QVC Group Inc (QVCGA) 2011 Q1 法說會逐字稿

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

This 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; competitive 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 statement 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 statements is based.

On today's call, we will discuss certain non-GAAP financial measures including adjusted EBITDA. The required definitions and reconciliations, preliminary note and schedules one to 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.

Good morning and thank you. Thank you all for joining us and for your continued interest in Liberty Media. Today speaking on the call besides myself we will have Liberty's Controller, Chris Shean; QVC's CEO Mike George; and Starz CEO, Chris Albrecht. Also available for the question-and-answer session we will have several senior Liberty, QVC, and Starz executives.

So first I would like to note as many of you probably did last Friday, the favorable ruling we received from the Delaware court regarding the split off of Liberty Capital and Liberty Starz. The judge basically ruled the split off does not constitute substantially all. The other party in the litigation has 30 days to file an appeal once the final decree has been entered. If filed such an appeal, we will seek expedition of the appeal and try and have it heard as quickly as possible.

As you probably have noted, we set our shareholder vote for May 23. We have said all along that the consummation of the split off is conditioned on a final non-appealable judgment of the litigation. We anticipate that even if there is an appeal, we will be able to complete the split off this summer.

Turning now to Liberty Interactive, let me address QVC. QVC faced some economic headwinds and other kinds of headwinds during the quarter, led of course first by the tragedy in Japan. There, our new GE Money Bank agreement had a negative impact on earnings for the quarter as we have been noting all along. We had ramp-up costs in Italy and we also had some tough comps from Q1 of 2010.

Despite that, I think the results were good. I was particularly impressed with the dedication of our Japanese team despite all the difficulties in that country, they were able to get the station back up on air within 12 days.

Notably on an operating basis, we saw strength in Germany and to some degree also in the United Kingdom.

QVC.com achieved penetration in the US in the first quarter of 36%. The Internet was up 4 points year-over-year and notably within there, I was particularly pleased with the growth of mobile. In the United States, unlike in Japan, where we have been in the mobile business for a while, we really were not in the mobile business two years ago at all. This quarter and for this year I expect mobile will be more than 3% of the US business, up more than 200% over last year.

And what's very interesting is that one-third of that business on the mobile side is already tablets and the usage, how they use the product on tablets, how our customers use the product on tablets is notable -- more searching, more looking for products, deeper use of buy anytime. I think it's a great opportunity which the team at QVC is capitalizing on and I expect will be a source of future growth for the Company.

Looking at our e-commerce companies, they posted 21% revenue growth year-over-year and adjusted OIBDA growth of 61%. Now, if we made that pro forma for the deconsolidation of an investment we had, it still was a very strong 32%.

Looking at Liberty Starz, we had strong revenue and adjusted OIBDA results with solid performance from our Starz Media businesses, and particularly home video. We were very pleased in addition with the audience response to Camelot, which set a viewership record for a Starz premiere. And we increased subscribers at Starz and Encore 10% and 6% respectively.

Lastly looking at Liberty Capital, SiriusXM posted very strong financial results driven by excellent operating performance and ended the quarter with two -- 20.6 million subscribers. Adjusted EBITDA was up 15% year-over-year and the Company continues to decrease its financial leverage.

SIRI, the stock, last time I looked this morning was at $2.21 per share, which values our equity stake at about $5.7 billion, which is about $68 a share of LCAPA -- $68 of value per LCAPA share. Also during the quarter, we repurchased $31 million worth of LCAPA stock from February 1 to April 29.

So with that, let me turn it over to Chris Shean to talk in more detail first about LINTA's financial results.

Thanks, Greg. Liberty Interactive Group's revenue increased 7% in the first quarter while adjusted OIBDA decreased 1%. QVC increased total revenue by 4% for the quarter while adjusted OIBDA decreased less than 1%. Liberty Interactive's other e-commerce businesses grew 21% for the quarter and adjusted OIBDA grew 61% the first quarter of 2010 included the results of one of our startup businesses that was later deconsolidated. Excluding the results of this startup, adjusted OIBDA increased 32%.

Now, let's take a quick look at the Liberty Interactive liquidity picture. At the end of the year, the group had attributed cash and public investments of $5 billion and $7 billion in attributed debt. QVC's total debt to adjusted OIBDA ratio as defined in QVC's credit agreement was approximately 1.7 times as compared to a maximum allowable leverage of 3.5 times.

With that summary, I'll hand it over to Mike George for additional comments on QVC.

Thank you, Chris. In Q1, we drove solid revenue growth against a challenging comparison from last Q1 and consistent with the last several quarters, we saw especially strong growth in revenue from new customers, up 17% worldwide from last year and also in global e-commerce revenue up 16%.

While adjusted OIBDA declined slightly from the prior year, normalizing for the impact of the Italy startup and the change in our QCard program, adjusted OIBDA would have been up 4%. Results were also adversely impacted by the tragedies in Japan, which took us off the air for 12 days in March.

Now looking at the results by market, in the US, our 3% revenue growth in Q1 while below our trend in 2010, still represents a 14% growth rate over the last two years, placing us among the faster growing large retailers in the US. We saw strong performance in our beauty, accessories, designer jewelry, kitchen and cook, household, and consumer electronics categories partially offset by softness in apparel and other jewelry categories.

Consistent with Q4, net revenue was also affected by lower shipping and handling revenue driven in large part by mix shift to higher ASP products.

Revenue from new customers grew 25% in the quarter, continuing a two-year trend of strong growth in new customers as we broaden the appeal and accessibility of our brand.

Our e-commerce business in the US also continued its strong growth trajectory with revenue up 15%. QVC.com represented 36% of our sales, up from 32% last year. And our revenue from products not recently featured on air grew 21% and represented 51% of Internet sales and 19% of total sales in the US.

Adjusted OIBDA declined just under 1% due to the impact of the previously disclosed change in the terms of our agreement with GE Money Bank for our QCard. If the prior contract had been in place for the first quarter, our adjusted OIBDA would have been $10 million higher or a 3% increase over last year. We expect to see a similar level of impact until we anniversary this change in August.

As you will recall, upon the termination of the prior contract, 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.

Excluding the impact of the new GE Money Bank contract, operating margins were essentially flat. [The] softness in initial product margins driven by the continued growth in consumer electronics offset by improvements in freight, distribution, and customer service expenses and inventory obsolescence as a percentage of net revenue.

The UK had a good quarter with revenue up 5% in local currency on strength in apparel, beauty, and consumer electronics, partially offset by continued weaknesses in jewelry. Our e-commerce revenue grew 17% from new customers was up an outstanding 30%.

We are also pleased with the initial results from the beauty channel, our second channel in the UK that we launched last fall.

Adjusted OIBDA increased 11% in local currency, driven by lower warehouse costs, freight efficiencies, and lower inventory obsolescence. These gains were partially offset by increases in affiliate commissions largely driven by the simulcast we launched last year on iTV.

Our German business delivered another outstanding quarter that with total revenue growth in local currency of 13%, the highest rate of quarterly revenue growth in nearly five years. E-commerce revenue was particularly strong, up 30% in local currency, and revenue from our second channel, [Shoe Plus], while a relatively small part of the sales mix, exceeded expectations.

We saw strong growth in apparel, accessories, diamond jewelry, and nutrition. We also benefited from a somewhat easier comparison to last Q1 when results were hindered in part by our decision to take jewelry off the air for a few weeks to reposition the category.

Adjusted OIBDA increased 18% in local currency, driven by a reduction in inventory obsolescence as well as fixed cost leverage.

Turning to Japan, we are very fortunate that none of our 1500 team members were injured as a result of the devastating earthquake that struck the region in early March. We did suffer moderate damage to our distribution center, and as you heard, we were off the air for 12 days. We resumed our 24-hour broadcast on March 23.

Our revenue declined 9% in local currency and adjusted OIBDA declined 19%. Adjusted OIBDA margins eroded just over 200 basis points, largely driven by negative cost leverage since we made the decision to pay all of our team members including our variable call center and distribution staff their full compensation during the time we were off air.

Also contributing to the decrease were our fixed affiliate subscriber agreements and BS Digital Broadcasting fees. Prior to the earthquake, our gross demand was running up about 7% over the prior year. Since returning to air, our gross demand has been running down about 8% to 10% to last year and down about 13% to 15% compared to the pre-earthquake trend.

We are encouraged by these results. As many traditional retailers have suffered more significant sales declines.

At this point it's very difficult to gauge how long the soft consumer demand will continue, but we expect there will be some time before things fully return to normal. We have found that discretionary luxury categories like our high-end jewelry business have been the most severely impacted. And while at this point we have not been subject to the rolling blackouts that are in place in many parts of Japan, there is some risk that this could change as the government steps up its energy conservation efforts over the summer. In the meantime, we are doing what we can to implement energy-saving initiatives on a voluntary basis.

I am extraordinary proud of our team in Japan. They have shown amazing resilience and dedication under the most difficult circumstances imaginable. And we are committed to doing our part to help Japan recover from this tragedy. We have donated close to $2 million to the disaster relief efforts and supported many other volunteer initiatives in the country.

Turning to our newest market, Italy achieved net revenue of $4 million in its second quarter of operation, 140% sequential growth over Q4, and had an adjusted OIBDA loss of $10 million. As we discussed on our last call, initial sales were softer than we had anticipated, however, we've been pleased with our week-over-week sales growth since launch.

We do think it will take some time for the business to ramp, due in part to challenges associated with launching the business in a digital channel environment as well as the time it takes to build awareness and understanding of our format and adjust our product and programming mix to what works in the market.

But despite the slow start, we remain very confident that Italy will be an attractive market for us over the long-term. Once customers find us and make their first purchase, all of their behaviors are meeting or beating our ingoing expectations. They are giving us 95% positive customer satisfaction ratings. They are returning products at a lower rate than any other market we operate in. And most importantly, they are exhibiting a level of repeat purchasing that already exceeds the high loyalty levels we enjoy in established markets like the US.

In addition, our gross profit margins ramped nicely in the quarter and with very limited use of promotions, we are driving a greater portion of our business at regular price than in any other market.

So we can already see that the Italian consumers are responding very favorably to our format once they find us and we are confident that the business will continue building as we get more consumers to trial us.

With that overview by country, I will wrap up with some general comments about the business. We do continue to see an uneven pace to the economic recovery with rising gas prices and other economic challenges creating an uncertain outlook for consumer spending, coupled with rising commodity costs that are creating pricing pressures. Like all retailers, we are experiencing significant increases in cotton costs and to a lesser extent in leather, along with the ongoing rise in gold and silver.

These cost increases have had some impact on spring merchandise and will have a greater impact in the fall. We're working on multiple initiatives from tighter supplier management to changes in design and construction and some pricing actions to limit the impact. While we expect these pricing pressures to create some challenges later in the year, we will be less impacted than most retailers given the diversity of our category mix as well as our ability to change our assortments in real-time.

And despite these short-term pressures, we continue to love our differentiated positioning in this market which we think is very well aligned with the long-term secular shifts in retailing, shifts toward the Internet, toward mobile, as you heard Greg talk about, toward social networking, toward globalization. We believe we can continue to grow even if economic conditions were to worsen by taking a greater share of discretionary consumer spend from traditional brick-and-mortar retailers.

We remain committed to providing our customers in every market carefully curated product assortments surrounded by compelling content from topical and relevant programming to inspiring stories and engaging personalities. We are going wherever the customer is going, distributing this content over the growing array of devices and screens that our customers interact with every day. As more and more customers interact with their TVs, tablets, and smartphones simultaneously, we are creating highly immersive experiences that can't be replicated by either store-based or Internet retailers.

A perfect example of this strategy was our red carpet event in March. We took our customers behind the scenes to a QVC-hosted Oscar's party in Beverly Hills. Our viewers were able to see and purchase the same fashions that were going to be on the red carpet later that weekend, hear the stories and inspirations behind those products from designers and celebrities ranging from the Kardashian sisters to Janie Bryant, the costume designer for Mad Men; Melania Trump, Joan Rivers, Gossip Girls' Kelly Rutherford, and designer Isaac Mizrahi.

And for several weeks prior to the party, we drove high levels of customer and viewer engagement through behind-the-scenes video blogs and contests on facebook and QVC.com. And during the broadcast, our customers were actively engaged with us, with their friends, and with other QVC customers. By for example chatting about the party on facebook or sending us tweets that we scrolled across the screen in real-time on our TV broadcast.

No other retail format creates this kind of immersive experience, one that combines differentiated products, engaging personalities, high levels of community involvement, and simultaneous engagement over multiple platforms from the TV screen to the tablet. We have also rolled out new smartphone or tablet applications in every market in recent months.

We are pleased, and as I mentioned, we are also pleased with the initial results from our second channels in the UK and Germany. These initiatives coupled with our maniacal focus on earning and keeping our customers' trust are helping us maintain the extraordinary customer loyalty we have always enjoyed while also attracting new customers at record rates and driving a share shift from traditional retail.

With that, I will turn it back to Chris.

Let's take a look at Liberty Starz. With the attribution of Starz Media to Liberty Starz as of September 30, 2010, the results for Liberty Starz going forward will primarily represent the results of Starz LLC. Unless otherwise specified, the Q1 '11 financial performance metrics are for Starz LLC. That is the combined entity. And which contain the legacy Starz entertainment business and the legacy Starz Media business for that same period.

The figures used for comparison in the first through third quarters of 2010 are for the legacy Starz entertainment businesses only as of the reattribution of the legacy Starz Media business occurred on September 30, 2010.

Liberty Starz attributed revenue grew 28% in the first quarter and adjusted OIBDA increased 22%. At quarter end, Liberty Starz had attributed cash of $1.3 billion and attributed debt of only $81 million.

Now Chris Albrecht will comment on the events at Starz.

Thanks, Chris. Welcome and good morning. Starz continued its positive business performance trend in the first quarter with solid revenue and adjusted OIBDA results. And another record high in subscriber levels of the flagship Starz and Encore channels. Starz posted revenue of $391 million in the first quarter, an increase of $86 million. $65 million of the revenue increase was due to the addition of the legacy Starz Media businesses.

Revenue for the legacy Starz entertainment businesses grew by $21 million or 7% in the first quarter to $326 million. The growth was due to an $11 million increase in home video and international television revenue related to our original programming content, primarily the Spartacus franchise.

The $10 million remainder of the increase for the period was due to higher effective rates for our channels and an increase in subscriptions for the Starz and Encore services. Our satellite and telco affiliates were responsible for most of the subscription and revenue gains.

Starz adjusted OIBDA was $131 million in the first quarter. This represented an increase of $25 million or 24%. $15 million of the increase was due to the addition of the legacy Starz Media businesses. The legacy Starz entertainment businesses' quarterly adjusted OIBDA increased by $10 million or 9% to $116 million. This increase was due to the growth in revenue offset by increased amortization costs for additional original programming and consumer marketing expenses in support of the Starz original series, Camelot.

Starz's operating expenses increased by $32 million during the quarter. The legacy Starz Media businesses accounted for $30 million of the increase while operating expenses related to the legacy Starz entertainment business increased by $2 million.

Starz's SG&A expenses increased by $20 million during the quarter. $20 million of this increase was related to the legacy Starz Media businesses and the remainder was due primarily to increased marketing expenses related to the original series Camelot.

Revenue associated with the legacy Starz Media businesses were significantly less than the corresponding period a year ago. This was due primarily to the wide release of two theatrical films and three significant home video releases of theatrical films in the first quarter of 2010 while in the first quarter of 2011, there were no theatrical and only one home video release of a theatrical film in the current period.

As mentioned at the outset of the call, subscriber totals continue to grow for the flagship Starz and Encore channels, with Starz adding approximately 600,000 in net subscriptions since the fourth quarter of 2010, boosting its total by 3% to 18.8 million while Encore's subscriptions grew by roughly 300,000 or nearly 1% to 33.1 million. When compared to the first quarter of 2010, Starz subscriptions increased by 10% while Encore subscriptions increased by 6%.

Subscription growth since December 31, 2010 has occurred for both our fixed rate and consignment rate affiliates. Starz saw the majority of its net growth come from affiliates with consignment deals while the Encore growth split evenly between fixed-rate and consignment arrangements.

On Tuesday, Starz filed suit against DISH Network due to an unauthorized free one-year giveaway of our premium Starz Encore channels in violation of the carriage agreement. Our studio output partner Disney filed its own related lawsuit against DISH Network on Monday. As this matter is now in litigation, we will not comment further.

On the last earnings call in February, we announced the AT&T U-verse affiliation agreement extension. On this call we are pleased to say we have entered into a new expanded multiplatform and multiyear affiliation agreement with Verizon FiOS. Historically, our premium services have been marketed aggressively and performed particularly well with Verizon and AT&T.

Last month, Verizon FiOS and Comcast XFINITY TV were the first to launch the latest extension of the Starz multichannel experience, Starz 3-D on Demand. Starz 3-D on Demand offers participating affiliates anywhere from four to six Starz movie titles in 3-D and at no extra charge for Starz subscribers. Services such as Starz 3-D on Demand enrich the multichannel Starz value proposition and increase satisfaction levels for Starz subscribers. We expect to have additional launch announcement in the future.

Moving onto original programming, Spartacus - Gods of the Arena completed its successful run in the first quarter and finished with viewership levels consistent with the strong performance we shared with you on the last call. We estimate that approximately six million people watched every episode across linear television, DVR, and On Demand. Production is underway on season two and we look forward to the return of Spartacus in 2012, with Spartacus -- Vengeance.

Our current Starz original series Camelot has performed well and exceeded our expectations. Camelot, as Greg said, set a new viewership record for a Starz original series premiere, even bigger than that for Spartacus -- Blood and Sand, and last year's Pillars of the Earth. We retain all US pay-TV rights including digital and Home Entertainment with the 10 episode series.

The next Starz original series will be Torchwood -- Miracle Day, which premieres this July. Based on a hit BBC science-fiction franchise, we own the exclusive US pay-TV rights for the 10 episode original series and we are optimistic for its success.

Last week, production began on Boss, our final original series for 2011. Scheduled to debut in October, Boss is a political drama starring Kelsey Grammer as the fictional mayor of Chicago. The first episode is directed by Oscar-nominated filmmaker Gus Van Sant, who is making his TV directorial debut. Starz owns the exclusive US pay-TV rights for Boss.

Now over at Starz Media, the Weinstein Company's, The King's Speech was released into Home Entertainment last month and is performing well for Anchor Bay. Spartacus - Gods of the Arena and Camelot will also be released to Home Entertainment in the US before year's end.

And as to our animation businesses, we were pleased with the successful sale in March of Starz animation Toronto, recently rebranded as Arc Productions. We maintain a minority interest in the business. As to Film Roman, we are continuing to field expressions of interest in the business and we will update you with our progress on the next call.

With that, I will turn it back over to Chris.

Thanks, Chris. Let's take a look at Liberty Capital. Liberty Capital Group's revenue increased to $581 million for the first quarter and adjusted OIBDA increased to $358 million. These numbers are substantially bigger than what our historical results are largely as the result of an accounting change that we had related to revenue recognition at TruePosition with respect to its AT&T contract. This contract was amended -- modified during Q1 and as a result of that as well as some new accounting rules that are out for this particular industry, the historical amount of deferred revenue and deferred costs on that contract that had built up through the years was released through the income statement. I will point out that cash on those contracts had already been received historically and that this adjustment is merely an accounting change, not cash earnings.

Liberty Capital Group had attributed cash and public investments of $7.7 billion, and attributed debt of $750 million. From February 1 through April 29, Liberty repurchased 430,000 shares of LCAP A Common Stock at an average price of $72.34 for total cash consideration of $31 million. Cumulative repurchases since the reclassification of the tracking stock represents 39% of the original shares outstanding.

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

Thank you, Chris, and thank you, Mike and Chris A. for your respective updates.

We were, as we noted, pleased with the results of our businesses in what we view as a difficult economic or uncertain environment for the consumer. We hope to continue that progress through 2011. Our other priorities for 2011 are included first at Liberty Media itself, completing split off of the Liberty Capital and Liberty Starz trackers. As I noted, we hope to get that done this summer and hopefully on our next call, we will be talking about two separate companies.

At Liberty Interactive and QVC in particular, we are going to continue to focus on the customer, attracting new customers and growing the base of loyal customers that we have.

We continue to grow our e-commerce businesses at good rates, hope to continue that for the rest of this year. We will focus on rationalizing our non-core investments, as we've discussed in the past, and investing our liquidity. If there is a theme across all three trackers, it's that we have much liquidity to invest and probably a challenge to invest it wisely in this environment.

At Liberty Starz, as was noted by Chris, we are going to continue to hopefully cost-effectively develop compelling original programming to differentiate and strengthen Starz. We are going to build and enhance the relationships we have with our existing and new distributors, and again, evaluate opportunities for cash and balance sheet management.

Finally at Liberty Capital, we are going to deploy and hopefully invest the excess capital that we have wisely and rationalize our non-core investments.

We appreciate your continued interest in Liberty Media. Stay tuned hopefully for a good summer. Thank you for listening. Operator, with that, I will now open it up for questions.

(Operator Instructions). Barton Crockett, Lazard Capital Markets.

Okay, great. Thank you for taking the question. I know you're not going to comment on the DISH suit, but I was wondering if you could comment on the accounting of DISH's actions, which were kind of interesting. I was curious when they are giving everyone a free subscription to Starz, could you clarify, that excluded from your subscriber tally and does that have any impact on the revenues you are getting, which I believe now are flat rate? That would be my first question.

So I will handle the second part. We do have a fixed rate deal with DISH, so the subscriber count is not an issue on that. How we're going to look at the subs, this has become somewhat of an issue in dealing how our ratings are, so I will let Chris or Bill comment.

From a -- as Greg said, from a revenue point of view, this is like any other preview in that there are subs that are not counted because we are not getting any reacting revenue from it. The issue was really more in the manner of the preview. We do do pre-previews regularly with different affiliates.

There has been some information that has gone out there about an impact on ratings because Nielsen does not differentiate between the promotional subs, the free subs and the paying Starz subs. And what we have been able to do over the last weeks is to reconcile those differences and report the numbers accordingly. So I don't think there is anything -- I hope that answers your question, Bart.

Okay, but when you talk about ratings, can you give us a sense of what the adjustment is on ratings and is that reflected in your ratings press releases for Camelot for instance?

No, it's not, and there's no consistent impact. It is the people that are sampling Starz programming at various times and at various levels.

Okay, and then one other question, if I may, on just thinking competitively, your biggest competitor, HBO, is now out with HBO GO, an app that I think a lot of people like. You guys have your Netflix distribution and you have kind of gotten out of the direct online distribution business. Is there reason to think that Starz should do an app like HBO GO just to be competitive? Is that where you think you need to go?

First of all, I'd like to say we are not competitive with HBO. We are -- we vote for three really valuable distinctive brands in the premium TV category and hope that all distributors concentrate on selling those brands.

Having said that, we are constantly looking at what is out in the marketplace and how we can better enhance our experience and build value to the Starz and Encore subscriptions. So we do note what is happening out there and we look to see whether it's something that we should be doing as well.

Okay, all right, I'll leave it there. Thank you very much.

James Ratcliffe, Barclays Capital.

Good morning. Thanks for taking the question. Two, if I could, and actually both are on (inaudible) at this time. First of all in TruePosition if you just help us out and sort of what's that business really look like going forward on sort of a cash EBITDA kind of basis? Just trying to figure out where with the accounting moving around how much cash it actually generates?

And secondly, when you look at the capital available at LCAPA, pretty ample at this point. Can you give an idea of just sort of what sort of areas you are thinking about? Greg, you said it's sort of a challenge to invest some of it. But I mean, you've been in entertainment to this point. It all started with cable. Is distribution something -- asset something you would look at as well? Any color around that would be great, thanks.

First on TruePosition, well, there's some volatility in those cash flows. This is a business which probably throws off cash of $40 million a year plus or minus. We have two major customers, so there are timing issues around what we do and what maintenance contracts and the like, but that's a rough number.

As far as what you do with the cash, we have -- we look first probably at extending businesses that we already have because we believe that the management teams at those businesses have knowledge which we can leverage and there are hopefully synergies that we can leverage that make any purchases that we do attractive.

We also look to find cases where there are discontinuities because for one reason or another where the market has abandoned belief in a business or belief in equities overall, certainly we got a triple whammy on that with SeriusXM and we should only be half so lucky again.

But that's a challenge because there are -- we are in an area of -- or a time rather of low interest rates, lots of domestic liquidity, and lots of people chasing businesses. So not an easy task and something that the Chairman was just berating me about 20 minutes ago.

Just a quick follow-up on that --

Berating may be too strong. Challenging me on the top.

A quick follow-up on that. I'm sorry.

I was just asking John if he wanted to add anything on that topic?

No that is enough.

Just quick follow-up on that, if I could. You mentioned Sirius. You are now free if I recall correctly to get up to closer to anything south of 51, I guess. Thoughts on if that's a business that you would be interested in investing more in going forward in terms of equity or debt capital or happy with the position where you are at the moment?

I don't think we have any final statements or resolutions on what we want to do with our stake in the Sirius. We do think it's a great business. We do think the management team there has done a great job. It's hard not to be impressed with both the operating performance and the performance of the equity.

Great, thank you.

Richard Greenfield, BTIG.

Yes, I had a question on this situation. Is there any way to think about how DISH has impacted your revenues in the past, meaning when you talk about a fixed-rate deal, obviously you don't get paid on individual subscribers. But were there tiers where you got paid on or is DISH giving it away no impact on your revenues? Meaning if subscribers went up beforehand, was there a level where you actually would have gotten paid?

Just something so we understand is there actually lost revenue that you are potentially giving up? And then did DISH index -- over index or under index relative to other distributors? Because obviously in terms of any form of renegotiation, just curious how much of your subscriber growth has been driven by DISH over the last couple of years? Thanks.

We did not experience any revenue loss with the current DISH promotion. Those -- even with that extended time period there is an end to the promotion. So again, it's the manner of it and we performed in our deal with DISH even though it is a flat deal, there are escalators. And if we have a -- if we compare DISH's performance with Starz's product over the last years, I would have to say it's comparable to our other affiliates, our other strong affiliates and we think that we have a very strong relationship with DISH having recently completed an extension of our deal and I'm happy to have them as an affiliate for it.

So just to be clear, DISH has roughly 2.5 million -- my number -- subscribers to Starz today and tomorrow they have 14 million subscribers, you would end up making more money in a normal scenario?

I'm sorry --

I don't understand what you mean by normal scenario, Richard.

Well, meaning if they hadn't given it away, if 14 million people at DISH Network decided to sign up for Starz versus 2 million or 3 million, whatever their share of your overall subscriber base was historically, at 14 million subscribers versus 2.5 million, you would be making substantially more money than you are making yesterday?

Not a fair comparison.

I mean, people have to sign up for Starz or for Encore. Here they were given the product for a finite period of time, so it's really apple and oranges. There's no lost revenue and although it's a violation of our agreement, it's not -- it has no revenue impact on Starz or Encore. I don't know how to answer it other than that.

Okay, I'm just trying to -- for your comment about there being escalators with there's no lost revenue. Those seem to be at odds with each other.

I would say escalators is actually the wrong term. There are increases built into the contract.

Meaning annual increases, got it.

Yes, annual increases. Escalators is the wrong word.

And if you look at the historical trend of how pay grows, we tried to structure those that increase in rate with what we thought would be historically the normal growth you would see in the business. So if you went out and said it's 14 million, that's just not normal growth we would ever see on any affiliate. But structured right going forward.

If there's no lost revenue, why are you suing? Can you just comment on that?

Because they are in violation of the contract with both ourselves and Disney.

Thank you.

Matthew Harrigan, Wunderlich Securities.

Thank you. Two questions for LINTA. Firstly, you commented that new customer sales were up 25%. I know that's a much smaller bucket than established customers both in numbers and the media spending out of the blocks. But it still implies that there was some erosion, maybe a little bit more than usual on sort of the existing circle of customers.

Is there really a change in the profile of your base as things like tablets and all that become more prominent? I imagine that's pretty much at the margin right now and most of it's dictated by the economy.

And then secondly, given how pricey the e-commerce acquisition market is, in some instances as with Kleiner Perkins and you with Lockerz, you've done a couple things organically. Is there a possibility of doing more things organically where the DNA for the business plan is created in-house as opposed to you going out and buying some smaller e-commerce guys that also already have some [momo]?

I guess addressing the second first, we would love to say we are in the venture business and driving lots of new opportunities. If we find -- we've found two really the restart of the right start, a maternity-oriented child -- very young children-oriented business that we repurchased out of bankruptcy and have restarted, it has both a retail component and an online component. We hope to grow the online component very quickly and have had good early success and then with Lockerz.

But the reality is we are not really a venture capital firm. We really -- it's very hard for us to scale to make those kind of opportunity scale. Now if these would both fit well enough in our sweet spot and we saw an opportunity and a way to manage them that was not onerous or to the overall operations of Liberty, realizing we are a fairly small here in Inglewood, that we thought that was attractive.

Okay, so it was an anomaly, then.

Sorry?

It was an anomaly.

I think those were anomalies. That's not to say -- I would like to think we are entrepreneurial enough if something showed up we would attack it, but how big do those need to be to make them interesting and move the needle? The reality is if you take the Liberty complex, we're looking at $20 billion plus of equity market cap moving the needle is harder. John?

I just wanted to make a brief comment that on allocation of capital to a very large degree, we have been frozen. Greg's discretion has been largely frozen pending the outcome of the Delaware litigation at the spinoff. So while he has some freedom of motion in terms of some buybacks and not others and some increases in investment and not others, I think it has been a frustrating period for everybody because of the litigation and also some tax elements that surround the spinoff . So I think you have to take into consideration in terms of the actions that have been taken in the last couple of

Thank you. Oh, I'm sorry, (inaudible)

Maybe you could repeat that.

You had your -- your new customer revenues were up 25%. I know those Dallas customers obviously weren't down on the revenue side by 25% because your pool sizes are really different. But it still looks like there's a little bit more erosion perhaps with the overall revenues up 4Q. Are you seeing some weakness with your existing customers or are you kind of gearing to different psychographic profile with everything happening on the marketing distribution side now?

Mike, do you want to cover that?

Yes. Thanks, Matthew. I guess the way I would describe it is we do think over time that the new customer growth is additive. We don't see it as a substitution and that we are losing core customers as we add new customers. We really see it as additive, not a replacement.

So turning to the existing customer side, all of the metrics on the existing customer are very stable, so we are certainly not seeing any erosion in our high retention rates and existing customers. So I would characterize that existing and core customers is very stable.

You are right to kind of conclude that it's probably not a great quarter for the existing customers in terms of increase in their spend. I think that's accurate. And as I look at that I think there's probably two reasons for that. It wasn't a bad quarter, but it wasn't a great quarter and I think there are two reasons for it. One is probably just the continued economic pressures that that existing customer might make one fewer purchase in this kind of an environment.

And I think part of the reason is also kind of the product cycle we are in. When your apparel and jewelry business is not strong, you'll tend to see a little less growth from your core customer because they over index in those categories. And so some of this is sort of the cycle of what product categories are hot. Some of it is the economy, but it's not something we are concerned about because again the fundamentals are strong. The retention rate is unwavering.

The new customers are really additive to the existing base and I think as we find new ways to delight them through the course of the year, hopefully we can outrun whatever economic pressures they are facing.

Just on consumer electronics, that makes sense. Thanks a lot.

Doug Mitchelson, Deutsche Bank.

Thanks. I had one for Greg and one for Chris Albrecht, but I guess for John or Greg. But John, the comment on limitations on buybacks related to the Delaware litigation, can you just sort of reaffirm for us what the hold back on the buybacks were?

You'll have to ask our lawyers and our tax guys.

I'm sorry, but -- (multiple speakers)

Basically distributions in the form of buybacks could be considered taxable distributions, which could color the tax-free nature of the resulting spinoff. You've got to be very careful not to create that kind of an outcome. And obviously when we are dealing with the sensitive issue of whether or not the split off constitutes substantially all of the assets of the Company, an aggressive buyback plan being executed at the time that we are all testifying in front of the judge didn't seem to be particularly convincing that in fact we weren't becoming aggressive on distribution of assets.

So prudence both on a tax and legal perspective seemed warranted and really has curtailed the use by Greg of his buyback authority or of reinvestment or upping investment in existing entities because of those considerations.

And then of the three trackers, where would you say you were holding back related to this issue?

Well, obviously --

Wait a minute. Math tells you that. Come on. You can see where we didn't buy.

Obviously we didn't buy LINTA. We didn't buy Liberty Starz. We did modest purchases in Liberty Capital in the recent quarter and we basically were very careful in terms of purchasing additional equity investment entities. So it's kind of across the board. The lawyers got really grumpy when we asked them if we could do certain things, so we didn't do them.

All right, thanks for the clarification. The questions are, Greg, again I like that you have you update the value of Sirius almost intraday these days. Does the rise in Sirius's stock price make it easier or harder to undertake any attempt to monetize the stake in a tax-free manner?

And then for Chris Albrecht, I was told that TV everywhere deals caused those traditional subscribers to count against the digital caps for Disney and Sony. Is that accurate? Is Starz at the point yet where it's already sharing digital revenue under those output deals? Thanks.

You want to answer your question first, Greg?

I don't know whether the rise in Sirius makes it harder or easier to monetize the stake. I think it makes us happier yet with the performance of the Company.

Let me answer your question by just cutting to the chase part of it, which is that any potential revenue sharing due to over-the-top subscribers that Starz may have to pay in 2011 we look at as being immaterial. So -- it's a little more complicated as to how they count or don't count.

So you might have hit the cap but it's a small amount of money at this point?

Correct.

Thanks very much.

Jason Bazinet, Citi.

Thanks so much. I think I understand the merits and rationale behind doing a hard spin of LINTA. I was just wondering if you could remind us sort the advantages as we sit here today between having Starz and Liberty Capital remain as trackers? Thanks.

Well, I think we have discussed in the past that the trackers have allowed us certain tax advantages, certain flexibilities, and they have also proven helpful where we have had to reallocate businesses or reattribute businesses between them. So at some point when things are hardened, you can't -- you don't know what the future holds, but we have no plan or intention of merging those or changing the structure of those yet.

Okay, thank you.

Ben Mogil, Stifel.

Good morning and thanks for taking the call. One quick question I guess for Chris, when you look at the full year and I haven't seen these sort of operating expenses yet for Starz per se, but when you look at the full year, do you view the first-quarter operating expense to be a little bit lower than what you are looking at for the year between sort of the timing of the delivery and therefore the recognition around the OpEx for original programming as well as what you are receiving from Disney and Sony in payments on those output deals?

Do we look at our programming -- do we look at our operating expenses being less?

No, no, I'm sort of more curious if you could walk us through the whole year. Is first-quarter operating expenses just at the legacy Starz business, i.e. the pay-TV business? Is this a little bit -- is this a sort of a low number for the year or is this kind of a decent run rate for the year?

I would have to say at the low number.

Okay, and in terms of like quarterly, can you give us a sense -- not a number but just directionally is it high in 2, 3, and 4Q? Do you seeing it moving up or down over the next couple of quarters?

I don't think we are going to comment about looking forward.

Okay, great, thank you very much.

Ben Swinburne, Morgan Stanley.

Thanks, good morning. I have one for Chris and then one for Greg or John. Chris, on the Starz, I guess official 90-day window announcement earlier this year or late last quarter, could you just sort of talk through your thoughts there and obviously that will impact -- I think it will impact Netflix. But why was that important to do and how you think that might impact your renegotiations going forward? Then I have one follow-up.

Well, I mean the decision is consistent with the changes that have been going on in the marketplace and we thought it was best for our business. But I want to say it's also not specific to Netflix. It actually affects all Starz play affiliates. So although the attention, the light always gets signed on the Netflix relationship, it is not a Netflix exclusive change.

Okay, great. And then James sort of asked this question earlier, but I will try it again. There's a lot of cable property in the US on the market, Greg or John, and the debt markets have a much more bullish view of the cable business than the equity markets do when you look at where rates are.

So just wondering why that isn't an opportunity for you given your history in the industry? And in that context given the other assets at Liberty, how are you feeling about all the over-the-top and behavior of media companies in putting content online? Do you think we're in a good place now or do you think we are still in a place where they are pushing a little close to the edge in terms of disrupting their own business model?

I will comment. I know John has lots of good opinions on this as well. I think the cable business remains a very attractive business and in many cases often you see some of these players hedged on their impacts of the video business and potential declines in the video business and increases in the data business including over-the-top data streams, which are large consumers of their data numbers.

So I think we look in many cases I think probably sympathize with the debt guys. This is a very attractive business that will throw off a lot of cash. There may be pressures in the short term on rising video costs. There may be issues around over-the-top, but a lot of those are mitigated and they have attractive new business lines such as the growth in business services that are high margin and attractive and high returns on capital. John, do you want to add anything?

I agree. I think the cable business in the US looks very attractive. It looks like the telcos are not going to aggressively overbuild cable with fiber. And so cable has a definite advantage when it comes to high-speed broadband, which seems to be something the public is totally in love with.

So, you know, as always in the cable business in my whatever it is 40 years in it, it's all about government regulation and technological change. But for the moment, cable looks terrific, but it does not look like cable is that dominant in video. In other words, they are continuing to be flat to slightly down in video share. They may turn that around a little bit as they get random-access, but for the moment, it looks like satellite and telco are continuing to gain video share.

But the cable guys are driving to some incredible high penetration rates on broadband. I am very impressed to hear that Comcast went -- they have 17 million broadband customers out of -- what was it, 22 million?

22 million video, 17 million data, 10 million VoIP. Wasn't that the number?

Yes, I mean, I never should have sold [at home] to AT&T. No, I think cable is very strong on the broadband side and I think the threat of wireless broadband taking away high-speed connectivity is way overblown. There just is not enough bandwidth on the wireless side to substantially damage cable's unique ability to deliver very high-speed in activities.

So I think everybody is going to do well in this mix and certainly in the video area, the big issue is margin squeeze, strictly coming out of sports. It's probably the biggest issue that cable operators face on the video side.

Over the top cuts both ways. I think for a cable guy, over the top will really drive broadband penetration. And broadband other than in the FiOS area, cable is pretty much a monopoly now. I don't want to use that word.

I was going to say as a follow-up, when you guys go look at -- or if you were to look at a CharterLA or Insight, is the interest rate environment also cutting both ways? Is it just that the private equity guys can spend money at a level that Liberty can't or won't? Do you have advantages from a strategy perspective in going after those assets?

I think there's problems in that the low interest rate environment makes people very aggressive, able to bid aggressively but also the reality is the negative situations witness [president]. Witness, I suspect, CharterLA, that people with synergies, whether they be (multiple speakers) the video purchaser.

All you have to do is analyze our pathetic effort to buy Bresnan over in one of my entities, where there was a 20% swing in the cash flow based purely on programming discounts. So unless we were able to get in in a huge way or with a partner who could deliver to us those kinds of efficiencies, scale efficiencies, I think it's a nonstarter for us to invest in the cable business. We are much more likely to do it as a lender or in some other -- as a technology provider than we would be in terms of a direct owner.

Unless we really (inaudible) paid. We've got to get --

You know, we did the arithmetic on taking over Time Warner Cable. And I couldn't quite talk Greg into it.

We don't necessarily (inaudible) but put that point aside.

No, the reality is in the cable business you need massive scale. If you don't have it, you are really fighting an uphill battle.

Thanks a lot for the call.

When we are bored out here in Colorado, we look at all the numbers.

Jaison Blair, Telsey Advisory.

Thank you for taking my questions. If Starz layers on incremental digital revenue, let's say Netflix gets renegotiated at $250 million or $300 million plus of annual revenue --

Whoa, time out. That if is a big if, my man.

Yes, I said if -- or another digital video provider comes along and offers you additional incremental revenue. How might that affect your original programming strategies? I guess how do you think about the trade-off between a structural step-up of margin structure with owning additional rights and original programming?

We are building our expense model based on our current revenue model and we are not speculating on any deals that are not contractually committed. So we honestly never even had those discussions. I'm not being funny.

We are were scaling original programming for the size of the business we have.

We are scaling all of our expenses to the size of the business we have today.

Okay, that's helpful. Thank you.

Thank you very much, everyone. Thank you for joining us this morning and we'll look forward to seeing you in a quarter.

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