QVC Group Inc (QVCGA) 2002 Q4 法說會逐字稿

Good day, everyone, and welcome to the Liberty Media Corporation conference call. Today's call is being recorded. During this presentation there may be certain forward-looking statements about business strategies, market potential, future financial performance, new service and product launches and other matters. These statements involve many risks and uncertainties that could cause actual results to differ materially from such statements, including without limitation possible changes in market acceptance of new products or services, competitive issues, regulatory issues and continued access to capital on terms acceptable to Liberty Media.

Please refer to the publicly filed documents of Liberty Media Corporation, including the most recent Form 10-K for additional information about Liberty Media and about the risks and uncertainties related to Liberty Media's business.

And now I would like to introduce Liberty Media's president and chief executive officer, Mr. Robert Bennett. Please go ahead

Thank you. Thank you all very much for joining us today.

Here in Denver we have the great preponderance of Liberty's executive staff as well as Bill Myers (ph), the CFO of Starz Encore, and also on the line is Barb Bennett (ph), the treasurer of Discovery Communications.

I'd like to start the call by encouraging you to review the 10-K that was filed today with the SEC. That filing is available on our website. Also posted on the website is all of the financial and statistical information that will be discussed on today's call.

The purpose of the call today is to make a few comments on the 10-K that we filed, to summarize the results of our large private assets at a high level and also to touch on some other activities of Liberty and also finally to answer questions that you may have.

Looking first at the GAAP financial statements, I'd like to remind you that due to ownership and governance matters, a large number of our assets are not consolidated for GAAP reporting purposes. But for the year-ended 12-31- '02, Liberty recorded 2.1 billion of revenue which is comparable with the prior year. Revenue growth at Starz Encore was partially offset by a decline in revenue at Ascent (ph) Media.

Liberty recorded an operating loss of 184 million dollars in the current year versus a loss of 1.1 billion dollars last year. The improvement in the operating loss is primarily due to decreases in amortization, stock compensation and impairment of long lived assets. The company's net loss for the period was 5.3 billion versus a loss of 6.2 billion in 2001. The loss in the current year primarily results from 6 billion of non-cash investment write down.

Due to continued weakness in the equity markets we recorded non-temporary declines on several of our large available for sale investments, these charges were offset by 2 billion dollars of realized and unrealized gains on our derivative instruments, which are marked to fair value through the income statement. We provide results and earnings guidance for our significant private assets to keep the public informed about how those assets are performing. Those results and guidance are not and should not be taken as a numerical measure of Liberty's historical or future financial performance, financial position or cash flows.

While our consolidated results reflect the impact of weak equity markets, our large private assets had a very good year. In spite of the challenging economy, the Adelphia bankruptcy, the volatile advertising and retail market, and poor economic conditions in most of Latin American economies all of our large private assets met or exceeded our revenue and operating cash flow guidance for 2002.

For operating cash flow, Starz increased 19%, Discovery 52%, QVC 19%, and J-Com (ph) and JPC 281% and 75% percent respectively. We think those are just terrific results and we're very pleased with how they did throughout the year.

Let me now go into each of them in just a little bit more detail. Starting with Starz Encore, we came in at the low end of the range on our revenue guidance with full year revenue of 945 billion. And we exceeded our operating cash flow guidance with 371 million. Revenue and cash flow at Starz grew by 2% and 34% for the quarter and 10% and 19% for the year.

As is more fully disclosed in the 10-K and as you probably saw in the 8-K we filed last week, Comcast is not honoring the AT&T broadband affiliation agreement with Starz Encore at this time, electing instead to make payments at the Comcast rates. We are vigorously disputing the matter with Comcast and we believe we ultimately will receive favorable rulings regarding the litigation that's in place. However, due to the uncertainty surrounding the litigation, Starz has not recognized revenue for the difference between Comcast and AT&T broadband's rates. This treatment is done only in order to comply with generally accepted accounting principles and in no way reflects our view of the eventual outcome of the matter.

Back to their performance during the year. Some of the highlights of the distribution growth, which drove the revenue, were Starz units were up 3% to 13 and a half million or so. Encore units up 14%. Thematic multi-plex units up 29%. And then looking at the different forms of distribution, DVS units were up 7% and total cable units were up 31%, including the AT&T's subscribers.

Looking at guidance for this coming year of 2003, our Starz Encore guidance assumes that we continue to recognize revenue at rates applicable under the Comcast affiliation agreement, continued growth in digital subscribers and a product mix that is consistent with the historical experience. Given those assumptions, we expect that revenue will be flat to slightly up in the low single digits and operating cash flow will be flat.

Moving over to Discovery. Let me just describe a couple presentation notes. As is described in the press release, Discovery is now consolidating the results of the international ventures. For comparative purposes only, this discussion treats international ventures as though we're also consolidated in 2001. None of the results are reflected on an attributed basis as they've been presented in the past.

Discovery continues to be a programming powerhouse. Discovery's affiliated networks reach more than 875 million cumulative subscribers in 155 countries worldwide. For the year Discovery generated a 10% revenue increase, and a 52% increase in operating cash flow, both of which exceeded our guidance for the year. At Discovery networks, the U.S. networks, revenue there at the domestic networks increased by 34% quarter over quarter compared to the same quarter of last year and 13% year-over-year. Operating cash flow increased 19% for the quarter and 26% for the year. Both of those exceeded guidance of revenue increase of 10% and cash flow of 15%.

We're continuing to see the positive trend in the fourth quarter, carry into the first quarter of this year. Ad bookings are pacing ahead of last year and Discovery is getting out ahead of the major broadcasters with its up front presentation, which is underway as we speak now. Discovery's international networks also had a strong year and met the high end of our guidance with revenue increased by 11% and operating cash flow up 135%.

Consumer products division had an improved fourth quarter to close out a difficult year, revenue for the quarter increased by 10% over last year, while operating cash flow increased by 12 million from a deficit of 3 million in the prior year.

Now looking at guidance for DCI as a whole, our 2003 guidance is based on various factors, including continued positive trends in the domestic advertising sales market, stabilization in Latin American economies, especially Argentina, continued improvement in international distribution and ad sales, continued cost control efforts, and economic uncertainty and potential impact on the retail environment.

On a consolidated basis, we're expecting revenue to grow in the low teens and operating cash flow 15 to 20%. The domestic networks revenue in the low to mid teens increase and operating cash flow in the mid to high single digits. In the international divisions, revenue in the low to mid-single digits and operating cash flow in the high teens increases.

Next is QVC. As you saw in the Comcast release, QVC fourth quarter and year-end results were very impressive once again. The company generated a 9% increase in revenue for the quarter and 12% for the year, which translated into a 21% increase in operating cash flow for the quarter and 19% for the full year. The 9% quarter-over-quarter revenue increase is even more impressive given the tough comps in the fourth quarter 2001, when the company had a record setting 80 million dollar computer sales day.

Right now QVC is essentially debt free and is beginning to accumulate cash. As I'm sure you know, we elected to trigger our exit process with respect to our QVC investment. All of the mechanics of the process have been disclosed either in the press release or in the 10-K. Our shareholders agreement with Comcast stipulates that we spend the first 30 days attempting to negotiate the fair value of the business and that is the state that we're in at this time.

Last is our Japanese businesses -- J-Com and JPC which had a fabulous year. J-Com, our cable company increased revenue by 39% quarter over quarter and 52% year-over-year due to increased distribution across all product lines. These distribution gains included the 19% increase in cable subs to 1.4 million, a 110% increase in telephony units to 350,000, and a 57% increase in data units to 504,000.

J-Com's operating cash flow more than tripled during the year due to revenue growth combined with increasing margins associated with the company's increased scale. J-Com also recently completed the first ever cable-style syndicated bank financing in Japan through the completion of a 140 billion yen syndicated loan. This debt has a term of six and a half years, carries a very low interest rate and represents permanent non-recourse financing which should be adequate to get the business to free cash flow positive.

We also have increased our stake in J-Com with the purchase of an additional 8% from Sumitomo (ph) from 442 million dollars making us the largest shareholder now with a 44% holding. Sumitomo will continue to provide management assistance and be our full partner in the process and both Sumitomo and Microsoft remain key strategic shareholders.

Our guidance on J-Com for 2003 assumes continued subscriber growth and increases in digital penetration, product mix consistent with that experience historically, ability to raise prices without significant subscriber losses and continued cost control efforts, including programming costs. Revenue should increase at least in the mid teens and operating cash flow we're expecting to grow by 50 to 70%.

Over at Jupiter Programming, JPC's revenue increased 45% quarter over quarter and 36% year-over-year due to strong subscriber growth at the company's various channels combined with a continued success of our Shop Channel business which had a revenue increase of 50% quarter over quarter and 39% year-over-year.

JPC's operating cash flow increased 53% quarter over quarter and 75% year-over-year due to the increases in revenue offset by increased costs of goods sold, programming and general and administrative expenses.

Now, our JPC guidance assumes continued subscriber growth across all of our programming services, increased sales per home at Shop Channel and gross margins remaining consistent with our historical experience. We're expecting revenue there to grow in the mid teens and operating cash flow in the high teens. On a combined aggregate basis, these two businesses, J-Com and JPC, generated almost 260 million of operating cash flow for the year, compared to less than 80 million in the prior year.

Needless to say, we're extraordinarily pleased with the results and the progress that these businesses are making.

Looking at Liberty's balance sheet and liquidity, as you can see in the release, we ended the quarter with over 2.6 billion of cash at the corporate level and liquid investments, or cash and liquid investments of 2.6 billion and approximately 5.9 billion in face amount of corporate debt of which 3.1 represented the face amount of our exchangeable debt. The increase in corporate cash during the year was primarily due to the proceeds generated by our rights offering in December.

And finally, looking quickly to a few recent events which as -- you're familiar I'm sure with all of them. During December we completed our previously announced rights offering. As a result we issued 103 million shares of series A common stock for net proceeds of approximately 618 million dollars. In terms of share repurchase, we did not purchase any shares during the fourth quarter of last year, but in January we received a supplemental private letter ruling from the IRS and we believe that based on this ruling that we have issued a sufficient amount of equity to satisfy our original statement of intention and that repurchase of our own stock did not affect such determination.

And as you can see from the 10-K in the first quarter so far we purchased 17.3 million shares at a total cost of approximately 170 million dollars. And also we are in the process of closing on our issue of 1.5 billion of AOL senior exchangeable diventures, that can be up to 1.75 billion if the green shoe (ph) is exercised. We saw this as a tremendous opportunity to secure financing on attractive terms, basically a .75% coupon and a greater than a 50% conversion premium on the AOL stock. And these proceeds will add to our current liquidity as we continue to consider various potential opportunities.

We particularly like the structure of this transaction because it allows us to the extent -- there's a put in year five and in year ten and I believe in year 15. The structure of the transaction allows us to satisfy that put or any exchange by the holders with either cash, AOL shares or Liberty shares. So it isn't necessarily an indication of our point of view on AOL, but rather we found a way to use the AOL to substantially reduce our costs of borrowing.

That concludes my formal comments. And now we'd be happy to take your questions.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, press one followed by the star key. We'll proceed in the order you signal us and take as many questions as time permits. Once again, that's star one to ask a question. As a reminder if you're using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment. And we'll pause a moment to assemble our roster.

Our first question comes from Niraj Gupta (ph) of Salomon Smith Barney.

Thank you. Good afternoon.

I guess starting with Starz Encore, the guidance for Starz if you strip out the 80 million dollars that you referenced in your, I guess your 8-K and your 10-K filing, the difference I guess between the Comcast contract rate and the historical -- the historical Comcast systems and the AT&T broadband systems. If you strip that out from the 2002 results and you look at your guidance, seems to imply that 9% top line revenue growth and 27% EBITDA growth, which seemed like some pretty big numbers considering that Comcast at least according to your 8-K filing has de-emphasized marketing of Starz.

So could you guys speak to the fundamental trends there and I guess particularly in light of the fact that Starz appeared to have its first sequential decline of revenue in the quarter without taking into account the impact of the Comcast dispute. So again the fourth quarter seemed to show sequential decline in revenues from the third and yet the guidance seems to imply some pretty good underlying trends and then I have a follow-up. Thanks

You want to respond to that, Bill?

Well, we can -- let me first talk about the sequential decline. What's in there if you add back in the 9 million for Comcast, you still see a sequential decline, but that is primarily driven by some strong promotional activities we had in the third and fourth quarter, where we were giving free service for three to four months. Those customers will start rolling off in late fourth quarter and they become paying customers in the first quarter. So that trend, you will start seeing those customers coming back on and have a pretty solid effect on the company in the first quarter of '03.

With respect to the guidance, the numbers we -- when we looked at this, maybe our math is a little different than what you're looking at, was high single digits for revenue and in the mid teens, maybe 17, 18% for cash flow if you did that math correctly.

That's stripping out the 80 million

Stripping out the 80 million.

Okay. And I guess, I'm not sure if John is on the call, John Sea (ph), but with the exercise of the over half of his stock appreciation rights, I'm just trying to get some perspective on what John, how he philosophically views the growth outlook for Starz Encore going forward and whether or not he's getting -- what's going to determine whether or not the components are cash versus Liberty stock in terms of what he ops into and - sorry.

Are you done?

Yeah, I am

John's not on the call. But I think it's fair to say, this is a personal financial decision on his part. He started this business in 1991 and so has been working away at it for 12 years and basically has taken nothing out of it and has created a tremendous amount of value for Liberty. So I think it has more to do with his personal financial position and possibly some desire to diversify, which is prudent, much more than it has to do with any lack of confidence or -- in the growth in the business going forward. So he's not here to speak for himself, but I know based on our conversations he continues to be very bullish on the business.

Thanks, Bob.

Jessica Rice Cohen (ph) with Merrill Lynch.

Hi. I have three questions. The first is John Malone did an interview I think yesterday and said if you guys do get DirecTV it would be a short-term investment. Could you just walk through what you're thinking there?

Well, you never know what the future will bring. We've said for a while we have an interest in DirecTV because we think it could be an important strategic asset for us. But the way we look at businesses, everything that we own potentially is for sale, on the right terms and at the right price. We could be a long-term holder, we could be a short-term holder, it's going to be a function of what the future brings.

So I don't think we can -- I don't think I can comment either way other than it's generally the way we look at all of our businesses. We like to try to buy things that he we can help grow and help develop. But there have been a lot of situations in the past where someone else has turned out to be a more logical buyer or more logical owner once we've worked it for a while. That is always an outcome. I don't see that as necessarily the only outcome or necessarily the likely outcome. That's one outcome.

Okay. And also to go to this John Sea stock sale, or substantial stock sale, what does he have left -- he holds 57% -- and how did you value it?

Well, it's still -- the value has not been officially determined, it's still subject to an appraisal process that we're going through at this time. We simply had to book an estimate in order to close the books and so we made an estimate based on that.

Okay. So -- but he's got 43% left; is that correct?

Yeah. He exercised 54% so he has -

Fifty four - okay.

So that's roughly half.

My last question is can you walk through what your obligations are, your potential obligations in '03 and how likely it is that you might have to make some investments in, some additional investments. Like just going through your 10-K there were some things like DMX, Sky Latin America, VTR - is there anything - you know, you have these out there just to pick up several hundred million?

Yeah, I mean, it depends on how you look at them. Most of these are sort of non-recourse stand alone. We do have -- we have certain guarantees in Japan which we don't expect will be called. We have -- we have guaranteed some of the Starz Encore contract several years ago which we have no expectation that those will be called. We have put some capital into some of our affiliated businesses and we may in the future -- Japan we don't expect -- Japan has consumed a fair amount of capital over the last few years. We don't expect that that will consume any more this year, and that was one of the larger ones. So I don't see significant -- I mean, we may choose to put capital into some of the businesses but we're not necessarily obligated to and most of the large businesses are to the point where they're self-funding

Most of those, Jessica, those were outstanding last year as well. There's only a couple that are incremental. As a matter of fact, on the J-Com side the kind of aggregate commitment is actually down a little bit.

It's not likely that you're going to have significant funding needs, that's what you're saying?

No, I -- not relative to our liquidity.

Well, not anymore. And then I guess my last one. If you go through Comcast 10-K there seems to be so many issues between the two companies. Do you expect it to get all rolled into one or is each one going to be taken one by one?

It's really hard to tell. I mean, right now each one is on its own path. We're in litigation on a couple of fronts. They're taking their own paths and we're working through the contractual right that we both have with respect to QVC and we're going through that in an orderly fashion. So I don't think I can tell you -- I don't necessarily expect everything is going to get solved all at once. I expect things to stay on their own path. Things may get resolved, but I think they're all independent actions.

Okay. Thank you

Our next question comes from Kathy Styponias (ph) with Prudential Securities.

Can you hear me?

Yes.

Great. I was hoping for the executives that are there from Discovery if you could give us a sense of how the up front is going and also talk a little bit about what impact if any the war has had on your networks? And finally, I think you had a defection recently, one of your executives went to head over the new joint venture between Radio 1 and Comcast. Can you discuss what you're doing about replacing him? Is that going to be an internal search or might you look externally to replace him? Thanks

Sure. Kathy, as far as the up front, it hasn't begun yet. As a matter of fact as we are speaking right now we are kicking off our first up front presentation. So the season has not yet begun. So we'll be able to update you later on in terms of how that's going.

But we are seeing, as Bob mentioned earlier, a strong and continuing trend of a positive comp for the first quarter. As far as the war is concerned, we have had several advertisers who have asked to just be moved for a few days. We have not seen a significant cancellation order at all. So it seems like advertisers are waiting out public opinion right now. But for the most part as they're holding, the bookings are holding.

And as far as Jonathan Rogers (ph) going to the new Radio 1 Comcast venture, actually Jonathan left the company around this time last year. He left the end of the first quarter last year and he's been replaced in June of last year with Billy Campbell (ph), who came to us as president of Miramax TV most recently.

Thanks

We'll move on to David Goldsmith (ph) from Buckingham Research.

Couple things, could you give us the value, the current value of all these hedges? That would be kind of helpful. And secondly, would you be interested in some of those Vivendi (ph) assets again and could you somehow reacquire the USA Network and what have you?

On the hedges, the in the money value at the moment is around -- I don't have the exact number but it's between four and a half and five billion. We disclosed what it was at the end of the year. It was in the K. But the current value is right around four and a half or five.

On Vivendi, again, as we talked in prior calls and in conferences and things, I think there is a potential logic in us trying to find some way of working with the BEU assets. Given our ownership of Starz Encore, we think there's a lot of potential synergy and scale creation between that network and some of their assets, including their cable networks and their studio. And that's a conversation we continue to be having with Vivendi. I wouldn't really want to characterize it too much more fully than that. Other than it's an ongoing conversation, but it's something that it's potentially of interest to us.

Is there any pressure on you now because of the 1940 act to get some more operating businesses to consolidate?

As I've said before, I think that the -- there's not so much pressure from the '40 act. I think we for our own purposes would like to own more operating businesses. Yes the '40 act is out there, but it's basically -- it would put us in a direction that we want to go anyway. Given our mix of assets, we think we would rather have more consolidated operating businesses where we're able to use them to drive value or we're able to access the cash flow so that we have a renewable and recurring sources of cash flow that would help support our debt and help support our other activities as well as being a platform off of which we can grow other businesses. We have an interest in owning more operating businesses for both strategic and financial reasons quite independent of the '40 act. But yes the '40 act pushes us in the same direction.

Great. Thanks.

Next we have Gloria Radeff (ph) with Bear Stearns.

Hi. I'll ask the ones that no one has asked yet, which is about Europe. Again, if you could just tell us what the opportunities look like there. And I have a question on QVC as relates to -- I know you've been talking about how it makes sense and it's a very good free cash flow producer. I don't quite understand how it fits in that well, because it seems to me to be a very mature asset and I know it's not bad to have cash, but just curious what you would do with all that cash. I know there's obviously transactions you've talked about, but in the long run it doesn't seem to fit in that well with the strategy. And just a small side issue is looks like your Motorola shares went down between third quarter and fourth quarter. Could you just tell us was this a straight sale for any reason?

That's a lot of questions.

There's three easy ones.

On Motorola, we basically closed out some callers and as a result of that unloaded some shares. But that was as a result of unwinding callers that we had in place and taking the cash out.

On QVC, whether or not QVC is a mature business I think is a little bit hard to say. People have projected it was going to be a mature business for the last five or ten years and yet it continues to grow at the kind of mid to high teens rates in EBITDA that we've seen. It obviously can't continue that forever. But still a business that has somewhere around 800, 900, a billion dollars in cash flow that has no debt, is a valuable business and it's -- the value will be a function of the future growth rate.

But for us we look at it and say we already own a large chunk of it. We have the ability to shelter a lot of its income, because of the tax plan that we've done. And it would be valuable to us to have a large cash flow producing asset to know that we can service our debt out of that cash flow as well as service any debt that we would incur to acquire it. And so the growth in it is a question of -- comes back to how much you pay for it. But for every amount of growth, there's a price that makes sense. And assuming that we could acquire it for a price that makes sense, we think it would be very valuable to us not just as a platform, but as a source of cash flow that allows us to do other things and to continue to grow our business and reinvest in new businesses without having to sell others to get there.

On the question of Europe, the primary highlight there is UPC is getting close to completion on their restructuring. Once that's done they'll be left with just their bank debt. And we think that business has the potential to continue to grow. They'll have to grow to get the debt -- to even the bank debt to an appropriate level of leverage, but they're not that far away and it seems like it's in sight. So it's not entirely risk free, but we can see in sight how they can get to being in a position where they're generating free cash flow and have a moderate level of leverage.

Once you reach that point and then I think you have the ability to look around and see if there are other assets that are out there that make sense. And there are still a few other assets. It's not the kind of growth opportunity we thought it was going to be a couple years ago. But we think there are still opportunities potentially to add on either ourselves directly or to add on to the scale that UPC already has and those are things we continue to look at whether that's Switzerland. There are a couple of situations in Germany, as well as a few others that are potentially out there. But they're more add on accretive transactions than sort of large scale making transactions.

And just quick question. The 8% stake that you bought from Sumitomo, does that turn Jupiter into an operating asset because you're now the largest shareholder?

No. I think that -- we treated that as an operating business anyway. That was just a transaction that was something that our partner wanted to do and we wanted to do and so we did it. But we treated that as an operating business anyway.

Okay. I'm done. Thanks

We'll move on to Doug Mitchellson (ph) from Deutsche Banc.

Thanks. Hi, Bob. I have a few questions as well.

First, I guess on a share purchase, have you started repurchasing shares since the IRS ruling allowed you to do that and actually when you look at the financing here with the bond offering backed by the AOL stock, .5% interest rate I would think the returns you would get on Liberty's stock relative to borrowing in the convert market has to be pretty extraordinary. So would you consider that more aggressively? It does seem like your other options are bidding in auctions in QVC and DirecTV and Vivendi could all have potential other acquirers competing with you. So interested in your perspective there and had a few follow-ups.

We purchased about 17 million shares so far in the first quarter and as I've said in the past that's something that we're always looking at. At the moment we have a couple of large transactions in front of us that we're interested in pursuing and that potentially affect the look and feel and the capacity of the company going forward.

But at any given time it's a matter -- it's a balance between our liquidity, our alternative investment opportunities and acquisition opportunities and our bond rating. And that's an ongoing process and we did buy 17 million shares so far this year.

Great.

On an operating basis for Starz, could you give us an update on how the early returns on SVOD are progressing and is that starting to impact the numbers in 2003 or is that more of an '04 and 2005 event? And also on the 80 million dollars to Comcast, that's not Comcast current terms. Do you expect them to also try to garner a best in class new term, new terms on a affiliation deal for the AT&T Comcast entity? And then also on Discovery, it looks like domestically you're looking for margin compression in '03. I was wondering if could you give us more details behind the drivers there and what -- should that continue in '04 as well, given you just did 22% ad revenue growth in the fourth quarter.

We have three people to answer that question. Barb, would you address the Discovery question?

Sure I'll be glad to. You're right, Doug, our guidance for U.S. networks going into '03 does show some margin compression, only because we are starting to show some investment catch up, if you will, that -- starting in the fourth quarter of '02 and heading into '03 that should not continue into '04. It's a one-year anomaly. One is difficult comps and on a year where we were doing significant cost cutting in '01 and the first part of '02 and fourth quarter is the start of the new broadcast season, if you will. And so the investment that we're making in programming and the marketing to support it is being shown there. Also, we have the launch caused -- the new launch cause for our high definition service that was launched at the beginning, at the middle of the year, excuse me. And re-launch costs for the health network as well as Discovery Times channel and that's what's contributing to it

On the Comcast question, whether they will attempt to set a new standard on pricing, I guess I would -- it's fair to assume that they will try to get the best deal they can. That being said, we're in litigation on part of it. Also bear in mind they have several million happy customers who are subscribers to Starz and Encore services who are happy receiving service and who are paying them 10s of millions of dollars and on which they're making many millions of dollars of profit. So yes, I fully expect all of our distributors to try to get the best deal they can. But that has to be weighed against what we're willing to do and it has to be weighed against keeping their customers happy and their existing revenue and profit streams. And we also have litigation affecting it.

And I'll ask Bill to answer the SVOD question.

I think it's consistent with what John Sea had said in previous conference calls. We think it's still a great opportunity. It has, however, probably gotten off to a slower start because of some technical issues at the affiliate level and some front end issues with navigation for the customer. We're not expecting a lot of real growth in '03. We think the real opportunity is going to be in '04 and out , when a lot of those issues are put behind us. But we're still very bullish on it and we have some opportunities where we're doing a lot of tests with various affiliates out there right now, we'll see as time goes on.

Great. Thank you very much

Next question comes from David Joyce (ph) from Guzman (ph) and Company.

Thank you. Couple questions. Is there an opportunity to acquire a greater position in J-Com or JPC and do you feel you need to? I know you already consider it an operating asset. Secondly, in Latin America, do you think it's worth sniffing around for potential investment opportunities?

In Japan it's possible that we would increase our interest in J-Com. I don't think we need to, but if the terms are attractive, we'd like to. We think that's good business, a lot of growth prospects in it and there are a couple other partners there who might be willing to decrease their ownership. In the case of JPC, we own that fifty/fifty with Sumitomo and don't anticipate there being an opportunity, but it's something we would look at if it arose.

In Latin America, we own the cable systems in Argentina and in Chile and also through EGC we have more systems in Chile, as well as a couple other ones around. It is something we're looking at. It's probably too early to say how great the opportunities are. There's a lot of currency fluctuation, a lot of demographic instability and political instability that could be a source of opportunities. We don't necessarily know what the rules are yet in Argentina in terms of debt and debt holders and bankruptcy and so forth. So it may be a little bit early. But it's an area where we already have businesses and would make some sense to see if we can try to find things we can consolidate, if that would make the businesses perform better and if we can do so in a way that we think is prudent given the instability in the market.

Moving on to Robert Ralph (ph) with Netexis (ph).

First few questions I wonder if you could comment on your lockup on your News Corp. stock. It appears in May of '03 you have the ability to sell that or monetize it if you so desired and I was curious whether that remains as strategic of an asset as I believe it previously was, given rumors you and News Corp. may go separate ways on a bid for GMH.

Second I was wondering if you could comment on what your plans are with all the international assets you currently have that are private. Seems you've been increasing your equity in a lot of them and a year ago you planned on issuing the international tracker but in this environment that probably wouldn't go over well in the market. I'm wondering what your plans are for them in order to highlight their value and whether or not united global com remains kind of your public international focus at this time?

Yeah, News Corp., I would say we continue to view as a strategic asset we're the largest shareholder there. And we think they have a very compelling strategy. The world is a little bit of a small place and it's not uncommon for us, we don't necessarily have identical agendas every place. We've worked well with News Corp. over the years and have been partners with them but have also been competitors.

So we'll see how that plays out. But I don't think that affects our view of our News Corp. holding as a strategic holding.

On the private and international assets, it's really a case by case basis. We're very pleased with the way the Japanese market is evolving and we would welcome opportunities to increase our ownership there. I just addressed Latin America a while ago. Yet we have looked at an international tracker and I guess that's still something that's a potential out there. It's not something we're working on in the near term. But it is something that is always possible if we felt that would be a better way to reflect the value and create value for shareholders. But at the moment it's not a current consideration.

As far as your commitment to United Global Com, that company as opposed to the UPC subsidiary - and also I wondered if could you comment on what your intentions are with Liberty Satellite, given the dividends you've been paying is currently put your ownership at close to 90% and it seems if you're not going to do anything with it might make some sense to roll it in as you attempted to do a year ago

We own 75% of UGC. And we've been as supportive as we can be in trying to help them work their way through the UBC restructuring. I don't see any reason why that would change. They're just about done with UPC and we'd like to see that get accomplished and then see them go forward and prosper. So I think we're fully supportive of what they're up to and I don't see that changing.

I'll let Gary answer your L Sat question

We're looking at the structures and sorting out the assets in there and we'll see what happens, what evolves, if I understand your point.

Great. Thank you very much

Our next question comes from Sid Carney (ph) from Royal Capital.

It's really Rob Midway (ph) from Royal Capital. Question on you were private assets, Starz Discovery and QVC and another question about buy back authorization.

What is the, you've given us the cash flow in the debt levels. What is the capital expenditures you invested last year in your private businesses and what are you thinking you're going to invest in them going forward and how much is left on your buy back authorization to buy back Liberty stock?

I'm not sure I have all those answers at my fingertips. Starz -- Bill, can you -- it's de minimis.

De minimis capital from an investment side on Starz and we don't take any funding from --

And no funding whatsoever. Discovery, certainly no funding from us. I don't know what your capital was last year, Barb.

It was de minimis.

The major capital consumer has been J-Com, which was about 400 million last year. With the financing we have in place we expect to be able to fund through that bank financing their capital this year and on through cash flow positive there.

On the buy back authorization, we have current authorization for about a billion dollars worth of shares.

Okay. And on the -- just one follow-up on the Discovery side, their retail at the consumer end there's no capital expenditures last year on that?

There was some capital investment in terms of inventory change out, but we were starting to do that at the end of 2000. In terms of the cash flow from the U.S. nets, for the total company we were roughly cash flow positive other than debt service. So the other parts of the company have been able to cover what the retail businesses needed to use up.

Thank you

We'll move on to Matthew Harrigan (ph) from Janko (ph) Partners.

Couple questions. Rob asked about the financial (inaudible) at L Sat, but given Direct and given your investment at Wild Blue (ph), can you talk about how you see the technology hardening for satellite data and the economic template as well? Do you think that's still going to be a viable business, 18 months out when Blue gets started? And also, Discovery's appeal is pretty ubiquitous, (inaudible) and Saudi Arabia and China and all that. I know the international guidance is affected by some free carriage agreements and by some currency movements on advertising, but can you comment broadly on how weak you see the overseas ad market because it's really flipped around relative to your domestic performance. And then lastly is there any deviation in the guidance on the amortization of loss payments from what Bob outlined when you announced the EITF 109 adjustment.

Sorry.

Barb, can you answer the international one?

Could you repeat the question?

Just your advertising -- I know you have some local currency issues, particularly in Latin America. I know you've got some issues with free carriage in Asia how broadly do you see the overseas ad market. Looks like you're seeing states a lot stronger given your guidance although there's some noise in guidance from what we just talked about

No, the ad market overseas certainly has not been involved to the extent it has been in the U.S. Certainly as the U.S. is experiencing the slow down in '01 in the first quarter of '02, the European and well mainly the European markets also showed some slow down but not nearly as severe. We are looking at seeing some good increased from '03. And just about every market. Latin America would be a little bit more challenging, only just because of the economy challenges that they're having there. So but we are most definitely looking at increases. And again not as extreme as what the U.S. is seeing. But certainly in the same direction.

Thanks.

Gary.

With regard to Wild Blue, we've talked about L SAT is a part of a group of primarily street investors who are reinvesting in Wild Blue and projects (inaudible) launch I believe at the end of this year and service would start the first part of next year. And I think that everything that we've seen, given the growth of broadband on the cable side, we think that broadband in the satellite side Wild Blue structure could be an exciting place. We still have plans to launch at the end of this year and we're going through regulatory approvals now.

Thanks, Gary and the last ugly question on the launch payments, it could affect the EBITDA growth at Discovery a lot. Is there a big movement in amortization this year relative to '02?

Actually, the amortization is staying pretty stable. Grows a little bit. But the launch payments, the cash is actually declining. So we're actually in a position where because of amortization we see that staying fairly flat. But seeing an actual cash pick up because we're just not having to spend the cash invested.

Thank you for your tolerance on the questions.

No problem.

I think we'll take one last question.

Our last question comes with a follow-up from Niraj Gupta with Salomon Smith Barney.

I have six follow-up questions.

My question has been answered. Thank you.

Great.

Good night.

Best question. Thanks, Niraj.

There are no questions in our queue at this time.

Thank you all very much for joining us today. Good-bye.

That does conclude today's conference call. Thank you for your participation.