QVC Group Inc (QVCGA) 2008 Q4 法說會逐字稿

Good day. Welcome to Liberty Media Corporation quarterly earnings conference call. Today's call is being recorded.

This presentation includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches and other matters that is are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

These forward-looking statements speak only as of the date of this presentation and Liberty expressly disclaims any obligation or undertaking to disseminate any revisions to any forward-looking statements contained herein to reflect any change in Liberty's expectations with regard to, with regard there to or any change in event, conditions or circumstances under which any statement is based.

Please refer to the publicly filed documents of Liberty including the most recent Form 10-K for additional information about Liberty and about the risks and uncertainties related to Liberty's business which may affect the statements made in this presentation. On today's call we will discuss certain non-GAAP financial measures, the required definitions and reconciliations can be found at the end of this presentation which is posted on our web site.

At this time for opening remarks and introductions I would like to turn the call over to the President and Chief Executive Officer, Mr. Greg Maffei, please go ahead, sir.

Thank you. And thank you all for joining us this morning and your interest in Liberty Media.

Today we are going to talk about the year overall and review the quarter by tracker. We are also going to discuss the operating performance at the subsidiaries we control. We will cover some of the transactions we went through in Q4 and subsequent to the quarters end and some other developments that we've had ongoing. With me are, our Controller, Chris Shean who will discuss our attributed businesses financial results and liquidity picture for each of the three trackers, QVC's CEO Mike George will discuss the development at QVC, Starz CEO Bob Clasen who will review recent events at Starz. Also on the call and available are QVC's CFO Dan O'Connell, Starz President and COO Bill Myers and Starz CFO Glenn Curtis and several other senior Liberty executives. As I said, all will be available at the end to answer questions after the prepared remarks.

No surprise that 2008 was a volatile year for Liberty, as it was for literally all the businesses in the United States and perhaps the world. All of our equities were significantly affected, though some less than others. We are working on the factors that are under our control in terms of reducing risk, reducing costs, maintaining liquidity and maintaining flexibility. And I think we made good progress on several fronts, particularly in light of the financial environment, the retail environment, and we are happy with that progress.

At Liberty Interactive we worked to increase liquidity, we drew down on our bank facility, we changed the attribution of the Viacom exchangeable debt which added its fair value for that debt, $380 million in cash to Liberty Interactive. And we continued the process of selling some of our high basis, nonhigh vote our low vote shares at IEC. We reduced debt at Liberty Interactive, by repurchasing our senior notes, by about $1.4 billion. On average we paid about $0.86 for those and that's going reduce our interest expense going forward because we pay less on our borrowings there under the bank facility than we do on that straight debt.

Our e-commerce companies continued to do well in a tough environment. They are focused on the interplay between content, community and commerce, and that has worked well for them. We completed several fold-in acquisitions including companies like commerce excuse me, Grid Envelope and Celebrate Express. And we had success as we rolled out new ODAT's, one deal at a time, in that business including Way Cheap, Chain Love, and other new ODAT's that we have.

QVC, obviously the largest element in that Liberty Interactive business continued to generate significant levels of adjusted OIBDA and free cash flow in a difficult environment. QVC Japan in particular had continued its recovery from the health and beauty regulation enforcement of 2007. It posted strong operating results.

Turning now to Liberty Entertainment at the highest level we obviously introduced the tracker back in March, and announced the split off of the majority of assets and liabilities the reconstituted the split off in December. Last month, we filed the required docks documents with the SEC, IRS and STC to proceed with this split off. Some of that and to note the serious investment that we have made and our proposing to make further will not affect the timing of that split off.

During the course of 2008, through our own actions and share repurchase by DIRECTV we increased our stake from 41% of the economics at DIRECTV to approximately 54%. In addition as you may recall we are at 48% of the votes under a stenciled agreement with the Company. As I mentioned, our stake went up both through the repurchase by DIRECTV. They continue to remain a significant free cash flow generator and a relatively under leveraged something like 0.6 net leverage on a pro forma basis Company. And they are, have announced an extension of their buy backs. So we will expect our share will continue to increase our economic stake.

But in addition we did through our own transaction purchased about 78 million shares at a low cost collar, with attractive financing that looks particularly low cost and attractive today. So those combinations have driven up to 54 and with their announced repurchase extension we expect to go higher. We continue to remain very pleased with that Company and with the swap we did with News Corp. on a mark basis given both their strength and the relative weakness of News Corp., we are ahead by something like $8 billion, as well as increased basis, strategic flexibility, and other valuable elements.

As I noted, DIRECTV continues to perform quite well, Starz Entertainment also performs well in a challenging environment, seemingly affirming the thesis that subscription businesses are more recession resistance than some of our other businesses. At Liberty Capital we bought in 33.2 million shares, that's about 26% on a cumulative basis of all the shares that were outstanding at the time that tracker began trading. Just last month, this month rather we announced also that we would be extending $530 million in loans to SIRIUS XM. We think that's a good deal for Liberty Capital as well as for SIRIUS XM.

We like the fundamentals of the satellite radio business. We like the management team. We like the fact they have been able to grow subscribers even in a very difficult financial and auto environment. And we are optimistic about the position we have which is a secured senior debt position and the upside we have with approximately 40% of the Company in the form of warrants. So we think there's relative safety in our capital and upside for our shareholders. We are working diligently to complete Phase II of that transaction which we will actually receive that 40% of the equity and home hope to have news on that in the coming weeks.

With that high level view of the year and quarter, let me turn it over to Chris to talk about the financial results at Liberty Interactive.

Thanks, Greg.

Liberty Interactive groups revenue decreased 4% to $2.38 billion in the fourth quarter, and increased 4% to $8.08 billion for the year, while adjusted OIBDA declined 21% to $432 million for the quarter and 8% to $1.56 billion for the year. QVC is the primary driver of results amongst the Liberty Interactive attributed assets continues to operate in a challenging retail environment, and its total revenue decreased 8% in the fourth quarter to $2.14 billion and 1% to $7.3 billion for the year. While adjusted OIBDA decreased 22% to $416 million in the fourth quarter and 9% to $1.5 billion for the year.

Liberty Interactive other e-commerce businesses which include Provide Commerce, Backcountry.com, Bodybuilding.com and BUYSEASONS again posted strong financial results and continue to grow at a rapid pace. In total our e-commerce businesses experienced revenue growth of 65% in the fourth quarter and 92% for the year. Adjusted OIBDA grew 19% in the fourth quarter and 78% for the year. The increase in revenue for the quarter was primarily driven by the impact of Bodybuilding.com acquisition which happened at the beginning of, at the end of 2007 and strong organic growth at the other e-commerce companies.

The increase in revenue for the year was due to the same fourth quarter factors as well as the inclusion of a full year of results for Backcountry.com. The increase in adjusted OIBDA for the quarter was due to organic growth at certain of the e-commerce companies and the Bodybuilding.com acquisition. The increase in the adjusted OIBDA for the year was due to the organic growth at most of the e-commerce companies and the Backcountry.com and Bodybuilding.com acquisitions.

Now turning to QVC, their 2008 results. Its consolidated revenue declined 1% for the year to $7.3 billion while adjusted OIBDA declined 9% to $1.5 billion. Domestic revenue decreased 6% during 2008 to $4.91 billion, as the mix of products sold shifted to beauty from the jewelry area. The average selling price increased 4% while total units shipped declined 8%. 2008 domestic adjusted OIBDA decreased 14% to $1.07 billion, while the adjusted OIBDA margin decreased 210 basis points to 22% primarily due to lower gross margin percentages as a result of lower initial product margins across all product categories, higher inventory obsolescence and bad debt provisions as well as not achieving leverage on our fixed cost base.

These decreases in adjusted OIBDA margin were partially offset by an increase in QCard income and a decrease in marketing expenses. QVC.com sales continue to grow as a percentage of overall domestic sales rising from 22.2% in 2007 to 25.3% in 2008. International revenue increased 9% to $2.39 billion during the year while adjusted OIBDA grew 6% to $432 million. Revenue growth was due to sales growth in all international markets, in addition to favorable foreign currency exchange rates in Germany and Japan. Adjusted OIBDA margins declined 58 basis points primarily due to lower initial product margins and higher commission costs as the percentage of net revenue due to new fixed rate agreements in the UK and Japan.

In 2008, QVC, UK local currency revenue increased 2% on a 2% growth in units. In Japan, QVC experienced 11% local currency revenue growth with a 17% growth in units. QVC Japan has continued to successfully show gain in jewelry and apparel and shift away from the health and beauty products due to the heightened regulatory focus on those products that began in 2007. In Germany our business experienced revenue growth of 3% on a local currency basis and 6% on a 6% growth in units.

Now we will review QVC's results for the fourth quarter. Consolidated revenue declined 8% to $2.14 billion while adjusted OIBDA declined 22% to $416 million. Domestic revenue decreased 12% during the fourth quarter to $1.48 billion as the mix of products sold shifted from jewelry to beauty and to a lesser extent home products. The average selling price increased 3% while total units shipped declined 12%.

Fourth quarter domestic adjusted OIBDA decreased 29% to $282 million while the adjusted OIBDA margin decreased 459 basis points to 19% primarily due to lower gross margin percentages as a result of lower initial product margins across all product areas, higher higher inventory obsolescence and bad debt provisions, as well as severance costs and not achieving leverage on our fixed cost base. These decreases in adjusted OIBDA margin are partially offset by an increase in QCard income, and a decrease in marketing expenses.

QVC. com sales continue to grow as a percentage of overall domestic sales rising from 22.5% in 2007 to 27.8% in the fourth quarter of 2008. International revenue for the quarter decreased slightly to $655 million including the impact of unfavorable foreign currency exchange rates in the UK and Germany, while adjusted OIBDA decreased 1% to $134 million. Adjusted OIBDA margins remained flat in the fourth quarter.

In the fourth quarter QVC UK local currency revenue decreased 4% on a 6% decline in units. In Japan QVC experienced 19% local currency revenue growth, continuing the double digit quarterly sales growth from the second quarter of 2008. Units shipped in Japan were up 22% for the quarter. In Germany our business experienced revenue growth of 6% on a local currency basis with a 10% increase in units shipped.

Now with that I will hand it over to Mike George for additional QVC comments.

Thanks, Chris. QVC was obviously impacted by the same economic challenges all of the other retailers faced in Q4. So it was a tough quarter for us. However we feel good that we responded early and aggressively to the consumer spending slow down. And we do feel that we are well positioned to ride out this economic storm and emerge in a stronger competitive position.

In the US our sales declined 12%, jewelry and apparel were our most challenged categories as they were all year. Although we saw generally soft results across most categories, beauty was the one exception. That business continues to be very strong for us. Most of this decline, if you look at it from a customer perspective was driven by core customers purchasing at a slightly lower frequency, which I think reflects their, their caution in this environment. It was not primarily driven by a reduction in new customers or by customer defection. So we do think that our customer purchasing funnel remains fundamentally healthy.

Our adjusted OIBDA declined by 29%. That decline was driven by several factors. The reduced mix of higher margin categories like jewelry, accompanied with a somewhat higher take rate on our more promotional like today's special value drove 170 basis point decline in initial product margins. We also saw an increase in markdowns in the quarter, as we tried to keep our inventories clean. But that increase in markdowns had a relatively modest impact on the total margin.

Our gross margins were also hampered by a 65 basis point increase in on obsolescence rates as our liquidation activity increased. That said, we are pleased with how we ended the quarter on inventory. We were able to reduce inventory levels from their September peak at twice the rate of reduction that we experienced in the prior Q4. And while both liquidation and markdown rates were up in the quarter, in total our combined markdown and liquidation activity represented only 5% of sales, which is obviously well below the level most retailers experienced in Q4. And we are maintaining a very conservative posture on inventory receipts as we go into 2009.

We also saw a significant increase in our bad debt rate up 83 basis points. We continue to monitor bad debt levels carefully and we are taking appropriate actions to constrain credit lines and improve our ability to collect on our receivables. Our write off rate on the QCard, which is our proprietary credit card was 5.95%. That is up from 3.96% in the prior year. So bad debt clearly is rising. However, I'd emphasize that our write off rates even at 5.95% are way below those of most other retailers. That reflects our historically conservative posture to issuing credit, and the strong loyalty of our customers who want to keep those cards current.

We continue to be very diligent in the management of our expenses and we took some difficult actions in November to prepare for what we with expected would be a challenging 2009. As you may recall we announced layoffs of approximately 900 associates in November, including about 150 in our corporate and site staff and about 750 related to the closure of our Westchester customer service center and the down sizing of our Westchester jewelry distribution center. Along with other expense actions we took, these initiatives resulted in a $30 million to $40 million reduction in our 2009 forecasted operating costs. We did incur about $10.4 million of severance costs in Q4, and will incur another $2 million or $3 million of severance costs in 2009 related to these actions.

Now despite our disappointing sales results we do believe our customers are responding to our initiatives to offer compelling products, entertaining lifestyle programming, and great values. We had many successful brand launches in the quarter, including American Girl Dolls and Rachel Ray cookware, and our "12 Days of Christmas" sweepstakes where we gave away one Smart car everyday, brought added viewership and attention to our brand. Our efforts to pass along savings we received from our vendors in the form of special Holiday price breaks drove incremental revenue. And we launched the most comprehensive makeover of our sets in 12 years to strong customer reviews.

Our focus on strengthening our QVC.com platform is also paying off. As Chris mentioned, our Internet sales as a percent of total sales were 28% in Q4. That is up 5% from the prior year and it is by far our steepest one quarter gain in Internet penetration. So we think we have a lot of momentum in that platform. These efforts continue into 2009. Already this year we have garnered great media interest and strong viewership for several break through programming events including celebrating New Year's Eve in Vienna, broadcasting from Washington for the inauguration, conducting a live runway show under the tents in Bryant Park for fashion week and broadcasting live from LA with Ellen DeGeneres on her set.

And just last week we had an exclusive world wide launch on the new Dell Mini before even Dell.com had it garnering strong media attention and terrific sales. So we recognize we have an uphill fight against this declining consumer spending in the industry. But we do believe this focus on elevated programming, great brands, and great values will allow us to hold our own and likely gain market share without resorting to the kinds of deep markdowns we are seeing at traditional retail.

Now let me turn to international. Japan continued its strong turn around. We fully anniversaried the impact of the heightened health and beauty regulations early in Q4 and the teams efforts to build their fashion and jewelry business to offset declines elsewhere paid off with a 19% increase in revenue and an 18% increase in adjusted OIBDA and local currency. However, we also recognize that the Japanese economy began a sharp decline in Q4 and so we are monitoring the business carefully in the face of deteriorating economic conditions and will make adjustments as necessary should those conditions impact our business.

We were pleased with the progress in Germany which posted one of its best quarters in years with a 6% revenue increase in local currency driven by strong growth in both beauty and electronics and a 16% increase in adjusted OIBDA. That OIBDA margin improvement was driven principally by a significant decline in inventory levels versus the prior year, as we focused to get the inventories clean and that resulted in a highly favorable obsolescence rate. We also were very aggressive in the management of our operated expenses.

Now, I will say that despite these overall positive results our sales in Germany were bolstered to some extent by increased mark down activity as we worked to clean up the inventory. So while we are encouraged by the progress in Germany I don't want to over state where we are in the turn around. We still have challenges in front of us to get that business operating as consistently as we would like it to be. But we believe we are on a solid track.

Our UK business had a challenging quarter as they felt the full effects of the economic slow down as well as the impact of highly unfavorable exchange rates. Their revenue declined 4% in local currency driven in part by softness in the jewelry category and with their today's special value offerings. The UK was especially hard hit on the profit line with adjusted OIBDA falling 20% in local currency. The biggest driver of this decline was the impact of the strengthening dollar. The unfavorable FX impact resulted in a 200 basis point gross margin decline as much of our product is purchased in dollars and we were unable to pass the rising cost of the dollar along in terms of higher pricing to customers. So it resulted in an unfavorable gross margin variance.

So while these FX issues had a real impact on the quarter and those challenges will likely continue through at least the first half of '09, we don't think the margin weakness in the UK suggests any fundamental long term issues as much as it is a temporary challenge of adjusting to fairly rapid movements in the exchange rates. We are also continuing to progress on the launch of the Italy market which we announced last fall. And we expect to meet our October 2010 launch timetable.

Finally, we kept a tight lid on capital spending throughout the year and ended 2008 with total capital spend of $143 million. We expect capital spend for 2009 to be in the range of $160 million to $180 million. We have focused that spend on high value ROI positive initiatives including new e-commerce and CRM platforms, And the consolidation of our SKU intensive fashion and jewelry businesses into our Florence distribution center which will be a state of the art DC that will help us reduce processing costs and consolidate orders for our customers. That said we are also prepared to pull this capital spend down should business conditions materially deteriorate.

In closing as we look at 2009, as I said at the outset we believe we are prepared for whatever the economy brings us. We have reduced operating expenses in all markets and we are prepared to flex down those costs and our capital spend further if needed. Overall we are comfortable with our inventory levels, and we are maintaining a tight control on new inventory receipts. We are managing our bad debt exposure tightly as well.

And while the weakness in consumer spending in all markets will continue to create sales challenges, we do feel confident that the actions we are taking, expanding the range and diversity of our brand and product offerings, bringing entertaining lifestyle programming to our viewers from Ellen DeGeneres to Elisabeth Hasselbeck and Rachel Ray and remotes from around the world, our efforts to expand our multimedia footprint through new web, mobile and social networking applications, we believe all of those initiatives will help us gain share from our brick and mortar competitors.

And with that I will turn it back to Chris.

Thanks, Mike. Now let's take a quick look at the Liberty Interactive liquidity picture.

At the end of 2008, the group had attributed cash and public investments of $2.5 billion and $7.6 billion in attributed debt. During the fourth quarter, as we had mentioned earlier we had changed the attribution of the long term exchange bowl Viacom debt in cash from Liberty Entertainment to LINTA. This change in attribution provided $380 million of cash while adding $551 million face amount of debt to LINTA. We further increased cash through our sales of IEC shares however, the fair value of our public holdings did decline to 80 -- declined by $827 million with the overall declines in the market. During the quarter we successfully completed two tender offers which reduced the balance of our senior notes at LINTA by $1.4 billion.

Moving on to Liberty Entertainment. Attributed revenue grew 26% in the fourth quarter to $360 million and 22% to $1.39 billion for the year, while adjusted OIBDA increased 143% to $107 million for the quarter and 27% to $324 million for the year. The increase in revenue and adjusted OIBDA for both periods was due to the addition of the Liberty Sports group which was acquired in February 2008 as part of the News Corp. exchange. And growth -- organic growth at Starz Entertainment.

Taking a closer look at Liberty Entertainments principle consolidated subsidiary, Starz Entertainment, its revenue increased 8% in the fourth quarter to $285 million and 4% for year to 1 -- $1.11 billion. The increase in revenue for both periods resulted from an increase in rates, and the growth in the average number of subscription units. Starz and Encore's average subscribers increased 7% and 8% respectively during the year. Starz adjusted OIBDA increased 69% during the fourth quarter to $81 million and increased 14% for the year to $301 million.

Operating expenses decreased 6% for the quarter and increased 1% for the year. The decrease for the quarter was due to decreases in programming and G&A expenses partially offset by increased marketing costs. The increase in operating expenses for the year was driven by increased marketing and advertising costs related to Starz new branding campaign and support of the new Starz original "Crash" and an increase in marketing support. These increases were partially offset by lowering programming costs which decreased from $656 million in 2007 to $629 million in 2008.

Also in the fourth quarter Starz Entertainment recorded a $1.24 billion goodwill impairment as part of its annual FAS 142 analysis. And this was principally due to the current economic conditions and its overall market effect on valuation multiples, which caused the triggering event. I will point out that the large charge was caused by the step two portion of the test, which required significant amounts of value to be attributed to other intangibles rather than goodwill. And therefore when you compare the implied value of the goodwill under the step two test to the recorded amount, that is what drove the large portion of the charge.

At quarter end, excuse me. Let's look at the Liberty Entertainment liquidity picture. At quarter end, L Media was attributed with approximately $12.8 billion of public investment. In addition to public holdings Liberty Entertainment had attributed cash and liquid investments of $807 million at quarter end. Total cash and public holdings approximated $13.6 billion well in excess of the $2 billion face amount of the attributed debt.

Now, I will turn it over to Bob Clasen who will comment on Starz Entertainment and media.

Thanks, Chris. No Company can claim to be immune to the economic downturn, but the fourth quarter results for Starz Entertainment demonstrate that at least so far, subscription television providing low cost entertainment for the family has held up reasonably well. Our home video business has been more vulnerable to the worsening economic conditions, however and we have seen announcements by other media companies of negative results and in particular the decline in DVD sales.

On the theatrical front, Overture Films in its first year released eight films with three actors earning Oscar or Golden Globe nominations and finished 11th among all studios in terms of box office for the year. However, the overall performance of Overture Films for the year fell short of our projections and Anchor Bay Entertainment strong sales of the Overture Films movies partially offset weakened sales of catalog product.

Starz Entertainment enjoyed another quarter of solid growth. Subscriptions to our Starz service increased by 1.4 million in 2008 and perhaps more importantly, in this time of economic decline added 300,000 subscribers in the fourth quarter. Encore also continued to grow adding one million subscribers in 2008 and 100,000 in the fourth quarter. Much of this growth came with the continued roll out of video services by the telephone companies, where the penetration for our networks, particularly Starz, is considerably higher than it is with the cable or satellite.

For the year, we generated revenue of $1.11 billion versus $1.07 billion for the prior year. Adjusted OIBDA for the year improved to $301 million from $264 million in 2007, largely driven by the decline in the cost for films. For the quarter, we generated $285 million in revenue up from $265 million in the fourth quarter of 2007 and $278 million in the third quarter of 2008. In the fourth quarter of 2008, adjusted OIBDA was up, was $81 million up from $46 million in the fourth quarter of 2007 and $78 million in the third quarter of 2008.

On the ratings front, Starz finished the year tied with HBO for ninth place in total day ratings among the 82 networks rated by Nielsen in television households with all premium services. We continue to be among the top rated networks in the On Demand arena. Our strategy to invest in original programming continued to move ahead in the fourth quarter. In October we premiered our first hour long dramatic series, Crash coproduced with Lions Gate. The series held the audience well versus the programming that had appeared previously in the same time slot and generated wide spread publicity as well as promotional co-ventures with most of our major affiliates. Yesterday with announced that we will air second season of Crash later this year.

Also in the fourth quarter we made three original programming announcements. Another season of the half hour comedy Head Case with line up of guest stars including Jerry Sienfeld and Hugh Hefner. A second half-hour comedy, Party Down, produced by Rob Thomas, about the antics of out of work actors employed by a Los Angeles catering company. And finally plans to produce and televise a new hour long dramatic "Spartacus" from producers Sam Raimi and Rob Tapert. The series will make use of some of the cinematic techniques that were employed in films such as Sin City and the 300 and will, we expect have strong appeal to the male 18 to 34 demographic. This will be the first dramatic series for the Starz channels, produced by Starz Media for which we will hold all rights.

This line up of exclusive originals will enable us to differentiate our network to create a library of programming that we can air on the Starz channels and to monetize the productions by selling the programming in home video and domestic and international syndication. Looking ahead. A decline in programming costs may be slowed by the recent announcement of Disney, where they have reached an agreement to distribute six films per year from Dreamworks. As a result of this arrangement the number of qualifying films that Starz is required to take from Disney may increase starting in 2010.

We also extended our agreements with Sony Pictures. This agreement combined with the out put product from Overture Films, will provide us with the strong line up of content well into the next decade. On the affiliate front we signed an extension of our agreement with Time Warner Cable which will provide for the roll out of Starz On Demand to all of the Time Warner Cable systems this year. Time Warner had been the only major cable operator that had not offered Starz On Demand to its customers.

Turning to Starz Media we generated an adjusted OIBDA loss of $189 million for the year on revenue of $321 million. This compares to the 2007 adjusted OIBDA loss of $143 million on revenue of $274 million. The losses are due to continued investments in the production and distribution of programming that will not realize its full revenue to potential for several years. Overture Films in its first full year of operation release eight films, including The Visitor, which earned a best actor Academy Award nomination for its star Richard Jenkins and Last Chance Harvey which garnered Golden Globe nominations for Dustin Hoffman and Emma Thompson.

Several Overture Films streeted to home video and premiered on pay per view in the quarter and generated strong sales. Mad Money, the first of the Overture theatrical release premiered on the Starz channels in October to a solid 2.4 rating. In October, we announced the formation of Anchor Bay Films to produce and acquire eight to ten films per year for limited theatrical release followed by home video distribution. In January, Anchor Bay Films announced the acquisition of the Sundance Festival comedy hit "Spread", starring Ashton Kutcher. Anchor Bay focused a large part of its efforts on the home video sales of Overture movies.

In nontheatrical arean however, Anchor Bay titles captured three of the top 10 slots in the fitness DVD category and increased fitness net sales by 23% in 2008 versus the prior year. Tale of Tails, the first of the DVD releases based on the "Wow! Wow! Wubbzy television show, debuted at number four in the children's non-theatrical unit sales. Turning to Starz Animation, in the fourth quarter saw the release of the DVD of "Space Chimps" our G-rated feature film that was in theaters during the summer. Our Toronto studio was in production on three movies for other US major theatrical distributors.

Film Roman continued to produce the Simpson's, its 20th season and King of the Hill and was in production on new Marvel series and another for ABC. "Wow! Wow! Wubbzy" is in season two on Nick Jr. where it ended the year as the second highest rated show. This should help with 2009 sales of both DVDs and licensing and marketing for this hit children series.

2008 was the first year in which we were able to see the first results of our strategy of audience aggregation. These early results have been extremely gratifying as the first films were released theatrically by Overture, taken to home video by Anchor Bay, aired on the Starz channels and sold into pay per view and television syndication via our own in-house sales teams. This enables us to achieve two objectives. First to monetize the programming across multiple platforms, using our own in-house distribution and sales units. And second to build a library of films and original series that we can use in a variety of ways, for as long as they will draw audiences.

And now I'll hand it back to Chris.

Thanks, Bob. Let's take a look at Liberty Capital.

During the quarter Liberty Capital revenue increased 44% to $131 million, while adjusted OIBDA deficit decreased 20% to $106 million. For the year revenue increased 27% to $617 million and the adjusted OIBDA deficit increased 40% to $294 million. The increase in revenue for both periods was primarily due to revenue growth at Starz Media from theatrical releases and the inclusion of a full year of operation of the Atlanta Braves. The increase in the adjusted OIBDA deficit for the year was due to marketing and advertising costs associated with these film releases and the full-year inclusion of the Atlanta Braves.

From October 30th, 2008 through February 24th, 2009, Liberty repurchased 1.6 million shares of series A Liberty Capital common stock at an average price of $11.51 for total cash consideration of $18 million. Now I will point out that the majority of these repurchases were through physical settlements of put options that were written in mid 2008. Cumulative for 2008, Liberty has repurchased 33.2 million shares at an average cost per share of $14.37 for total cash consideration of $478 million which represent 25.7% of the shares outstanding.

Now let's take a look at Liberty Capital liquidity. The Liberty Capital Group has attributed cash and public investments of $5.4 billion and attributed debt of $4.95 billion. This cash and public investments figure excludes $104 million of Liberty Holdings in the reserve primary fund. Last week we received a $35 million distribution from the fund and the current balance outstanding is approximately $69 million. We believe we will receive additional distributions from the fund but timing is uncertain. Assets, we have reclassified this amount from cash into short term investments.

With that said I will now turn the call back over to Greg.

Thanks, Chris. And thank you, Mike and Bob for your updates on your businesses.

Well, looking at 2008, no surprise for us, as many others it was extremely challenging. In light of the unpredictable economic environment. Nonetheless, we continue to focus on as Mike outlined cutting costs at QVC and growing in the face of that environment our e-commerce businesses which like our other subscription businesses continued to perform well. It is certainly hard to know when economic conditions will improve. We are not betting on that. We are trying to manage for the long hall in the face of difficult conditions.

Entertainment as you know we announced the split off of the majority vast majority of LVI, we hope to get that done in the coming months. We increase our stake in Direct as noted, and we had good operating performance at those subscription businesses. At Liberty Capital we focused on shrink and to rationalization as we will ahead.

Looking at 2009, at Interactive we are focusing on the operations first and foremost, running the business efficiently, thinking of creative ways to maintain and grow revenue. Looking at Internet and digital expansion in a cost effective manner. We will be opportunist on small acquisitions as we were in 2008 with Red Envelope and Celebrate. And we think more of those may become available. We are focused on liquidity and our capital structure. We note the covenants that we have at the QVC bank debt. And we are working on the 2011 maturities and plan to make sure even in light of the fact that they're more than two years away that we are prepared to handle them and believe we will be.

At Liberty Entertainment, we are going to focus on that, getting the split off done, and other ways to maximize shareholder value in particular reducing the discount to NAV at Liberty Entertainment. At Liberty Capital, we will continue try to monetize our noncore holdings in a tax efficient manner. Frankly, taxes have become less of an issue, given the relatively low prices that they are at today. We will look to effectively deploy capital in situations like SIRIUS XM and if we see them . But we will also look to reduce our debt, shrink our equity and other ways, maximize our NAV. We also traded an enormous discount to NAV at Liberty Capital, and we are focused on ways to reduce that.

So, thank you for your support and interest in Liberty Media, and with that operator, we would be happy to turn it over

Yes, certainly sir. (Operator Instructions). We will pause just a moment to assemble the queue. We will take our first question from Doug Mitchelson from Deutsche bank.

Thanks very much. Just a few quick questions, one any chance you can give us what the RSN's EBITDA might have been for the full year 2008 if you owned them the whole year? Second, I'm curious what you wrote the value of Starz down to, what do you think Starz is worth right now? And lastly any chance you can fine tune the split off timing? You have been saying May-June, are we still on track for that, any closer on timing would be helpful. Thank you.

Okay. So on the first one, I will handle the the second one first and I'll come back to the first. The second, third and then the first. On Starz, let's be clear. What we wrote down has not any implication per se on what we think the business is worth. There are a strict series rules and tests which are triggered based on market multiples, projected cash flows and the like which don't necessarily suggest what we think the business is worth. So I will make that point and let Chris, if he wants to add anything on that, Chris Shean our Controller if he wants to add anything I will come back to that.

On LMDA timing, we are May-June, affirming and that is about as precise as we think we can be. Obviously there are factors which are in our control and other ones in which we are reliant on estimates of third parties and those seem like reasonable estimates. Do you want to comment on Starz?

Yes and the RSM's as well. I guess the RSM's sort of on a pro forma basis, EBITDA would be about $33 million for 2008. On the Starz thing, the biggest part of the charge actually is the second part of the test. I mean the first part is compare estimates of fair value of equity to your carrying value of your equity. And if you fail that test by $1 then you go to the second part of the test, which is you take that fair value that you just came up with and you do a hypothetical purchase allocation as if you had bought the Company at that price.

And you go through this purchase allocations, you allocate to all of the assets and liabilities of the Company including intangibles, other intangibles. And in this case, all of Starz's legacy intangible balances for affiliation agreements had been fully am tied through the years. So when you do through this hypothetical exercise and you allocate to these other intangibles there's very little leftover to allocate to goodwill.

So then you compare this implied goodwill balance to what you actually have on the books which in our case was $1.3 billion and thus you end up with a very large charge. So that's a little bit more color and probably more accounting speak than anybody wanted to hear but that's what drove the charge.

So, bottom line, Greg is your future view on the cash flows that Starz can produced haven't changed?

No. Starz's cash flows have been very strong. I think we bottomed out at 175 post our Comcast renegotiation and even below 150. 175 in my tender, Bob Clasen is rightly pointing out before I got here, actually it was 150. And we did 301 on our way to double digit sort of 20 -- 20% type growth we project this coming year we think that as business are growing well in entertainment and are excited about them and these accounting tests have relatively little to do with that.

Thank you.

And we will move to our next question Vijay Jayant with Barclay's Capital.

Hi. It is James Ratcliffe for Vijay. Had two on LMDIA and one on LCAPA. On LMDIA after LEI spins, what are your thoughts on the stub? Does it make tense to be stand alone or should it really be rolled back in? And secondly is there any tax or regulatory restrictions on announcing the terms of a LMDIA DTV deal before the entertainment spin actually takes place? And on LCAPA with a lot of liquidity now you the Sprint hedges maturing in 2009, 2010, you mentioned sort of a number of possible options. Can you talk about how you think about using that liquidity among acquisitions, share repurchase or maybe buying back some of the exchangeable debt? Thanks.

So, on the LEI spin, what happens to what effectively will be Starz cash and the wild blue equity, we will see where it trades. We have no announced plan. It will be a relatively small public Company. It will be a relatively hard to know what its strategic direction is. We think there are a lot of positive things happening at Starz, but we will see whether that should ultimately be a publicly trading tracker or whether it more appropriately belongs recombined in some way. Stay tune. No decision.

On a question of could you announce merger terms with DIRECTV prior to completing the spin? I believe you could. You would be be subject to to insure a nontaxability a whole bunch of tests probably the most important of which is [Morris Trust] which would say our shareholders have 51% in value in any post spin merge combination. Albert [Rosenthal] is giving me the nod that's the correct -- I have got that right.

And we are very cognizant of that but frankly if you look at the economic value in any kind of combination we probably would not accept any deal that had less than 51% of vote and value. So that probably is not a restraining factor as a practical matter. Last question on Starz we will have a fair amount of liquidity at Starz. We have a fair amount of liquidity now.

LCAPA.

I'm sorry, LCAPA, we do at Starz as well but I mean LCAPA. Thank you.

And the Sprint collars maturing will only further enhance that. We will look for deals like SIRIUS XM. We will consider share or debt repurchase. We are noteworthy of the five and five deal that got approved in the stimulus bill that for five years you will not recognize any COD income on a debt repurchase and then you will recognize it ratably over the next five years. On a present value that's quite attractive in term of changing the dynamics of debt repurchase for Liberty.

And there frankly may be some other things that happen in that, how that bill is interpreted that make it more opportunistic for us or more realistic for us to look at even attacking some of our exchangeables. We are working through that. Stay tuned on that as well.

And lastly we have no, as I noted we shrink about 26% of the equity of LCAPA. We consider that equity under valued, the potential to repurchase more than that is also on the table. So all three thing, James are things we have already executed on and away through debt repurchase that gets better in a post stimulus bill through attractive and in this case debt focused with [Warrant Ticker] investment in the case of SIRIUS or share repurchase, in the case of the shrink we've all ready done. All three could potentially be attractive.

Great. Thank you.

We will take our next question from David Gober with Morgan Stanley.

Thanks, guys. Just had two on LCAPA. One for Greg kind of following up on James question there. In terms of the sprint collar unwind, just want to clarify, I mean it seems like is going to be a relatively large taxable gain there. Should we assume that the cash is in deed coming in or are there any strategies that you guys make take to kind of delay the maturity of those? Or should we just assume that the cash is coming in and you are paying taxes on the gain?

Well, I think you shall be assured that the cash is coming in. Okay. And I can talk more about that in a moment. On the question of whether the taxes are going out, Liberty is always focused as you may have heard on tax efficiency. We have some ideas and strategies around that. I am not going to tip all of those ideas out today but we are working that problem.

Okay. And then on the Starz side, and I guess this one is more for Bob. You guys obviously just an interesting kind of part of the home video market and I was wondering if, what you guys are seeing there given what seems like a 10% to 15% decline in home video sell through and whether or not that changes your view of investment in film and entities like Anchor Bay?

The primary decline and it is probably more than 10% to 15% is in the catalog side. Anchor Bay when we acquired it was essentially a catalog company looking holding season seven of Third Rock from the Sun and a lot of older children's titles. What we have been doing at Anchor Bay is shifting that mix to be first run movies. And if you come back to our comments about Overture, eight to ten from Overture a year -- eight to ten from Anchor Bay Films our view is that we will offset our getting out of the catalog business by being much more focused on first run motion pictures, which still have a great life. What we have been seeing and I think some other studios have seen this is that if you have the right movie for home video and other ways to monetize it it holds up very well.

And the catalog business that we think is in decline. That's why this is an awkward year for us as we are not renewing rights for a lot of our catalog product and replacing it with movies that are first run and that generate much higher unit sales. I will, another data point. Many of the big box retailers who is have a lot of play in home video like Wal-Mart and Best Buy and Target are going through the process of deciding how much space they're going to allocate and also how many people they're going to deal with. And so the more we have focus on first run titles which they market around to bring people into their stores I think the better opportunity we have to save our spots and our space.

So we far we have suffered no decline from the big box retail people with regard to home video. So, it is a challenged space, but our strategy of exiting the catalog business for the most part and replacing that with a fewer number but higher quality titles probably give us some window to continue to evaluate while we continue to look for ways to move some of that to, to digital revenue as well. Which is another part of our strategy that is just starting to unfold.

Great. And sorry, just one follow up for Mike and sorry to tack on here, but I think your previous commentary QVC, it's domestic business has been that it kind of bottomed out in terms of sales in September, October. Does that still seem to be the case or is there any incremental weakness in 1Q?

I think that's still a fair statement. Definitely the sort of last half of September, first half of October were the toughest spot in the quarter. It then came off of those lows and somewhat stabilized for the balance of the quarter. And I said in our in our Morgan Stanley call in November I did say that, the unknown is what would happen when we turn the clock on the New Year and got past the Christmas selling season. And so far, we feel pretty good that that, we are off of those bottoms and the trend has picked up modestly from those levels.

Great. Thank you very much.

We will move on to our next question from Jason Bazinet with Citi.

Thanks, I just have one question on Liberty Capita. I think historically you guys said you have been buying back the LCAPA shares in the low double digit range. Maybe my math is wrong but I sort of have full liquidation value at something in the high teens. And I guess my question is it seems like there could be a -- while you are buying back shares it seems like the pace is relatively slow given the cash that still sits at LCAPA even pro forma for the Sirius investment. So I guess my question is that a liquidity issue that there aren't enough shares trading, or is that more of a function of you think that there are other things to do with the cash to create more value related to the debt or other things outside of Liberty? Thanks.

Jason, I think it is first and foremost not a liquidity issue if you look at the cash at LCAPA relative to the market cap I agree the cash and potential near cash looks considerably higher.

I don't mean liquidity in terms of what you have. I mean just in term of how many shares.

I got that. I think there is a relatively thin market, there's no need to chase this stock. It is frankly going to, it is unlikely to be a double digit stock just because of the way the stock market is acting any time soon not related to, what we agree with your fundamental point that the NAV is considerably higher than market. So I think you will see us, we have some other constraints we are working through and as we get that we will evaluate what liquidity in term of share liquidity is, to your point is out there. And look to adjust our pace.

Okay. And can I just go back and just clarify because I heard rumblings about the stimulus provision regarding debt. That rule essentially says if you tender for debt you don't pay capital gains on the difference between market value and par for the five years. Is that the right way to think about it?

Well, it's not necessarily tender. If you repurchase debt, the COD income is not recognized for five years and then is recognized ratably for the next five. So on a present value basis, you are looking at something like seven and a half years out. At a reasonable discount, that's pretty attractive in term of reducing the present value of that liability.

Okay. Thank you very much.

We will move on and take our next question from Tom Eagan with Colin Stewart.

Great. Thank you very much. First on Starz, the programming costs were lower than we had thought and therefore margin was higher. I was wondering, Greg if you can just giver us an outlook on programming costs for 2009 and therefore the margin? And then I have a follow up. Thanks.

Bob, you want to comment on that.

We don't give guidance -- programming is so material to our results that I think that would be the right thing to do. I think we have cautioned you that in 2010, we could see the decline stop. And remember we are increasing our original programming and as that comes to market and we amortize that, it is an additional cost. So, I think the right thing to comment on is there could be an increase in 2010. We just have to monitor it but for the time being, we are certainly pretty well in a flat position.

Right. Okay. I guess in just, more broadly, I guess for, Greg or for John is with the declining Q4 fundamentals we have seen across content companies, entertainment companies and cable and satellite companies, all except for DIRECTV, I was wondering if you can guys can comment on these days what you think the relative strength of content versus cable and satellite?

Well, no John today. He is not even hiding in the shadows, he's not on the call. So you have to take my answer. I think you have seen the case where a lot of people who have ad based businesses have suffered. And particularly those who have local ad based businesses rather than national have suffered more dramatically. And probably the most suffering in that group when you look at who their advertisers are news papers and local televisions stations. Because their -- an enormous percentage of their ad revenue is based on car dealers, particularly domestic car dealers, given the number of domestic car dealers per dollar of sales, relative to foreign car dealers. And people like department stores and you can go through the list -- financials, et cetera, those are more national as well. That's been the most suffering.

Then you look at say subscription businesses have had a relative strength compared to them. And then within that, someone like DIRECTV who has carved out a niche among the most attractive of those potential subscribers sort of the iron triangle that they have been able to execute with HD, sports content, other kinds of unique content, large screen TVs. That's all worked very well. DVRs -- that has worked very well for them. Will that continue through 2009? They certainly look to have a good tail wind and it does not appear to be abating. We will see.

It has been less true for others who have seen some substitution both on video subscribers and now slow downs in data services as that has more competitive and competition with wireless potentially slowing VoIP the transition. So, far for the moment we have been lucky.

When you go to content, in terms of what does that look like. It seems to me that the rich will get richer and the poor will be hurt. Meaning if your content very valuable and your content is very strong, and you are able to in effect have A level, A+ content which has the leverage against the distributor, your hand will strength. Because you now have only further means of distributing that content, which over time will give you more strength.

If you have weaker content and maybe there's demand for it online, maybe not. You may be more reliant upon the packager and the packager may decide that they -- or the distributor may decide that they need to get -- to hold margins flat to what they have to give the A level content, they need to take it out of the B and C level content. And I think that trend only gets exacerbated in an environment where dollars are tight.

Do you think it mean anything in terms of the affiliation fees that the cable and satellite companies again maybe more specifically on DIRECTV do you think it will help them to not, not incur the same kind of increases that we will see elsewhere?

I think DIRECTV's relative growth and strength will help them in all of their negotiations that they are able to talk about increases in subscribers is more positive for their ability to negotiate with content providers than people who do not have increases in subscribers. That having been said they will be doing what I suspect all large distributors are doing, trying to get the best deal possible but frankly they will take more out of that best deal out of the hides of tier two content, than out of tier one content.

Right. Great, thank you.

We will take our last question from Matthew Harrigan with [Wonderlich] Securities.

Thank you. I had a couple of questions. Firstly I was wondering if Greg would be comfortable commenting more on how they view Siri strategically in light of what's happened with the OEMs right now and maybe even the prospects for bundling with DIRECTV at some point or maybe even using some of the repeaters for some other purposes? Which I suspect isn't likely but I thought I would still ask.

Secondly another really good swap you made was the IDT shares for the entertainment assets. They talked a lot about their animation engines. They had a couple of small theatrical releases that didn't do much. I'm curious if you can talk more about what happens prospectively with animation, is there interstitial programming possibilities, for Starz would you ever do another theatrical release? And then lastly you have commented on possibilities for more e-commerce deals. I was curious if -- you could do some interesting things at QVC as well, either taking more equity interest in products than you have done in the past? And I know there's some restrictions with HSN as to what you can do but i was curious also if you can do anything on the M&A side with somebody like [Carl Shoctvella] in Germany or some place else?

Okay. A couple of different topics here. So on SIRIUS I'm not sure it's strategic. Obviously a lot of these OEM deals just like a lot of these content deals were cut in an environment where two players, Sirius and XM were bidding and there's more than anecdotal evidence that in many cases they overpaid because of the prospect of the two people bidding aggressively. Some have suggested that a bankruptcy would be positive for that Company in terms of recutting those OEM deals, recutting some of those content deals and obviously resetting the capital structure.

We believe that SIRIUS has a very good chance to grow its way in and renegotiate the contracts as they are doing in many cases. And as certain contracts mature reset those contracts at attractive deals such that it will be able to build equity value for its shareholders. In the event it does not happen and some of those things are not as successful and it could be in part related to how the domestic car market grows or does not grow, we took a position in the senior debt which we believe is relatively secure against the down side possibility. We are routing for the upside, we are opening [Mel] is successful as he can be at doing some of these things, but we are positioned okay, we believe, if that does not come to pass.

In terms of the bundling we certainly see those as opportunities down the road. One can talk about or imagine bundles particularly probably the $80 plus DIRECTV product offering free trials of the $11 SIRIUS XM product more likely than the other way around. The -- just given the dollar value of the customers and the subscriber value. I certainly think those are things that we have talked about and surmised. We didn't put a lot in our valuation for that but it is something that Mel is enthused about. It is something I believe Chase is enthused about and I believe we will be able to proceed on some of those in ways that is are obviously beneficial for both parties.

On the larger technical questions I thinks about space segments and repeaters and those are sort of in the future. The great dream perhaps is that you have 25 megahertz of spectrum that you are able to broadcast and as compression gets better maybe even more, 150 audio channels on one consolidated SIRIUS XM platform that only consumes 12.5 megahertz of spectrum and 12.5 megahertz becomes therefore available for mobile video. And that would be great intersection of where the skills of SIRIUS XM and DirecTV reside.

That's a long way down the road and highly speculative. There's no plan currently to merge the Sirius and XM platforms. There's a whole bunch of technical issues around the quality of that video that is likely to be, there's something SIRIUS XM already does particularly in things like the cartoon space that are interesting but to really expand that in the mobile video space, we will see. That's the, the grand and glorious future we can only hope comes to pass, but we didn't get put a lot of stock in that when we did our valuation.

On IDT and animation we have certain animation assets and studios like FIlm Roman that have in the some of the things we do there that are interesting and have quite a lot of capabilities in the animation space. But as far as entering theatrical or really expanding that, we think theatrical animation space is a very competitive space with people like Pixar and Dreamworks who are very good and make very big bets. And that's probably not our strategy or like where we are likely to go in terms of animation releases.

The strategy is as we have said is to use our engine of Starz Entertainment to use a relatively more contained cost model of Overture, and distributing our own films around Anchor Bay using to capture as much of the revenue stream of things that we produce and leverage the revenue streams we know we have rather than making the larger bets in animation. And what we have is quite good in animation and that is a useful set of tools. But it is probably not -- to make a great animated film you need that plus a great story plus a willingness to promote and spend a hell of a lot of money. Which as I said approximate Pixar animate and Dreamworks do well and we are a little scared of.

In e-commerce, we are certainly looking for extensions and things to do around both QVC and elsewhere. QVC for example this year has just launched on sort of a beginning basis, its efforts with its own ODAT, [Hand Bag Chic] and you should definitely go take a look for your wife or maybe yourself if you have other interests. And -- we a little laugh titling around the room here. Other interests, other things that we do for, in trying to span e-commerce is interesting but I also think we are going to see cases where e-commerce comp players are not -- who are not as strong do drop out and we have an opportunity to either fill into the space or purchase those companies. And we will certainly look to that.

And as far as HSN we are restrained I guess until I think it is May of 2011 from making any kind of an offer for the Company as a whole. We have an the opportunity to increase of --May of 2010, excuse me. Somebody is rightly correcting me. Thank you. 2010 before we make any kind of offer for the Company as a whole. Not saying that we will, but we do believe we are the natural probably owner at some point for that company. We are the one with the most synergies. And have the right to increase our stake in the Company from 30 to roughly 35% and we will monitor the time and place to do that.

Great. Thank you so much.

Thank you very much everybody for being on the call today, and look forward to talking to you next quarter.

This concludes today's Liberty Media Corporation quarterly earnings conference call. Thank you for attending and have a great day.