QVC Group Inc (QVCGA) 2012 Q2 法說會逐字稿

Good day, everyone. Welcome to the Liberty Interactive Corporation quarterly earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Courtnee Ulrich, Vice President of Investor Relations. Please go ahead.

Good morning. Before we begin we would like to remind everyone that 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, 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 Interactive, the creation of the Liberty Ventures tracking stock, and the timing of our proposed rates offering. These forward-looking statements speak only as of the date of this call, and Liberty Interactive 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 Interactive's expectations with regard thereto, or any change in events, conditions or circumstances on which any such statement is based.

On today's call we will discuss certain non-GAAP financial measures, including adjusted OIBDA. The required definitions and reconciliations, preliminary notes and schedules one through three can be found at the end of this presentation.

With that, I'd like to introduce Greg Maffei, Liberty Interactive's President and CEO.

Thank you, Courtnee. And good morning to all of you.

Today speaking on the call besides myself we'll have Liberty's CFO, Chris Shean; QVC's CEO Mike George; and QVC US CEO, Claire Watts. On to our highlights.

At QVC, we had very solid results, especially in the US and Japan. A little weaker in Germany, but overall quite solid. We're very pleased with, we received government approval in China and finalized our joint venture with China National Radio, and are investing in that partnership. We also raised $500 million in a 10-year senior secured note at very favorable terms, 5.125%. And set the capital structure at QVC on an even more solid footing.

We do note that in the marketplace there have been several recent transactions with international video commerce companies, which point to very favorable multiples. Bain Capital agreed to buy 50% of Jupiter shop channel in Japan. Providence Equity Partners is purchasing a majority of HSE24, a video shopping channel based in Germany, with operations in Germany, Italy, Austria and Switzerland. There's limited financial information available on how these private companies are doing. But what we can glean suggests that the EBITDA multiples are well in excess of what LINTA is trading at today.

Later this morning we're going to have a vote of the shareholders of LINTA that will create Liberty Ventures. If the vote is affirmative, as we expect, Liberty Ventures will begin trading on Friday. We're quite excited for this, as we hope it will highlight the strong operations of our digital commerce companies attributed to the new Liberty Interactive tracking stock group, and we will increase shareholder value thereby. I'd also note that during the quarter we made significant repurchases of our shares, buying back $257 million of LINTA stock, even though we were out of the market for all of July due to having a proxy out.

With that let me turn it over to Chris Shean to discuss the financials at LINTA.

Thanks, Greg.

Liberty Interactive's revenue increased 5% in the second quarter, while adjusted OIBDA increased 1%. QVC increased total revenue by 4% for the quarter, while adjusted OIBDA increased 5%. Liberty Interactive's other eCommerce businesses grew revenue at 13%, while adjusted OIBDA decreased 36%. Regarding this decline in adjusted OIBDA, we had some hiccups in the second quarter with negative impacts occurring at most of our eCommerce businesses. These included some unusual, and hopefully non-recurring items such as legal settlements and a compensation arrangement that we had put in place due to some turnover at one of our eCom subsidiaries. The rest of the decline was due to operating decisions to increase spending in paid search as a percentage of revenue, and to be more promotional to move out seasonal inventory.

Now let's take a quick look at the liquidity picture. At the end of the quarter, we had cash balances of $790 million and $6.4 billion in debt. QVC's total debt to adjusted OIBDA ratio, as defined in their credit agreement, was approximately 1.3 times as compared to a maximum allowable leverage of 3.5 times.

Now with that, I'll hand the call over to Mike George for additional insight on QVC.

Thank you, Chris.

We were very pleased with our results in the quarter. With consolidated revenue up 4% and adjusted OIBDA up 5%, despite the difficult economic situation that we face in most of our markets. And every market achieved positive OIBDA growth, after adjusting for the one-time costs of our UK headquarters transition.

ECommerce continues to be a strength, with sales up 16% worldwide. And now represents 34% of our global business. And we reached full deployment of our new WebSphere eCommerce platform in the US and Germany over the last month and anticipate deployment in the UK later in Q3. We believe this new platform will provide numerous benefits over time, including enhanced natural search optimization, improved customer conversion, and faster time to market with new innovations. And within eCommerce, we continue to see great customer interest in our mobile and tablet platforms, which were up over 100% in the quarter and now make up 21% of our worldwide eCommerce sales.

Consistent with what we saw in Q1, we had especially strong results from existing customers worldwide and with sales up over 4%. We also saw growth in revenues from previously inactive customers. However, sales from new customers were down about 5%. And that reflects, in large part, softer sales in some of our home and electronics categories, as they tend to drive a higher new customer mix.

Now looking at the results by market. In the US, revenue was up 4%, and adjusted OIBDA up 3%. We saw particularly strong growth in beauty, up 14%, renewed strength in consumer electronics, supported by our expanded tablet offerings, and good performance in our apparel business. We also saw modest positive growth in jewelry, which had been a drag on results over the last few years. These gains were partially offset by softness in some of our home categories.

ECommerce sales grew 15% and represented 39% of our sales in the quarter, supported by strong mobile and tablet growth, up over 160%, to represent 18% of total US eCommerce sales. Our return rates were up just under 120 basis points in the quarter. That largely reflects a mix shift to higher returning categories within apparel, jewelry and beauty. Our adjusted OIBDA margins declined slightly with improvements in warehouse and customer service and growing Q-card income, offset by lower product margins in certain categories, higher bad debt expense, and some increase in our online marketing expense.

Now turning to international. Japan had another outstanding quarter, with revenue up 13% and adjusted OIBDA up 16% in local currency. We saw strong gains in jewelry, accessories and apparel, and most home categories. The Japan team continues to offer highly-innovative programming, like their successful Mercedes-Benz remote sales event in Q2, which provided a great showcase for the Mercedes brand. And this fall they will become a formal partner with Vogue and Fashion's Night Out, our third market after the US and Italy to participate in this worldwide event. Japan's adjusted OIBDA margins increased 65 basis points, driven by strong product margins, improved warehouse and customer service productivity, and volume leverage.

Germany continues to face economic headwinds. And as we discussed in Q1, they are focused on better balancing their product mix and improving the freshness of their assortments. As a result of these pressures, revenue was down 1% in the quarter on a local currency basis. Although that represents an improvement in trend from the 4% decline we faced in Q1. And Germany successfully launched a third broadcast channel in the quarter, featuring replays of our beauty programming, along with a community-oriented beauty website.

Despite the soft revenue results in Germany, adjusted OIBDA was up 7% on a local currency basis. The improvement in OIBDA margins was driven by a reversal of earlier bonus accruals to better reflect current business results, along with good expense management and lower returns volume.

The UK had another good quarter, with revenue up 4%, supported by strong gains in beauty and apparel, partially offset by softness in electronics and jewelry. The UK is also seeing explosive results in its mobile business, up nearly 190%, to represent 24% of total eCommerce sales. And with the launch of their first Android app in June, we anticipate continued strong mobile growth. And in June we also successfully transitioned to our new headquarters in Chiswick Park, which offers state-of-the-art facilities to support the long-term growth of our UK business.

While adjusted OIBDA declined 16% in local currency, excluding the one-time costs associated with the transition to the new headquarters, adjusted OIBDA would have increased 5%. These one-time duplicate running costs of GBP3.3 million include a GBP1.5 million charge for accelerating the remaining lease payments on our old facility. We anticipate about another GBP0.5 million in duplicate running costs the remainder of the year.

Our new business in Italy continues to ramp nicely despite the weak economy, with revenue of EUR14.5 million. That's a 21% sequential growth from Q1. We added 33,000 new customers in Q2 and increased total member count 13% from Q1. Our adjusted OIBDA loss fell to EUR5.8 million. That's a 33% improvement over the prior year as we continue to grow into our fixed-cost base.

And finally, we were delighted to receive final approvals for our joint venture with China National Radio. We are now a 49% partner in the JV, which officially began on July 4. And in Q3, we will begin to report the results of the JV as a non-consolidated equity method investment. The CNR Mall shopping channel and website began operating in June of 2010. Headquartered in Beijing. The channel now reaches approximately 40 million homes. And business is off to a very strong start and it has served over 700,000 customers to date. In 2011, CNR Mall's first full year of operation, the Company achieved revenue of $44 million. And through the first six months of this year, revenue was $38 million.

Dong Tieming of CNR is serving as Board Chairman of the JV. And James Clarke of QVC is serving as CEO. James joined QVC in 2008, first serving as Senior Vice President of Operations for QVC Japan, and later as Chief Operating Officer of QVC UK, and most recently has been leading our China business development efforts. Prior to QVC, James served in key leadership positions in a few eCommerce start ups, including one based in China. And among his other skills he speaks Mandarin. We have a strong team under James, filled with seasoned executives from both CNR Mall and QVC, including merchandising, planning, and TV sales leaders with deep QVC experience.

The home shopping industry in China has grown rapidly over the last few years, with total industry revenue estimated at $7 billion in 2011. And with our strong CNR partnership and a highly capable leadership team, we're confident that our China JV can become a very significant business for us.

And now I'd like to turn the call over to our US CEO, Claire Watts, to provide more detail on the results of our US business.

Thank you, Mike.

At QVC US, we continue to be committed to offering a unique shopping experience that's created to the synergy of integrating our live broadcast, website, mobile, tablet, and social platform. We continue to drive growth as we innovate and improve upon what we offer, how we offer it, and who we serve. We're elevating our content by taking our customers to interesting places through our live remote broadcast from Vicenza, Italy and the Food and Wine Classic, Aspen, Colorado.

In the Kitchen with David, a program that offers an integrated live digital and social shopping experience, continues to show strong growth, as evidenced by increased sales, viewership, web sessions, and minutes watched. Program host David Venable's new cookbook, Comfort Foods that Take You Home, provides an opportunity to expand our audience and reach new customers. In April, QVC began taking advanced orders for the cookbook, and since it debuted on air, we've received more than 165,000 orders. The cookbook release is October 9.

QVC US is driving growth through an assortment of highly-differentiated product offerings. We're constantly adding brands to our portfolio. Newcomers this quarter include CE by Cristina Ehrlich, and Belle Gray by Lisa Rinna. We saw strong results from some of our established brands such as Isaac Mizrahi, Susan Graver, Judith Ripka, Bobbi Brown, Apple, Dyson, Keurig, and Kansas City Steak Company. And we had notable appearances by Jimmy Fallon, 50 Cent, the Beach Boys, Clinton Kelly, Wendy Williams, Chris Jenner and the Kardashians, and Heidi Klum.

Our customers are increasingly engaging with QVC on multiple platforms. We continue to see very strong adoption rate of our mobile. Our mobile sales year-to-date have almost surpassed mobile sales for the entire year of 2011. And mobile penetration accounts for almost 18% of our digital sales, up from 8% in the second quarter last year.

Tablet Web continues to be our fastest-growing platform, with sales increasing 240% over Q2 of 2011. All QVC.com users are now on IBM's WebSphere environment, a scalable global eCommerce platform which provides search engine optimization and faster navigation to enrich our customers' experience. And we now have more than 49 million subscribers in the HD tier.

We continue to focus on driving customer loyalty and satisfaction. We're enhancing our customer service communications delivered after the purchase. Where we have done so, we have seen reduced return items and reduced advance order cancellations on those items. And QVC ranked second in the May 2012 ForeSee E-Retailer satisfaction index, reflecting our growing reputation as a leader in service excellence.

Our team continues to deliver excellent inventory management. We reduced our overall inventory by 5.9% year-over-year. And as we look to this quarter, we're really excited about the launch of Vanessa Williams Skincare, the launch of Guy Fieri, Jennifer Hudson and Nicole Richie. We're also continuing to build upon the Isaac Mizrahi franchise by launching a new handbag line, as well as new fragrance during Fashions Night Out in September. In addition, we have a new show called Inspired Style hosted by Amy Stran that provides our West Coast viewers with a primetime shopping experience.

And with that, I'll turn the call back to Greg.

Thanks to Mike, Claire and Chris.

We were very pleased overall with the results for the quarter. And believe the businesses in the digital commerce arena that we have at Liberty Interactive are moving forward well. As we said, later today we look forward to the creation of Liberty Ventures. We appreciate your continued interest in Liberty Interactive.

And with that, Operator, I'd like to open up the call for questions.

(Operator Instructions)

David Gober with Morgan Stanley.

Just touching on the domestic QVC business for a second, clearly, the trends show the resiliency of the model, given some of the mixed signals that the economy is showing us. I was just wondering if there's anything you could glean from the overall consumer environment. And particularly the new versus existing customer mix, if there's anything going on there other than the strategic shift that you guys had talked about a little bit at the Analyst Day a few months ago.

I'll make a couple comments and then see if Clair would like to add anything. I do think the overall retail environment, as you note, David, was tough in the quarter. We saw that in the results of a number of retailers. We did see some softening in the overall retail environment through Q2. But we were pleased that our business hung in there nicely. I think our mix of new customers versus existing customers is probably less about the economy and really more about the product mix. I think we're just in a stronger cycle of apparel and other businesses that are more favorable for existing customers.

We continue to feel very good about our ability to generate new customers. And continue to believe that that will be a positive growth story over time. But it will go up and down, as we discussed last quarter, with our business mix.

Claire, anything else you'd add to that?

No, I think that's exactly right. I would just add that, as we've gone through the quarter, one of the beautiful things about QVC's business is our flexibility. So, we have seen categories strengthen and weaken through the quarter. And we've been able to adjust to that. For instance, our Apparel business has continued strength. Our Beauty business continues to outpace our expectations. And the opposite, electronics, has not performed at the level we originally expected, and we've adjusted to that.

And I agree with Mike. New names for us is really -- specifically, there are two areas that had very strong new-name growth that have softened this year. One is computers, which brings in a lot of new names. And the other is our Wellness business, particularly Zumba, which has been a big new name driver for us and it's just slowed a bit. So, we don't see that as a long-term concern at this point.

Okay, that's very helpful. And, Claire, maybe you could dig in a little bit on the gross margin commentary that you guys gave, in terms of the mix shift within the apparel, health and beauty and jewelry categories. Is there anything consistent going on there in terms of the return rates? Or is that just one-off differences in each of those different categories?

On the margin piece, there's two things happening here on gross margin. One is at the total category mix. So we sold less accessories and more of our cook and dining area. And they are a flip of margin rates.

And then also within categories we've seen some pressure on margin because of the mix within a category. For instance, in our cooking/dining area, this quarter we sold more electrics. So, the Dysons, the Keurigs. They run at a lower margin than our cookware and our Gadget business. We've seen just a mix issue around margin, nothing that I'm concerned with. I would say that we've had a little bit of pressure, especially in the last two months, on clearance inventory, which is typical. So, part of the apparel pressure was just moving through seasonal inventory, which is in very good shape.

As far as returns, again it's mostly a category mix issue. So the blend of the business, selling more of the soft side than the hard side. But we have had three pressure points that we're working on within apparel. Our dress category has higher returns, and we've dug into that. And electronics -- our tablet returns have put pressure on that category. So overall the returns issue is really mix of category. But there are a couple of hotspots that we're working on.

And finally, if I could, just to follow-up with Greg or Mike on the commentary about some of the third-party transactions there in the video commerce space internationally. Does that change the way that you guys think about launching new markets? Or does it accelerate the thinking on Brazil or France, which I know are a couple of markets you guys have talked about that could be coming down the pike.

This is Greg. I'll comment first, then let Mike add. I think the first thing we believe is that it's a nice validation of the inherent strength of these models. We have strong businesses now in three very established markets, one growing. We think there's a lot of upside still. And we obviously have new markets ahead.

To see somebody who are considered smart money-invested multiples which are apparently 50% higher, something like that, than where we are trading, it's a nice validation. I don't think it changes our prospects or plans with regards to National because we are moving as quickly as we can to be able to absorb those markets and grow where we see fit. Mike, what would you add?

I agree with all of that. Love the validation from others. And that we're running hard on international expansion. Would love to be in a position in 2013 to be talking about the next markets. We're full court press on two or three markets, including Brazil and France, as you mentioned. Always hard to predict the timing of these, as I always caution. But very high level of commitment and belief on our part that that will be good for QVC and good for our shareholders. And we think it's reasonably likely that we could make something happen in 2013.

Great. Thank you very much.

Jason Bazinet with Citi.

I just had three quick questions. You guys put out a press release, I think, on July 2 regarding a $500 million new senior note issue. And I was just unclear if that's included in the financials that you released today, or if it's yet to come in terms of debt. My second question is, did you guys size the legal settlement on the eCommerce business? Because I didn't see that. And then, finally, is the China JV loss-making? Is that a fair assumption? You gave the revenues but I just didn't know if we should be putting in small losses in the early years.

We talked about the new bond issue. It's obviously not included in the June 30 results. We talked about that issue and the fact that it's traded up since, nicely. And that was just used to pay down revolver. That was really a substitution. So the $500 million came in as long-term debt, paid down, and gave us more flexibility under the revolver line. As far as the legal settlement --.

Yes, I can handle that. We had $2 million already accrued. It was an incremental $5 million charge during the quarter.

Okay, great.

So that, as we pointed out, as Chris called it, the perfect storm of negative results. A bunch of one-time things came through in the digital commerce, the separate eCommerce businesses. And that was one of the larger elements that was not of a non-recurring nature.

And on the China joint venture, we'll release a more comprehensive look at the P&L with our Q3 earnings. But I think the way to think about it is, what I'd characterize as quite modest, single digit EBITDA, OIBDA losses in this period for start up.

But those are coming to come through as an equity pick up rather than consolidated.

Right, you won't see that in the EBITDA line because it's going to be below the line.

Understood, perfect. Thank you.

Trisha Dill with Wells Fargo Securities.

Just a couple questions on QVC, and then one on the eCommerce businesses. In the international division, you saw a nice improvement in OIBDA. There were a few one-time items there. Can you help us think about how OIBDA should grow on a more normalized basis?

Yes, I would say, obviously the UK, we had our biggest OIBDA challenge due to these one-time duplicate running costs. We are essentially behind that. As I mentioned, there's about GBP0.5 million to go, but we're essentially behind that. So, as a very broad statement, I would expect us to start to see OIBDA growing in line with revenue overall in the international divisions.

We will have a little bit of pressure in Japan, who is also transitioning to a new headquarters. That will be around Q1 of 2013. But other than that, we think the long-term story basically holds. And the long-term story is modest improvements in OIBDA yield in the international divisions over time, as they continue to gain scale and grow into their fixed-cost base. And there are maybe puts and takes by market, but on a broad level we would expect OIBDA to grow modestly faster than revenue.

Okay, great. And then in the US operating income number, were there any severance costs there related to the customer service staffing in the call center? And can you quantify the impact from just that reduction in cost?

Dan, do you want to comment on that?

The provision for that occurred in Q1 so there was no incremental impact in Q2.

Okay, great. And then on the eCommerce businesses, if you can maybe help us think about what operating income would have been ex the one-time items versus some of the more structural issues that you mentioned, like increased marketing expense and lower add revenue and increased promotions. Thanks.

There are really only two items that stand out as truly one-time. We mentioned the legal settlement with incremental accrual. And we have a value-creation plan that is non-comparable, a payment that was made out of cycle that was above the line that had previously been below the line. So they're not really comparable. And those are roughly on the order of $10 million between the two of them. We do think there was some--.

Year to date.

Year to date, $10 million -- not for the quarter, excuse me. We do think, even on the operating side, there were some one-time nature of things that are non-comparable going forward that we don't think are indicative of the next quarter, the next few quarters' results. Chris, do you want to add anything to that?

No, I think that pretty much captures it. We had some inventory that we had to blow through to clean up the balance sheet a little bit during the quarter. And that had a negative impact on the results.

For example, I think what Chris is referring to, is Back Country. We hope this is not an indicative winter just out here in the West for snow. That clearly hurt the Business and we were forced to liquidate more inventory than normal in the first half of this year. How much of that's one-time, I'll leave you to judge. But we're hoping it's not an indicative winter.

Thanks.

Tom Forte with Telsey Advisory Group.

This is James, actually, calling in for Tom. Thanks for taking my questions. Looking at QVC US, it's good to see the ASP momentum persist again this quarter. But units did hold flat with prior year. Is that just a function of the mix changes that you've discussed, or a macro thing, or something else? And then tying into that, all the initiatives that you have on digital and mobile, are you finding that, from the customer purchase patterns, that those sales are actually incremental to your overall efforts? And if you can speak to just overall behavior patterns. Are they using it complementary to what's going on TV or as a substitute?

Claire, do you want to take those questions?

Yes, I will. On the ASP, this is a trend that we've seen for a while. It has to do with the mix of the Business, but also the type of the products that have been chosen by our customers within our categories. For instance, our Designer business is growing at a faster rate than our Basic business in jewelry. The higher-end products in electronics have outpaced baseline. And if you look at vacuums, our Dyson business has outpaced our other lower-priced brands. It's a function of what the customer is choosing within the categories, and also the mix of our business. And that has been a trend that we have seen for a while.

On the purchase behavior and what's happening in the digital space, we're really excited about our continued significant growth in our total digital sales. And the penetration that continues to improve. What we see is that we're not sure that we can prove that it's incremental. But we can definitively say that our customers that use multiple channels are, by far, our best customers. And their sales are growing at a faster rate. So if you're a customer that engages with us on the computer and a mobile phone and a tablet, your individual sales are growing faster than those that use an individual channel. So that's one thing that we're encouraged about.

We are beginning to see some purchase behavior differences by platform. We're fairly new at this because of core metrics and the tagging. We're trying to sort a lot of it out, especially with the WebSphere conversion. But a couple of insights that I could share with you is that we do see our softer categories, like accessories, jewelry and beauty, our customers seem to have more of an affinity to the tablet. And more of our hard goods, especially electronics, are really choosing mobile web phones. So those are just early indications of some things that we're seeing. And again, we'll continue to inform you as our data gets more solid over the next couple of quarters.

Okay, that's very helpful. And going back to the units number on QVC US, was that a mixed issue as well, holding flat with last year?

Yes, absolutely a mixed issue.

Okay, thank you very much.

Matthew Harrigan with Wunderlich Securities.

One of the (inaudible) at your Investor Day was the commonalities across international (inaudible) margin convergence and everything. Yet you really seem to have more disparate markets in Italy and China, an airway that may be (inaudible) being so much better than existing retailers, and really introducing the consumer to the concepts. In China I think you said you have $7 billion already as a back drop.

I know you aren't going to want to get too much into the tactics, but can you tell me where the timing difference is in terms of how you approach the market? What are some of the angles in moving things along faster? I know you might have taken a little bit more of a tepid approach, given how soft everything is.

And then, secondly, on the micro channel side, you had success in the beauty channels overseas. Claire talked about the propensity of the tablet people to buy apparel rather than electronics. Are you, in general, doing a lot more on the micro channel side to address the tablet opportunities, and with YouTube and all that? Those are my two questions, thank you.

Matthew, we got the second question but you were breaking up on the first. So can you just try to briefly restate the first question and then we can take them?

China versus Italy, the markets are so different. There are a lot of commonalities in international markets. And you talk about it at your Investor Day. Italy, I know you had to be pretty cautious with the economy. China, it sounds like the consumer, at least the affluent consumer, is a little bit more educated on distance shopping.

How do you stagger things out? I know you don't want to give too much of your strategy, but how aggressive are you going to be in China relative to Italy? What are some of the things you'll do differently in a growth market like China versus a dead-in-the-water economy like Italy?

Yes, thank you. I'll take that one first. We're going to be in a learning mode in China, for sure, so I don't want to state too much at this poiint. We're fortunate to have a partner who's been operating a channel successfully for two years at this point, so there's some experience. I would say they've been more driven by acquiring new names than getting high repeat rates of existing customers.

And that's something that's a strength of ours and we think it will be a strength -- it is a strength across all markets. We've seen it in Italy. One of the things we'll do early on is try to focus on just making sure we have a high caliber of diversity of product in China. We think we can bring the best QVC brands from around the world to the China market. And we and our partner think that will be a really differentiating point from the more commodity kinds of assortments that exist in the home shopping markets today. And we'll see what happens.

And, like any market, rather than try to predict the customer behavior, our bias is bring in a diversity of product, frequent rotation of product, and see what works, see what the customer latches on to. But we do think QVC brands will be successful. We do think beauty, as an example, could be a very strong business, which is a strength of QVC in many markets. So, early days, but we're excited about the potential.

I assume your consumer product companies must be incredibly excited about going to the Chinese market.

Yes, we've had a lot of interest from our vendor partners. We've been talking with them for quite a while and they are eager to support us. It's a great launching platform for them, so that's another benefit we have. They see the long-term value in it and are willing to take a risk to go into the market, using QVC as the launch platform. So we think that's a real positive.

On your second question, I'll make a couple comments and then we'll see, Claire, if there's anything you would like to add. We are focused on how to create more, as you call them, micro experiences to tap into different segments of customers. And, again, I'd characterize it as being in a learning mode, with the practices varying around the world based on the specific conditions in each market.

So, clearly in Europe, we're focused on second and third channels. That's because the cost of carriage is lower in Europe than in Japan and the US. So, you're less likely to see us outside of Europe be adopting second and third channels. It's not out of the question but it is a higher cost and there's a higher bar on doing that. And with the second and third channels we're trying to do dedicated micro sites to attach to them.

I would say in the US, we're looking at that, as well, but the focus is a little bit more on taking the tablet experience to the next level. We've got, as you know, several dedicated apps for both tablets and iPhones that create unique experiences. An app dedicated to our In the Kitchen with David program, and an app dedicated to beauty, and on and on. So it's about creating these more micro experiences on an app, and tying that experience, then, to the TV broadcast. So we create an integrated experience that spans the broadcast environment plus the narrowcast through the app. So that's at a high level what we're trying to do. Claire, anything else you'd want to add?

No, Mike. I think that's exactly right.

Beautiful. Thanks, Mike. Thanks, Claire.

Okay, Operator, and listening audience, I think we've run out of time. Do we have another call? I'd like to thank you all for your interest in Liberty. And we'll watch with great interest how Ventures starts trading. Thank you and look forward to speaking with you next quarter, if not sooner.

And this does conclude today's conference. We thank you for your participation.