QVC Group Inc (QVCGA) 2010 Q1 法說會逐字稿

Good day and welcome to the Liberty Media Corporation quarterly earnings conference. 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 fact. 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 date of this presentation, and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Media's expectations with regard there to or any change in events, conditions or circumstances on which any such statement is based. On today's call we will discuss certain nonGAAP financial measures, including adjusted EBITDA. The required definitions and reconciliations, preliminary notes and schedules one through three can be found at the end of this presentation.

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

Thank you, and good morning and thank you to all out on the call for joining us today and for your continued interest in Liberty Media. Today, we'll review the year and the quarter by tracker, we'll discuss the operating performance at our controlled subsidiaries, we'll cover transactions and other developments. Liberty's Controller, Chris Shean will discuss the attributed businesses financial performance and the liquidity picture for each of those, and QVC CEO, Mike George will discuss operating developments and results at QVC, Starz CEO, Chris Albrecht will review recent events there at Starz, also on the call today we have, QVC's CFO, Dan O'Connell, Starz Entertainment President and COO, Bill Myers, Starz' CFO, Glen Curtis, and several other assembled Liberty Senior Executives will all be available for questions after the prepared remarks.

So looking at the first quarter, in general we had excellent and continued momentum from what we experienced in Q4. At Liberty Interactive, QVC experienced a good first quarter with top tier retail revenue results and industry-leading revenue results among home shopping networks. We continue to expand our margins, and we continue to drive Internet adaptation and evolution of the business with US qvc.com revenue growing about 24% year-over-year and globally.com revenue growing about 23% year-over-year.

Our eCommerce companies posted 10% revenue growth despite a change in our non-transaction revenue programs that reduced revenue, and more dramatically impacted adjusted OIBDA. Chris Shean will talk a little more about that in detail in a moment.

At Liberty Interactive we continue to clarify the story, continue to enhance liquidity by selling our non-- our shares in (inaudible), GSI and our low vote shares in IAC. We also extended maturities, with issuances of $500 million tranches of seven-year bonds and 10-year bonds. We used some of that liquidity into-- for our recently announced dutch auction tender for $400 million of our senior debt-- senior notes maturing in 2013.

At Liberty Starz we had good revenue and adjusted OIBDA results despite a lack of significant CPI adjusters and a programming write-down that Chris Albrecht will discuss in a little more detail. We were very pleased with the response to Spartacus throughout the 13 weeks, I think the script got stronger, the audience stayed-- grew and was strong. That's a good example of what exclusive original programming can do and we see the positive results in the sequential trend in subscribers that is at least partially a result of that. There's a virtuous push/pull cycle with our distribution partners being more apt to feature us because of original programming like Spartacus and our end-use consumers being more apt to ask for us because of original programming like Spartacus. We're working on the development of new and exciting series, perhaps you've read or heard about the coming debut of Pillars of the Earth, which will be on in July, the gripping historical novel that was in Oprah Book Club selection and sold over 15 million copies, we think is going to a great event for our Starz subscribers this summer.

At Liberty Capital, Sirius XM posted very strong financial results driven by good operating performance including 171,000 net ads, churn falling down to 2% being reduced to 2%, and increased conversion particularly at some of our growing partners on the auto side. Despite the market correction of the last few days we have very strong gains there and remain very excited about the business and its opportunities going forward.

We're also excited about the opportunities for and the stock performance of Live Nation. While we had mixed results for our tender garnering a little less than 1% of the 34 million shares that we sought, it's a typical Liberty story in that we were somewhat pleased with the 35%, 40% and stock price increase because we already own 15% of the stock. We continued the share repurchase at Liberty Capital, buying back about $87 million worth of stock from January 30th to April 30th. And as you may have read in the release we re-upped for another $500 million of LCAP share repurchase authorization approvable by our Board. So with that, let me turn it over to Chris Shean and let him talk first about the LINTA financial results.

Thanks, Greg. Liberty Interactive groups revenue increased 11% to $2 billion in the first quarter while adjusted OIBDA increased 12% to $381 million. QVC is the primary driver of results among the Liberty Interactive attributed assets had a strong quarter and its total revenue increased 11% to $1.8 billion while adjusted OIBDA increased 15% to $366 million. Liberty Interactive's other eCommerce businesses grew revenue 10% for the quarter. Almost each Company posted an increase in revenue, however, overall revenue growth was partially offset by lower commission revenue earned when customers sign up for third-party online discount services. During the quarter a decision was made to change the way these promotions are offered which reduced the revenue earned in the quarter. These changes are expected to continue to adversely impact commission revenue throughout 2010.

For the year ended December 31, 2009, our eCommerce businesses earned revenue from these commissions of approximately $32 million. Adjusted OIBDA for the eCommerce businesses decreased 33% for the first quarter and represented almost 7% of revenue, as compared to 11% in the prior year period. Revenue earned from the commissions had significantly higher margins than product sales, therefore the reduction in this revenue more negatively impacted adjusted OIBDA on a percentage basis. Additionally in the first quarter, more costs were incurred associated with our two start ups, LOCKERZ and Right Start, which had very little related revenue at this point. These negative impacts offset the product related adjusted OIBDA growth that was achieved by our eCommerce businesses.

Now let's take a quick look at the LINTA liquidity picture. At the end of the first quarter the group had attributed cash and public investments of $4.6 billion, while it had $7.6 billion in attributed debt. QVC accessed the bond market in the first quarter and issued two series of senior notes with a total principle amount of $1 billion. To use the net proceeds to purchase and cancel term loans under it senior secured credit facilities that matured in 2010, 2011 and 2014.

Additionally during the first quarter, Liberty Interactive repaid the full intergroup loan balances to both Liberty Capital and Liberty Starz. On April 30th, an additional $159 million of bank debt, due to mature later in June of 2010, was purchased leaving $16 million of outstanding bank debt due in the second quarter. Now with that I'll hand the call over to Mike George who will provide more insights into QVC.

Thank you, Chris. We were delighted with our results in the quarter. We were able to driver strong increases in revenues and adjusted OIBDA, as you heard from Chris, and continue gaining share against the broader retail market and sustain the strong momentum we saw in the back half of last year. We grew revenue 11% Company wide with particularly strong performance in the US and Japan. We continue to see outstanding growth in our eCommerce platform with global eCommerce revenues of $476 million, up 23% from Q1 of 2009. In addition, we continue to add new customers at a strong rate with worldwide new customer count up 10% and revenue growth from new customers up 18%. Our adjusted OIBDA grew 15% on a 90 basis point improvement in OIBDA margins driven by strong gains in overall product margins and improvements in warehouse and freight productivity. And excluding the impact of our Italy start up, OIBDA margins were up over 100 basis points.

And with that overview I'll walk through the results in each market. In the US we increased revenue 10%, our beauty, accessories, consumer electronics, and kitchen and floor care businesses were especially strong. Our initiatives to build the leading eCommerce business continue to pay off with qvc.com posting 24% revenue growth in the US. In the quarter eCommerce represented 32% of our US revenue up three points from Q1 of last year. We also continue to add new customers in the US at a strong pace, in Q1 our new customer count grew 15%, and revenue from new customers increased 26%, our second highest quarterly increase in over a decade topped only by Q4s strong growth.

Our return rate did increase from 18% to 18.6%, although this is primarily a reflection of adjustments we made in Q1 of last year to true up our accruals with our actual experience. Excluding the impact of those adjustments, our return rate increased just 10 basis points. We grew adjusted OIBDA at 19% driven primarily by 130 basis point improvement in product margins and strong gains in warehouse and freight efficiency.

Turning to the UK, revenue growth was flat in local currency, a reversal of the improving sales momentum we had seen through most of 2009. We saw strong growth in our fashion, beauty, and arts and crafts businesses, offset by softer results and fine jewelry and consumer electronics. In hindsight, we were probably too focused on bringing down inventory levels in Q4 and didn't have enough product and programming ammunition to hit our goals in Q1. The team recognized the issue early in the quarter and began taking the necessary steps to improved results, and we do expect to see better performance throughout the year. Adjusted OIBDA declined 7% in local currency, driven by an increase in the obsolescence rate, partially offset by improved operating costs. the increase in the obsolescence provision is largely due to timing issues which should normalize over the course of the year.

In Germany, growth also slowed with revenue in local currency increasing 2%. Most of our businesses actually performed quite well with particular strength in health and beauty, accessories, consumer electronics, small appliances and home textiles. However our jewelry business was difficult. In an effort to turn that business around, we took jewelry off the air completely for the last three weeks in March so that we could relaunch it on April 1st, with fresh product, packaging and programming. While this severely impacted results in the month, we felt it was the right move to strengthen our jewelry business for the long term. Adjusted OIBDA declined 1% in local currency, due to 120 basis point erosion in gross profit driven by a mix shift to consumer electronics and slightly higher liquidation activity partially offset by strong gain in variable cost in our productivity and lower fixed costs.

In Japan, revenue grew 13% in local currency, an outstanding result especially in light of the continued economic challenges in that market. The health, beauty and fashion businesses were particularly strong. Our Japan business has gained momentum for three consecutive quarters and we're encouraged by both the strong sales growth with existing customers and our success introducing new customers to the business. ECommerce revenue growth was particularly strong, up 25% to 22% of total sales. We continue to see strong usage of mobile devices in Japan, which now represent close to half of all eCommerce revenue. Adjusted OIBDA grew 20% in local currency, driven by 100 basis point improvement in product margins and productivity gains in our warehouse and call center.

In Italy we had a $4 million adjusted OIBDA loss as we began to staff up for our launch later this year. As we previously announced, we anticipate an OIBDA loss in Italy for the full year of $30 million to $40 million. And we continue to make good progress on our start up plans and remain on track for an October launch to roughly 17 million homes in Italy.

Collectively our international operations grew adjusted OIBDA 8% in US dollars in the first quarter. If we normalize for the losses associated with the Italy start up costs, international adjusted OIBDA would have grown 11%. And total Company OIBDA would have increased 16% without Italy, versus the 15% we reported.

We believe these strong gains in revenue and OIBDA and market share and eCommerce penetration and in new customers reflects the success of our continued efforts to create a new kind of shopping experience founded on exclusive compelling product and programming content, the leading multi-media platform and outstanding customer service.

On the content side, highlights in the US in the quarter included our most extensive fashion week programming to date and a major red carpet event live from Los Angeles in conjunction with the Academy Awards, the roll out of our new Isaac Mizrahi lifestyle brand that premiered in December, several successful brand and product launches, including the new Suze Orman product line, Jillian Michaels products for the Wii Fit, Steve Makowsky footwear complimenting his highly successful handbag line, Kim Kardashian's premier fragrance, Vitamix blenders and Dyson vacuums.

On the platform side, in addition to our strong overall eCommerce growth, we see continued strong interest in our iPhone app, and over the next six to eight weeks we will be rolling out an enhanced app with live streaming and other features as well as complimentary apps for the Android and BlackBerry platforms. We also launched a desktop Widget to lure customers to our today's special value and other promotions. And later this year we will roll out our new global eCommerce platform to our markets in the US, UK and Germany, in which we expect will further bolster our strong eCommerce performance.

We also continue to strengthen our TV platform. In the US, our HD rollout continues and we're now up to about 32 million homes. And two weeks ago, we announced an exciting partnership with ITV, the UK's largest commercial television network. Beginning in late May, QVC will be simulcast on ITV1, their flagship channel for 27 minute segments between midnight and 2:00 AM for a total of six hours a week. Through this partnership we'll be able to expose QVC to millions of potential new customers and also create an additional tune in opportunity on a highly traffic channel for our existing customers. And with that I'll turn it back to Chris.

Take a look at Liberty Starz. Liberty Starz attributed revenue grow 3% in the first quarter to $307 million while adjusted OIBDA decreased 1% to $103 million. At quarter end Liberty Starz had attributed cash and public holdings of $1 billion and attributed debt of only $47 million. From January 30th through April 30th, Liberty repurchased 540,000 shares of Liberty Starz class A common stock at an average price of $47.40 for total cash consideration of $26 million. Now with that, Chris Albrecht will comment on events at Starz Entertainment and Media.

Thanks, Chris. Starz had a very solid quarter with three particularly notable achievements after four quarters of decline describing numbers for both Starz and Encore resumed an upward trajectory in the quarter. Our original series Spartacus Blood and Sand achieved excellent ratings throughout it's first season, as Greg mentioned. And we extended our output agreement with the Walt Disney Company for three additional years.

On the financial front, Starz Entertainment posted revenue of $305 million in the quarter, which was an increase of 3% over the same period a year ago. One-third of the revenue increase resulted from higher effective rates and the rest from growth in the weighted average number of subscriptions. So first quarter OIBDA of $106 million was slightly below the prior year figure but was impacted by an impairment charge of $4 million related to the second season of Crash, and also be a marketing expense of Spartacus in the quarter.

Versus fourth quarter of 2009, subscriber numbers grew among affiliates as the impact of the economic downturn seems to be abating. And while Starz added 168,000 subscribers during the quarter boosting it's total to 17.1 million, Encore also added 565,000 customers to total 31.1 million at the end of March. Both numbers are still below the comparative figures a year ago but revenue was not negatively impacted because the decreases were attributable to reductions in subscription units covered by fixed rate agreements which don't impact revenue.

Now the success of Spartacus exceeded all of our expectations. Driven by positive critical reviews and effective marketing, the weekend audience size increased by 67% from it's premier on Friday, January 22nd all the was through to it's finale 13 weeks later. And the number of people recording the showing DVRs for later viewing more than doubled during that time. As Greg said the show was the number one rated Friday night program in all of cable TV for seven of it's final eight weeks. So for many people around the country, Spartacus put Starz on the map. And the same is true in other nations, we've experienced a strong interest among broadcasters worldwide seeking to bring Spartacus to their viewers. In March, as many of you might know, we received the sad news that our talented young star of Spartacus, Andy Whitfield, had been diagnosed with a treatable form of non-Hodgkin lymphoma and that would require several months of treatment and recuperation. So this has forced us to delay the production to second season of Spartacus.

With the success of Spartacus , we've begun to ramp up our original strategy. In the first quarter we announced the acquisition of US paid TV right for the eight episode series, Pillars of the Earth, based on the worldwide best selling book by Ken Follett. The series stars Ian McShane, Donald Sutherland, Rufus Sewell, and will premier on July 23rd. And most recently we announced plans to air a new original series, Camelot, for which we will retain all US rights including premium television, digital and home entertainment.

What may be most interesting about these three series is not their similarity in genre but their difference in financing structures. Spartacus we produced entirely ourself and we retained all rights worldwide. Pillars on the other hand was a simple acquisition of domestic paid TV rights. And Camelot will be a co-production with Graham King's new production company and the rights will be split between the two of us.

Going forward, we're looking at several new projects in a variety of different genres and with a variety of different financing models. We'll be looking for shows that increase the value of our customers and affiliates placed on Starz and that raise our brand recognition. And goal within the next few years will be to have as many as four original series and four mini series airing on Starz annually.

And finally the new agreement with Disney will give us continued access to a key ingredient in our content mix. Under the three-year extension, Starz will continue to have exclusive rights to distribute Disney films on all our platforms during the paid TV window through 2015.

On the Starz Media front, revenue for quarter increased to $144 million from $102 million in the same period last year while OIBDA moved from a positive $5 million to a negative $7 million. These shifts were largely due to the timing of the theatrical and home video releases from Overture Films. And we continue to examine strategic alternatives to the ownership structure of Overture Films and other Starz Media Companies, and we will report to you when and if those bear fruit. Thanks and back to you,

Thanks, Chris. Let's take a quick look at Liberty Capital. During the quarter, Liberty Capital revenue increased 33% to $166 million while adjusted OIBDA decreased by $11 million. The Liberty Capital Group has attributed cash and public investments of $8.2 billion and attributed debt of $2.4 billion. From January 30th through April 30th, 2010, Liberty repurchased 2.2 million shares of LCAP A common stock at an average price of $40.18 for total cash consideration of $87 million. Cumulative repurchases since the reclassification of the tracker represent 28% of the shares outstanding. Now with that said, I'll turn the call back over to Greg for closing remarks.

Thank you, Chris, and thank you to Mike and Chris for updates on your respective businesses. As I think I noted earlier, we feel good about our Q1 results. All of our businesses with a few minor challenges here and there are performing well. The major priorities for the rest of the year as we look forward are, at Liberty Interactive to maintain the strong operating performance at QVC and drive revenue at the eCommerce Companies, to provide increased clarity and visibility around these good businesses by rationalizing our non-consolidated assets efficiently and aiding the markets understanding of how strong the fundamentals are at QVC compared to some of the peer company's ability to have carried both unmatched adjusted OIBDA margins, a very low capital intensity and high returns on net assets, and to generate very strong cash flow conversion from its OIBDA.

At Liberty Starz, we want to focus on operational execution and building cost effective original programming to differentiate our channels for the benefit of our distribution partners and our consumers. You'll see us build excitement hopefully around for the channel around events like this summers Pillar of the Earth.

And finally, we want to use-- figure out effective way to use our capital, both the cash we have on hand and the borrowing capacity that is at that business. And at Liberty Capital, we hope to identify effective uses for the large cash that we have whether it be shrinking equity as you saw us through this quarter, reducing debt as we have done, or opportunistic investments in debt and equity of others. We are going to benefit from the continued growth at Sirius XM and Live Nation, and we will also continue to rationalize the noncore holdings that we have at Liberty Capital. We appreciate your continued interest in and support for Liberty Media. Stay tuned over the balance of the year. And with that, Operator, we'd be happy to anser some questions.

(Operator Instructions). Our first question today is from James Ratcliffe with Barclays Capital.

Good morning, folks. Thanks for taking the question. One for Greg and one for Chris if I could. Greg, one of the rationales for the tracking stock structure was to both give the market clarity about the various assets, and at the same time retain the flexibility to mix and match tax assets with gains in sort of in the background just since everything remains within the Liberty Media corporate structure. Where are we in terms of those assets and the continuing need to have matching across various trackers with tax assets?

Well I think, James as you noted, that has been one of the benefits, has been improved tax posture. We have, as you noted, continued to reduce the number of noncore assets to realize on some of our investments, hopefully in an efficient manner. That process continues. We are part of the way through there. We've done substantially, by dollar value, much of the work, but there are still noncore assets in the trackers, in all three trackers, candidly that we are going to realize on and we expect to realize on over the next several years and to refocus our capital and our efforts on the core holdings. So, by dollar value we're a long way down the road, but there are still several assets in there to be worked on.

Right. And, Chris for Spartacus, do you sort of have any feedback on the level of viewership you saw via Netflix streaming? And how do you think about that quite apart from the Starz play before Starz original content, the degree to which Netflix is a marketing platform for the Starz Network and the Starz Channels versus canabalizing potential subscribers to those channels?

I don't have right now Netflix viewing on Spartacus, I don't know if Bill Myers was in the room in Denver has any available. With regard to your question, Netflix is an interesting opportunity and challenge for Starz. Obviously, it's very important for us to manage those relationships across the board with new distributors, like Netflix along with our traditional historical distributors. It certainly is a marketing opportunity and we're looking at ways to be able to maximize the ability to increase the awareness and hopefully the subscribership of the Starz products while still being able to enhance our value to all of those distributors. So it is, it's an interesting and complicated relationship and one that we continue to explore how we can maximize the opportunities that it presents.

Great. Thank you.

Bill, do you have any-- I don't know if you have any viewership?

I don't at this point in time have any of the viewership data from Netflix. So we can look at that.

Thank you.

Moving on, we'll go next to Barton Crockett with Lazard Capital Markets.

Okay. Great. Thanks for taking the question. I guess two questions. First, on the Interactive on QVC, I know you guys are normally reluctant to go too far into talking about current trends but given that we just had a whole slate of retail comp reports yesterday and they were generally regarded as a bit disappointing, I was wondering if you might break with tradition and give us a little bit of a sense of what you've seen in April and how we should think about the retail trends at Interactive, is my first question?

Mike, I'll let you turn him down on that.

Thank you. I'll be honored to do so. Yes, we don't, we don't obviously talk about in quarter results. I -- personally my view is people got a little over excited about the March numbers at retail and maybe a little overly concerned about the April numbers. It was to me somewhat predictable between the Easter pull in which people understood, but also just the acceleration of sales you get in traditional brick and mortar when you have an early onslaught of warm weather which tends to bring people into the stores for kind of immediate gratification to getting their warm winter, warm weather gear. So I -- we've maintained all along that we expect the economic recovery to be slow and bumpy and that we're going to win by gaining share and benefiting from the secular move to our kind of format, and that's still our view. Our view is the recovery is going to be slow and up and down, and we'll win through share gain.

Okay. All right. Well I appreciate your elaboration on the denial. And if we could switch a little bit to Starz, can you provide us any update on where you are with talks with Comcast and with Time Warner? And also tell us a little bit about how you're thinking you might handle some of the questions around season 2 for Spartacus?

We are in continued discussions with Comcast and Time Warner and as we're in constant contact with all of our distributors, not just with regard to our contracts, but with regard to in contract marketing opportunities. And we are actually doing good business with both those mega distributors and we expect to continue to do so.

With regard to Spartacus, we've got unofficial hopeful news about Andy's recovery and we're making plans right now to be able to continue with the franchise in innovative ways and keep the fans happy while we get him in shape to participate in a full second season. So we think we have the situation relatively in hand given obviously the unexpected news of his health situation.

Okay. Great. And I know I said-- I know I said only two questions, but if I can slip in one other. This Commerce hub transition, can you size that, either online or offline, what that meant in terms of impact on the QVC versus eCommerce?

Commerce hub business is a small business, not material, but it's one that we believe has great prospects and so we want to have it benefit from the Internet DNA and broaden-- had a great parenting from QVC we want to broaden it out, we think opportunity to do so and we'll align it more with the eCommerce Company, it makes more sense. But it's results are not material today.

Okay.

In the ball park roughly $20 million of revenue, and $8 million to $9 million--- $8 million to $10 million of EBITDA.

Okay. Great. Thank you.

And our next question today is from Doug Mitchelson with Deutsche bank.

Thanks so much. John's not on the call, right? Greg, John's not on the call, right?

John's in the room.

Oh, he is.

John's on the call.

Sorry I couldn't hear. So just a couple questions. The first one for Greg or Chris Albrecht, could you offer any comment on whether investors should expect a pretty serious impact to EBITDA at Starz either late this year or next year as a result of ramping TV programming? I know you mentioned Pillars and Camelot, but I know you're also working on Men of the Dusk and William the Conqueror and World Without End, I mean Chris you've been pretty buzzy and you hinted at cost efficiency. But can you give us a clearer understanding of the bottom line impact from ramping TV?

Well I think we have said, when we made our announcement last, when we sort of put the Liberty Starz tracker in place and we-- at the closing of the DIRECTV deal, and we made our announcement about expected growth in the I think it was 5% to 10% range, and we've done-- we have no reason to, despite the economy and despite challenges out there and things like unexpected write-downs, we're still holding to that forecast today, to that range.

Right and then for Mike George, normally I don't ask you a question, but can you talk-- have you been seeing any impact in Europe the past few weeks from what's been happening over there and do you see the potential for any major shifts in European consumer spending?

Again I can't comment on our own results. It doesn't appear to me to have had a meaningful impact on the consumer yet, but I can't say that I'm a student of all the things that are happening at retail. So it's certainly an area we got to, certainly watch out I think for everyone to see how it unfolds and the impact it could have on consumer confidence. But I can't say a lot more beyond that at this point.

Okay, thanks. And then lastly for John, I'm fearful that I know what you will say, but I was hoping given your expertise, you'd give us your view on the likelihood of the FCC being successful reclassifying ISP services as Title II and if they are, what you believe the impact will be broadly on the media telecom sectors?

Well, I really don't have a lot of insight on whether the FCC will succeed in imposing their authority. Clearly the guidelines they've given for the future of set-top boxes is heavily influenced by Silicon Valley and the Internet group I would say. How that will come out politically, you could take odds on. Obviously the unbundling, if that's the direction it takes of terrestrial broadband could be beneficial to companies like DIRECTV and EchoStar by giving them the opportunity to bundle with cable broadband. But that would really take-- I'm not enough of a prophet to figure out where this is going, it's too speculative I think for anybody to bet on, at this point.

Great, thank you very much.

Our next question today comes from Doug Anmuth with Barclays Capital.

Thanks for taking the question. A question for Mike. Can you talk about the softness in the UK and Germany that you saw in 1Q and in particular, just providing a little more color there especially around the jewelry dynamic in Germany? It sounds like you don't really think that that was really macro impacted but what else was playing into that? Thanks.

I think, candidly I think the softness in both Germany and UK was to some degree self-inflicted. So the good news is that I think we can get on it and get the better results. In Germany, it was somewhat isolated toward jewelry business. We had pretty strong performance across most categories, so I think fundamentally the German business is reasonably healthy. We've been working to fine tune that business for a couple years now as you know. So I'm always cautious when I talk about it because you need to see several quarters of sustained results to have high confidence. But I think we're on a generally on a good path in Germany.

But we have concluded that we need to fundamentally change our jewelry business. And so we sort of decided to give ourselves high short-term pain for hopefully a good long-term gain. And we took the business totally off the air for a few weeks and there's no way you can fill all that air time at the same level of productivity. So we had especially tough business in March when we took jewelry off the air that suppressed the overall quarters results. And since we've launch that business, and it's early days in the relaunch, but it's looking better. I wouldn't say it's perfect, but it's certainly-- we're pleased with the early results, some gains some misses, but generally pleased with the jewelry relaunch. But again very very early days to say much about it. So for us there's-- in Germany it's about getting jewelry on a reasonable track, we don't need a lot of growth out of it, but we need to stabilize it, and that's what the relaunch was about. And then just continuing to focus on our other businesses that are successful and continue to build them.

UK was a little bit different, it wasn't as focused in a single category, but I would say that fine jewelry in the UK and consumer electronics were both very difficult. UKs really the only market where we have as much-- where our electronics business is challenged, the other markets it's fairly healthy. But it's a very competitive price driven market in the UK. So we haven't found exactly the right formula although we think we will, but we're not quite there yet. So in the UK we need to see a little better performance out of fine jewelry and electronics. And then just get the whole business moving at a better rate.

And as I mentioned in my comments, the good news last year is that we worked really hard on getting tour inventory very tight in the UK. I think we were down over 30% in our inventory levels at year end. So we tightened things down, and candidly maybe we over tightened them. So I think we were left a little bit light in product in Q1 and once you realize that, it takes a few months to respond to it. So we started to see that issue early in January, but it does take a few months to be able to meaningfully impact inventory levels.

But in hindsight I think we over steered a little bit in our caution to make sure we kept our inventories clean around the world, given the economic uncertainties. So some different challenges in each business. I think we'll get them on track, again I don't think we'll get a boost from the economy in either market, but I think we can right the issues that we saw in Q1 and get to a better level of performance.

Great. Thanks for the color there. If I could just ask a quick follow up for Chris or Greg just on the eCommerce business, the loss of the third party revenue. Do you foresee any way of potentially making that revenue up, another advertising source or lead referral or are you pretty much just focused on the user experience and will let that go at this point?

I think we will over time find ways to utilize the value to-- of those third party services to our customers and realize on some of that. But we have been very sensitive about creating undue coercion or even negative reputational risks around that. As you may know there where Senate hearings last month on these kind of services, we were certainly not in the group identified as violators, but we were worried about being tarred by the same brush, and we were worried about reputational risk even though we went out of our way to do things like offer full refunds to anybody who complained or had an issue. It wasn't about the customer experience, it was about the reputational risk that caused us to back off this, it was something that had become a major and not a source of not necessarily high quality revenue because it had an upfront aspect to it, versus a subscription that you're likely to correct.

So we collected our money on it, but we-- and we tried very hard to make sure it didn't hurt our customers in any way shape or form, but the reputational risk around it has caused us to pull back and be very cautious. Will we be able to replace elements of it? I think we'll find-- as I started out saying, we'll find ways to monetize the value of our customer base. But we're going to be very cautious in light of how some of this has been viewed.

Okay. Great. Thanks.

Anything further, sir?

That's it from my side.

Great, thanks. Our next question today is from Jason Bazinet with Citi.

Thanks so much. Just building off of James' question earlier in the call, can you just give us a few concrete examples of what would prevent you from moving to hard spends on the various trackers? And then my second question is on the re-upping of the Disney output agreement at Starz, I wasn't quite clear from the press release that came out, what happened with the digital rights, can you elaborate on any of that? Thanks.

Sure, Jason I'll start by saying and if you look at our annual report that what went out, we outlined this. We know that our tracking stock structure is probably not one that gives us the highest current value for our equities.

Yes.

We think that is a somewhat transitory condition that's unlikely that you'll have 100 years of being in the tracking stock structure, but that it has benefited particularly for a Company like ourselves which has tax complexities and quite a lot of moving parts that need to be rationalized and focused. So is there anything that would prevent us from doing a hard spend of those? I suspect we have enough ATVs, (inaudible) trade your business that if we set out as an absolute goal of getting a hard spend done in a hurry, we could probably do it in some reasonable time frame.

I'm not sure that it would be optimizing on what we believe the long-term value of the Corporation is, which is to focus those businesses over time in the best way and to the degree that there's an interim discount to take advantage of that by purchasing stock, virtually all of our businesses are either cash positive or cash generators or under-levered or some combination of the three, but that we can take advantage of that discount and realize on it. So some of our shareholders, and we recognize different constituencies may wish to see realization in a quarter or two, that may or may not happen. We're trying to look for long-term growth and capitalize on that benefit.

Understood. And with regard to --

It's not a-- and it's not that there's anything wrong with trying to do it in a hurry, it's that we think we don't want to do that to the cost of long-term benefit. On the Disney deal I would say in the main, the rights are largely the same as the rights we've had before. I don't know if you want to elaborate, Chris?

Yes, just that we have digital rights during our window. So I think that's consistent with what we've had historically.

No material changes.

Okay. Thank you.

We'll go next to David Gober with Morgan Stanley.

Thanks for taking the question, guys. Just to-- elaborating on the last comment about trying to take advantage of mispricings or discounts in the near term, I was just curious, Greg, on LINTA looking at the capital structure of QVC and overall at the LINTA tracking stock, you've pushed out maturities quite a bit, the business seems to have stabilize considerably, I was just curious if you would reconsider starting to buying back stock there again? I know you've felt that you've been more successful with the LCAP A buybacks, but there was a time when you were clearly pretty aggressive on LINTA as well.

Well I think that's part of why we probably are cautious is there was a time we were arguably too aggressive. So with our tender, I think it was $647 million and $24.75 or something like that. We're still scarred in Englewood, Colorado by it perhaps. But I think also if you look, we have done a bunch of things to stabilize the capital structure, put ourselves in the position to consider things like debt reduction, which we've done, and share repurchase.

One of the things that we obviously went out of our way to do is to try and address the negative arbitrage on that debt that we have outstanding, the $400 million that we are tendering for out of the $800 million maturity in 2013. I would say once that's done, or as that's done, or even if it's not done, this capital structure is very solid and the opportunity to do even more share repurchase, more just debt pay down or acquisitions of attractive synergistic well priced assets, remains and certainly we have a big authorization and we'll look hard at perhaps not a tender but at a systemic share reduction.

And so just looking at the fundamental business is QVC, the one business that we didn't talk a ton about was QVC Japan, which clearly that business has had its fits and starts over the last three or four years but it seems to be performing extraordinarily well in the first quarter. Mike, I was just wondering if you could talk about what's driving, what drove the strength in 1Q and whether or not you really see that as fundamentally sustainable particularly given kind of the lumpiness that the business has had?

Yes, let me answer it two ways. Over a long period of time we continued to believe that Japan has the highest growth potential of all of our business, it's just fundamentally a very attractive market for what we do and given that we are in less than half of all the households in terms of subscribers that can receive our signal, that there's a lot of business to grow into. You could also look at our spend as a percent of GDP and see that clearly it has enormous upside on that metric as well.

The fits and starts though we've had over the last few years, to a large extent has been fairly isolated and focused on some substantial changes in the regulatory environment that has impacted us substantially in 2007 and then some sort of secondary issues that impacted us over time. That and obviously the depth of the economic recession in Japan, which is the most severe of all markets we operate in too. So we've had these two really strong headwinds, though we've always believed in the fundamental potential of this business and the long-term trajectory of this business.

So I think in Q1 the team has done a fabulous job. I think the economics, the economic situation is not great, but they've been able to power through that, they have some business that are really working well for them that I mentioned in my comments. I think they've largely gotten past the regulatory challenges and have found a way to fill in around those issues. So I think the long-term future is bright. Do I think every quarter will be at this level? Not necessarily. I think this was a particularly strong quarter, but I do like our prospects for long-term growth in Japan.

Great. And if I could just sneak one quick one in on Starz. Chris, we kind of talked about a couple of different issues in separate contexts, and I was wondering if you could clarify maybe a little bit how interrelated they really are? And thinking about the Netflix deal and the relationship with your other distributors, I was just wondering how much-- how upset do you think the other distributors are about the Netflix relationship and is that something that's going to play significantly into whether or not Starz decides to re-up on the Netflix deal and that comes up whenever it's set to expire?

I think that the Netflix situation is one that is a great opportunity for Starz and as I said befire it's one that needs to be managed within the context of our relationships with our other distributors, and there's lots of different ways that we can do that. I fully expect that we'll be able to continue with a Netflix relationship and continue to maintain successful in growing relationships with our traditional distribution partners. This is an opportunity and every opportunity needs to be carefully examined, but we feel like we know a lot more about how to understand the needs and the differences in the distribution opportunities and I think we'll be in good shape moving forward.

Great. Thank you very much.

Our next question today is from Matthew Harrigan with Wunderlich Securities.

Thanks for taking my question. Question for Mike, on what's happening on the skunkworks basis, I mean you've seen what happened in the UK with [Red Button] and HSN, shop by remote, with (inaudible) getting deployed, are you increasingly looking at some of the interactive opportunities for Q within that regard?

And then my second question would be for Chris. When you look at your assets, I mean is Anchor Bay your potentially a little bit more strategic over time, I mean even if you don't go to a full blown HBO incarnation on original programming, there's clearly some upside there and I know you like to try to keep things integrated, and I'm sure you'll take an incremental approach to that. But if you really do get a hot hand on the programming side, what would be the bougie for your percentage of revenues and percentage of cash flow that you might get on the ancillary side and on video and all that on-- over at Starz? I mean it seems like that would be a material-- somewhat material business if you're able to replicate some of the success you've had in the past.

Well I think you can look at them as two separate issues. I mean certainly the DVD revenue has been historically an important ancillary stream on original programming coming off of premium. And as the kinds of programs that we're looking to do on Starz, will be ones that we hope will maximize ancillary revenue. Our series, mini series are kind of things that we spoke about. So to the extent that we can take advantage of controlling those rights and seeing the benefit of those revenue streams, we'll certainly look at that as an investment opportunity.

With regard to Anchor Bay which sits in Starz Media, we're looking at all of the possible opportunities for growing that business and seeing what's the proper resolution for the Starz Media asset. So while Anchor Bay sits there, we'll look at that separately from what it may or may not do to Starz Entertainment and look at the opportunities for retaining rights and exploiting those off of our original programming as an issue unto itself.

And without devolving too much from HBO, can you give any approximation for how the curve could move on a percentage of the ancillary revenues on the overall top line over a period of time if you get to some trigger points where you're getting some traction as you've got Spartacus on the original programming side?

Yes, that would be really speculating especially since we haven't even released the first season of Starz on DVD, I mean Spartacus on DVD. So I really couldn't speculate on that right now. But that's all (inaudible).

Thank you.

We'll go next to Jeff Wlodarczak with Pivotal Research.

Good afternoon, guys. Two questions, one for Chris and then one Dr. Malone. Chris, the turning results at Starz in the first quarter, how much of that can you attribute to seasonality? And then sort of looking forward, how sustainable do you think those gains are?

As I said in the comments I think we're seeing the economic turndown abating a bit and hopefully that'll continue, so that should have a positive impact and we're looking forward to that. I think certainly the increase in original programming that we're planning will continue to give us marketing opportunities with our distributors. And we expect to see positive results from that. So I think there is opportunity for Starz given the new strategies and obviously given the economic climate. So we're feeling pretty good about growth opportunities and our ability to invest extensively in order to achieve them.

All right. Thanks. And then for John, I wanted to get your take on how this situation in Europe will resolve itself, at least from your point of view. I mean obviously it's important given Liberty's exposure to Europe. I just wanted to get your take on it, where you think it's going to end up?

Sorry, John has left the building, or not the building at least, but left the room. So you're-- we don't have-- John's not available for that comment.

I'll have to find that offline. It's hurting Liberty Global, so it'd help to get his take on it.

Maybe I can ask one for you, Greg. Is there any update on true position in the revenue recognition issue, is there anyway you can give us some visibility on how much EBITDA that business is generating certain annually? And realistically, is that more than likely a sale candidate?

I think courtesy of some changes in the accounting regulations the (inaudible) treatment, probably led by our friends at Apple, that (inaudible) going to look a lot better for us in the near term. How we take that revenue in, is it a restatement, is it a realization of one-time, how that exactly plays out, we'll know over the coming quarters. And the magnitude of that business, (inaudible) business it's less than $50 million of EBITDA kind of business, but's it's recorded on a more traditional GAAP like basis with shipment equalling rev rec.

Where we go with that business, I don't think it's not necessarily a core business for the long term for Liberty, just given what our portfolio looks like. It's a business that's performed very well, performing very well now, and it's a business that we think has lots of interesting opportunities perhaps better served in the hands of another partner. But of course, as always, Liberty has another attribute, it's an ATV, and those weigh on our mind as well. But we weigh all of those things and we'll see how it goes.

Mike, great. Thanks very much.

Thank you.

And that's all the time we have for our questions-and-answer session today. Mr. Maffei?

Thank you very much for your interest in Liberty Media. And we'll look forward to speaking with you next quarter.

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