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Liberty Media Corporation (LCAPA)

September 07, 2011 11:00 am ET

Executives

Gregory B. Maffei - Chief Executive Officer, President, Director and Member of Executive Committee

Pamela L. Coe - Vice President, Secretary and Deputy General Counsel

John C. Malone - Chairman and Chairman of Executive Committee

Unknown Executive -

Analysts

Unknown Analyst -

John C. Malone

I guess, we're going to use the podium. We're starting late. Good morning, and welcome to the 2011 Annual Meeting of Stockholders of Liberty Media Corporation. This is my 38th Liberty/TCI Annual Meeting. I'm John Malone, Chairman of the Board of Directors. On behalf of the directors and officers of the company, I want to thank you for taking the time to attend this annual meeting. We appreciate your continued interest in Liberty Media. At this time, I'd like to introduce the Company's Corporate Secretary, Pam Coe, who will say a few words about our 2011 annual meeting procedures. Pam?

Pamela L. Coe

Thank you, Mr. Chairman. To conduct this meeting in an orderly fashion, we respectfully direct your attention to the rules of conduct you received when you entered the meeting this morning. Any stockholder wishing to address the meeting should, at the appropriate time, approach the microphone, await for a microphone to be passed to the stockholder before speaking. Please state for the record your name and whether you own shares of the company. We ask that you address your question to the Chairman, and either he or another appropriate person will respond. Please limit your remarks to 3 minutes. And if you had a chance to speak, please let others speak before you ask to be recognized a second time. Unless your question addresses a Proposal 6, Auditor Ratification, please refer your questions until after the meeting is adjourned. We thank you in advance for helping us conduct the 2011 annual meeting in an orderly fashion.

John C. Malone

Thanks, Pam. We'll now proceed with the formal items of the business. Altman of Computershare, the company that provided the stockholder proxy service for this meeting, has been appointed to serve as inspector of election. If there are any stockholders who have not turned in proxy cards, please identify yourself to the inspector of election so that your shares may be counted as present. While the inspector of election determines the number of shares represented in person or by proxy, I'd like to introduce the directors and officers of the company who are here today. I ask that the directors and officers please stand when introduced. Greg Maffei, Director, President and CEO; Bob Bennett, Director; Donne Fisher, Director; Ian Gilchrist, Director; Dave Rapley, Director; LaVoy Robison, Director; Larry Romrell, Director; Charles Tanabe, Executive Vice President and General Counsel; Mark Carleton, Senior Vice President; David Flowers, Senior Vice President and Treasurer; Albert Rosenthaler, Senior Vice President and tax guru. Additionally in the audience is Jim Bickell, a partner with KPMG LLP, who is prepared to respond to appropriate auditing questions. We are here today to vote upon each of the proposals described in the notice of annual meeting in proxy statement, as the inspector of election tabulated the number of shares represented here today either in person or by proxy.

Pamela L. Coe

Mr. Chairman, the inspector of election reports that shares of the company Series A and Series B Liberty Capital common stock, Series A and Series B Liberty Interactive common stock and Series A and Series B Liberty Starz common stock, representing at least a majority of the aggregate voting power of such stock outstanding on the record date is represented in person or by proxy at today's meeting. Therefore, a quorum is present for this meeting. The report of the inspector of election has been confirmed in writing and signed by the inspector of election. The inspector of election's affidavit will be attached to the minutes of this meeting together with her signed and notarized oath.

John C. Malone

Thank you, Pam. As reported, a quorum is represented here today; therefore the annual meeting is formerly called to order. The proxy vote reports the record date from the time of the affidavit of mailing, and the oath of the inspector of election will be available for inspection throughout the meeting at the registration table. Copies of the proxy statement relating to the annual meeting are also available at the registration table. As stated in the notice of annual meeting, stockholders will vote on 6 proposals, each of which will be described in turn. Proposal #1, the election of directors, is a proposal to elect Evan D. Malone, David E. Rapley and Larry E. Romrell to service Class I members of our Board of Directors until the 2014 annual meeting of stockholders. These nominees have been nominated by the board's Nominating and good Corporate Governance Committee, and no other nominations were made in accordance with the company's by-laws. The biographies of these nominees can be found on Page 14 and 15 of the proxy statement. The election of each of Dr. Malone, Mr. Rapley and Mr. Romrell requires a plurality of the affirmative votes of the outstanding shares of the company's common stock that are entitled to vote at the annual meeting and are voted in person or by proxy voting together as a single class. The polls are now open to vote on the election of Dr. Malone, Mr. Rapley and Mr. Romrell. Are there any stockholders entitled to vote at this annual meeting who wish to vote in person on the election of these nominees? Seeing none. The polls for voting on the election of each of Dr. Malone, Mr. Rapley and -- I haven't been Dr. Malone for a lot of years -- and Mr. Romrell are now officially closed. Has the inspector of election tabulated the votes representing here and by proxy in the election of Malone, Rapley and Romrell?

Pamela L. Coe

Mr. Chairman, the inspector of election has completed the tabulation of votes and has certified that a plurality of the affirmative votes of the outstanding shares of the company's common stock that are entitled to vote at the annual meeting and that were voted in person or by proxy, voting together as a single class has voted in favor of the election of Dr. Malone, Mr. Rapley and Mr. Romrell.

John C. Malone

Proposal #1 has been approved. Malone, Rapley and Romrell have been elected to serve as Class I members of our Board of Directors until the 2014 annual meeting of Stockholders.

Proposal #2, the say-on-pay proposal, is a proposal to vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in the proxy statement under the heading, Executive Compensation. Including the Compensation Discussion and Analysis, compensation tables are related narrative discussion. The approval of this advisory resolution requires the affirmative vote of a majority of the aggregate voting power of the outstanding shares of the company's common stock that are present in person or by proxy and entitled to vote at the annual meeting, voting together as a single class. The polls are now open for voting on Proposal #2. Are there any stockholders entitled to vote at this annual meeting who wish to vote in person or on Proposal #2 who have not done so? Seeing none. The polls for voting on Proposal #2 are now officially closed. Has the inspector of election tabulated the votes represented here and by proxy on Proposal #2?

Pamela L. Coe

Mr. Chairman, the inspector of election has completed the tabulation of votes and has certified that the affirmative vote of a majority of the aggregate voting power of the outstanding shares of the company's common stock that are present in person or by proxy and entitled to vote at the annual meeting, voting together as a single class, has voted in favor of Proposal #2.

John C. Malone

Proposal #2 has been approved. Proposal #3. The say-on-frequency proposal is an advisory vote on the frequency of holding advisory votes on the compensation paid to our named executive officers. You may cast your vote on your preferred voting frequency by choosing the option of once every 1 year, every 2 years or every 3 years, or you may abstain. The frequency option that receives the affirmative vote of a majority of the votes cast for this proposal by the stockholders of shares of the company's common stock that are present, in person or by proxy, and entitled to vote at the annual meeting, voting together as a single class will be determined to be the frequency for future advisory votes on the compensation of our named executive officers. The polls are now open for voting on Proposal #3. Are there any stockholders entitled to vote at this annual meeting who wish to vote in person or in Proposal #3 who have not done so? Seeing none, the polls for voting on Proposal #3 are now officially closed. Has the inspector of election tabulated the votes represented here and by proxy on Proposal #3?

Pamela L. Coe

Mr. Chairman, the inspector of election has completed the tabulation of votes and has certified that a majority of the votes cast has voted in favor of the board's recommendation of every 3 years, with respect to the frequency at which stockholders are provided an advisory vote on the compensation paid to the company's named executive officers.

John C. Malone

The option of once every 3 years for Proposal #3 has been approved, so these meetings will only be longer every third year. The director planned proposal to approve the adoption of Liberty Media Corporation 2011 Nonemployee Director Incentive Plan. The director plan proposal requires the affirmative vote of a majority of the aggregate voting power of the outstanding shares of the company's common stock that are present, in person or by proxy, and entitled to vote at the annual meeting, voting together as a single class. The polls are now open for voting on Proposal #4. Are there any stockholders entitled to vote at this annual meeting who wish to vote in person on Proposal #4 who have not done so? The polls for voting on Proposal #4 are now officially closed. Has the inspector of election tabulated the votes represented here and by proxy on Proposal #4?

Pamela L. Coe

Mr. Chairman, the inspector of election has completed the tabulation of votes and has certified that a majority of the aggregate voting power of the outstanding shares of the company's common stock, that are present in person or by proxy and entitled to vote at the annual meeting, voting together as a single class, has voted in favor of Proposal #4.

John C. Malone

Therefore, Proposal #4 has been approved. Proposal #5, the name change proposal, is a proposal to amend Article I of the company's Restated Certificate of Incorporation to change the name of the company to Liberty Interactive Corporation in connection with the completion of the previously announced redemption of all of the outstanding shares of the Liberty Capital and Liberty Starz tracking stock. The name change proposal requires the affirmative vote of a majority of the aggregate voting power of the shares of the company's common stock outstanding on the record date, voting together as a single class. The polls are now open for voting on Proposal #5. Are there any stockholders entitled to vote at this annual meeting who wish to vote in person on Proposal #5 who have not done so? Polls are officially closed. Has the inspector of election tabulated the votes represented here and by proxy on Proposal #5?

Pamela L. Coe

Mr. Chairman, the inspector of election has completed the tabulation of votes and has certified that a majority of the aggregate voting power of the shares of the company's common stock outstanding on the record date, voting together as a single class, has voted in favor of Proposal #5.

John C. Malone

Proposal #5 has been approved. Proposal #6, auditor ratification proposal, a proposal to ratify the selection of KPMG LLP as the company's independent auditors for the fiscal year ending December 31, 2011. The auditor ratification proposal requires the affirmative vote of a majority of the aggregate voting power with the outstanding shares of the company's common stock, that are present in person or by proxy, and entitled to vote at the annual meeting voting together as a single class. The meeting is now open for questions for the representatives of KPMG. Do we have any auditing questions? Those guys have been getting off awful easy lately. The meeting is now closed for questions for the representative of KPMG. The polls are now open for voting on Proposal #6. Are there any stockholders entitled to vote at this annual meeting who wish to vote in person on Proposal #6? Seeing none. Polls are closed. Has the inspector of election tabulated the votes represented here and by proxy on Proposal #6?

Pamela L. Coe

Mr. Chairman, the inspector of election has completed the tabulation of votes and has certified that a majority of the aggregate voting power of the outstanding shares of the company's common stock, that are present in person or by proxy, and entitled to vote at the annual meeting voting together as a single class has voted in favor of Proposal #6.

John C. Malone

Therefore, Proposal #6. The auditor ratification proposal has been ratified and approved. This concludes the scheduled business as presented in the notice of annual meeting and proxy statement. Is there any other business to properly come before the meeting? Seeing none. At this time, I'd like to adjourn the annual meeting. Do we have a motion?

Unknown Analyst -

Mr. Chairman. I move that the meeting be adjourned.

John C. Malone

Do I have a second?

Unknown Analyst -

I second the motion.

John C. Malone

All in favor, say aye? I don't hear any nays. The motion that the 2011 Annual Meeting of Stockholders be adjourned is carried. I would like to thank you for your attendance at this meeting and your continued interest in our company. The 2011 Annual Meeting of Stockholders is now adjourned, 9 minutes. Now I would like to open it up for questions and answers, and my colleague, Mr. Maffei, is joining me and would be happy to respond to shareholder questions. Go ahead.

Question-and-Answer Session

Unknown Analyst -

You guys had a shareholder annual -- and are concerned about potential surprises or things coming out of left field. This year, the big surprise was your approach to Barnes & Noble, and that's been settled. What -- should shareholders be expecting or anticipating future surprises? And if so, what sorts of directions do you want to go in? What kind of companies would you be interested in approaching? Is that a strategy of yours to try to take positions or take over companies -- or maybe just give us a 30,000-foot overview of that?

John C. Malone

No, I can respond to that. I hope we have lots of good surprises, like more SiriusXMs. Hopefully, Barnes & Noble -- yes, now, that's what -- what we're -- this whole restructuring of Liberty that's been going on now for 8 years, 9 years, it's all been about taking the things that are clear, operating businesses and figuring out a way to give them independence, get them into the hands of our shareholders as efficiently as possible and then to go out and find other things to build, develop and potentially all in or ultimately separate once they have scale and direction. So that's exactly why Greg joined the company, was to do that -- to execute that strategy. So yes, no that's exactly what Liberty Capital, if you want to boil it down, strategy is. And you know, we still have bits and pieces and operating units that are bigger than bits and pieces that continue to evolve, develop and take direction. At this point in Liberty Capital, SiriusXM is the largest single holding that we have. But clearly, our efforts to increase our stake in Live Nation, our stake in Barnes & Noble still represent overtures in that direction. So our goal is not to be passive investors in a wide portfolio. Our goal is to be targeted investors or acquirers of businesses that we think can be materially improved by our management.

Gregory B. Maffei

You know, if I can add, we have quite a lot of liquidity across the Liberty portfolio. And you take how much cash we have and how much borrowing capacity we have, it's a large amount of money. I don't know, $8-plus billion, something like that, maybe as much as $10 billion if we really had to reach, and we would like to invest that wisely. Some of that can be invested in our operations, but those operations in general are large, free cash flow generators, so it's the opposite problem. They are giving us more cash to invest, and our job is to invest it wisely. Some of the places to invest it are alongside those businesses and other adjacent businesses that make sense. You've seen us go and try and buy e-commerce companies, but the reality is that a lot of those are expensive and difficult to find. So you've seen us also do things like invest in our own stock when we thought that was attractive, quite a lot of share repurchase at Liberty Capital. Some other share repurchase at Liberty Starz and Liberty Interactive. You've seen us also invest more in companies in which we own some stock. John mentioned HSN. I remember John mentioned Live Nation. At HSN, at various times, we bought more HSN. The laughter is we've got to look for -- when those don’t fill the bucket, and it's a big bucket, we look for other places and in general, those have been in the technology medium, telecom space, TMT. We think Barnes & Noble qualifies with the efforts discussed going in the NOOK, the e-reader space. We stick to that largely because we believe or would like to believe that we have some knowledge and expertise in that space. That’s where John's primary history, my primary history has been. But that does lead to us having to look outside of the first 3 areas I talked about for things like the Barnes & Noble, or like a Siri and they're hard-to-find. So in a lot of cases, that means finding things that are tarnished in the eyes of investors, and we think we see a gem there or a potential for a less tarnished asset.

John C. Malone

But if you look at it opportunistically, some years ago, we started a fairly substantial program of investing in distressed debt in the TMT space. And you could say directly or indirectly that led to the Sirius opportunity, which clearly has been so far extremely rewarding. We have backed back out of the distressed debt field because those debt positions have traded up extremely well. And if we go through another cycle, we’ll opportunistically looking at doing the same kind of thing. So I think Greg is right, within this space that we think we have relationships, history, knowledge that are largely driven by what I would call continuous cash flow streams, as opposed to other types of assets. We're still very interested in growing our capital and investing it wisely. But if you add up all of the businesses that we have grown and then spun off to our shareholders, it's a pretty large set of capital. Obviously, the most recent was DIRECTV, a $36 billion market cap company, Liberty Global, Discovery Communications, they add up to -- had we held on to these things, we would be the largest and most confused conglomerate in the world.

Gregory B. Maffei

We'd be the biggest media company.

John C. Malone

Basically, we have a small management team that's very opportunistically focused, and the goal is not to become megalomaniacal, for those who have read The Curse of the Media Mogul book. The goal has really been to create long-term shareholder value and appreciation, and I think it's worked quite well over the years. I hope that answers the question.

Unknown Analyst -

Thanks for taking the questions. I've a short one and maybe a longer one. The short one is, when was the last time you bought more HSN? You referred to that.

Gregory B. Maffei

We don't disclose what we buy until we're forced to disclose it or make off. The only one we've disclosed is back in the sort of the bottoms of the cycle. We bought, I think, at $4.70 shares, is Neil Dermer [ph] here, what do we pay?

Unknown Executive

$4.57 a share, something like that. We bought a big slug of -- a relatively large slug.

Unknown Analyst -

And then, I wondered if you could comment on the appeal process, your preparations for the appeal at Liberty Interactive and whether in that preparation process, you've learned anything that affects your view of the nature and timing of the appeal?

Gregory B. Maffei

Well our General Counsel is here and surely will duck the question, so he’ll throw it back to me. There is a hearing on September 14. All of the filings that were -- need or required to be done in advance of that hearing have been made. And the belief is that there's no new material that came out in the filings post the first trial ruling in the new filings by ourselves or by the other side that's radical. The September 14 hearing is likely to be largely a restatement of what has already been filed and already been on the record. There's not an argument about changing the facts. It's an argument about looking at the facts differently that they must make. We don't believe that they will be successful in making that. My preparation -- I believe, management's preparation for that September 14 hearing was 0 because we're not there, it's just the lawyers. Unlike the -- when we were in February when we had extensive testimony by John and myself and Dave Flowers. This time, there's just lawyers. Our hope would be that we have the September 14 hearing as a very quick ruling where the Supreme Court of -- the infinitely wise Supreme Court of Delaware turns around and says that judge was right and affirms what was already said.

Unknown Analyst -

[indiscernible]

Gregory B. Maffei

My understanding is no. How do I do a trust.

Unknown Analyst -

Correct.

Unknown Analyst -

A couple of times you said you were very wary of doing a bad economic deal with Netflix. And I know some guys on the cell side were literally stenciling in, you have $300 million per year. And I think you said that you could kind of do that on a Pacman basis doing some deals where you weren't going rattle the cages of the studios, working with a number of players. But can you comment on sort of the trade-offs and the Netflix negotiations to the extent as you can? And how you could replace some of that revenue without agitating your traditional line or so with partners?

Gregory B. Maffei

First off, anybody who was stenciling in $300 million a year, they weren't listening because we have been fairly adamant in stating that wasn't likely to be what occurred. And there are a bunch of reasons for that. First and foremost is the long term strategic health of Starz, we believe is a premium service with high-quality movie content from our studio partners, Disney and Sony, to date and also our own original programming, which is an increasingly important part. And that really is inconsistent with the model that Netflix has put forth today with $7.99 streaming, and so that was a basically incongruous set of goals. And while we can get paid a relatively large number by Netflix, we are fairly confident we could have reached that kind of a deal. It would have had 3 costs. First is we would have owed given the way they have a large number of digital [indiscernible] about overages to our partners, our content studio partners, so that would have reduced the name plate number. Second and more importantly is, it would have put us fundamentally in a larger conflict on the topic with our traditional partners, so we have really 3 sets of traditional partners we consider, which is the cable companies, the MSOs, the satellite companies and the telcos, and they collectively pay us about $1.2 billion a year, so that would dwarf any number we could have gotten from Netflix. And having them not be supportive of us, promoting us, working together because most of our sales to them are on a consignment basis where we sell to them, and they sell to the end user, and we only get paid when they sell to the end user, the end viewer. We were much more revenue at risk about not being aligned with them and having them promote us than we could possibly gain through any digital subscriber. But as I said, the third reason and most importantly is, where Netflix is targeted now is fundamentally incongruous with where we believe we need to be for the long term. So we will look certainly to digital partnerships, we recognize that there is true end user demand and customer demand, and we love to see TV everywhere. We love to see our traditional partners looking at expanding their over-the-top viewing opportunities, their over-the-top viewing services, and we'll recognize that there could be digital partners who are very congruous with our set of goals and congruous with the goals of our traditional partners, and we'll work to find partnerships with them.

John C. Malone

This is a major discussion going on in the content industry about what to do about random access over-the-top. The thing Greg didn't mention was the complete segregation of any brand identity with the consumer, the complete segregation and inability to control pricing or perceived of your product. These are real issues for any content supplier thinking about a Netflix type of output deal. And so I don't know how it's going to ultimately sort itself out, but the industry also has some definitional issues and depending on which part of the industry you're in, you've got to get close to definition. Netflix is the ultimate random-access over-the-top flat pricing, no brand, no brand identity at all. You can have what they call authenticated viewing on all platforms, which is essentially when you're streaming, right, you can have, what I’ve come to call, catch-up television, which is for, let's say, T plus five or T plus seven, anybody has random access to the original programming with the commercial load, okay? And then you have other versions of that, and it depends on what platforms, what technology you're distributing under, and there's a lot of sorting out still to go. And the way this cuts varies depending on whether your premium service is Starz, where ultimately the whole concept of sequential distribution of movie product or originals have to go through various organisms in order to optimize valuation. And taking it all and dumping it in at wholesale on a random access basis really undermines long term perceived value. So I think that's the biggest problem conceptually that we have with the Netflix approach toward distribution. As a content investor or owner. So this will sort itself out over time, there'll be authentication, there'll be TV Everywhere by the distributors, there'll be TV Everywhere I think by the content owners who will provide a supplemental service of random access over and above what their distributors do perhaps on a wholesale basis to authenticated customers. This thing still has a long way to go to play out, and it's probably in the second inning in the U.S. and it's probably not even started the game internationally.

Unknown Analyst -

If you don’t mind the inevitable macro questions, because everybody wants to get your views on the global economy, so what do you think the decision points are? What are you looking for on data points for the next couple of months in terms of whether we do go through another cycle, as you put it, with reference to your debt investments?

John C. Malone

I'll give you a review of my views. I think we're -- the global economy's pretty much flat. Consumer attitudes are very negative. Europe is struggling from those businesses on in that have ad sales -- the ad sales business, which is sort of a near-term projector. It's still pretty strong in the U.S. surprisingly so. So corporate advertisers have budgets and think that consumer demand is going to be there. That's not indicating recession. In spite obviously in the financial service industry, they're going through hell right now. But generally speaking, the indications we get in the U.S. from things like QVC are that the consumer is depressed about the country but not broke. Okay. So in the short run, I think we'll just kind of in the U.S. -- Europe's a wildcard. I mean, obviously, when the Chairman of Deutsche Bank comes out and says if they mark to market, they're all bankrupt. This is not good, right? And when Merkell is losing elections in Germany because of her support of keeping the euros on intact, this is not good. Is China slowing down? Maybe a little bit. We've seen countries like Brazil where their markets have traded off fairly substantially. Are we going to go into another debt crisis at the corporate level in the U.S.? I don't think so. I mean, I think U.S. balance sheets right now are very strong on the corporate side. It's all government. It's just been a massive transfer of debt from corporate America to government. And how they solve that and whether or not we see massive dilution of the currency globally, which is what gold is kind of telling your or whether you see ultimately people get -- put in austerity, which means substantially higher interest rates. I mean, those are the kind of the 2 extremes, and it's anybody's guess. Right now, it seems like politicians and democracy's find the easiest courses to print money. And when the Swiss finally had to buckle and peg to the euro. I mean, what safe currencies are there today -- paper currencies? So I don't know that we have seen this before in our lifetime.

Gregory B. Maffei

So our businesses are actually -- I agree to most of John's comments, I think our businesses are actually performing reasonably well. Maybe the dichotomy of the consumer where high-end consumers are actually in pretty good shape. I was listening the other day about unemployment statistics and if have a college degree, unemployment statistics is like 4.5%. It's the lesser educated and the less fortunate who are -- have much higher rates of unemployment and even higher rates of underemployment obviously. And so once we see that translate into our consumer facing business, which is basically all of our businesses, they're actually doing okay. Because it's enough of the higher end consumers, middle of the higher end consumers are carrying the water on consumer spending, so QVC is doing okay. The e-commerce companies are doing okay both here, and QVC has operations in Japan. U.K.'s a little slow. The market environment feels slow, but Germany is pretty strong.

John C. Malone

Pricing how good it is because of the split in the range of what it happening. If you want to be optimistic, what you would look at is that some of the political discourse now is starting to move over toward how to make America more competitive in attracting both financial capital and intellectual capital, which eventually has to happen or we're going to have structural problems as far out as you can see. In short term, stimulus just doesn't get you there. So at least, there are several politicians willing now to take longer-term structural points of view and put them in writing, I'm thinking of Romney yesterday, or the day before and I'm thinking of Huntsman maybe a week ago, who are really taking -- showing some guts about structural change that may well address the long-term problem. Unfortunately, democracies are driven by politicians who want to get reelected and therefore, their focus as with money managers, tends to get shorter and shorter and shorter, and that's sort of the nature of the beast. But short-term stimulus is not going to solve this problem long term. We have big, long-term structural demographic problems, competitive problems relative to the rest of the world. And you know, what I find most amusing is when you listen to the talking heads, they're still talking as if the U.S. was an isolated environment and there was no international. In a world where the S&P 500 is at least 50% off-shore now and has full discretion about where to build the next plant, where to increase employment. The fact is that Immelt runs Obama's committee on jobs, and yet GE is the worst offender in terms of laying off in the U.S. and expanding internationally, including joint ventures on building commercial aircraft with China.

Gregory B. Maffei

Jeff, I want to make clear that was John saying that not me -- just a little bit.

John C. Malone

This really shows the blind side that our system has for the fact that we decided some years ago. And I don't know who decided to open ourselves up and be a part of the global economy. But we don't run the U.S. as if we are. We don't look at any of the competitive issues. What's the marginal tax rate? Are we -- is legal immigration skewed toward bringing in and attracting talent? Or is that designed to keep talent out? Is our educational system geared towards supporting re-industrialization of America? Or is it geared toward subsidizing industrialization of Asia? The stimulus so far has been a wonderful stimulus for China. If you can give people money to go to Walmart and buy more Chinese goods, that's good for China. It doesn't do much for employment in the U.S. or growth of income so when you really look at it, we haven't created a job in the U.S. net in 10 years. This is a really serious structural problem because our population has been growing at 1.5% a year, unless we do something about that. The reality is the unemployment rate just way understates the true unemployment in the economy, what you really should look is numbers of people employed as opposed to the government statistics on unemployment and when that number is not growing…

Unknown Analyst -

[indiscernible] Norwegian kroner?

John C. Malone

Well Norwegian kroner was good. Australian has been great. You get flat 5% yield on a short maturity and a currency that looks like it's asset-backed, coal and steel, bauxite.

Unknown Analyst -

After all that insight, I'm not really sure that anything else matters. But I wonder if you could comment on the likely prospects for your investment in Barnes & Noble?

John C. Malone

Greg, you want to --

Gregory B. Maffei

Sure. We were attracted to Barnes & Noble for several reasons, some financial and some technological. On the financial side, we looked and thought there's an expectation that the stores, the bookstores are going away, and our belief is particularly with the absence of borders liquidated, having liquidated, that the only national book chain actually has a pretty good position, and part of that is the books are likely to stay around longer, and part of that is that the store itself has value as a footprint and you've already seen, as I said, some success on the NOOK in the stores in little kiosks, particularly successful with women who are probably feel less comfortable shopping in the Internet for electronic devices or have less desire to go to Barnes -- to Best Buy or something along those lines, so they have a high penetration with women coming to Barnes & Noble and are buying. So they're both the book part and the store part. Sort of related to that was the question about the e-reader itself, and I think we thought that the e-reader would have greater success and longer legs in a tablet world than many have thought. If you've seen these next-generation, what they call, the new NOOK, lightweight, too much battery life, store 1,000 books, E Ink technology, which you can read in the sunlight, $139, it's going to be $99 next year at Christmas, I suspect. These are going to be very popular devices in our minds with children and many other people. So we like that aspect and we liked where they stood. We've thought about to design of that versus Amazon and others. We think it really is going to be a 2-person race, 2 entity race in the book space, Amazon and Barnes & Noble and that many people would want to partner with Barnes & Noble who is perhaps less threatening than Amazon. If you're a tablet manufacturer like Samsung, you can imagine a partnership where the e-readers software and the NOOK store effectively are come pre-embedded on the Galaxy device or the Motorola tablet, and those devices are than sold in the Amazon – or excuse me in the Barnes & Noble bookstore. So the opportunity to leverage some of those elements I think appeal to us.

John C. Malone

And I think, just from what was reported to me, we think they're excellent merchants. We think they have a good management team, and we think they've been particularly astute in their real estate management, so that they have flexibility in how they manage this evolution. There's no question that the traditional book business will be impacted by the electronic distribution. The question is really, how fast, what alternatives do you have in the stores. And if you've got a store that's a lemon, can you get out of it? And we satisfied ourselves within those categories. Barnes & Noble's pretty flexible. So it's unlikely that Amazon will have an absolute monopoly in this space or would be permitted by the publishers to have an absolute monopoly in this space. So we think that there's room for a successful Barnes & Noble. And when we look at it, we thought the equity markets had unduly devalued Barnes & Noble in excess of what we thought real future prospects were. But it's no question, it's a shot on a technological platform either their own or somebody bigger coming in and supporting them to be able to compete in this digital downloads space.

Unknown Analyst -

I have kind of a 2-part question, if I might. When you were talking about Starz previously, you talked about the importance of premium and brand and I know you guys have been forerunners in that space in a few different initiatives. As you look at it now with Starz play, maybe compare and contrast what HBO is doing with HBO GO and having just talked about Amazon with respect to Barnes & Noble. I'm curious to hear your thoughts with respect to Amazon as potential platform for Starz. And if, in fact, that's a discussion you have internally, Amazon vis-à-vis Barnes & Noble, Amazon vis-à-vis Starz.

Gregory B. Maffei

So on the point about Starz play. Starz play is really an early attempt at TV Everywhere, which is saying if you are a subscriber to Starz on Comcast or you're a subscriber to Starz on a Charter Cable system, you'd be able to access that on a digital device. We have the digital rights, and we wanted to make sure those were shared with our -- end use customers are true viewers and through the cable system it's in a form effectively of authenticated TV. What HBO GO was doing strikes me as very similar to TV Everywhere, it's great question -- and it’s a goal to say, look, if you provide more value to the customer, you'll reduce churn, you'll make the service more desirable, you'll increase -- of desire for your product. That contrast obviously with pure over-the-top services, like Netflix, which are not about authenticated user whose subscribing to DIRECTV or Comcast but just using it across a digital device could actually end up being a TV but not through the cable system the TV more or through the satellite company. We -- HBO GO is a great product, lots of great services, and I think it'll hopefully be promoted well and hopefully draw demand for Starz play as well because we like to see more of our cable partners and the like pushing and getting Starz play out there. As much as we'd like to see TV Everywhere further. TV Everywhere is right now sort of like TV nowhere. It's not too well distributed. On the larger question about Amazon and selling. If Amazon has an over-the-top service, which has begun to with its Amazon prime and expanding that, if it has an over-the-top service, which meets our criteria of trying to be a premium service and recognize brand and the issues and the like some of which John and I discussed earlier about Starz, surely we’ll license to it, and that will be a decision made by the Starz management team with our endorsement unrelated to the Barnes & Noble investment, and where Barnes & Noble going is and where Barnes & Noble is targeting is pretty different in that space than what Amazon is trying to do.

John C. Malone

Yes, I would say, if I step back 10 years and put a distributor hat on and looked at it from a cable distributor or a satellite distributor, the issue with HBO GO from a distributor's point of view is does HBO know the identity of the end customer? Do they have a direct end customer relationship? Because if they do, there's a very dangerous potential bypass where in a distribution dispute, between HBO and a distributor, HBO knows who the customers are and can basically go directly to the customers and say, well you can't get it through Comcast anymore but you can get it direct from us, and we know who you are. And you're already receiving it and as the technologies evolve. So in the cable world, this is regarded as a very sensitive issue. And one of the reasons TV Everywhere hasn't taken off and authentication, hasn't taken off is that concern about whose customer is it at the end of the day? Is HBO a wholesaler to the cable industry? Or is HBO essentially going to ultimately bypass the cable industry with their own brand and their own identity? And that's a delicate relationship. Some people have called for a clearing house where the identity of the end customer is blind from the perspective of both the content owner and the distributor, and there's just an authentication process that's handled by a neutral clearing house. The other issue and one of the reasons TV Everywhere is going to continue to be TV nowhere is other than Comcast and maybe Time Warner, nobody has enough scale to have a server farm capable of storing and distributing on the Internet all of this stuff, which is why somebody who does it over-the-top, like Netflix, can go up to such a quick start. If you're a cable guy, you can only address your footprint, and that's where you have your rights. And so you have a bulk organization, even Comcast only reaches 22% maybe, of the available footprint, whereas Netflix theoretically reaches 100% of equipped household. So that balkanization problem, which has always been a curse of the U.S. cable industry, needs to be resolved either by the U.S. cable industry, by their content suppliers, or there will be a bypass structure or multiple structures that will come in to place. That's kind of my view of distribution.

Unknown Analyst -

A couple of issues related to the Delaware situation. First of all, with a hearing on the 14th, is it likely to split off, the small take effect this month? Or how long do you think all that will take?

Gregory B. Maffei

As I try to assess, we're hoping that the Delaware Supreme Court, hears the arguments on the 14th, looks that the -- has already read the briefs, and says thank you and turns around and forms the decision the next day. That's our hope. That's our belief that, that's the highest likelihood position, and that we will get it done during the month of September.

John C. Malone

So soon as they rule, then it's done, fairly short order.

Unknown Analyst -

The next question is, with interest rates so low, do you feel that you have enough debt? Should you be borrowing more or extending maturities?

John C. Malone

We never have enough debt.

Unknown Analyst -

And could you just talk about with the new corporate structure going forward, which, companies would you be making investments in public companies or assets. And at Starz, would you be doing it with Starz or 2 other companies?

Gregory B. Maffei

All 3 tracking stocks today have more of adequate liquidity. So one of our challenges, we would love to go out and take advantage of low-cost debt. But right now, we'd be raising more capital to put it into even lower cost interest bearing in assets -- negative carry. So we certainly look with longing at 2% treasuries and relatively tight corporate spreads over that. But we don't have anything clever to do with the existing cash, so we don't want to graze more as John said.

John C. Malone

But it's fair to say we've been pretty frozen by this split-off in a [indiscernible] and so you can probably expect a lot more activity by us post split-off. I'm not saying what kind of activity. It can just be stock repurchase. But there are a number of things we'd like to pursue. We have a lot of liquidity and it would be a very good time to do acquisitions on a levered basis. That's not saying that we've got a bunch of them identified. Right now, the cheapest thing around is our own stock, in our view.

Gregory B. Maffei

Well when you combine cheap with something we think we know something about, our own stock qualifies.

Unknown Analyst -

Just talk about what your company, would you be using all the different assets in terms of making the investments or...

Gregory B. Maffei

Investments in general -- without making absolute statements, investments in general sit better within Liberty Capital, and acquisitions would make more sense inside Liberty Interactive than Starz. On the other hand, I got to tell you on the margin we'd always rather do an acquisition or at least control because we determine the balance sheet, we have ultimate authority on the strategic direction, we have ultimate authority on our path to liquidity. That's a lot easier. So our first choice would always be an acquisition. That's not always available, so we sometimes move into quasi control positions like Sirius or even though at Live Nation we're pending 21.5% of stock, we clearly have a fair amount of influence. And management looks to us, and we're very much [indiscernible], so that's a positive. There are other conditions like where owning over 30% of the stock, doesn't give you much influence, so you really have to look at what you can do, where you are.

Unknown Analyst -

A follow-up on Starz. I think your point on the premium content view is pretty clear versus Netflix and so forth. You mentioned Amazon a little bit. There are some other obvious players, Google and Apple without mentioning names. Do you feel that over a reasonable timeframe, there will be a syndication deal of your content recognizes that premium value, in other words tiered pricing? And I guess as part b to that the Comcast of the world and Time Warner Cable, nobody really talks about this but I’m wondering if there’s any thought of them being a player over-the-top premium valuation in a non-authenticated way, outside of the traditional cable TV base.

Gregory B. Maffei

So as I said, we are in discussions with lots of people about over-the-top services and I think it's more likely than not, you'll see us make some over-the-top deals that we believe are consistent with the goals we outlined. Obviously, we haven't completed any of those, or we already made announcements.

John C. Malone

Sort of telegram to read. Protect our brand and treat it as a premium product and maybe we could have a discussion.

Gregory B. Maffei

So that's one. And on the question of whether there'd be more people who -- players out there who are traditional distributors who decide to go over-the-top services, I think it's an interesting question. You look what Comcast has done with the XFINITY product, the rumors about Dish, and what's going on with Blockbuster, I would bet the odds are more likely than not somebody -- one of those guys will play in an over-the-top way.

Unknown Analyst -

And then one just thing on split-off just on the favorable ruling since September relatively speaking [indiscernible] looks very attractive from a buyback standpoint considering the pullback, you've mentioned this before?

Gregory B. Maffei

I think Liberty Interactive is fairly attractive with price, yes.

Unknown Analyst -

And I think you're authorize to do about 10% or so for the float.

Gregory B. Maffei

I think we have $1 billion, whoever wrote our authorization. $740 million left. We had $1 billion, and we’ve got $740 million left, it’s a big number. I think one last question. Rajeev?

Unknown Analyst -

Thanks, Greg. I just wanted to see how something like Hulu fit into your thought process for the long-term sort of strategic vision for Starz?

Gregory B. Maffei

Hulu as an investment opportunity, or Hulu as a somebody who might be licensor of our content. I think Hulu is a very interesting service that is attempting to address some of the issues that we discussed about Netflix, with Hulu plus, and as a partner, it could be a very interesting partner for us. As far as us becoming an investor or a purchaser, it's one of those games, I think that is probably better. It's a scale game and the price appears to be fairly high that may be a very worthwhile price, if you were Google, Amazon, Apple and you have a opportunity to expose that brand and push that brand in enough ways with a retail presence and a customer facing presence and other resources. That’s probably not us, probably not the best personally. In some ways that we weren't -- we're early technologically, but we weren't the best people to drive bongo [ph] when we added our own over-the-top service. So why I think Hulu is a great service and a great product is probably not one without others that we could be driving on our own.

John C. Malone

I would say the ideal, of course, would be to have Hulu be a consortium of content owners establishing the rules for distribution of their product. You have basic, you have premium, you have free. You could do it all off that platform. Unfortunately, I think, the justice department might show some resistance to that approach. And it's unlikely, therefore, that we have enough content play, that we would do it ourselves. And if you couldn't put together a broad consortium of content owners, it would be difficult and get the antitrust resistance to putting together such a broad consortium would be pretty tough. So it's unlikely that we'll be a player in that space but you never say never. One last question.

Unknown Analyst -

Just following up on Starz. Your contracts with Sony and Disney go through 2016, I believe, and you're increasing amount of traditional content you're doing. And Showtime and HBO continue to ramp that up. How fast will you be increasing your spending on traditional content? I mean, are you coming up with enough shows. Are there more shows that you want to make that you have funds for, or you're saying you want to spend more? Just to give you an idea, as you look at a couple of years, how much of the value to the cable companies do you think is going to be distributing the programming from the movie companies? And how much is the value from the original content?

Gregory B. Maffei

That's a couple of questions, let's see if I can remember them all. One is I think the studio deals are 15 and 16 seasons, for 16 and 17 viewing. The original content is clearly being ramped and hopefully, you've seen, it’s gone from Spartacus to The Gods of the Arena, to the prequel to Torchwood up here, to Camelot: The Pillars of the Earth, and now coming the second season of Spartacus, Boss, about a Chicago style mayor that some might think looks like Rahm Emanuel, played by Kelsey Grammer. Sounds good, doesn't it? Magic City, about Miami in the 50s, well I think we have some great content and blessed to have Chris Albrecht, running the services, a guy who's a very experienced maker of original content, probably as good as you can find in terms of his history and experience and obviously has raised our profile and made us more of a home for interesting original content series. Are there more series that we could make than we can afford? Absolutely, I hope so because you'd rather have too many good choices and be weaning those. We did recently, a few months back, announce a partnership with BBC where we will work on original program with them, direct a lot of it and take that amortization off our balance sheet where we won't be baring all the cost of that. A lot of the international rights will be already pre-subscribed and we’ll be paying this for the U.S. portion and that I think is a great strategic asset for us in terms of driving original content. As far as how much of that is, I'm going to how much overall we'll spend net. I don't think we've gone up with a number. But I'm comfortable that the ratios of how much we spend over the next couple of years on content will not increase relative to revenue that we will not lower the margins. That's for a couple of reasons, one is because we -- I think we have that innovative partnership. We have some smart spending on originals. But in addition, because our new contracts, not something new, but the contracts we did with Disney and Sony do provide for a more attractive pricing on output deals. In general, they are producing fewer films. And more of our films are being filled in with spot, cheaper less expensive titles and all original programming, it will be a stronger force in that.

John C. Malone

Somehow Chris was just a great acquisition for the company. And you can see it, the subscriber numbers are growing, the distributors are much happier with Starz today than they were a year ago, I can report that. And it looks very good.

Gregory B. Maffei

So with that, I guess, I think we're done. Thank you very much for joining us for the Annual Meeting. And we'll see you at the 2012 Annual Meeting hopefully, if not before.

John C. Malone

Thank you.

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Source: Liberty Media Corporation - Shareholder/Analyst Call
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