QVC, Starz combine to lift Liberty

News Corp., Time Warner stock-swap talks continue

John Malone's Liberty Media reported improved third-quarter financials for its two key operating assets Monday, with revenue and operating income at QVC and Starz Entertainment up year-over-year.

President and CEO Greg Maffei said talks with entertainment giants about converting stakes in them into operating assets remain a focus.

"We continue discussions with News Corp. and Time Warner and continue to explore other opportunities in an effort to divest our noncore assets in a tax-efficient manner and reinvest in our strategic businesses," he said.

In a conference call, management also said if — as widely expected — Liberty takes a stake in satellite TV firm DirecTV Group as part of a stock swap with News Corp., the company could, depending on certain conditions, keep News Corp.'s stake stable or increase or cut it to as low as 25.1% without losing the tax-free status of the deal. Liberty said its News Corp. stake was worth more than $10.1 billion as of Sept. 30, up from $9.9 billion on June 30.

Talks with TW continue to focus on exchanging Liberty's stake for cash and operating assets, executives said Monday, with Maffei emphasizing that he can't predict the timing of any deal. The companies have discussed swapping Liberty's 4% TW stake for assets like Major League Baseball's Atlanta Braves.

Management this year separated its business into Liberty Capital, which houses Starz and stakes in major media companies, as well as Liberty Interactive, built around QVC. It also created tracking stocks for the two.

Liberty Media said it swung to a $75 million profit from continuing operations before income taxes and minority interest, up from a $315 million loss a year ago. Overall operating cash flow rose from $356 million to $394 million.

Liberty Capital reported that its Starz arm saw revenue creep up 3% year-over-year to $253 million, with operating income up $5 million to $40 million.

The unit benefited from an increase in the average number of subscription units, with Starz and Encore average units each up 7%.

Starz operating costs rose 5% as the company continues to see higher programming expenses.

Liberty Interactive quarterly revenue rose 15%, and its operating cash flow jumped 20%, the company said.

Revenue at QVC rose 12% to $1.7 billion, with operating income up from $179 million to $257 million. Domestic revenue increased 11%, with international revenue up 15%.

Liberty said Liberty Interactive will grow revenue and operating cash flow in the low-double-digit percentage range.

The company said it continues to expect Starz Entertainment revenue, operating cash flow and operating income for this year to be "substantially" similar to 2005 results.

Maffei told analysts Monday that he sees further upside for the Liberty Interactive tracking stock — which has gained since its creation with analysts citing stock buybacks, which management said have been expanded by up to another $1 billion, and operating momentum as key drivers.
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