LMCA - Liberty Media

[Guest wellmont]

A lot of people think Rutledge is great but I don't get it.

 

Cablevision was a mediocre company when he arrived and mediocre when he left. The stock price went nowhere. Other than revenue per crossing, most margins and other metrics remained weak compared to Comcast and even Time Warner. Their high revenue per crossing is geographical circumstance, not a sign of personal genius.

 

+1  There is so much "anecdotal" evidence on Rutledge but it's hard to back it up with numbers.  I guess charter has been on a tear since he took over but that's too short-term in my opinion.

A manager can be the best in the world such as Rutledge, but CHTR is still growing revenues and EBITDA at 7% and trades at a significant premium to comparable peers that are growing just as fast.  He can't just snap his fingers and cause the penetration to go to 50% or something.

 

valuation of chtr has many factors. one of them is ebitda growth. there are others. another is the "optionality" of being controlled by consolidator and capital allocator j malone. another factor in today's valuation is the high likelihood that chtr is going to acquire lots of subs as well as control a spin off from comcast sometime early next year. this is why it may appear to be overvalued based on one simplistic metric, but in actuality may be anything but.

[Liberty]

Malone seems to think he's the best operator in the business and is not just saying that but is putting his money behind him. Seems like a pretty good endorsement.

 

Yes Malone hiring Rutledge is a valuable piece of information. Maybe more valuable than my perspective of his record at Cablevision.

 

But no matter who you hire to run a business, it's a good idea to say they are the best.

 

Sure everybody says that, but Malone isn't everybody. He wouldn't try to get a 40+ billion dollar deal done and consolidate the cable industry via CHTR (even if ultimately comcast beat them to the original deal) if he didn't have an extremely high degree of confidence in Rutledge, IMO.

 

I think that charter can do quite well just by going from below average to above average, and M&A and better content pricing from scale are bonuses on top of that. Add to that good capital allocation and a shareholder friendly management, and results should be very satisfactory.

[Guest ajc]

 

Energy: Why Google, Comcast, and AT&T Are Making Power Utilities Nervous

 

http://www.businessweek.com/articles/2014-05-29/utilities-face-threat-from-vivint-google-comcast-at-and-t

 

This article mentions a joint venture between Comcast and NRG Energy. I wonder if Charter could do something similar one day. Unfortunately, my knowledge of the energy industry isn't sufficient for me to know whether this is just pie-in-the-sky talk.

Anyway, it's a relatively interesting subject nonetheless.

 

 

 

[Guest ajc]

And then the last piece of it is that if you were to listen to a streaming service across 3G in the same way that you listen to radio or satellite radio today, that you would consumer at least $30 of data based on the best plans you can -- best price plans you can get in the market.

 

So all this is free. Streaming services are not free. So it costs you $30 a month of data.

 

 

That quote was from Sirius CFO David Frear at the recent Bank of America Merrill Lynch Global Telecom and Media Conference.

 

Here's the link to the full Q&A transcript - http://seekingalpha.com/article/2250593-sirius-xm-siri-at-the-bank-of-america-merrill-lynch-global-telecom-and-media-conference-transcript?part=single

 

 

[Guest JoelS]

And then the last piece of it is that if you were to listen to a streaming service across 3G in the same way that you listen to radio or satellite radio today, that you would consumer at least $30 of data based on the best plans you can -- best price plans you can get in the market.

 

So all this is free. Streaming services are not free. So it costs you $30 a month of data.

 

 

That quote was from Sirius CFO David Frear at the recent Bank of America Merrill Lynch Global Telecom and Media Conference.

 

Here's the link to the full Q&A transcript - http://seekingalpha.com/article/2250593-sirius-xm-siri-at-the-bank-of-america-merrill-lynch-global-telecom-and-media-conference-transcript?part=single

 

Thanks for posting ajc, interesting Q&A.

[Guest JoelS]

Re valuation EV/Ebitda higher than peers, as mentioned, it really depends how you think about.. is Charter a cable company or a business providing slow but predictable growth enabling an acquisition machine? Charter could purchase Suddenlink, Mediacom and Bright House to take its market share of video subs from about 4% today to 13% in the  future. Cox Communications also a possible which would take them near 20% market share.

 

"Predictable income streams are much more valuable than volatile ones". 'Cause you can leverage them…

… "It was almost like building one brick at a time" - John Malone on TCI

 

For those that own both Charter and Liberty Media, have you thought about reducing your Charter position and buying more LMCA/B in anticipation of the broadband spin off? Interested in how others are playing this..

[txlaw]

And then the last piece of it is that if you were to listen to a streaming service across 3G in the same way that you listen to radio or satellite radio today, that you would consumer at least $30 of data based on the best plans you can -- best price plans you can get in the market.

 

So all this is free. Streaming services are not free. So it costs you $30 a month of data.

 

 

That quote was from Sirius CFO David Frear at the recent Bank of America Merrill Lynch Global Telecom and Media Conference.

 

Here's the link to the full Q&A transcript - http://seekingalpha.com/article/2250593-sirius-xm-siri-at-the-bank-of-america-merrill-lynch-global-telecom-and-media-conference-transcript?part=single

 

I think what Frear has said regarding Sirius being "free" versus streaming services is right in one sense, but also kind of ignores the possibilities of how the market for data plans could end up.

 

Right now, most anyone who uses a smart phone in the US gets a data plan of some sort.  It's essentially a sunk cost because you don't get the benefits of having a smart phone without a data plan.  What SIRI has to worry about is the combination of reasonably priced, unlimited mobile data plans and the car makers making it easier to really tie your phone to the car (Carplay, Android in the Car, etc.).  Because at that point, you're already paying for a data plan that will fully handle your OTT service needs, and the choice is whether you want to add an incremental OTT content subscription service for $X per month.  SIRI will then have to compete on the content package primarily, which is definitely differentiated (they have MLB, CNBC, etc.).

 

If you don't believe that there will be reasonably priced, unlimited mobile data plans going forward, then Sirius is in a great position.  On the other hand, if you have a major market shift -- say, a S/TMUS merger where the new company is on a mission to provide better quality service for lower ARPUs -- then that could be very disruptive to SIRI's price advantage and market share position. 

 

So something to think about.

[no_free_lunch]

My most successful investment involved one of the executives that I have an enormous amount of respect for, John Malone. John for years headed up Tele-Communications (TCI), which was the biggest cable company in the business. In the early 1990s, he decided to spin off Liberty Media, which was a collection of TCI’s programming and cable network assets, and he did it in typical John Malone fashion. It was a very complicated split-off.

..

Two days before the deal closed, I got a call from John Malone because he knew what I was doing. He said, “Gordy, less than half the people are going to exercise their rights to trade into the split-off, so you’re going to own 43% of Liberty Media.” I talked to our lawyers and we figured out that, although the ownership limit was 20%, we were only going to have about 12% of the votes. For that reason they let us go ahead with it and, on day one, we owned 43% of Liberty Media. For a couple of months the stock almost never had a down day because everybody that owned it had jumped through hoops to get there, so there were no sellers. People finally figured out how valuable, and undervalued, these assets were. Over the next few years the stock went up, I think,

20 times. It was an enormously successful investment

 

https://americanfunds.com/pdf/mfgefl-468_gcqa1212.pdf

[loganc]

My most successful investment involved one of the executives that I have an enormous amount of respect for, John Malone. John for years headed up Tele-Communications (TCI), which was the biggest cable company in the business. In the early 1990s, he decided to spin off Liberty Media, which was a collection of TCI’s programming and cable network assets, and he did it in typical John Malone fashion. It was a very complicated split-off.

..

Two days before the deal closed, I got a call from John Malone because he knew what I was doing. He said, “Gordy, less than half the people are going to exercise their rights to trade into the split-off, so you’re going to own 43% of Liberty Media.” I talked to our lawyers and we figured out that, although the ownership limit was 20%, we were only going to have about 12% of the votes. For that reason they let us go ahead with it and, on day one, we owned 43% of Liberty Media. For a couple of months the stock almost never had a down day because everybody that owned it had jumped through hoops to get there, so there were no sellers. People finally figured out how valuable, and undervalued, these assets were. Over the next few years the stock went up, I think,

20 times. It was an enormously successful investment

 

https://americanfunds.com/pdf/mfgefl-468_gcqa1212.pdf

 

Thanks for posting.  I can't get enough of this story.

[no_free_lunch]

Loganc,

 

American funds itself has a fairly incredible story as well.  Based on that interview they went from $12M AUM to $300B AUM over the first 28 years.  So that's 25,000 X increase in AUM or 44% CAGR  (not to be confused with investment performance but as a money manager you get valued on AUM).  I think he did very well for himself.

[txlaw]

And then the last piece of it is that if you were to listen to a streaming service across 3G in the same way that you listen to radio or satellite radio today, that you would consumer at least $30 of data based on the best plans you can -- best price plans you can get in the market.

 

So all this is free. Streaming services are not free. So it costs you $30 a month of data.

 

 

That quote was from Sirius CFO David Frear at the recent Bank of America Merrill Lynch Global Telecom and Media Conference.

 

Here's the link to the full Q&A transcript - http://seekingalpha.com/article/2250593-sirius-xm-siri-at-the-bank-of-america-merrill-lynch-global-telecom-and-media-conference-transcript?part=single

 

I think what Frear has said regarding Sirius being "free" versus streaming services is right in one sense, but also kind of ignores the possibilities of how the market for data plans could end up.

 

Right now, most anyone who uses a smart phone in the US gets a data plan of some sort.  It's essentially a sunk cost because you don't get the benefits of having a smart phone without a data plan.  What SIRI has to worry about is the combination of reasonably priced, unlimited mobile data plans and the car makers making it easier to really tie your phone to the car (Carplay, Android in the Car, etc.).  Because at that point, you're already paying for a data plan that will fully handle your OTT service needs, and the choice is whether you want to add an incremental OTT content subscription service for $X per month.  SIRI will then have to compete on the content package primarily, which is definitely differentiated (they have MLB, CNBC, etc.).

 

If you don't believe that there will be reasonably priced, unlimited mobile data plans going forward, then Sirius is in a great position.  On the other hand, if you have a major market shift -- say, a S/TMUS merger where the new company is on a mission to provide better quality service for lower ARPUs -- then that could be very disruptive to SIRI's price advantage and market share position. 

 

So something to think about.

 

So now both Sprint and T-Mobile are offering subsidized music streaming service.

 

http://newsroom.t-mobile.com/news/t-mobile-sets-your-music-free.htm

http://www.bloomberg.com/news/2014-06-19/t-mobile-offers-iphone-trials-music-streaming-service.html

[thefatbaboon]

And then the last piece of it is that if you were to listen to a streaming service across 3G in the same way that you listen to radio or satellite radio today, that you would consumer at least $30 of data based on the best plans you can -- best price plans you can get in the market.

 

So all this is free. Streaming services are not free. So it costs you $30 a month of data.

 

 

That quote was from Sirius CFO David Frear at the recent Bank of America Merrill Lynch Global Telecom and Media Conference.

 

Here's the link to the full Q&A transcript - http://seekingalpha.com/article/2250593-sirius-xm-siri-at-the-bank-of-america-merrill-lynch-global-telecom-and-media-conference-transcript?part=single

 

I think what Frear has said regarding Sirius being "free" versus streaming services is right in one sense, but also kind of ignores the possibilities of how the market for data plans could end up.

 

Right now, most anyone who uses a smart phone in the US gets a data plan of some sort.  It's essentially a sunk cost because you don't get the benefits of having a smart phone without a data plan.  What SIRI has to worry about is the combination of reasonably priced, unlimited mobile data plans and the car makers making it easier to really tie your phone to the car (Carplay, Android in the Car, etc.).  Because at that point, you're already paying for a data plan that will fully handle your OTT service needs, and the choice is whether you want to add an incremental OTT content subscription service for $X per month.  SIRI will then have to compete on the content package primarily, which is definitely differentiated (they have MLB, CNBC, etc.).

 

If you don't believe that there will be reasonably priced, unlimited mobile data plans going forward, then Sirius is in a great position.  On the other hand, if you have a major market shift -- say, a S/TMUS merger where the new company is on a mission to provide better quality service for lower ARPUs -- then that could be very disruptive to SIRI's price advantage and market share position. 

 

So something to think about.

 

So now both Sprint and T-Mobile are offering subsidized music streaming service.

 

http://newsroom.t-mobile.com/news/t-mobile-sets-your-music-free.htm

http://www.bloomberg.com/news/2014-06-19/t-mobile-offers-iphone-trials-music-streaming-service.html

 

TX,

 

I've been bringing up the same concerns for a while now. LTE-quality connectivity is going to allow a lot of good, satellite-quality competition into the car.  And I share your skepticism that data delivery cost will be a barrier to entry - maybe for a year or two - but certainly no longer. 

 

The most common argument in favor of Sirius is that Sirius isn't about the satellite - it is about the exclusive, curated, commercial free music and talk.  The problem I find with this argument is that premier radio property in the big scheme of things is very cheap.  If ATT/Directv, Verizon, Apple, Google want to get into this space it is literally peanuts for them to start bidding away these properties.  For example the NFL contract is up for renewal after Superbowl 2016 - ATT/Directv will almost certainly be interested in that.  Competitors couldn't bid it all away tomorrow, because Sirius has many, fairly longterm contracts - but I don't see how this is a strong competitive advantage.  That being said, because of how these deals are structured, this chipping away at content could not take place over a shorter period than 3 - 8 years.

 

The driverless car, people sitting back watching movies/sports, i.e. a transition to video delivery to the car would be a welcome development for Sirius.  They would be in pole position to scale up for that because even LTE cellular is a very long way from being able to cope with 100m rush-hour video downloaders.

 

All that being said, I am always very skeptical of my analytical abilities when they seem to contradict a successful, branded, subscription/consumer model.  We are a lazy, habit forming race.  When you carefully analyze Sirius' churn and adjust the churn for a 6-7 year average vehicle sale/purchase - Sirius has impressive loyalty. And this loyalty so far has been unaffected by Pandora, Iheart, streaming, and FM/AM (which 200m people still use!).  Also, Sirius has a number of interesting advantages in their music royalty rates versus streaming. And Sirius may well have a useful role if the car manufactures want to maintain an in-car-entertainment profit stream and not cede to much power to ATT and Verizon.

 

I own shares via Liberty, and obviously Sirius is more than 2/3 of Liberty, and I'm ok owning it -but it's not an investment that I feel super comfortable with. 

[txlaw]

The most common argument in favor of Sirius is that Sirius isn't about the satellite - it is about the exclusive, curated, commercial free music and talk.  The problem I find with this argument is that premier radio property in the big scheme of things is very cheap.  If ATT/Directv, Verizon, Apple, Google want to get into this space it is literally peanuts for them to start bidding away these properties.  For example the NFL contract is up for renewal after Superbowl 2016 - ATT/Directv will almost certainly be interested in that.  Competitors couldn't bid it all away tomorrow, because Sirius has many, fairly longterm contracts - but I don't see how this is a strong competitive advantage.  That being said, because of how these deals are structured, this chipping away at content could not take place over a shorter period than 3 - 8 years.

 

TFB,

 

I agree with your skepticism of this being a long term advantage. 

 

First, I think you're right to point out the deep pockets that could potentially steal away the exclusive content.  But I also think that in the medium to long term, we could see many of the most premium content providers begin to unbundle their content from the traditional distribution channels. 

 

If you're the NBA, for example, you might eventually stop making deals with ABC and TNT and just go directly to your audience (and provide ancillary content to the games).  The theory behind this is that by selling distribution rights to third parties, the NBA is not optimizing their viewership (and monetization of that viewership) either nationally or globally.  With OTT technologies, the value add that distributors propose to content owners is not as strong, since you can actually get more granular detail on OTT viewers and adjust your strategy accordingly.

 

Just as important, the curation of content by anyone under the sun is proliferating very rapidly in a way that threatens to undermine the traditional arbiters of what audiences ought to be listening to.  Not only do small frys now have the ability to get into the curation game in a very targeted way, but now I am able to have content curated for me by my "friends" and "followees."  That does not necessarily bode well for the strongest content curation brands because it can undermine their value and, thus, pricing power.

 

The driverless car, people sitting back watching movies/sports, i.e. a transition to video delivery to the car would be a welcome development for Sirius.  They would be in pole position to scale up for that because even LTE cellular is a very long way from being able to cope with 100m rush-hour video downloaders.

 

I suspect that by the time that driverless cars becomes a reality, the connectivity and throughput issues will be solved.  Indeed, driverless cars seems to me to be a lot harder problem to solve than the broadband problem.

 

All that being said, I am always very skeptical of my analytical abilities when they seem to contradict a successful, branded, subscription/consumer model.  We are a lazy, habit forming race.  When you carefully analyze Sirius' churn and adjust the churn for a 6-7 year average vehicle sale/purchase - Sirius has impressive loyalty. And this loyalty so far has been unaffected by Pandora, Iheart, streaming, and FM/AM (which 200m people still use!).  Also, Sirius has a number of interesting advantages in their music royalty rates versus streaming. And Sirius may well have a useful role if the car manufactures want to maintain an in-car-entertainment profit stream and not cede to much power to ATT and Verizon.

 

The problem I see here is that QNX Car, Android in the Car, and CarPlay make it a lot easier for consumers to transition away from Sirius.  It will just be too easy to add Spotify or Pandora or whatever to your car in place of Sirius -- in fact, that's the whole point of these big tech companies trying to get into the car.

 

The car manufacturers will likely take a cut of the wireless infrastructure fees, as well as provide their own OTT services (e.g., OnStar).  IMO, I don't think they will favor anyone like Sirius over the medium to long term. 

[giofranchi]

txlaw! And I thought you were a lawyer…!!! ;D ;D ;D

 

Well, I think Mr. Malone knows the strengths and the weaknesses of Sirius as well as anybody else (probably better?). Sirius has been a wonderful investment so far… when its weaknesses start outweighing its strengths, I think Mr. Malone will recognize the change in the competitive landscape, and will act accordingly… Actually, with Charter he is already working on something else, isn’t he?

 

I am reading [amazonsearch]A Money Mind at 90[/amazonsearch] by Philip L. Carret (who passed away in 1998 at 102): if Mr. Malone gets to 90 preserving his “money mind”, we still have almost 2 decades of benefiting from his shrewdness… It would be a pity to lose this opportunity simply because we get a bit uncomfortable with an investment of his, wouldn’t it? ;)

 

Gio

 

[txlaw]

txlaw! And I thought you were a lawyer…!!! ;D ;D ;D

 

Well, I think Mr. Malone knows the strengths and the weaknesses of Sirius as well as anybody else (probably better?). Sirius has been a wonderful investment so far… when its weaknesses start outweighing its strengths, I think Mr. Malone will recognize the change in the competitive landscape, and will act accordingly… Actually, with Charter he is already working on something else, isn’t he?

 

I am reading [amazonsearch]A Money Mind at 90[/amazonsearch] by Philip L. Carret (who passed away in 1998 at 102): if Mr. Malone gets to 90 preserving his “money mind”, we still have almost 2 decades of benefiting from his shrewdness… It would be a pity to lose this opportunity simply because we get a bit uncomfortable with an investment of his, wouldn’t it? ;)

 

Gio

 

Gio, I am a lawyer -- and an engineer and investor as well.  What can I say, I'm a many of many talents! ;D

 

No disses re: John Malone.  He's a brilliant investor.  And I am positive he understands the competitive landscape.  He will indeed act accordingly -- of course, he also has Ergen et al to deal with, which makes it a fun game.

 

However, just because Malone understands the true value of SIRI does not mean that Mr. Market understands the true value of SIRI.  Indeed, if Mr. Market overvalues SIRI and LMCA as a result, don't be surprised if Malone uses this to his advantage by issuing stock as currency. 

[dwy000]

I put Sirius in the same category as QVC (the other Liberty cash cow).  Older technology that you just say "how is this still growing in today's market?"  But quarter after quarter and year after year they churn out cash seemingly immune to the better technology. I keep hesitating to invest because I'm sure it will fall over at some point and I will say "how did you not see that?"  But then I kick myself as it continues to climb. I guess you could put DTV in the same category.

[giofranchi]

Gio, I am a lawyer -- and an engineer and investor as well.  What can I say, I'm a many of many talents! ;D

 

Ahahahah!!!! Just great!! ;)

 

Cheers,

 

Gio

[giofranchi]

Indeed, if Mr. Market overvalues SIRI and LMCA as a result, don't be surprised if Malone uses this to his advantage by issuing stock as currency.

 

Well, I don’t see this happening: last year SIRI stock price rose handsomely, while LMCA stock price stagnated.

Anyway, if what you say is true, and Mr. Malone will issue stock as a currency to his advantage, I plan not to be sleeping at the wheel and to make sure Mr. Malone will issue stock not only to his but to “our” advantage! (rights offering next July?) ;)

 

Gio

 

[no_free_lunch]

I put Sirius in the same category as QVC (the other Liberty cash cow).  Older technology that you just say "how is this still growing in today's market?"  But quarter after quarter and year after year they churn out cash seemingly immune to the better technology. I keep hesitating to invest because I'm sure it will fall over at some point and I will say "how did you not see that?"  But then I kick myself as it continues to climb. I guess you could put DTV in the same category.

 

This really nails it.  I have been following the liberty properties for about 7 years and I have honestly never been very comfortable with the individual companies.  Despite that, the performance of liberty has been incredible.  I am still long LMCA.

[thefatbaboon]

txlaw! And I thought you were a lawyer…!!! ;D ;D ;D

 

Well, I think Mr. Malone knows the strengths and the weaknesses of Sirius as well as anybody else (probably better?). Sirius has been a wonderful investment so far… when its weaknesses start outweighing its strengths, I think Mr. Malone will recognize the change in the competitive landscape, and will act accordingly… Actually, with Charter he is already working on something else, isn’t he?

 

I am reading [amazonsearch]A Money Mind at 90[/amazonsearch] by Philip L. Carret (who passed away in 1998 at 102): if Mr. Malone gets to 90 preserving his “money mind”, we still have almost 2 decades of benefiting from his shrewdness… It would be a pity to lose this opportunity simply because we get a bit uncomfortable with an investment of his, wouldn’t it? ;)

 

Gio

 

Gio, I am a lawyer -- and an engineer and investor as well.  What can I say, I'm a many of many talents! ;D

 

No disses re: John Malone.  He's a brilliant investor.  And I am positive he understands the competitive landscape.  He will indeed act accordingly -- of course, he also has Ergen et al to deal with, which makes it a fun game.

 

However, just because Malone understands the true value of SIRI does not mean that Mr. Market understands the true value of SIRI.  Indeed, if Mr. Market overvalues SIRI and LMCA as a result, don't be surprised if Malone uses this to his advantage by issuing stock as currency.

 

It's important that we remember Malone bought most of his Sirius position for nothing.  He then topped up in order to get control.  We can not assume that Malone thinks Sirius (and by extension Liberty) is a "buy" at current prices.  And tax matters make monetization very expensive for Liberty - so Sirius would have to be very over-valued for Malone to want to eat the tax from a straight sale. 

 

I bought USG during bankruptcy for $4 in 2001.  It was an excellent investment at that price.  It traded up to $40 a few years later and I sold (it subsequently went on to $100).  Buffett, had started buying USG before the filing at slightly higher prices...he kept on buying, helped with the recap when the company emerged from bk, and then helped with a refi during the 08/09 recession.  He still holds the position.  With Sirius, Malone invested less than a billion for a position which is now worth $11bn.  Just like with Buffett's USG position. We shouldn't  assume that Malone would find Sirius attractive at current prices if he didn't already own it.

 

I never had the same problem with Directv as I do getting comfortable with Sirius (at current prices).  I think satellite for video delivery is really misunderstood.  The essence is the fact that satellite is just so much cheaper than laying/upgrading cable.  As such I was able to hold a big position in DTV with relatively little discomfort.

 

All that said, and like no_free_lunch, I haven't sold any of my LMCA shares.

 

 

 

 

[Liberty]

I put Sirius in the same category as QVC (the other Liberty cash cow).  Older technology that you just say "how is this still growing in today's market?"  But quarter after quarter and year after year they churn out cash seemingly immune to the better technology. I keep hesitating to invest because I'm sure it will fall over at some point and I will say "how did you not see that?"  But then I kick myself as it continues to climb. I guess you could put DTV in the same category.

 

This really nails it.  I have been following the liberty properties for about 7 years and I have honestly never been very comfortable with the individual companies.  Despite that, the performance of liberty has been incredible.  I am still long LMCA.

 

If Malone was only buying things that everybody agreed were great and that everybody was looking at, I don't think he'd have the record that he has.

[Liberty]

It's important that we remember Malone bought most of his Sirius position for nothing.  He then topped up in order to get control.  We can not assume that Malone thinks Sirius (and by extension Liberty) is a "buy" at current prices.  And tax matters make monetization very expensive for Liberty - so Sirius would have to be very over-valued for Malone to want to eat the tax from a straight sale. 

 

I don't know. He's having Sirius do huge buybacks, was doing LMCA buybacks until recently (probably keeping powder dry for cable deals), and he recently tried to swallow the whole of Sirius by issuing new shares. I don't think he thinks it's overvalued.

[loganc]

It's important that we remember Malone bought most of his Sirius position for nothing.  He then topped up in order to get control.  We can not assume that Malone thinks Sirius (and by extension Liberty) is a "buy" at current prices.  And tax matters make monetization very expensive for Liberty - so Sirius would have to be very over-valued for Malone to want to eat the tax from a straight sale. 

 

I don't know. He's having Sirius do huge buybacks, was doing LMCA buybacks until recently (probably keeping powder dry for cable deals), and he recently tried to swallow the whole of Sirius by issuing new shares. I don't think he thinks it's overvalued.

 

To echo this comment, mgmt (and by extension malone) also increased the leverage target at SIRI which implies two things:  (1) mgmt wants to increase the pace of the buyback and (2) mgmt has a very high degree of confidence in the stability of the cash flows.  After all, the degree to which a business can support leverage is a function of the stability and predictability of the cash flows provided by the business.

[thefatbaboon]

The most common argument in favor of Sirius is that Sirius isn't about the satellite - it is about the exclusive, curated, commercial free music and talk.  The problem I find with this argument is that premier radio property in the big scheme of things is very cheap.  If ATT/Directv, Verizon, Apple, Google want to get into this space it is literally peanuts for them to start bidding away these properties.  For example the NFL contract is up for renewal after Superbowl 2016 - ATT/Directv will almost certainly be interested in that.  Competitors couldn't bid it all away tomorrow, because Sirius has many, fairly longterm contracts - but I don't see how this is a strong competitive advantage.  That being said, because of how these deals are structured, this chipping away at content could not take place over a shorter period than 3 - 8 years.

 

TFB,

 

I agree with your skepticism of this being a long term advantage. 

 

First, I think you're right to point out the deep pockets that could potentially steal away the exclusive content.  But I also think that in the medium to long term, we could see many of the most premium content providers begin to unbundle their content from the traditional distribution channels. 

 

If you're the NBA, for example, you might eventually stop making deals with ABC and TNT and just go directly to your audience (and provide ancillary content to the games).  The theory behind this is that by selling distribution rights to third parties, the NBA is not optimizing their viewership (and monetization of that viewership) either nationally or globally.  With OTT technologies, the value add that distributors propose to content owners is not as strong, since you can actually get more granular detail on OTT viewers and adjust your strategy accordingly.

 

Just as important, the curation of content by anyone under the sun is proliferating very rapidly in a way that threatens to undermine the traditional arbiters of what audiences ought to be listening to.  Not only do small frys now have the ability to get into the curation game in a very targeted way, but now I am able to have content curated for me by my "friends" and "followees."  That does not necessarily bode well for the strongest content curation brands because it can undermine their value and, thus, pricing power.

 

The driverless car, people sitting back watching movies/sports, i.e. a transition to video delivery to the car would be a welcome development for Sirius.  They would be in pole position to scale up for that because even LTE cellular is a very long way from being able to cope with 100m rush-hour video downloaders.

 

I suspect that by the time that driverless cars becomes a reality, the connectivity and throughput issues will be solved.  Indeed, driverless cars seems to me to be a lot harder problem to solve than the broadband problem.

 

All that being said, I am always very skeptical of my analytical abilities when they seem to contradict a successful, branded, subscription/consumer model.  We are a lazy, habit forming race.  When you carefully analyze Sirius' churn and adjust the churn for a 6-7 year average vehicle sale/purchase - Sirius has impressive loyalty. And this loyalty so far has been unaffected by Pandora, Iheart, streaming, and FM/AM (which 200m people still use!).  Also, Sirius has a number of interesting advantages in their music royalty rates versus streaming. And Sirius may well have a useful role if the car manufactures want to maintain an in-car-entertainment profit stream and not cede to much power to ATT and Verizon.

 

The problem I see here is that QNX Car, Android in the Car, and CarPlay make it a lot easier for consumers to transition away from Sirius.  It will just be too easy to add Spotify or Pandora or whatever to your car in place of Sirius -- in fact, that's the whole point of these big tech companies trying to get into the car.

 

The car manufacturers will likely take a cut of the wireless infrastructure fees, as well as provide their own OTT services (e.g., OnStar).  IMO, I don't think they will favor anyone like Sirius over the medium to long term.

 

Perhaps you're correct - I share a lot of your concerns. And I was only throwing the driverless car/ video thing out there as a thought - but obviously that is too far away to speculate on the status of future cellular capacity.

 

But...

 

Content is terrified about how to go OTT.  I've talked to a number of fairly senior executives in content companies and the current strategy being followed by nearly everyone is "divide and confuse".  Lot's of different time windows, different delivery channels, different collators. With the idea that you seed new revenue streams without killing any golden geese.  But obviously you're right that this could evolve. 

 

A few other thoughts...

 

First, everyone who wants free music can already get free music.  So that's not new. 

 

Second,  if you want commercial free music you need to pay and at the moment Sirius royalty agreement means they have less than half the content costs of streaming services. 

 

Third, "talk" is very important for Sirius customers, probably more so than music, and here is a little niche where Sirius seems quite protected.  Many of the big content/tech guys wouldn't want to start a talkshow management business, the smaller content/tech guys can't pay as well as Sirius, and going it alone is ok if the host doesn't want to make any real money (a la podcast) or if he is super famous (a la Stern).  Thus, Sirius seems to be in a good position to continue to attract and lock up talk personalities.

 

 

[Guest wellmont]

malone doesn't just buy cheap. he bought his stake in chtr (at what amounted to a full price) after the p/e sponsors who saw it through BK had made a killing. that's the thing about malone and other great investors. there is no playbook. My sense is he really likes siri, which is not simply a content distribution company.