QVC Group Inc (QVCGA) 2009 Q3 法說會逐字稿

Good day and welcome to the 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 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 Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained here in, to reflect the change in regard there to or any change in events conditions or circumstances under which any such statement is based. On today's call we will discuss certain non-GAAP financial measures including adjusted OIBDA. The required definitions and reconciliations, preliminary note and schedules one, two, three, can be found at the end of this presentation.

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

Thank you. Good morning and thank you to all of us for joining, all of you rather for joining and for your continued interest in Liberty. Today, we will review our performance in Q3 and discuss the operating results at our controlled subsidiaries. Speaking on this call this morning we've got Chris Shean, our Controller who will discuss the attributed business, financial results and liquidity picture for each of the trackers, we've got QVC CEO Mike George, the Starz CEO, Bob Clasen, and assorted other Liberty, QVC and Starz Executives able to answer your questions. Building on the momentum from Q2, we posted strong operating results at QVC and Starz in the third quarter. Many of our other businesses had and trend investment type grade performance including notably Sirius.

During the quarter we continued to strengthen the balance sheet. QVC raised a $1 billion in senior secured notes, extended maturities out to 2019 and the offering was quite well received. This was the first $1 billion high yield deal to price below 8% since DirecTV priced in May of 2008. It was just the fifth non-investment grade deal priced below 8% out of 213 transactions year-to-date, and it was the first 144 A deal to price below 8% since March of 2007. Today, QVC has paid down $344 million of its 2014 revolver, which we would expect to be redrawn to pay the $500 million of term loans due in 2010. QVC expects to be able to continue to repay this revolver as free cash flow allows. Subsequent to the end of the quarter, we also QVC repaid or rather LINTA repaid $50 million of the inner group loan it had to each of Entertainment and Capital Group.

During the quarter, all of the Liberty stocks reached 52 week highs. In fact all of them reached it within the last couple of months. Additionally, many of the other equities, public equity portfolio did quite well and the total grew by almost $2 billion lead by gains in DirecTV, which was up 10%, a gain of 1.4 billion, Expedia which was up 59% a gain of $612 million, and Sirius XM which was up 24%, a gain of $376 million. At Liberty Entertainment we continued to experience good results at DirecTV and we had strong revenue and adjusted OIBDA growth at the consolidated companies, notably Starz which Bob Clasen will talk more about in a moment. We can see the Finish Line on the long anticipated LEI DirecTV transaction. We received a Private Letter Ruling from the IRS. We mailed the effective proxy statement and the stockholder vote is set for November 19. Liberty Starz, the resulting tracker newly attributed tracker that will be left has begun trading as well and LSTAV traded just under $50, that's up substantially from the indicated price, indicated looking at the difference between the DirecTV and LMDIA prices up substantially from numbers more like the mid 20s in the Summer. Because of DirecTV's continued share repurchase, our ownership is now up to 57% of DirecTV. Notably also, by Bob Clasen, he is planning to retire at the end of year or more accurately when we complete the process of search for his successor.

At Liberty Interactive, QVC experienced strong adjusted OIBDA growth and adjusted OIBDA margin expansion. You'll hear more about that from Mike George in a moment. At Liberty Capital, we received a $250 million Sirius XM loan repayment. All of the senior loans that we made to the Company Sirius have now been repaid. We still have secondary market paper, notably bonds that we have purchased because we think they're quite attractive. We had strong performance most recently at Overture Films with the movie Law Abiding Citizen and a promising opening weekend last weekend for Men who Stare at Goats. The Braves had a good run in September. A couple other items before I turn it to Chris. The Liberty Board has decided not to proceed with the reverse splits that have been authorized at Liberty Capital and Liberty Interactive and the Board has also approved a 500 million share repurchase authorization of Liberty Starz.

With that let me turn it over to Chris Shean to talk about LINTA's financial results.

Thanks, Greg. Liberty Interactive Group's revenue increased 2% to $1.8 billion while adjusted OIBDA increased 11% to $345 million for the quarter. QVC, the primary driver of results among the Liberty Interactive Group attributed assets posted favorable results in which total revenue increased 2% to $1.7 billion while adjusted OIBDA increased 10% to $343 million. The eCommerce Group of companies at Liberty Interactive which include Provide Commerce, BackCountry.com, BodyBuilding.com, BuySeasons, Lockers, and the Right Start experienced revenue growth of 2% in the third quarter and adjusted OIBDA growth of $2 million to $5 million. The increase in revenue is driven by two small fold-in acquisitions in 2008.

During the third quarter, QVC issued $1 billion principal amount of 7.5% Senior Secured Notes due 2019. QVC used the net proceeds to fund the purchase and cancellation of outstanding term loans under QVC Senior Secured Credit Facilities that mature in 2014.

Now I'll hand it over to Mike George for additional comments on QVC.

Thank you, Chris. We were very pleased with our results in Q3, as we continued the improvement in business trends that began in Q2. Sequentially our local currency revenue growth rates improved in every market except Germany and our adjusted OIBDA growth rates improved in all markets. In total our revenue increased 2% and adjusted OIBDA increased 10%. Without the change in revenue recognition practices that we implemented in Q2, revenue would have been $9 million higher and its estimated OIBDA would have increased an additional $4 million. These results reflect the success of our sales growth and cost management initiatives, along with what appears to be at least some stabilization of consumer spending in the US and UK. We also appear to be gaining share at an accelerating rate from a broad range of retailers who compete for the consumers discretionary spending dollars.

In the US, net revenue increased 2%, our first positive sales growth since early last year. We saw the strongest gains in beauty, accessories, consumer electronics, and our kitchen, cook, and household categories. As in prior quarters, our jewelry and apparel businesses remain soft, although the rate of decline in jewelry has moderated somewhat as weakness in gold jewelry was partially offset by strength in lower price point fashion accessory lines. We also saw continued gains in QVC.com which grew 17% and now represents 28% of our sales, up from 24% last year, and we've benefited from 100 basis point improvement in return rates largely driven by product mix. We're also very encouraged by 9% increase in the count of new customers joining QVC in the quarter, our highest rate of new customer growth in the last seven years; however, as I have stressed in the past, even more important than the count of new customers is their total spending and the total spending of new customers in the quarter increased a very strong 18%.

Our adjusted OIBDA in the US increased 10%, our strongest profit growth since the fourth quarter of 2006. The adjusted OIBDA gains were driven in part by approximately $11 million in above the line adjustments and various state sales and franchise tax reserves. In addition, we benefited from strong improvements in customer service and distribution productivity, reductions in freight costs due to the success of several initiatives to optimize our distribution network, and the impact of several cost management efforts on our fixed expense structure. We also saw a slight improvement in product margins, a significant improvement from the trends that we experienced last year and earlier this year. Partially offsetting these gains was a 44 basis point increase in bad debt expenses, although the rate of growth in bad debt appears to be moderating. We continue to control inventory tightly with a 7% reduction in gross inventory levels year-over-year.

Switching to the UK, we saw net revenue increase 6% in local currency, our strongest revenue gain since Q1 of last year. We saw strong gains in our beauty and apparel categories, partially offset by a difficult jewelry business and continued softness in the computer and consumer electronics categories where we face specially aggressive price competition in that market. Our adjusted OIBDA increased 31% in local currency. This strong profitability gain was due in part to anniversarying the foreign exchange losses that suppressed our results last Q3. In addition, we saw strong improvements in customer service and distribution productivity and lower obsolescence expense as we reduced our inventory levels 15% year-over-year.

In Germany, our net revenue declined 1% in local currency but while adjusted OIBDA increased 13%. The revenue recognition changes I mentioned earlier had the greatest impact in Germany. Without these changes, revenue would have increased 1% and adjusted OIBDA would have increased 16%. We saw strong gains in our beauty category as we continue to focus on our mission of doubling the beauty business in Germany. We also saw strong pick up in accessories, consumer electronics, computers, and small appliances. Offsetting these gains was continued erosion in the jewelry category and softness in our apparel business. We also continue to make gains reducing the promotional element to the German business as we saw increases in the percentage of business done at regular price and reductions in markdown usage and we saw 4% increase in customer count, our strongest increase in four years. Our strong profitability growth in Germany was driven by gains in customer service and distribution productivity, lower obsolescence rates as we implemented new liquidation approaches with higher net recoveries, lower FX losses, and improvements in our fixed cost structure.

In Japan, our net revenue declined 1% in local currency, a slight improvement over our Q2 low point where revenue declined 3%. The economic situation in Japan continues to be the most challenged of all of our markets and we believe our results are strong relative to the rest of the retail market in Japan. The revenue decline was driven by softness in our home categories partially offset by growth in health and beauty. Adjusted OIBDA declined 3% in local currency, largely in line with the change in sales. The modest increase in initial product margins, lower freight expenses, and gains in distribution and customer service productivity were offset by increase in obsolescence rates and the impact of anniversarying a sales commission credit that we received last year from one of our affiliates. Finally, we continue to progress with our Italy launch scheduled for October of next year.

Overall, we are highly encouraged by the continued momentum in our business. We're confident that we will emerge from the current economic turmoil in a much stronger position, having made significant gains in our strategy to build the unique multi-media shopping experience. We believe our focus on offering compelling exclusive products and programming, while avoiding destructive price competition is helping us drive accelerating share gains against the broad retail market while also protecting our margins. To further this mission we recently announced a partnership with Liz Claiborne to become the exclusive third-party retailer of the iconic Liz Claiborne New York Brand as well as broad based partnership with Isaac Mizrahi that will launch on December 4.

We also continue to expand our multi-channel platforms driving strong growth in our eCommerce platform and expanding our social networking programs, and in the next few weeks we'll be launching new iPhone applications and desktop widgets to help customers stay connected with QVC. We've also achieved as I've mentioned strong improvements in variable cost productivity and significant structural reductions at fixed costs and most importantly, we've achieved these gains while maintaining our steadfast committment to providing outstanding customer service. Inventories across our markets are also well controlled and overall return rates are declining. We also continue to focus on maximizing our free cash flow, paying down debt, and extending maturities. Our adjusted OIBDA gains, coupled with more efficient working capital usage drove a $201 million increase in free cash flow through the first nine months of the year including $109 million increase in Q3 versus a year ago.

As a result, we paid down an additional $80 million on our revolver in October on top of the $264 million in payments made in prior months so in total since refinancing our bank debt last Spring we've now reduced outstanding balance on our revolver from $500 million to just $156 million and we expect to make further payments on the revolver later this year. In addition as you heard, we successfully completed our bond offering in Q3 raising a $1 billion in 10 year notes that were used to reduce our 2014 bank debt.

And with that I'll turn it back to Chris.

Moving on to Liberty Entertainment, revenue grew 2% in third quarter to $369 million while adjusted OIBDA increased 16% to $86 million. The increase in revenue was primarily driven by a result of Starz Entertainment. The increase in adjusted OIBDA was due to positive result to Starz Entertainment partially offset by expenses related to the proposed split off of LEI. Expected liquidity at Liberty Starz upon completion of the split off and merger will be approximately $850 million. This is made up of actual cash balances, loans to Liberty Interactive and $146 million in expected repayments from DirecTV for payments that we've made on the derivative loan. Expected cash at LEI will be approximately $110 million to $120 million which includes corporate cash and cash at the Liberty Sports Group.

Now, Bob Clasen will comment on Starz Entertainment and Media.

Thanks, Chris. Starz posted another solid quarter, at Starz Entertainment revenue grew by 8.3% and adjusted OIBDA by 19.2% versus the same quarter a year ago. The average number of Starz subscriptions grew 1.4% versus a year ago during the quarter but the total number of Starz subscriptions on September 30 was down slightly versus the same date last year. Encore average subscriptions declined by 1% and the total number of Encore subscribers at quarter end was 2.8% below the same date last year. Helping to improve results were an increase in average revenue per subscriber and a 2.8% decline in year-to-date operating expenses versus a year ago. The decline in expenses was largely due to airing fewer first run movies during this quarter versus a year ago reducing our programming costs. This reduction was partially offset by increased expenses both in production and marketing for original series. We continue to pay close attention to some of our affiliates, particularly in the cable arena who have experienced declines in subscriber levels. It is our belief that there are several reasons for this development, including the general economic conditions, particularly the decline in housing starts, rate increases implemented by some affiliates earlier in the year and a lack of marketing resources devoted to premium television as a category. We are working with these affiliates to bring more focus to the premium space and improve sales of Starz and Encore subscriptions. On the other hand we are encouraged by the progress our affiliates are making toward implementation of the television everywhere strategy which will enable existing authenticated Starz subscribers to receive Starz programming on their computers or portable devices as well as at their TV sets.

Starz has been a pioneer in the development of online delivery of programming. We welcome the efforts of our distributors in this space. Over the coming years we're confident that the distribution of Starz programming over the Internet will add to the value of our services for our affiliates and our consumers. Our effort to generate awareness that Starz is a destination for originals as well as movies took a major step forward in the third quarter when we introduced the first trailers for Spartacus - Blood and Sand, First at Comic Con, and then the Television Critics Tour. The worldwide premier of the series took place the first week of October at the annual MIPCOM television market in Cannes. These initial unveiling of the series which will air on the Starz channels in January generated considerable buzz as viewers got a first look at some of the innovative techniques that producers Sam Raimi and Rob Tapert used to create the brutal and essential world of the Roman Gladiators. With the feel of movies such as the 300 and Sin City, a first rate cast, and a compelling story, Spartacus will be unlike anything ever before produced for television. We feel confident it will draw audiences to our channels and other platforms worldwide. The latter is particularly important because this is the first dramatic series we have produced entirely ourselves and for which we are handling all syndication sales worldwide.

Also in the third quarter we aired the second season of the dramatic series Crash, which we co-produced with Lionsgate, and we announced plans for a new half hour comedy to air next summer called Gravity, starring Krysten Ritter of Confessions of a Shopalcoholic and Ving Rhames of Pulp Fiction and we also announced we renewed a second season for our critically acclaimed comedy series Party Down.

On the Starz Media side revenue in the quarter decreased 46.1% and adjusted OIBDA improved by 13.4%; however, as I previously noted these numbers fluctuate dramatically from quarter to quarter and year to year depending on the timing of theatrical releases. We were disappointed in the performance of two third quarter releases, Pandorum with Dennis Quaid and Capitalism- A Love Story with Michael Moore, however, Law Abiding Citizen with Jamie Foxx, which opened in early October in second place at the box offices already generated over $60 million in domestic ticket sales well ahead of projections and our best performing movie to date. Our last film of 2009, Men who Stare at Goats premiere this past weekend and opened at number three with 13.3 million domestic box office also ahead of our plan. We continue to face a challenging environment in the home video arena because of the general economic conditions and because of the theatrical under performance by some of the overture releases; however, the overture movies are playing well On Demand and in electronic sell-through and will bolster the line up of our premium channels.

Starz Animation Toronto won widespread critically a claimed for the animation work it did on the Tim Burton movie released during the quarter by Universal and Anchor Bay Films released three movies in limited theatrical run and for home video sales during the quarter featuring Ashton Kutcher, Michael Douglas and Jeff Bridges. These films will appear on our Starz channels in 2010.

And now I'll hand it back to Chris.

During the quarter Liberty Capital revenue decreased 22% to $171 million while adjusted OIBDA deficit improved by $21 million. The decrease in revenue was principally due to a decrease in theatrical and home video revenue. The decrease in adjusted OIBDA deficit was due primarily to the timing of theatrical and home video revenue and related expenses associated with the films released by Starz Animation and Overture Films and now I'll turn it back over to Greg for some concluding remarks.

Thank you, Chris and thank you, Mike and Bob for the updates on your respective businesses. So to sum-up, we feel that the third quarter was a strong quarter on a lot of areas, a lot of fronts and we saw signs of improvement in several of our businesses, particularly QVC. If you look ahead, our major priorities first across Liberty Media continue to rationalize some of our non-core, non-consolidated investments in third parties and look for interesting market opportunities, we could only hope to find another Sirius. Across Liberty Entertainment we're going to complete the split off and merger with DirecTV hopefully in the coming few weeks and we will reclassify the new track for Liberty Starz and hopefully launch it well. At Liberty Interactive, QVC is focused on continuing the momentum it had in Q3 going into Q4. At Liberty Capital we continue to evaluate opportunities for our cash including debt buybacks, stock buybacks and additional investment opportunities.

I would like to thank you for your continued interest and I also want to thank you for your continued support in Liberty Media. Hopefully we'll keep busy and have something to report for you in Q4 as well. Thank you for listening and Operator, I'd like to open it up to questions.

Thank you, sir. (Operator Instructions). Our first question will come from Doug Mitchelson with Deutsche Bank.

Oh, thanks so much. Just a question for Greg and then a couple for Bob. Greg, which is cheaper in your views, Sirius stock or El Cappa stock and does your view in that factor making tell you how to proceed in your ownership stake there and can you tell us what the amount of the TV production write-down at Starz was this quarter and what your outlook for cost growth might be in the fourth quarter given you might spend give or take $15 million marketing Spartacus? Thanks.

Doug, I try not to comment on which of the children I like best but I will comment on the second part to say that as a practical matter if you look, we are prohibited from increasing our investment in Sirius XM as I recall 18 months from the term of the initial deal which is about another year from now first and then candidly we'll be treading lightly if we were to do so because of some of the issues around the tax losses they have and the 382 limitation, so that is not an easy path even though I think Sirius is an attractive investment. I think Liberty Capital is quite cheap.

To the 382 limitations end right after two years or is there a gray area there?

My understanding is it ends after three years, so it would be roughly two and a half years from now.

Right, thanks.

We'll go next to James--

Wow wow wow, sorry, Operator. I think we had some Starz questions and the Starz team is ready.

Yes, our nine months to date we've amortized or put on the P&L about $15 million of programming costs and a lot of that did hit in the third quarter. We're not going to give guidance for the fourth quarter but we'll point out that to your question on marketing, we would expect the run rate to be pretty similar to the third quarter since we had the second season of Crash that had quite a major campaign and would probably be roughly equivalent to some of the lead in we'll be doing in December for Spartacus, with a lot of the spending coming the first part of January.

Great, thanks.

We'll go next to James Ratcliffe with Barclays Capital.

A couple questions, both related to Liberty Starz. First of all on the buyback authorization, is there any limit to how other than the standard SEC limits to how fast you could theoretically deploy that and related to that, how much cash do you actually need around to run the Starz business and then secondly, with a look at ARPU per subscriber was up about 9% year on year in Starz but at the same time you saw subscriber dropping both at Starz and Encore. Can you talk about what you saw in terms of both revenue, was that driven by mix shift or contract increases and secondly, for the people canceling were those more Ala Cart customers or customers in higher digital tiers?

While the Starz team corroborates the real complicated questions I'll do the easy one and by that, we don't have any to my knowledge any limitations as you noted the SECs restrictions on what percentage of volume we can be in terms of share repurchase and as far as cash required to operate at Starz, it's almost a non-issue as you look, it's a free cash flow generating vehicle. Yes they have some working capital needs but they also don't even have a working capital line. We are heavily capitalized or overcapitalized at those businesses today as we take the corporate ending and the operating units.

To comment on subscribers, we have again, a mix of affiliates who are both Ala Cart and then have fixed payments and so that really as you sometimes decline in subscribers your revenue doesn't fall off. Part of the dynamic we see frankly is theres a shift in some number of subscribers from cable to the Telco business and our economics are a little more attractive when they're a Telco customer than some of the old historic cable deals frankly, and we're pretty flat at DirecTV, Dish is having some issues that flow to us so it's frankly a mixed bag. We've got growth in some affiliates or at least are holding our own. We've got some declines in the cable space and in the Dish space. With regard to cash, we're a cash generator. We are not needing cash from our parent or from the banks in order to operate so we're a generator and that will be showing up over time on the Liberty Starz reports.

But in terms of cash on hand it's a pretty minimal amount you need to run the business day-to-day?

Right. We have a strong balance sheet as a standalone Company.

Great. Thank you.

We'll go next to Matthew Harrigan with Wunderlich Securities.

Good morning. Two questions. First on all, on LETA, the QVC numbers look great and when you get better sales you'll get ample draw flew but I thought the eCommerce businesses were a little disappointing. You communicated it pretty well on back country given the pressure on the higher price point items, but it looks like the enthusiast businesses were not quite as robust as you might have thought. Could you give us a little bit more granularity there and then how we should think about the growth factor on those businesses longer term because it did appear to be really coasting through the first part of this recession, and then secondly, another Spartacus variant. It looks like you could have $30 million to $35 million of costs on that expense next year. Are you going to get enough of the continued savings albeit at a slower pace on the reduced amount of studio product to offset against that or are we out to see some margin pressure immediately from Spartacus no matter how wonderful it is as far as the marketing profile and the brand of Starz?

I'll start on the eCommerce companies. I'd note that in general the statistics we've been seeing when Com Score reported their expectation that eCommerce as a whole was down 2% in Q3. I think you're seeing, sorry, I think you're seeing that some of the just the timing and the difficulties around Q3 for eCommerce are not unique. That having been said it's not one of our big quarters. Q4 we expect that country is going to have a substantially better quarter from where it was, the driver for the biggest element by far in our eCommerce businesses provide in terms of an OIBDA number is obviously a Q1 or Q2, usually Q2 event, so Q1 and Q2, not Q3, so this is not, I think they had a good performance in a tough environment in a quarter that is not as critical as some force.

Okay, we're looking at obviously 2010 and while we're not going to provide guidance I'll make a couple observations. First of all our output partners are having a better year at the box office than they did in 2008 and that flows through increased costs to us for our new future link film so there will be an increase in programming cost driven by that. With regard to Spartacus, certainly that will influence our programming cost but remember Spartacus has a long useful life. We don't amortize everything with its first use. There's a period over three years in which it will be amortized on its play, so we are expecting programming to go up for those two reasons next year.

Great. Thank you.

Our next question will come from Bridget Weishaar with JP Morgan.

Hi, two questions on the Liberty Interactive segment. First of all, Germany I know is still in the midst of its turnaround and there's a lot of mix shifts going on driving changes but if you look at the unit shipped it looks like it declined significantly during the quarter. Could you just what's driving this a little bit more and when you expect the mix shifts to moderate in this segment, and then secondly, I think you mentioned how much free cash flow growth you were seeing at LINTA. Could you give us that number again on a year-over-year basis and what you see driving this? Thank you.

Sure, I'll discuss Germany and let Dan comment on the cash flow. We tend not to look at, we tend not to dissegregate units into ASP and put a lot of focus on that because for us it's really about what's the consumers total spend with us and I think that's the best reflection of the health of the business, so I would hate to characterize what you'll see in terms of units versus ASP. What I think you basically saw was a flat quarter, slightly up without the revenue recognition and I think that sort of characterizes the business suppression in jewelry and apparel, strengthen the other zones. Now specifically the technical reason that units were down, and ASP was up was really more just kind of product mix drivers. We saw the jewelry business that we did do, we did at a higher ASP, substantially higher ASP. That was in large part due to the reduction in markdowns, so the good news is we're using markdowns less frequently, the inventory is better, the product is better, less markdowns means higher ASPs so for the same kind of revenue velocity you get fewer units but better ASPs, so that dynamic is hard to predict from quarter to quarter because it's really driven by product mix, so we again focus more just on sort of absolute revenue growth and then Dan, do you want to comment on the cash flow?

Sure. The 200 million that Mike referenced for the year-to-date period, it's primarily a function of working capital. If you look at year-to-date 2009, working capital items are a source of cash by about $185 million and last year, they were a use of cash of about $140 million, so that's the biggest driver.

And do you expect that to be sustainable going forward or are these more seasonal and due to the economy?

In our fourth quarter last year working capital was about a $200 million use of cash and I would think that directionally it will move in that direction but I don't expect it to be as high as $200 million in the fourth quarter.

Great. Thanks so much for your help.

Our next question will come from Doug Anmuth with Barclays Capital.

Thanks for taking the question. I just had a question about return rates in the US, and in particular it looks like in Q1 and Q2 you saw sort of a bigger decline basically in return rates year-over-year so I was just curious what your thoughts are there in terms of why it bounced back sort of on a sequential basis from 17 to 19% and how we should think about that going forward. Thanks.

In Q3 we had about 100 basis point favorability in our return rate at 19.3% and that's mix driven as Mike mentioned previously. For the full year it's about 1.7%, 50 basis points of that is a true up of over accrual I'll call it at the end of 2008. Obviously we have to estimate what our return rates are going to be and they came in less for Q4 and we recognize that in the first two quarters of the year.

Next question, Operator?

Thank you, sir. Our next question will come from Jason Bazinet with Citi.

Thanks so much. I just have a question on Liberty Interactive. I think there's a question earlier about the eCommerce EBITDA which you helped us out with to provide color but one other question regarding some disclosures in the Q that relate to I think it was called third party online discount services that sort of was $6 million or $7 million per quarter in each of the first two quarters of the year. Are those very I guess two questions there. Can you explain what those are and are those very high margin revenues and will they repeat? Thank you.

They are offers to our customers by third party and I think they are, they do have a repetition factor, whether they are as high growth going forward is not as clear, we'll see. I think it's quite common in a lot of eCommerce companies including ours to offer these other services to your customers and that's a relatively high margin business.

Okay, but did we see a similar amount in the third quarter? In other words was most of the miss and the--

No, no, no, just because of the nature of how they come I think we saw less of it in the third quarter but not in any negative way, just tied to the offerings in the marketplace. I don't think it has any trend value.

Okay, thank you very much.

David Gober with Morgan Stanley has our next question.

Good morning, thanks, guys. A quick one for Bob. I was just wondering if you could remind us when you expect to hear from Disney about whether or not they're going to extend their output deal which I believe expires in 2012.

We're meeting with Disney all the time and we have nothing to report.

Is there a date by which they have to--

No, no, they do not have an option to extend as they did before. This has to be by mutual agreement.

Oh, okay.

The last time they had a three year extension they did take but this time it's the two of us agreeing.

And the current deal, am I right it expires in 2012?

Domestic output for 12, to get into 13.

So to be clear, in the perspective of the channels it's really through 13. 12 is DBO, 13 for the channels. So it's a little misleading to say 12.

Okay, that's helpful, and one for Mike. Some of the customer acquisition numbers that you through out there were very impressive. Any sense of what's driving the new customer acquisition? Is it just the improvement in the overall economy or are they coming in, are new customers coming in indifferent categories than they have been in the past year or so?

I think that it's a couple of things. I think part of it is that I would say we're in a product mix which we've worked hard to create a product mix that is more favorable to getting new names, partly due to our efforts and partly just due to what's hot right now so for example,, the exercise category, some elements of it are hot and they tend to bring in a lot of new names. We've really went after entertainment properties like Michael Jackson, Beatles Remastered, those sorts of properties. They've been doing very well for us and those are extremely high with new names, so some of it is driven by those initiatives that are product based and some is driven by the more aggressive marketing and PR outreach that we've been doing trying to bring in high profile brands like a Rachel Zoe who has her own celebrity following and has attracted unusually high new names for the kind of product categories that Rachel is offering, so I think it's a mix of the quality of the talent, the kinds of categories and degree of aggressiveness in PR and marketing outreach and actually I'd probably put in one more factor which is we've continued to improve our channel positioning. I think it's fair to say that we probably never made more gains than we've made this year and the quality of our channel positioning and that includes getting a second location on DirecTV and a much more highly trafficked neighborhood as well as we're now up to about 25 million Hi-Definition subs and those in I think virtually every case, those present a second channel location in addition to the SD channel so I think we're seeing benefit of just being exposed to more people and more attractive neighborhoods.

And as the demographic profile changed significantly of new customers coming in? Have you been getting a younger customer, older customer?

I've not looked at it specifically for this quarter. We don't tend to find that it moves in meaningful ways quarter to quarter so I hesitate to guess. What we've generally found over the last few years is that new customers not surprisingly are younger than existing customers and that the age of that new customer has been relatively stable over time, don't know specifically if it's changed in Q3.

That's very helpful. And just a quick one for Greg. Obviously, we see the Form 4's on IAC stock sales but was there any other movement in publicly traded assets during the quarter?

I can't recall of any substantial ones. We have small positions we move but nothing material that I can think of that happened in Q3. As the collar expiring on Sprint I think we talked about that and that obviously was offset by reduction in the borrowings again for the Sprint collar. That was the fairly neutral event.

Okay, great. Thanks a lot.

We'll go next to Murray Arenson with Janco Partners.

Thank you, good morning. A couple quasi related questions if I could. On the heals of your comments on the eCommerce business, can you comment on what you see out there in terms of potential acquisition opportunities or if things are still looking pretty rich out there and secondly, in looking at QVC's business and the business you're doing through QVC.com, can you talk about where you see that potentially growing, maybe a few years out, how much of the business can that be for you?

I'll comment on the first and a little on the second, I'll let Mike handle that. On acquisition opportunities, we have been pretty much constantly looking for eCommerce opportunities for the last four years. We found four decent sized acquisitions and a couple are three tuck ins that have worked well into those and then because it has been difficult and if you look at the universe of eCommerce companies, certainly that's not a huge universe between 50 million and say 5 million of market capital and particularly ones that we would find attractive with strong management teams, defined niches, advantages in their business model and protections around Warren Buffet mode type things. Those are not a dime a dozen and particularly that the how you want a reasonable price. There has been a whole change obviously in the blending of the content commerce and community that have only made some of that harder because a lot of those have had very large multiples and have more speculative business models and that having been said we continue to look and we remain bullish on some opportunities and we've also taken a couple of other tracks like Right Start where we purchase something out of bankruptcy or lockers where we funded an entrepreneur and a little more venture capital type opportunity to try and create a wholesale version of something like that rather than buying at retail. So we still look. I don't think the environment has gotten easier. In fact I think it's gotten tougher in terms of throughout 2009 the eCommerce Company is getting more expensive and we're trying to get it in new ways. I'll let Mike handle the QVC.

Yes, on QVC, I'll talk about the US where the dot Com business is obviously the most developed and we're at 28% right now and Q3 is actually a seasonal low point for dot Com penetration and it will go up a fair amount in Q4. Our internal goal is to be at 50% QVC.com penetration so half of our sales coming from QVC.com by 2014. I don't think that's a crazy goal. I think that's a reasonable stretch goal. We're going to continue to accelerate our investments in the QVC.com experience and we see growing it both as a compliment to the TV channel and as an independent business attracting customers and products separate from the main channel and we think that can get us to those kinds of numbers by 2014. I think we'll see similar improvements in our international dot Com businesses but they start from a lower base but I think all will be on a fairly attractive trajectory and especially as we rollout a global eCommerce platform next year rather than the country specific platforms that we currently have, we'll be able to implement much higher levels of functionality in our international operations which I think will create further boost to those businesses but I wouldn't peg a number on that yet but in the US, I'd say 50% over five years is sort of a reasonable framework.

Great. Thanks very much.

We'll go next to Grant Jordan with Wells Fargo.

Great. Thanks for taking the questions. Maybe if you could give us an idea in total what the QVC inventory is year-over-year just in terms of relative terms and how you think you're positioned going into the holidays.

I'll make some general comments and let Dan give you the numbers. Overall we feel very good about our inventory position going into the holidays. Given the uncertainty of this year, we gave the challenge to all of our markets to manage inventory very tightly, stay close to receive flow, so we feel reasonably clean going into the holidays with the ability to chase goods if the sales are there so we're clean but not too clean and we have the ability to kind of respond pretty quickly, so on a qualitative level we feel quite good about the balance of keeping inventories tight but also having sufficient inventory to fund Q4 and I'll let Dan give you the numbers.

So on a consolidated basis at the end of the quarter we had roughly $975 million of inventory and same period last year about $75 million more so we've cut about five days of sales out of our inventory since September of last year.

Well that's very helpful and then my second question again on QVC. Mike you talked about picking up market share from some other players. Was there any specific category where you felt like you were picking up notable market share during the quarter?

I think in terms of specific categories I would say that we're clearly gaining market share in consumer electronics which continues to be a very hot business for us. I think we're definitely gaining share in beauty and really we've built a really wonderful prestigious beauty business that I think is outgrowing virtually anyone else out there and I suspect although it's a more fragmented market so it's harder to track but I think in areas like accessories and handbags I think we're gaining share as well, and in our downtreading categories like jewelry and apparel I don't know that we're gaining share but I also think we're losing share. I think those categories are pretty tough for everyone.

Great. Thank you very much.

We'll go next to Steve Velgot with SIG.

Yes, a quick question for Greg. Is there a scenario where you could see combining Starz Media with Starz Entertainment before Starz Media's cash flow positive and can you give us some idea as to how we might look at valuation even if it's some time off?

Well I think to be clear it would be complication of Liberty or with Starz Entertainment just the channels so to go into that vehicle. So when you think about valuation you think not only the run rate whether it be loss or positive but what's the value in the ultimates that are being built up there and that is not today because we have not had as much success at the box office as we would like, that's probably not an enormously scaled number compared to the value of the channel but it would be in the future, it will depend largely on how our ultimate build is going forward and if we have successful films that will create value and make Starz Media worth more, it's not the only element that generates value or not at Starz Media but probably the one with the largest delta and swing factor.

And, therefore, are you still intent on waiting until Starz Media is cash flow positive in order to pursue?

No, I think that we're intent on trying to make sure we have a stable business model and good direction of Starz Media and understand fully where it's going and what it might be worth and what business model is compatible with the channel going on a long-term basis.

Okay, thank you.

So with that I think we're done for the morning. Again, thank you for your interest in Liberty and we'll look forward to seeing you next quarter. Thank you.

This concludes today's Liberty Media Corporation quarterly earnings Conference Call. Thank you for attending and have a Thank you for attending and have a good day.