QVC Group Inc (QVCGA) 2010 Q4 法說會逐字稿

Good day everyone and welcome 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, 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, competitive issues, regulatory issues, continued access to capital and terms acceptable to Liberty Media and the satisfaction to the conditions of 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 any forward-looking statements contained herein to reflect any change of Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. On today's call we will discuss certain non-GAAP measures. The required definitions and reconciliations, preliminary note 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 thank you all of you for joining us today and for your continued interest in Liberty Media. Today speaking on the call we'll have our Controller, Chris Shean, we'll also have the QVC CEO, Mike George, and the Starz CEO, Chris Albrecht. Several other senior Liberty QVC and Starz executives are also on the call and all of us will be available to answer your questions after the end of the prepared remarks.

So looking at slide three, the fourth quarter and year-end highlights, we had a solid finish to a strong year with good operating performance with our management teams despite a sometimes challenging environment. We had progress at the Liberty level, improving the clarity and completing several structural items which we think move towards that goal. Liberty Media, we filed our amended proxy for the split-off of Liberty Capital and Liberty Starz. We completed the change and attribution of 3.125% exchangeable debentures and including the stock that underlies those exchangeables, 21.8 million Time Warner shares, 5.5 million Time Warner Cable shares, and 2 million AOL shares and $263.8 million of cash. We set the shareholder vote for the completion of the split-off for April. We concluded our hearing in Delaware last week in the courts. I think we expect the court to render a decision in about six weeks. From our perspective, the trial seemed to go well and we remain optimistic of obtaining a favorable outcome.

Looking at some of the operating performance at Liberty Interactive, QVC had a solid quarter and a solid year with particular strength in our established international markets. Notably, QVC Japan exceeded $1 billion of revenue for 2010. That's the first time that we've had a market outside of the United States reach that milestone. We were pleased with our overall results given the tough comps that we had from Q4 2009. I'd note that the Q4 results as we previously discussed, were impacted negatively by a new agreement with GE Money Bank for the Q-Card and the launch costs in Italy.

Also notably, QVC.com achieved a penetration rate in the US in Q4 of 36%. That's the highest quarterly rate we've had in penetration to date and QVC.com's penetration for the month of December, which admittedly is typically a high month, exceeded 40%. I would also note we were particularly pleased with growth and direction of our mobile business. Really, we've just entered that in the last 18 months. We've had several notable launches, and great growth on the revenue side.

QVC continues to reduce its leverage. We paid down $300 million of our credit facility during the quarter, and because our leverage ratio at the end of the year was 1.7X, and we have a condition in our indenture which says if the leverage is below two times for two consecutive quarters, which has occurred, we now pay a lower interest rate on our bank credit facility. Also with Liberty Interactive, our e-commerce companies posted 27% revenue growth in Q4, with adjusted OIBDA growth of 38%. This is significantly outpacing comScore's e-commerce growth metric and the estimate for that for Q4 was about 11%, so we beat it handily.

Looking at Liberty Starz, Starz Entertainment exceeded its 2010 revenue guidance and met adjusted OIBDA targets. We were very pleased with the audience response to the Spartacus prequel. We also announced the season two will air in 2012, the Spartacus prequel was the most-watched premium program in the winter quarter and we're very pleased with that. Not just at Starz but of any premium.

As you may have watched last night, King's Speech fared very well at the Oscars, with a four award grand slam. Through our partnerships with the Weinsteins, this will be the first movie we release through our new home video partnerships and distribution agreement with the Weinsteins, and we're very pleased. Also notably, we ended the year with a record 18.2 million Starz subscribers and 32.8 million Encore subscribers.

Lastly, looking at Liberty Capital, SIRIUS XM, the largest element within Liberty Capital, posted very strong financial results, driven by excellent operating performance throughout the year. SIRIUS ended the year with over 20.2 million subs. ARPU was up 7%. Churn was down to 1.9%. The conversion rate was up to 46.2%, versus 45.4% last year. Virtually every operating metric for our subscription business was improving.

The SIRIUS stock was up to $1.77. It's actually up again this morning. That values our equity stake at $4.6 billion as of last Friday. Also notably in the quarter, we repurchased $185 million worth of LCAPA shares from October 30th to actually January 31st. We've also agreed -- we also purchased an additional 1.8 million shares of Live Nation and contracted to purchase an additional 5.5 million shares of Live Nation, subject to approval of the Live Nation shareholders. With the conclusion of both purchases, our ownership in Live Nation will increase to 20.9%. So with those opening comments, let me turn it over to Chris Shean, who is going to talk first about the LINTA financial results.

Thanks, Greg. Liberty Interactive group's revenue increased 6% in the fourth quarter, and increased 8% for the year, while adjusted OIBDA increased 1% for the quarter, and 6% for the year. QVC increased total revenue by 4% for the quarter, and 6% for the year, while adjusted OIBDA at QVC increased 1%, and 7% for the quarter and year, respectively.

Liberty Interactive's other e-commerce businesses grew 27% in revenue for the quarter, and 18% for the year. We note that overall revenue growth was partially offset by lower commission revenue, earned when customers sign up for third-party online discount services. As we had mentioned in prior calls, during the first quarter of 2010, a decision was made to change the way these promotions are offered and that decision resulted in reduced revenue earned from those services by $25 million for 2010. Revenue earned from the commissions yield significantly higher margins than normal product sales and therefore, the reduction of this revenue more negatively impacted adjusted OIBDA on a percentage basis.

Furthermore, during the year, increased marketing expenditures helped grow revenue and new customer names, but negatively impacted adjusted OIBDA margins. Adjusted OIBDA grew 38% in the fourth quarter, and decreased 8% for the year. Growth in the fourth quarter was due to product revenue growth and improved margins, with less of a negative impact from the reduction in the Commission's revenue.

Now let's take a quick look at Liberty Interactive's liquidity picture. At the end of the year, the Group had attributed cash and public investments of $3.7 billion and $5.9 billion of attributed debt. If you pro forma that for the change in the attribution of the exchangeable debt that we did in February, cash and public investments will increase by $1.4 billion, and the face amount of debt will increase by $1.1 billion, as if they were valued at December 31, 2010.

QVC's total debt to adjusted OIBDA ratio, as defined in QVC's credit agreement, was approximately 1.7 times, as compared to the maximum allowable leverage of 3.5 times. QVC's gross leverage is down significantly from its peak in 2009. With that, we'll hand the call over to Mike George to provide additional insights on QVC.

Thank you, Chris. In Q4, we successfully anniversaried the strong financial results from the prior fourth quarter, and we continued to make progress on our strategic goals to broaden the relevance and accessibility of our brand across platforms, with revenue from new customers up 18% worldwide in the quarter, and global e-commerce revenues also up 18%.

Looking at the results by market, in the US, our 3% revenue growth in Q4, while down from the trend of the past four quarters, represents a 17% growth rate over the last two years, a result that puts us among the faster-growing large retailers in the US. We saw continued strong performance in our beauty, accessories, kitchen and cook, household and consumer electronics categories, partially offset by softness in jewelry. Net revenue was also affected by higher return rates, primary in our electronics and accessories categories, and lower shipping and handling revenue due to a mix shift to higher ASP products.

Revenues from new customers grew 19% in the quarter, on top of the 60% growth last Q4, as we continued to broaden the appeal and accessibility of our brand. Our US e-commerce business grew 17%, well above the comScore sales growth of 11% for Internet retailers. QVC.com represented 36% of our sales, up from 31% last year. Over 50% of our revenue on QVC.com came from products not recently on air. And 64% of our new customers came through QVC.com. Continuing to highlight the success of our e-commerce platform in both creating additional purchase occasions with existing customers, and attracting new customers.

Adjusted OIBDA declined 1%, due to the impact of the previously-disclosed change in the terms of our agreement with GE Money Bank, as well as challenging comparisons to the prior year, when adjusted OIBDA increased 32%. Under the new contract, we share the economics from the credit card program with GE Money Bank. If the prior contract had been in place for the fourth quarter, our adjusted OIBDA would have been $9 million higher, or a 1% increase over the prior year. We expect to see a similar level of impact until we anniversary this change in August.

Excluding the impact of the new GE Money Bank contract, operating margins declined 27 basis points, with favorability in freight and inventory obsolescence, partially offsetting softness in initial margins, driven by the continued growth in consumer electronics. Upon the termination of the prior contract with GE, a $501 million deposit with GE Money Bank was returned to QVC. These funds were used to lower interest costs by paying down a portion of QVC's bank facility.

Now looking at the UK, they had another strong quarter with revenues up 6% in local currency on strength in apparel, accessories, fashion jewelry and beauty. Our e-commerce revenue grew 17%, and revenue from new customers grew 29%. That's one of the strongest new customer performances in several years. Adjusted OIBDA increased 16% in local currency, driven by warehouse and freight efficiencies and fixed cost leverage.

Our German business delivered an outstanding quarter, with total revenue growth of 9% and e-commerce revenue growth of 22% in local currency. We saw balanced growth across our home, beauty, apparel and accessories businesses. Adjusted OIBDA increased 18% in local currency, driven in part by strong improvements in initial product margins, as we successfully shifted the mix from consumer electronics to the fashion categories.

Our Japan business continued to post strong results, with revenue up 7%, and adjusted OIBDA up 12% in local currency. Our beauty, apparel and accessories categories were especially strong, and e-commerce revenues increased 20% and for the full year, as Greg noted our Japan business exceeded $1 billion in revenue, our first market outside the US to achieve that milestone.

Looking at Italy, in our first quarter of operations, we achieved net revenue of EUR1 million and adjusted OIBDA loss of EUR10 million.For the full year we incurred an adjusted OIBDA lost of EUR24 million or $32 million, that's on the low end of our guidance of a $30 million to $40 million loss. As I mentioned on the last earnings call, our initial sales were softer than we anticipated, due in part to the challenges associated with launching the channel in the midst of Italy's transition from an analog to a digital environment. Nonetheless, we remain very confident about the potential of the market.

We see several encouraging signs in our first few months of operation, including strong week-over-week sales increases, 96% customer satisfaction rates, a level of repeat customer purchasing that already rivals or exceeds that of our established markets, and one of the lowest return rates of any country. So we can see that the Italian consumer is responding favorably to our format, which is unique in the market. We expect sales to continue ramping strongly as more viewers continue to discover our channel, and as we continue to adjust or programming mix to the needs of the market.

Now looking at the full year, we're very pleased with our progress broadening the relevance and accessibility of our brand across both countries and platforms and driving strong financial results despite the continued economic uncertainty. For the year, we grew revenue 6%, and adjusted OIBDA 10% in constant currency,excluding the one time impacts of the Italy launch and the new GE Money Bank contract, and we had one of the most balanced results across markets that we've seen in many years, with each market growing revenue in local currency between 5% and 10%, each market increasing their adjusted OIBDA margins and each market growing adjusted OIBDA from 5% to 15%. E-commerce growth worldwide increased 20% to $2.2 billion, making QVC one of the largest and fastest growing general merchandise retailers on the Internet, and every market contributed to the strong e-commerce growth.

The count of new customers increased 8% worldwide, with strong customer count growth in every market, and our revenue from new customers increased 11%. Our active customer base in the year was over 11 million globally, including 3 million new customers worldwide. We continued to expand our platforms, launching multiple new Smart Phone and iPad applications in the US, second broadcast channels in the UK and Germany and broadcast simulcasts on ITV in the UK and BSN TV, a leading channel in Japan. And we are now in the process of rolling out iPhone applications in every established market, as well as testing several interactive or internet TV features and we have close to 40 million homes in the US with access to a second channel placement in the HD tier.

We continue to enhance our product lineup with several prestige brand launches in the year. In fashion, we added Liz Claiborne New York, K-Dash, by the Kardashians, Mod, we expanded our Isaac Mizrahi and Rachel Zoe brands. In Cook we added chefs Gordon Ramsay, Lidia Bastianich, and David Burke, joining Rachael Ray, Paula Deen and others. Our strong Beauty lineup expanded with the additions of Josie Maran, Bliss Spa, Fresh Beauty, and Neutrogena Skincare, among many others, and we added Dyson vacuums and VitaMix blenders to our housewares and kitchen mix.

We engaged our viewers with several high-profile events, including our pop-up store in Rockefeller Center for Fashion's Night Out and remotes from the Academy Awards, the Aspen Food and Wine Festival and the Smithsonian's National Gem Gallery, among many others. We established our broadened partnerships with several leading media outlets including Vogue, InStyle and Food and Wine. We successfully launched our business in Italy, our first new market in nearly 10 years, and we continue to actively explore several other markets for potential expansion, and we continued our multi-year program to remake our global technology infrastructure, to better support our growth goals across platforms and countries, personalize the shopping experience, and extend our competitive advantage.

In 2010 we launched new warehouse management systems in two of our distribution centers, and began rolling out new digital workflow and media asset management systems and this month we began a phased roll-out of our new WebSphere e-commerce platform. For the full year, our capital expenditures were $220 million, including investments in our technology platform, the launch of Italy, and shifting Jewelry to our South Carolina distribution center.

We anticipate our capital expenditures for 2011 will be in the range of $280 million to $300 million, including continued investments associated with our technology program, a 1-million square foot expansion of our North Carolina distribution center, to handle our growing hard goods volumes in the US, and new headquarters facilities in the UK and in Japan. With that I'll turn it back to Chris.

Thanks, Mike. Let's take a look at Liberty Starz. With the attribution of Starz Media to Liberty Starz, the results for Liberty Starz going forward will primarily represent the results of Starz LLC. Starz LLC is managed, based on the business units of the Starz channels, which is the legacy Starz Entertainment business, and as well as home video, television, digital media, and theatrical businesses, which is the legacy Starz Media business. Liberty Starz attributed revenue grew 33% in the fourth quarter, and 11% for the year, while adjusted OIBDA increased 43% in the quarter, and 7% for the year.

Excluding Starz Media, and corporate and other, revenue for the legacy Starz business increased 5% from 2009 to $1.2 billion, and adjusted OIBDA increased to $407 million, up 6% for the year. At quarter-end, Liberty Starz had attributed cash and public holdings of $1.1 billion, and attributed debt of $105 million. These cash and debt figures are post the change of attribution of Starz Media to Liberty Starz, as well as a net settlement of $150 million, paid to the Starz founder and former CEO, the final settlement of his SAR agreement. Now, I'll have Chris Albrecht comment on, more specifically on events at Starz.

Thanks, Chris. Good morning. Starz completed a strong 2010, that saw Starz Entertainment, our premium TV business, achieve historical highs in revenue, OIBDA, and year-end subscribers to the flagship Starz and Encore channels.

Having completed my first year at the Company, I'm pleased to note the continued positive momentum our businesses are achieving, heading into 2011. Starz enjoys a robust share of exclusive first-run movie programming, and with the increased visibility of our Starz original series, we're positioned favorably in the overall competitive marketplace. We continue to look at the online video distribution market for opportunities to distribute our programming, while remaining mindful of historical relationships with our traditional distribution affiliates. We'll approach new opportunities creatively, yet prudently, with an eye toward seeking agreements that specifically price and package our content in ways on par with that of our traditional distributors.

Shifting to specific business performance and discussion, beginning in the fourth quarter 2010, Starz Media became attributed to the Liberty Starz tracking stock group. As a result, Starz Entertainment and Starz Media businesses are now more closely aligned. Specifically linking the two companies provides us a cleaner operating and financial structure. Unless otherwise specified, the 2010 financial performance metrics I'll share are for Starz LLC and contain Starz Entertainment results for the full year and Starz Media results for the three months ended December 31st, 2010. Those used for comparison to 2009 are only that of Starz Entertainment.

The Starz 2010 financial and operating performance showed growth across the board. With respect to our two flagship services, Starz ended the year at 18.2 million subs, and Encore and 32.8 million subscribers, which are both all-time highs. Revenue from Starz LLC increased in comparison to 2009 by 11%, to $1.3 billion, primarily due to the fourth quarter addition of the Starz Media businesses. Starz Entertainment's 2010 revenue increased 5% to $1.2 billion for the year, largely due to the increases in the average number of subscribers to our channels, associated increases in subscription rates, and ancillary revenue from our original programming, driven substantially by Spartacus Blood and Sand, the international television syndication and North America home video sales.

Starz LLC's OIBDA grew by 8% to $415 million. Starz Entertainment's OIBDA rose 6% to a total of $407 million. The increase in OIBDA is due to increases in the average number of subscriptions to our channels, associated increases in subscription rates, ancillary revenue from our original programming, partially offset by higher programming expenses, related to increased airing of original programming in 2010, and the addition of Starz Media businesses in the fourth quarter.

Starz LLC's operating and SG&A expenses increased in 2010 by $105 million to $914 million, an increase of 13%, of which $74 million was specific to the reattribution of Starz Media. The majority of the remaining increase of $31 million was attributable to higher programming expenses related to increased areas of original programming in 2010. We believe that, subject to inherent risks associated in forecasting theatrical output content, our total programming expenses should rise by modest amounts for the foreseeable future.

Our expanded investment in original programming is important on many levels, including driving new subscriber growth, decreasing churn levels, increasing Starz brand awareness, creating a hedge against changes in the economics and consumption patterns of movie programming, and raising the profile of our entire suite of premium channels and services. We continue to make progress in evaluating potential alternative financing models to assist in our acceleration into originals. While dialogue with potential partners continues in earnest, the process is ongoing, and could take several months before conclusion. Our goal is to expand Starz originals over the next few years, in order to deliver 50 to 60 hours of new content annually.

Regarding relationships with distributors, we recently extended our affiliation deal with AT&T U-verse.This agreement includes rights to our suite of authenticated services, Starz Online, Encore Online, and MoviePlex online. We look forward to capitalizing on ongoing discussions with other multi-channel affiliates on the TV Everywhere initiative in 2011, and extending the distribution of our movies and original programming across all platforms.

Now let's take a finer closer look at our 2011 original programming efforts, our first as a year-round original programming service.The Spartacus franchise continues to be a true success story for the Company. Spartacus returned in January with the Spartacus, Gods of the Arena prequel. The series performance picked up right where Spartacus, Blood and Sand left off in terms of buzz and viewership. It averaged 3.3 million viewers per episode on the flagship Starz channel, for the first half of the 6-episode prequel. This original series was a true success story for Starz, receiving more viewers per episode on average than any other series on premium television this winter.

In the digital space, the series was also a success in the social media arena as we registered our millionth fan for the show on Facebook earlier this month. The Spartacus, Gods of the Arena Facebook social media game, announced in early January, is also performing well, with approximately 870,000 registered users. Spartacus, Blood and Sand, season one, had a very strong debut on DVD and Blu-ray, in both hard good and electronic formats. The title was one of the most successful DVD season one TV launches since 2008, trailing only True Blood and Glee in its first 10 weeks. Spartacus, Gods of the Arena will arrive later this year on DVD, Blu-ray and in digital retail. As to the future of the franchise, we were delighted to introduce Liam McIntyre as the new title character. Production will get underway this spring and he we expect the second season of Spartacus to return to Starz next year.

Now to Starz' next original series, Camelot, this is a modern day reimagining of the Arthurian mythology. The new series debuts on Starz April 1st with a special two-hour block. It stars Joseph Fiennes, Eva Green, Jamie Campbell Bower and Starz retains all US pay TV rights including digital and home entertainment for the 10 episodes. Torchwood will follow this summer, entitled Torchwood Miracle Day. The ten-episode original series, which is the next chapter and a new starting point for the hit BBC science fiction franchise. Starz owns the exclusive US pay TV rights for Torchwood.

The original series Boss will round out our 2011 original programming schedule. It's going to air in the fourth quarter. Boss was a much sought after media property that we're fortunate to have secured for our original slate. It stars Kelsey Grammer, it's a political drama focused on the Machiavellian politics of Chicago and the vaunted political machine. For that one we also own the exclusive US pay TV rights.

We also made news in December on a future project entitled Magic City and although this won't air until 2012, we're committed to 10 episodes of the first season. Magic City is set in the heart of Miami at the close of the 1950s, it's a sexy, exciting drama. It's character-rich and reflective of the times and locale.

Over at Starz Media, in early January, we entered into a multi-year, multi-platform distribution agreement with The Weinstein Company for up to 20 titles per year. This comprehensive home video and digital entertainment deal leverages the distribution and sales infrastructure of Anchor Bay, and covers DVD, Blu-ray, and electronic digital distribution but does not include television rights. As Greg mentioned, the critically acclaimed Oscar award winning film, The King's Speech will be the first title distributed through the agreement. We were also pleased that the separate transaction, selling a 25% stake in Starz Media to The Weinstein Company.

As for our animation businesses, the previously announced agreement to sell Film Roman did not close. We are exploring other expressions of interest in our animation businesses. Of course, we'll update you with our progress on the next call. With that I'll turn it back over to Chris.

Thanks, Chris. Turning to Liberty Capital, Liberty Capital Group's revenue decreased 41% to $91 million in the fourth quarter, and increased 9% to $708 million for the year. Adjusted OIBDA loss decreased $76 million for the fourth quarter, and $98 million for the year. Liberty Capital Group had attributed cash and public investments of $9.1 billion, and attributed debt of $1.9 billion. Pro forma for the change in attribution of the exchangeable debt, in February, cash and public investments will decrease by $1.4 billion, and the face amount of debt will decrease by $1.1 billion, as they were valued at December 31, 2010.

From October 30th, 2010, through January 31st, 2011, Liberty repurchased 3 million shares of LCAPA common stock at an average price of $60.76 per share for total cash consideration of $185.1 million. Cumulative repurchases since reclassification of the tracker represent 39% of the original shares outstanding. I want to point out that our Form 10-K will be filed later today, and as you will see in that 10-K, Liberty Capital recorded an income tax benefit in the fourth quarter, a rather large one.

This was due to the settlement that we had mentioned with the IRS in last quarter's call as well as the following transaction. In 2005 we acquired all of the equity in two corporations in tax-free reorganizations. For tax purposes, our outside tax basis in the shares of these corporations was approximately $1.3 billion. We were required to recognize as a deferred tax asset, only the tax basis of the assets held by the two corporations, which is known as inside tax basis, and this was a significantly lower amount than the outside tax basis.

In December 2010, we sold all of the stock of these two corporations and realized a capital loss, which is now sitting as a capital loss carry-forward of approximately $1.3 billion. For financial statement purposes, this resulted in the recognition of this federal income tax benefit of $462 million. Such amount is based on the difference between the outside tax basis realized and the inside tax basis, which was recorded historically. I should point out that our 2010 income tax return positions are being reviewed by the IRS, and although we believe these positions that we intend to take are appropriate, there is no assurance that we will prevail if the IRS and we were to dispute these positions. With that said, I'll turn the call back over to Greg for some concluding remarks.

Thanks, Chris. And thank you Mike and Chris for your respective updates. I believe that our businesses are continuing to perform well, and to post strong results, and despite what is still a challenging and uncertain environment for the consumer, particularly here in the United States. Our priorities for the balance of 2011 include at the corporate level, continuing to make progress on the split-off between Liberty Capital and Liberty Starz. We're seeking a private letter ruling. We're out with the proxy. The trial is moving forward. On all fronts, we believe we're progressing towards the goal we sought.

At Liberty Interactive, I think you saw QVC continues to exploit growth opportunities, both in new markets and on new platforms and that's the focus for the balance of the year. We're continuing to grow our e-commerce businesses, strong organic growth and we continue to look for new opportunities to build those businesses with acquisitions or investments. We'll continue to focus on rationalizing our non-core investments in Liberty Interactive. And we'll look for ways to invest what I believe will be the large amount of liquidity that Liberty Interactive will be generating over the next two and three years.

At Liberty Starz, you've heard a lot about our original programming efforts. We believe that finding ways to cost-effectively develop compelling original programming is critical to differentiating and strengthening Starz and we're on our way. We're looking to build and enhance our existing relationships with existing and new distributors, and we will evaluate opportunities for cash and balance sheet management at Liberty Starz as well.

And lastly, Liberty Capital. First and foremost, we have much excess capital and liquidity to invest, thinking of ways to deploy out of our non-core investments, reinvest smartly that cash, that liquidity is job one, and as I mentioned, we still have non-core investments which we need to rationalize efficiently. We appreciate your continued interest in Liberty Media and your support. Stay tuned and thank you for listening.Operator, let's turn it over to some calls, some questions, please.

Ladies and gentlemen, the question-and-answer session will be conducted electronically. (Operator Instructions). Your first question will come from Barton Crockett with Lazard Capital Markets.

Okay. Great. Thank you for taking the question. The first thing I was interested in asking about was the sub growth at Starz, which was remarkable, adding so many subs, really I think the most subs since the third quarter of 2007. Was wondering if you could talk about what was behind that and the sustainability of it. I mean, is this something that is attributable to excitement around originals and successful renewals, or is it just kind of a lumpy phenomenon that doesn't really continue into the first quarter in particular?And then secondly, do you get revenue leverage on this or are these really subs coming through flat rate deals? So if you could address that, it would be helpful, thank you.

Thanks, Barton, I'll let Chris Albrecht handle that.

We are optimistic about continued growth, because we believe that this growth is -- just sort of demonstrates what we've been talking about, which we think that there is for Starz, a real opportunity in the existing premium television universe and we have been able to work with our distributors to market our products, I think more effectively and more consistently, and in part, that's because we have a good story to tell, not just with our theatricals, but obviously with our emerging originals.

Obviously, we are managing our expenses into this original programming expansion, and so certainly, the increased revenue does help our ability to create leverage room for Starz. This isn't attributable to any one thing. This is just really good business on the part of the Starz sales team, and their corresponding teams at our distributors.

Okay. And part of my question, though, was the visibility into the first quarter. Is this continuing, the sub growth?

Bill? Bill Myers is there, and would have any information. They don't report -- I think it's probably too early to have any new information, but if we do, Bill Myers would be the one who has seen whatever.

Chris, I would agree with you. It's too early at this point in time. I guess the one thing I would say is that if you look at the Starz growth over the last 12 months, it's about 50/50 between a fixed rate deal and what we're seeing in consignment, because we're having continued strong growth with our telco partners. And if you look at Encore, it's probably more like 65% is really on the consignment side, as we're starting to see some of our consignment affiliates really use the Encore product, because it is a terrific product. But it's too early for us to tell what's going on in the first quarter.

Barton, to summarize, we got, I think original programming's a help. The structure of our contracts has driven some of the sub growth but there is true organic real sub growth as well.

Okay. That's great. I'll leave it there and let others queue up. Thank you.

From BTIG, we'll hear from Richard Greenfield.

Thanks. Just wanted to follow up on Barton's question, and then I had one other. There's been fear over the past year that Comcast and some of your other distributors were upset, or didn't like the fact that Starz content appeared on Netflix. But with Starz and Encore subs growing so nicely, is that investor concern simply misplaced?

Two, you've got, including marketable securities, I think we tally about $1.3 billion actually of net cash and securities on your balance sheet now for Starz. Given the sub growth, EBITDA growth, when should we expect you to make a decision on using some of that cash, either to return to shareholders, or simply to do something with it versus just sitting there? Thanks.

On the first point, I think we've -- this is Greg. We've discussed in the past that the entrant of over-the-top competitors, Netflix being the most visible has caused friction with our existing distributors, the way that new entrants often do. It's incumbent upon us to try to work the with the existing distributors and the new entrants.

I give credit to the Starz team for having improved the general tone of those relationships, and set the right direction, that we want to be a good partner, because it's in our interest to be a good partner. Most of our product is on consignment, and we need those cable partners, those telco partners, those satellite partners to drive our business and make both of us money. We're very conscious of that, we're working through that, and I think you're seeing some of the good result.

Does that mean that all the friction is gone? No, but it's something we're trying to manage and be thoughtful about. I'll let Chris comment, and add anything on that and then I'll come back and talk about the cash.

I mean, we realize that the original Netflix deal was controversial. Certainly has attracted a lot of attention, as has been widely reported. We're having an opportunity to look at that deal going forward in these next months, and we maintain that what we need to work on is a product, price parity, for the different Starz, Encore and MoviePlex products and that's the focus that we have. I don't think that our numbers show anything other than, this is a strong category. These are strong brands and we look for improved performance and growth in all of these sectors.

There's nothing that seems to show that Netflix is hurting Starz, is there? From a subscriber standpoint.

Our belief is that the vast majority of the people who are subscribing to Starz and subscribing to Netflix are not in competition, it's either additive or it's a different segment. We're not trying to tell the cable guys or the telcos or the satellite guys we know their business better than they do, but that's our perception. Whatever we think is not as important as what our partners think. We need to work with them, to make sure we're minimizing as much as possible, the natural channel conflict that exists. That's our goal, and I think we've had some success with that. Not perfect, but some good success in 2010 and hopefully more in 2011.

Now, turning to the cash question, we're just inherently a very conservative Company. We don't like leverage much. We're hoarding that cash for the day that who knows what happens. I think I said before, that was firmly tongue-in-cheek, we are thoughtful about what opportunities exist in the marketplace. We're going to make a decision as when we're ready about what to do with the liquidity at Liberty Starz, and we are mindful of the fact that we have quite a lot of liquidity there as I noted.

Thank you very much.

No dates today, sorry.

Okay.

Your next question will come from Matthew Harrigan with Wunderlich Securities.

Good morning. Thank you for taking my question. First of all, Q's really in a unique position relative to the other cable networks, more or less world turned upside down, over the top, since you're actively paying your cable and satellite partners a percentage of your sales. Is there any benefit over time from all the new distribution conduits you're getting as far as that goes? Can you talk about it in a broad context?

Also, you said that new customer activity at Q was up about 18% on a global basis, which is a pretty resounding number. Is it really just the halo you're getting from all the new apps that are out there? What specifically is driving that? That's a pretty nice step function improvement.

Mike, do you want to handle that?

Yes. On the first question about over-the-top and new forms of distribution and whether that benefits Q, I think over time it does. Clearly, our traditional cable and satellite and now telco partners are critical to us and we continue to have very good relationships with them, and to your point, certainly financially attractive relationships for them as well. But as we add more and more nodes of distribution, I think it just gives us more flexibility to kind of go to wherever the customer is.

The nice thing about our model is we don't have a stake in this fight in terms of what form of distribution wins. We just want to be wherever the distribution is, and some forms of distribution are more directed to the customer and therefore, less costly for us. But our goal is to be on every relevant platform, and wherever the customer's looking for video, and as long as we can sell the product through that platform, we benefit. And certainly the growth of -- the rapid growth from a standing start of platforms like tablets, which are a more attractive viewing option for longer sales, I think all that will really benefit us over time. We think we're in kind of a sweet spot as relates to this transformation of the distribution environment.

In terms of what drove the 18% growth in new customers, we are now on about probably a six, eight quarter run of really healthy new customer growth, and I think it continues to be a combination of factors. Part of it is just what products and categories we're offering. As we move to more and more leading brands and categories like Consumer Electronics and Beauty, those -- or well-known personalities in the fashion arena, those brands and personalities bring customers with them, a recognizable brand in electronics or a recognizable personality with a big fan following, those things matter to us. And it's very powerful when some of the personalities we've added to the channel can reach out to their fan base through Twitter and Facebook and expose more people to QVC. So it's the mix of products, it's the more new name friendly products, it's the power of brands and personalities to drive traffic.

And I'd also point to, I think the better job that the team is doing with online marketing. Our online marketing team has really kind of risen to the challenge of trying to find creative and ROI-attractive ways. We've always been conservative in online marketing, because the ROIs haven't always been great, but I would say we're getting better at that and seeing better results.

Finally, I would just point to sort of a general increase in the brand halo, positive PR around the brand. I think the brand is just more credible and some of that historic stigma associated with our format, I think in the last couple years we've really seen that diminish quite rapidly with things we've done to elevate our product offerings. So long answer to say, I think all of those factors ultimately contribute to the expanded reach.

Thanks for your time.

Great. Next question.

That will come from James Ratcliffe with Barclays Capital.

Good morning, folks. Thanks for taking the question. Two on Starz, if I could. First of all, on Starz Media, it looks like it actually generated positive EBITDA in the quarter, and I'm wondering, is that a trend that we'll see going forward? Is this now a profitable entity, or is there some one-time stuff going on there, because that certainly hasn't been apparent in the past.

And secondly, Chris, if you could talk about original content, I know you've got an array of deals on the table that you're working on, but broadly, what sort of rights do you see as you need to have versus ones that you would take on, such as DVD and the like, should it make sense? Other than US pay TV rights are there others that you absolutely need to have in any sort of collaborative deal? Thanks.

Thanks for the question. With regard to the first one, we spent a lot of time and effort this year rationalizing the Starz Media businesses, decided to get out of the Overture theatrical film business, and we looked at Anchor Bay as a real strategic asset, that if reattributed to Starz, we could have that as a growing business, even though, as I said before, maybe the overall sector on the hard goods side isn't necessarily growing, we look at that as a positive growth business for our Company. So I would think that with the Weinstein deal, with the growth of originals, certainly the good performance of Spartacus, which we hope to continue, that Starz Media should be a positive story for us for the foreseeable future.

I totally agree with Chris on the direction. We rearchitected that business, and I give credit to the Starz team for doing that. Q4 was somewhat of a positive anomaly, just because of the timing of events, of how expenses were recognized in 2010, and how revenue came in Q4. I don't think you should necessarily extrapolate Q4 as all the good for the future. I agree entirely that we rearchitected the business, and I give credit to the Starz management team for that.

With regard to the rights we are looking to retain, certainly US pay TV rights are imperative. But as a follow-along to what we just talked about, certainly retaining at least the North American DVD rights seems to be a good strategy for us. Those are rights that we think that we can monetize on their own. But also go to help continue to strengthen the overall Anchor Bay business, which as I said, is not just a strategic asset for us, but one that we hope will be a positive story. And Anchor Bay also supplies the Starz channels with many films through the Anchor Bay Films division, which did to help us meet our quotients for theatrical films with our cable and satellite and telco affiliates.

Thank you.

Thank you.

From Morgan Stanley, we'll hear from David Gober.

Thanks, guys. Thanks for taking the question. A couple for Greg, if I could. On the LINTA side, you noted the strong liquidity and cash flow that you guys have at that business. I was just wondering how you think about optimal leverage longer-term, given the cost of capital these days and also any sense of when you would consider starting buybacks up again, and any blackout periods you might have, if you do get -- assuming that you go forward with the spin of LCAPA and Liberty Starz. And then on the SIRIUS side, as we approach the second anniversary of that deal, just wondering if you could kind of walk us through what changes in your flexibility there, and any sense of if it would make sense to potentially collar a portion of that stake, or take up the overall size of that position.

Okay. First, on the LINTA point, LINTA had, like many businesses, a challenging financial picture on the liquidity side, right after the Lehman bankruptcy. And at that time, our net leverage in LINTA was $9.6 billion. Today, while EBITDA is up something like $100 million on an annual basis, compared to 2008, the net leverage is down to $4.4 billion.

So we have significantly delevered this business. And we now have a very conservatively financed Company, in my judgment. I think we will wait and see how our split-off transpires, before we make any decisions about how liquidity is utilized, and what we want to do, but I agree that there's a lot of liquidity and a lot of strength in the operations and balance sheet at Liberty Interactive. How we'll utilize that, whether it's incremental investments, more debt paydown, more opportunistic debt issuance and retirement, or share repurchase, we'll weigh all those possibilities as the split-off in this progresses.

On the SIRIUS side, just to review, we can buy our way up to 49.9, just under 50 today. At the end of next month, there's a change in the terms and we can make an offer for all the Company's stock. We must make it for all the Company's stock and go over 50 in an offer for all and in March of 2012 we could bypass the 50. Those are all opportunities that exist. We fundamentally like the direction of the business. We fundamentally have confidence in the business. So we're probably not looking to collar our exposure, and I think as a practical matter, despite contract limitations, when you have a 40% stake in a Company like that, it would be very difficult to collar a meaningful percentage of our equity in any case. But we remain optimistic on the direction of SIRIUS and the options we're looking at largely involve us being supportive of SIRIUS, being believers in SIRIUS, probably not collaring our stake.

Great. Thanks guys.

Your next question will come from Doug Mitchelson with Deutsche Bank.

Thanks so much. Couple of questions. First for Greg or Chris, I guess I shouldn't be surprised at the tax NOL you were able to create. Any other potential tax benefits embedded within the Company that are not readily apparent to investors?

I'll just say we are obviously have a need to comply with disclosure regulations regarding our tax positions, and so anything that we are obligated to disclose, we do disclose. We as a Company work to maximize the value, after tax value to our shareholders, and much of that involves trying to be thoughtful about our tax planning positions, but we have obviously disclosed anything that we need to disclose. Chris, do you want to add anything to that?

No, that's a fair statement.

If you look at the benefit that was created, is that something where you're going to get a refund on the 2010 tax filing that we should expect cash coming in the door for that soon, or is this add-on to an NOL balance that carries forward as other events take place.

I think it's more the latter, Doug.

Okay. And then on the Starz side, for the other Chris, you said you had an opportunity to look at the Netflix deal these next few months I think was the quote. Netflix indicated the current deal expires in the middle of the first quarter of 2012. Do you think the discussions you're having with Netflix have enough momentum for an early renewal to take place?

I really can't comment on the timing of the discussions. Just to reiterate what we've said and what Reed has said, the deal expires first quarter 2012. And it's an important deal for us, important relationship, and we are in constant thought and discussion, although it is complex, and we'll certainly let you guys be the first to know when we have anything concrete to tell you.

Just for fun, I'll ask it another way. Are you optimistic they'll embrace the style of deal that you need to do?

Look, this is Greg. The reality is, we think there's a great opportunity to work with Netflix and potentially other over-the-top distributors, but it can only be on terms that work for Liberty and for Starz in terms of our existing content relationships and our existing distributor relationships. That's the only way it's going to happen.

Fair enough. Thank you.

Next we'll go to Ben Mogil with Stifel Nicolaus.

Hi. Good afternoon. I think actually most of my questions have been asked and answered already so thank you.

Thank you. We like that.

Moving on we'll hear from Jaison Blair from Telsey Advisory Group.

Hi. Can you hear me?

Yes.

Terrific. So how should we think about scenarios for potential reattribution across your companies, if you don't get a favorable ruling on the Delaware hearing? It seems as though the cash at Starz may have something to do with that. Also, can you tell us how the growth of subscribers at Netflix may require Starz to make payments to Disney or Sony, and how we should think about the scope and impact of that in 2011 and beyond?

This is Greg. I'll do the first part. We really haven't spent a lot of time modeling the what if scenario if we're not successful in Delaware. I think we're optimistic about Delaware. We believe we're correct on the law and the facts and that we're progressing well in the trial, so we really haven't done a lot of modeling, and I'd be loathe to speculate on what we would do in the event we are not successful.

But the cash on the Starz balance sheet, is that directly related to Delaware?

I think we've noted that Starz is underleveraged. What we do with that cash is a somewhat separate question, unrelated to Delaware, in my mind. Now, bondholders may see it differently. From us, looking at what we want to do, I think that's an unrelated question, and we think there's underleverage at Starz and we're thinking about the best and most clever ways that are beneficial to all parties, in terms of what to do with that cash. So that's our focus, not in a what-if scenario about the trial. Chris, do you want to talk about -- ?

With regard to the deals and Netflix, all I can say is that we are not anticipating any issues with regard to that during our existing agreement, and obviously our studio contracts are an important factor, as we look to the different scenarios that we can put into place, not just with Netflix but with any of our -- with any of the potential OBD affiliate partners.

So we're past -- go ahead. I didn't mean to interrupt you.

Your comment earlier about not expecting your programming expense to increase meaningfully, I think you said 2011 or you highlighted that it would be on a going-forward basis, that would include any payments to Disney and Sony for sub increases at Netflix, and it would imply that I guess your rate card was coming down on those deals, which would offset your increasing hours of original programming?

Well, those are two separate questions. The answer to the first one is yes. We are not looking at an increase in our programming costs due to the Netflix studio issue. And as we've said before, there are a lot of changes that are going on in the theatrical output world, studios are making less films, and as some of these deals have been renegotiated, or deals have been extended, I should say, we're always looking at the formula, or as you called it the rate card for the theatricals, and we do think that those trends are going to allow us room to absorb the increased investment in original programming to a great extent.

But I think as we've talked about in the past, just confirm and agree with Chris, you know, we've got a lot of moving parts many what's the box office. We can see some of that now. What happens with partnerships like Turbo that we have talked about before. What's the rate that we roll out the original programming. It's an uncertain -- we have a lot of scripts. We have a lot of pilots. We have a lot of ideas. How fast that rolls out -- and then lastly, where are we on some of these other ancillary issues. Things like incremental payments to content partners are way down the list in the terms of driving that number.

Great. Thank you.

This is our last question, since we're past the top of the hour.

And your final question will come from Tom Eagan with Collins Stewart.

Super. Thank you. I guess first question on the deal with Weinsteins, could you give us some sense of the incremental revenue from the distribution of those titles, and then on a reported basis, you're going to report 100% of the revenue from Starz Media, and will also include the full amount of the cash. And then I have a quick follow-up. Thanks.

With regard to the Weinstein deal, we have a deal to distribute up to 20 titles. We are distributing those. We're not investing in the films. We're not investing in the P and A. For us, it is a deal that's hard to project right now because this is the first film in the deal, although we're certainly off to a great start. And as we look at Anchor Bay's business, it was really important for us to be able to get some theatricals to distribute along with the historical Anchor Bay business and the hopeful increase in Starz' original content.

So it's one that we think will be a positive story given the nature of our relationship and given the investment that The Weinstein Company is going to be making in theatricals and the kinds of theatricals that we think will perform well in the DVD market, and we also look to not have the traditional ups and downs that you have in a theatrical investment business. So for us, without being able to give you any specifics, we are in a distribution-only relationship, and as we said before, we are going to be reporting the Starz Entertainment and the Starz Media businesses together as one number going forward.

Okay. So does that mean that you're going to be reporting 100% of the Starz Media revenue and cash flow?

Yes, we will be reporting 100% of it. There will be an allocation of net income to the minority interest in this case the Weinsteins.

There's a minority interest element that's below the line that will be taken out.

Okay. And then just lastly, on any kind of renewal with Time-Warner cable and Netflix, so what leverage do you have to try to get Netflix to raise its retail price? Is it possible that you could have one rate for the OBD deals in terms of what they pay for, and then a separate deal for the originals?

You mean in terms of Netflix having two different deals?

Price.

One for theatricals and one for originals?

Right.

Look, at this point the only thing I can say is we are looking at all of the potential scenarios with Netflix and with any of the new entrants in the over-the-top space. We believe it is extremely important for us to maintain the integrity of our brands across the different distribution platforms. I think one of the things that Starz has been successful at is creating different brands. Obviously, we mentioned Starz, Encore and MoviePlex. Is it possible that there are other brands that could be added to that suite of products? I guess it's certainly possible, although at this time there are no specific plans that we can talk to you about.

Okay. Thank you.

Great. Well, operator, thank you. I think we're done. Thank you all for joining us this morning or afternoon, depending on your time zone, and thank you for your interest in Liberty Media.

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