Formula One Group (FWONK) Q4 2017 Earnings Report, Transcript and Summary

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 Chan, Senior Vice President of Investor Relations. Please go ahead ma'am.

Thank you. Before we begin, we'd like to remind everyone 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, exchangeable debt offerings, discussions involving IR communications, matters relating Formula One including future financial performance, expenses, tax matters, brand expansion, including internationally, experience improvement, new opportunities for commercial partnership, sponsorship, promotion and television and other matters that are not historical facts. These forward-looking involve 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 acceptable 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 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 of Liberty Media and adjusted EBITDA of Sirius XM. The required definitions and reconciliations, Schedules 1, 2, 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 statements 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 on the call. Today's speaker on the call we also have Liberty CFO, Mark Carleton and Formula One's Chairman and CEO, Chase Carey. During Q&A, we'll also be available to answer questions related to Liberty Broadband if there are any. So beginning with Liberty Sirius XM and as you may know this morning we announced the launch of exchangeable bond at Liberty Sirius XM exchangeable into Siri [ph] S shares. The use of proceeds for that offering includes potential repurchase of Liberty XM stock which we hope may narrow the discounted LSXM. The lawyers have instructed me not to comment further upon this offering until as priced and therefore I will be not 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'll be happy to talk in more detail then. As you may have also heard this week, we're in discussions with the creditors of iHeart Communications. 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 Sirius XM 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; the discount at LSXM which has been persistent and for a lot of reasons we've talked about had widened quite recently mostly in the last 60 days when we were out of the market. Buyback is 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, but waiting this proved to only provide a more attractive potential repurchased opportunity. So with that, let me turn to LSXM's results. Sirius XM had a very strong 2017, revenue was up 8% to $5.4 billion. [Indiscernible] net adds were up by $1.56 million and Liberty's ownership as of January 29 stood at 70.4%. I would also note that the Sirius XM board has approved an additional $2 billion of share repurchase. Turning briefly to the Formula One Group, had a great first season as part of the Liberty's family. Chase and his team continue focus on long-term to build excitement in the sport and drive financial returns to benefit of 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 start of the season later this month in Melbourne and been watching the exciting results in Barcelona and it's fantastic. 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. 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, amphitheatre and stadium shows for 2018 already up 7% through February 2019. In addition, already 70% of the sponsorship advertising in net revenue projections for 2018 have been committed. Turning to the Braves, we finished a successful first season at SunTrust Park with attendance 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 spring training has started we're looking forward to opening day on March 29, Go Braves. And lastly, over 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 enhance the product, simplify pricing and packaging, reduced transaction and customer cost. 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 think about 22%. With that, let me turn over to Mark to let him discuss our financial results into more details.

Thank you, Greg. Quarter end Liberty Sirius XM Group had attributed cash and liquid investments of $546 million. Excluding $69 million in cash held directly at Sirius XM. The value of the Sirius XM stock as of 220A was $20 billion. Actually have a little bit from that today and they're $750 million in debt against these holdings and we have increased our borrowings under the Sirius XM margin loan, funds investing activities and for general corporate purposes. 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 to the market value of approximately $3.6 billion as of 220A with $2.3 billion of attributed debt excluding the debt at F1. The bridge had attributed cash and liquid investments of $132 million. At quarter end, Liberty Sirius XM Group had an attributed principal amount of debt of $7.6 billion which includes $6.8 billion at Sirius XM. Formula One Group had attributed principal amount of debt of $5.6 billion which includes $3.3 billion debt at F1 and the Brave Group had an attributed principal amount of debt of $667 million. F1's total net debt to covenant ratio is defined in their credit agreements was approximately 7.1 times as of yearend, as compared to a maximum allowable 8.75. This ratio increased a little bit from the third quarter due to decline in the last 12 months covenant calculation of their OIBDA. We set up target total net leverage ratio for Formula One of about 5 to 6 times of that covenant OIBDA and bear in mind, this is for the Formula One business not for the Formula One Group. In January, 2018 we paid off $400 million of the first lien term loan which effectively was leveraged neutral but did decrease the margin over LIBOR to 2.5% from 3%. On taxes for F1 in 2018, we were expecting a mid-to-high single-digit effective cash tax rate on UK EBITDA. F1's adjusted OIBDA as reported less stock base comp is a reasonable proxy for UK EBITDA for this purposes. So 2017 cash taxes for F1 were approximately 2% of UK EBITDA due to the occurrence of some one-time items in chart. So with that, I'll 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 it's like one of the good time to take a quick look back at the first year then touch on our priorities going forward. As we stated day one, Formula One is essentially an organizational start up and a business turnaround for us. A tremendous franchise that is not been achieving its potential. Therefore our goal in year one is been to build the foundation for sustainable long-term growth. Our focus is been on where we will be in three years not three or even 12 months. Nonetheless, we've identified a number of priorities in the past year that were key to achieving our longer term goals. These priorities included first building 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 and corporate overhead to be approximately $50 million annually compared to 2016. Excluding marketing and development expense tied largely to launching new initiatives. Second, we want 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 on the track and the fans live and broader experience. However the early 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 is new 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. For example in the broadcast area in some cases we recently traded dollars for reach and 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 two 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 impacted 2017 revenue but a bit more than $50 million, which essentially dropped straight through the pre-teen EBITDA. We also have the end of race agreement in Malaysia effective in 2018. A positive news, is that these are one-time events that we can mitigate in the next few years. We also found the governing 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 the shared vision, of how we grow the sport for fans and it's 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 the sport in the track and the business model for all involved to deliver 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 comprises as we work through the details. Second, we need to reenergize our existing TV product and build a relaunch digital platform. We brought in David Hill from Fox Sports as an advisor 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, improve the 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 eSports, licensing and merchandising and more. We will also advance our geographic expansion in Asia and the Americas in general and the key markets to the US 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 brand. With our promoters, we're looking to create a wider set of choice 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 back to Greg and Mark.

Thank you Chase and thank you. 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.

Couple for Chase. As you mentioned you just launched your F1 OTT product this week in a number of markets, how should we think about start up loses marketing etc. 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 in events. And then broadly, should we think about 2018 is another F1 investment year with the real acceleration more in 2019. Thanks.

Certainly - and this year will be an investment year in the OTT product. I think it will be judicious about how heavily, but we have to market, we want to - it's clearly something it will take time to grow. But that being said, I think we're also still sort of building the product experience, the components over the top product that are still yet to be launched. So I think if we launched it will 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 I think we feel it's the product the market is ready for and excited by and we will be investing in it and so certainly it's a short-term investment, but I think I'm not going to project before we even launched where - what the timeframe is to turn it, but I think we do expect it to have a growth - after a couple years of investments that it can become something that's a really a 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 to be year of growth. I think on - in terms of stepping forward, but that being said it's I think 2017 and 2018 we looked at it 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 platform. So we're investing in place like digital platforms, we're doing more in terms of events. Although we're starting to generate more engagement from partners and alike to support those events. So I look at 2017 and 2018 is sort of foundation building years, with the real growth in 2019 and 2020 to come behind that and look at the over the top platform is again probably the next couple of years being investment building, with it become a real contributor past that.

Great.

We will now take our next question from Vijay Jayant with Evercore ISI. Caller go ahead, your line is open.

Sorry. For Chase, can we just talk about race promotions obviously adding Germany and UK and losing Malaysia in 2018? And also some of the plans you have for new venues through 2020 under this concord agreement. Is the goal to get to 25 races and are there any more venues that we can see a stepdown on that can, if in fact growth? And then quick one for Greg, obviously the iHeartRadio interest while financially looks attractive. Can you just talk about what synergies that may have with the Sirius business especially maybe in 360L plans there? Thanks so much.

We don't have a target number of races and actually probably large number of our races are long-term agreements anywhere in any event. There are always few that come up. We certainly could add races. I mean we've got lot of places would like to have races, not all of them are places we consider, but I think they're - 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 the capacity and we have the rights to go to, to add races. It's built and we can go to 25, but I think our focus at this point as we I think I said in the past, continues to be getting the races to be what they should be and really all the components behind it, it's not just the race. But it's the hospitality, local partnerships, the event itself, cities that support it, public support that engaged it and I think we'll continue to evaluate those opportunities as we deal with renewals. Some of them are sure. Germany we're back in next year. I mean it's a one-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 on the question around iHeart. I think there are potentially substantial synergies between iHeart and both Pandora and Sirius. The Sirius ones are probably more of a revenue nature, the opportunities are on cross-promotion around sharing personalities as you rightly point that about, what 360L may be able to do, to bring strength for iHeart into the car in differentiated ways and probably protect the position there, FM Radio has in the car. And on the cost side, Pandora probably has a substantial number of well, around shared add technology around leveraging, sales force around some of those things that could become 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 ad sales force of either Pandora or Sirius and much more focused on some of the local components. So there are potentially a range of synergies and the cost side, a range of series. On the revenue side and some of them are also about the funnel of free users and how we can move some of them into some of those pay categories.

Great. Thanks so much Greg.

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

I've two for Chase. First on sponsorship, I guess given the increase in audience sizes, you called out in the release TV audience sizes. And the new live demo events you got planned for 2018, the increase in social media followers you achieved so far and even some of the virtual track side of 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 would be helpful and then I've got a follow-up?

I mean I guess look as a general statement. I think the interest from broadly defined universe of potential sponsors has been great. We've got a lot of interest obviously turning interest into dollar it's always a process and you're not going to do it overnight. I think in a nutshell, I think we're actually pretty much on track where we want to be and 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 historically clearly under developed, we haven't exploited the number 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 the complete portfolio of sponsors and we're creating a much broader base of offering. So I think we've gotten to that place. I think to get the dollars, to where should be through this initial phase. We've talked about a three-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 2019 will be a step forward and 2020 be a step forward. I mean we're not going to be falling short, 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 where we - should have sponsors I think is on track but is really again probably something that is more a three year process and 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 of things like eSports, have opened up opportunities that probably wouldn't be in the radar screen. I think that opportunity is been bigger than we expected, so there are some things that now we're developing that probably wouldn't if had the profile they did before, we're widening the events, we'll have four city fan festivals this year, but we'll have more as we go forward. So again those are building steps. So we're not going to be mature in the sponsorship area in 2020, but I think by 2020 I think we'll be much closer to where I think we should be, for what we've got. And obviously part of that is also continuing to improve the product underneath it whether it's the rate itself, the event themselves where we got work to do there, so that's again part of continuing to build the interest in the engagement with sponsors and just to make sure we're continuing to get the sport and the events. And really the presentation of the events, I touched on so what we're going to do with the television product. We'll have a new graphics, new camera angles; new sound something that adds fresh energy to that dimension of it too. So it's why all these things don't, they don't just sort of all sudden flick a switch and it all turns into money and in 12 months, some of it will have to, they want to see continued progress and alike, but 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 we feel on track to what we hope to achieve in sponsorships.

Thanks and my follow-up is really about I guess your perspective on the broader TV market. Given your experience I think in the UK Pay TV market 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, we're just curious to hear your perspective as to what the implications might be, if any to the broader sports TV market place and F1 more specifically.

I guess 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 certainly it's not specific to the UK. Like in many ways TV values first and foremost are based on competition. One we've experienced that already in some of our goals [ph] where you've got competition and realistically two can be great, if you don't need necessarily five. Where you've got competition for rights. You can see the value in the underlying rights. There's some markets that you still have 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 the digital players feel like they're close to probably maybe 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 be, they all want to talk and so, I think - got to make that judgment, but I think the judgment for potential increased competition particularly coming from the digital world. I think portents pretty well for the value of these events. You can see the value, the events today and markets where you have competition, you get real, you get significant increases in value, that competitions ebbs and flows. There are obviously other factors, 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, so we're doing all that. you also want to create choices, we talked early [indiscernible] so I think if you go into the video marketplace clearly 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, you 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 is changed taking Italy, where Mediaset isn't competing for rights the way they were a couple years ago, it effects what happened in that marketplace, when you've got viable 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 and evaluating what's the potential value of our underlying rights, if we deliver a product that lives up to its potential.

Thanks a lot.

I mean the only other thing I'd add for our product, that I think positions us well particularly for digital world. The digital guys all want to play globally and we are unique as a global sport with 20 plus events ever year as opposed to once every four years or being a sport that operates in one country and tries to sell it external marketplaces. So I think you could look at alignment not just the importance of not just events but global events business like ours. I think it aligns pretty well with the potential of increasing digital interest in content.

Thank you very much.

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

Just a 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 Chase can you just update us on 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 reduce them. Just any additional color you could provide how you're approaching this would helpful. Thanks.

I guess on the first, I'm not giving any projections we don't know. I think we believe our sports uniquely suited to over the top product that's targeted and this product is - hardcore fan. For a fan who wants that richer, deeper experience. Being able to follow a driver or race or rather driver's radio action, already seeing what's going on in the pits. Get data access. Get an 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 12-month experience and cover things like Barcelona this week. But it's early days we have our own internal projections, but I think in this point or we're focused on delivering a great product, seeing what the market is, it's not launched everywhere, but we're launching in a broad range of countries across most of the continents in [indiscernible]. And this year in many ways it's a year for us to get a better understanding what people like and don't like and learn and again some of the aspects of the product still be launched this year. so while we, we clearly have our own projections and expectations around it, I think in many ways they say, this is the year for us to learn and get better for the first time a real handle on what the potential is and then sort of plot out where do we go from there once we've got that information as oppose to sort of trying to been over reliant on projections that are just numbers on a page, at this point as oppose to something that has some real meat behind it. What was the second part of the question?

How you're thinking about linear TV distribution make it free to air?

I mean if 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 what free-to-air represents. In a perfect world, we'd like to find ways to - and every country have a free-to-air dimension, a pay dimension, a digital dimension, but stop business. 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 got to evaluate sort of how those things mix and match. Their places as I said in upfront comments where we're taking reach and flexibility over dollars. There are obviously places where dollars drive to the other way, if the over-the-air market is really not there to support it in any reasonable way. Most of our reach is still much more over-the-air, then or free-to-air then pay although pay is certainly a meaningful part of it. We look at the broader world and pay is clearly been continuing to take share in the sports world. But I think we go in, wanting to sort of have 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 got to evaluate those trade-offs sort of market-by-market, opportunity-by-opportunity.

Thank you.

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

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

I think just to be clear, I said the vast majority.

Why don't if you could just talk about that little more into, Jim Meyer on the Sirius call talked about his orderly retirement and could you talk about, how you - what the criteria would be to be some CEO of Sirius and?

I think just to be clarify we bought the vast majority, so the proposal that we have put in the table, we made an offer to invest $600 million into iHeart and roughly and to have Sirius [ph] invest about the same, just a little bit under. And if you look at the amount of the debt and neither of its converted into equity or it gets cash out, we round trip it, it's the vast majority of what it would take to fund that 600. On the question of iHeart first is, my first criteria would be continued to have Jim Meyer run Sirius XM rather. He's done a great job. He's renewed. This is third relatively short-term contract or renewal. So I remain hopeful that I can get him to do a fourth quarter. As far as what the criteria is, I think you could imagine couple of things, great leaders, managers would be appealing people who had experience, knowledgable. 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 sets of skills or something around those sets of skills would be, thinks I think board of Sirius XM would be looking for.

Thank you.

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 would be an embedded gain there on the iHeart deal? And then, give us a sense of what the timing for actually getting resolution on whether this interesting offer succeeds?

We bought the debt at a discount. I don't believe that is likely there is plan out there, ours or anything else it will be 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 taken are not we'll 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 non-payment 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 will be a part of that in some way, maybe not documented but somehow agreed to in principal. Or we could see it can go on for a while with some negotiations among creditors and our potential participation? In any case I think as I said that filing of iHeart is likely to be somewhat near term and the full resolution of iHeart emerging whether it's with our participation or on its own is more likely something that, it doesn't happen till towards the end of the year.

Okay and then if I could just, one more fundamental question. What is the appeal of 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 the reach is somewhere about between 93% and 95% of all Americans listen to FM during some [indiscernible]. It has been relatively resilient. It has been relatively stable. Well there have been certainly add cycle and changed around political. We recognized technology may not favor in every way but we can meliorate some of those things let's say, large free cash flow generator and I think we would less likely to be interested, if we didn't think we could bring, we mean the Liberty family including Pandora and Sirius bring something to the table. But with the advantage so we could bring to the table, we think we can perhaps reduce some of the risk that inherent the business.

Okay, great. Thank you.

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

Greg a couple from me. First on the structure of the iHeart deal, why structure rate this way in the sense that, 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 and we think about the hard spin. I mean now that exchangeable. 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 NAV discount was to close. Should we start thinking about say the next one-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 Sirius XM. I think there's a host of reasons. First it's relatively complicated transaction where both Liberty's structuring and skills are helpful and Sirius's operational skills are necessary, so there's an element a value to both parties. I know we're highly aligned as we're 71%-ish interest. There are asking different things we both bring to the party. Secondly given the higher growth rates at Sirius XM compared to iHeart, well I think it's a very attractive strategic opportunity for Sirius XM in one which their synergies and Pandora synergies to be interesting. It probably is not one that makes sense to consolidate and said to keep it as an equity investment below the 20%, around 20% is probably the right strategy at least for a period while the growth rates are higher at Sirius XM than they're at iHeart. So I think those were 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 would be talking about that. We of course evaluate all of these things all the time. I'm not sure this factors, is on its own. iHeart factors into that decision. Our history as we tended to keep these things part of the Liberty family while we taught we had something to offer. Well we thought we were getting full value or we wanted to go out in realized value. That's been a little more difficult here at Sirius XM. 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 are participation as a large shareholder within the Liberty family are useful and helpful to the Sirius XM 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 sure we'll think about ways to capitalize on that at least in the short-term.

All right, thank you.

I think that's our, that brings to our appointed 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.

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