Liberty Media Reports Mixed Fourth-Quarter Results for Starz

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UPDATED: Starz ended 2011 with subscription records as Liberty Interactive said it would recapitalize its common stock into two new tracking stocks, Liberty Interactive and Liberty Ventures.

NEW YORK - John Malone's Liberty Media on Thursday posted mixed fourth-quarter results at its Starz premium TV business, but said it ended 2011 with record subscriber levels.

Revenue at Starz, led by CEO Chris Albrecht, rose 8 percent over the year-ago period to $432 million in the latest quarter. Adjusted operating income before depreciation and amortization (OIBDA) declined 15 percent to $93 million amid higher marketing costs for original programming and an acceleration of production cost of legacy theatrical titles due to their weaker home video performance, which amounted to about $12 million.

Meanwhile, Liberty Interactive said it would recapitalize its common stock into two new tracking stocks, Liberty Interactive and Liberty Ventures, the latter of which will house the company's investment in media and other companies.

The increase in revenue for the fourth quarter was primarily a result of an increase in home video revenue due to the distribution agreement entered into in 2011 with The Weinstein Co. and an increase in revenue from the Starz Channels, the firm said.

Subscribers increased 8 percent and 1 percent for the Starz and Encore channels, respectively, during the fourth quarter compared with the year-ago quarter. "Starz finished 2011 with solid business performance, including record highs in both Starz and Encore subscriptions," said Albrecht. At the end of the year, Starz had 19.6 million subscribers, up from 18.2 million at the end of 2010. Encore finished 2011 with 33.2 million subscription units, up from 32.8 million.

However, overall "subscription growth in 2011 was negatively impacted by a lack of cooperative marketing campaigns with certain distribution partners and a reduction in subscribers from one flat rate deal affiliate," the company said. Albrecht predicted on a conference call Thursday that Starz would get "more access" to marketing by TV distributors in the future as its digital distribution deal with Netflix, which some pay TV providers weren't happy about, comes to an end on Tuesday.

And he said that the company feels that the subscriber improvements are a sign that "the original [content] strategy is paying off." Asked about the effect of increased investment in original programs across the industry, Albrecht said that "it makes it more challenging to remain distinctive and justify the premium nature of our model." But he added that "we feel we are in pretty good shape and getting in better shape." A consistent year-round supply of originals will remain his team's focused, meaning a disciplined approach to spending rather than a focus on sheer numbers of originals, he added.

"Starz again posted impressive subscriber gains and accelerated its slate of Starz original content with Boss and Spartacus: Vengeance," said Liberty Media president and CEO Greg Maffei who also lauded that the firm's investment in satellite radio company Sirius XM is now worth over $5.4 billion.

Albrecht also said that Starz remains "actively engaged" in talks with all sorts of current and emerging distributors, including about possible new distribution opportunities with existing pay TV partners. A new authenticated Starz online service, which Comcast has already partnered on, is one opportunity. Another is Comcast's new Streampix streaming service, by which Albrecht said he is "very encouraged." While its low retail price for non-qualifying Comcast video subscribers means it won't be involved with premium networks for now, he said Comcast could potentially decide to build tiers on top of it over time, and Starz could fit in there.

Albrecht also once again lauded the success of Spartacus, highlighting a double-digit percentage increase in viewership, which leaves the company confident about the fourth season that is scheduled for early 2013.

Liberty Media's overall revenue rose 96 percent to $1.0 billion in the fourth quarter as adjusted OIBDA jumped 205 percent to $323 million.

Meanwhile, Liberty Interactive reported a fourth-quarter revenue gain of 5 percent to $2.6 billion at home shopping channel QVC. Adjusted OIBDA jumped 9 percent to $579 million.

"QVC finished the year strong with impressive Q4 results, particularly in the US and Japan, despite a challenging macroeconomic environment," said Maffei, who also serves as Liberty Interactive president and CEO.

The creation of two new tracking stocks is nothing new for Malone and Maffei. Liberty has a history of launching tracking stocks in an attempt to boost the overall stock value of its assets.

The Liberty Interactive tracking stock will include QVC and the company's 34 percent stake in HSN. The Liberty Ventures tracking stock will include Liberty's stakes in Time Warner, Time Warner Cable, AOL, Expedia, TripAdvisor, Interval Leisure Group, and Liberty's green-energy investments.

"We expect this recapitalization to highlight each tracking stock's operations and financial aspects of the attributed assets, provide greater investor choice and raise capital, while maintaining an optimal capital and tax efficient structure for Liberty," said Maffei.


Twitter: @georgszalai