Liberty Broadband Corp (LBRDA) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Media Corporation 2017 Year-end Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded today, March 1, 2018.

I would now like to turn the conference over to Ms. Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead, ma'am.

Thank you. 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 business strategies; market potential; new service and product launches; the performance of exchangeable debt offering; discussions involving iHeartCommunications; matters relating to Formula 1, including future financial performance, expenses, tax matters, brand expansion, including internationally; experienced improvement and new opportunities for commercial partnerships; sponsorship; promotion and television 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 limitation, possible changes in market acceptance of new products or services, the ability of our businesses to attract and retain customers, competitive issues, regulatory issues and the availability of capital on terms accessible to Liberty Media.

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 statement 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 of Liberty Media and adjusted EBITDA of SiriusXM. The required definitions and reconciliations, Schedules 1 through 3, can be found at the end of the earnings press release issued today, which is available on our website.

This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty Broadband. 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.

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

Now I'd like to introduce Liberty Media's President and CEO, Greg Maffei.

Thank you, Courtnee, and good morning, or I guess it's good afternoon here on the East Coast, to all of you in the call. Today, speaking on the call, we also have Liberty CFO, Mark Carleton; and Formula One's Chairman and CEO, Chase Carey. During Q&A, we will also be available to answer questions related to Liberty Broadband, if there are any.

So beginning with Liberty SiriusXM. As you may know, this morning, we announced the launch of an exchangeable bond at Liberty SiriusXM exchangeable into SIRI shares. The use of proceeds for that offering includes potential repurchase of Liberty XM stock, which we hope may narrow the discount at LSXM. The lawyers have instructed me not to comment further upon this offering until it is priced, and therefore, I will not be taking any questions nor anybody else about the offering on this call. I will be, as many of you will be or listening in, at the Deutsche Bank Media Conference on Monday, and I'd be happy to talk in more detail then.

As you may have also heard this week, we are in discussions with the creditors of iHeartCommunications. We believe that we and our companies have something to offer there. And we have bought a position in the iHeart debt, which we believe is economically attractive. And I would note that we have bought a sufficient amount of debt to fund virtually all of our proposed equity commitment.

Let's be clear. This is being done out of SiriusXM, the purchases, and if you're asking why we did this first before buying back our own shares, I'd point to a couple of things: First, the opportunity with iHeart was now; second, that the discount at LSXM, which has been persistent and, for a lot of reasons we've talked about, has widened quite recently, mostly in the last 60 days, when we were out of the market; buyback has only gotten more attractive now when we can be in the market; and we understand that there has been some short-term pain out there for some of you, and -- but waiting has proved only providing more attractive potential repurchase opportunity.

So with that, let me turn to LS -- to SXM's results. SiriusXM had a very strong 2017. Revenue was up 8% to $5.4 billion. Self-pay net adds were up to 1 -- by 1.56 million. And Liberty's ownership as of January 29 stood at 70.4%. I would also note that the SiriusXM board has approved an additional $2 billion of share repurchase.

Turning briefly to the Formula One Group. It had a great first season as part of the Liberty Stanley. Chase and his team continue to focus on long term to build excitement in the sport and drive financial returns to benefit the shareholders in the long term.

During 2019, as you'll hear more, we further refined the capital structure at Formula One and substantially reduced interest expense. We very much look forward to the start of the season later this month in Melbourne and have been watching the exciting results in Barcelona [testing].

Turning to Live Nation, which had yet another record year in 2017. Revenue was up 24% for the year, really quite strong. All divisions, concerts, sponsorship, ticketing delivered their strongest AOI results in the company's history. The concert attendance was up 21% to 86 million. Solid growth in pricing and on-site initiatives to increase revenue. And they continue to drive results with those efforts.

And we're off to a promising start in 2018 with confirmed arena, amphitheater and stadium shows for 2018 already up 7% through February 19. In addition, already 70% of the sponsorship advertising and net revenue projections for '17 -- for 2018 have been committed.

Turning to the Braves. We've finished a successful first season at SunTrust Park, with attendance up 23% per game in 2017. Ticket revenue was up 76%. Concession sales were up 31%. And retail sales increased 45%. TV ratings, importantly, last year were also up 50%.

So springs training has started. We're looking forward to opening day on March 29. Go Braves.

And lastly, over at Liberty Broadband, Charter had a strong quarter. Solid subscriber gains, video included, growing video subs. Charter remains constant in its strategy, and it's paying off, enhanced the product, simplified pricing and packaging, reduced transaction and customer costs.

2018 is a year in which they remain focused on completing the integration of Time Warner and Bright House and driving long-term growth through new packages. For the calendar year 2017, Charter repurchased approximately $13.2 billion of its own equity, increasing our ownership stake on an economic basis to, I think, about 22%.

With that, let me turn over to Mark to let him discuss our financial results in some more detail.

Thank you, Greg. At quarter-end, the Liberty SiriusXM Group had attributed cash and liquid investments of $546 million, excluding $69 million in cash held directly at SiriusXM. The value of the SiriusXM stock as of 2/28 was $20 billion. And actually up a little bit from that today. And there's $750 million in debt against these holdings. And we have increased our borrowings under the SiriusXM margin loan to fund some investing activities and for general corporate purposes.

The Formula One Group had attributed cash and liquid investments of $117 million, excluding $165 million of cash at F1. Formula One Group holds public market equity securities with a market value of approximately $3.6 billion as of 2/28, with $2.3 billion of attributed debt, excluding the debt at F1. The Braves had attributed cash and liquid investments of $132 million.

At quarter-end, Liberty SiriusXM Group had an attributed principal amount of debt of $7.6 billion, which includes $6.8 billion at SiriusXM. Formula One Group had attributed principal amount of debt of $5.6 billion, which includes $3.3 billion of debt at F1, and the Braves Group had an attributed principal amount of debt at $667 million.

F1's total net debt-to-covenant OIBDA ratio as defined in there. Credit agreements was approximately 7.1x as of year-end as compared to a maximum allowable of 8.75x. This ratio increased a little bit from the third quarter due to the decline in the last 12 months covenant calculation of their OIBDA.

We've set our target total net leverage ratio for Formula One of about 5 to 6x of that covenant OIBDA. And bear in mind, this is for the Formula One business, not for the Formula One Group. In January of '18, we paid off $400 million of the first-lien term loan, which, effectively, was leverage-neutral but did decrease the margin over LIBOR to 2.5% from 3%.

On taxes for F1, in 2018, we are expecting a mid- to high single-digit effective cash tax rate on U.K. EBITDA. F1's suggested OIBDA, as reported, less stock-based comp is a reasonable proxy for U.K. EBITDA for these purposes. So 2017 cash taxes for F1 were approximately 2% of U.K. EBITDA due to the occurrence of some onetime items.

And with that, I will turn it over to Chase Carey to discuss Formula One.

Thanks, Mark. It's been just over a year since the change in ownership and management, so I thought it was a good time to take a quick look-back at the first year then touch on our priorities going forward.

As we stated day 1, Formula One is essentially an organizational start-up and a business turnaround for us, a tremendous franchise that had not been achieving its potential. Therefore, our goal in year 1 has been to build the foundation for sustainable long-term growth. Our focus has been on where we will be in 3 years, not 3 or even 12 months.

Nonetheless, we identified a number of priorities in the past year that were key to achieving our longer-term goals. These priorities included: first, build an organization and infrastructure that will enable us to grow and fulfill Formula One's potential. We've settled into our new London headquarters, with headcount currently around 120, expecting to settle around 150 by mid to late 2018. Overall, we expect the associated incremental step-up in corporate overhead to be approximately $50 million annually compared to 2016, excluding marketing and development expense tied largely to the launching new initiatives.

Second, we wanted to create a renewed sense of energy and excitement amongst fans, both at events and on television and digital platforms. Our growth in attendance, viewership and digital engagement last year were all signs of progress.

Third, engage with the larger ecosystem of Formula One: the teams, promoters, sponsors, broadcasters, regulator and other partners to begin to build the type of partnership Formula One needs to be successful on both the motorsport and commercial sides of our business.

Fourth, to improve our balance sheet and maximize long-term cash flow. A year ago, we had over $4 billion in external gross debt, and today, we're at $3.2 billion, with approximately $115 million in annualized interest savings and an improved tax structure. We also eliminated the overhang of potential share sales from prior Formula One owners.

As was to be expected, there have been some surprises in the past year. On the positive side, the enthusiastic response and interest from fans and viewers to the new Formula One were stronger than expected. We still have a lot of work to do to improve this sport in the track and the fans' live and broader experience. However, the earlier enthusiasm from fans reinforced the pent-up demand and potential in Formula One.

We were also positively surprised by the excitement from existing commercial partners to expand and grow their relationships with us and the level of interest from new potential commercial partners. There's real enthusiasm from new potential sponsors, promoters and video entities to engage with Formula One. Many of these will take time to develop in the right way, and our priority again is building long-term value, not a short-term buck.

For example, in the broadcast area, in some cases, we recently traded dollars for reaching digital flexibility. We're excited about the potential long-term growth that exists here. In terms of challenges, we discovered that post our investment in Formula One, we had 2 significant sponsors that decided to not renew relationships with us in 2017, and a race in Brazil with adverse financial changes in the existing agreement that took effect in 2017.

These issues adversely affect -- impacted -- adversely impacted 2017 revenue by a bit more than $50 million, which essentially drops straight through to the pre-team EBITDA. We also have the end of a race agreement in Malaysia effective in 2018. The positive news is that these are onetime events that we can mitigate in the next few years.

We also found the governance structure in Formula One a bit more cumbersome than expected, but believe that the continued engagement with our array of partners will help build on a shared vision of how we grow the sport for fans and its participants.

Looking forward, as I noted upfront, our priority is where we grow Formula One in the long term. Nonetheless, 2018 is an important step in that process, and we have a number of priorities for the coming year: first, we'll work with the FIA and teams to improve this sport in the track and the business model for all involved to deliver a sport to fans that provides the best possible competition, action, suspense, state-of-the-art technology, heroes, glamour and shock and awe. I believe there is alignment on the overall broad goals, but we have to find the right compromises as we work through the details.

Second, we need to re-energize our existing TV product and build relaunched digital platforms. We brought in David Hill from FOX Sports as an adviser to work with our internal team on a new TV product for this season. On the digital front, we announced the launch of our new over-the-top product, Formula One TV, and a new web experience among other digital initiatives.

We also need to build our live event experience. We'll continue to work to engage more host cities, as we did in London last year, to expanding improved fan experience at the track and to grow key areas like hospitality and merchandise to their true potential.

In addition, we will move forward with plans to build key extensions to our business, like e-sports, licensing and merchandising and more. We will also advance our geographic expansion in Asia and the Americas in general and the key markets of the U.S. and China, in particular. New television agreements will help enhance fan engagement in those regions.

Finally, we need to continue to build and expand relationships in our core revenue areas of sponsorship, promotion and television. For example, in the sponsorship area, we're working to create a much wider range of opportunities for both existing and new sponsors, to engage fans and exploit our brands.

With our promoters, we're looking to create a wider set of choices and experiences that we can develop together for fans' commercial partners, all of which help us grow our business. We also have an exciting list of great locations that want to host the Grand Prix, which provides great possibilities for growing this dimension of our business. We're excited about the opportunity in front of us. We have a lot to do but believe we're on our way to deliver on the promise of Formula One for its fans, partners and shareholders.

Thank you very much. I'll turn it back to Greg and Mark.

Thank you, Chase, and thank you, Mark. To the listening audience, we appreciate your continued interest in Liberty Media. And with that, operator, I'd like to open it up for questions.

(Operator Instructions) And we'll now take our first question from Jeff Wlodarczak with Pivotal.

A couple for Chase. As you mentioned, you just launched your F1 OTT product this week in a number of markets. How should we be thinking about startup losses, marketing, et cetera, this year and beyond? And is that something you intend to push fairly aggressively or more in the context of the marketing that you're already doing at events? And then broadly, should we think about '18 as another F1 investment year with the real acceleration more in '19?

Yes. Certainly, this year will be an investment year in the OTT product. I think we'll be judicious about how heavily that but we have to market. We want to -- it's clearly something that will take time to grow. But that being said, I think we're also still sort of building the product experience, the components of the over-the-top products that are still yet to be launched. So if we launch it, we have something like 24 camera feeds. But we'll have a richer data experience. We're going to add more historical footage. We're going to add other dimensions to it as we go. So yes, I think we feel it's a product the market's ready for and excited by, and we will be investing in it. And so shortly it's a short-term investment. But I think I'm not going to project before we even launched where -- what the time frame is to turn it. But I think we do expect it to have a growth that in -- after a couple of years of investment, that it can become something that's a really positive contributor to our future and, in many ways, becomes a factor in how we navigate the overall video experience with our broader video partners. In 2018, certainly, it'd be a year of growth, I think, on -- in terms of stepping forward. But that being said, it's -- I think '17 and '18, we looked at it as, I guess, sort of foundation-building years. I think our real target for where we want to get to, as I said in the comments before, sort of 2020. So I think we expect to have some steps forward, but in a lot of places, again, we're still in the early stages of building out digital platforms. So yes, we're investing in places like digital platforms. We're doing more in terms of the events, although I -- we're starting to generate more engagement from partners and the like to support those events. So I do -- I look at '17 and '18 as sort of foundation-building years with the real growth in '19 and '20 to come behind that. I look at the over-the-top platform as, again, probably the next couple of years, being investment-building, with it becoming a real contributor past that.

And we'll now take our next question from Vijay Jayant with Evercore ISI.

For Chase, if -- can we just talk about race promotions? Obviously, adding Germany and U.K. and losing Malaysia in '18, and also some of the plans you have for new venues through 2020 and under this kind of Concorde Agreement, is the goal to get to 25 races? And are there any more venues that we can see a stepdown on that can impact growth? And then quick ones for Greg. Obviously, the iHeartRadio interest, while financially, it looks attractive, can you just talk about what synergies that may have with the Sirius business, especially maybe in the 360L plans there?

Yes. We don't have a target number of races. And actually, probably a large number of our races are long-term agreements anywhere in any event. There are always a few that come up. We certainly could add races. I mean, we've got places that -- we've got a lot of places we'd like to have races. Not all of them are places we consider. But I think there are actually quite a number that would be real positives for us. But I think our real focus is making sure -- again, quality over quantity. And I think we have capacity and we the rights to go -- to add races. It's built that we can go to 25, but I think our focus at this point, as we, I think, have said in the past, continues to be getting our races to -- getting the races to be what they should be. And really, all the components behind it is not just the race, but it's the hospitality, local partnerships, the event itself, cities that support it, public support that engage. And I think we'll continue to evaluate those opportunities as we deal with renewals. Some of them are short. I mean, Germany, we're back in next year, but it's a 1-year deal, so that's a short-term agreement for the year. But I think we have interesting opportunities if we want to take advantage of that. But that's something, I think, we again will decide as we go forward.

And the question around iHeart, I think there are potentially substantial synergies between iHeart and both Pandora and Sirius. The Sirius ones are probably more about the revenue nature, the opportunities around cross-promotion, around churn personalities, as you rightly point out, about what 360L may be able to do to bring strength into the -- for iHeart into the car in differentiated ways and probably protect the position that FM radio has in the car. And on the cost side, Pandora probably has a substantial number of wealth around shared added technology, around leveraging sales force, around some of those things that could be done as well as some revenue opportunities around those things. The sales force at iHeart is a very powerful one and larger than substantially in the added sales force of either Pandora or Sirius. Is much more focused on some of the local components. So there are potentially a range of synergies on the cost side and range of synergies on the revenue side, and some of them are also about the funnel of per users and how we can move some of them into some of those paid categories.

And we'll now take our next question from Bryan Goldberg with Bank of America Merrill Lynch.

I have 2 for Chase. First, on sponsorship, I guess, given the increasing audience size, as you called out in the release, TV audience sizes, and the new live demo events you've got planned for 2018, the increase in social media followers you achieved so far and even some of the virtual trackside inventory you're activating, how does this impact your sponsorship opportunity in 2018 and beyond? Either -- any color you can provide from an inventory or pricing perspective will be helpful. And then I've got a follow-up.

Yes. I mean, I guess, look at that general statement. I think the interest from the broadly defined universe of potential sponsors has been great. We've got a lot of interest, obviously turning interest into dollars. It's always a process, and you're not going to do it overnight. I think it's -- in a nutshell, I think we're actually pretty much on track where we want to be, and then we'll have a step forward. I think we talked before about sort of saying the sponsorship arena is one to get to where we think we should be. I mean, it's an area that, I think, we've historically clearly underdeveloped. We haven't exploited the numbers of sponsors we should have or had the breadth of offerings. I think we have gone a long way to correcting that, so we're engaging with that complete portfolio of sponsors and we're creating a much broader base of offerings. So I think we've gotten to that place, I think, to get the dollars to where they should be through this initial phase. We've talked about a 3-year process, that sponsorship probably moves faster than some of the other areas with longer-term contracts. But it's not going to move in 12 months. So I think the year is a step forward. But '19, it'll be a step forward. And '20, it'll be a step forward. I mean, we're going to be slowly mature, but I think this initial phase of really sort of catching up to where we should be in terms of array of sponsors, breadth of sponsors and the type of engagements we should have with sponsors, I think, is on track, but is really again probably something that is more a 3-year process than a 12-month process to get there. Obviously, there are things we can continue to do to build on from that as we expand the sport into other areas. So things like e-sports have opened up opportunity that probably wouldn't have been on the radar screen, and that's a big -- I think that opportunity has been bigger than we expected. So there are some things that now we're developing that probably wouldn't have had the profile they did before. We are widening the events. We'll have 4 city fan festivals this year, but we'll add more as we go forward. So again, those are all building steps. So we're not going to be mature in the sponsorship area in 2020. But I think -- by 2020, I think 2020 will be much closer to where, I think, we should be for work we've got. And obviously, part of that is also continuing to improve the product underneath it, whether it's the race itself, the event themselves. We're -- we've got work to do there. So that's, again, part of continuing to build the interest in the engagement with sponsors, just to make sure we're continuing to get the sport and the events and really the presentation of the events. And I touched on sort of what we're going to do with the television product. And in the television product, we'll have new graphics, new camera angles, new sound, something that adds some fresh energy to that dimension of it, too. So it's why all these things don't -- they don't just sort of, all of a sudden, flick a switch and it all turns into money in 12 months. Some of it, we have to -- they want to see continued progress and the like. But we've -- I think we've been actually thrilled with the level of engagement and the excitement and the interest and the support for the direction we're going with the sport as a whole. So I think feel we feel on track to what we hope to achieve in sponsorships.

And my follow-up is really about your -- I guess, your perspective on the broader TV market. Giving your experience, I guess, in the U.K. pay TV market, I was wondering if you could share your perspective on the announced auction results so far for the domestic EPL rates. The deflation was surprising to some, and we're just curious to hear your perspective as to what the implications might be, if any, to the broader sports TV marketplace and F1, more specifically.

Yes. I mean -- Yes, I guess I'm not going to -- I mean, I probably wouldn't comment on the EPL. I'm a board member at Sky, so I don't really think it's probably my place to comment on something they were involved in. So I guess, I can comment a little bit more broadly on the TV market as a whole, not -- and actually, it certainly is not specific to the U.K. I think, in many ways, TV values, first and foremost, are based in competition. And we've experienced that already with some with our renewals, where you've got competition and, realistically, 2 can be great. You don't need necessarily 5, where you've got competition for rights. You can see the value in the underlying rights. There are some markets that you still have some pretty weak competition. And obviously, that affects the marketplace. It is our belief that competitions could increase, particularly on the digital front. Although, I think that digital players feel like they're close but probably maybe a half-step away from really getting deeper into the live event businesses. But when you look at who they're hiring, what they're hiring, capabilities they're building, they're all pretty good signals. And they all want to meet, they all want to talk. And so I think that you've got to make that judgment, but I think the judgment for potential increased competition, particularly coming from the digital world, I think, portends pretty well for the value of these events. And you can see the value of the events today in markets where you have competition. You get real -- you can get significant, significant increases in value. That competition ebbs and flows. There are obviously other factors, I mean, within a sport. You've got to make sure the sport delivers. So you want to be presenting the sport better, increasing the fans, increasing fan engagement. And so we're doing all that. You also want to create choices. We talked earlier about OTT. So I think as you go into the video marketplace, clearly, for us, having the ability to grow in multiple dimensions, whether it's free-pay, web-based, over-the-top, all become tools you can use that you can mix and match as you sort of get a sense of what that opportunity is. So I think developing those opportunities, getting sport to where it should be and ultimately underlying competition, which, I think, is probably the lead factor, are all forces that will impact the value of key rights. I think these key rights are uniquely valued in the marketplace. But you can look at various markets and where the competition has changed, taking it [to legal] or media is at -- isn't competing for rights the way they were a couple of years ago, would affect what happens in that marketplace. When you've got vibrant competition in another market, it has a much different impact. So I think those to me are the factors that you look at and you try to make judgments about in evaluating what's the potential value of our underlined rights if we deliver a product that lives up to its potential. I mean, I guess the other -- the only other thing I'd add for our product that I think positions us well, particularly to the digital world, the digital guys all want to play globally, and we are unique as a global sport with 20-plus events every year as opposed to once every 4 years, or being a sport that operates in 1 country and tries to sell it to external marketplaces. So I think if you look at alignment, not just of the importance and not just events but of a global event business like ours, I think it aligns pretty well with the potential of increasing digital interest in content.

And we'll now take our next question from David Karnovsky with JPMorgan.

Just to follow up on the Formula One streaming product. We did see some stories in the press that F1 was targeting 5 million subscribers. Can you confirm if that's the case? And then can you just update us on how you're thinking about your linear TV distribution? We've seen some markets that you've added free-to-air windows and then in others, you reduced them. Just any additional color you could provide on how you're approaching this would be helpful.

Yes. I mean, I guess on the first, I'm not going to give any projections. We don't know. I mean, like, we're -- I think we believe our sport's uniquely suited to an over-the-top product that's targeted, and this product is at a hardcore fan. For a fan who wants that richer, deeper experience of being able to follow a driver all race or probably a driver's ratio action all race, see what's going on in the pits, get data access, get historical look at great races, great drivers, what-have-you, and a deeper covering of the sport throughout things. And particularly, as we build the sport out as a 12-month experience and cover things like Barcelona this week. But it's early days, and we have our own internal projections. But I think at this point, we're focused on delivering a great product, seeing what the market is. It's not launched everywhere, but we're launching it in a broad range of countries across most of the continents in some manner. And this year, in many ways, it's a year for us to get a better understanding of what people like and don't like and learn, and again, some of the aspects of the product are still to be launched this year. So while we clearly have our own projections and expectations around it, I think, in many ways, I'd say this is the year for us to learn and get, for the first time, a real handle on what the potential is and then just sort of plot out where do we go from there once we've got that information as opposed to sort of trying to get overreliant on projections. They're just numbers on the page at this point as opposed to something that has some real meat behind it. The -- what was the second part of the question?

Just on how you're thinking about linear TV distribution, mix of free-to-air and non free-to-air.

I mean, it's market-by-market, so you can't really come back to competition. It depends who's competing. I mean, we value free-to-air. I mean, we value reach, I guess, which is what free-to-air represents. In a perfect world, we'd like to find ways to, in every country, have a free-to-air dimension, a pay dimension, digital dimension or over-the-top business. That's going to -- that's not always going to be possible because different players in different markets are going to have their own priorities and strategies. And we've got to evaluate sort of how those things mix and match. There are places, as I said in the -- in upfront comments, where we're taking reach and flexibility over dollars. There are obviously places where dollars drives you the other way if the over-the-air market is really not there to support it in any reasonable way. Most of our -- our reach is still much more over-the-air than free-to-air than pay although pay is certainly a meaningful part of it. And you look at the broader world and pay has clearly been continuing to take share in the sports world. But I think we go in, wanting to sort of have the balance of reach dollars and flexibility, and flexibility probably means the ability to develop the longer-term opportunities like over-the-top. But those trade-offs are going to be different in every market, and you've got to evaluate those trade-offs sort of market-by-market, opportunity-by-opportunity.

And we'll now take our next question of from John Tinker with Gabelli.

Two quick questions. I think, Greg, you mentioned at the beginning that you have a broader sufficient decision in the debt in iHeart to fund your equity position. As an equity person, now that...

I think, just to be clear, I said, the vast majority. Just to be (inaudible), I think.

Well, I wonder if you could just talk about that a little more? And two, Jim Meyer, on the Sirius call, talked about his orderly retirement. And could you talk about how you -- what the criteria would be for someone to be CEO of Sirius? And...

I think just to clarify, we've bought the vast majority. So the proposal that we have put on the table, we made an offer to invest USD 600 million into iHeart at -- roughly, and have Sirius invest about the same, just a little bit under. And if you look at the amount of debt, and either if it gets converted into equity or it gets cashed out, and we round trip. But it's the vast majority of what it would take to fund that $600 million. On the question of iHeart, first is -- my first criteria would be to continue to have Jim Meyer run SiriusXM rather -- he's done a great job. He's renewed. He's done -- this is his third relatively short-term contract or renewal, so I remain hopeful that I can get him to do a fourth one. As far as what the criteria is, I you could imagine a couple of things. Great leaders, managers would be appealing. People who had experience, knowledgeable with content would be appealing. People who had understanding of how to run a subscription business would be appealing because there are metrics and processes around subscription businesses which are different. And people who had knowledge about technology would be appealing. So besides Jim, who I've already said is my first choice, a candidate who had those set of skills or something around those set of skills would be things that I think the board at SiriusXM will be looking for.

And we'll now take our next question from Barton Crockett with B. Riley FBR.

On the debt, did you buy this at a discount? And is the idea that it would be converted at par so there'd be an embedded gain there on the iHeart deal? And then give us a sense of what the timing is for actually getting resolution on whether this interesting offer succeeds?

We bought the debt at a discount. I don't believe that it is likely there is a plan out there, or is there anything else sort of being agreed to among the creditors, which would bring the senior debt to par. But I think, potentially, we'll have whatever happens transpires, where there are offers to take it or not will likely to have some modest gain in our debt position. How does this play out? I think in the near term, quite likely, given that they had a nonpayment on some junior notes just about 30 days ago that the company is probably likely would be my guess to file in the near term. And either we'll be a part of that in some way, maybe not. We'd document it but somehow agree to in principle. Or we could see it could go on for a while with some negotiations among creditors on our potential participation. In any case, I think as I said, the filing of iHeart is likely to be somewhere near term. And the resolution -- the full resolution of iHeart emerging, whether it's with our participation or on its own, is more likely something that doesn't happen until towards the end of the year.

Okay. And then if I could just -- one more fundamental question. What is the appeal of the AM-FM radio on its own? I understand the idea of synergy potential. And on the synergy -- but just the fundamentals, what do you think of that?

Well, that reaches somewhere about between 93% and 95% of all Americans listen to the FM during some part of the month. It has been relatively resilient. It has been relatively stable, so there have been certainly ad cycles and changes around political. We recognize technology may not favor another way, but we can ameliorate some of those things. It's a large free cash flow generator. And I think we would be less likely to be interested if we didn't think we could bring, we, meaning delivery family, including Pandora and Sirius, bring something to the table. And with the advantage we could bring to the table, we think we can perhaps reduce some of the risks that are inherent in the business.

And we'll now take our last question from Kannan Venkateshwar with Barclays.

Greg, a couple for me. First on the structure of the iHeart deal. Why structure it this way in the sense that it's doing half and half between Sirius and yourself instead of doing the whole deal yourself on your books? And secondly, in terms of the timeline, when we think about the hard spin, I mean, now that the exchange -- well, I'm sure -- I know you can't talk about the exchangeable itself, but when we think about the implications post a potential buyback and so on and so forth, the (inaudible) discount was to close, should we start thinking about, say, the next 1 year as the potential timeline for a hard spin? And how should we think about that whole process?

Okay, great. Thank you. First, on why there is a participation from both Liberty and SiriusXM. I think there's a host of reasons: first, it's a relatively complicated transaction, where both Liberty structuring and skills are helpful, and Sirius' operational skills are necessary. So there's an element of value for both parties. I know we're highly aligned as we're 71%-ish sum of interest. There are some different things we both bring to the party. Secondly, given the higher growth rates at SiriusXM compared to iHeart, well, I think it's a very attractive strategic opportunity for SiriusXM and one which their synergies and Pandora synergies could be interesting. It probably is not one that makes sense to consolidate. And as I said, to keep it as an equity investment below the 20%, around the 20%, is probably the right strategy at least for a period while the growth rates are higher at SiriusXM than they are at iHeart. So I think those are all factors in some of our thinking about how the participation would be from both parties. On the second part, I don't think -- first, we -- obviously, we have no plan or intent to do a spin or we'd be talking about that. We, of course, evaluate all these things all the time. I'm not sure this factor is on its own. iHeart factors into that decision. Our history is, is we tended to keep these things as part of the Liberty family while we thought we had something to offer. Where we thought we were getting full value or we wanted to go out and realize value. That's been a little bit more difficult here at SiriusXM. I'll acknowledge, we haven't gotten the values in LSXM that we've always liked. But we still think that there is reasons that our participation as a large shareholder within the Liberty family are useful and helpful to the SiriusXM Group. So I think for the moment, that's our plan. And I'm not sure it changes dramatically with this, but we are obviously mindful and watchful of the discount. And surely we'll think about ways to capitalize on that, at least in the short term. I think that's our -- I think -- thank you.

I think that our -- that brings us to our point of time today. Thank you all very much for your interest in Liberty Media. Thank you for your time on the call. And I expect we'll see some of you at the Deutsche conference. And hopefully, we can be more fulsome in talking about the convertible -- exchangeable offering, rather and where we're going. Thank you.

Thanks a lot.

And ladies and gentlemen, that conclude today's conference call. We thank you for your participation