Barton Crockett - Lazard Capital Markets-
Okay. And then if I could switch to the share repurchase, I just want to be clear about a couple of things related to this. First, did you guys not buy back any stock to date, in the fourth quarter, so far this year? And if not, was there some type of constraint that kept you from getting into the market?And then secondly, on the Liberty Media change, was there some type of contractual commitment that had to be changed? Or is this just a statement from Liberty that they’re no longer kind of necessarily participating in the share repurchase?
Two things. When we announced the program in December, we were pretty close to earnings. And so the advice we had was to stay out of the market until we had gotten kind of the material nonpublic information into the marketplace, which I think we effectively do with this call and getting the K filed. You know, with respect to Liberty, when we originally announced the program Liberty was under 50%. We announced that they would be participating pro ratas so as not to accrete their ownership. You know, given that they’ve gone into the marketplace and they have gone over 50%, that there doesn’t seem to be any structural reason why the board should, for instance, insist on their pro rata participation. So it’s left to their discretion to participate in a manner that they feel is best for their business.
Ben Swinburne with Morgan Stanley.Benjamin Swinburne -
One I wanted to ask about how you’re thinking about telematics in particular, and any other sort of new business investments or opportunities ahead of the company you haven’t talked about before. Telematics is certainly getting a lot of buzz and focus coming out of CES, etc., and you guys are pretty uniquely positioned given your customer base and platform to look at that opportunity.
And then also related to CES, you had the Toyota announcement. Can you talk about what that announcement and what maybe other announcements with other OEMs might mean to the business longer term? I know, David, you’ve always talked about a sweet spot in penetration rate, but maybe there’s more opportunity for upside than people realize. Your thoughts there?
I think, number one, I want to be clear. The word “telematics” is the buzzword, but the real buzzword for me is “connected car” and all of those things that connected car offers in the future, many of which haven’t been completely fleshed out yet. So, as you know, I think every auto maker now is either planning or is putting in place how they intend to deal with their architecture in 2017 and beyond vis-à-vis the connected car. We think it’s important that we participate in those discussions. I’m not sure exactly which businesses that ultimately we need to be in. Obviously, on the short term, the one that is important for auto makers and one that we think we can play in and provide value is in fact the telematics business. And so that’s why we launched our initiative with Nissan. That’s why we’re out working with other OEMs to try to pursue and deliver to them what they may want. What’s most important to me is that we ensure that in this next generation - and by that I mean in the ’17 and beyond timeframe, that when the car has two paths into it, both the IP path and the satellite path, that we’re able to figure out how to best monetize that, and, as importantly, use both of those capabilities to improve the experience for our customers. And I think it’s a very logical step for us, and it’s one where we intend to put a lot of focus.In terms of the Toyota announcement, number one we were quite excited about that announcement. And these things take time, as you all know, with OEMs. We’ve been working on it for a couple of years, and it takes a couple more years before it ramps up and rolls out to the numbers, but the great thing about this channel is when the OEM commits to it, it does happen, and we love the result.I personally believe, still, that high-60%, 70% is the right sweet spot for us for penetration, and I do believe that’s kind of where you’ll see our penetration stay over the next five years.
Benjamin Swinburne -
And you wouldn’t expect any change to conversion ratio as a result of that inching up over time as you get into maybe lower price point cars and stuff?
It’s a challenge, I’ll be honest with you. I mean, we have issues of mix that we wrestle with every quarter. The primary reason is, obviously, the lower price models convert at a lower rate than the higher price models. And so we wrestle with that. I think we’re still comfortable with our range that we’ve given for conversion, and I think we’ll see how 2013 goes
Matthew Niknam with Goldman Sachs-
Two if I could. One on used cars. If you can give us any more color on the churn profile and profitability of a used car customer and how that might compare to your traditional base?
And then secondly, on self-pay churn, that continues to improve, even as the rate hike from earlier last year rolls through the base. Can you help us think through what’s driving the improvements in self-pay churn, and if there’s an opportunity for any additional improvement from these levels going forward?
Let me just start on self-pay for a moment, and then David will take it and then answer your specific question on used cars. So there’s a lot going on. It’s hard to necessarily say our improvement is due to one thing or the other. I mean, starting with the economy, we think, improved in 2012, and we think that was helpful. Obviously, we continue to try to correlate what drove what we thought was outstanding performance in the fourth quarter. I think there were a lot of little things, also, that we did, that helped improve that number, and we’re going to continue to do those things as we move forward. I don’t think there was one magical thing that drove the number where it went.
And on the used cars, I’d say that it’s still sort of early days on individual metrics, and I know it sounds like we’ve got a lot of transactions, and we do. But we do like to see these things sort of trend over time. Overall profitability on used cards is going to be certainly as good as the new car profitability, the single biggest reason being that we don’t have to reinvest in the radio. So reacquiring revenue generating subscriptions on previously installed radios is an immensely profitable business for us. I think it will be a little while before we’re able to tease out sort of sustained differences in churn profile. So you just have to stay tuned for that.
Jessica Reif Cohen with Bank of America Merrill Lynch-
First, on the buyback, are you willing to commit to a time frame?
You’re so far below your leverage target. I was just wondering, now that you’re going to start it, is there any timeframe that you can offer?
No, I don’t think we’re going to come out with a timeframe. We don’t want to compete against ourselves in the market. We will fill the initial authorization. As you know, we’ve got to be mindful of our restricted payment covenants as well.
Jessica Reif Cohen -
And then the second question is, on some of the new initiatives that you outlined, Jim, should we think about this as a revenue opportunity? How will you charge for it? Or do you think of it as a churn reducer?
I think it’s a great question. In the IP area, as you know, we charge for our subscribers to be able to stream our content. And we certainly have no plans to change that. And I think as we’ve improved significantly our IP offering, we ought to be able to sell more of our subscribers a bundle that includes both our satellite-delivered content as well as our IP-delivered content. And we’re certainly working hard to do that.At the heart of it, though, is our basic belief, which is a more-engaged subscriber is more likely a subscriber that’s going to stay with us over the long term. And so we see IP, particularly as it’s easy path into the home, as another great way to keep our subscribers engaged. So I think in terms of IP it’s a double-edged sword.In terms of the stuff we talked about longer term, with the connected car, I see two things there. One, certainly it’s a defensive play to make sure that we are part of new technology that rolls out and helps us keep a hand in what may go out in many, many years to come. But also, I believe there will be other revenue opportunities there that will be good for us, and as those businesses evolve, I think we’re well-positioned to take advantage of those. And then finally, in a true, connected car, I can’t help but believe that’s a better experience for our subscribers, and should help our churn and conversion profiles as well.
It’s definitely both. We will get additional revenue from it. It may be a way, through bundling, to help with the RPU block as opposed to just price increases. And we definitely know from the last 10 years of selling bundles and upgrades to customers that the more engaged customer does in fact churn less.
Jessica Reif Cohen -
I have one last question. Again, it relates to churn, which everybody’s brought up. It’s so good. You’re passing through the music royalty fee. Given this low churn, can you give us your current view on price increase? Would you consider a price increase for this year?
Well, we don’t have any plans right now for a general price increase. I can tell you, and if you’re a subscriber whose account renewed in February, for instance, you have been notified of a change in the MRF, and a passing along of that. We need to see how that goes, and watch that profile over the next six months. And I think that’s going to be our focus for 2013.
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