Formula One Group (FWONK) Earnings Call Transcript & Summary

Well, and below the mobile operators, which feels like a...

Yes. well, but below the mobile operators, which may seem strange but below replacement cost, which is really hard to reconcile with the factor there's ton of capital looking for fiber. Does that...

Well, you know what I always say about a lot of that capital that was in the fiber overbuilders these infrastructure funds. Infrastructure funds is code for we don't need big returns.

Well, they're all predicated. The investment is always predicated on the exit multiple, right? And...

And also gaining big share, right? We -- they're all underwritten on a case of x amount of financing cost, y amount of construction cost, x amount of share and multiple expansion. And I think those variables do not look as attractive today as they once did.

But does it create the opportunity to be an acquirer and say, there are assets here that are now cheap enough that we should be looking at adding scale.

Yes. I think there's -- on a case-by-case basis, that might be the case that Charter would do that. But they're relatively fewer, we don't already have overlap. And we're frankly better off on these greenfield once where we're not -- we don't have any competitive issues.

All right. Let's talk quickly about GCI before we go to SiriusXM. And that's -- if I think of the current proposals for Alaska, GCI is going to be maybe the best positioned recipient of feed money anywhere.

It is well positioned to get BEAD money, though there are other programs that are not necessarily as favorable because it's funding native corporations or other entities in Alaska that some of it is competitive. The environment is different in Alaska for a bunch of reasons. We don't have a lot of FWA competition. We're not an MVNO. We are a true MNO. So the business is different. And we are a massive beneficiary to building out, as you rightly pointed out in some of these places. And our competition is not, as I said, FWA but in some of the remote places, Starlink and things like that. So it's a different. It's a different market for a bunch of reasons, very stable, very high ARPU, very high cost of construction, very high cost of service. It's just the nature of the breadth of the place and weather conditions.

And would you do fixed wireless yourself? Or if you're going to participate, would it be through a wired infrastructure?

I think it will be through these federal programs funding infrastructure rather than us doing FWA.

Got it. All right. Let's talk about SiriusXM. Self-pay net adds were down 3.59 this quarter. Self-pay churn ticked higher by 10 basis points. This time last year, you had net adds about the same, but you improved over the course of the year. It was still negative 4.45 for the year. How do I think about those trends? And both near term and longer term, as to where that business is going?

Yes. Look, I think the shape of the year will be the same. The quarters will get better as we go out through the year. I think the financial results will still be very strong because in the face of a slow environment and a bunch of issues around mix and how many new vehicles there are, we have reset the cost base attractively there. We do have some CapEx for both satellites and other technology programs, which will decline over the next several years. And I do think we'll be able to get back on track for self-pay net adds growing, partly through the launch of our new app, partly through greater take-up on 360L, our 2-way capabilities in the car. So I think there are a bunch of trends that we're going to work through over the next year or so that are positive.

As somebody who -- admittedly, I don't spend a huge amount of time looking at that business. But when I look at the numbers, how much of it is your new pricing? How much of it is the macro economy and the auto market? And how much of it is it just a fundamental change in consumer behavior and the way that they're consuming media in the car?

So I'll try to unpack that. I think there are a bunch of factors. First, we have seen, over time, a decline in the convergence of our free trials, and that's expected. As we go deeper into the number of cars, when we got involved 14 years ago, we were in 67% of cars. Now we're in 82% or 83% of cars. And as you get deeper into the car, you would expect you convert better on high-end cars than you do on lowering cars. But clearly, there's more competition, and we need to continue to show our relevance to a younger demo as they move into that car market. This was originally built for 40-year-old males. Now those 40-year-old males are now 60-year-old males. We need to make sure that the new 40-year olds are finding our stuff attractive, and we do. There's also clearly more competition, new services and new ways to connect in the car. What we're doing around 360L, as I mentioned, our 2-way capability, is very powerful. And what we're doing on our own app, the new launch we had is very powerful. All of those, I think, will help us curtail some of the conversion issues. You mentioned pricing. That's clearly one of the impacts. We do not have a problem passing along price increases to a big hunk of our audience. But we have somewhat of a barbell, where we have people who are relatively price and different. Craig, hopefully, you have in your car, and you don't really notice if we raised $0.50. Hopefully you have in multiple cars, what I like to hear. But we also have a very cost-conscious group at the bottom who are very sensitive. Our ability to change the model for them and make it not only a pay service but perhaps an ad-supported service and bring some of the capabilities we have now to them, creates an interesting pricing opportunity where you're not necessarily saying, I'm going to raise your price, but I'm going to give you some ads to offset some of the fact you have that low price. That's one of the interesting ways we can combat and look at maintaining a better ARPU without really pressing up prices quite as much.

Does the 999 streaming service potentially cannibalize the premium in car service?

I don't think so. I really do think that's more separate. I think the bigger issue is what's cannibalized as pricing or ARPU rather, is people getting in the habit of saying, no, I don't want to -- I'm not going to subscribe. I'm not going to renew, and we say, okay, they get a discounted program to try and hold them back. I think that's been more of the issue.

And has the used car market tracked the way you would have thought and hoped, does that...

Used car market has been great. I mean, look, we have not added new cars in the United States. Again, when we got involved in 2009, I think the used -- the new car market was 8 million or 9 million in the middle of the Great Recession. It peaked at about 17 million, and now we're 14 million, 15 million over the last couple of years. What's changed and what's been the big driver of growth in the last few years has been, and what was really when we underwrote the business case was the used car market, where we now are installed in, I don't know, 125 million cars, we only have 35 million subscriptions-ish. So you look and sell these cars, the opportunity to resell them or no installation cost. This will light them back up. That's been a huge opportunity. And we continue to gain share in the used car market. That's the -- one of the interesting opportunities.

So as I just think about where it's trading today, I think it's down 43% or something since the beginning of the year, less relative to a year ago because it's sort of been up and down. But what's -- what part of the story is underappreciated by investors?

Well, one of the questions I would have, that I don't think we know the answer to, how much of this has been market driven by collapsing the discount? They've come down more to our price than we're going up to theirs in terms of LSXM versus SXM. How much of that is market movements around the deal and less fundamental is unclear. But I think we need to show that we can grow. We need to show that start SP&A and the self-pay net adds growing again. That's going to be the -- a little like the broadband story at Charter. That's the -- that's what the market is looking for, it's Sirius.

Let's talk Live Nation. So Live Nation is arguably a victim of its own success, just with the reports that the DOJ is preparing in any trust lawsuit. What's the current understanding of the -- your current understanding of the situation? And what do you think investors should take away as the regulatory risk here?

Well, I think this has been an ongoing saga, where about every time we're about ready to announce earnings, there's another release that -- coming a leak that they're pending antitrust action. Clearly, they have been looking at Live Nation, Ticketmaster for a long time. I would remind all of you, we've had a monitor in place, which is a DOJ appointed monitor for 14 years. And there's basically a phone line, a 1-800 line and the internet Line, internet address, where you can send your complaints to why -- how Live Nation, Ticketmaster is acting inappropriately. So for 14 years, that's existed. The DOJ has preliminarily had some meetings with us and told us some of their potential complaints, not necessarily their final list. I don't think any of those rise at the level of some of the remedies have been publicly proposed but we'll see. Is it possible that just the way that the DOJ has brought action against other companies that will be brought against Live Nation, Ticketmaster remains to be seen but we believe our -- the behaviors we've exhibited are within the law and that we will continue to operate the business successfully going forward regardless of the DOJ's proposed restrictions.

Yes. So if I skip over the antitrust issues, I mean, revenue was up 36% year-over-year. And I get the sense that this kind of rebound from COVID was not sort of one and done. We're still rebounding.

No. The benefit of that business, as you can see, a little like Formula One, you can see a long way out. We know what the demand is for all the 24 concerts and we're getting all the demand from the 25 concerts already. So you can see how that's sold out and we continue to see strong demand. A lot of tailwinds around things like the Platinum program, which is basically exposing a higher percentage of the ticket base to market pricing and letting the artists get the benefit of that rather than scalpers, that really got rolled out in the U.S. and then Europe, and now potential to continue to roll out in bigger numbers in Latin America. All of those have given tailwind around per caps, meaning what people are willing to spend at an event, tailwind around what the average ticket price is part of that around the platinum as I suggested but demand, most importantly, remains strong and people want to go and see their favorite artists. And I think just one more thing I'd say Michael Rapino has shown a great -- at our Investor Day showed a great funnel about how much Bad Bunny has, how many people follow Bad Bunny. And then percentage of them have to show that I want to go buy a Bad Bunny ticket. And it's not an enormous percentage, yes.

And how much growth comes from international, do you think, as you look out?

Very positive. And one of the things I'd note about the Live Nation business, which is you -- very different than a lot of other sort of U.S.-based IP businesses. Spotify can't charge in India or in Argentina, what they charge or in the U.S. But Taylor Swift gets her price in every one of those countries and it doesn't get discounted. So that's a very different kind of orientation and the globalization of these kind of artists, both ways. International orders coming to the U.S., but U.S. artists going overseas, all at good pricing, is very attractive for Live Nation.

And by the way, it does seem like the -- at least this is my segment of one self-research. This -- the getting tickets as opposed to everything getting sold to the scalper seems to be getting better. It seems like the efforts that you've made have actually worked.

I think they have. I mean, there is more that clearly could be done here. But the scalping lobby is a very effective lobby in ensuring there isn't electronic tickets and some things that can be done that would absolutely reduce the amount of scalping. But artists have been willing to take back that and say, "I'll take that price and that percentage that they're willing to sell." historically, artists felt very uncomfortable charging what could have arguably been the market price. Those restrictions, that self-imposed restriction has gone away in a lot of cases, and they're willing to sell more of that at market prices. And guess what, the market is therefore more efficient.

Let's talk about Formula One. There's been -- I wish my son was here. He's a big Formula One fan, that I talk about every year as he brings his friends and they watch 3 a.m. races in Dubai and bars in New York. There's been such success in growing the U.S fan base. But has it reached a plateau? Or what inning are we in, in U.S. interest Formula One?

Look, hard to know, projecting that. But I'll give you all the statistics we can show around reach continue to grow. And people have questioned growth in linear television. We had the largest weekend we ever had of a U.S. race, and this Miami race 3.1 million. I think in the first year, we did 2.5 million, and last year, we did 1.9 million or something. We did 3.1 million in the U.S. for this -- the race in Miami. New excitement, obviously, having Lando win and create new excitement is good. But we continue to see excellent demand on all sorts of measures around reach and how much fans are engaged. So I think competitive racing can only help but there doesn't appear to be a cessation of interest.

And how has the relationship with the teams evolved over time as you get ready to head into the next Concorde Agreement?

So it's really funny. When the team's prior management before the Liberty went out of their way to basically have the teams kind of screw each other. That was the whole attitude. And we've tried to take more of the full credit to Roger Goodell, the fight on Sunday but on Monday we're altogether, this is one league, and we do better if we rise together. And I really do think there's much more of that attitude. That doesn't mean there's less in competition. But I think the teams to be appreciated that Liberty is playing the long game and trying to grow the sport because that's how we all profit. So in general, the sentiment around the teams towards Formula One management is very good and very positive. We have just sent out a new draft of our proposed Concorde Agreement. There's been some discussion with some teams about it and where it will go. And so we have reason to think it should be relatively easier. I'm sure there are teams who will want money than we want to give them. There's always that tension. But I do believe the goodwill that we've created and the general fact that they're all not only making more money, remember, off of Formula One but on their own sponsorship deals have been tremendously stronger. Go look at the success of sponsorship at Red Bull, McClaren, even Ferrari now with their new HP deal. The teams are doing very well to where they were before we got involved. So I think that hopefully that goodwill carries forward.

And you just announced the MotoGP acquisition last month. What are the synergies there? And for example, is it same sponsors? Is it a different? Will you be able to do sponsorships across both and that sort of thing? Or is it different track requirements and things? So talk about how synergistic it is?

So first, let's be clear. They'll be running separate businesses and regulatorily, we will not try and combine them, so there won't be packaged deals. Not only for [indiscernible] regulatorily but the nature of it is, remember, the teams are our partners in Formula One. There's a different relationship with the teams in MotoGP. The teams would rightly question if we had a broad deal across both, how did it get allocated? Was it fairly allocated enough to F1, where there 50-50 partners or whatever it is, it's more like 60-40 but on the margin, who knows? And over versus MotoGP, where we have more fixed relationship with the teams, are we treating them fairly? So both for regulatory reasons and for the structure of the business, that is not going to happen. What I think we saw was really pattern recognition, which is this is incredible racing. I don't know if any of you watched it but the average difference, the average time of the winner over the second place, a rider is 1 second. There are 9 teams that are within 10 points of each other -- or 25 points -- excuse me, 9 riders within 25 points of each other, incredibly competitive racing, and you see things like Maverick Viñales in Austin, the most recent race in the U.S., start first, fall to ninth and then get back to first. I only wish we had that amount of overtaking in Formula One.

Yes, I would say Formula One, is there a competitive parity problem in Formula One right now?

Thank, Lando, no, that was a good win. But there is a lot of variety of racers and a lot of overtaking in very exciting racing. I think, frankly, this is a sport, which is thrilling but has not really been exposed in the U.S. The strength has been in Southern Europe, particularly Spain, Italy and France. The U.S. numbers, one race in the U.S., which has a fraction of the audience of a U.S. race, both in terms of who attends and in terms of what they get paid. The opportunity to grow in the U.S., I think, is interesting. You rightly note that because of the safety issues, you will not have street races. You cannot raise motorcycles at over 200 miles an hour on streets. You need runouts. These people -- these riders wear kangaroo suits. And with -- and when they crash, they skid, literally 100 to 200 yards in a kangaroo suit. That's not -- you can't let them skid into a side of a building, that doesn't work. So they need runouts. But there are places already like Austin, where they both race. There are -- I think we currently have 5 locations where we have overlap and you can imagine optimization around some of those. And you can imagine us also bringing in new races at other tracks. We're not going to be able to pull off a Vegas but we could pull off other locations. So I think some of the pattern, growing the storytelling, increasing the breadth and recognition across broadcasters, increasing the audience by continually upgrading the experience at races, perhaps trying to find ways to be synergistic around letting the promoters leverage their facilities, all of those are interesting. So we've looked at this and said, this looks a lot like what we found with Formula One. We think there's a great opportunity. This doesn't need to be changed. This needs to be exposed to the world.

I'm going to skip over whether there's a drive to survive analogy.

Ride to survive, you heard it here.

Ride to survive. we talked about the Braves before but Bally Sports is blacked out with Comcast right now, and it seems like that is now so normal in the course of business with RSNs to have blackouts everywhere. One part is -- and part of that is about the perennial issue of moving it to a premium tier, sports tier and that sort of thing. I know we talk about this every year but what's the future of RSNs? And is there a future of RSNs? Because it would seem like it's so fundamental to the value of sports franchise.

Look, I think you'll -- we'll see whether how Diamond is able to get out of its bankruptcy, whether they're able to exit successfully. I think that's an open question. The projections they put forward have assumptions about both linear and direct DTC kind of capabilities that are -- we'll see if that's successful. I'm not sure that's clear that, that gets out. Longer term, I think you're right to ask how this works. I look at the Braves in particular and I feel pretty good about our position. The Braves have 14.5 million broadband households, the largest territory in the United States, more homes and more states than the other franchise or territory in any major U.S. sport. We have high, high participation at our facility, running 94%, the highest in baseball, probably. We certainly were the highest last year. I think we'll probably be the highest again this year. We have great ratings and a high degree of fan interest. If we had to replace the RSN deal we have. I think the management team is confident that they can replace that. And the team is profitable, quite profitable. So our risk is certainly not like we're going to go to a nonprofitable status based on that. So we are perhaps unique in being with that bigger territory and the opportunity to monetize it in other ways.

And while it may not be a direct portfolio question, I always love to get your perspective on the media landscape and in particular, on streaming. I ask you every year. You and John think streaming is a good business? You've got a pretty interesting purchase to see it from?

I think 5 years ago or 7 years ago, when it was in our Investor Day, we went -- described it as a circular firing squad, you were probably there. I think that's been right. One guy has reached Apigee, Netflix and exploded into a profitable business. Is there room for a couple more? Probably but the blood bath to get there has been brutal and they're clearly too many players, and they're not of a sufficient scale. So somewhere down the road, will this be a good business for somebody? Yes. But the carnage to get there one we certainly couldn't stomach. And with the smallest position we have, you need to have scale and you need to have great intellectual property.

And now I'm going to wrap up by asking what I always ask, which is because you and John get to look across sort of everything, whether it's every business, every geography, where do you see opportunity today that makes you think, wow, we should be doing more of that. Is it country? Is it an asset class?

Look, I think we outlined at our Investor Day and I still hold to it, where we've done well recently is around these premium IP differentiated things like the Braves, like Live Nation, like Formula One and now like MotoGP, where you have a unique asset and a unique ability to bring fans and make them your customers, find new ways to monetize that, find new ways to expose that to the world. That feels a lot more protected and a lot more where we can leverage the strengths we've had than being in some of the traditional media classes. Around that, we've also been able to look at sort of ancillary businesses, example being Quint, where you're really bringing high-end hospitality, bringing high-end experience. So if you've got a Formula One wheel or a Live Nation wheel spinning at this, you put the little wheel next with it spins faster because you get the leverage off of it. And I think those are the kind of places where we've demonstrated strength and we can tell a story, which is very good to potential partners and potential acquiring or businesses we wish to acquire.

It's not lost on anybody but if you think about the very long-term trajectory of your company, there's been a general migration towards live experiences. We just had a great conversation with Ben Thompson upstairs of Stratechery about AI. As you think about AI across the landscape, does it change your view of saying, I want to make sure I stay away from these businesses or invest in these businesses or how do you think about what AI is going to do to the asset classes that you play in?

Well, I think -- I don't know if we're protected but there's a limitation on how much you're going to be able to have AI replicate the experience a live event is. It's still going to be the case that you want to see a Formula One car, you want to see a live concert. I think those are hard to replicate experiences. AI may enhance them, may create new ways to reach our customers, may create new ways for the customers to understand the product and reach it. But I don't think it's going to replicate it. And I think it is, if not totally protected, it has a more interesting perch from which to look at them.

We could go on for a long time. I always love these conversations. It's a great way to end the day here for me. I think we've got another great session coming up next with Doug Shapiro, but can't thank you enough for being here. So thank you, and I look forward seeing you again next year.

Thanks, Craig.