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John Malone's Liberty Media Third-Quarter Earnings Drop, Revenue Rises

John Malone Sun Valley 2012 - P 2013
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John Malone

UPDATED: CEO Greg Maffei on a conference call discusses the outlook for cable consolidation and possible collaboration between Sirius XM Radio and Live Nation.

John Malone's Liberty Media on Tuesday reported lower third-quarter earnings, but improved other key financials amid the inclusion of Sirius XM Radio financials and the exclusion of premium TV firm Starz, which it spun off earlier in the year.

Operating profit of $248 million was up from $10 million in the year-ago quarter. Adjusted operating income before depreciation and amortization, another profitability metric, rose from $29 million to $379 million. Revenue rose $656 million to $1.11 billion. 

However, earnings fell to $76 million from $221 million, and earnings from continuing operations dropped from $162 million to $116 million.

Liberty once again said that the fair value of its ownership stakes in media and entertainment companies rose in the latest quarter – from $5.37 billion at the end of June to $5.83 billion at the end of September. The gain was driven by a continued rise in the market value of Charter and Live Nation, but a slight decline for Barnes & Noble.

Meanwhile, cable operator Charter Communications, in which Liberty owns a stake of about 27 percent, on Tuesday reported a third-quarter loss of $70 million. In the year-ago period, it had lost $103 million. Revenue of $2.1 billion grew 5.4 percent on a pro forma basis, or 12.7 percent when not adjusting to the acquisition of Bresnan, which closed on July 1.

Charter lost 27,000 video subscribers in the latest period, down from the year-ago loss of 71,000. Its broadband user growth accelerated.

"We continue to execute well on our strategic objectives, and that's evidenced in the solid revenue and adjusted [operating cash flow] growth we delivered in the third quarter," said Tom Rutledge, president and CEO of Charter. "We've greatly improved the competitiveness of our product offering and the value we deliver to customers, which is driving growth in both our residential and commercial businesses. We are backing up our product with substantially improved service levels, an area where we will continue to invest to drive even better quality."

He added: "As we head into 2014, we believe Charter is in an increasingly strong position to grow both its market share and cash flow as we accelerate our all-digital program, begin to roll out new products and take full advantage of our superior network."

Malone has predicted that usage-based broadband pricing would become a new business model that the cable industry would start using. Rutledge on an analyst conference call Tuesday said that he agreed with Malone that customers should pay for what they use, but stopped short of supporting usage-based broadband pricing, pointing out the past success of AOL's move to "all you can eat" pricing. Rutledge said his goal was "finding the right mix of making consumers pay for what they use" and making prices predictable.

During Liberty's earnings conference call, CEO Greg Maffei got several questions about cable consolidation, which Liberty has been pushing.

He said Liberty was "unlikely" to do another U.S. cable investment without using Charter. "That's a hard scenario to imagine," Maffei said.

Asked if Liberty could get some liquidity from corporate sibling Liberty Global, Maffei said Liberty Global CEO Mike Fries has "always been a savvy investor," but "we have not gone down there yet." The comment was a reference to the location of Fries and his team on another floor of the same building that houses Malone's various companies.

Maffei reiterated that "we at Liberty have been vocal proponents of consolidation" in the cable industry. He said that Charter's financial trends have been positive and there was more upside, but the next opportunity for growth was closer collaboration in the industry. Maffei mentioned nationwide business or telephony services as possible examples.

He also commented on Comcast's X programming guide software, saying that the cable giant "has spent a lot of money on smart software" that others should leverage.

Asked about Liberty's plans for Charter beyond its current 27.3 percent stake, Maffei said the company can at some point go as high as 35 percent and then 40 percent. There is some amount of deal expectation in the stock price, acknowledged. But if the stock got ahead of itself, the company will grow into that valuation over time, he predicted.

Asked if Liberty was only looking for cable investments, the CEO said "we have been looking at a host of things," including distribution and content assets – both in the U.S. and in the international space.

Maffei was also quizzed abbot possible synergies between Liberty's Sirius XM Radio and Live Nation Entertainment, in which it also owns a stake. He said there were "renewed interest" and "renewed discussions" between the two firms about such things as possible Live Nation channels.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai