Liberty Faces Music, and Dances On

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With its stock down more than 15 percent this year — and off more than 60 percent from March 2000 — executives from Liberty Media Corp. were contrite at the company's annual investors' meeting, held here last Thursday.

But between the apologies and assurances that Liberty's core assets have performed well, chairman John Malone said that despite some setbacks, the company is moving ahead with its growth plans, including expansion into the European market.

Liberty executives were ready for at least some shareholder backlash. There was little applause when executives took the stage of the Hudson Theater to make their presentations.

Chief operating officer Gary Howard even joked that the meeting time was switched from the usual 8:30 a.m. to 1 p.m. in an effort to change the "bad karma" that has surrounded the stock. But he quickly assured investors that despite some glitches, Liberty's investments were showing substantial growth, even though that has yet to be reflected on Wall Street.Investors appeared to perk up when Malone took the stage, but even he felt it necessary to explain why the value of their holdings have declined.

In March 2000, "every asset we had was at an all-time high," Malone said. "Some made no sense at all. We were embarrassed at the market capitalizations with little or no business behind them."

Since then, the dot-com bubble burst, along with many of Liberty's holdings — especially its telecommunications investments.

And Malone admitted the downturn in media stocks took him by surprise.

"In the media business, we didn't see the economic downturn," Malone said. "We did some hedging in media, but we've decided to hang in there.

"We took some flyers on assets that didn't work out," Malone added. "But the company is in a strong position, it's very liquid and in a great position to expand. There is great opportunity internationally in the business we grew up with, cable television."

Although Liberty failed to close the deal to purchase Deutsche Telekom AG's cable assets in Germany — the deal was blocked by German regulators — Malone said that investors shouldn't rule out another push into that part of Europe.

"We may end up back in Germany," Malone said. "At the moment, what seems to be cheap gets cheaper if you wait."

ON MONETIZING

Malone also hinted that investments Liberty has made in cable networks — including its 50 percent stake in Court TV, its 10 percent interest in E! Entertainment Television and its 43 percent stake in QVC Inc. — could be sold or traded for other assets over time.

"The store is always open," Malone said. "When an asset becomes more valuable to someone else, we're not reluctant to monetize it."

Liberty has a put right on its E! stake coming up that Malone said would probably be put, or sold, to Comcast Corp. — the programmer's other major shareholder — "within the next year." Liberty's stake in home-shopping channel QVC also could be exchanged with Comcast in return for Comcast stock, he said.

But Comcast's pending merger with AT&T Broadband would prevent the company from doing a stock deal before that acquisition closes, which is expected by the end of the year.

"[Comcast president] Brian [Roberts] might love to own [Liberty's QVC stake], and we may love to own his stock," Malone said.

As for Court TV, Malone said, "It is perfectly logical for it to end up as part of the AOL [Time Warner Inc.] programming empire at some point in time."

ON VALUATIONS

While Malone offered no time frame as to when Liberty would cash in on those investments, he and the rest of the company's management team made note of the value of its current holdings.

Liberty president Dob Bennett said Wall Street currently values Liberty's private investments at about $7 billion — roughly the worth of its stake in QVC. The rest of Liberty's 20 other private holdings, he said, investors are getting for free.

Among those "free" holdings include premium-movie programmer Starz Encore Group LLC and Discovery Communications Inc., both of which posted good first-quarter results. Revenue and cash flow for Starz grew by 13 percent and 23 percent, respectively, in the first quarter.

At Discovery, affiliate revenue growth was up 15 percent, although ad revenue declined 13 percent in the period and overall revenue fell by 2.3 percent, to $380 million. Cost cuts at Discovery, though, led to a 67 percent rise in operating cash flow.

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