QVC Group Inc (QVCGA) 2010 Q3 法說會逐字稿

Good day, and welcome, everyone, to the Liberty Media Corporation quarterly earnings conference call. Today's call is being recorded.

This call 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, the anticipated split off of the Liberty Capital and Liberty Starz Groups, and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Including without limitation, possible changes in market, acceptance of new products or services, comparative issues, regulatory issues, continued access to capital on terms acceptable to Liberty Media, and the satisfaction of the conditions to the proposed split off.

These forward-looking statements speak only as of the date of this call, 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 expectations, with regard thereto, or any change in events, conditions or circumstances on which any such statement is based.

On today's call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA. Required definitions and reconciliations, preliminary notes, schedules 1, 2, 3, can be found at the end of the 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 very much. And thank you all on the call today for joining us, and your continued interest in Liberty Media. Today speaking on the call, besides myself, we will have our Controller, Chris Shean, the QVC CEO, Mike George, and the Starz CEO, Chris Albrecht. Also assembled here we have several senior Liberty QVC and Starz executives, and we'll all be available to answer questions after the prepared remarks.

So, turning to slide three in the third quarter highlights, I think we had another strong quarter, with solid operating performance across our businesses, led by our strong management teams. We had good progress at the Liberty level, we think, towards improving our clarity and moving forward on some structural items. At Liberty Media, we filed the preliminary proxy for the split off of Liberty Capital and Liberty Starz. Prior to the split off, the Time Warner exchangeable debentures, the principal amount of which is $1.1 billion, will be reattributed from Liberty Capital to Liberty Interactive, along with cash and the stock underlying the exchangeable, which is approximately 21.18 TWX shares, 5.5 million TWC shares, and 2 million AOL shares.

Looking at Liberty Interactive, QVC again displayed good strength in operations. Revenue was up 7%, adjusted OIBDA was up 8%. Particularly notable was the fact that adjusted OIBDA included $9 million of start-up expense for Italy, which had not been in the prior year. As you may recall, we launched Italy on October 1. You will hear more about all of that from our CEO, Mike George.

The revenue growth at QVC was impressive in many ways. It outperformed the industries for the mid market luxury department stores, specialty and discount retailers. And notably once again, we grew QVC.com's business, the online portion of our business, much faster than comScore and the major video commerce competitor, as we have for the several last few quarters. Importantly, we continue to add new names to feed stock for future growth, and on a structural level we refinanced QVC's bank credit facilities, extending maturities, lowering rates, and providing us more flexible security.

QVC continues to reduce leverage. Since Q1 2010, LINT has reduced leverage by almost $1.4 billion. QVC's leverage ratio at the end of Q3 was approximately 1.9 times. And after the close of the quarter, in fact yesterday, we paid down an additional $250 million against the revolving credit facility, although I note we may need to redraw some of this prior to year end.

In the LINT category as well, our eCommerce companies posted excellent 19% revenue growth. Once again, we outpaced comScore's eCommerce growth estimate for the third quarter of 9%, by a substantial amount.

Looking at Liberty Starz, adjusted OIBDA was down slightly year-over-year, primarily due to the timing of certain marketing and release expenses, and original programming expenses. Chris will go into those in further detail, Chris Albrecht. Despite that, we remain comfortable with our 2010 guidance, which we offered up in November of 2009. The guidance range of 3% to 4% growth in revenue, and 5% to 10% growth in OIBDA. But I would note, we think that OIBDA growth will be towards the low end of the range.

We did also complete a new affiliation agreement with Dish. Importantly, a multi-year agreement. We increased subscriber accounts, both sequentially and year-over-year, versus declines at least some of the other premium categories. And we changed the attribution of Starz Media from Liberty Capital to Liberty Starz, better reflecting, in our judgment, how we operate the businesses. Starz Media results will be part of the attributed Liberty Starz income statement beginning in Q4. And the Liberty Starz balance sheet that we issued at the end of Q3 includes the Starz Media assets and liabilities.

Lastly, at Liberty Capital, SIRIUS XM, the largest asset in Liberty Capital, once again posted very strong financial results, driven by excellent operating performance including 335,000 net adds, expect to end the year with over 20.1 million subscribers. ARPU was up 6%, churn was down to 1.9%. The conversion rate was up to 48.1% versus 46.2% last year. And the SIRIUS stock price is trading at about $1.51 or $1.52, flirting back and forth, which values our equity stake in excess of $3.9 billion.

Also notably in the quarter, we capped at Liberty Capital, we repurchased $156 million worth of stock, from July 31 to actually October 29. So, a little path at the end of the quarter.

And yesterday, as was reported on the Live Nation earnings call, we completed the purchase of 2.5 million shares of LYV, at $9.62 per share. We bought those shares from Mr. Diller, the former Chairman, for total consideration of $24.4 million. And that increased our stake in Live Nation to about 15.8%.

With that, I want to turn over to Chris Shean, to let him first talk about the LINTA financial results in more detail.

Thanks, Greg. Liberty Interactive Group's revenue increased 8%, to $2 billion in the third quarter, while adjusted OIBDA increased 8%, to $373 million. QVC, which is the primary driver of these results, increased total revenue by 7%, to $1.8 billion, while adjusted OIBDA increased 8%, to $369 million.

Liberty Interactive's other eCommerce businesses grew 19% for the quarter. Overall revenue growth was partially offset by lower commission revenue earned when customers sign up for third party online discount services. During the first quarter, a decision was made, as we had reported previously, to change the way these promotions are offered, which had the impact of reducing the revenue earned from these services. These changes are expected to continue to adversely impact commission revenue throughout 2010. Revenue earned from the commissions yields significantly higher margin than regular product sales, and therefore this reduction has a more negative impact on adjusted OIBDA on a percentage basis.

Furthermore, during the quarter, increased marketing expenses helped grow revenue and new customer names, but negatively impacted adjusted OIBDA margins. Adjusted OIBDA for the eCommerce business increased $3 million, to $10 million total for the third quarter. During the quarter, we deconsolidated lockers based on a change in the governance of the entity. On an apples-to-apples basis, if you were to back out the lockers results from the prior year, Q3 2009, adjusted OIBDA including the eCommerce business was relatively flat year-over-year.

Now, let's take a quick look at LINTA's liquidity picture. At the end of the third quarter, the Group had attributed cash and public investments of $4 billion, and $6.2 billion of attributed debt. QVC's total debt to adjusted OIBDA ratio, as defined in their credit agreement, was approximately 1.9 times, as compared to the maximum allowable leverage of 3.5 times. QVC's gross leverage is down significantly from its peak in 2008.

Now, we'll have Mike George provide some additional comments on QVC.

Thank you, Chris. We were very pleased with the strong and balanced results we achieved in the third quarter, with consolidated revenue increasing 7%, and adjusted OIBDA increasing 8%. Every market showed strong gains in sales, in adjusted OIBDA, in the eCommerce mix, and in new customer growth rates.

In the US, we grew revenue 7%, and adjusted OIBDA 8%. And OIBDA would have increased 10%, excluding the impact of the change in our Qcard agreement. We saw strength across a number of categories, including kitchen, cook, floor care, domestics, holiday, consumer electronics, computers, apparel, accessories and beauty.

Our US eCommerce business continues to outpace overall internet retail sales, with growth of 18%. QVC.com now represents 31% of US sales, up 3 points from last year. While we also continue to add new customers in the US at a strong pace, with revenue from new customers increasing 11% in the quarter, our fifth consecutive quarter of double digit new customer revenue growth. Our adjusted OIBDA margin increased slightly, driven by lower inventory obsolescence charges, and improvements in customer service productivity.

Now partially offsetting these gains were higher marketing expenses, associated with our Fashion's Night Out pop up studio at Rockefeller Center. Adjusted OIBDA was also impacted by our new Qcard agreement, which went into effect August 2. As we discussed on our last call, this new arrangement freed up a $500 million receivable with GE, which was used to pay down outstanding debt, and reduced our exposure to the potential bad debt of this portfolio. If the prior agreement were still in place, our adjusted OIBDA would have been $5 million higher.

Turning to international, we saw outstanding results in our existing markets, with international revenue up 8%, and adjusted OIBDA up 17% in local currency, excluding the impact of Italy start-up costs. The UK had another good quarter, following a strong rebound in Q2, with revenue up 6%, and adjusted OIBDA up 9% in local currency. The apparel, beauty, gift and consumer electronics businesses, were particular stand-outs. The improvement in adjusted OIBDA was driven primarily by fixed cost leverage.

In Germany, we posted one of the strongest results in several years, with revenue up 9%, and adjusted OIBDA up 25% in local currency. Growth in the home and accessories categories was especially strong. The adjusted OIBDA margin increased 210 basis points, driven by gains in initial product margins, as we shifted the mix away from consumer electronics, fixed cost leverage, and lower inventory obsolescence expenses.

Japan had another great quarter, with revenue up 9%, and adjusted OIBDA up 14% in local currency. Our home, fashion and beauty businesses, all turned in strong performances. Adjusted OIBDA margin increased 125 basis points, driven primarily by reductions in carriage expenses, following the renegotiation of several cable contracts earlier this year.

We incurred a $9 million adjusted OIBDA loss in Italy, as we ramped up our hiring in preparation for our October 1 launch. Now, we've been pleased in these first few weeks since launch with the quality of execution in Italy. And the positive feedback we've received from customers, vendors and the press, on both the caliber of the programming and products. Initial sales have been a little softer than we anticipated, but we are encouraged by our week-over-week sales ramp.

In contrast with our past channel launches, QVC Italy launched in a digital channel environment, and we know it takes longer for viewers to find us in a digital lineup. We're also experiencing some issues with households receiving our channel. Now, that may be impacting the visibility of our channel in up to half of our DTT homes. There are a number of issues behind that, but this will improve as Italy moves through the analog transition over the next year.

We note it will also take some time to find the right product mix, and begin to build a repeat customer base, although we're encouraged that initial results are showing repeat buy rates consistent with those of new customers in other markets. And so, despite these short-term challenges, we do remain very confident in the potential of the market, and we continue to expect our 2010 full year OIBDA loss to be within our prior guidance of $30 million to $40 million.

And with that background by market, I'll close with a few overall comments on the business. Our customer growth funnel is strong, with worldwide revenue growth from new customers up 12% in constant currency, and every market achieving growth in both new customers and total customer count. Now we believe our sustained success over several quarters, driving share gains relative to the retail market, increasing spend with our existing customers, and growing new customer revenue at high levels, speaks to our progress in creating the highly differentiated destination shopping experience.

We were particularly encouraged by the overwhelmingly positive customer and press reaction to our pop up store and studio in Rockefeller Center, for Fashion's Night Out. We treated our customers to 17 hours of live programming over six days, extensive community engagement through Facebook, Twitter, Youtube, and QVC.com, multiple in person customer events, and most importantly great products from leading designers, stylists and celebrities, including Isaac Mizrahi, Lori Goldstein, Rachel Zoe, Marc Bouwer, Jamie Bright, and the Kardashians.

This type of disruptive marketing and highly immersive customer experience, clearly differentiates us from traditional eCommerce, and brick and mortar competitors. And the strong results from the premier of our Liz Claiborne New York apparel line, our national gem gallery programming done through an exclusive partnership with the Smithsonian, and chef Gordon Ramsay's cookware line, all point to the power of exclusive products, compelling programming, engaging guests, and unique stories.

We also continue to enhance our multimedia platforms, and drive strong eCommerce growth, at rates that significantly outpace the industry. In Q3, worldwide eCommerce growth was 19% in constant currency, with every market increasing their eCommerce mix. We now provide our live programming on four screens, TV's, PC's, smartphones, and as of mid October, the iPAD.

We also launched our second channel in Germany, Q Plus, on September 1, and our second channel in the UK, which features the best of our beauty programming on October 26. And we completed a controlled customer beta of our new global eCommerce platform, which we anticipate beginning to roll out in the first quarter.

And in addition to the strong topline growth, we anniversaried a significant increase in adjusted OIBDA margin last Q3, with further OIBDA rate improvements in every market this Q3. These OIBDA gains reflect our constant focus on operating our business efficiently, and maintaining tight control over inventories and expenses.

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

Okay. Let's move on to Liberty Starz. Liberty Starz attributed revenue grew 5% in the third quarter, to $319 million, while adjusted OIBDA decreased 3%, to $89 million. At quarter end, Liberty Starz had attributed cash and public holdings of almost $1.2 billion, and attributed debt of $99 million. These cash and debt figures are post the change of attribution of Starz Media to Liberty Starz. Now, Chris Albrecht will comment on events at Starz Entertainment and Media.

Thank you. The third quarter marked continued solid operational performance for Starz entertainment, with positive revenue growth, and another quarter of subscriber gains, albeit modest -- (inaudible).

Chris? We are having a hard time hearing you, I'm not sure about the rest of the line. Why don't we have Bill read it, and see if you can find another line, and if we get clarity, we'll have you come in. Thanks, Chris.

I'll go back and just start from the beginning, since it had a little rocky start there. The third quarter marked continued solid operating performance for Starz Entertainment, with positive revenue growth and another quarter of subscriber gains, albeit modest at Starz and Encore. Overall, we are extremely pleased with our operating results, and believe our business has shown resilience in this soft and uncertain economic environment.

Regarding Starz Media, we made significant progress during the third quarter in our stated pursuit of seeking strategic alternatives for certain noncore assets. Liberty also brought the financial structure of the two Starz entities more in line with their operational alignment, through attributing the Starz Media assets from Liberty Capital to Liberty Starz.

Let's go into a little more detail on Starz Entertainment. Revenue at Starz Entertainment increased by $15 million for the third quarter, to $316 million, an increase of 5%. Growth in subscription units with consignment deal based partners, higher effective subscription rates, and international television and home video revenue associated with original programs, primarily our Spartacus, Blood and Sand series, accounted for the increase. Adjusted OIBDA was relatively flat. Increased expenses associated with the original series, the Pillars of the Earth, and Spartacus, higher movie programming costs due to stronger box office performance from our first run output partners, and costs associated with revenue earned on original programs, including increased amortization, accounted for the relatively flat OIBDA performance.

The flagship Starz and Encore channel subscriber total, both increased over Q2 2010 by 100,000 in the third quarter, to 17.4 million, and 32 million, respectively. Additionally, these figures represented the first year-over-year subscriber increase since Q1 of 2009.

In October, we entered into a new multi-year deal with DISH Network that expands the relationship with one of our largest customers. The DISH affiliation agreement offers distribution of all the Starz Entertainment channels, and advanced services. This agreement reflects the flexible approach we are taking with our affiliates by leveraging the strong mix of exclusive Starz movie programming, and compelling Starz originals, found across our family of channels and services.

The new DISH Network affiliation pack follows in the footsteps of last quarter's deal announcement with Comcast. Both agreements distribute our Starz online, Encore online, and MoviePlex on line services, and leveraged the increased industry roll out of authenticated online, TV everywhere initiatives. We are continuing to engage in similar discussions with other key affiliates.

Looking at original programming, we were very pleased with the solid performance of the third quarter original event series, the Pillars of the Earth. In addition to positive critical reviews, and strong interest from our affiliates, each hour episode averaged more than 2.8 million viewers across all platforms. In 2011, our Starz original schedule will be as follows. The Spartacus prequel, Spartacus, Gods of the Arena. We'll follow that up with Camelot, where we retain all US pay TV rights, including digital and home entertainment. And Torchwood, which is a 10 episode series based off the hit BBC franchise.

Given Andy Whitfield's unfortunate recurrence of cancer, a question mark hangs over our original programming plans, however, which is the fate of the second season of Spartacus. Although we are exploring the option of recasting the lead character, there is no guarantee we will wind up going that route.

This does not reflect any wavering in our support for the property, to the contrary, because we have such great respect for the franchise's creative integrity, we take the challenge of recasting the role of Spartacus very seriously. We expect to make a decision later this quarter, and whatever it is, the decision will be a prudent one that factors in what is best for the show, and best for Starz.

As we have discussed, Starz Entertainment is continuing to explore multiple alternative financing models, to assist in financing our acceleration into the original space. Meaningful dialogue with potential partners continues, but as noted previously, this process will take several more months, before we come to a final resolution.

Shifting over to Starz Media, let's first review the financial performance. Revenue for the quarter increased by $33 million, to $89 million, while adjusted OIBDA improved from a loss of $71 million in the third quarter of 2009, to a loss of $6 million in the third quarter of 2010. Improved quarter revenue performance was primarily attributable to the timing and the number of theatrical releases at Starz Media and Overture Films, along with the related fluctuations of theatrical, home video and television revenue, and related expenses associated with these films. Given the shut down of Overture Films, we do not expect Starz Media to incur future annual operating losses of the same magnitude as recent years,.

As mentioned, we made great strategic progress with Starz Media in the third quarter, and in the period leading up to today's call. On September 30 of 2010, a change in attribution of the Starz Media business from the Liberty Capital tracking stock Group to the Liberty Starz tracking stock group, went into effect, and thus brought a cleaner financial and operating structure for the combined businesses of Starz Entertainment and Starz Media. Last month, we reached an agreement to sell the Film Roman Animation Studio, to a group of investors led by former Film Roman President, Scott Greenberg. We are optimistic that that deal will close by the end of 2010.

And in addition, we continue to look at strategic alternatives for Starz Media's remaining animation studio, and we will keep you apprized of that progress as the quarter progresses.

Now I will turn it back to Chris.

Thanks, Bill. Taking a look at Liberty Capital. During the quarter, Liberty Capital revenue increased 47%, to $251 million, while adjusted OIBDA was $25 million, primarily due to the number and timing of films released by Starz Media and Overture Films. The Liberty Capital Group had attributed cash and public investments of [$8 billion], and attributed debt of $1.9 billion.

From July 31 through October 29, 2010, Liberty repurchased 3.3 million shares of LCAPA common stock at an average price of $46.61, for total cash consideration of $155.5 million. Cumulative repurchases since the reclassification of the tracker represent 36.6% of those original shares outstanding.

Now, the following items that you will see in our 10-Q disclosures that will get filed later today, in 2009, Liberty settled various variable share forward sale contracts relating to Sprint and Century linked shares, using borrowed shares. Liberty entered into those contracts in 2001, and received almost $1.2 billion in connection with the settlement of such contracts in 2009. Liberty treated the settlement as an open transaction, and deferred approximately $1.2 billion of gain for income tax purposes. For financial statement purposes, we recorded approximately $421 million of deferred income tax liabilities for this item.

In connection with its review of our 2009 tax return, the IRS questioned whether the gain realized on the settlement of the forward sale contract should be deferred. In October 2010, the IRS and Liberty reached an agreement with respect to this issue. This agreement resulted in Liberty making current federal tax payments of $210 million, yesterday. For financial statement purposes, Liberty expects to record a current tax expense for this $210 million, and record a deferred income tax benefit of $421 million in the forth quarter of 2010. As a result of this agreement, Liberty will be able to unwind the related share borrowing arrangements by delivering shares that it actually owns, without incurring any additional federal taxable income.

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

Thanks, Chris, and thank you to Mike, and Chris briefly, and Bill Myers on the fill in, for your updates on the respective businesses. I think we are looking at slide nine. The Q3 summary and outlook. I feel that our businesses continue to post strong results in the face of an uncertain economy. Our priorities as we finish 2010 and look forward to 2011 include that Liberty Media continuing to progress with the, or make progress on the split off of Liberty Capital and Liberty Starz.

And Liberty Interactive exploiting what we see as the many QVC growth opportunities, including in new markets and across new platforms, as Mike George talked about. Continuing to look for eCommerce investments and acquisitions. We've mentioned our desires, but also our difficulties in finding those historically. And continuing to rationalize our noncore investments. Reality is, we are focusing our business at Liberty Interactive on video and eCommerce, and things that don't fit into that portfolio as well, are probably not part of the business for the long-term.

At Liberty Starz, we continue to hope to drive our cost effective original programming, to differentiate and strengthen the Starz business and brand, and we will evaluate opportunities for what to do with the cash, and to improve our balance sheet management. At Liberty Capital, we expect to continue to deploy or invest our excess capital. You've seen us do that heretofore in investments and in repurchase, and I expect those will be the two primary vehicles going forward. And again at Liberty Capital, we have a select group of noncore investments to rationalize.

With that, let me thank you for your continued interest in, and support of, the Company, Liberty Media. And operator, let's open it up for questions.

Thank you. The question-and-answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS)

And, we'll go ahead and take our first question from Barton Crockett with Lazard Capital Markets

Great. Thank you for taking the question. I wanted to first ask about Starz, where it was a bit of surprise to see that the rise in costs. But, I was wondering from here, how do you see costs? Do you see them trending flattish? Or, is there a continued step function like we saw in the third quarter, over the second quarter?

I'll give a more general view, and then i'll let Bill Myers, and Glenn Curtis, the CFO, give the real answer. You know, I think you're seeing that we have -- one of the challenges with original programming, is some lumpiness.

And the reality is, we also have original programming that is given to us by the movie creators, and the form of the studios with whom we have output deals. And, the timing of those can fluctuate, but we still feel good about the long-term trend that we will have increased leverage on our content business' and content cost, if we are smart and clever about how we operate the business.

And, so, while we, as I noted while we see that lumpiness, we still feel good about the guidance we gave 12 months ago, albeit at the low end. And, not all the factors in our control, but those that we can manage, I think we've managed well. Bill.

Yes, I'm sure there is much more to add there. I mean, I think just for a little more detail. We had some movie content in this quarter from our output partners that was incredibly strong. Things like Up, and 2012. So it does put us in that position where we will have peaks in quarters, where we have really good content.

And, we showed Pillars this quarter which was not -- gave us a little bit more original content this period, than we had in the prior years. But yes, I agree with Greg Overall, we still feel that we have the right programming mix with originals and first run.

And, you can just comment on the Spartacus launch as well, because that had impact on the quarter -- maybe you, want to talk about that?

We released the DVD for Spartacus domestically on September 21. So, we had costs associated with that release, primarily marketing costs, and also the intercompany distribution piece that we have on that with Starz Media. And so, because we only had one week of revenue really in this quarter, we had costs that exceeded that by about $3 million. We would expect the marketing costs to set up future revenue in the forth quarter.

Great.

Okay. Great. And then, if I could ask one other question on the other Liberty Interactive tracker, the -- one of the issues that came out of HSN report was cost pressures from really, you know, importing products shipping pressures from overseas, which has been an issue for some other retailers.

And at HSN, it was mainly in their catalog segment, Cornerstone. Are you guy seeing anything like that, or is there something about your model that basically shields you from those shipping cost pressures?

Mike you want to cover that.

We're not seeing any meaningful pressure. Most of the inbound freight in our model, is paid for by the vendor. We do some direct importing but it's a minority of the business, and we have good long-term relationships, and so far have not seen any meaningful cost pressure.

Okay. Great. I'll leave it there, thank you.

And we'll take our next question from Douglas Anmuth from Barclays Capital.

Okay. Thanks for taking the question. Two things for Mike. First, I was hoping you could comment on the trajectory during the third quarter, and what you're seeing here, and thinking about in terms of macro for 4Q.

And then, secondly if you could comment on the higher gross margins in Germany, and just provide some more details there on what drove such a big lift. Thanks.

Sure. In terms of Q3, I got to shy away from kind of month-to-month comparisons, because it's so influenced by our programming calendar. But, I would kind of characterize the quarter as fairly stable overall. I wouldn't say there was an obvious trajectory one way or the other.

You know, as usual, I'll avoid any comments on our own business in Q4. So, I don't have a lot to add to the holiday outlook for the industry, other than kind of what we all saw with yesterday's, same store sales announcements. October was a fairly difficult month for the industry. And, just from my reading of the external reports and what I'm hearing, it was some combination of the unusual weather spell, as well as I think folks just, in an uncertain economy, taking kind of a breather between fall spending, and holiday spending. And October can be like that. It can be a hard month to get a read on because it's a little bit in between.

But that's my limited insight on the overall market. And again, i'll kind of shy away from the QVC references.

In terms of Germany, the single biggest impact I believe was the reduction this the mix of the consumer electronics business. You may recall in Q2, we had good top line growth but we were not happy with the bottom line growth, and felt that we had moved the business a little to aggressively to consumer electronics, and needed a healthier balance. So, we've been working on that for several months and I think the team did a nice job of rebalancing the business, and stabilizing margins.

The other, secondary impact, is that part of the long-term program to improve the health of the German business. It's been really improving our inventory management, and as a result of that reducing our markdown levels, and we once again saw the percentage of business done at mark down levels down in the quarter, and the percentage of business done at full price up. So, I think those were the two primary drivers of the margin boost.

Actually a third I would mention is, we did see our inventory levels came down in the way our obsolescence modeling works. You know, if inventory is down, you will incur less of an inventory charge. That element of it is heavily timing driven. When in the month, or in the quarter, do you receive the product? So that's a little more timing driven, the other two are more kind of fundamental to the mix of the business.

Okay. Great, thank you.

We we'll go ahead and take our next question from Tom Eagan with Collins Stewart.

Great, thank you. I realize it's early, but I was wondering if you could provide maybe a little bit of color on the expected accounting treatment for any of the new partnership original deals. You know, for example, would you think that the cash payment and the amortization would both be split by a partner?

This is Greg. If you think about, obviously we're early in those partnerships, content partnerships. I think the idea would be that, yes -- it would be very attractive financially for Starz on several levels. First we believe more scale and output of original programming, as a positive. Sharing those costs and the amortization for those is obviously a positive, as well. In terms of us finding a known derisk partner. Derisk set of revenue streams for any original programming as we produce it. And then lastly, we think there is probably some upside in our receiving incremental revenue and fees from the partnership for distribution of the product across different platforms, including DVD.

Right.

I think there are a lot of ways it could be beneficial if we were able complete the partnership.

So with Camelot, and Torchwood, are these series you expect to be shared?

Greg, can you hear me?

Yes, Chris, great, yes. Clear now.

Okay. On Torchwood, it's pretty much a standard core production deal. And the same thing with Camelot, with some treaty money on top. What we are doing looking forward is, to try to put together a structure that we can put all our original programming through. And maybe, create some one off partnerships within that as well. But Torchwood and Camelot are things that we are looked at, kind of outside, what we hope to be more, you know, holistically strategy going forward.

Right. Okay. And then I just have a question on the repurchase. You know, obviously the stocks been strong through the summer and the fall. And, I can see why it's hard to find the right price to repurchase it at. But, is there anything structural that's prohibiting you, or any reason why you wouldn't have bought back any of the shares in the quarter?

Tom, just to make sure this is -- you're talking about shares of Liberty Starz?

Yes.

No, there is nothing structural, I think we outlined some of the reasons why we are putting some of the other pieces in place and some of our thinking about what we want to do with the capital. And, that's probably been, -- rather than dipping our toe, we're trying to make some broader decisions.

Right. Okay. Thank you.

And, we'll go to our next question from James Ratcliffe with Barclays Capital.

Afternoon folks -- or morning I guess. Thanks for taking the question. Two of them. First of all -- I don't know, is Chris on the call, was he able to reconnect again?

Yes, i'm here.

Yes, hi. You talked in the past about the prospects of being able to sell to -- over the top services to various customers and various content. Can you sort of talk about some of the options you have in terms of how you'd put those packages together, and what the variables around them, in terms of timing and content of new, versus library, and the like would be?

Well, I don't know if you were at our investor day presentation, but what we showed was the various products that Starz, Encore, MoviePlex, packages are broken down in to now. And, we also talked about achieving, you know, price parity for the same product across the distribution platforms, that includes traditional, and new media -- distribution platforms.

And so, we're investigating our arrangements with all distributors based on that product line, and we are in conversations now with the appropriate people. Some conversations early, some people are early in their plans. Obviously there has been a lot of speculation around our Netflix arrangement, and we continue to talk to them. So we're out talking to the appropriate people, and we think we have the appropriate strategy.

And Greg, one for you if I could. I know it's kind of unfair to ask a coach, so what do you do if you lose the game? Although it seems to be okay in politics, ask people you know, what are you going to do when you lose the house.

But, in the event that you dont get a declaratory ruling in your favor in Delaware, what do you do then? What sort of appeals process do you have? And on the flip side, if you do get that ruling, what sort of appeals process or -- risk to finality could there be from one of the protesting bond holders? Basically just trying to get a handle on how long someone could string this process out, if they wanted to.

Well, when you're dealing obviously with a litigation process, there is no absolute certainly. Our hope would be for fairly quick ruling, sometime in February, with the potential for appeals either way, by ourselves. Or, the other side that might take -- stretch it out to as late as May. What would we do?

Well, there are obviously -- first of all, we're confident in our case. But, in the event that we were to lose, or lose on appeal, I certainly think there are alternatives we could imagine -- a restructuring of the deal. The argument would be largely about have we, -- as under the bond covenants -- remove substantially all the assets, and all the businesses. So, you could imagine situations in which less portions of the business are split off.

That seems like the obvious remedy, I'm sure there are others as well. But, May would be the time when we would think an appeals process would end.

Great. Thank you.

And we'll go to our next question from David Gober with Morgan Stanley.

Thanks for taking the questions guys. I guess this ones for Chris or Bill, on the new dish agreement. Just curious if you could talk about how the authentication works there. Is this going to go through DISH's TV everywhere portal, or what ever they are building? Or is this something where their customers have to authenticate through a Starz play web site, or something like that.

Bill why don't you take that.

This there l go through their portal. And, they'll handle all the authentication on their side. We are not establishing a separate location, if you will, where they would exit and go to a Starz separate website. So it'll be all handled inside the DISH Network.

And, I know it's difficult to comment on individual deals, but I was curious if you could give us any detail on any -- I guess, asked differently, were there any major changes to the structure of that deal, or is it relatively similar to traditional deals that you guys have dont with DISH?

I guess the real positive is, it's a relatively long deal. Which is a positive for us. And, what we have done with them, that's a little bit different than where we are now is, we have moved them more in to a flat rate structure with agreed upon increases that works economically for us, and works economically for them. And allows them to use our products. So, it's a little bit different than where we've been historically on the Starz side, where we've been a consignment deal.

Great. And, just, Chris, to clarify, some of the comments that you made about new entrance into digital distribution. Just curious if those conversations have gained any urgency, of if some players have seemed to be closer to launching, or closer to actually coming to market with a product, or existing services, that maybe have gained urgency on acquiring more content?

I certainly wouldn't use the word urgency, but I think there is an increased level of activity as people start to focus their plans about how they will enter this space. So there certainly are more than a couple of people to talk to. But, any discussions are certainly in early stages.

Great. And, I just had a couple for Greg as well.

Onward please, we don't want to have a monopolization of the queue. Go ahead.

Sure. So just on -- to clarify on the Sprint piece, I think you mentioned that this allows you to basically unwind some of -- potentially some of the borrower chairs that you put on there.

Does this also cover the 2010 traunch of the hedges that come off? Or, is that something that's a separate issue?

No, our settlement with the IRS, and our payment of about $210 million, and release of $425 million -- $420 million of liabilities, it only relates to 2009. The 2010 is still open, and all the prior years remain closed. So this is only just related -- just to the 2009. As you know, the release this year, really has no impact economically, just means we settled the issue. We get no further benefit from the shares, nor costs.

Great, i'll leave it there. Thanks.

And we'll go to our next question from Matthew Harrigan with Wunderlich Securities.

Good morning. Thanks for taking my questions.

One, can you talk -- you've always had a lot of runway, internationally, being able to enter new markets after other people have gone in and haven't implemented as successful of business model. You got some deep pocket guys in Asia now, Korea particularly, pretty aggressive. I know there are some markets you just aren't going to go in to for various governmental, you know, reasons. But, can you talk about, through the acceleration of competition there?

And then lastly, can you give us more clarity on eventual share repurchase activity at LINTA?

Mike, i'll let you handle the first part, and maybe i'll take the second.

Sure, the -- I mean you are right in Asia there are certainly some strong competitors that are trying to expand into new markets. Certainly a number of the Korean players have been either looking at, or expanding into China, India, Taiwan, other markets. I would say that's a consideration for us.

But, we do believe that if we kind of stay true to our model, we can make it work, and when you look at it, we have almost never been first competitor, maybe never. And usually we enter our market, including the US market, well after a number of other folks have entered. So we try not to get too distracted by what other folks are doing. Although, we certainly pay attention to it. We continue to stay on our agenda, which is -- you know, would love to at some point, expand further in Asia.

We certainly think China is a very attractive, and promising market, although not without a number of difficulties and issues. We also love India, although again, challenges and probably a little further out. There are still places in Europe that we'd like to go, like France. We'd love to get a foothold in the America's at some point, like Brazil. We continue to explore all those options fairly actively, but as I always caution when I talk about this, the timing of finding the right opportunity, the right partner -- very difficult to predict, and we really -- we have pretty high standards as to what it needs to look like.

And so, we're okay waiting until the right deal emerges. So, we continue to look seriously at international expansion in all those regions, and in some of those regions, there is more competition. But, I wouldn't say that's a significant concern for us.

And on share repurchase, I think as a practical matter, until a resolution of some of our issues around the eventual split off -- we're probably less likely to be dealing with share repurchase.

Thank you.

And, we'll go to our next question with John Tinker from Maxim.

Thank you. You mentioned you bought out a stake in Live Nation. And you're now nearly up to nearly 16%.

I wonder if you could just talk a little about how you see that business. I think they reported yesterday in the numbers, were not strong, and how you, sort of intend to affect change, given I think, you've only got two board seats and your limit is which committees you can sit on at the moment. Thanks.

Well, I think we tried to help out the former chairman there, by taking his shares. But, we still look at that business as interesting. While their clearly at the transition there, we have a reasonably good size stake -- the largest stake in the business. Two board members as you noted, including the interim chairman, who may wish to add any commentary on this. No

The -- I think the direction of the business is that they have some challenges related to both the consumer environment -- the current consumer environment, and discretionary spending, as well as the challenges related to technology and investments that they need to make on the ticket side. But, that we think the business has interesting long-term characteristics and is well positioned, and we think the management team is on track to do some of the right things.

Thank you.

And, we'll go to our next question from Martin Pyykkonen, with Wedge Partners Yes, thanks, good morning.

Question on Starz about capital structure, considering the comment that was made about several more months to consider and evaluate different options. To set the expectations, should we be thinking that at least through the first quarter, maybe first half next year, that you would stay basically unlevered, and the capital structure would stay the same at Starz as we see it today, until you figure that out? Is that a fair assessment?

I don't think we have a set time frame. I think we watch the lawn market, and appealing rate at which companies can issue debt, including high yield issuers, and are quite attracted. And, on the other hand we still have not yet entirely figured out what we would do with incremental capital. So, we're weighing those two pieces, but I don't have a set date.

Okay. And then one quick question on LCAPA, related to (SARI), considering where (SARI) is, you know, over $1.50, I know your not going to say yes, and when, and in what manner you might do more in terms of buying in, or increasing your stake.

Can you just talk, kind of, qualitatively about the NOL situation in terms of, as the stock maybe continues to go higher, how you evaluate that? You know, inputting cause, versus losing the NOL's, or some portion. The sooner you might make a move rather than waiting to fully capture those? Just curious how your -- I know its complicated from a --.

Quite complicated as you rightly noted. There are several factors, that one of the factors is what's called the (382) limitations. The success of SIRIUS has sort of taken that off the table as an issue because their market cap has grown so large. The NOL becomes less of a factor in the waiting. So I don't think that, that is much of an issue.

There are a ton of issues around our contractual agreements with them, about when we can increase our stake, and how. There are some tax issues related, if we were to ever go for a higher percentage, how we could utilize those NOL's, or whether they would become what is known as surly, which would limit, potentially, our use of them. And, as a practical matter, there is the reality that this stock has run an un-Godly amount.

And, you know, the valuation is -- while we have every confidence in this business, valuation is something you might argue they need to grow in to. We shall see. But, we remain very excited about the long-term prospects for SIRIUS. But it's less crisp about what we will do.

Okay. Thank you.

And, we'll take our last question from Murray Arenson with BGB Securities.

Yes. Thank you, good morning.

I just wanted to ask a couple of related questions on QVC, just to try to get a feel for some of the newer technology things you have going on. The iPAD app you mentioned, the mobile website. Talk a little bit about how those are going, and how we might see an impact from those.

And along those lines, maybe, as things get more electronic and internet entwined, is there a -- does that change at all, your approach to customer service? Can we see some changes along that side of the equation as well?

Sure. We did launch our iPAD app a couple weeks ago, so I encourage everyone on the call to download it, and you can have QVC with you 24 hours a day. And, it's a very compelling app. And, it's a fairly basic app at this stage. We'll do a lot to enhance it.

But, just that mobility element to our business, I think is very meaningful. Because, it does mean that, you know, that we'll just get more time with our customer, because she can now access us anywhere, at my point, with a beautiful HD quality viewing experience, and rich content as well. And, you know, we've barely begun to imagine the possibilities of that kind of a device. We're really making QVC a portable experience in both rich media and content. And, we will be launching our mobile optimized -- the next version of our mobile optimized website in a few weeks, along with another round of specialized i-phone app's that target specific customer niches. And, I think that's sort of the next generation of these apps is to have highly specialized app's, that go after communities of interest within the overall QVC family. So there is a lot happening on that front.

I think it's hard to predict exact impact on our business, other than we do think it helps us stay highly relevant. Helps us grow the business with existing customers, and new customers. We continue to believe that our eCommerce business, inclusive of mobile app's will hit, or exceed, 50% in the US by 2014. So, pretty meaningful mix shift. We're also experimenting with some things on the interactive front with our cable partners, although those are early stages, but we will be testing next year.

But, we think the core strategy is really these mobile applications and ability to interact both with the TV viewing experience, as well as the mobile viewing experience, through an interactive app on your phone, or our iPAD. So we think it just expands the market, expands the viewing time, expands the opportunity, for us. And, you know, it certainly has some impact on customer service. We've obviously seen, you know, generally speaking the number of calls coming in to our phone centers -- order entry calls is growing at a much slower rate than our internet growth. That's a good thing from a cost stand point.

And, generally people that make a purchase online may also be more inclined to transact our customer service in a self-service mode online. So, we continue to work on upgrading the quality of our self service tools on the web site. Having said all of that, we always find that the best customer is one who engages with us across all channels, including the phone. Our 20 year customer service veterans do amazing job of engaging the customer, and creating a great experience.

So, we kind of like the fact that folks still call in from time to time, even if they are heavy internet users. Great, thank you. Appreciate the color.

Well thank you to all of the questioner's and all the listener's for their interest in Liberty. Thank you to all the presenters on the call today. We look forward to another good quarter. Hope to speak to you again in three months, if not sooner.

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