QVC Group Inc (QVCGA) 2009 Q4 法說會逐字稿

Good day, and welcome to the LIberty Media Corporation's quarterly earnings conference call. Today's call is being recorded. This presentation contains 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 or 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 herein to reflect any change in Liberty Media's expectation, regard thereto or any change any change in events, conditions or circumstances upon which any such statement is based.

On today's call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA. These required definitions and reconciliations, preliminary note and schedules one through three can be found at the end of this presentation. At this time for operating 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 good morning. Thank you all for joining us today and for your interest in Liberty. Today we'll review our year and quarter results by tracker, we'll discuss the operating performance of our controlled subsidiaries and we'll cover some transaction and other developments we've had in the year prior quarter and the end of the year. Liberty Controller, Chris Shean will discuss the attributed business financial results and the liquidity picture for each tracker. QVC CEO, Mike George will discuss recent events and developments at QVC and Starz CEO, Chris Albrecht will review events at Starz. Also on the call with me today are the QVC CFO, Dan O'Connell, Starz Entertainment President CEO, Bill Myers, Starz CFO, Glenn Curtis and several other senior Liberty Media Executives. All of us will be available to answer questions after these prepared remarks.

I'm sure you've seen today's announcement that we have made a change in the attribution of certain assets and liabilities between Liberty Capital and Liberty Interactive. The reasons we made these moves were first, to rationalize the capital structure of both groups. Second, to provide increased flexibility in the future for both groups, and a significant motivator was strengthening the near and mid-term liquidity of Liberty Interactive. We were always quite comfortable with Liberty Interactive's ability to cover its upcoming maturities, but the market hasn't seemingly been as comfortable sometimes in the past or today, and we thought this reattribution would continue to further enhance its liquidity. Secondly, we're aligning the tax loss generating debt. As you know, and as we've discussed in the past, these exchangeable debts that we are moving -- or reattributing, rather, have certain features which generate a tax deduction larger than the interest payments being made in the interim until the debts mature. We are moving that tax loss generating to debt with the equity that produces the most income. QVC is our largest earner. Putting that debt with QVC made the most sense. We're putting all of the Live Nation stock in the entity, Liberty Capital, that we believe is best suited for the investment.

Let me look at a little bit by tracker what we're doing. At LINT, we're putting in additional cash of $807 million. That's enough to pay off the straight debt that we have maturing in 2013. We're putting in the attributed long-term Sprint and Motorola exchangeable debentures, we're putting in some tax liabilities associated with our 2009 redemption of some of those Sprint exchangeable debt, and we are changing the attribution of $24.5 million Live Nation Entertainment shares to Lcap at the market price.

We think the benefit to LINT, as I touched on above, were the liquidity in the form of the $807 million in cash plus the tax savings that these exchangeable debentures are generating, which should help address all near and mid-term maturities. The reattributed debt is long-term, low interest rate debt, with as I mentioned, very favorable tax characteristics. That non-tax -- non-cash interest deduction, rather, will help shield income produced by QVC and our eCommerce companies. The move will be cash flow positive since the cash interest is less than today's cash tax benefit,, and it's worth noting that that tax benefit is growing. LINT, Liberty Interactive nor QVC could issue similar debt today, neither because of the rate -- the low rate which this debt has, nor the long-term tariff.

If you look at what is changing in Lcap, it is being credited with 24.5 million Live Nation shares. It is eliminating the attribution of the exchangeable debt , that's the Sprint debt and the Motorola debt and the associated tax liabilities, and it is having its attributed cash reduced by $807 million. We think some of the benefits to Lcap include reduced attributed debt balance and reduced attributed tax liabilities. Obviously, the addition of the attributed Live Nation shares, as you may recall, were currently have a tender in place as well for incremental Live Nation shares at Liberty Capital, so now all of those shares will be in Liberty Capital, and we believe this is a good use of cash of capital by Liberty Capital.

Here's a rough description of how we arrived at the $807 million cash payment from Lcap to LINT. Of the $807 million, $307 million is for the live entertainment stake -- or the Live Nation entertainment stake, LYB. That's the 24.5 million shares at the market price of yesterday. The gross liability associated with the exchangeable debt, $1 billion, is made up of a market price for the debt with about $700 million, a foregone OID, original issued discount deduction. Since LINT isn't issuing this debt, it doesn't get that OID deduction that it would normally get, and the call value of the mote exchangeable.

As you'll recall, these exchangeable debt has a call feature which effectively gives the holder the upside in the stocks, either Sprint or Motorola, depending on how those stocks move. The mote exchangeable has that call option on mote stock, and that has some value. The Sprint exchangeables, both series have, as I mentioned, the same, a Sprint call option embedded inside, but those call options are so far out of the money because the Sprint stock so far below the exchangeable price that it becomes really -- it has no substantive value. And the last piece of the equation is in that at the present value of the tax liabilities associated with the exchangeable debt we redeemed in 2009. We know that Liberty will have to pay this liability of $320 million ratably over the years 2014 to 2018, and that's worth about $200 million on a present-value basis.

Offsetting this is the net present value of the benefits of the exchangeable debt, that's about $500 million, that's the net value of the tax deductions related to exchangeable debt, the benefit of taking the current tax deductions, which are growing, offset by the liability of the interest recapture at the maturity of the debt. We also looked into several qualitative factors that we took into account. First, as I mentioned before, Liberty Interactive's inability to issue this type of favorable long-term debt, in current market conditions, or likely ever at all, given it is a high yield issuer. We took into account some of the risks that the tax benefits might not be fully realized. We took into account some of the risks that the tax liabilities might be accelerated, and we took into account other risks, including change in the tax law or other laws, reductions in Liberty Interactive's ability to utilize the tax benefits. The net of that is about $1 billion of these liabilities where subtracted, it is by about $500 million of net present value with tax benefits resulted in a cash payment to LINT of about $500 million. So you combine the $307 million for the Live Nation shares and the $500 million for the assumption of the exchangeable debt to get the $807 million tax or total payment. Liberty and its Board view this as a fair exchange of value between Liberty Capital and Liberty Interactive.

As you may recall, we've been through this process before. We previously did an exchange of debt between Liberty Interactive and LMDIA. We moved over the Viacom exchangeables. And just in the same case, we looked at as favorable to both entities in achieving their goals, and as in the prior case, we used a leading investment bank to confirm our view of values. Liberty Starz was not affected in any way by these moves, and I will be happy, as the rest of the team will be, to an your questions about this transaction or this reattribution in the Q&A portion of our call.

Let me turn to the fourth quarter and year end results. 2009, no surprise to any of you who have been watching, was much better than 2008. We had several transformative deals. The purchase of our SIRIUS XM interest, the spin-off of Liberty Entertainment,and its subsequent merger into DirecTV. We had numerous other positive transactions. We significantly strengthened our balance sheet by both restructuring our debt, extending maturities and retiring debt.

Since the end of the year, we've continued this process of rationalization of passive investments on a tax efficient basis, as always, focused on reducing what we believe is the substantial discount to net asset value at almost -- at all of our entities. Now that those transactions is included, the sale of all if our low-boat high basis IEC shares and the sale of all of our GSI Commerce shares. GSI Commerce is a great company. It's had a great run in the stock, and been we've been happy shareholders. But the reality is, as a minority shareholder we were unlikely to get the full benefit of the position. And lastly, our tender for Live Nation, which is still in process.

At Liberty Interactive, QVC had a very impressive fourth quarter which capped a greatly improved 2009 overall. I give full credit to a wonderful job by the management team. We, as I mentioned, have increased the liquidity at Liberty Interactive for the sale of IC and GSI shares, and as I mentioned before, we restructured its debt. QVC has paid down some of its bank lines and QVC has extended maturities through bond issuance. At the eCommerce companies, we had very solid growth in revenue and even better growth in OIBDA. Looking for a moment at Liberty Starz, notably, we issued our new tracking stock, Liberty Starz in November upon the completion of the LEI split off and merger with DirecTV, we hired a new CEO, Chris Albrecht, who started right after the first of the year, and you'll hear from him in a moment. We debuted Spartacus, our original programming to record viewership for Starz. And since the -- Liberty Starz began trading, we repurchased about 1.2% of the outstanding shares since November through January.

Lastly, we sold our stake in Wild Blue, which we had received -- which resulted in our holding of ViaSat stock of about $28 million. It's worth noting because Liberty Capital had been a lender to Wild Blue, it also received through the merger about $215 million of cash proceeds as its debt was repaid and about $28 million of VSS stock related to warrants received as a lender in that transaction. Lastly at Dimension Liberty Capital, they reported this morning, SIRIUS XM posted very strong operating results, and our shares are currently trading at a value of about $2.8 billion. With that, let me turn it over to Chris Shean and let him talk about Liberty Interactive's financial

Thanks, Greg Liberty Interactive group's revenue increased 14% to $2.7 billion for the fourth quarter, and increased 3% to $8.3 billion for the year while adjusted OIBDA increased 29% to $556 million for the quarter and 6% to $1.7 billion for the year. QVC, the primary driver of the results for Liberty Interactive had a very strong quarter and its total revenue increased 14% to $2.4 billion and 1% to $7.4 billion for the year while adjusted OIBDA increased 27% to $530 million in the fourth quarter and 4% to $1.6 billion for the year. Liberty Interactive's other eCommerce businesses continued to grow at a solid pace. In total, our eCommerce businesses experienced revenue growth of 17% in the fourth quarter and 20% for the year, while adjusted OIBDA grew 63% in the fourth quarter and 45% for the year.

Now let's take a quick look at Liberty Interactive's liquidity.At the end of 2009, the group had attributed and cash and public investments of $4.2 billion and $6.3 billion in attributed debt. Over the past year, Liberty and QVC management have been working to address its debt maturity schedule and reduce leverage. Along with a refinancing of bank debt in the second quarter, QVC accessed the bond market in the third quarter. QVC had already fully covered its $425 million maturity due in June 2010 by creating capacity in its revolver by paying it down by $425 million. Although the reattribution will increase LINTA's leverage, the reattributed debt is long-term, low-cost, with favorable tax characteristics, and it will enhance LINTA's liquidity and its ability to handle near and medium-term maturities. Subsequent to the quarter end, LINTA added to its cash balance by completing the sale of the remaining low vote IEC shares that it held and also sold all of its shares in GSI Commerce for approximately $220 million. Now, I'll hand the call over to Mike George for additional in-depth comments on QVC.

Thank you, Chris. We're very encouraged by our results in Q4. With 14% revenue growth and 27% adjusted OIBDA growth, we posted our strongest quarterly results in over 10 years and moved our full-year results into positive territory with 1% revenue growth and 4% adjusted OIBDA growth for the full year. These results were well ahead of most retailers, and we continue to take share against the broader market. We're also encouraged by the balanced nature of our performance with strong gains in both top and bottom line results and improving trends in all markets on a local currency basis. Q4 was the first quarter since Q1 of 2008 when every country posted positive revenue growth in local currency.

Now I'll walk through the results at each market. In the US, we increased revenue 13%, our consumer electronics, kitchen and floor care, beauty, accessories and fashion jewelry businesses were all strong. In addition, our apparel business, while soft, remained significantly over the trend -- improved significantly over the trend of prior quarters. On jewelry, especially gold, it did remain difficult, however. Our investments in eCommerce continue to pay off, with QVC.com posting 27% revenue growth. The internet represented 31% of total sales in the US in Q4, a 3 point increase over the prior Q4. Our return rate declined from 17.7% last Q4 to 16.4%, further strengthening top-line results. Inventory levels remain tightly controlled and were essentially flat with the prior year. We improved our adjusted OIBDA margin by over 300 basis points, driving 32% growth in adjusted OIBDA. This improvement was driven by strong productivity gains in our distribution and customer service operations, greater freight efficiencies as we optmized our shipping network, improvements in our fixed cost structure and a reduction in bad debt expense rate, our first reduction since 2007.

Perhaps most encouraging news in the quarter that we had 720,000 new customers join QVC US. That's a 22% increase in the count of new customers over the prior year. And revenue from new customers was up 53% over last year. This growth in both new customer count and -- revenue increased 6% in local currency, our third consecutive quarter of improving revenue trends. We saw strong growth in beauty and personal care and continued strength of fashion offset by softness in consumer electronics and some areas of home. Return rate improved over a 100 basis points, and we reduced our inventory levels over 35% from the prior year on a local currency basis. Adjusted OIBDA grew over 25% in local currency with adjusted OIBDA margins increasing nearly 320 basis points. The largest driver of this improvement was anniversarying foreign exchange losses from the prior year on dollar denominated inventory purchases.

In Germany, revenue increased 8% in local currency. This growth was fueled by strong gains in beauty, health, accessories, offset by ongoing softness in jewelry where we continue to pull back air time. Return rates were slightly down in the quarter, and we reduced inventory 18% on a local currency basis. Germany, like the US, enjoyed strong gains in customer count with 16% growth in the quarter, an encouraging sign for long-term growth prospects in Germany. And I should have said new customer count. Adjusted OIBDA increased 5% in local currency on a 70 basis point decline in adjusted OIBDA margins. Now that decline was driven primarily by softer product margins.

In Japan, revenue increased 4% in local currency. This was the first positive growth for Japan since Q1 as the team successfully navigated the global economic challenges and was particularly strong performance in light of our 19% growth in Q4 over the prior year. Fashion and beauty enjoyed strong growth, partially offset by softness in the home and jewelry categories. Adjusted OIBDA grew 9% in Japan on 116 basis point improvement in adjusted OIBDA margins. These gains were driven by higher initial product margins, improved distribution and call center productivity and lower marketing costs.

Now, we continue to make good progress with our Italy launch, and we are on schedule for a planned October opening in Italy. We incurred about $5 million of operating and SG&A expense throughout 2009 associated with the Italy's start up, and we anticipate an adjusted OIBDA loss of $30 million to $40 million in Italy for the full year of 2010. Our capital expenditures companywide for 2009 were approximately $181 million, and we anticipate CapEx of about $225 million to $250 million for 2010, including costs associated with the Italy startup. We see our share gains over other retailers who compete for discretionary spending dollars as a positive indication that our efforts to create a new kind of shopping experience are working, an experience that uniquely blends content, commerce and community. Compelling exclusive content is powering our business. The debut of our Isaac Mizrahi lifestyle brand, one of the biggest brand launches in our history is just one example. Other (inaudible) in Q4 included NARS cosmetics, Steven Black diamonds, Godiva chocolates, new fashion lines by leading stylists and designers like Rachel Zoe and Ava Rose, and Sony, Vizio and Nintendo in consumer electronics. These brands joined a powerhouse lineup of existing brands at QVC with standout performance in the quarter by, among others, B Makowsky in handbags, Rachel Ray in cookware, Harry Slatkin in home fragrances, Philosophy, Bobby Brown and Clairesonic in beauty, and Sharp Aquos and ClickFree in consumer electronics and Dennis Basso in fashion.

We continued our focus on creating major events and entertaining programming that drives viewers and creates buzz in the industry and among consumers. Our Mizrahi launch, for example, received extensive press coverage, and our Black Friday weekend sales were extraordinary as we went head to head with traditional retail, offering a better shopping experience without the hassle of the mall and also, without doing costly loss-leader promotions. Dell Netbooks, Curry Coffee Brewers and Philosophy were especially strong on that weekend.

ECommerce growth, as I've noted, continues to be critical to our business. On a global basis, our internet revenues grew 28% in the quarter; and for the full year, our total internet revenues companywide were over $1.8 billion, and we continue to expand our platforms. In December, we launched an iPhone application in the US that has been downloaded by 115,000 customers in a little over 2 months. In Japan, we launched our next generation mobile phone offering, which includes live streaming and video on demand. And in the UK, we expanded our interactive TV applications. And while we worked on these initiatives to grow top line sales and increase market share, we also stay committed to improving profitability and margins. We increased operating productivity and reduced costs in all markets, cut total inventory levels and dramatically improved free cash flow. Looking forward, while we recognize that the pace of consumer spend and recovery is uncertain, we remain committed to creating a better shopping experience, gaining market share and driving balance, top and bottom line results. With that, I'll turn it back to Chris.

Thanks, Mike. Let's take a look at Liberty Starz. While this tracking stock was issued in November, all amounts shown and discussed are as if this tracking stock structure had existed in its current form for the full year. Liberty Starz attributed revenue grew 6% in the fourth quarter to $304 million and 7% to $1.2 billion for the year, while adjusted OIBDA decreased 3% to $74 million for the quarter and increased 29% to $374 million for the year. At year end, Liberty Starz had attributed cash and public holdings of $825 million and attributed debt of $48 million. This does not include the $158 million intercompany loan to Liberty Interactive. From November 19 through January 29, Liberty repurchased 643,000 shares of this tracking stock at an average cost of $48.62 for a total consideration of $31 million. This represents 1.2% of the shares outstanding. Now Chris Albrecht will comment on events at Starz Entertainment and Starz Media.

Chris, are you on the line? Okay. Well, we've had a technical glitch getting Chris on, so in the interim, Bill Meyer is -- to talk about the quarter, and then when we get Chris on, we'll bring him back or have him be available for questions.

Good morning. Stars Entertainment had a very strong year in 2009 and is well positioned for 2010. For the year, adjusted OIBDA rose 28% versus 2008 for a total of $384 million. This came on revenue of $1.2 billion, an increase of 7% versus 2008. Three factors contributed to the increase in revenue, an increase in the average weighed number of subscribers, an increase in revenue per subscriber and revenue from new products and services and the sale of original programming to third parties on multiple platforms in the US and international marketplace. Programming costs continued to decline $629 million in 2008 to $615 million in 2009. This decline resulted from a reduction in the number of first-run movies, which are more expensive, offset by an increased use in less expensive library product and increased amortization of production costs for original series.

In the fourth quarter, adjusted OIBDA dropped to $78 million from $93 million in the third quarter of 2009, largely because of the marketing campaigns and production cost amortization associated with our two big dramatic series, Spartacus, Blood and Sands and Crash. The marketing campaign for Spartacus, which began in December and continued into the first quarter of this year, is the largest ever at Starz. On the original front with respect to Crash, we have decided not to renew Crash as it did not meet our audience expectations, and one of the big impacts in the fourth quarter of this -- of 2009 is an evaluation of the future performance of Crash, and we ended up writing off $8 million of production costs to bring it back into fair value. But with Spartacus, which premiered in January, has proven to be a major hit, attracting the largest audience for a Starz original ever. It ranks first in the ratings for its Friday evening time slot among all premium channels. And because of its performance, we have already announced plans for a second season. Also in the fourth quarter, we announced the renewal of our comedy series Party Down and unveiled plans to produce a new romantic comedy half-hour series, Gravity. Both will air in the spring of this year. On the affiliate front, we continue to work with our affiliates to bolster our strong lineup of high definition channels and we were pleased that DISH network last month became the first to launch high definition versions of IndiePlex and RetroPlex.

While the average number of subscribers for the year improved versus last year, we continued to realize subscriber losses in the fourth quarter as we did in the second and third quarters. However, there were signs toward the end of the year that the subscriber numbers had begun to stabilize. In particular, we saw improvement in the sales of Starz subscriptions in certain communities that had been particularly hard hit by the general economic downturn and where subscriber losses earlier in 2009 had been especially pronounced. We are hopeful that as the general economy improves, the subscriber numbers will follow. In addition, we have reached agreements with nearly all our major affiliates that will ensure that our services are included in their marketing campaigns in the coming months to a greater degree than in 2009. Most of the subscriber losses came from affiliates with contracts that are fixed in nature and therefore, do not negatively impact our revenue. Among the affiliates where we share the revenue from added subscribers, we realized aggregate subscriber gains in 2009. This combination contributed to the increase in total revenue and revenue per subscriber, even though the total number of subscribers declined in the each of the last three quarters of 2009.

Turning to Starz Media, our business units in 2009 continued to make progress, even in a challenging economic environment. For the year, revenue increased 13% to $364 million, adjusted OIBDA improved from a negative $189 million in 2008 to a negative $93 million in 2009. The improvements resulted primarily from the increased revenues from movies distributed by Overture films as they reached the home video, premium television and syndication markets. Costs declined largely because Overture released fewer films in 2009 than in 2008. Nevertheless, we recognize that significant challenges remain for Overture, and we are currently evaluating strategic alternatives for it. While a final decision has not been made regarding the future of Overture, we do not expect it to incur annual operating losses in the future of the same magnitude that it has experienced in recent years. Now I'll turn it back over to Chris.

Thanks, Bill. Turning to Liberty Capital. During the quarter, Liberty Capital revenue increased 18% to $154 million while the adjusted OIBDA deficit decreased 29% to $76 million. For the year, revenue increased 6% to $649 million and the adjusted OIBDA deficit decreased 41% to $175 million. Taking a look at Liberty Capital's liquidity picture, the Liberty Capital group has attributed cash and public investments of $7.9 billion. This is as of 12/31/09, and it includes the series stake and has attributed data of $4.3 billion. This does not include the $158 million intercompany loan to Liberty Interactive. From November 2 through January 29, Liberty purchased 82,000 shares of Series A Liberty Capital common stock at an average price of $22.94 for total cash consideration of $1.9 million. Cumulative repurchases, hence the reclassification of this tracking stock, represent 26.2% of the shares outstanding. Now, with that I'll turn the call back to Greg.

Great, Chris. Thank you very much. So let me also thank Mike and Bill stepping in for Chris Albrecht for the update on the Starz businesses and the QVC business. Let me briefly --

Greg.

Chris.

Greg, yes, sorry. I was on the call the whole time. You guys could not hear me.

Yes, we couldn't. Obviously, there was a technical glitch. Well, we'll --

My apologies.

Not your -- not a problem. Bill ably stepped up and handled the quarter's results. Let me talk briefly about the year ahead, and as you can see, the changes in the attribution of debt and assets between Liberty Interactive and Liberty Capital are effective immediately, and we view them as positive, as I mentioned, for both trackers. We believe it positions both trackers positively in the future to focus on the drivers of value that are critical to each. These include, at Liberty Interactive, focusing on receiving full credit for our premium retailers, QVC and our group of eCommerce companies, continued growth at both QVC and those eCommerce companies, rationalization of the public assets that we view as non-core to Liberty Interactive on a efficient basis and opportunistic acquisitions and new ventures, like the things we're doing at lockers and the Wright store.

And at Liberty Starz, which as I mentioned, was unaffected by the changes in this attribution, we're going to focus on operational execution and building cost-effective programming, including originals to differentiate the channels for the benefit of our consumers. And we're going to determine the effective uses of the large cash balances and borrowing capacity at Liberty Starz. And lastly, at Liberty Capital, we look forward to continued growth at SIRIUS XM and Live Nation. We'll focus on rationalizing the non-core holdings that are there, and we'll again look at the effective use of capital, reducing debt, shrinking equity, opportunistic investments in both debt and equity. We appreciate your continued interest in Liberty. I recognize, particularly this quarter with the attribution it may take more work to stay involved. But we hope we're making it clearer, cleaner and better for you. And with that, stay tuned. We'll thank you for listening. I'll turn it to the operator and open it up for questions. Thank you.

Thank you. (Operator Instructions) Our first question is from David Gober with Morgan Stanley.

Thanks. Good afternoon, guys. One kind of big picture question for Greg and one on Liberty Starz hopefully for Chris. On the big picture question, in terms of reattribution, it seems like almost all of the Media LLC parent company debt is now at LINTA, but still a little bit left at ALCAPA. Is there any consideration here that longer term, this makes it easier for either Liberty Interactive or other pieces to be hard-spun. And I guess, longer term, Greg, what's your view on the tracking stock structure, and do you think it's more or less a permanent construct. And then on Liberty Starz, I'm just curious if Chris could give us an update on the Disney relationship and any changes there and how you view the Netflix distribution model as well.

So I'll go first, and you're right to note that almost all of the LM LLC debt is now inland, the exception of that being the Time Warner exchangeables which have a 2013 put and call relationship. And our -- just to be clear for those -- are more than adequately covered in value by the underlying stock we own in TWX, TWC and AOL. So in effect, you can think of those in our minds as we do as defeased by the underlying equity value. It's not a technical defeasance, but it's a practical defeasance. Whether the long-term structure of the trackers is the perfect one, I think we've always said, or I've said that the trackers offer lots of flexibility, tax advantages and a bunch of other advantages in thinking about our business, but they're unlikely to be the structure that yields the highest value of the assets.

So while there may be benefits in the interim and in for some period in having a tracking stock structure, which we obviously believe because we have it, ultimately, to get full value for an asset, you are likely to need to put it in a condition of an asset backed security. You've seen our strategy heretofore has been in effect to do that. We have -- looking back now over six years, we spun off LMI and created Liberty Global. We spun off Discovery Holdings, created Discovery Communications, another free-standing entity. We spun off our interest in LEI to Merchant Direct TV. All those create flexibility. Whether that means that we break the trackers or ultimately spin other assets away, we have no plans today. But building flexibility, understanding that ultimately we're going to need to put assets in our shareholders' hands to get flexibility, that's part of our goal.

With regard to --

Let me let you talk to Chris, thanks.

With regard to your first question about Disney, Starz has enjoyed a long and successful relationship with Disney. We're in discussions actively about continuing that relationship well into the future, and we have every reason to be confident that we will be able to do that with an arrangement that closely mirrors the current situation. With regard to Netflix, is that the second question?

Yes.

We think it's extremely important to continue to try to expand the distribution partners for the Starz and Encore networks. "New media partners" are certainly opportunities that exist presently and in the future. At the same time, we need to make sure that whatever agreements we have with them take into account and protect and respect the long-term historical relationships that we have with our traditional distributors and suppliers, and I think it would be honest to say that the current agreement could be improved with regard to that. And as we look forward to continuing our relationship with Netflix or any new media partners, we're going to focus very heavily on the big picture.

And I guess because you mentioned your other distribution partners, just curious if you could update us on -- I think some of the agreements that were scheduled to expire maybe were still month to month like the Comcast Encore piece and the Time Warner Cable arrangements, which I think were up at the end of '09.

Yes, we are in very productive discussions with Comcast, and I think there is a real willingness on both sides to ensure that that relationship continues contractually, again, well into the future, not just for carriage of the networks, but for the marketing and monetization of that relationship. With regard to Time Warner, I'm hopeful that the many strong relationships that we all have with the management at Time Warner Cable will allow us to be able to get into a much more productive relationship with them, and I think it's a real opportunity for both companies. Obviously for us, but at the same time, the premium television business is one where we only make money if the operators are making money. So for there's a mutually beneficial opportunity here. And we are talking to Time Warner Cable and I think those discussions will hopefully heat up and increase their intensity over the next couple of weeks.

Great, thank you very much.

Thank you, and our next question is from Doug Mitchelson with Deutsche Bank.

Thanks so much. A couple questions. First, Greg, I was hoping to clarify the balance sheet for ALCAPA. So I'm not sure we can do this on this call, but let's give it a shot. So you recorded face value of the debt in your press release at 12/31 of $4.22 billion and $1.4 billion of that is going over to LINTA an $838 million of that is related to the Sprint collar which is going to unwind between now and July. So it seems like that -- really, that debt level is a pro forma $2 billion. And you reported $3.2 billion of cash, and you've got --

Wait a minute. Let's stop there.

Okay.

So I've got a couple of people who are much more knowledgeable than I am in the room, thank goodness. But I think about it this way. You -- our -- we've got the exchangeable debt that is being moved across, obviously eliminated. You've got the exchangeable debt remaining behind, which is the Time Warner exchangeables, which I mentioned already, are in our view, covered by the Time Warner underlying stock -- Time Warner family underlying stocks, both TWC and AOL and TWX itself. You have the $750 million facility we have with Deutsche Bank, which is, for accounting purposes, is treated as fully drawn; but as practical matter, I believe we have about $340 million of it drawn today. And that is offset on the asset side by subdebt and senior debt in TMT companies that we've invested in, and we have a positive -- not only a positive carry, but we are more than covered by the gains in the investments we've made against that debt. So in my mind, that has effectively covered. Obviously, the world could change, subdebt could -- we could do, we owe that money. But that is effectively covered as well.

And then you have got the Sprint collar which we've borrowed against. As you may recall, because we wanted to insure our liability against certain financial institutions, Doug. And so that money is effectively covered as well, because the collar is actually larger than the underlying borrowings. That is the, other than some minor pieces of -- I think we have, like the money up in -- we've gone to -- up in Canada, some minor pieces on Starz Media, that is effectively the debt of Liberty Capital. Those three groupings are -- there's under a $100 million of other debt. I think it's 50-ish, right Chris? Is that correct?

It's $150 million.

$150 million? Other than that?

There's $838 million under the collar loan, the investment fund facility is 750, and of course, some of that money is sitting in restricted cash. Over half of it. And then a little over $1.1 billion Time Warner debt, and then the 150 other.

Right, so excuse me, 150 of other. I was a little light there. I apologize. 150 of other. That is really -- the 150 of other in my mind is the non-defeased, non-covered portion of the debt at Liberty Capital. Go ahead, Doug.

All right. So we've got essentially almost, virtually no debt at Liberty Capital pro forma. I'd have to adjust my assets a little bit, but that's fine. On the cash side, you reported $3.2 billion. You obviously have some cash going out the door, but you also have $158 million coming in from QVC, and you still have the Wild Blue cash coming in, correct? So essentially, pro forma cash around -- Wild Blue cash is in. The WIld Blue cash is in, you have other cash which will be coming in, which as we noted, that LIberty Interactive will repay its loan to Liberty Capital, but that balance is 135. Is that right?

158.

158m excuse me. A good thing we have people to keep me honest. 158.

So you essentially have $2.5 billion of pro forma cash and virtually no debt, because your debt is covered by assets. And I guess I'm just --

Go ahead, Chris.

It's important to know that there's about $400 million plus of restricted cash from that investment fund facility that's sitting in other assets.

Understood.

So the point to make there is when you take the 400 and the subdebt, right, it covers the -- that covers the 750. The way I think about it though is really, we have only -- utilizing 340 and the assets cover that. There is a complete match between the drawn debt and the restricted cash for the balance.

Understood. Again, so you virtually have no debt at ALCAPA pro form all these asset allocations. You have $2.5 billion of cash. So what level cash now with the reattribution changes that you've made do you need to have at ALCAPA?. How much would you consider excess cash, and what's the plan in terms of share purchases versus pursuing Live Nation and others?

I think the liabilities other than the debt that we have there are really tax liabilities. Now we significantly reduced pro forma the tax liabilities for Liberty Capital with this transaction, because all of the tax liabilities related to either the early retirement of certain Sprint exchangeables back in 2009 or the other future or the other future reductions already taken, that is now with Liberty Interactive. So just looking at Liberty Capital for a sec, you significantly reduce tax liabilities. Tax liabilities fall into two categories broadly.

One is related to the Sprint derivative and the short against the box there, and the other is the gain in SIRIUS. I do not believe it is likely that we will trigger the gain in SIRIUS. There is virtually no scenario I can think of that my chairmen would let me even talk about doing that. So you're talking about something -- we are either likely to, somewhere down the road find another way to get liquidity in SIRIUS or become a purchase of SIRIUS. I think we've talked about that in the past, those are the logical alternatives. So you're left with looking at the other liabilities that might come due. And we obviously need to keep some cash balance on that. And you're looking at what else we might invest in over time, and that's really our choice. As I mentioned, investing in our own equity, investing in our own debt. Which would mean effectively the Time Warner debt in this case. Investing in other companies' debt and other companies' equity. We obviously think our equity is attractive, but I would note some of the other investments we have made have turned out pretty attractively as well, like SIRIUS. So I'm not going to pre-judge which way we're going to go with any of that money.

All right. Then the question for Chris, and I apologize to my peers for the length of the question. But just quickly, Starz outlook for EBITDA in 2010, any sense -- obviously people are nervous that TV spending could take away from the core EBITDA growth of the business. Could you give us any sense of where you think 2010 will come out?

Sure. As we said, or as Bill read, we think we're well positioned for 2010, and we certainly expect to meet the targets that we set for ourselves. There is a unique challenge the need to invest in additional original content to help position the networks, both with the affiliates and with the consumer, and we intend to do that. But at the same time , we do not want to negatively impact the P&L growth that we've predicted. So we are actively working on innovative methods to be able to increase the amount of spending that we can handle on the original side and accomplish both goals, and we are confident that we will be able to ramp up at the scale that we need to with the kind of programming that's going to be important for the continued health and growth of Starz Entertainment. And at the same time, protect and potentially even improve the things that we're

Glenn, Curtis is the CFO at Starz, as you know. Glenn, you might reiterate what -- Chris says what we've said -- or reiterate that he's endorsing what we said. What are we talking about, projecting for growth next year -- this year, 2010?

As we previously had said on a call, 5% to 10% was the range that we gave.

In cash flow and OIBDA growth. And we're still comfortable with those numbers.

Thank you very much.

Thank you, and our next question is from James Ratcliffe with Barclays Capital.

Good morning, guys, thanks for taking the question. Chris, a couple for you. You clearly -- at HBO ,you were known for driving additional content. Can you talk about how much original content you think Starz really needs to have? Particularly as it sounds like with the shutdown of Crash you're at one hour-long drama. Do you expect that we should -- that you'll be replacing that going forward?

Sure. The job of programming any of these premium services, I think is to create value and also differentiation from the other entries in the category. I never felt that the pay TV game was a ratings game, it's really more an attitude no game with the subscribers and with the operators. So we intend to have a year long presence in original programming, and we're talking about and working on having a brand that feels cohesive with the other pieces of the network on the theatrical side. And I would expect that while it will take us a little while, that these things just don't grow on trees, to ramp up to the full complement of what we're expecting to do, I think between series and mini-series type events or other forms of long form programming will have a full complement, hopefully by the end of 2011. And as I said before, we expect to be able to do that with some innovative financing methods so that we can continue to meet our growth targets.

And HBO, you are part of a much larger portfolio of cable content assets. Can you talk about the pluses and minuses of Starz essentially being a standalone?

Well, I think they would be what you would expect. On one hand, you don't have to worry that there's someone else who is mucking up the relationship with the distributors or content suppliers, that you're going to have to be draw into. At the same time, it would be fair to say that a standalone operation has some challenges in terms of leveraging other strengths with distributors. Having said, that I think the most important thing for us now is to create a vibrant brand for the Starz network. Encore is a terrific product that the distributors and the consumers enjoy and like very much. So we feel very good about that, and I think if we can take Starz and make it the network that we plan to, we're going to have the appropriate leverage and the appropriate relationships with the necessary suppliers and distributors.

Thank you.

Thank you and our next question is from Bridget Weishaar with JPMorgan.

Hi. Thanks for taking my question. I just want to clarify this reattribution and its impact on the Liberty Interactive. So my understanding is cash flow increased by $807 million, debt will increase by #1.4 million, the Live Nation asset will be eliminated, and the part I'm going to confused on is you have that $830 million in net taxable income that resulted from a cancellation. Can you just explain exactly how that got generated and how we should recognize it on the financial statements?

We retired in 2009 some of the Sprint exchangeable debentures. There was both DOD income and prior tax liability for deductions taken, i.e., interest deductions taken larger than cash payments made, that under the new tax laws that were adopted in 2009, caused those to be recognized over five year period, and so that is how we get the numbers we're showing out in future years. We expect to be taking in that taxable income, okay, in years 2014 to 2018, because under the -- some of the law changes that were related to the stimulus package, they extended that period for five years. You've got a holiday and then you recognized your COD and related income over a five year period. One thing that's worth noting is that this will even be cash-flow positive in those years, because the interest deduction taken in those years will be larger than the taxable income generated. Because these Sprint exchangeable debentures and Moto exchangeable debentures that are being transferred or reattributed across have that feature, they will actually generate tax deductions, i.e., interest deductions larger than cash interest paid in excess of the amounts being recognized here. The $830 million being recognized over the five years. So I don't think from a cash flow perspective it will still be negative.

Okay. And then how will that be recognized on the financial statements now? What impact would it have?

Well, basically a lot of these -- these liabilities are already reflected in deferred taxes, and so we haven't finished running. I guess in the first quarter, you'll see the movement of the balance sheet accounts amongst the tracking stock groups. But you'll see movements in deferred taxes from one group to the other.

Okay. And then one last quick clarification. The GSI and the low vote IEC, you said it generated $220 million in cash. Is that recognized for Q1 mix? Can you give me any indication?

That's GSI. GSI was 220 alone, and IAC was -- do we have that number? Just over $50 million in the first quarter. In Q1, recognizing we've been selling in prior periods, in Q4 and the like, we've sold more. In Q1, it's $50 million, which obviously won't be recognized until we report the Q1 financials.

Got it. Thanks.

Thank you. And next we'll hear from Matthew Harrigan from Wunderlich Securities.

Thanks for taking my question. First, on Q3, you had agreed that the impact on new customer activity at Direct and Dish from the channel repositionings, and it looked like that probably accounted for a disproportionate amount of the benefit in that quarter. Q4 was so strong, I assume you were probably good across the board, with most of the MSOs. And given that and how attractive people find QVC once they sample it, would you be tempted to do another campaign paralleling what you did with IDO on the IQ. Do you -- that's my first question. And the second question is world space, it looks like there are a number of angles you could take with that. And then thirdly, I too got a little confused on some of the shifting. Does the full 830 on the movement of the deferred taxes happen right away on the balance sheet between respective trackers?

Yes, it does.

Okay, great.

Just the last question, so then we'll let -- Chris, do you want to talk about -- excuse me, Mike, do you want to talk about QVC and then I'll come and talk a little bit about world space.

Sure. When you look at the strong new name growth in Q4, I'd attribute to three or four primary factors. Number one is we just put out a set of product offerings that really appealed to new customers. Keep in mind that at any given point in time, we have ten non-customers watching QVC for every customer watching QVC. So when we get it just right and get the right kind of products that have high appeal to new names as we did in Q4, you can really get explosive growth without any additional advertising or other support, just by people coming by the channel. That's the number one driver.

The number two driver, I do think we've been helped by the good work of our affiliates team and improving our channel positioning in DirecTV and EchoStar Dish, as well as getting us more HD placement. We're up to 25 plus million HD subs. So done a number of things to improve the quality of our real estate on the TV dial. And I think the third factor is we have never in our history had the level of publicity, buzz, PR coverage around what we're doing as we had in Q4.

And so we aim to keep up all three of those. I certainly can't promise that we'll get the kind of growth we got in Q4, but we feel good about our ability to attract new names. I wouldn't think about it necessarily as an expensive paid advertising campaign. I think for us, we're finding that combination of get the right products out there, continue to optimize channel positioning and then drive energy excitement around the brand. A lot of it with on paid media, basically buzz, but also continuing to optimize page search, continuing to optimize natural search, doing some forms of direct marketing. I think all those things come together to help us sustain that kind of growth in new customers.

On world space, we are -- it's a evolving relationship. We are currently a lender to world space, to the debtor possession (inaudible) because we purchased a loan and have extended some debt financing to that. We have had discussions about a broader relationship that are not yet resolved. Our interest in that, and frankly, it's somewhat of a venture capital type play, could take several forms. We obviously like satellite radio. We think it's a great property. Could there be opportunities for satellite radio outside of the United States? We're certainly looking at that. In addition, world space has L band spectrum in virtually in every place in the world except for the US, Japan and South Korea, and it's got a couple of satellites in the air that might be of value. And beyond that our views -- our plans are evolving.

Great. Thank you.

Thank you. Our next is from Jason Bazinet with Citi.

Thanks. I apologize if I missed this in the flurry of numbers you gave out, but as of the third quarter, at least I have $2.178 billion of net deferred tax liabilities at ALCAPA. Did you say how much that deferred fax tax liability is going down as a result of the transfer?

We did not say that, but it's going down by about roughly a billion -- $1.1 billion.

$1.1 billion,okay. Thank you --

And keep in mind, that deferred tax number is not a discounted number. For GAAP, deferred taxes are reported at their gross basis difference times whatever the expected enacted tax rates are, Whereas the actual economics of this transaction were evaluated on a present value basis.

And so there are four -- when you go through all of those -- I understand.

We're looting at these numbers. There's Liberty Capital in effect got paid for the discounted value of those future deductions, and you have this kind of perversity where Liberty Interactive is booking deferred taxes due, a great -- the bulk of which is due in 2029 and 2031, on its balance sheet today. And that's obviously a non-discounted, non-present value liability.

As a result of that, Jason, once we reflect these numbers through the tracking stock schedules, there will be a plenty large movement from book equity from one tracker to the other. And the difference is largely due to this -- the fair value, if you will, of the deferred taxes versus the book value.

Is another way of saying that the numbers that are reported on the financial, when you say a gross basis, is it doesn't reflect the time value of money? Is that the way to think about it?

That is absolutely correct.

Okay. Thank you very much.

And next we'll go to Barton Crockett with Lazard Capital Markets.

Okay, great. Thanks for taking the question. I was wondering if you comment a bit more about the Live Nation investment, and in particular, you guys have described this as an investment. I just wanted to clarify, of all of the things you can put money into that you have available to you out there, your view is that Live Nation is the best, or was there other some strategic or secular things that drove you to do that? Perhaps something in conjunction with your stake in SIRIUS.

When you put it that way, is it the best possible thing we could do with the money, that's a high bar. We obviously think that it's an attractive investment among the alternatives. We think that the merger in which we already have just under a 15% stake is attractively positioned, and owning more of it is a positive. Whether there are more strategic things that down the road we can do in the music space, that's the glorious dream.

We have assets which have and relationships with companies in various forms that have a lot to do with music, starting with SIRIUS XM, but even going to DirecTV, which we have no obvious economic tie today, but we have pretty good relations with, and they are an important promoter of music. And whether those kind of things evolve, that's the glorious future. I wouldn't count on that. We like that, but we look at the numbers that they are producing on their own and think it's pretty attractive. Mark Carlton who's in the room is on the board of the merged company. Maybe you can comment, Mark.

No. I think we definitely like the business. We love the management team that they have in place and what their opportunities are, and we think what they are going to be able to put forth together is great for music fans. It should help drive the business as well.

Okay. Great. And then turning to SIRIUS, you talked about the options of either spinning of with voiding the tax liability or purchasing SIRIUS, but SIRIUS stock obviously has taken a huge leg up just in the past few weeks, and with another investment you guys have at HSN when that stock ran, it did get to a point where you started to suggests that perhaps it was pricier that your appetite was. Is SIRIUS at that level, or can you even go there and comment on it? I know it's a year ahead of the standstill, but can you comment on your SIRIUS value now?

I think the comparison is is just a little bit false in the sense that, on the age of (inaudible), we sit with a comp, a better performing, stronger comp. And while we like the HSN business, we have one called QVC which out performs it and is undervalued compared to it. So it's hard to look and say , gee, today our best use of capital would be putting more money in HSN versus more money in QVC given the relative performance and the relative valuation. In the case of SIRIUS, there is nothing out there like it. It has a unique position obviously in satellite radio, but it also has a relative unique position about being a scale media company which is growing at enormous rate, both good top-line growth and excellent bottom-line growth through synergies related to the merger and opportunities around that.

So what's fair value on that is a lot harder to calculate, because there's nothing out there, as I said, like that. There is nothing out there that is growing as quickly. You saw it, they reported their number this morning. The blip that they had in operating losses from 2008 to operating income in 2009, it was over a $900 million swing. That's a pretty good run. And I don't think Mel's quite predicting that big a number for next year, but it also still has a -- his forecast is for very good growth, again, above anything else in the media space. So it's a little hard to make the

Okay, and then one final question, turning to Starz. I think you said in the discussion of revenues that there was some benefit from non-affiliate fee sources, I think sales of programming, perhaps other networks or DVD sales. I was wondering if you could give us any sense of the quantification of that. And if Chris, if you -- obviously, HBO did great with this or has done great with it. What's the opportunity to ramp up more of this type of revenue at Starz?

Let me just stop -- step in, Chris, and say we are not making public the scale yet. It's not material to the overall business yet, but we're not making scale yet the pubic of those ancillary revenue sources. Obviously it's an area that we think has opportunity, and I will let Chris pick up on how he thinks that is going to work in the future.

I think the opportunity for Starz to grow revenue off the content businesses will come primarily from being able to distribute that content in other areas. I've felt for awhile that it is probably not as important to outright own the IP as it might have been -- as people might have thought in the past. At HBO, we certainly grew a very large revenue driver off of the original content that was put on the network. But it was a different time with different opportunities and different realities and some in some of the ancillary markets. So we want to fund this in an innovative way that is going to allow us to retain some valuable off-Starz distribution rights. But at the same time, our primary goal is to make sure that we're investing the appropriate amount of money to -- for the health of the networks and ancillary revenue off of those products is not the primary driver of our investment.

Okay. Great.

So operator, with that, I want to thank everybody for joining us today. We've gone more than an hour, but I guess we had a fair amount of stuff to cover today. Thank you for your continued interest in Liberty Media, and we'll talk to you next quarter, not before.

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