LSTZA LSTZA
Q1 2011 Earnings Call Transcript
Transcript Call Date 05/06/2011

Operator: 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 Group 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 post split-off.

These forward-looking statements speak only as of the date of this call and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Media's expectations with regard there to 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. Required definitions and reconciliations, preliminary notes, schedules 1 to 3 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.

Gregory B. Maffei - President and CEO: 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'll have Liberty's Controller, Chris Shean; QVC CEO, Mike George; and Starz CEO, Chris Albrecht. Also available for the question-and-answer session, we have several senior Liberty, QVC and Starz executives.

First, I'd like to note and 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. 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've 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'll be able to complete the split-off this summer.

Turning now 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 are new GE Money Bank agreement had a negative on earnings for the quarter as we’ve been noting along. We had ramp up cost in Italy and we also had some tough comps from Q1 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 backup on air within 12 days.

Notably in our operating basis, we saw strength in Germany and to some degree also in the United Kingdom. QVC.com achieved penetration in the U.S. in the first quarter up 36%. The Internet was up 4 points year-over-year and notably within there I was particularly pleased with the growth of mobile.

In Unites States, unlike in Japan where we’ve 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 U.S. 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 products, deeper use, buy any time, 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 eCommerce 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 investment we had, it still was a very strong at 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. We increased subscribers at Starz and Encore 10% and 6%, respectively.

Lastly looking at Liberty Capital, SiriusXM posted very strong financial results, driven by an excellent operating performance, and ended the quarter with 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.

Christopher W. Shean - Senior Vice President and Controller: 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 eCommerce 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.

Mike George - President and CEO of QVC, Inc.: Thank you, Chris. In Q1, we grow 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 eCommerce 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 U.S., 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 U.S.

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.

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

Adjusted OBIDA declined just under 1% due to the impact of the previously disclosed change in terms of our agreement with GE Money Bank for our QCard. If the prior contracts have been in place, for the first quarter our adjusted OBIDA would have been 10 million higher or 3% increase over last year.

We expect to see a similar level of impact until we anniversary this change in August. As you'll recall, upon the termination of the prior contract, $501 million deposit GE Money Bank was returned to QBC. These funds were used to lower interest cost 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 with 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 obsolesce as a percentage of net revenue.

The U.K. 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 eCommerce revenue grew 17% and revenue from new customers was up an outstanding 30%. We're also pleased with the initial results from the Beauty Channel, our second channel in the U.K. that we launched last fall.

Adjusted OBITDA increased 11% in local currency, driven by lower warehouse cost rate efficiencies and lower inventory obsolesce. These gains were partially offset by increases in affiliate commissions largely driven by the simulcasts we launched last year on iTV.

Our German business delivered another outstanding quarter with total revenue growth in local currency of 13%, the highest rate of quarterly revenue growth in nearly five years.

eCommerce revenue was particularly strong, up 30% in local currency, and revenue from our second channel (Q 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 benefitted from a similar easier comparison to last Q1 when results were hindered in part by our decision to take (indiscernible) 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 fixed cost leverage.

Turning to Japan, we are very fortunate that none of our 1,500 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 23rd.

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 cost 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 stalked consumer demand will continue but we expect it 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 this summer. In the meantime, we are doing what we can to implement energy saving initiatives on a voluntary basis.

I’m extraordinarily 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 parts to help Japan recover from this tragedy. We have donated close to $2 million to the disaster relief efforts and supported many other voluntary 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 have 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. 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 royalty levels we enjoy in established markets like the U.S.

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 the cotton costs and to a lesser extent in leather, along with the ongoing rise in gold and silver.

These costs increases have had some impact of spring merchandise and will have a greater impact in the fall. We are working on multiple initiatives from tighter supplier management to changes in design and construction and some pricing actions that 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.

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 towards social networking, towards globalization.

We believe we can continue to grow even if economic conditions were to worsen, if I've taken 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 storage and engaging personalities and we're going wherever the customers are going, distributing this content over the growing array of devices and screens that our customers interact with everyday.

As more and more customers interact with their TVs, tablets and smartphones simultaneously, we're creating higher 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 QVC-hosted Oscars party in Beverly Hills.

Our viewers (were able to see) and purchase the same fashions that we're going to be on the Red Carpet later that weekend, hear the stories and inspirations behind those products from designers and celebrities ranging from Kardashian Sisters to Janie Bryant', the Costume Designer for Mad Men and, 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. 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 when they combines differentiated products, engaging personalities, high levels of community involvement and simultaneous engagement over multiple platforms from the TV screen to the tablet. We’ve also rolled out new smartphone or tablet applications in every market in recent months.

As I mentioned, we’re also pleased with the initial results from our second channels in the U.K. and Germany. These initiatives coupled with our maniacal focus on earning and keeping our customers trust are helping us to maintain the extraordinary customer loyalty we have always enjoyed, will also attract the new customers at record rates and driving a share shift from traditional retail.

With that, I will turn it back to Chris.

Christopher W. Shean - Senior Vice President and Controller: 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’s 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 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 increase 22%. At quarter end, Liberty Starz had attributed cash at $1.3 billion and attributed debt of only $81 million. Now, Chris Albrecht will comment on events at Starz.

Chris Albrecht - President and CEO of Starz, LLC: Thanks, Chris. Welcome and good morning. Starz continued its positive business performance trend in the first quarter with solid revenue and adjusted OIBDA results, an another record high and subscriber levels to the flagship Starz and Encore channels.

Starz posted revenue of $391 million in the first quarter, an increased 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 increased in home video and international television revenue related to our original programming content primarily this party gets franchise. The $10 million remainder of the increase for the period was due to higher effective rates for our channels and an increased 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 a $131 million in the first quarter. This represented an increased 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 or 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 legacy Starz Media business and the remainder was due primarily to increased marketing expenses related to the original series of 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 the theatrical film in the current period.

As mentioned at the outset of the call, subscriber totals continued 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 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, as 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 give away of our premium Starz Encore channels in violation of the carriage agreement. Our studio output partner, Disney filed its own related lawsuit DISH Network on Monday. As this matter is now 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're 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 performs particularly well with Verizon and AT&T.

Last month, Verizon FiOS and Comcast's Xfinity TV were the first to launch the latest extension of the Starz multichannel experience, Starz 3D On Demand. Starz 3D On Demand offers participating affiliates anywhere from 46 Starz movie titles in 3D and at no extra charge for Starz subscribers. Services such as Starz 3D On Demand enrich the multichannel Starz value proposition and increase satisfaction levels for Starz subscribers. We expect to have additional launch announcements in the future.

Moving onto the 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 6 million people watch every episode across linear television, DVR and on demand. Production is underway on Season 2 and we look forward to the return of Spartacus in 2012 with the 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 our Starz original series premiere even bigger than that for Spartacus – Blood and Sand and last year's Pillars of the Earth. We retained all U.S. pay-TV rights, including digital and home entertainment for the 10-episode series.

The next Starz original series would be Torchwood - Miracle Day, which premieres this July. Based on the hit BBC science fiction franchise, we own the exclusive U.S. pay-TV rights to 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’s making his T.V. directorial debut. Starz owns the exclusive U.S. pay-T.V. rights for Boss.

Now over to 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 U.S. before year’s end.

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 for Film Roman, we are continuing to field expressions of interest in the business and we’ll update you with our progress on the next call.

With that I’ll turn it back over to Chris.

Christopher W. Shean - Senior Vice President and Controller: 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 is a 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 new accounting rules that are out for this particular industry, the historical amounts of deferred revenue and deferred costs on that contract 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 in public investments of $7.7 billion and attributed that of $750 million. From February 1 through April 29, Liberty repurchased 430,000 shares of LCAPA 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 represent 39% of the original shares outstanding.

Well, that said, I’ll turn the call back over to Greg.

Gregory B. Maffei - President and CEO: 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 include first at Liberty Media itself, completing the split-off of the Liberty Capital and Liberty Starz trackers. As I noted we hope to get that done this summer and hopefully, on the next call we'll be talking about two separate companies.

At Liberty Interactive and QVC, in particular, we're going to continue the focus on the customer, attracting new customers in growing the base of loyal customers that we have. We continue to grow our eCommerce businesses at good rates, hope to continue that for the rest of this year.

We'll focus on rationalizing on our non-core investments as we discussed in the past and investing our liquidity. If there is a (theme) across all three trackers 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're going to continue to hopefully cost-effectively develop compelling original programming that differentiates and strengthens Starz. We're going to build and enhance our relationships we have with our existing and new distributors, and again evaluate opportunities for cash and balance sheet management.

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

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

Transcript Call Date 05/06/2011

Operator: Barton Crockett, Lazard Capital Markets.

Barton Crockett - Lazard Capital Markets: 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, is that excluded from your subscriber tally and does that have any impact on the revenues you're getting, which I believe now are flat rate? That would be my first question.

Gregory B. Maffei - President and CEO: I'll handle the second part. We do have a fixed rate deal with DISH, so the subscriber count is not an issue on that and on how we're looking at the subs. This has become somewhat of an issue viewing how our ratings are, so I'll let Chris (or Bill) comment.

Chris Albrecht - President and CEO of Starz, LLC: As Greg said from a revenue point of view, this is like any other preview and that their subs that are not counted because we're getting (enrollment from it). The issue was really more in the manner of the preview. We do do previews regularly with different affiliates. There has been some information that's gone out there, an impact on ratings because Nielsen does not differentiate between the promotional subs, the free subs and they are paying Starz subs. What we've 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, Barton.

Barton Crockett - Lazard Capital Markets: But when you talk about ratings, I mean 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?

Chris Albrecht - President and CEO of Starz, LLC: No, it’s not. There is no consistent impact. It's the people that are sampling Starz programming at various times and at various levels.

Barton Crockett - Lazard Capital Markets: 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've 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?

Chris Albrecht - President and CEO of Starz, LLC: Well, first of all, I'd like to say we're not competitive with HBO. 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 subscription. We do know what is happening out there and we look to see whether it’s something that we should be doing as well.

Operator: James Ratcliffe, Barclays Capital.

James Ratcliffe - Barclays Capital: Two if I could and actually both on LCAPA this time. First of all, on TruePosition, if you can just help us out in sort of what that business really look like going forward on sort of the cash EBITDA kind of basis? I am just trying to figure out where – with all the accounting moving around how much cash would actually generate. Secondly, when you work 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’re thinking about? Greg you said it was sort of a challenge to invest some of it, but I mean, you've been (indiscernible) to this point. Paul with cable. Is distribution something – assets something that you’d look at as well? Any color around that will be great.

Gregory B. Maffei - President and CEO: First on TruePosition; well, there is some volatility in those cash flows, this is the business which probably throws off cash of $40 million a year plus or minus. We have two major customers; so there were timing issues around what we do and what maintenance contracts and the like, but that’s a rough number. As far as what to do with the cash, 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, be careful one reason or another where the market has abandoned belief in a business or belief in the equities overall, certainly, that was – we got a triple (indiscernible) on that with SIRIUS, and we should only be half so lucky again. The challenge, because there are – we are in an area of – or time rather of lower (straights), 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.

James Ratcliffe - Barclays Capital: Just a quick follow-up on that….

Gregory B. Maffei - President and CEO: Challenging (indiscernible). Do you want to add….

James Ratcliffe - Barclays Capital: As a quick follow-up on that – I'm sorry.

Gregory B. Maffei - President and CEO: I was just asking John if he wanted to add anything on that. John said, no, that's enough.

James Ratcliffe - Barclays Capital: Just quick follow-up on that if I could, you mentioned SIRIUS, I mean you're now free, if I recall correctly, to get up to closer to anything south of 51, I guess, thoughts on if that’s the business that you been still investing more in going forward in terms of equity or that capital or happy with the position where you are at the moment?

Gregory B. Maffei - President and CEO: I don’t think we have any final statements or resolutions on what we want to do with our stake in SIRIUS. We do think it's a great business. We do think the management team there has done a great job; hard not to be impressed with both the operating performance and the performance of the equity.

Operator: Richard Greenfield, BTIG.

Richard Greenfield - BTIG: I had a question on this DISH 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 where there tiers where you got paid on? Or is DISH giving (it) a way no impact on your revenues meaning the subscribers went up before and was there a level where you actually would have gotten paid? Just something so we understand is there actually lost revenue that you're potentially giving up? Then did DISH index are 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?

Gregory B. Maffei - President and CEO: We did not experience any revenue loss with the current DISH promotion. Even with that extended time period, there is an end to the promotion. So, again, it’s a manner of it. Our deal with DISH, even though it’s a flat deal, there are escalators. If we compare DISH’s performance with Starz product over the last years, I would have to say it is comparable to our other affiliates, our other strong affiliates. We think that we have a very strong relationship with DISH having recently completed an extension of our deal. So, happy to have them as an affiliate partner.

Richard Greenfield - BTIG: 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?

Gregory B. Maffei - President and CEO: I don’t understand what you mean by normal scenario, Richard.

Richard Greenfield - BTIG: Meaning, if they hadn’t given it away, 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 will be making substantially more money than you’re making yesterday?

Gregory B. Maffei - President and CEO: I mean people have to sign up for Starz or for Encore. Here they were given the product to a finite period of time. So, it's really apples and oranges. There is no lost revenue and although it's a violation of our agreement and it's not a – it has no revenue impact on Starz or Encore. I am answering (indiscernible).

Richard Greenfield - BTIG: I just – for your comment about there being escalators with there is no lost revenue, those seem to be an odd with each other.

Gregory B. Maffei - President and CEO: I would say escalators is actually the wrong term. There are increases built into the contract.

Richard Greenfield - BTIG: Meaning annual increases?

Christopher W. Shean - Senior Vice President and Controller: That's right, annual increases.

Gregory B. Maffei - President and CEO: Escalators is the wrong word.

Christopher W. Shean - Senior Vice President and Controller: If you look at the historical trend of how pay grows, we try to structure those – that increase in rate with what we thought would be historically the normal growth you would see in the business. So, again, if you went out and said, it’s ($40 million), that's just not normal growth we would ever see on any affiliate, but structured rate going forward.

Richard Greenfield - BTIG: If there is no lost revenue, why are you suing? Can you comment on that?

Gregory B. Maffei - President and CEO: Because they are in violation of contracts with both our ourselves and Disney.

Operator: Matthew Harrigan, Wunderlich Securities.

Matthew Harrigan - Wunderlich Securities: Two questions on 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's 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 hit the margin right now and most of it is dictated by the economy. Then secondly, given how pricey the eCommerce acquisition market is, in some instances as with Kleiner Perkins and you with Lockerz, you’ve done a couple of things organically. Is there a possibility of doing more things organically where the DNA for the business point is created in house as opposed to you going out and buying some smaller eCommerce guys that also already have some (momo)?

Gregory B. Maffei - President and CEO: I guess, on addressing the second first, I mean we would love to say we are in the venture business and driving lots of new opportunities and we found two really the restart – the right start to pay maternity-oriented child, very young children-oriented business that we repurchased out of bankruptcy and restarted. It has both a retail component and an online component. We hope to grow the online component very quickly and at good early success and then with Lockerz. But the reality is, we’re not really a venture capital firm and we really – it is very hard for us to scale to make those kind of opportunities scale. Now, these were both fit well enough in our sweet spot than we saw an opportunity and way to manage them that was not onerous to the overall operations of Liberty realizing we are fairly small here in Englewood that we thought that was attractive.

Matthew Harrigan - Wunderlich Securities: It was an anomaly then?

Gregory B. Maffei - President and CEO: I think those are anomalies. That’s not to say I’d like to think we are entrepreneurial enough. If something showed, 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 are looking at $20 billion plus of equity market cap and moving the needle is harder and John?

John C. Malone - Chairman: I just wanted to make a brief comment 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 and the spin-off. So while we have some feet of a motion in terms of some buybacks and not others and some increases in investment and not others, I think it’s been a frustrating period for everybody because of the litigation and also some tax elements that surround the spin-off. So, I think you have to take that into consideration in terms of the actions that have been taken in the last couple of quarters.

Matthew Harrigan - Wunderlich Securities: Your new customer revenues were up 25%. I know (Delaware) customers obviously weren’t down on the revenue side by 25% because the pool size is really different, but it still looks like there is a little bit more erosion perhaps, the overall (revenues of) 4Q. Are you seeing some weakness at your existing customers, are you kind gearing to a different psychographic profile as everything happening on the marketing and distribution side now?

Christopher W. Shean - Senior Vice President and Controller: I guess the way I would describe it is, we do think over time that the new customer growth is (indiscernible) we don’t see it as a substitution in that we are losing core customers as we add new customers. We really see it as addictive 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 in existing customers. So, I would characterize that existing Encore 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. As I look about at that, I think there is 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 is just the continued economic pressures 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 will tend to see a little less growth from your core customer because they over index in those categories. 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 like them through the course of the year, hopefully we can outrun whatever economic pressures they are facing.

Matthew Harrigan - Wunderlich Securities: Just like consumer electronics, that makes sense.

Operator: Doug Mitchelson, Deutsche Bank.

Doug Mitchelson - Deutsche Bank: One for Greg and one for Chris Albrecht, but just I guess for John or Greg, but John comment on limitations on buybacks related to the Delaware litigation. Can you just sort of reaffirm for us what the whole back on the buybacks were?

John C. Malone - Chairman: I have to ask our lawyers and our tax guys. Basically distributions in the form of buybacks could be considered taxable distributions, which could color the tax-free nature of the resulting spin-off. You have to be very careful not to create that kind of an outcome and obviously when we're dealing with the sensitive issue of whether or not the split-off constitute substantially all of the assets of the company and aggressive buyback plan being executed at the time that we're all testifying in front of 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 seem more and it really has curtailed the use by Greg of its buyback authority or of reinvestment or (uptick) investment in existing entities because of those considerations.

Doug Mitchelson - Deutsche Bank: Of the three trackers, where would you say you're holding back related to this issue?

John C. Malone - Chairman: Obviously, we didn’t buy (LINTA), we didn't buy Liberty Starz. We did modest purchases in Liberty Capital in the recent quarter and basically we're very careful in terms of purchasing additional equity in investment entities. So, it's kind of across the board. The lawyers got really grumpy when we estimate we could do certain things, so we didn't do them.

Doug Mitchelson - Deutsche Bank: The questions are Greg, I'd like you to update the value of SIRIUS almost intraday these days, does the rise in SIRIUS' stock price make it easier or harder to undertake any attempt to monetize the stake in a tax-free manner? For Chris Albrecht, I was told that TV Everywhere deals caused those traditional subscribers to count to get the digital caps for Disney and Sony. Is that accurate and is Starz at the point yet where it's already sharing digital revenue under those output deals?

Chris Albrecht - President and CEO of Starz, LLC: Do you want to answer your question first, Greg?

Gregory B. Maffei - President and CEO: I don’t know whether the rise in SIRIUS makes it harder, easy to monetize this thing, I think it makes us happier yet with the performance of the Company.

Chris Albrecht - President and CEO of Starz, LLC: Yes. Let me answer your question by just cutting sort of 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 and it’s a little more complicated as to how they count, don’t count.

Doug Mitchelson - Deutsche Bank: So you might have hit the camp, but it’s a small amount of money at this point?

Chris Albrecht - President and CEO of Starz, LLC: Correct.

Operator: Jason Bazinet, Citigroup.

Jason Bazinet - Citigroup: I think I understand the merits and rationale behind doing the hard spin of LINTA, I was just wondering if you could remind us sort of the advantages as we sit here today between having Starz and Liberty Capital remain as trackers?

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

Operator: Ben Mogil, Stifel.

Benjamin Mogil - Stifel Nicolaus: One quick question I guess for Chris, when you look at the full year and I haven’t seen this operating expenses yet for Starz per se. When you look at the full year do you view the first quarter operating expense to be a little bit lower than what you're 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're receiving from Disney and Sony in payments on those output deals?

Chris Albrecht - President and CEO of Starz, LLC: Do we look at our operating expenses as being less?

Benjamin Mogil - Stifel Nicolaus: No, I'm more curious if you can walk through the whole year. Is first quarter operating expenses just for the legacy Starz business i.e. the pay-TV business, is this sort of a low number for the year or is this kind of a decent run rate for the year?

Chris Albrecht - President and CEO of Starz, LLC: Yeah, I want to emphasize it’s a low number.

Benjamin Mogil - Stifel Nicolaus: In terms of like quarterly, can you give us a sense of not a number, but just directionally is it high in 2Q, 3Q and 4Q? Do you see it moving up and down over the next couple of quarters?

Chris Albrecht - President and CEO of Starz, LLC: Yeah, I don’t think we're going to comment about looking forward.

Operator: Ben Swinburne, Morgan Stanley.

Benjamin Swinburne - Morgan Stanley: I have one for Chris and then one for Greg or John. First on the Starz, I guess on a official 90-day window announcement earlier this year or late last quarter, can 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 and then I have one follow-up?

Chris Albrecht - President and CEO of Starz, LLC: 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 by affiliates. So, although the attention, the (light always get shined) on the Netflix relationship, it is not a Netflix exclusive change.

Benjamin Swinburne - Morgan Stanley: James sort of asked this question earlier, but I will try it again. There is a lot of cable property in the U.S. 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. 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 on line. Do you think we’re in a good place now or do you think we’re still in a place where they are pushing a little close to the edge in terms of disrupting their own business model?

Gregory B. Maffei - President and CEO: I'll comment. I know John has a lots of good opinion 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 at many cases and I think probably sympathize with the debt guys. This is a very attractive business. It will throw off a lot of cash. There maybe pressures in the short-term on rising video costs, there maybe 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?

John C. Malone - Chairman: No. Really, I think the cable business in the U.S. 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 comes to high speed broadband, which seems to be something the public is totally in love with. So, as always in the cable business in my – whatever it is (indiscernible) 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 out around a little bit as they get random access, but for the moment it looks like satellite, telcos are continuing to gain video share, but the cable guys are driving to some incredible high penetration rates on broadband. I'm very impressed to hear that Comcast have 17 million broadband customers, out of what was it 22 million?

Gregory B. Maffei - President and CEO: 22 videos, 17 data, 10 VoIP, wasn't that the number?

John C. Malone - Chairman: Yeah, I mean I never should have sold that home to AT&T. But 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 delivery very high speed connectivity. So I think everybody is going to do well in this mix. Certainly in the video area, the big issue is margin squeeze particularly coming out of sports is 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 cables pretty much a monopoly there. I don’t want to use that word.

Benjamin Swinburne - Morgan Stanley: I was going to say as a follow-up. When you guys go look at – or if you were to look at (Charter LA) or inside, is the interest rate environment also cutting both ways and just that the private equity guys spend money at a level that Liberty can or won't or do you have advantages from a strategy perspective going ahead for those guys?

Gregory B. Maffei - President and CEO: Well, I think there is problems and that the low interest environment make people very aggressive – able to meet aggressively but also the reality is that they are in a situation witnessed precedent, witnessed I suspect Charter Latin America that people with synergies whether they video purchased.

John C. Malone - Chairman: All you have to do is analyze our pathetic effort to buy Bresnan over and one of my entities where there was a 20% swing in the cash flow based surely on programming discounts. So unless we were able to get in a (huge worth) 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.

Gregory B. Maffei - President and CEO: Unless – we are not too really plunge a big (indiscernible).

John C. Malone - Chairman: Yes. We did the arithmetic on taking over Time Warner Cable and I couldn’t quite talk Greg into it.

Gregory B. Maffei - President and CEO: Not necessarily (indiscernible) to put that point in fact.

John C. Malone - Chairman: No, the reality is in the cables business, you need massive scale. If you don’t have it – you're really playing (enough build out).

Gregory B. Maffei - President and CEO: We’ll not hear it in Colorado. We're looking all the numbers.

Operator: Jaison Blair, Telsey Advisory.

Jaison Blair - Telsey Advisory: If Starz layers on incremental digital revenue, let's say, Netflix gets renegotiated at $250 million or $300 million plus of annual revenue...

Gregory B. Maffei - President and CEO: That if is a big if.

Jaison Blair - Telsey Advisory: Yes, I said if. I said or another digital video provider comes along and offers you additional incremental revenue. How might that affect your original programming strategy? 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?

Chris Albrecht - President and CEO of Starz, LLC: We're 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 (indiscernible). I’m not being funny. I mean we...

Gregory B. Maffei - President and CEO: You're scaling original programming for the size of the business we have.

Chris Albrecht - President and CEO of Starz, LLC: We are scaling all of our expenses for the size of the business we have today.

Gregory B. Maffei - President and CEO: Thank you very much everyone. Thank you for joining us this morning and we’ll look forward to seeing you in the quarter.

Operator: This concludes today’s Liberty Media Corporation’s quarterly earnings conference call. Thank you for attending. Have a good day.