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Executives

Courtnee Ulrich – Vice President of Investor Relations

Gregory B. Maffei – President, Chief Executive Officer and Director

Christopher W. Shean – Chief Financial Officer and Senior Vice President

Chris Albrecht – President and Chief Executive Officer-Starz, LLC

Analysts

Barton Crockett – Lazard Capital Markets

Douglas Mitchelson – Deutsche Bank

Benjamin Swinburne – Morgan Stanley Smith Barney

James Maxwell Ratcliffe – Barclays Capital, Inc.

John Tinker – Maxim Group

Bryan Kraft – Evercore Partners

Amy Yong – Macquarie

Anthony Wible – Janney Capital Markets

Jason Bazinet – Citi Investment Research

Matthew Harrigan – Wunderlich Securities

Martin Pyykkonen – Wedge Partners

Liberty Media Corp Capital (LMCA) Q2 2012 Earnings Call August 8, 2012 10:45 AM ET

Operator

Good day everyone, and welcome to the Liberty Media Corporation Quarterly Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Courtnee Ulrich

Good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches, the proposed separation from Starz, LLC and the benefits expected to flow therefrom and other matters that are not historical facts.

These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including without limitations, possible changes in market acceptance of new products or services, competitive issues, regulatory issues, continued access to capital on terms acceptable to Liberty Media and the satisfaction on waiver if applicable of the conditions to the separation from Starz, LLC.

These forward-looking statements speak only as of the date of this call and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based.

On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA. The required definitions and reconciliations, preliminary notes and schedules 1 through 3 can be found at the end of this presentation.

With that, I’d like to turn it over to Greg Maffei, Liberty Media's, President and CEO.

Gregory B. Maffei

Thank you, Courtnee and good morning to all of you on the line. Today, speaking on the call besides myself, we will have Liberty's CFO, Chris Shean; and Starz CEO, Chris Albrecht, other Liberty and Starz executives are available to answer questions as well.

So on to the highlights. For Starz, this morning we made a large announcement, our plan to separate Liberty Media and Starz. Our rationale for this is as follows. While Starz's management team has done a very good job building the brand and subscriber base and Starz's business ultimately going forward we think the spin could optimize this Starz capital structure, creates more flexibility for capital market decisions and partnerships, provides better transparency on Starz operating business and we will highlight the value and strength of the underlying company.

We ultimately, this company is more valuable as a standalone company with its own currency and will create shareholder value for the Liberty Media shareholders. It also because of the nature of the dividend we expect to pay from Starz to Liberty Media will create significant liquidity rather for Liberty Media, which will preserve all of our options with respect to Sirius, Live Nation and Barnes & Noble. We expect the timing of this transaction is such that we should be able to close by year-end, and we’re as I said, we're excited about the prospects for an independent Starz going forward.

Turning now to SiriusXM, we closed on our previously announced forward purchase in July, which now takes our ownership to just over 46%. The value of our investment in SiriusXM today or as rather as of yesterday's close was $6.8 billion. We were very pleased with the operating results at Sirius as well. They reported yesterday, subscribers were up to 22.9 million, revenue was up 13%, adjusted EBITDA was up 28%, and they raised their 2012 guidance to $900 million. Notably during the quarter, we also repurchased $96 million of our own LMCA stock.

With that, let me turn it over to Chris Shean to talk about the financial results at Liberty Media.

Christopher W. Shean

Thanks Greg. Liberty Media's revenue and adjusted OIBDA remain relatively flat at $537 million and $126 million respectively in the second quarter. Starz LLC's revenue remained unchanged at $403 million for the second quarter as the increase in revenue for the Starz Channels business was offset by decreases for the Starz Distribution and Starz Animation businesses. Starz's adjusted OIBDA decreased 8% to $108 million for the second quarter as a result of a decrease in the Starz Channels business. Looking at the liquidity picture, at quarter-end, Liberty had cash and liquid investments of $1.8 billion and debt of $543 million.

Now Chris Albrecht will comment on events at Starz.

Chris Albrecht

Thanks, Chris and good morning. As Greg discussed at the top of the call, Starz, LLC will become its own independent company. The senior Starz team and I are very energized by this decision. While there have been great benefits to being part of Liberty, I believe this standalone structure is the first step to unlocking the real potential growth opportunities for Starz.

This immediately allows us to build a more appropriate capital structure and provide us with the currency to explore potential strategic alliances, acquisitions and other value-enhancing strategies for our businesses. We at Starz have broad and deep relationships in both the content and distribution communities. There is a long list of companies interested in having alliances with Starz.

Turning our attention to earnings, the Starz business has performed well in the second quarter of 2012. At the end of the quarter, Starz subscribers were 20.7 million and ENCORE had 34.2 million for a combined subscription total of nearly 55 million. In comparison to the first quarter of 2012, this represents net new subscriber growth of 600,000 at each of the channels with the majority of the subscriber growth coming from distributors with fixed-rate agreements. This solid demand makes Starz and ENCORE the most highly subscribed pair of premium services in the U.S.

We remain steadfast and focused on optimizing our distributor relationships and are aggressively pursuing ways to build incremental value for our products and services. To that end, all three of our flagship services will launch newly branded authenticated platforms. We're retaining the Play moniker from our previous online product and we'll shift it over to the new online product Starz Play, ENCORE Play and MoviePlex Play.

Before the end of the year, these products will launch to PCs and Macs, iPhones and iPads and select Android handsets and tablets. As noted on our last call, Starz has online deals in place with distributors using their platforms that cover roughly two-thirds of all multichannel households.

As you're all aware of the recent well-publicized negotiations between certain distributors and programmers, we also do have affiliation agreements that expire from time-to-time. Starz has a history of renewing these agreements on acceptable terms. However, there can be no assurance the terms will be as favorable as the prior agreements.

Creatively, we continue to make investments in exciting original programming to complement our already strong lineup of the first run blockbuster movies. Season 2 of Boss, starring Golden Globe winner Kelsey Grammer debuted later this month. Global anticipation is also building for the next installment of Spartacus, which will begin its final season in January 2013.

Da Vinci's Demons will debut next on Starz in the spring of 2013. This is the first full series arriving from our partnership with BBC Worldwide Productions. Starz retains full multi-platform rights for Da Vinci in the U.S. and English speaking Canada. The show is historical fantasy following untold story of the young Leonardo da Vinci and is written by David Goyer, screenwriter of the Dark Knight Rises and the upcoming Man of Steel. Season 2 of Magic City will round out the first half of 2013.

ENCORE had a particularly strong July with the Bond collection featuring 19 classic James Bond movies which performed notably well with more than 13 million viewers having watched one or more of the films. Also with ENCORE, we're initiating our previously announced miniseries strategy in September for the four-part presentation based on Michel Faber's bestselling novel, The Crimson Petal and the White. High-quality original acquisitions for ENCORE represent the type of targeted investments we are seeking to complement the robust movie lineup.

On to the Starz distribution businesses, they are performing to our expectations and should benefit in the third quarter from the release of several high-profile new products including Spartacus - Vengeance in September, the first season of Magic City in October and Season 2 of AMC's The Walking Dead later this month. We are proud of the progress we are making with the Starz businesses and are on track to execute on our plan.

Thank you, and now I'll turn the call back over to Greg.

Gregory B. Maffei

So thank you. As noted, we think we had good results at Starz. We are excited about the prospects of a separate Liberty Media and a separate Starz. We appreciate your continued interest in Liberty Media, and with that operator, I'd like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Barton Crockett with Lazard Capital Markets.

Barton Crockett – Lazard Capital Markets

Okay, great. Thanks for taking the question. First, I had a question about the capitalization at Starz. You said there will be an undetermined amount of cash. I was wondering if you could give us some broad parameters, now is this something you think needs a lot of cash to go out and pursue acquisitions or does it need just a limited amount of cash, because it's so cash flow positive and limited working capital needs?

Gregory B. Maffei

Well, I think we are going to send it out with more leverage than it currently has today. Our expectation is that we'll pay a dividend of at least $1.8 billion up to between its existing cash at Starz and the availability of the revolver. The net of that is I think that the debt level at Starz will be something on the order of 2.5 times or less when it exits. The exact numbers will be dependent on some financings we are looking at, how much cash it generates between now and year end.

But above all, our goal is to send it out well, but conservatively capitalized with flexibility under its revolver and with its cash on hand to make sure it has the opportunity to either make partnerships, as Chris noted, repurchase its stock if it doesn't trade attractively in the short-term, and have other flexibilities as needed. So, I think it's going to be set with an appropriate but conservative capitalization. Chris, would you like to add anything?

Christopher W. Shean

Yeah. Barton, this is Chris. I would just say that obviously this has been a very carefully considered decision, and we at Starz are very comfortable with the balance sheet as we go forward and look to have the flexibility to take advantage of the opportunities that we are confident will arise.

Gregory B. Maffei

If I could add one more thing, this is a high cash flow generating business, there's a lot of free cash flow, relatively few demands on that cash flow. So, we think it can carry obviously more debt than it has today.

Barton Crockett – Lazard Capital Markets

Okay, all right. That’s helpful. Now, I was also wondering if you could talk a little bit about why we have yet to see a firm statement about your intentions towards Sirius. I mean you've been taking steps buying more stock Mel was on the call yesterday saying that he hasn't really heard from Liberty a clear expression of what you want to do. A number of months have passed, I'm just wondering what are you waiting for, if you can talk about, and what do you need to see to kind of decide whether you want to fish or cut bait?

Gregory B. Maffei

Well. I think you’ve seen our actions and I forget what we said, you've seen our actions, we've increased our shares, we find them, we’ve bought at attractive prices, we find the increased ownership and influence at Sirius rather attractive and we'll decide ultimately how we wish to proceed with that stake. Our view is that Sirius is under-leveraged and there's plenty of opportunity for share repurchase and other financial actions of the Company, which we deem as ultimately positive and being a shareholder, an increased shareholder in Sirius is a good thing.

Barton Crockett – Lazard Capital Markets

Okay. Does this separation is this a hurdle you need to get through before you take more definitive steps with Sirius?

Gregory B. Maffei

Is what a hurdle, sorry I'm not sure…

Barton Crockett – Lazard Capital Markets

The separation of Liberty Media from Starz.

Gregory B. Maffei

No. The Starz split or more accurately, the LMCA's split away from Starz has no bearing on our impact at Sirius other than the discussion about leveraging Starz more than it is currently leveraged only provides us with more firepower, but we had plenty to begin with.

Barton Crockett – Lazard Capital Markets

Okay, all right. Thank you.

Operator

Our next question comes from Doug Mitchelson with Deutsche Bank.

Douglas Mitchelson – Deutsche Bank

Thanks so much. Couple of logistical questions for Greg, and then one for Chris. Greg, just following up on that, does this change the options that you would consider for Sirius at all? For example, I think Sirius shareholders think, Sirius is cheap, I think, you think LMCA is cheap. Post STARZ spin, you could merge the two together at market and call it a day. So, it's sort of new option that I didn't think was in play before. Does that make any sense?

Gregory B. Maffei

Well, you don't want to foreclose any options. I still believe that Liberty Media is trading at discount to NAV. We'll see what happens over the next period whether that neutralizes out. I would note we have a lot of cash at LMCA, more after the Starz dividend up to LMCA, Liberty Media, and our history has not been to issue huge amounts of stock, because in general, we believe, viewed our stock is undervalued, believed it was worth more, and we're more likely to pursue cash transactions.

Having said that, I'd note the larger point, which I made to the other question, there is a ton of liquidity at Sirius. There's not only borrowing capacity today. Our anticipation is over the next several years there generate billions of dollars shielded by the NOLs with decreasing leverage and the bulk of the CapEx necessary for the satellite launches and the like are having already been spent. So, this is going to be a huge free cash flow generator. So I think this is not a case where we look and say, we need to be conservative with our cash or their cash by issuing stock, it's quite the opposite.

Douglas Mitchelson – Deutsche Bank

Has STARZ been tainted all with M&A discussions in the past that would limit strategic flexibility for a tax-free sale post spin? I think a lot of people think sort of six months post spin, you are free and clear unless you had prior M&A discussions in the previous two years, right?

Gregory B. Maffei

I'd like to believe that Liberty and Starz management have been thoughtful about any discussions in not preventing any future options in any timeframe.

Douglas Mitchelson – Deutsche Bank

And then just quickly for Chris, any sense of return on capital strategy that you might pursue being CEO of a publicly traded company?

Chris Albrecht

At this time, we're just going to proceed with our current plan and I think as we get closer to the actual date, we'll look and see what opportunities are there. As we said, this gives us a structure, a currency, and as we said before with regard to the balance sheet, a lot of flexibility to pursue all sorts of as I refer to them value enhancing strategies. So, at this time, I don't have anything specific to say.

Douglas Mitchelson – Deutsche Bank

Okay. Thank you very much.

Operator

We’ll take our next question from Ben Swinburne with MSSB.

Benjamin Swinburne – Morgan Stanley Smith Barney

I think for Chris S., how much of the $1.8 billion of cash and liquid investments at end of the quarter are at Starz, LLC?

Christopher W. Shean

About $1 billion.

Benjamin Swinburne – Morgan Stanley Smith Barney

About $1 billion. Okay. And then for Chris A. on the Starz outlook, I don't know Chris, if you're willing to give us any sense for your distribution renewals, not necessarily by operator obviously, but just even percentages how much are up over the next two years, next four years, anyway you could put that into context?

You mentioned in your prepared remarks that you have renewals coming up and that there's still this potential risk there, but any way to size that? And then, on the cost side, I think at the Investor Day, you guys commented that your Sony Disney deals, you started to benefit from maybe some lower sort of rate cards that kick in soon, any update on sort of when that are we already seeing that this year or what's the timing on that piece as well?

Chris Albrecht

On the second question, no, we haven't seen those. Those do not kick in this year. Those actually start to kick-in in 2013. With regard to our distributor relationships, we have probably about 19% of our business that is up for renewal in the next or I guess at the end of year, and we are obviously in active discussions all the time with our distributors, but we don't have anything specifically to comment on.

Gregory B. Maffei

But that's not unusual. Would you say Chris and Glenn move to sort of the normal role, we have a series of ones that come up all the time and nothing, there's not unusual load in the next six months for us.

Chris Albrecht

No, I mean, with the consolidation of the distribution business, that's actually a relatively small amounts considering what it could be.

Benjamin Swinburne – Morgan Stanley Smith Barney

Right, and then, Greg, just going back a bit to Doug's question, and thinking about whenever you guys announce a spin and then we need to ask about the next potential spin, which is just thinking about the SIRI position within new Liberty, is there a question now around timing on that option? I realize it's an option, not something that you're actually doing, but spinning out that stake and merging it in an RMT with SIRI, does that require some sort of post Starz spin cooling off period with the IRS just to think about that second spin if you guys were to move down that path?

Gregory B. Maffei

No, I don't think that that's the real driver. I think a consideration in our mind would be, and obviously we have announced no intent to do a Reverse Morris Trust. We've only suggested its one path. But I would note, if we pursued that path, something that would weigh on our mind is, we got the first 40% of the company for free virtually. The next 11 points have cost us well over $1 billion something if we got to 51. We would probably like to get the bait back on the 11 points.

We've noted that there is flexibility in the capital structure at Sirius, there's plenty of availability for them over the next short-term to lever further and return capital to shareholders including ourselves, and whatever we did, we would be unlikely to want to spin out high basis stock, we'd probably given how much we've already shrunk Liberty Media over the last several years. We’d probably including this Starz transaction, we'd probably be wanting to get that cash back. So, that would be the biggest consideration in our minds, a major one.

Benjamin Swinburne – Morgan Stanley Smith Barney

Yeah. And so that was then I guess tying to what that residual Liberty would look like, which is you want to make sure it's robust, has enough cash, and there's stuff to do there beyond, I think it would just be basically the braves left if you were to go down that path?

Gregory B. Maffei

Well. No, there's a few other things. Live Nation, TruePosition…

Benjamin Swinburne – Morgan Stanley Smith Barney

In terms of operating companies, I mean…

Gregory B. Maffei

Barnes & Noble, TruePosition is an operating company.

Benjamin Swinburne – Morgan Stanley Smith Barney

Yeah.

Gregory B. Maffei

Yes, your point is right, we would significantly shrunk Liberty Media, still making sure that it had firepower, cash available for other investments or further investments in companies we already have stock in would be something we would probably endeavor. And again, it gets sort of against our nature to spin out full basis of cash.

Benjamin Swinburne – Morgan Stanley Smith Barney

Yeah. Understood. Thanks a lot.

Operator

Our next question comes from James Ratcliffe with Barclays Capital.

James Maxwell Ratcliffe – Barclays Capital, Inc.

Good morning. Thanks for taking the question. First of all, structurally and hypothetically, would it be possible to have two put transactions going simultaneously? So could you and SIRI have the new Liberty split going from the existing Liberty Corporation, at the same time, you are putting through a SIRI Reverse Morris Trust from that same current Liberty Corporate entity?

Gregory B. Maffei

Yeah. James, I think I just tried to answer that. I don't think that that's the driver in our minds, and the problem, the issue probably in our case is going to set the right capitalization at Sirius and make sure that we achieved what we wanted on our other objectives on that investment. That would probably be the driving issue.

James Maxwell Ratcliffe – Barclays Capital, Inc.

Okay, got it. And then secondly, are there concerns for the new Liberty entity regarding the Investment Company Act? It looks like if you lose Starz, you are already getting an even a larger portion of the asset base in particular with all the new SIRI common stock in there that's actually publicly traded securities.

Gregory B. Maffei

We believe that is not an issue.

James Maxwell Ratcliffe – Barclays Capital, Inc.

Great, thank you.

Operator

Our next question comes from John Tinker with Maxim.

John Tinker – Maxim Group

Hi, you mentioned that in the release, you want to reserve your options with respect to Sirius and Live Nation. How are you thinking about Barnes & Noble?

Gregory B. Maffei

Well, I mentioned Barnes & Noble in my comment as well. We are actually currently prevented until the pill expires at Barnes & Noble. If we so chose, we are currently prevented from increasing our stake by more than, I think, about 3.3%, so it's relatively de minimus issue, but I did mention in my comments Barnes & Noble. I don't think it was meant to ignore Barnes & Noble. It was only meant to acknowledge that's probably not given how we are currently restricted something that's on the top of the list.

John Tinker – Maxim Group

Just on that, one of the things I found confusing is Microsoft which I think is still intending to invest, it is launching Surface through its own stores, but it has an option to own, I would have thought, all of Barnes & Noble which would immediately get it access to far more stores. Do you have a view on how they're thinking about that?

Gregory B. Maffei

I think you'd have to ask the Microsoft management team that question honestly.

John Tinker – Maxim Group

Okay. Thanks.

Operator

Our next question comes from Bryan Kraft with Evercore Partners.

Bryan Kraft – Evercore Partners

Hi, thank you. I just had a follow-up question or I guess a question on your comments, Greg, about getting the right capital structure at Sirius. I mean, given the restricted payments baskets there, I mean there is a limitation on what they can buy back in stock, are you suggesting that you think that they should pay some fairly hefty call premiums to redeem some of that debt early in order to accelerate that process? That was my first question. And then, my second question is, can you just comment on the status of your application with the FCC for transfer of de facto control of Sirius. Thanks

Gregory B. Maffei

Well. I am not suggesting that they should incur undue penalties in the bond market. They can obviously do breakevens and calculations on with the relative attractive rates today versus what they have to pull in going forward. I'm really talking over the next few quarters, when some of these things become callable to different rates, and when other financing flexibility becomes available and when they continue to generate more cash, that there will be cash available for share repurchase, combination of all those things. On the second question about the FCC, we are waiting to hear back on our application for de facto control, we have not yet heard from the FCC.

Bryan Kraft – Evercore Partners

Okay. And just if I could follow-up on the first one, so I mean, that would suggest then that we wouldn't see any sort of transaction or any other outcome happen with respect to yourselves and Sirius until we've already been through some a lot of these maturities happening over the next couple of years, is that the right way to interpret that?

Gregory B. Maffei

No, I think there's more flexibility in the balance sheet than you suggested.

Bryan Kraft – Evercore Partners

Okay.

Gregory B. Maffei

Okay. Thank you.

Operator

Our next question comes from Amy Yong with Macquarie.

Amy Yong – Macquarie

Thanks. Can you just elaborate on some of the acquisitions and partnerships you're talking about with Starz and maybe just update us on your digital initiatives? And also, is there the potential for you to bump up the buyback post at the Starz spinoff? Thanks.

Gregory B. Maffei

I can't comment on any potential acquisitions or anything, because we are not in a structure yet to even be able to contemplate that and obviously there are restrictions around kinds of things that we can do. Our digital initiatives, we did talk about the fact that we are launching our authenticated platforms, sometimes commonly referred to as TV Everywhere, and those will be launched to multiple devices at the end of the year.

We certainly look to our current distributors and think that there are still plenty of opportunities with their high-speed platforms and other things that they can do that would be potential growth opportunities for Starz. And I forgot what's your last question was. I'm sorry.

Christopher W. Shean

It's about buyback and maybe I'll step on that one in a second. Look, we have bought back something like 45% of the stock of Liberty Media over the 40% plus from the Liberty capital base since we've spun some of these things out. So I think we've been very aggressive on buyback and we remain so.

You'll now have a case where Starz will have not only its own conservative capitalization but a large free cash flow element to make decisions about how it wants to do share purchase. So I think we found that separating assets and allowing greater transparency, less opaqueness into those, allows us in many cases to make decisions, and has accelerated buyback where appropriate, but that will really be price dependent on what's happening in those respective stocks.

Amy Yong – Macquarie

Okay. Thanks.

Operator

Our next question comes from Tony Wible with Janney.

Anthony Wible – Janney Capital Markets

Hi, on the Starz side, is it safe to assume that you'll be renewing the fixed rate deals in that 19% that's up for renewal, and if not, when do you get a chance to monetize the increase in subs you've seen on the fixed-rate subs? And then also quick housekeeping question, on Starz Media, do you have a number for revenue and also what was the operating expense number for the Starz side?

Gregory B. Maffei

Okay. On the affiliate agreements, I can't comment on anything specifically other than to say that the majority of the fixed rate agreements have built-in increases year-over-year. We have been negotiating with a large consignment distributor for a long time and are looking forward to putting ourselves in a position to grow that side of our business as well.

So the fixed rate and consignment businesses while different, I think are both proceeding along with our expectations. With regard to the Starz Media businesses, let me just grab this, our distribution business for the three months ended in 2012 was $76 million, and the total revenue across our businesses was $403 million. What else is it that you'd like to know?

Anthony Wible – Janney Capital Markets

We are looking for the Starz OpEx.

Gregory B. Maffei

The Starz OpEx?

Anthony Wible – Janney Capital Markets

And then, I guess while you are looking for that post…

Christopher W. Shean

The EBITDA numbers are going to be in the by division are going to be included the 10-Q which is going to get released here later today.

Anthony Wible – Janney Capital Markets

Post split, would you expect any of those generic overhead cost to move higher or there hasn't been enough time for any kind of overlap.

Gregory B. Maffei

Yes, de minimus changes. There are currently cost charges already that happened, I don't think they are going to change significantly.

Anthony Wible – Janney Capital Markets

Great, thank you.

Operator

Our next question comes from Jason Bazinet with Citi Investment Research.

Jason Bazinet – Citi Investment Research

Question for Mr. Maffei. I can never figure if I'm the smartest or the dumbest guy on these calls. So let me go back and try this one more time.

Gregory B. Maffei

I think you're the smartest, Jason. You don't worry.

Jason Bazinet – Citi Investment Research

Are you saying with this Starz transaction that you've announced today that the odds of an RMT are going down dramatically and it's more likely that you're going to consolidate SIRI in some way shape or form? Be it open market purchases, or a merger of this new entity into SIRI, is that the right take-away from your comments?

Gregory B. Maffei

No. I don't know if I'd go there. I would say that an RMT in the short-term is probably not as attractive to us, meaning in the next six months or something like that, because we're probably more interested in seeing them relever and get the appropriate valuation at Sirius. We think the valuation at Sirius was likely to go up on a relevering or further levering of the Company and we probably want to participate in that.

Also we probably want as I noted to get some of our capital off the table. We have to get the 51 anyway, and as a practical matter you either get there because you brought in the marketplace or because there was some combination of assets that we put in to the mix or because they paid some kind of a dividend to their shareholders. So this is probably all stuff that is termed to share repurchase that is in the main moving towards an RMT if that's what we still chose. I haven't, I'm not saying, I'm just noting some of the conditions we are likely to get or need to get through, to get to an RMT.

Jason Bazinet – Citi Investment Research

Understood. Thank you.

Gregory B. Maffei

Is that helpful?

Jason Bazinet – Citi Investment Research

Yep.

Gregory B. Maffei

Good.

Jason Bazinet – Citi Investment Research

Thank you.

Operator

Our next question comes from Matthew Harrigan with Wunderlich Securities.

Matthew Harrigan – Wunderlich Securities

Thank you. Apart from viewing Sirius as a financial instrument, can you talk about some of the business opportunities with Barnes & Noble on the tablet side, Live Nation in particular? It looks like it's an interesting core for the company that even apart from the math on valuation and capital return and such.

And then, secondly for Chris, is the pay-TV market going to just be inherently and a lot of disequilibrium on negotiating these [tariff] agreements until OpEx has a little bit more traction, I know you're not going to comment too much on M&A, and I know your strategies are somewhat different but it almost makes sense that those two companies could be combined at some point, I mean it's sort of a superficial comment, but what's your I guess rationally steady comment?

Gregory B. Maffei

Matthew, I'll take the first one. You couldn't conjure up ideas, which on the margin are helpful probably to all parties. They have sort of book talk equivalent on Sirius, why could that be a Barnes & Noble labeled book talk. They already have some special events around concerts and the like that are Live Nation related, could you imagine explaining those, yes, and I think those dialogs continue. It's usually hard even when you have 100% of all of the companies to drive synergies that don't make business sense. They sort of have to generate.

You can put people in a room together, you can suggest they ought to be helpful and cooperative, but they have to make sense to both parties. It gets harder when you own pieces of things, but I think there are dialogs that do occur, can occur on the margin. I don't think they are game changers. We haven't found that yet, but I think they are positives and I think you first have to look at the underlying value of the business sales on a standalone and then look towards the incremental capabilities, but it's only on the margin. Chris?

Chris Albrecht

Certainly, Starz, Showtime, HBO, these pay-TV channels are very valuable businesses and as Greg said before, they still offer a lot of cash. I'm sure that the owners of Epix believe it's a valuable business and they're working hard to build that value. Starz is the only one of those, however, that will have this unique capital structure, which I think provides us, as I have said before with opportunities across the board. We have certainly relationships with the companies that own Epix. We talk to them about other things and we will certainly have the appropriate and hopefully smart conversations with anybody and everybody as we go forward.

Matthew Harrigan – Wunderlich Securities

Thank you.

Operator

Our last question comes from Martin Pyykkonen with Wedge Partners.

Martin Pyykkonen – Wedge Partners

Yeah. Thanks. Good morning. Two things, Greg, I guess on Live Nation, I'm curious, you've always been pretty clear and obviously results at SIRI are very strong and stable. Outside of the seasonality aspect of the concert season at Live Nation, I'm curious how you feel about where that business is being managed and especially from an EBITDA, free cash flow standpoint? Is it maximizing the potential or is it something you are interested more going forward in terms of stake, it can go up to 35% without any further Board approvals, so I'd like your thoughts on that.

And then for Chris, on the premium deals, the industry broadly has talked about this a lot, we haven't really seen first run films or current season TV, the content owners obviously have the cards on hand on that one. Netflix never came back. There's never been really multiple-tiered pricing for premium content. Should we be thinking anything is going to happen anytime soon or is this more of a longer-term wait and see as you would be right now? Thanks.

Gregory B. Maffei

So I'll comment first on Live Nation, Live Nation announced strong results yesterday and I think we could see that they're in the middle of the transition where incremental e-commerce opportunities, incremental sponsorship opportunities, more international concert business which obviously fluctuates depending upon the season and who is touring, and lastly a major upgrade at Ticketmaster on the systems there which we're sadly in need of and we're about halfway through it.

I think all of those are creating opportunity at Live, that's why we increased our stake by over 60% from just about under 15% over 25%. So we've taken a substantially larger investment in that. Where we go forward and increase it up to the allowed 35, we'll see. We don't totally want to communicate every move we're going to make but we obviously, having increased it 60%, have confidence and like what the management team is doing and like where the business is headed.

Chris Albrecht

On the Starz side, we certainly see activity and interest in I guess the three buckets of potential digital distribution of our products first by the distributors within their own footprint. They are distributors that are looking to expand beyond their own footprint and there are new distributors that certainly are seeking to come into the space.

We have to weigh all of those conversations with what's best for our business going forward. We have strong relationships with our distributors and certainly want to do the things that enhance them. At the same time, we do think that there are opportunities that are on the close horizon.

Martin Pyykkonen – Wedge Partners

Okay. Thank you.

Gregory B. Maffei

So, I think we are done for the day. Thank you for your interest in Liberty Media and we look forward to talking to you next quarter if not sooner.

Operator

That concludes today's conference. Thank you for your participation.

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