Liberty Broadband Corporation (LBRDK) Earnings Call Transcript & Summary

We don't need it because pretty much everywhere we're going to where we can offer an FWA combination. We have the 5G spectrum there. That's not the issue. Everywhere that would be, we basically have fiber there already or have [ coax ]. So we don't have the issues about saying, "Hey, we're short, we need to go to FWA." And fundamentally, the hybrid, that coax or that fiber is a better offering, and there's no need to consume. Let's go back, FWA, they're taking up capacity. It costed something like they're getting something like 140th of what they could get on a per bit basis. So that's expensive capacity. If you don't have to do FWA, you're not going to want to do FWA.

Are you starting to see LEO satellite competition? Or is it really only just in the unserved areas?

In the unserved areas, you see LEO satellite primarily SpaceX, though they've had issues, they've actually filled their capacity out there and they're not actually offering, it's in the far western part of Alaska, we've seen some of that competition. But pretty much the same thing happens. And fortunately, as Alaska is a place where a lot of that bead money in other forms of federal support and state support have gone. We've been able to roll out a lot of capacity. Only in the most remote locations, is that really a more attractive offering just because we're not going to be there.

Right. And no one is going to be there. I think I saw in the last round of state subsidies in Alaska that the average cost per home pass that was being subsidized was $206,000 per home pass.

Alaska is a high-cost environment. Let's just leave it at that.

Yes, you can burn through a lot of BEAD money fast that way, though. So last question. The FCC released their ACP and EBBP obligation. And it was interesting, it's a big part of Charter is actually the biggest recipient of that money. But as a percentage, it's a big part of the base of GCI. Is there any real risk to those subsidies ending if Congress doesn't renew the ACP funding?

So only something like 9% of our wireless database and 6% of our broadband database or broadband group are unsubsidized programs. So it's important. I don't want to dismiss it, but it's not a huge percentage of our business. I think it has helped probably all operators with reduced churn on the margin because it's those weaker customers at the end. And we've seen relatively low bad default rates and the like at GCI and at Charter. And I think probably it's those ones in the margin that are helped by the subsidy programs.

Where does the growth come from for them? You've said that bundled customers have about half of the churn rate of stand-alone customers. I'm assuming that is what informs your view of convergence in the lower [ 48 ].

But I think you've seen that around the globe, but Alaska is in the globe. And we have definitely seen their offering of a converged product, a wireless and data product is exploding. They moved something like 25% of their base over to that. And exactly as you would expect. So those are stable customers. They're that much less likely to move. They probably tend to be your better customers to begin with, but it's a very attractive offering for them and a very good offering for us.

So let's turn to SiriusXM. You have about 40 million paid subscribers. Can you talk about how your product competes with the various alternatives of everything from free radio, AM/FM services like Spotify. It's been a sort of perennial concern and yet it just keeps chugging along.

Yes. When we got involved in 2009, it had 18 million subscribers. And it was in something like 67%, 68% of cars now or in something like 82% or 83% of cars. The take rate, which is the number of customers who convert from those free trials to paid self-pay net adds, SP&As has gone down. But it's as you would expect, you've gone from a market that was a 9 million SAAR seasonal adjusted audio rate to 17% and now backed off to something like 14.5%, 15%. We'll see what the 2023 number is. And we've gone from deeper penetration. And we do see increased competition. But we continue to get our share of customers, particularly high-end customers because of the ease of use of the product, the differentiated content we have that's much broader than most other offerings. And frankly, a lot of our customers prefer, if you listen to the Grateful Dead channel or you listen to this, the mix that we offer you appeals to the highway, the mix that we offer you appeals to a large customer set. Are we going to get 100% share of new customers? No way. But we're going to get our share of people who love that experience, love the differentiated content we have, love the ease of use.

So I remember when iPhone connectivity was first coming, it was the death now for SiriusXM. It is getting easier, though, to connect smartphones to cars and to fully access services like Spotify. Any change in your long-term view of the runway left for SiriusXM...

Look, I think...

In the car specifically?

There are a lot of things better than that. First, you've definitely seen the growth in car play in Android Auto. But you've also seen that pushback where many of the auto manufacturers, the OEMs are taking car play out. Tesla never put it in, other people are pulling it out BMW because they don't want to give that first screen away. And we have a much more compatible offering for them. There is clearly increased competition, no doubt. And that partly what explains what we've seen happen in our take rate from the free trial to self-pay net add. I don't think that changes in a minute, it's a long cycle. We are in those cars. It's incredibly sticky, and we're going to be in those cars for a long, long time. In addition, we created a new product called 360L, which really brings in the best of all of our satellite offering, combined with a pull offering, using the modem in the car, and really, I think you're going to see increased stickiness and increased take rate in places where that's offered because it takes the best of both our content and the capabilities to have pull and bring with you on up to the 4 in the car and the ease of use. And I think that's really going to be a great competitive offering for us. So I remain quite optimistic about the long run for 360.

And it really is becoming much more of an out of vehicle experience as well. My sense is streaming is now much more integrated into the offering for your customers.

Certainly, it's something we're doing and more and more customers take both the car product and the Stream product. We are going to come out with a new offering this fall and improved and upgraded cycle. We brought in a team led by the group and the gentleman who did the MLB BAM and then ran Disney streaming efforts and Joe has done a great job. You're going to see our new offering in the fall. I think it's going to be a tremendous upgrade. And I think it'll continue to be more and more competitive outside of the car as well as in the car.

I don't hear the death watch for Howard Stern leaving anymore. It's sort of dropped off the radar screen. Howard is going to be there until he's 150?

Howard has a good gig. We try and make sure it's a good gig for him, he likes his audience. He seems to speak very favorably about management even once in a while, I get a call out. So I'm not better than [indiscernible] so what the heck.

Live Nation, kind of amazing. I said Live Nation and TripAdvisor are obviously sort of quintessentially reopening Revenge travel or Revenge entertainment stories, I guess, and both are now well ahead of anything they ever had back in pre-pandemic days. But Live Nation in particular, there were so many delayed concerts and things put off during the pandemic. It still sort of feels like we're not in a steady state. And so it makes me wonder, is this still kind of the tail end of a bubble? Or have we just reached a new plateau in live entertainment?

I think there has been a fundamental shift towards live. Liberty has been pushing the idea of live. If any of you came to our Investor Day, I think it was 4 or 5 years ago, we said the power of live, and we've been investing in that, whether it be through the Braves or Formula One or Live Nation, all of those are leveraging that. There clearly has been a kickoff and raised the bar with COVID and the exit trade. The idea of YOLO, you only live once, my joke was, it's ULO, you only unlock once. But I think the reality is what you've seen happen is appreciation for those kind of experiences has gone up. what we're seeing in terms of people willingness to pay, platinum, willingness to pay for higher offerings, willingness to add the venue, pay for higher per caps when they're there. All of those are positive trades. We do see bands that have been waiting to come back, and that surely helped prime the pump. But I do think we've reached a new higher level for live experiences certainly around concerts.

So that new higher level, is that as cyclically at risk as maybe it used to be in the past where a recession would significantly impact that business? Or do you think that business might be a little less recession-sensitive than other live entertainment businesses?

Like you don't want to say you're going to file economic cycles, but I think there's no appreciation for those kind of experiences, new appreciation for willingness to pay for quality experiences and all of those are not going to go away, those high-end customers are not going to be limited by a recession. They are probably people with disposable income that occur regardless of what's happening to interest rates or sadly unemployment.

And my Aerosmith tickets that were so expensive, we're going to fund that...

They look expensive and then go look and say, what's the cost to go courtside to a nice game or do a playoff game or good seats at a playoff game. And you look and to argue those concert tickets don't look crazy when you look at the pricing of other kinds of sporting events and other kinds of live events. So...

They do potentially...

Watch the secondary market, right? That suggests there's [ room ] for pricing.

Right. Well, so that does bring up an important question, right, which is the whole Taylor Swift brouhaha sort of for whatever reason, I guess it's not hard to figure out what the reason was. But Taylor Swift sort of broke through into the public consciousness of ticket prices in a way that, that issue hasn't before, even though it's been hanging around for years and years. What's the risk of Washington involvement and regulation? And what do you do to mitigate that risk? Or is it realistically this is a supply and demand business. And eventually, Congress understands that?

The latter point maybe [Technical Difficulty] they missed supply and demand and some other things. But look, we have been operating with a DOJ consent decree for over a dozen years. There is a monitor that was installed by the DOJ, if there are complaints about behavior of Live Nation Ticketmaster competitors can call that monitor and tell them what's wrong. We've been living with that for 12 years. Nothing's changed. What has changed? You're right. Taylor Swift and other incidents, but particularly Taylor Swift concerts raised the profile. You've seen some bills in Congress. None of those bills feels particularly onerous to us. In fact, a lot of what's happened is actually pretty positive. We've been had a chance to go to Washington to educate lawmakers about what the market looks like, how much scalping demand is out there, what's happening, how the bots are driving a lot of this. Could we do better on the technology side? Absolutely. I then look and tell you that Ticketmaster has the best technology in the market. And I think most people would agree with that if you compare the competition, what's available, most venues would agree. We will work through it. I believe that we will end up with a very strong business. And I think actually, there may be reforms which are beneficial to the consumer and to us in the process.

And are relations with talent, would you say those relationships are relatively good now or stable at least?

I think they're excellent.

Okay. I mentioned the other big reopening story is Trip, which obviously, there's been so much disruption to the travel business, but the sheer level of travel, how is the consumption of experiences changed though, through COVID in a way that either benefits Trip or that has left Trip sort of in the outside looking in at certain opportunities?

So I think your point about people recognizing the value of experiences coming out of COVID is there, and that clearly applies to travel and when they get to travel, what they do there. If you look at what's happened at experiences, it feels a lot like where hoteliers were 20, 25 years ago, I was the Chairman of Expedia back from '99 to 2003. And we were just seeing the hotels come online. They have perishable inventory, a room night that's going to go away. Expedia had traffic, mostly driven around planes, but then increasingly monetized around hotels. And that has been the dominant method for many companies, including Expedia and TripAdvisor to monetize that interest, that traffic. In our case, all of the reviews, all of the customer input and the benefit we had. What's happened though is experiences are the now that version. And that demand is exploding. They're coming online in a new way that they haven't before. We're bringing them traffic. They have a perishable product, that tour, that cooking class, whatever it is, that balloon ride. They want to get it sold, we have a real opportunity. And there's been enormous growth in TripAdvisor's experience aside and Viator, our 2 primary arms. And that's a great growing market that feels like it has a lot of runway. As I said, there hasn't been the consolidation. There probably won't be. The hoteliers, obviously, many chains gained penny power, and that's a much more balanced market than it was. The experience market is way early down the curve, and you don't expect it's going to have the kind of consolidation and balancing of power in the way that the hotel market did.

So you, like every CEO in tech and tech adjacent businesses have to be watching AI and wondering what happens with AI, where is it an opportunity, where it's a threat. One of the really big questions, I think, is are we all going to have a chatbot personal assistant that sort of reintermediates all of the websites or apps downstream and commoditizes everything because your chatbot is deciding how to get your travel instead of the individual websites.

So it really goes to what I think a lot of companies are going to need to do. There are going to be these plenty of open AI and alternatives to find information. The question is what information are they sorting, what large language models and how much of that is proprietary and unique. So the degree that Trip has a way of cataloging all the data it has and creating in a protective way, something that is really valuable. I think it's a real opportunity for Trip. There's a lot of searches that goes on, but it's relatively commoditized. Will you be able to show differentiation? I really want to know about this thing, will Trip be able to provide that differentiation for you? And I think we have the database and the information flows that we should be able to do that and really benefit from AI rather than be threatened by it.

So no change in your affinity for this business and like when you think about AI, do you lie awake at night thinking, okay, these businesses are more vulnerable, it's going to be pure cost advantage, these businesses. How do you think about that?

I think you're going to see a wide variety. My friends at Zillow and I'm on the Zillow Board, they think there's enormous opportunity on the software development side. I think we think that as well a Trip. But Trip's real opportunity is to try and leverage on the front looking. Our challenge has been that a lot of the top of funnel work has come out from people like Google and the like. To the degree we can provide further differentiation so that it's not just a random query. Let's be realistic. Things like Zillow are specialized search engines, right, things like TripAdvisor. And as long as you're differentiating and you have real unique data in there, that's valuable and you can be more valuable than a generalized search. That's why people go to Zillow. It's got a lot more information than Google does about that house or that apartment. We can do the same on TripAdvisor, and that's a real opportunity for us.

Let's talk about a more challenging asset, and that's Qurate. You laid out Project Athens turnaround strategy last year. Give us an update on the KPIs that you're tracking and where you think you are in that process? And just what's your level of optimism or pessimism about the progress?

Well, let's start with the challenges. I mean, we are the negative beneficiaries of cord cutting, right? Our primary promotion vehicle is the television. We have a great series of videos, you can watch a great series of programming. There are other ways to distribute that, but the historical method has been across television. So cord cutting is negative. And then on top of that, we've had changes that went through COVID where you had increased cost of shipments in, and we had massive issues where we had a warehouse fire last year in our biggest warehouse, which caused business disruption, caused Net Promoter Scores to decline. We had return issues. So it was kind of the perfect storm of things go wrong. We have a relatively new CEO in David Rollinson. He's been with us now about 18 months. I think he's doing the right things. Project Athens is among them. Project Athens is really 2 parts. It's both cost-cutting and rightsizing the business and revenue enhancement. Probably 2/3 of it is cost cutting and 1/3 is revenue driven. And frankly, most of the cost cutting is a '23 event, and any revenue side is really '24 and beyond. I think we've seen already a bunch of those cuts come to pass. In Q1, they were sort of the impact was taken. We're starting to see some of that impact in Q2. And as we go into 3 and 4, we'll see more of that impact, is frustrating that most of that real benefit is backloaded for the year. But I'm optimistic that we're going to be able to go out and make a huge difference on both sides because the other part of, as I said, rightsizing the business and getting the distribution correct, getting the Net Promoter Scores up and eventually serving our customers better. I think we'll be more nimble and better at it as a more efficient vehicle. And I think that's where we actually have some revenue opportunities on the other side as a part of Project Athens.

I'm always struck when I see data and hear you talk about that business, just how dependent you are on a small set of core customers. Is that a good thing or a bad thing? I mean, on the one hand, it's great to monetize your best customers. On the other hand, it sort of leaves you very exposed to what is ultimately a pretty small intensely loyal, but also relatively old customer base.

Look, I think we have a core group of customers called [ Avids ] and Elites in our parlance who are very important to us. Some of them purchase as many as 50 times a year. Literally, every week, they're buying something from us. We have affordable luxuries for them. This thing they want this thing to want, that story that was told to them why this friend on television made this appealing to them. And they're important. I don't think a lot of businesses have that where a core group is really the high profit for them. The positive for that is they're highly motivated. They're highly connected. They're unlike less likely to be the cord cutters because they want to get that experience on television, they want to get to us. So yes, any time you see a concentration you worry, but it's been a long-lived experience. It's really been in this business, which is over 30 years old now. We've had this going on. So I don't look at it as a fleeting kind of experience. It's been what's the nature of the business.

So bottom line for that business as you think about, you probably read our incredibly bearish cord-cutting note...

I did.

Yes, I think Michael added a -- and have a nice weekend at the end, it was so depressing.

So Qurate is aware of it. It's not new news. And your report was particularly painful, but it was not a new thought. Look, we have gone out both with reaching customers in the new formats, whether it be Roku, where we are prevalent or whether it be YouTube, but also building our own apps like we just launched a new one in beta called [indiscernible], which is doing more of our online and taking advance effect, we're a content generation farm. We produce large amounts of video content. and our customers like it, and we just need to make sure where they are, we are producing and giving it to them. And so we're reaching out and finding new ways to distribute that video content to them.

But is it fair to assume that, that everyone involved is being forced to do that faster because cord cutting is certainly faster than we would have expected a couple of years ago where we kept thinking we're getting close to a floor because of sports. So we're getting close to a floor because of news or none of those floors seem to be very firm floors.

We are not betting on the fact that we're going to [Technical Difficulty]. We're acting on the premise that was going to be to continue to decline, and we need to move and adjust our customers and find them where they are. We create shopping experience that they'd like. We sell product and merchandise that they want. We just to make sure we make it available to them.

So I always end these conversations with the fun part of talking about where you and John see opportunities. I'm going to get to that in just a second. But...

Don't I usually avoid answering the question, but go ahead.

No, sometimes you actually have some, we've had some good conversations about that. Before I just want to sort of wrap up on your kind of thoughts of the portfolio as you kind of step back and think about the portfolio of assets that you've got, just given all the changes in the world over the last couple of years of pandemic and then reopening, and now rising interest rates and that sort of thing. Are there things that you say, I'd like to readjust the portfolio in some way to have more exposure to X or less exposure to Y.

Well, look, we've been in, if you look take a longer term, we've been moving out of some of the traditional media businesses. We sold Starz. We've gotten rid of many of what were the traditional linear channels. We've been doing that for a while. We got out of that. We invested in things with more of a live profile, whether it be Live Nation, Formula One, the Braves. We've had that movement for a while. We have generally tended to do better in finding opportunities. We've invested basically nothing in the last 3 or 4 years, which is probably smart. We tend to do better when it's a bad market. Most of our best deals have come in bad markets, and that's where opportunity is created. And we hope that we find some of those. we have been smarter about selling. All of the sales we did in the last few years looked great. We wish we'd only done more of them. But the things that we did look wonderful. We got out of LendingTree at almost 10x where the stock is. Like 2 years ago, we got out of our stake in iHeart and our stake in Clear Channel. But things change, markets change, and some of those things can start to be attractive again. So we'll look for opportunities that are stressed that fit our portfolio or fit the kind of things we think we know something about, whether it be live or subscription businesses, things where we have some experience.

I'd love to just get your perspective on businesses that are adjacent. You're not directly in the RSN business, but you obviously pay a lot of attention with the Braves. What's your view of the future of sports on TV and the RSN business?

It will be interesting to say you're already, it's funny to watch or interesting to watch, educational launch. What's happening is some of these people have broken away and gone back to broadcast where they think the RSN is not meeting their needs. And in many cases, you can understand that. We're on the other side of it in L.A., where we pay a very high feed of the Dodgers that was inherited from the Time Warner deal. But the Dodgers make a lot of money, but they have a problem. They're only seen by something like 35% of the market. So there's going to be this tension between how much do I get paid and how broadly is my product distributed and known. And I think you'll see some of that move back where they may be taking less money, but they'll either be broader opportunities around broadcast and then you'll see people doing much more digital. So the traditional, hey, this is where I find my sports is obviously going to break. Will it reaggregate? That's going to take a while. Maybe there's the ESPN Plus of the world. But will that be done on a regional basis, I think that's a ways off. So we're going to go through a period of fragmentation where the high-end pay and the broadcast or attention, and we'll see how that plays out.

There's always been this relatively obvious linkage between TV contracts and player salaries. Let's leave aside the NFL and what Josh Harris and company are paying for their commanders for a second. But the first half of that is broken. The TV contracts aren't generating money for the RSN or the regionally delivered teams and yet the player salaries have kept going up. Is that a temporary lagging issue and that ultimately, player salaries are going to have to come down?

Well, it really depends on the sport. I mean you put aside the NFL because the NFL is a hard salary cap, and they're definitely tied to the TV revenues. Baseball is not. And I think we've seen owners, particularly one here in New York, happy to spend well beyond what the team earns. And that's true in a lot of cases, these are based on a multiple of revenue and not a multiple of income. The Braves make money. We make money every year. No one would know in the valuations when you look at what's [ Sportico ] or Forbes, how they value these things, that's almost irrelevant. It's just in our nature, Liberty, we probably would have a hard time writing a check every year into the team, and we haven't had to. We have a great on-field product and a great business experience. So that's wonderful. I don't know if it's quite as correlated. It is over the long term, perhaps that, yes, the TV revenues will drive this. But in the short term it doesn't seem to be a...

It hasn't yet. So I always like to wrap up on this question. Tell me when you and John are talking whether it is a geography, whether it is a sector, where do you see opportunity that you say and where you're putting your personal investments?

Look, I think outside our portfolio. Again, the things that we know well or better than we know other things are now about live events. We have some credibility in sports with what's gone on Formula One. We're looking for those kind of alternatives. We're looking for things and those a lot of cases have been chased up, so not just a team, but something where we can make a difference. And we are looking at things that are overlevered, that are fundamentally good businesses and trying to raise capital in a bad market. That's probably where the easiest opportunities are. And again, subscriptions are something we have a long history of from TCI to DIRECTV to Starz to Sirius to Charter. We have a long history around subscription businesses. So those feel familiar.

It is always a pleasure to do this conversation with you every year. I look forward to doing it for a lot more years to come. I learn something every time. So thank you for being here.

Thank you, everybody.