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Executives

Jim Meyer - Chief Executive Officer

Analysts

Jessica Reif Cohen - Bank of America Merrill Lynch

Sirius XM Radio Inc. (SIRI) Bank of America Merrill Lynch Media, Communications and Entertainment Conference Call September 12, 2013 6:05 PM ET

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay, we’re going to start with Sirius and we are thrilled to have the CEO of Sirius XM with us, Jim Meyer, who shortened his vacation to be here, so we appreciate it.

So you were promoted to interim CEO in December 19 last year and permanent CEO on April 30 this year. In your tenure, your short tenure so far as CEO, hopefully it will be a long one, what has surprised you, good or bad?

Jim Meyer

Well, I wouldn’t say surprised me, but one thing I’m very, very pleased about is, as you know I’m a big Mel Karmazin supporter and now had been running Sirius XM for about eight years and I’m really pleased that the transition from Mel’s leadership to mine has gone as smoothly as it has.

I don’t think we’ve missed one beat. We’ve kept our head down and made our numbers and we haven’t lost anybody in our key senior management group, so I’m really pleased with how that’s going.

Jessica Reif Cohen - Bank of America Merrill Lynch

And what areas do you think you still believe you still could provide substantial improvement. Are there any particular areas where…?

Jim Meyer

I think there’s two areas. One, operationally focused in the short term. I think there are some groups of potential subscribers that were not doing as well as we should with, and in particular the two areas where I think we can do a lot better are Hispanics and women and I think you’re going to see us taking more action there to improve that.

I think the other area is, I think the company for a long time thought of IP as a competitor and the culture that I’m dealing in the company and the philosophy that we’re running the company with is that IP is not a competitor, IP is a technology, okay.

There certainly are other few that compete with us in terms of our service, but I think where we want to be is in the end if however anybody wants our service, they should get it however they want, whether they get it broadcast or streamed, or better yet both ways during any given day or a given week and so I think we’re clearly accelerating in our efforts in that area.

Jessica Reif Cohen - Bank of America Merrill Lynch

With regards to the 2013 guidance, you’ve reported two quarters and already raised subscriber and free cash flow projections. Is there anything you’re prepared to say today that might surprise us in terms of the full year outlook?

Jim Meyer

No.

Jessica Reif Cohen - Bank of America Merrill Lynch

No. You’re on three-quarters of the way through the year. How do you feel about your guidance?

Jim Meyer

So number one, we absolutely, we feel very good about our guidance. I couldn’t be more pleased, as well as a lot of other people that are relying on the auto industry to be doing what it’s doing now.

I do want to point out that in our guidance we had assumed a steady improvement in the auto industry over the year and in fact that’s what we’re saying. So I’m very encouraged about how great August was. We’ve got our fingers crossed that September ends up being just as strong and I think that’s all we have to say right now there.

Jessica Reif Cohen - Bank of America Merrill Lynch

Any sneak peeks into 2014, either financial or operational?

Jim Meyer

Not quite yet. I mean we’re right in the middle of our 2014 budgeting process now. We have some work to do and so stay tuned. I think you’ll hear from us not too far away on where we are in that.

Jessica Reif Cohen - Bank of America Merrill Lynch

You reported record EBITDA margins for the second quarter instead of a 30%. Can we say that given its large fixed cost structure it potentially exceeds the 40% margin that you’ve targeted over the long term, and also how do you guys define the long term, is it three years, is it two years?

Jim Meyer

So first of all, I mean I just like to take one second and celebrate 30%, which is we just couldn’t have been more pleased with crossing that margin target. Do I think the margin can be 40% or higher? I absolutely do.

Our business is extremely scalable and it’s only taken us eight years to get it here. I mean it’s magic when you cross that 20 million subscriber point, how quickly you can grow an EBITDA and I think as long as we continue to grow, which we think we will, we can continue to leverage that fixed cost base to drive towards a 40% or greater than 40% margin and I think we’ll do that.

Do I think that’s the next couple of years? Probably not. Do I think it’s in the next five years? Sure.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay, okay. And so one thing in terms of getting to that margin of course is the subscriber growth, it’s the biggest driver, but also there might be areas where costs might come down. So for example in programming, is there any opportunity to further reduce costs and can you give us any color into some of the more recent renewal of ESPN and Fox News, is some of the deals that were legacy deals from when Sirius and XM’s pre-merger.

Jim Meyer

So two weeks ago we announced two really big programming renewals, Fox News and Major League Baseball. Number one, I have to tell you how pleased I am to have both of those of done. They are both multi year deals and I stick with what we’ve said in the past, which is that we believe we’re going to be able to continue to satisfy the content needs that we think we need to be the leader in this business, and grow our subscriber base and keep our content costs flat or declining some over the next five years.

So that’s still where we see it. Those deals we did were consistent with that and we’re obviously not going to get any detail of each individual. Well, getting those two behind us I think takes a lot of risk off the table and positions us well as for going forward.

Jessica Reif Cohen - Bank of America Merrill Lynch

Can you remind us what deals are left that were legacy deals, because you have a couple coming up [inaudible] 15th?

Jim Meyer

Yes, we had two big ones, football which we love. We love the NFL deal, we love our deal with the NFL. We love the fact that our subscribers from both platforms get every game on Sunday or Saturday or Thursday or how many days the NFL plays out, and obviously the other big deal we have is Howard expires at the end of ’15 and I’ll be really clear on Howard.

Number one, Howard’s show in my opinion has never been better than it is right now. I just think he’s doing an outstanding job. He’s happy, we’re happy and so my position here is really relatively simple. As long as Howard Stern wants to work and as long as Howard Stern continues to be as engaging and interesting as he is, we want him on the Sirius platform and we’re committed to have him. I think we’ll get both of those deals assuming Howard wants to continue, done in terms that we’ll be consistent with what I said earlier.

Jessica Reif Cohen - Bank of America Merrill Lynch

Right, and are there any areas where you expect to feel upper cost pressure.

Jim Meyer

It’s pretty interesting. I mean, if you think about in the last 12 months, some pretty big things have fallen that make our cost structure pretty predictable. Number one, we now have a CRB ruling on our basic music royalties that gives us five years of roadmap for what will happen to our music royalties, which is as you know a slight increase I think for three years and a leveling off, might be four years and a leveling off, and that’s consistent with what I was thinking as we now have baseball and Fox News behind us.

The areas where I think we continue to look at our cost structure is three. One is, we do continue to invest and we have stepped up our investment level quite a bit in the IT area and we’re going to continue to do that to make sure that in my opinion we’re positioned correctly for the day our customer base wants to service any way they want it, and it’s this great experience.

Either way we’re even better where one plus one is more than two. So investment there, I don’t think though – that certainly doesn’t scare us any in terms of what we’ve seen as targets for our EBITDA growth in the future.

And then as our base gets bigger and bigger, retention spending gets bigger and bigger and this is an area we’re working really hard to understand. We’re in an interesting part in our business in that we’re beginning to see customers who were new car buyers the first time, now buying their second new car with satellite radio and then replacement buyers buying that used car and so the kind of the marketing data, the kind of information and the things we need there, we’re investing in as well to make sure we have those tools to be able to do well there.

Jessica Reif Cohen - Bank of America Merrill Lynch

And the third thing? You said there were three things.

Jim Meyer

The third area is obviously programming and what I will say there is there is nothing out there I see today that we don’t have already, okay, but believe me, if the opportunity comes for something that we see fits what we need to grow our subscriber base and we see it as a good fit for us, we will jump on it and get it.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay. And you mentioned the secondary market. You currently have over 50 million cars equipped with SIRI in the dashboard. That number grows like roughly 10 million a year. Maybe with this current [Unclear] maybe a little bit even more. So this is a big opportunity and it’s growing. A bunch of questions, because it seems like such an important next leg of growth, can you delve into the economics of a typical relationship with a secondary dealer?

Jim Meyer

Sure. First I just want to make a comment. It’s a cultural change for our company. We’ve been so new car focused, first buyer focused, we’re now retraining ourselves to say, hey hold on a minute. It’s not just about the new car. It’s about that 11 or 12 year life of that car and the multiple owners along that journey and trying to get subscribers along that path. Obviously the second and third owners are a much better economics for us than the first owner, because we don’t have the subsidies to put the radio in the vehicles.

Our relationship with the car dealers is pretty simple and pretty consistent and as you know, I think we now have over 11,000 dealers that report to us. That number might be a little higher going up. It’s what we work on, I can tell you every week, and there our relationship is really relatively simple.

For dealers that agree to report to us, both what cars they’ve taken back that have satellite radio and what cars they sold and who that owner is that has satellite radio, we offer them a free trial for all those owners and it’s working great right now and that’s basically all we do. The only other thing we do is we do call on those dealers to make sure that displays are set up and that retail sales people are trained to the best we can.

Jessica Reif Cohen - Bank of America Merrill Lynch

And then can you talk broadly about the extent to which you share revenues with the OEMs on these cars?

Jim Meyer

Sure. Now our revenue share agreements with each of our OEMs is different. All of our deals with each of our EOMs is different, but in general our revenue share agreements are for the life of the vehicle and frankly this is something that works out better than I even expected and because it’s for the life of the vehicle, a GM for instance is very interested in who the second and third owner of that vehicle is, and they are engaged with us and helping us understand who those potential owners are and so it’s helping with the flow as we go down that path.

Jessica Reif Cohen - Bank of America Merrill Lynch

All right. You mentioned GM, so when the GM deal changes, do the terms on the secondary cars change or is it only the cars that are made in 2014?

Jim Meyer

I don’t want to get into all of the details. I can tell you that the change in economics is significant with the new contract.

Jessica Reif Cohen - Bank of America Merrill Lynch

But does it hit - when does it hit? Does it hit just the new cars or does it also…

Jim Meyer

Well it becomes effective in the fourth quarter of this year and it has an impact certainly on all the new cars and basically that’s where you’ll see the impact.

Jessica Reif Cohen - Bank of America Merrill Lynch

In only the new cars.

Jim Meyer

Not only in the new cars, but a very significant portion will be in the new cars.

Jessica Reif Cohen - Bank of America Merrill Lynch

And then one last thing on this market. How should we think of the used car, the secondary car market? The total addressable market is as we said – it’s like over 50 and growing, but what’s the ultimate potential and what are the other costs involved, like how do they compare to the new car market?

Jim Meyer

Right. So to your point, I mean I safely see our base growing to $100 million with very little risk, okay. I mean we’re at over 50 today. As you said, we’re growing between 10 and 11. We know most of the OEMs car plans for the next three, four years and we know where we’re positioning in that. We’re working hard to secure the four or five years past that.

So you’ve heard me talk about that number going to $150 million and I certainly don’t think that’s farfetched. Now as you work through that, certainly that’s a different demographic than what we serve today, right. It’s too early for me to be able to accurately predict what that’s going to look like and I’ll tell you why.

The new car, the used car, better yet the second buyers that we’re seeing today are buying cars in general that were built between six and seven years ago and if you go back six or seven years ago in our chronology, those cars were high end cars at that time and so these buyers that are coming in as secondary buyers today, are a lot more like new car buyers than they are the general population, right. So it’s going to take us a while to work through that population and see what those demographics actually look like.

With that in mind, I think our potential is really, really big to keep adding subscribers in that segment.

Jessica Reif Cohen - Bank of America Merrill Lynch

Is there a big difference or is this just too early to say in terms of revenue and kind of…

Jim Meyer

So the one thing we know is that if there is a big difference in that we don’t have to pay the subsidy again, so that really, really helps.

Number two, so far we understand our marketing cost to try to get to those customers and they are very consistent with what we spend in other channels in terms of marketing to get a customer. The customers that we’ve seen so far behave an awful lot like new-car buyers. In particular their churn profile is very similar to what new-car buyer.

I want to be very cautiously – I want to put a lets be careful, it’s not big enough yet to be able to judge. My gut tells me, as that pie gets bigger and bigger and that demographic gets wider and wider, the profile should change.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay, you said that loud and clear. And you reached a major milestone when you hit that 24. You said $20 million, but now you passed the $25 million. I guess $20 million paid and $25 million in total. What is the penetration of – what is the addressable market, what do you think it is? And how do you think of it as household, as cars, as family. I mean how should we think about the addressable market and what’s the current penetration of that market?

Jim Meyer

So you can think of it a lot of different ways, right. Number one, we are really pleased across $25 million, and for someone who has been here almost nine years, I wasn’t sure this day would ever come. So, I was very, very exciting to get here.

I’ll tell you the way I look at it today, and the way I look at it today is there’s 230 million cars roughly on the road, some say 240 million, some say 225 million. I use 230 million of cars on the road today in the United States. If you throw out, call it 15% of those, 30 million that are collector cars, government fleets, that kind of thing, you get to a base of 20 million, right. If you say that we are at 25 million today, you get a penetration rate that certainly has room to grow.

Is it inconceivable that out of that 200 million we could get to 15%, I don’t think so, that would say 30 million. Is it inconceivable to say one day we could get to 20% of that 200 million, I don’t think so, that would say 40 million.

So we are at 25 million today. I see the addressable market as much bigger than where we are. I mean the addressable market has the amount of cars out there. I don’t see the amount of cars dropping significantly in the next five to eight years and so I think we have plenty of room for growth still with new buyers.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay and then I guess turning to some of the metrics and ARPU. I guess how would you think about like driving growth? Do you think more about the subs, do you think about ARPU, how do you think about placing?

Jim Meyer

I wish there was a knob where you could just turn it one way or the other and say today I’m ARPU and tomorrow I am subscriber growth. I learned it doesn’t work quite as neatly as I’d like it to work. I would tell you today, my focus in driving the company is still aimed at subscriber growth. Not subscriber growth at any cost, but subscriber growth.

I think that maximizing the ARPU question is something that can be done once we think we’ve reached a point where our growth potential is smaller or in fact we’ve reached it and I think we are a long way from there.

So that said, we are very focused, we look at all of our metrics carefully. Obviously, we look at price. We’ve had an awful lot of price activity in the last couple of years and I have to tell you, I’m pretty pleased with where we are today, vis-à-vis, the churn outcome from those pricing initiatives and we’ll continue to look at them. But right now, that’s all we’re doing.

Jessica Reif Cohen - Bank of America Merrill Lynch

So what do you attribute the churn with? It has been stable, it’s not down. I mean it’s been modest. What do you attribute that to?

Jim Meyer

So I think just a couple of things, and the truth is I don’t know a complete, just 100% right answer; I’ll tell you what I believe. What I believe is that number one, we have gotten, we have had the benefit of an improving economy and we see it every day, we see in the amount of credit cards that are turned down as a rate that’s dropped a lot compared to where we were in 2009 and 2010, right. So I think the economy has helped us.

Number two, we are seeing within our profile and it’s hard for us to get everything exactly lined up correctly. Now that we are seeing first owners, who have been with us a long time buying a second car and in a trial, whatever that trial might be, that vehicle and then becoming “a subscriber again,” right, even though never were not a subscriber during that trial.

I think obviously those customers are more sticky and are staying with us. And so I think a little bit of maturity of our base is helping us and obviously I think we are getting – we’ve been fortunate the economy has improved the way it has.

Jessica Reif Cohen - Bank of America Merrill Lynch

Do you sense that churn could move, could improve even further from here or is this…

Jim Meyer

I’d like it too, but I’m not betting on. I mean, the way I see it today is that we are going to go after that 100 million, that 50 million to 100 million to 150 million, and those additional customers that we get may not be as sticky and they may not convert at the same rates as new car buyers, but I still believe they are going to be very profitable.

And if we can add those customers and that creates a little additional churn but more revenue, more growth and more EBITDA, that’s certainly something that I’ll trade, and I think that’s probably our perspective going forward.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay. We haven’t heard much about the progress on Sirius 2.0. Can you give us some any data or statistics on how the platform is helping to drive? How is it leveraging or kind of getting more? Job legacy offer, can you just talk about how it’s rolling out.

Jim Meyer

Yes. So Sirius XM 2.0 is doing exactly what you want it to do and I couldn’t be more pleased. So let me just remind everyone what is was. It was two-phased approach; one was, it was a clear technological path for what our next generation satellite platform was for the OEMs and the OEMs are adopting it exactly as we laid it out.

Now, the one thing you learn when you are in my business with the OEMs is believe me, you learn patients and you learn it quickly. Meaning, you roll out at their speed, not your speed and so while every automotive company has a plan with us on 2.0, they are all scattered out over a variety of years as we are going to implement it, but it’s going exactly as we planned.

Number two, the other part of Sirius XM 2.0 was to bring about new features and new services both in satellite and in IP, okay and in the IP world we’re doing great. We’ve launched an on-demand service in the middle of last year, we launched My Sirius XM, which is a personalized curated music service here, early – not far back, which we are pleased with now and we’ve added other new convenience features in the satellite platform, like Smart Tunes and things like that our research shows our subscribers like very much.

So all in all very, very pleased with it, to the point where we are now working a lot on entering the car companies. The next question, which is what architecture do you want me to have for 2018 and beyond. That is what we are working on now, maybe call it Sirius XM 3.0. Stay tuned; we’ll have more to say about that over the months to come.

Jessica Reif Cohen - Bank of America Merrill Lynch

And any thoughts on how you use the additional balance offer -- either offer lower priced or more ethically driven services, how does that 2.0 evolve?

Jim Meyer

Yes. So one of the things I’m pleased to announce today is that as I said earlier, I don’t think we are getting the job done in the Hispanic segment in our subscriber base. So when you look at how those customers behave versus almost any other segment within that group, we are not doing as well as we do with the others and I think primarily the reason for that is we haven’t had the content broad enough that we need for those subscribers.

We will be doing an update to our channel line-up in the middle of October and when we do, I’m pleased to announce that we’ll have an Hispanic package, including Piolin who we just signed a couple of weeks ago, who we’re very excited about for an Hispanic morning show. We’ll have that package available for every radio, virtually on every radio on all of our platforms going forward.

Furthermore, once we launch that package in October we will also be launching a special package aimed at the Hispanic tier, which will primarily be Hispanic programming with some other limited English content around that for $5.99 a month and we’ll see how we do. So we are going to take -- dedicate more of our bandwidth to this segment and we are going to go out there with what we think is a pretty attractive price and see if we can expand the size of the pie a little more.

Jessica Reif Cohen - Bank of America Merrill Lynch

Since you became CEO you’ve been very clear in your desire to leverage Sirius’ superior technology to other areas and specifically telematics. Can you talk about, a little bit more about the acquisition you made; is that Agero.

Jim Meyer

Agero.

Jessica Reif Cohen - Bank of America Merrill Lynch

Agero. How does that contribute to your vision?

Jim Meyer

So first and foremost I’ve been very consistent and I believe this deep in my soul, that the connected car is the key part of our future. I spend a lot of time with the automakers and I can tell you, the one think that’s clear with the automakers is that they are heading into parallel paths and they are going to do both. And those two paths are what we called tethered connectivity, which means putting some smartness in the dashboard that allows you to use your smartphone as a way to bring services in. They will do that. You’ve seen a lot of that for instance with Ford and others.

But you are also going to see I think a very deliberate long term purpose to do what we call embedded connectivity, which is to actually build the smartness, the modem embedded in the vehicle and run services off of that embedded platform. I think it’s crucial that we’re positioned as a part of that platform as it move forward.

Those OEMs are going to go at their own speed, okay. Some are going to go quick, some are going to go slow, some are going to talk a long time to get there, but there is no doubt in my mind where north is. They are all going to head in that direction. These technologies will co-exist for a long time, okay, but it is clearly in our strategic interest to be particularly included in that connected architecture that rolls out.

To be a key player in there, we were missing certain technologies. We could have gone and built them ourselves, okay, but when you looked at the Agero, and for those of you who aren’t familiar with Agero, Agero has in our opinion very strong relationships, particularly with three key OEMs, those being Honda, Toyota – I’m sorry, Honda, Toyota and Hyundai to deliver safety and security and other services like that.

And by bringing Agero in under our umbrella, it fills the need we have both on a technology. When we make the acquisition I think we’ll pick up somewhere around another 140 engineers, which are dedicated to this connected car, architecture, mostly software driven, most of our engineers are much more platform hardware driven. We think this is just a really, really good marriage of technology assets and then it gives us a service base in the telematics to grow from.

Jessica Reif Cohen - Bank of America Merrill Lynch

And should we look at this as a first step, as this acquisition as a first step. Is it a new base or you need more acquisitions. How should we think about that?

Jim Meyer

I think you should look at it as a big step. I won’t say we don’t need anything else, but I can also tell you, I don’t see what it is today, okay. So we think Agero helps us fill, some key areas that we had to fill to be a leader in this space.

That said, there maybe services or there maybe things we see in the future that we think it’s better to acquire than to build our selves and if so, we’ll look at each one of those opportunities; I don’t see it today. I think Agero takes us a major step forward in what we needed to be a leader in the connected car strategy going forward.

Jessica Reif Cohen - Bank of America Merrill Lynch

And then I guess the last question on this. What type of services could be offered over the let’s call it the medium term that just aren’t being offered today because of this?

Jim Meyer

Yes so, when I look at the service, even the business we are in today, I think the connected car for instance would make our existing business much better, and I’ll give you an example.

Just imagine the day a customer of ours is in his vehicle or she’s in her vehicle, and something as simple as she wasn’t to renew her subscription, right, could do with a push of a button. The modem in the vehicle automatically transmits it to our system, hooks it up and gets it done, and so we see that just as a simple way, a simple way of improving our business.

As you go down the services chain, there are services for instance I see today that may have potential -- may not, okay, but I think they are. A great example is, I don’t know, there was a big article out last week on the new, the brand new Mercedes S-Class that just came out, right, which many have written as the most sophisticated technical platform yet to come out right, which certainly is the harbinger of the way these vehicles are going.

And if you look at these vehicles, if you brought your car 10 years ago, to get serviced chances are they put it up on a lift and the guy had a wrench and everything. If you bring your vehicle in now, what do they do? They have a pad. They hook it into a jack and they read the diagnostics from the vehicle. They vehicle has changed to where the software and the computing power in these vehicles is astronomical compared to what it was.

There needs to be a very clear and secure path for instance to upgrade that software, and to be able to, not a customer business, but call it maybe an industrial business for our auto partners, right. So they can easily re-flash those vehicles when they want to correct that software. I see that for instance as just one small opportunity in this connected architecture that’s not out there today that we can build.

And the last area, I think there are services coming from this connected architecture that we don’t even envision yet, okay. But I do know one thing, you are going to have a better change of playing in those services if you are in the inside looking out than if you’re on the outside looking in, because trust me, I know how hard it is to get in from the outside into the OEM world.

Jessica Reif Cohen - Bank of America Merrill Lynch

Is Sirius now a complete company? Are there other things that you could be interested domestic or internationally?

Jim Meyer

Well I’m never going to say never, but I don’t know what they are today. I mean we feel pretty good, that with the Agero acquisition we filled out a hole that we had and our stated objective to be a leader in the connected car. We obviously -- just so we continue to look at everything, but we just haven’t seen anything else yet that’s kind of closed to fill in what we have in mind. So I’d say yes, I think we are pretty close to a complete company.

Jessica Reif Cohen - Bank of America Merrill Lynch

And then, let’s turn to the balance sheet. You’ve been clear that you are comfortable with roughly 3.5 tons growth leverage, which is really a big positive with this 3.5 or 4 that somewhat said, but whatever it is, it’s a big positive for our future capital returns. Can you give us an update on the RP restrictions, the potential for a whole cost structure and where returns in the form of buybacks might fall this year, because your run rate is actually ahead of your authorized buy back.

Jim Meyer

I can’t be more pleased than to be sitting here and telling that we are smacked out in the middle of the $2 billion share buyback, right. I mean, it’s great to be able, to be able to return capital to our shareholders. They have waited a long time to get it.

Number two, I think we’ve been very clear with where we are going. Forget our projections. We’ll just use your projects or your counterparts’ projections. I think there’s no – there may be a question to a degree, but there’s no – I don’t think anyone doubts that our cash flow potential over the next several years is big, okay. And in our last earnings call, and I’ll repeat it again here and in my next earnings call, our number one intention is to reward shareholders and return capital to shareholders.

That said, we also want to have a financing structure that puts us in a position with the most flexibility. So first and foremost, I will say again what we said before, we are going to do a hold co. It’s timing, it’s still being determined, but we will do it. One of the reasons we’ll do it is for the flexibility it gives us.

Obviously, the 3.5 is certainly a number that I’m comfortable with or I wouldn’t have said it. I think you are right by the way. I think it’s a range, not 2.51 or 3.5, it’s a range. There’s certainly no hard fast rule that we wouldn’t be higher than that at a certain times. Me personally, I think 3.5 is what we are comfortable with. That doesn’t mean in the short term we wouldn’t be comfortable with going higher than that, okay.

So, we are taking a hard look right now at our debt structure. We are taking a hard look right now at the markets, we are taking a hard look right now at what flexibility hold co gives us. Obviously, our share buyback authorization at the rate we are at is $2 billion. You know where we were through the first half. So we are moving along quite nicely. It’s something that we’ll address with our Board this year.

Jessica Reif Cohen - Bank of America Merrill Lynch

Right. So what is the holdup with hold co. I mean, why is it taking this long?

Jim Meyer

I think there’s nothing magical about it. I think we are just trying to get everything lined up the way we want. There is actually nothing you don’t know on it.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay. And then I guess one last question before we open it up. But, in regard to you your largest shareholder Liberty. Is there any color you can give us about Liberty’s need for cash and how that might affect your buyback?

Jim Meyer

Sure. So, I don’t know. Let me start with, the relationship with Liberty is terrific. It’s terrific, and it works extremely well right now. I mean, Liberty does not get very involved in the day to day running of our company. They obviously like any of our Board members are actually involved in what our strategy is going forward and certainly they were activity involved for instance in the strategy of purchasing Agero and things like that, but it’s really, really going great.

With that said, what exactly are they going to do, I don’t know. Okay, what I will tell you is two things I believe. Number one, I’ll probably know about the same time you know; and number two, I’m pretty sure they are going to do what’s best for them. As of now, I don’t believe there is any reason for shareholders to be concerned about anything that I know over anything that I’ve seen vis-à-vis what they might do. That said, we’ll see.

Jessica Reif Cohen - Bank of America Merrill Lynch

I mean they have said they want their money back before they do anything line an RMT. Can you give us any color in regard to – like an RMT, is there any intention change?

Jim Meyer

Well, there is none that I know of today. So, that doesn’t mean – I think they have a lot of options to look at how they might move forward with that strategy. They also have a lot of money and they have a lot of gains that they have in the value of our equity. So I think you have got to address those questions to them and get the answer from them, and we’ll see.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay. With that, can we open it up for questions. Anybody have questions, anyone?

Question-and-Answer Session

Unidentified Participant

Two questions. You mentioned the new $5.99 pricing plan targeting the Hispanic market. Any other expectations for pricing tiers or further stratifying your pricing over the next year or two as you try and deepen your penetration of the market overall?

Jim Meyer

So, I would say not right at this moment, but I think we are realists, okay. I think we understand as the size of the pie grows and the demographics of the targeted customer base grows, that we may have to in fact evaluate other plans.

What I will tell you, we are quite comfortable with we have today, and so I’m only willing to do those plans if in fact they are incremental to what we already have, right. I mean, a good plan for us is not to add a lower tier service at the substitution of higher tier subscribers.

So, we are looking at lots of things, I wouldn’t expect any near-term announcements on our part in this direction in the near term. I think the Hispanic step that I announced today is a good step for us to put our toe in the water. I’m really positive that the lion’s share of any subscribers we get to that $5.99 tier are subscribers we are not getting today. And so, I truly see that as truly incremental and I think that’s the way we are going to try to balance it going forward.

Unidentified Participant

And just a second question on a separate topic. Remind me, on your sports licenses, do those include exclusive rights on the IP streaming side. I know MLB.com obviously retains rights and so forth, but otherwise do they include streaming exclusive rights?

Jim Meyer

So where we can -- so the answer is they are all different, okay. Where we can, we work really, really hard to get the streaming rights as well. So for instance, as you probably know, we also have the exclusive rights for streaming the audio with majorleaguebaseball.com for every major league baseball game.

With the NFL, we do have the streaming rights, so that our existing subscribers can get the games either through broadcast or through streaming, and honestly on the rest of them, I’m not quite sure what the rights are.

Jessica Reif Cohen - Bank of America Merrill Lynch

And it is always hard to ask a question on litigation, but you were slapped with another -- yet another lawsuit, I guess yesterday or the day before. It just seems surprising since you just settled with -- you just settled one royalty, the CRB, could you give us any color on what they are looking for?

Jim Meyer

Sure. So, after the first lawsuit, we are not surprised by the other ones, okay, because there are an awful lot of people who think they want something out of this with the labels probably being the ones that have the most gain, and so it was always our belief the labels weren’t going to let somebody else litigate this and that inevitably they would jump in. So, the litigation last night didn’t surprise me at all.

And the issue for us is relatively simply. In our mind, the law is the law. You can like the law or not like the law, but the law is the law, and the law says and we’ve had it vetted by what we think is very, very confident outside counsel that we don’t pay royalties for pre-‘72 recordings, and we don’t, okay, and we’ll see.

We are further bolstered in that argument as you know Jessica and the CRB ruling that came down this summer, the arbitrators made it very clear that pre-’72 is excluded from those royalties, and so we think we are on a very strong position here.

That said – by the way I mean, if I was an artist, I’d be very upset that a terrestrial radio doesn’t pay me anything, okay, it’s the law right. And so if the law changes, we’ll change with the law, but otherwise we intend to vigorously defend our position and we feel strongly where we are.

I think it’s important that investors understand this isn’t a SiriusXM issue. This issue is much broader than SiriusXM. There are tons of places that pre-‘72 stuff gets used that people don’t pay royalties. So, the resolution of this issue is much bigger than SiriusXM. It will impact rest of the radio, it will impact the music you hear paying in the background in this hotel, and so we’re going to see what happens here over the next months.

That said, I want to be clear about one thing. I never think it’s healthy to be in a litigious situation with your content providers. We really don’t want that with the labels. We are willing to listen to their arguments again, but boy I’ll tell you, we feel like on this one we’re really on solid ground, and we have not seen any argument in the litigation that’s been filed that surprises us or makes us think otherwise at this point.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay, all right. I think we are out of time. I just have two housekeeping things. (Inaudible) has been moved upstairs to the [Champagne] (ph) ballroom to the mezzanine level, and then the most important of them all, then the wine tasting is right after that on the eighth floor. Thank you for coming everybody, and thank you so much Jim.

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