LMCA - Liberty Media

[LongTerm]

Overall, I agree, Rutledge is a great operator and was the implementer of Cablevision's "Triple Play" success. The question is how he will get along with Malone (will they agree on strategy?) and what can really be done with Charter's systems; they tend to be more rurual (i.e. spread out), more in need of capital improvement and don't lend themselves as well to the triple play type of strategy (TV, phone and internet bundles). Yes, they are currently underperforming and can be improved, but by how much? and is cable really the delivery mechanism of the future?

 

The advantage though, in rural, should come from having less competition/becoming more competitive versus other sources of broadband internet. It's my understanding that it's often too expensive to lay fiber in rural areas because of the amount of fiber/digging you have to do over long stretches of land. If that really is the case, Charter's assets should actually become more valuable over time, or at least have a wider moat.

 

The problem is the cost of the rebuild for cable to be able to offer broadband and telephony, not to mention  the fact that many of the smaller rural systems are still channel constrained. The question for Charter is how to compete with DirecTv/Dish as they have an inferior TV offer in many rural areas. Then there is the possibility that satellite operators come up with a really competitive broadband offer in which case cable operators simply won't be able to compete. That hasn't been the case up to today but who knows? Charter's 'pipe' is much more expensive to upgrade ON THE MARGIN than the satellite operators.

[alwaysinvert]

I have read it, yes. But I won't invest only because Malone is good at what he does. All everyone says in this thread is "it's too hard, it's Malone". Fine, some people maybe want to invest (or pass) on those premises, but surely there has got to be someone who like me wants to try and understand? Just because he doesn't think like an analyst doesn't mean he doesn't do analysis. The numbers are the numbers, so if I'm missing something obvious (to someone smarter than me) I'd be very happy if someone could enlighten me.

 

alwaysinvert,

I understand your point. But, please consider:

FFH: I don’t understand BB, I don’t understand CPI-linked contracts, etc., yet I invest in FFH.

LRE: to say that I don’t understand the contracts Mr. Brindle & his team write would be an euphemism… yet I invest in LRE.

BAM: as I said in the BAM thread, not only I am not able to value an hydroelectric plant, I am not even able to ascertain its market price… yet I invest in BAM.

OAK: I invested in Oaktree… because I don’t understand the distressed and high yield bond market!

And the list goes on and on…

My point is that you almost never can invest based only on the numbers. Truly effective due diligence goes too much beyond the numbers you find on 10-ks and 10-qs. Imo, you should invest because 1) you like management, 2) you like the business, 3) you think you are not overpaying for what you like.

 

Trading, on the other hand, is a completely different beast: to buy into a bunch of statistically cheap stocks, and to sell them when they get to be fairly priced, is a very rewarding endeavour, and one to which numbers are extremely important and meaningful.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

That's fine, and I use much of the same thinking - BRK is the biggest holding in my portfolio as we speak, and I don't pretend to understand every moving part of that company. That obviously doesn't mean that I'm indifferent to if BRK is undervalued or not, however. I just reacted to the way everybody seemed to cut short the discussion. This thread is about Liberty Media and not the Malone cheerleading thread, so why not try and look at what could be Malone's rationale a bit? I think the discussion perked up quite a bit after my remark, so it's moot now anyway.

 

Regarding management in Charter, Malone has got to be happy with the current one? He essentially signed away his chance to gain control and change it, so I view that as pretty heavy support for Rutledge - escpecially when you take into account the numbers. Seems like we all agree; there needs to be magic done in capital allocation/the operating side to make Charter work out favourably at these market prices. If it were a closer call on a quantitative basis, that potential upside might appeal, but I really don't see it in this case either.

[giofranchi]

This thread is about Liberty Media and not the Malone cheerleading thread, so why not try and look at what could be Malone's rationale a bit?

 

I agree 100%. And I like your posts very much!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[ItsAValueTrap]

and is cable really the delivery mechanism of the future?

 

I think that cable is a wonderful place to be. 

 

Phone services:  Phone services over cable will likely grow market share over time.

 

Internet:  Fibre is the fastest, followed by cable, followed by DSL/phone lines. 

*DSL is faster than cable in some instances.

I don't understand the industry too well but it seems that fibre is too expensive right now, unless the area has an extremely high population density.  So it will likely be the case that cable will grow market share (slowly) over time, taking customers from DSL and dial-up.  There may also be some pricing power as cable operators may be able to raise prices.  The Internet is getting "better" (more + better stuff to do online).

 

**The cable (and phone) companies can implement something called fibre to the node.  To a large degree they are already doing that.  I am guessing that the price/performance of fibre to the node is far better than fibre to the home.

 

Television:  You can get TV services from satellite/DTH, over the air/OTA, TV over a phone line/IPTV, cable, or something like Netflix/Youtube/Hulu.  IPTV will likely grow and cable will shrink a little.  Ultimately cable will likely be the dominant player since you can send more content over a coaxial cable than a phone line.

Netflix could be the future.  In that scenario, cable will do ok since the cable companies will likely be providing the Internet.

 

Other services:  We are coming up with more services that can be delivered over a coaxial cable.  DVR, wifi, video on demand, faster Internet, Wifi@home (they setup wifi in your home and charge you rent for the router), HD television, maybe 3-D TV, etc.  I don't know what the future of those services will be but there is potential upside there.

 

---

 

From a technology perspective, you can look at everything in terms of bandwidth.

Fibre to the home has the highest bandwidth.

Then a coaxial cable.

Then a phone line.

 

A coaxial cable can deliver blazing-fast Internet if the cable company were to fully upgrade its network with fibre to the node.  The extra speed you'd get from implementing fibre to the home is probably not economic.  (Of all cable Internet customers, many are not paying for the fastest cable Internet.  I'm not.)

 

Between cable and a phone line, cable is the better pipe.  The phone companies can only compete by offering a lower-cost alternative.  (*Analog phone services are more reliable than digital phone so it might take a long time for people to switch away from phone services from telcos.)  If things get ugly, it will be the telcos that lose the most.  Kind of like how very few people use slow 56k Internet connections anymore.  The lowest bandwidth service is the most vulnerable.

 

The bandwidth for over-the-air broadcasting is fixed.  This service will never get significantly better.  You cannot change the compression system.

 

The bandwidth for satellite is mostly fixed.  There are little things that they can do to improve the quality or to offer more channels.  But over time cable will get more attractive relative to satellite.  Over time, the cable companies will unleash the full potential of what can be delivered over a coaxial cable.  In most cases they are only delivering a fraction of what's possible.

 

And if Netflix/Youtube/Hulu takes off, you want to own the pipes that provide the fastest Internet.  Those companies with the fastest Internet will be hurt the least.

[giofranchi]

Why Liberty Media Will Sell Its Sirius XM Shares

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

why-liberty-media-will-sell-its-sirius-xm-shares.pdf

[LongTerm]

and is cable really the delivery mechanism of the future?

 

I think that cable is a wonderful place to be. 

 

Phone services:  Phone services over cable will likely grow market share over time.

 

Internet:  Fibre is the fastest, followed by cable, followed by DSL/phone lines. 

*DSL is faster than cable in some instances.

I don't understand the industry too well but it seems that fibre is too expensive right now, unless the area has an extremely high population density.  So it will likely be the case that cable will grow market share (slowly) over time, taking customers from DSL and dial-up.  There may also be some pricing power as cable operators may be able to raise prices.  The Internet is getting "better" (more + better stuff to do online).

 

**The cable (and phone) companies can implement something called fibre to the node.  To a large degree they are already doing that.  I am guessing that the price/performance of fibre to the node is far better than fibre to the home.

 

Television:  You can get TV services from satellite/DTH, over the air/OTA, TV over a phone line/IPTV, cable, or something like Netflix/Youtube/Hulu.  IPTV will likely grow and cable will shrink a little.  Ultimately cable will likely be the dominant player since you can send more content over a coaxial cable than a phone line.

Netflix could be the future.  In that scenario, cable will do ok since the cable companies will likely be providing the Internet.

 

Other services:  We are coming up with more services that can be delivered over a coaxial cable.  DVR, wifi, video on demand, faster Internet, Wifi@home (they setup wifi in your home and charge you rent for the router), HD television, maybe 3-D TV, etc.  I don't know what the future of those services will be but there is potential upside there.

 

---

 

From a technology perspective, you can look at everything in terms of bandwidth.

Fibre to the home has the highest bandwidth.

Then a coaxial cable.

Then a phone line.

 

A coaxial cable can deliver blazing-fast Internet if the cable company were to fully upgrade its network with fibre to the node.  The extra speed you'd get from implementing fibre to the home is probably not economic.  (Of all cable Internet customers, many are not paying for the fastest cable Internet.  I'm not.)

 

Between cable and a phone line, cable is the better pipe.  The phone companies can only compete by offering a lower-cost alternative.  (*Analog phone services are more reliable than digital phone so it might take a long time for people to switch away from phone services from telcos.)  If things get ugly, it will be the telcos that lose the most.  Kind of like how very few people use slow 56k Internet connections anymore.  The lowest bandwidth service is the most vulnerable.

 

The bandwidth for over-the-air broadcasting is fixed.  This service will never get significantly better.  You cannot change the compression system.

 

The bandwidth for satellite is mostly fixed.  There are little things that they can do to improve the quality or to offer more channels.  But over time cable will get more attractive relative to satellite.  Over time, the cable companies will unleash the full potential of what can be delivered over a coaxial cable.  In most cases they are only delivering a fraction of what's possible.

 

And if Netflix/Youtube/Hulu takes off, you want to own the pipes that provide the fastest Internet.  Those companies with the fastest Internet will be hurt the least.

 

I'm not sure I follow your logic. Let's start with history. Over the past 20 years satellite TV (DTH) has taken away significant market share from cable. Why? Their video offer has been superior, especially in rural areas where it was, and remains, uneconomic to build full service cable systems. More recently the shift of market share has slowed because cable offers something that satellite cannot, low cost (well, relatively) high speed internet. Let's leave telephony out of this for now as overall fixed line telephone usage is decreasing (ask the AT&T or Verizon!); it is just icing on the cake for cable operators because it takes up so little bandwidth. The problem for cable operators is that they pay for bandwidth, i.e. the cost of a system build or rebuild is a function of the amount of bandwidth. There has been much discussion in the cable industry about charging for bandwidth; logical, as their cost is related to this. So far consumers (and legislators) have resisted this kind of pricing. In a sense its a the same question as why ESPN is offered as a basic service, i.e. basic subscribers not interested in sports have to subsidize those who are. Operators would like to charge commensurately for bandwidth usage, but can't, so they do the next best thing; they offer different 'levels' of service (which really aren't that different if you read the fine print) at different prices. But when you start putting video services like netflix through cable's pipes, there is a problem. Netflix gets paid, but the cable operators don't even though they have to pay more to provide the streaming, both from an operational and capital perspective.

 

So where am I going?  The more video intensive internet usage becomes, the more a cable operator has to spend in capital rebuilds. The more rural the system, the more the rebuild costs per home passed (lower density of homes, thus more cable miles to reach each home). Charter has one of the more rural footprints of the large cable operators (I'm going from memory here and may be out of date by 5 or more years). Right now cable's main competitive advantage is high speed internet, but ironically the increase in video intensity of internet usage is challenging them from a capital cost perspective as they are getting no additional fees for this more intensive usage. It's a conundrum that has yet to be solved from an economic perspective. So it's not clear to me that cable is the place to be. Also don't discount technical innovation (your statement about bandwidth being fixed is technically correct but in reality today there is 10-20x as much video programming sent over the same bandwidth as 25 years ago due to better and better compression technologies). And don't forget there could always be a game changer, such as a truely economical high speed internet over satellite system or even through land-based mircowave. That might just evicerate cable's current competitive advantage.

 

In sum, I don't think it's as simple as saying cable has an advantage and that's where you want to be.

[ItsAValueTrap]

your statement about bandwidth being fixed is technically correct but in reality today there is 10-20x as much video programming sent over the same bandwidth as 25 years ago due to better and better compression technologies

The improvements in compression technology are marginal.

Going from analog to digital is a big jump.  You can fit several times the channels with digital compression.  (You see this happen with over-the-air broadcasting.)

But going from one generation of digital compression to the next generation doesn't offer much improvement... maybe 20-100% every several years.  Whereas most computer technology gets twice as good/cheap every two years.  My guess is that cable modem technology will likely progress at the rate of twice as cheap every 2 years.

 

It is somewhat difficult for satellite to take advantage of newer compression technologies.  If they use newer compression, people with older systems can't see content with the newer compression.  So they have to roll out a small portion of content with new compression and slowly wait until penetration of new boxes is high.  And then maybe they move all of their content to the new compression system and replace all the old boxes/systems out there.

 

In any case, I think that the big picture is that cable will improve more than satellite.

 

The problem for cable operators is that they pay for bandwidth, i.e. the cost of a system build or rebuild is a function of the amount of bandwidth. There has been much discussion in the cable industry about charging for bandwidth; logical, as their cost is related to this. So far consumers (and legislators) have resisted this kind of pricing.

I don't know too much about the cable industry.  But here in Toronto Canada, the ISPs charge you overage fees.  The prices that are usually charged is typically far more than what it actually costs to deliver the service (much like how cell phone companies charge you ridiculous roaming fees, or how banks charge you excessive fees on many services).  So there is that business model.  It arguably stifles innovation like Netflix and it is possible that regulators will kill off the excessive overage charges model.

 

The other thing that happens everywhere is that ISPs throttle users who use up a lot of bandwidth.  (A small minority of users will use up almost all of the bandwidth.)  So they reduce their costs on their most expensive customers.  Some ISPs just throttle based on the type of Internet activity, e.g. bittorrent (typically use to pirate video and other intellectual property).

 

A sensible solution would be for ISPs to charge a fair price for bandwidth above a certain amount.  If ISPs don't bill customers for using up a lot of bandwidth, then they will engage in throttling and this arguably stifles innovation.  If they bill customers way too much for overuse, it also arguably stifles innovation.

*A problem with billing for bandwidth is that sometimes the equipment that counts bandwidth usage doesn't work perfectly.

 

2- The faster Internet services really are faster.  And yes, there are people who pay a premium for them.

 

There are various ways to research this... one place to check is dslreports.com

 

Netflix also shows how fast ISPs are in practice for their service:

http://ispspeedindex.netflix.com/results/usa/archives

 

3- As far as Charter goes, it comes down to the return on capital that they get for improving their network and services.  I presume that offering new services (faster Internet, HD channels, etc.) has a high return on capital for them.  Presumably the CEO won't allocate capital to services which offer very low rates of return (e.g. fibre to the home).

[ItsAValueTrap]

Or look at it another way.

1- Malone is clearly an expert in the cable industry.  He used to run a cable company and he is clearly a talented guy.

2- You should take note of anything that goes into Liberty Media.  Especially when it would have made more sense to put that company into another Liberty entity.  Global would make sense because it has cable operations and there could potentially be cost synergies if it somehow merged with Charter one day (I don't know if antitrust rules would complicate such a transaction).  Ventures is underinvested and is sitting on a pile of cash.  If Charter is a mediocre idea, why didn't it go into Ventures or Global?

[fareastwarriors]

http://dealbook.nytimes.com/2013/03/28/john-malones-ziggo-stardust/

 

John Malone’s Ziggo Stardust

 

[Yours Truly]

Or look at it another way.

1- Malone is clearly an expert in the cable industry.  He used to run a cable company and he is clearly a talented guy.

2- You should take note of anything that goes into Liberty Media.  Especially when it would have made more sense to put that company into another Liberty entity.  Global would make sense because it has cable operations and there could potentially be cost synergies if it somehow merged with Charter one day (I don't know if antitrust rules would complicate such a transaction).  Ventures is underinvested and is sitting on a pile of cash.  If Charter is a mediocre idea, why didn't it go into Ventures or Global?

 

Global's too busy snapping up European and Latin American assets where there are potentially growth opportunities/consolidation leading to higher market shares.  Putting Charter in there wouldn't fit in with the rest of their international global cable companies PLUS, i'm not sure if Global has anymore room to acquire since they've been on quite a binge lately.

 

Ventures focuses on video and eCommerce so it wouldn't fit in there either with the likes of TripAdvisor / Expedia et al.  On the other hand, Liberty Media appears to strictly deal with US only companies AND has the cash flow to make large purchases as a result of freeing of cash per the Starz spin-off.

 

IMO, I think he'll use his past expertise in making Charter more lean/profitable with an attempt to become the #3 carrier OR make an eventual push for a merger with top #2-3.

 

Again, your betting on the jockey here as is with Fairfax, Berkshire, etc.

[valueorama]

I am going to make comment on this discussion of why cable is great - phone, internet and TV.

 

I used to think that nothing could beat Cable companies, until i had discussion with one cellular provider engineer. Apparently LTE, in the future can provide 100 MBs connection. Every provider is working towards that goal. From a cost perspective, upgrading cell towers is cheaper than laying Fiber optic network. Hence Verizon is not implementing fiber.

 

Soon you can get your TV and internet from your cell phone provider. You could just buy a wireless LTE box, to get phone, TV and internet at home. Why bother with Cable. This strategy will be very successful in high-density areas like Metros.

[Cunninghamew]

There is no Liberty Global (LBTYA) message board that I could find, so I thought I would post this here. This is an excerpt about Liberty Global from Dan Loeb's latest letter

 

 

"During the First Quarter, we increased our exposure to LBTYA, Europe's largest cable operator, following the announcement of its acquisition of VMED. The acquisition triggered a wave of investments by arbitrageurs, who created an attractive entry point for us by putting pressure on LBTYA shares. Initiating a position in VMED allowed us to purchase LBTYA at a material discount to its pre-announcment pro forma trading levels.

 

Our initial interest in LBTYA was spurred by multiple catalysts and favorable geo tailwinds. Relative to the US cable market,Europe offers materially higher volume growth, lower churn, and meaningful penetration opportunity. Before yearend, we expect catalysts in the stock to include the closeing of the VMED deal, the initiation of a substantial buyback plan, and the unveiling of accretive wireless and B2B initiatives. The wireless mkt in LBYTA's key West Europe markets generates over $73 bill of annual rev, presenting LBTYA with the opportunity to redifine the MVNO market, leveraging a unique WiFi footprint, full back office and system control, and attractive quad play bundles. LBTY also appears poised to ramp up its B2B efforts, particularly in Germany.

 

We believe Liberty’s strategic value as the primary alternative to the incumbent telecom operator’s fixed infrastructure in its markets is overlooked. The growth of mobile broadband will put pressure on carrier spectrum allocations, enhancing the importance of WiFi offload and wireline backhaul infrastructure. In a mobile broadband world, having a strong ground game is more important than ever for wireless operators and European cable players are well‐positioned with dense, upgraded fiber infrastructure offering considerable headroom.

 

In our analysis, pro forma Liberty Global could generate more than $6 per share of free cash flow in fiscal 2014 when factoring in the considerable buyback plan announced along with the acquisition. Through VMED, we had the opportunity to create Liberty Global at slightly more than 10x FY2014 free cash flow per share, giving us the cheapest free cash flow multiple in European cable in a deal that will be free cash flow accretive and meaningfully de‐leveraging to Liberty. Despite the move in the shares following the VMED announcement, Liberty Global’s relative value remains attractive, especially given the recent appreciation of its European cable peers and the interim appreciation of slower growth, mature cable operators in the United States. We believe the shares could trade toward 15x pro forma 2014 free cash flow per share and compound at ~20% per year following the closing.

[Yours Truly]

There is no Liberty Global (LBTYA) message board that I could find, so I thought I would post this here. This is an excerpt about Liberty Global from Dan Loeb's latest letter

 

 

"During the First Quarter, we increased our exposure to LBTYA, Europe's largest cable operator, following the announcement of its acquisition of VMED. The acquisition triggered a wave of investments by arbitrageurs, who created an attractive entry point for us by putting pressure on LBTYA shares. Initiating a position in VMED allowed us to purchase LBTYA at a material discount to its pre-announcment pro forma trading levels.

 

Our initial interest in LBTYA was spurred by multiple catalysts and favorable geo tailwinds. Relative to the US cable market,Europe offers materially higher volume growth, lower churn, and meaningful penetration opportunity. Before yearend, we expect catalysts in the stock to include the closeing of the VMED deal, the initiation of a substantial buyback plan, and the unveiling of accretive wireless and B2B initiatives. The wireless mkt in LBYTA's key West Europe markets generates over $73 bill of annual rev, presenting LBTYA with the opportunity to redifine the MVNO market, leveraging a unique WiFi footprint, full back office and system control, and attractive quad play bundles. LBTY also appears poised to ramp up its B2B efforts, particularly in Germany.

 

We believe Liberty’s strategic value as the primary alternative to the incumbent telecom operator’s fixed infrastructure in its markets is overlooked. The growth of mobile broadband will put pressure on carrier spectrum allocations, enhancing the importance of WiFi offload and wireline backhaul infrastructure. In a mobile broadband world, having a strong ground game is more important than ever for wireless operators and European cable players are well‐positioned with dense, upgraded fiber infrastructure offering considerable headroom.

 

In our analysis, pro forma Liberty Global could generate more than $6 per share of free cash flow in fiscal 2014 when factoring in the considerable buyback plan announced along with the acquisition. Through VMED, we had the opportunity to create Liberty Global at slightly more than 10x FY2014 free cash flow per share, giving us the cheapest free cash flow multiple in European cable in a deal that will be free cash flow accretive and meaningfully de‐leveraging to Liberty. Despite the move in the shares following the VMED announcement, Liberty Global’s relative value remains attractive, especially given the recent appreciation of its European cable peers and the interim appreciation of slower growth, mature cable operators in the United States. We believe the shares could trade toward 15x pro forma 2014 free cash flow per share and compound at ~20% per year following the closing.

 

"We believe the shares could trade toward 15x pro forma 2014 free cash flow per share and compound at ~20% per year following the closing."

 

Interesting.  This situation seems like it's TCI version 2.0 which is good for shareholders.

[ItsAValueTrap]

Liberty Media (formerly Capital) is buying back its shares and Malone has most of his money in it.  Malone seems to be putting his best ideas into it.  Media seems to be the one to own at this moment.

[dcollon]

One of a few videos on CNBC this morning.

 

http://video.cnbc.com/gallery/?video=3000161000&play=1#eyJ2aWQiOiIzMDAwMTYwOTY4IiwiZW5jVmlkIjoiQTRadVBYYktpNFV2WHdTdnN5YUVZQT09IiwidlRhYiI6InRyYW5zY3JpcHQiLCJ2UGFnZSI6IiIsImdOYXYiOlsiwqBMYXRlc3QgVmlkZW8iXSwiZ1NlY3QiOiJBTEwiLCJnUGFnZSI6IjEiLCJzeW0iOiIiLCJzZWFyY2giOiIifQ==

[sriraja]

The outsiders book has a great bunch of information about how Malone works. It can get you some insights into his investing/financial framework.

 

He certainly is not a book value guy, but more of a guy who wants to generate FCF and reduce taxes. Most of his companies have paltry or negative book value, including DTV.

 

That said LMCA is his pet, so he treats his pet very very specially.

[ItsAValueTrap]

dcollon, those are some great interviews.  Malone explains the Charter purchase and explains where he sees the media business going.

 

"I think it's at a point in history when the most addictive thing in the communications world is high-speed connectivity," he said. "Everywhere in the world that we operate, we've just seen the public want more and more data rate. Whether it's wireless or wired. There's a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed."

http://www.cnbc.com/id/100637283

 

I can see why Starz was spun off.  Cable networks may die off in 5-10 years.

[Yours Truly]

dcollon, those are some great interviews.  Malone explains the Charter purchase and explains where he sees the media business going.

 

"I think it's at a point in history when the most addictive thing in the communications world is high-speed connectivity," he said. "Everywhere in the world that we operate, we've just seen the public want more and more data rate. Whether it's wireless or wired. There's a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed."

http://www.cnbc.com/id/100637283

 

I can see why Starz was spun off.  Cable networks may die off in 5-10 years.

 

I'm invested in both Starz and DirecTV, i'd love for lower prices.

[MrB]

Following pic give perspective on your comments re Braves deal

 

http://si.wsj.net/public/resources/images/P1-BF507_DODGER_G_20120328182141.jpg

 

I took a look at the Braves piece because I did a bit of work in the space and there's an interesting relationship with MLB and cable that I thought Malone might be taking advantage of and I'll describe below.  (Disclaimer I basically found nothing but another head scratcher so don't get excited)

 

So bit of background baseball is the only one of the big 4 US sports that's exempt from the Sherman Anti-Trust act. What that means is that they have the ability to divide up the country into "blackout" zones seen here http://www.desipio.com/wp-content/uploads/2011/02/mlb-broadcast-map.jpg. The zones essentially mean that if a game is being shown on the team's regional sports network (RSN) and you live in your teams "blackout area" the only place you'll be able to watch the game is on your RSN.  Even the streaming package from MLB.com gets blocked (as of last season) so the "blackout" prevents cord cutting.  RSNs get ~150 games with the rest going to national deals negotiated by the league with ESPN, FOX, etc. Prices for live sports adverts are skyrocketing in a large part because its something you want to watch live (TiVo proof) and because of the large number of baseball games in a season that a reasonable amount of people still watch.  The prices of these RSN deals have skyrocketed with the best known being the recent Dodger's deal that I've seen valued as high as $7 Billion (its not worth that much) but to put it into further perspective look at the lowly Padres that got a deal worth reportedly $1.4 Billion.

 

The Braves are an interesting team in themselves.  They were owned by Time Warner during the '90s and were one of the best teams in the league.  The main advantage of the ownership though is that the Braves were broadcast on TBS, a national station and thus developed a much more geographically diverse fanbase (similar to the Cubs and WGN).  Also if you look at the map I posted above the Braves have one of the largest "blackout" areas covering all of Georgia, Mississippi, Alabama, South Carolina, Tennessee, and part of North Carolina including Charlotte.  In fact the Braves RSN SportSouth has ~8.7 Million subscribers making it the second largest behind YES Network (Yankees).  However, the Braves have the WORST tv deal in the entire league.  Its not just bad, its laughably terrible.  I peg their rights at around $20 Million per year (I've seen highs of 25 and lows of 10 though they were able to renegotiate 45 games this year that used to be separate that should bring the number higher).  Conservatively this would mean their rights fees per subscriber would be about 1/4 - 1/6 as much as the other large markets.  Full journal estimates here http://online.wsj.com/article/SB10001424052702304177104577309860750637758.html?KEYWORDS=dodgers+tv+deal.  I saw these numbers and figured the contract must expire soon which would explain why Malone is invested.  Sit for a few years, renegotiate a heavy contract raise, and flip the team for a large sum.  But, here's the kicker the contract has about 25 years left on it with no apparent clause for renegotiation.  I could hardly believe that when I heard it.  While the length of the deal isn't unheard of in the industry the no opt out clause seems absolutely preposterous.  Apparently, the fine management of AOLTimeWarner signed this beauty of a contract just before their ownership ended.

 

When I started digging into this I expected to find Malone again exploiting a obscure contract thing and about to skyrocket the team value but this all left me a bit perplexed.  Sure there are certain tax benefits associated with the Braves (they expire this year) and the stadium was paid for by the '96 Olympics but nothing jumps out. Also I don't see him missing this because 1) he's been in cable forever and 2) he's been involved with RSNs before.

 

The thing is having the Braves stuck in a horrible contract is bad for the RSN as well.  You'd think paying a low rights fee to the Braves would be good but that's not necessarily the case.  See the tv ratings only go up if the team is performing and the Braves ratings have been going in the opposite direction.  The team (usually) performs well by spending money on good players which in a large part is generated from the cable deal.  That's why your seeing a growing trend of teams getting equity in the RSNs (also some complications with baseball related revenue, etc but not important) as both need to succeed together.  SportSouth is a Fox (NewsCorp) RSN so I'm curious if Malone would move to buyout or gain a stake of the company.  Fox isn't stupid and knows these things are goldmines but as I stated above I just don't see how the current situation works for either party. 

 

Anyway I find the whole RSN thing fascinating if your a Phillies fan your in luck because their deal is up next and Philly is the largest single MLB metropolitan market.

[ItsAValueTrap]

Here's my research on LMCA so far:

 

http://glennchan.wordpress.com/2013/04/26/tracking-john-malone-part-1/

http://glennchan.wordpress.com/2013/04/26/tracking-john-malone-part-2/

http://glennchan.wordpress.com/2013/04/28/tracking-john-malone-part-3-liberty-media-lmca/

 

Some quick commentary on LMCA:

 

1- It'll probably be the part of Malone's empire that will grow the fastest.  He puts all of his best ideas and the best businesses into LMCA.  He owns more of LMCA/STRZA than everything else.

2- It still trades at a discount to what its assets are worth.  LMCA continues to buy back shares.

 

The parts of LMCA

 

---Sirius XM (high short interest)

Earnings growth will come from 3 places:

- Subscriber growth.

- Expanding margins.  As they get more subscribers, they will be able to negotiate lower rates for content.  Sirius will also see some benefit from fixed-cost leverage (e.g. their satellite costs and R&D costs are mostly fixed).

- Low interest rates.

 

---Barnes and Noble

This trades at a discount to the sum of the parts.

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/66481

The money-making bookstore business (which is in decline) is attached to a valuable(?) money-losing eBook business.

 

---Charter

Turnaround / superstar CEO play.

- They have low market share.  Many homes connected with cable choose not to use Charter's services.  This will likely go up as Tom Rutledge turns this cable company around.

- Over time, Rutledge will likely roll up other cable companies.

- All of this will be fueled with cheap debt because we are in a low interest rate environment.

 

---Live Nation

?  I don't understand this.

[alwaysinvert]

Here's my research on LMCA so far:

 

http://glennchan.wordpress.com/2013/04/26/tracking-john-malone-part-1/

http://glennchan.wordpress.com/2013/04/26/tracking-john-malone-part-2/

http://glennchan.wordpress.com/2013/04/28/tracking-john-malone-part-3-liberty-media-lmca/

 

Some quick commentary on LMCA:

 

1- It'll probably be the part of Malone's empire that will grow the fastest.  He puts all of his best ideas and the best businesses into LMCA.  He owns more of LMCA/STRZA than everything else.

2- It still trades at a discount to what its assets are worth.  LMCA continues to buy back shares.

 

The parts of LMCA

 

---Sirius XM (high short interest)

Earnings growth will come from 3 places:

- Subscriber growth.

- Expanding margins.  As they get more subscribers, they will be able to negotiate lower rates for content.  Sirius will also see some benefit from fixed-cost leverage (e.g. their satellite costs and R&D costs are mostly fixed).

- Low interest rates.

 

---Barnes and Noble

This trades at a discount to the sum of the parts.

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/66481

The money-making bookstore business (which is in decline) is attached to a valuable(?) money-losing eBook business.

 

---Charter

Turnaround / superstar CEO play.

- They have low market share.  Many homes connected with cable choose not to use Charter's services.  This will likely go up as Tom Rutledge turns this cable company around.

- Over time, Rutledge will likely roll up other cable companies.

- All of this will be fueled with cheap debt because we are in a low interest rate environment.

 

---Live Nation

?  I don't understand this.

Great work, your first two posts were awesome. Looking forward to reading the third one.

[giofranchi]

Here's my research on LMCA so far:

 

http://glennchan.wordpress.com/2013/04/26/tracking-john-malone-part-1/

http://glennchan.wordpress.com/2013/04/26/tracking-john-malone-part-2/

http://glennchan.wordpress.com/2013/04/28/tracking-john-malone-part-3-liberty-media-lmca/

 

Some quick commentary on LMCA:

 

1- It'll probably be the part of Malone's empire that will grow the fastest.  He puts all of his best ideas and the best businesses into LMCA.  He owns more of LMCA/STRZA than everything else.

2- It still trades at a discount to what its assets are worth.  LMCA continues to buy back shares.

 

The parts of LMCA

 

---Sirius XM (high short interest)

Earnings growth will come from 3 places:

- Subscriber growth.

- Expanding margins.  As they get more subscribers, they will be able to negotiate lower rates for content.  Sirius will also see some benefit from fixed-cost leverage (e.g. their satellite costs and R&D costs are mostly fixed).

- Low interest rates.

 

---Barnes and Noble

This trades at a discount to the sum of the parts.

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/66481

The money-making bookstore business (which is in decline) is attached to a valuable(?) money-losing eBook business.

 

---Charter

Turnaround / superstar CEO play.

- They have low market share.  Many homes connected with cable choose not to use Charter's services.  This will likely go up as Tom Rutledge turns this cable company around.

- Over time, Rutledge will likely roll up other cable companies.

- All of this will be fueled with cheap debt because we are in a low interest rate environment.

 

---Live Nation

?  I don't understand this.

 

Thank you very much for posting your work on LMCA. I agree with everything you have written, except valuation… A company that returned 15% annual for the last 10 years, and which could go on performing the same way for the next 10 years, is worth much more than NAV. So, I would come up with a higher FV. Of course, this is not the case, if you think that past performance won’t be sustained in the future. Yet, I don’t see why Mr. Malone should fail to deliver very satisfactory results for at least the next 10 years. :)

 

giofranchi

[ItsAValueTrap]

I don't believe that it's safe to extrapolate past performance into the future.

 

1- Size is an anchor on performance.

2- In rare cases, some investment managers are just lucky.

 

That being said... I think that Malone will generate very good returns going into the future.  Almost everything in Liberty Media is good... even the Atlanta Braves.

 

Liberty is still excited about Sirius and is buying its stock.  The same goes for Barnes and Noble and Charter (*they just bought Charter stock and would buy more at the same price if they could).  Live Nation ran up a bit but Liberty is still buying.  All of those stocks are arguably cheap.  And Liberty Media itself is cheap too on top of that.

[giofranchi]

More on Sirius XM Radio (SIRI): The company says its total paid subscriber base increased 9% Y/Y to reach 24.4M as the resurgence of the U.S. automobile industry helps bring in first-time subscribers. Subscriber acquisition costs per gross addition declined during the period. At the end of the quarter, free cash flow stood at $142M. Guidance for 2013 is for total net subscriber adds of 1.4M and revenue of over $3.7B.

 

giofranchi

[giofranchi]

New article on Seeking Alpha.

 

giofranchi

liberty-s-plans-for-siriusXM.pdf