Liberty's Starz Gains in Q3; QVC Sales Soft

Split-Up of Liberty Capital into Two Tracking Stocks, Liberty Capital and Liberty Entertainment, Awaits Closing of News Corp. Deal

By Jon Hemingway -- Broadcasting & Cable, 11/9/2007 11:35:00 AM

Liberty Media, a holding company for Liberty Interactive and Liberty Capital, felt soft retail trends in its QVC unit during the third quarter, while operating income at its Starz Entertainment business jumped 98%.

Revenue at Liberty Interactive’s flagship retailer, QVC, grew 2% to $1.69 billion on a 2% increase in domestic sales, led by apparel sales, while gold jewelry and housewares products lagged.

International revenue was also up 2% to $512 million, but it was down 3% excluding exchange-rate effects on sales weakness in the German and Japan markets.

QVC’s total operating income dropped 10% to $231 million. Operating cash flow was $364 million versus $366 million in the same period a year ago.

"We are disappointed with the soft sales results in the United States, driven in part by a sluggish retail environment and difficult year-over-year comparisons," QVC CEO Mike George said in a statement. "However, we chose not to adopt a heavily promotional focus in the quarter and were able to maintain stable margin rates despite the slower sales growth.”

Liberty Interactive’s share-repurchase program was increased by $1 billion.

Liberty Capital’s Starz Entertainment revenue rose 11% in the quarter to $282 million on higher effective rates for the premium-channel services and a growth in subscription units. Operating cash flow rose 96% to $88 million. Operating expenses at Starz declined 7% in the quarter on lower programming costs. Operating income rose 98% in the quarter to $78 million. Operating cash flow was $88 million versus $45 million in the same quarter a year ago.

"Starz Entertainment continued its momentum and, largely due to reduced programming costs, the business has experienced 59% year-to-date operating-cash-flow growth," Starz Entertainment CEO Bob Clasen said in a statement.

In October, Liberty Media shareholders approved a plan to split Liberty Capital into two tracking stocks: Liberty Capital and Liberty Entertainment. Subject to the closing of the transaction with News Corp. that will give Liberty a 40% stake in DirecTV, the restructuring will leave operating assets such as DirecTV and programming unit Starz Entertainment under the Entertainment umbrella, while Starz Media and a collection of other assets and passive investments will be under Capital.