Starz, QVC Drive Liberty's Q3 Performance

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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.

At Liberty Interactive, 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.

In a statement, QVC president and 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 eCommerce 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 and Encore lost about 800,000 units to 30.7 million from 31.5 million in the second quarter. Many MSOs have stated that the economy is forcing some subscribers to either reduce or eliminate their premium channel packages. In a statement, Starz said it is working with MSOs on the matter.
"We do remain concerned about flat or declining subscriber numbers among some of our affiliates - driven by general economic conditions and rate hikes, but are working with our affiliates to improve results," Stars CEO Robert Clasen said in a statement. "However, we are encouraged by the Television Everywhere initiative which will bring our programming to consumers via the Internet and by the early response to our dramatic series Spartacus: Blood and Sand which will premiere on the Starz channels in January."

Liberty Media is making progress toward the spin of its Liberty Entertainment tracker and said it has received a favorable ruling from the Internal Revenue Service regarding the tax-free status of the transaction. The company will hold a special meeting of shareholders on Nov. 19, after which the spin is expected to be completed. Following the spin-off, Liberty Entertainment's 57% interest in DirecTV 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.