News

Liberty Rides Discovery, QVC Gains

8/15/2004 8:00 PM Eastern

Liberty Media Corp. reported strong revenue and cash flow growth in the second quarter, fueled mainly by gains at Discovery Communications Inc.

Liberty officials also tried to squelch speculation it would try to buy the other half of Discovery equity that it doesn’t already own. DCI assets include the Discovery Channel, Animal Planet and TLC, plus several international networks.

Other DCI owners include Cox Communications Inc. (24.5%) and Advance/Newhouse Communications (24.5%).

Liberty has long said it would be interested in buying out Discovery, and after last week’s announcement that Cox parent Cox Enterprises Inc. offered to take its cable unit private for $7.9 billion, there was speculation CEI might want to sell off its Discovery stake to raise cash.

Cox has said publicly it’s not interested in selling the Discovery stake.

“We’d be happy to own more of Discovery,” Liberty CEO Robert “Dob” Bennett told analysts during a conference call last week. “We have received no indication from [Cox] that their proposed transaction will create an opportunity for us to increase our stake. They’ve advised us that their deal is fully financed and that they have no obligation or need to sell their interest at that time. But if they change their mind in the future, we expect that they will contact us.”

Bennett later said that Advance/Newhouse has a right of first refusal. “If Cox is interested in selling their shares, they have to offer it first to Newhouse,” he said. “Then if Newhouse doesn’t want to buy it, it comes to us.”

Discovery had another strong quarter, with revenue up 20% and operating cash flow up 30%.

Affiliate revenue rose 28% in the period, aided by more paying subscribers at emerging networks like Discovery Health and FitTV, Bennett said.

QVC Inc., the cable home-shopping channel Liberty took full control of earlier this year, also posted another strong quarter. Revenue was up 17% and operating cash flow rose 27%. QVC international revenue was up 50% and operating cash flow increased 150%, compared to 8% revenue growth and 13% operating cash flow growth on the domestic side.

Starz Encore Group reported revenue growth of 6%, but operating cash flow declined 31%, to $62 million, because of increased programming costs.

Bennett said he was encouraged by subscriber additions as the Starz group gained 950,000 customers in the period, its second-highest subscriber growth ever.

Bennett said on the call that the Starz growth was the highest of any pay service in the past six years, greater than Home Box Office’s combined growth over the past six quarters and higher than Showtime’s combined customer growth during the past four years.

Starz spokesman Tom Southwick credited hits like Pirates of the Caribbean, marketing campaigns with affiliates like Comcast Corp. that kicked in during the quarter and the rollout of on-demand features, particularly by Comcast, free to subscribers.

March