Liberty Downplays Discovery Rumors

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Liberty Media Corp. reported strong revenue and cash-flow growth in the second quarter, fueled mainly by gains at Discovery Communications INc., but it tried to squelch speculation that it would attempt to buy the equity in the programmer that it doesn’t already own.

Liberty owns 50% of Discovery, which includes Discovery Channel, Animal Planet and TLC, as well as several international networks.

Partners are Cox (24.5%) and Advance/Newhouse (24.5%).

Liberty has long said it would be interested in a deal to acquire the rest of Discovery, and after last week’s announcement that Cox parent Cox Enterprises Inc. offered to take the cable unit private for $7.9 billion, speculation ran rampant that CEI would seek to sell off its Discovery stake to raise money for the buyout.

Cox has said publicly that it is not interested in selling out its Discovery interest.
In a conference call with analysts, Liberty president and CEO Robert Bennett said that while Liberty would be interested in owning all of Discovery, it has no indication that any of its partners want to do a deal.

“We’d be happy to own more of Discovery,” Bennett said on the call. “We have received no indication from [Cox] that their proposed transaction will create an opportunity for us to increase our stake.” Bennett later said that according to the deal, A/N has the right of first refusal for Cox’s shares in a Discovery deal.

Discovery had another strong quarter: Revenue was up 20% and operating cash flow rose 30%. Affiliate revenue increased 28% in the period, mainly because of an increase in paying subscribers at emerging networks. QVC, the cable home-shopping channel that Liberty took full control of earlier this year, also posted another strong quarter.

Revenue was up 17% and operating cash flow rose 27%. International sales were also strong — revenue was up 50% and operating cash flow increased 150%, compared to 8% revenue growth and 13% operating cash flow growth domestically.

Liberty raised its full year percentage growth guidance for QVC to mid-to- high teens from low-to- mid teens.

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

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