-DISH merger to come back on the table.

 

I am interested to hear any thoughts on my scatterbrained response to this announcement. 

[Yours Truly]

It's quite nice to see Malone and Co walking away from a deal if the price doesn't make sense! Perhaps they saw the poor performance of late on LMCA and didn't want to use it as currency while it's at a discount..

 

The last time Malone utilized a rights offering was on the Liberty spinoff from TCI, it turned out to be a 10 bagger in 2 years.. Obviously this time is different but Malone certainly knows what he's doing

[loganc]

It's quite nice to see Malone and Co walking away from a deal if the price doesn't make sense! Perhaps they saw the poor performance of late on LMCA and didn't want to use it as currency while it's at a discount..

 

The last time Malone utilized a rights offering was on the Liberty spinoff from TCI, it turned out to be a 10 bagger in 2 years.. Obviously this time is different but Malone certainly knows what he's doing

 

What do you mean about the price not making sense?  Malone/Maffei offered the "price" in terms of the conversion rate.  The SIRI shares have declined in price as well.  At the end of the day, what matters is the conversion rate and not the "price" they offer.   

[ItsAValueTrap]

It's quite nice to see Malone and Co walking away from a deal if the price doesn't make sense! Perhaps they saw the poor performance of late on LMCA and didn't want to use it as currency while it's at a discount..

 

The last time Malone utilized a rights offering was on the Liberty spinoff from TCI, it turned out to be a 10 bagger in 2 years.. Obviously this time is different but Malone certainly knows what he's doing

 

1- The rights offering in the TCI/Liberty spinoff was completely different and designed to be really leveraged.

 

2- They did a rights offering in the LINTA/LVNTA spin.

[Kiltacular]

It's quite nice to see Malone and Co walking away from a deal if the price doesn't make sense! Perhaps they saw the poor performance of late on LMCA and didn't want to use it as currency while it's at a discount..

 

The last time Malone utilized a rights offering was on the Liberty spinoff from TCI, it turned out to be a 10 bagger in 2 years.. Obviously this time is different but Malone certainly knows what he's doing

 

1- The rights offering in the TCI/Liberty spinoff was completely different and designed to be really leveraged.

 

2- They did a rights offering in the LINTA/LVNTA spin.

 

Trap,

 

I followed you into this one and want to defer to your thoughts on it.  My thoughts are similar to loganc.  It is time to cut bait and see where this settles; swap to Liberty Global, etc.

 

A penny for your thoughts.