Liberty Rings In Q3 Gains

11/14/2009 2:00 AM Eastern

Gains at QVC and Starz Entertainment helped drive third-quarter gains for Liberty Interactive and Liberty Entertainment, as the latter moves closer to a reorganization that will create a new Liberty Starz stock.

Liberty Interactive's revenue rose 2% to $1.8 billion and operating income before depreciation and amortization was up 11% to $345 million, fueled mainly by gains at its largest component, home-shopping channel QVC. QVC, which had been troubled by the overall downturn in the retail and home-shopping segment, grew revenue by 2% in the period to $1.7 billion and OIBDA grew 10% to $343 million, as initiatives to pare down costs and revitalize its brand appeared to take hold.

QVC CEO Mike George said the gains were due to the sales and cost-cutting initiatives and what appears to be a stabilizing of consumer spending in the U.S. and the United Kingdom. QVC has embarked on a campaign to make the brand a must-visit destination for exclusive content — in the quarter, it reached an exclusive distribution agreement with Liz Claiborne New York.

“We continue to invest in our technology makeover and are on course with our launch of a new global e-commerce platform, a global customer-relationship and call-center-management platform, warehouse automation investments and our multimedia infrastructure,” George said in a statement. “We turned the economic downturn into an opportunity and built a stronger, leaner, more financially sound and technology-rich company for the long term.”

At Starz, revenue increased 8% to $301 million and OIBDA was up 19% ($23 million) to $93 million, fueled mainly by rate increases. In a statement, Liberty said that $22 million of the OIBDA gain was due to increased rates.

Subscribers to the Starz and Encore services were down sequentially in the quarter. Starz lost about 200,000 subscribers, to 17.3 million from 17.5 million in the second quarter; Encore lost about 800,000 units, to 30.7 million from 31.5 million in the second quarter. Many MSOs have said the economy is forcing some subscribers to either reduce or eliminate their premium channel pack ages. In a statement, Starz said it is working with affiliates on the matter.

On a conference call with analysts, Starz CEO Bob Clasen said several factors contributed to subscriber decline, including the economy, the decline in housing starts, rate increases implemented by some affiliates at the beginning of the year and a lack of marketing resources devoted to the premium category.

“We are working with these affiliates to bring more focus to the premium space and improve sales of Starz and Encore subscriptions,” Clasen said. “On the other hand, we are encouraged by the progress our affiliates are making toward implementation of the 'Television Everywhere' strategy, which will enable existing authenticated Starz subscribers to receive Starz programming on their computers or portable devices, as well as at their TV sets.”

Liberty Media is making progress toward the spinoff of its Liberty Entertainment tracker and said it has received a favorable ruling from the Internal Revenue Service regarding the transaction's tax-free status. The company will hold a special shareholder meeting on Nov. 19, after which the spin is expected to be completed. After the spinoff, Liberty Entertainment's 57% interest in DirecTV Group will be merged with the satellite giant and Starz, the remaining component of Liberty Entertainment, will be housed in a new asset-based stock to be called Liberty Starz.

The Liberty Starz stock began trading over the counter on a when-issued basis under the symbol “LSTAV” on Nov. 5. The stock's price has ranged from $46 to $49 per share, indicating it should trade at a healthy level when it officially hits the market, expected around Nov. 20.

When-issued shares can be bought or sold like ordinary securities, except that transactions do not settle until the stock is formally issued. The attraction: Trading in when-issued shares usually requires a small downpayment of about 25% of the value of the shares and no margin or loan debt is needed for the balance until the settlement date, which can be weeks in the future.

And in some cases, the when-issued market can serve as a gauge to predict at what price the shares will ultimately trade.

For example, before splitting into two separate companies in January 2006 — Viacom and CBS — Viacom stock ranged from $40 to $45 per share in the when-issued market. When the new Viacom began trading on the New York Stock Exchange on Jan. 3, 2006, the stock opened at $40 per share.

And last year, Scripps Networks Interactive traded between $38 per share and $43 per share in the when-issued market before opening officially at $38.35 on July 1, 2008.


A snapshot of the third-quarter financial performance of Liberty Media's two largest wholly-owned operating units, QVC and Starz Entertainment:

Revenue % change AOIBDA % change
SOURCE: Liberty Media
QVC$1.7 B2%$343 M10%
Starz$301 M8%$93 M19%


Liberty Starz shares began trading Nov. 5 over-the-counter on a when-issued basis. Closing prices:

Nov. 5$46.70
Nov. 6$46.85
Nov. 9$48.85
Nov. 10$49.00

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