Feb 25, 2010
Executives
Greg Maffei – President and CEO Chris Shean – SVP and Controller Mike George – CEO of QVC Bill Myers – President and COO of Starz Entertainment Chris Albrecht – CEO of Starz Glenn Curtis – VP and CFO of Starz Mark Carlton – SVP
Analysts
David Gober – Morgan Stanley Doug Mitchelson – Deutsche Bank James Ratcliffe – Barclays Capital Bridget Weishaar – J.P. Morgan Matthew Harrigan – Wunderlich Securities Jason Bazinet – Citi Barton Crockett – Lazard Capital Markets
Operator
Good day, and welcome to the Liberty Media Corporation quarterly earnings conference call. Today's call is being recorded.
This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches, and other matters that are historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
These forward-looking statements speak only as of the date of this presentation, and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions, or circumstances under which any statement is based. On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBITDA.
These required definitions and reconciliations, preliminary note, and schedules one through three can be found at the end of this presentation. At this time, for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr.
Greg Maffei. Please go ahead, sir.
Greg Maffei
Thank you, and good morning. Thank you all for joining us today and for your interest in Liberty.
Today, we'll review our year and quarter results by tracker; we'll discuss the operating performance of our control subsidiaries; and, we'll cover some transaction and developments we've had in the year, prior quarter, and the end of the year. Liberty controller, Chris Shean, will discuss the attributed business financial results and liquidity picture for each tracker.
QVC CEO, Mike George, will discuss recent events and developments at QVC. And Starz CEO, Chris Albrecht, will review events at Starz.
Also on the call with me today are the QVC CFO, Dan O'Connell; Starz Entertainment President and COO [ph], Bill Myers; Starz CFO, Glenn Curtis; and, several other senior Liberty Media executives. All of us will be available to answer questions after these prepared remarks.
I'm sure you've seen today's announcement that we have made a change in the attribution of certain assets and liabilities between Liberty Capital and Liberty Interactive. The reasons we made these moves were, first, to rationalize the capital structure of both groups; second, to provide increased flexibility in the future for both groups; and, a significant motivator was strengthening the near and mid term liquidity of the Liberty Interactive.
We're always quite comfortable with Liberty Interactive's ability to cover its upcoming maturities. But the market hasn't similarly been as comfortable sometimes in the past nor today, and we've got this re-attribution.
We'll continue to further enhance its liquidity. Secondly, we're aligning the tax loss generating debt.
As you know and as we've discussed in the past, these exchangeable debts that we are moving – or re-attributing, rather, have certain features, which generate a tax deduction larger than the interest payments being made in the interim until the debts mature. We're moving that tax loss generating debt with the equity that produces the most income.
QVC is our largest earner; putting bad debt with QVC has made the most sense. We're putting all of the Live Nation's stock in the entity.
Liberty Capital and we believe that it's best suited for that investment. Let me look at a little bit by tracker what we're doing.
At LINT, we're putting an additional cash of $807 million. That's enough to pay off the straight debts that we have maturing in 2013.
We're putting in the attributed long term Sprint and Motorola exchangeable debentures. We're putting in some tax liabilities associated with our 2009 redemption of some of those Sprint exchangeable bad debt.
And we're changing the attribution of $24.5 million Live Nation Entertainment shares to help cap at the market price. The benefit to LINT, as I touched on above, were the liquidity in the form of $807 million of cash plus the tax savings that these exchangeable debentures are generating, which should help address all-year and mid term maturities.
Re-attributed debt is long term, low interest rate debt, with, as I mentioned, very favorable tax characteristics. That non-tax, non-cash interest deduction will help shield income produced by QVC and our e-commerce company.
The move will be cash flow positive since the cash interest is less than today's cash tax benefit. And it's worth noting that that tax benefit is growing.
LINT, Liberty Interactive, nor QVC could issue similar debt today, neither because of the rate – the low rate which this debt has nor the long term tenure. But if you look at what's changing in LCAP, it is being credit with $24.5 million Live Nation shares.
It is eliminating the attribution of the exchangeable debt that – the Sprint debt and the Motorola debt, and the associated tax liabilities. And it is having its attributed cash reduced by $807 million.
We think some of the benefits to LCAP include reduced attributed debt balance and reduced and attributed tax liabilities. Obviously, the addition of the attributed Live Nation shares, as you may recall, currently have a tender in place as well for incremental Live Nation shares at Liberty Capital.
So now all of those shares will be in Liberty Capital. And we believe this is a good use of cash – of capital by Liberty Capital.
Here's a rough description of how we arrived at the $807 million cash payment from LCAP to LINT. Of this $807 million, $307 million is for the Live Entertainment stake, for the Live Nation Entertainment stake, LYV, that's the 24.5 million shares at the market price of yesterday.
The gross liability associated with the exchangeable debt, $1 billion, is made up of a market price for the debt of about $700 million, a foregone OID, originally issued discount, deduction. Since LINT isn't issuing this debt, it doesn't get that OID deduction that it would normally get, and the call value of the Mot exchangeable.
As you recall, this exchangeable debt has a call feature, which effectively gives the holder the upside in the stocks, either Sprint or Motorola, depending on how those stocks move. The Mot exchangeable has that call auction on Mot stock, and that has some value.
The Sprint exchangeable, both series have, as I mentioned, the same Sprint call option embedded inside. But those call options are so proud of the money because the Sprint stock is far below the exchangeable price that it becomes really – has no subsequent value.
And the last piece of the equation is – in that the present value of the tax liabilities associated with the exchangeable debt we redeemed in 2009. We know that Liberty will have to pay this liability of $325 million – $320 million (inaudible) over the years, 2014 to 2018.
And that's worth about $200 million on a present value basis. Offsetting this is the net present value of the benefits of the exchangeable debt that's about $500 million that the net value of the tax deductions related to exchangeable debt, the benefit of taking the current tax deductions, which are growing, offset by the liability of the interest re-capture at the maturity of the debt.
We also looked into several qualitative factors that we took into account. First, as I mentioned before, Liberty Interactive's inability to issue this type of favorable long term debt in current market conditions are likely every at all given to the high yield issuer.
We took into account some of the risks that the tax benefits might not be fully realized. We took into account some of the risks that the tax liabilities might be accelerated.
And we took into account other risks, including change in the tax law or other laws, reduction to Liberty Interactive's ability to utilize the tax benefits. The net of that is about $1 billion of these liabilities where – if subtracted by about $500 million of net present value with tax benefits resulted in the cash payment to LINT of about $500 million.
So you combine the $307 million for the Live Nation shares and the $500 million for the assumption of the exchangeable debt to get the $807 million tax or total payment. Liberty and its Board used this with a fair exchange of value between Liberty Capital and Liberty Interactive.
As you may recall, we've been through this process before. We just previously did an exchange of debt between Liberty Interactive and LMDIA.
We moved over the Biocom [ph] exchangeables. Just in the same cake, we looked at this favorable to both ready in achieving their goals.
And as a required case, we used a leading investment bank to confirm our view of values. Liberty Starz was not affected in any way by these moves.
And I will be happy as the rest of the team will be to answer your questions about this transaction, for this re-attributed in the Q&A portion of our call. So let me turn now to the fourth quarter and year-end results.
2009, no surprise to any of you who's been watching, was much better than 2008. We had several transformative deals.
The purchase of our Sirius XM interest, the spin-off of Liberty Entertainment and its subsequent merger into DirecTV. We had numerous other positive transactions.
We really strengthened our balance sheet by both restructuring our debt, extending maturities, and retiring debt. Since the end of the year, we continued this process of rationalization, a passive investment on a tax efficient basis, as always focused on reducing what we believe is a substantial discount to net asset value at almost – at all of our interviews.
That's for those transactions that are included the sale of our low book, high basis, IC shares, and the sale of all of our GSI Commerce is a great company that had a great run in their stock. We've been happy shareholders.
But the reality is as a minority shareholder, we were unlikely to get the full benefit of the position. And lastly, our tender for Live Nation, which is still in process.
At Liberty Interactive, QVC had a very impressive, which capped to greatly improved 2009 overall. I give full credit to the wonderful job by the management team.
We, as I mentioned, have been – liquidity at Liberty Interactive through the sale of IC and GSI shares. As I mentioned before, we restructured its debt.
QVC has paid down some of its bank lines. And QVC has extended maturities through a bond issuance.
At the e-commerce companies, we had very solid growth in revenue and even better growth in our OIBITDA. Looking for a moment at Liberty Starz, notably, we issued our new tracking stock, Liberty Starz in November upon the completion of OEI spin-off and merger with DirecTV.
We hired a new CEO, Chris Albrecht. He started right after the first of the year, and we'll hear from him in a moment.
We gave you Spartacus, our original programming, to record viewership for Starz. And since Liberty Starz began trading, we repurchased about 1.2% of the outstanding shares since November through January.
Lastly, we sold our stake in WildBlue, which we had received – which resulted in our holding of Bioset stock of about $20 million. It's worth noting because Liberty Capital had been a lender to WildBlue, it also received through the merger about $250 million of cash proceeds as its debt was repaid, and about $28 million of the assessed stock related to warrants we've received as a lender in that transaction.
Lastly, expansion of Liberty Capital, they reported this morning Sirius XM posted very strong operating results. And our shares are currently trading in the value of about $2.8 billion.
With that, let me turn it to Chris Shean and let him talk about Liberty Interactive's financial results.
Chris Shean
Thanks, Greg. Liberty Interactive Group's revenue increased 14% to $2.7 billion for the fourth quarter, and increased 3% to $8.3 billion for the year, while adjusted OIBITDA increased 29% to $556 million for the quarter and 6% to $1.7 billion for the year.
QVC, the primary driver of the results for Liberty Interactive had a very strong quarter, and its total revenue 14% to $2.4 billion, and 1% to $7.4 billion for the year, while adjusted OIBITDA increased 27% to $530 million in the fourth quarter, and 4% to $1.6 billion for the year. Liberty Interactive's other e-commerce businesses continued to grow at a solid pace.
In total, our e-commerce business has experienced growth – revenue growth of 17% in the fourth quarter and 20% for the year, while adjusted OIBITDA grew 63% in the fourth quarter and 45% for the year. Now let's take a quick look at Liberty Interactive's liquidity.
At the end of 2009, the group had attributed cash and public investments of $4.2 billion and $6.3 billion in attributed debt. Over the past year, Liberty and QVC management have been working to address its debt maturity schedule and reduce leverage.
Along with a refinancing of bank debt in the Second quarter, QVC accessed the bond market in the third quarter. QVC had already fully covered its $425 million maturity due in 2010 by creating capacity in this revolver by paying it down by $425 million.
Although the re-attribution will increase LINTA’s leverage, the re-attributed debt is long term, low cost, with favorable tax characteristics and it will enhance LINTA’s liquidity and its ability to handle near and medium term maturities. Subsequent to quarter end, LINTA added to its cash balance by completing the sale of the remaining low vote IC shares that it held, and also sold all the shares in GSI Commerce for approximately $220 million.
Now, I hand the call over to Mike George for additional in-depth comments on QVC.
Mike George
Thank you, Chris. We’re very encouraged by our results in Q4 with 14% revenue growth and 27% adjusted OIBITDA growth.
We posted our strongest quarterly results in over 10 years, and moved the full year results in the positive territory with 1% revenue growth and 4% adjusted OIBITDA growth for the full year. These results were well ahead of most retailers.
And we continue to take share against the broader market. Now we’re also encouraged by the balanced nature of our performance, with strong gains in both top and bottom line results, and improving trends in all markets on a local currency basis.
Q4 was the first quarter since Q1 of 2008 when every country posted positive revenue growth in local currency. And now I’ll lock to the results in each market.
In the US, we increased revenue 13%. Our consumer electronics, kitchen and floor care, beauty, accessories, and fashion jewelry businesses were all strong.
In addition, our parallel business, while soft, remained significantly over the trend – improved significantly over the trend the prior quarter, and jewelry, especially gold, did remain difficult, however. Our investments in e-commerce continue to pay off with qvc.com posting 27% revenue growth, but the Internet represented 31% of total sales in the US in Q4, three-point increase over the prior Q4.
Our return rate declined from 17.7% last Q4 to 16.4%, further strengthening top line results. Inventory levels remained highly controlled and were essentially flat with the prior year.
We improved or adjusted OIBITDA margin by over 300 basis points, driving a 32% growth in adjusted OIBITDA. This improvement was driven by strong productivity gains in our distribution and customer service operations, greater freight efficiencies as we optimized our shipping network, improvements in our fixed cost structure, and a reduction and bad debt expense rate, our first reductions since 2007.
Perhaps most encouraging news in the quarter that we had 720,000 new customers joined QVC US. That’s a 22% increase in the count of new customers over the prior year, and revenue from new customers was up 53% over the last year.
This growth in both new customer count and (inaudible) revenue increased 6% in local currency, our third consecutive quarter of improving revenue trends. We saw a strong growth in beauty and personal care, and continued strength and passion, offset by softness in consumer electronics and some areas of home.
Return rate improved though for 100 basis points, and we reduced our inventory levels over 35% from the prior year on a local currency basis. Suggested OIBITDA grew 25% in local currency, with suggested OIBITDA margins increasing nearly 320 basis points.
The largest driver of this improvement was anniversary, foreign exchange loses from the prior year, and dollar denominated inventory purchases. In Germany, revenue increased 8% in local currency.
This growth was fuelled by strong gains in beauty, health, accessories, offset by ongoing softness in jewelry where we continue to put back airtime. Return rates were slightly down in the quarter and we reduced inventory in 18% on a local currency basis.
Germany, like the US, enjoyed strong gains in customer count with 16% growth in the quarter, an encouraging sign for a lot of growth prospects in Germany. I should have said new customer count.
Adjusted OIBITDA increased 5% in local currency and a 70-basis point decline in adjusted OIBITDA margins. And that decline was driven primarily by softer product margins.
In Japan, revenue increased 4% in local currency. This was the first positive growth for Japan since Q1 as the team successfully navigated the global economic challenges and was a particularly strong performance in light of our 19% growth in Q4 with the prior year.
Fashion and beauty enjoyed strong growth, partly offset by softness in the home and jewelry categories. Adjusted OIBITDA grew 9% in Japan on 116-basis point improvement in adjusted OIBITDA margins.
These gains were driven by higher initial project margins, improved distribution and call center productivity, and lower marketing cost. Now we continue to make good progress with our Italy launch, and we are on schedule for our planned October opening in Italy.
We incurred about $5 million on operating and SG&A expense throughout 2009 associated with the Italy start-up. And we anticipate an adjusted OIBITDA loss of $30 million to $40 million in Italy for the full year of 2010.
Our capital expenditures, company-wide for 2009, were approximately $181 million. And we anticipate CapEx of about $225 million to $250 million for 2010, including costs associated with the Italy start-up.
We see our share gains over other retailers who compete for discretionary spending dollars as a positive indication that our efforts to create a new kind of shopping experience are working, an experience that uniquely blends content commerce and community. Compelling exclusive content is powering our business.
The debut of our Isaac Mizrahi lifestyle brand, one of the biggest brand launches in our history is just (inaudible). (inaudible) in Q4 included NARS Cosmetics, Steven Wetdiamondz [ph], Godiva chocolates, new fashion lines by leading stylists and designers like Rachel Zoe and Eva Rose; and Sony, VCO, and Nintendo in consumer electronics.
These brands showing the powerhouse lineup of existing brands at QVC, with standout performance in the quarter by among others, Steve Makowski and handbags, Rachel Ray and cookware; Harry Slatkin [ph] and home fragrances; Philosophy, Bobby Brown, and Clarsonic [ph] in beauty, our (inaudible) and Foot-free in consumer electronics, and Dennis Basso in fashion. We continued our focus on creating major events in an entertaining programming that draws viewers and creates buzz in the industry and among consumers.
Our Mizrahi launch, for example, received extensive press coverage. And our Black Friday weekend sales were extraordinary as we went head-to-head with traditional retail, offering a better shopping experience without the hassle of the mall, and also without doing costly loss leader promotions.
Dell notebooks, Keurig coffee brewers, and philosophy were especially strong on that weekend. E-commerce growth, as I’ve noted, continues to be critical to our business.
On a global basis, our Internet revenues grew 28% in the quarter, and for the full year, our total Internet revenues company-wide were $1.8 billion. And we continue to expand our platforms.
In December we launched an iPhone application in the US that has been downloaded by 115,000 customers in a little over two months. In Japan, we launched our next-generation mobile phone offering, which includes live streaming and video on demand.
And in the UK, we expanded our interactive TV applications. And while we worked on these initiatives to grow top line sales and increased market share, we also stay committed to improving profitability and margins.
We increased operating productivity and reduced cost in all markets, cut total inventory levels and dramatically improve free cash flow. Looking forward, while we recognize that the pace of consumer spending recovery is uncertain, we remain committed to creating a better shopping experience, gaining market share, and driving balance top and bottom line results.
With that, I’ll turn it back to Chris.
Chris Shean
Thanks, Mike. Let’s take a look at Liberty Starz.
While this tracking stock was issued in November, all amounts shown and discussed are – if this tracking stock structure had existed in its current form for the full year. Liberty Starz attributed revenue grew 6% in the fourth quarter to $304 million and 7% to $1.2 billion for the year, while adjusted OIBITDA decreased 3% to $74 million for the quarter and increased 29% to $374 million for the year.
At year-end, Liberty Starz had attributed cash and public holdings of $825 million and attributed debt of $48 million. This does not include the $158 million inter-company loan to Liberty Interactive.
From November 19th through January 29th, Liberty repurchased 643,000 shares of this tracking stock at an average cost of $48.62 for a total consideration of $31 million. This represents 1.2% of the shares outstanding.
Now, Chris Albrecht will comment on events at Starz Entertainment and Starz Media.
Greg Maffei
Chris, are you on line there? Okay.
We've had a technical glitch getting Chris on. So in the interim, we'll let Bill Myers talk about the quarter.
And then when we get Chris on, we’ll bring him back or have him be available for questions.
Bill Myers
Good morning. Starz Entertainment had a very strong year in 2009 and is well positioned for 2010.
For the year, adjusted OIBITDA rose 28% versus 2008 for a total of $384 million. This came on revenue of $1.2 billion, an increase of 7% versus 2008.
Three factors contributed to the increase in revenue, an increase in the average weighted number of subscribers, an increase in revenue per subscriber, and revenue from new products and services, and the sale of original programming to third parties on multiple platforms in the US and international marketplace. Programming costs continued to decline from $629 million in 2008 to $615 million in 2009.
This decline resulted from a reduction in the number of first-run movies, which are more expensive, offset by an increased used of less expensive library products and increased amortization of production costs with original series. In the fourth quarter, adjusted OIBITDA dropped to $78 million from $93 million in the third quarter of 2009, largely because of the marketing campaigns and production cost amortization associated with that two big dramatic series, Spartacus Blood and Sand and Crash.
The marketing campaign for Spartacus, which began in December and continued into the first quarter of this year, is the largest ever at Starz. On the original front with respect to Crash, we have decided not to renew Crash as it did not meet our audience expectations.
And one of the big impacts in the fourth quarter of this – of 2009 is an evaluation of the future performance of Crash, and we ended up writing off $8 million of production costs to bring it back into fair value. But with Spartacus, which premiered in January, has proven to be a major hit attracting the largest audience for Starz Original ever.
It ranks first in the rating towards evening time slot among all premium channels. And because of its performance, we have already announced plans for a second season.
Also in the fourth quarter, we announced the renewal of our comedy, "Tear His Party Down", and unveiled plans to produce a new romantic comedy half-hour series Grappy [ph]. Both will air in the spring of this year.
On the affiliate front, we continue to work with our affiliates to bolster our strong line up of high definition channels. And we were pleased that Dish Network last month became the first to launce high-definition virgins of Indieplex and Retroplex.
While the average number of subscribers for the year improved versus last year. We continue to realize subscriber losses in the fourth quarter as we did in the second and third quarters.
However, there were signs towards the end of the year that the subscriber numbers have begun to stabilize. In particular, we saw improvement in the sale of Starz subscriptions in certain communities that had been particularly hard hit by the general economic downturn and where subscriber losses earlier in 2009 had been especially pronounced.
We are hopeful that in the general – as the general economy improves, the subscriber numbers will follow. In addition, we have reached agreements with nearly all our major affiliates that will ensure that our services are included in their marketing campaigns in the coming months to a greater degree than in 2009.
Most of the subscriber loses came from affiliates with contracts that are fixed in nature and therefore do not negatively impact our revenue. Among affiliates where we share the revenue from added subscribers, we realized aggregate subscriber gains in 2009.
This combination contributed to the increase in total revenue and revenue per subscriber, even though the total number of subscribers declined at each of the last three quarters of 2009. Turning to Starz Media, our business units in 2009 continued to make progress even in a challenging economic environment.
For the year, revenue increased 13% to $364 million adjusted OIBITDA improved from a negative $189 million in 2008 to a negative $93 million in 2009. The improvements resulted primarily from the increased revenues from movies distributed by Overture Films as they reached the home video premium television and syndication markets.
Costs declined largely because Overture released fewer films in 2009 than in 2008. Nevertheless we recognize that significant challenges remained for Overture, and we are currently evaluating strategic alternatives for it.
While a final decision has not been made regarding the future of Overture, we do not expect yet to incur annual operating losses in the future of the same magnitude that it has experienced in recent years. And now, I’ll turn it back over to Chris.
Chris Shean
Taking a look at Liberty Capital’s liquidity picture, the Liberty Capital Group has attributed cash and public investments of $7.9 billion. This is as of 12/31/09.
And it includes the Sirius stake. It has attributed debt of $4.3 billion.
This does not include the $158 million inter-company loan to Liberty Interactive. From November 2nd through January 29th, Liberty purchased 82,000 shares Sirius.A Liberty Capital common stock at an average price of $22.94 for a total cash consideration of $1.9 million.
Cumulative repurchases, that’s the reclassification of this tracking stock, represent 26.2% of the shares outstanding. Now with that, I’ll turn the call back to Greg.
Greg Maffei
Great, Chris. Thank you very much.
Let me also thank Mike and Bill, stepping in for Chris Albrecht for your updates on the Starz businesses and the QVC business. Now let me – Chris?
Chris Albrecht
Greg. Yes, sorry I was on the call the whole time.
You guys could not hear me.
Greg Maffei
Yes, we couldn't. Obviously, there was a technical glitch.
Well we'll–
Chris Albrecht
My apologies.
Greg Maffei
Not a problem. Bill ably stepped up and handled the quarters' results.
Let me talk briefly about the year ahead. And as you can see, the changes in the attribution of debt and assets between Liberty Interactive and Liberty Capital are effective immediately, and we view them as positive, as I mentioned, for both trackers.
We believe that positions in both trackers possibly the future to focus on the drivers of value that are critical to each. These include at Liberty Interactive focusing on receiving full credit for our premium retailers, QVC, and our group of e-commerce companies; continued growth at both QVC and those e-commerce companies; rationalization of the public assets that we view as non-core to Liberty Interactive on an efficient basis; and, opportunistic acquisitions in new ventures like the things we’re doing at Lockerz and the in the Right Start.
And at Liberty Starz, which as I mentioned was unaffected by changes in this attribution, we’re going to focus on operational execution and building cost effective programming, including originals to differentiate the channels for the benefit of our consumers. And we’re going to determine the effective uses of the large cash balances and borrowing capacity at Liberty Starz.
And lastly, at Liberty Capital we look forward to continued growth at Sirius XM and Live Nation. We’ll focus on rationalizing the non-core holdings that are there.
And we’ll again look at effective use of capital, reducing debt, shrinking equity, opportunistic investments in both debt and equity. We appreciate your continued interest in Liberty.
I recognize particularly this quarter with the attribution it may take more work to stay involved, but we hope we're making it clear, cleaner, and better for you. And with that, stay tuned.
Thank you for listening. I’ll turn it to the operator and open up the question.
Thank you.
Operator
Thank you. (Operator Instructions) Our first question is from David Gober – Morgan Stanley.
David Gober – Morgan Stanley
Thanks. Good afternoon, guys.
One big picture question for Greg, and one on Liberty Starz, hopefully, for Chris. On the big picture question, in terms re- attribution, it seems like almost of the Liberty Media LLC, parent company debt is now at LINTA still a little bit left with LCAP.A.
Is there any consideration here that longer term, this makes it easier for either Liberty Interactive of other pieces to be hard spun? And I guess longer term, Greg, what’s your view on the tracking stock structure?
Do you think it’s more loss of permanent contract? And then on Liberty Starz, I’m just curious if Chris could give us an update on the Disney relationship and any changes there, and how you view the Netflix distribution as well.
Greg Maffei
So I’ll go first. And you’re right to note that almost all of the LM LLC debt is now in LINT, exception to that being the Time Warner exchangeables, which have a 2013 put in caller relationship, and are – just to be clear for those, are more than adequately covered in value by the underlying stock we own in TWX, TWC, and AOL.
So when in fact you can think of those in our minds as we do as the fees by the underlying equity value. It’s not a tactical decision, but a practical decision.
Whether the long term structure – the trackers is the perfect one, I think we've always said or I’ve said that the trackers offer a lot of flexibility, tax advantages, and a bunch of other advantages in thinking about our business. But they're unlikely to be the structure that yields the highest value of the assets.
So while there may be benefits in the interim and in for some period in having a tracking stock structure, which we obviously believe because we have it, ultimately, to get full value for an asset, you are likely to need to put it in a condition of an asset-backed security. And you've seen our strategy heretofore has been in effect to do that.
Looking back over now six years, we spun off LMI and credit Liberty Global. We spun off the Discovery holdings, created Discovery Communications, free standing any – we've spun off our (inaudible) item and merger with DirectTV, all those great flexibility.
Whether that means that we break these trackers or ultimately spin other assets away, we have no plans today. But building flexibility, understanding that ultimately we need to put assets in our shareholders hands to get flexibility, that’s part of our goal.
Chris Albrecht
With regard to your first question–
Greg Maffei
I'll pass it to Chris Albrecht. Thanks.
Chris Albrecht
Yes. With regard to your first question about Disney, Starz has enjoyed a long and successful relationship with Disney.
We’re in discussions actively about continuing that relationship well into the future. And we have every reason to be confident that we will be able to do that with an arrangement that closely mirrors the current situation.
With regard to NetFlix, is that the second question?
David Gober – Morgan Stanley
Yes.
Chris Albrecht
We think it extremely important to continue to try to expand the distribution partners for the Starz and Encore networks. New Media “partners” are certainly opportunities that exist presently and in the future.
At the same time, we need to make sure that whatever agreements we have with them are taken into account, and protect and respect the long term historical relationships that we have with our traditional distributors and suppliers. And I think it would be honest to say that the current agreement could be improved with regard to that and as we look forward to continuing our relationship with NetFlix or any new media partners.
We’re going to focus very heavily on the big picture.
David Gober – Morgan Stanley
And I guess because you mentioned earlier distribution partners, I'm just curious if you could update us on some of the agreements that were scheduled to expire or maybe are still month-to-month like the Comcast Encore piece and the Time Warner Cable arrangements, which I think were up at the end of ’09.
Chris Albrecht
Yes, we are in very productive discussions with Comcast. And I think there is a real willingness on both sides to ensure that that relationship continues contractually, again, well into the future not just for carriage of the network, but for the marketing and monetization of that relationship.
With regard to Time Warner, I’m hopeful that the many strong relationships that we all have with management at Time Warner Cable will allow us to be able to get into a much more productive relationship with them. And I think it’s a real opportunity for both companies, obviously for us.
But at the same time, the premier television business is one where we only make money if the operators are making money, so there a mutually beneficial opportunity here. And we are talking to Time Warner Cable, and I think those discussions will hopefully heat up and increase their intensity over the next couple of weeks.
David Gober – Morgan Stanley
Great. Thank you very much.
Operator
Thank you. And our next question is from Doug Mitchelson with Deutsche Bank.
Doug Mitchelson – Deutsche Bank
Thanks so much. I have a couple of questions.
First, Greg, I was just hoping to clarify the balance sheet for LCAP or so. I’m not sure we can do this in this call, but let’s give it a shot.
So you reported a face value of debt in your press release at 12/31 of $4.22 billion, and $1.4 billion of that went over to LINTA, and $838 million of that is related to Sprint caller, which is going to unwind between now and July, so it seems like that really that debt levels of pro forma of $2 billion. And you reported $3.2 billion in cash.
And you've got–
Greg Maffei
Well, let’s stop there.
Doug Mitchelson – Deutsche Bank
Okay.
Greg Maffei
I’ve got a couple of people who are much more knowledgeable than I am in the room, thank goodness. But I think about it this way, our – we've got the exchangeable debt that is being moved across obviously eliminated.
You've got the exchangeable debt remaining behind, which is the Time Warner exchangeables, which I mentioned already in our view covered by the Time Warner underlying stock – Time Warner family underlying stocks, both PWC, and AOL, and TWX itself. You have the $750 million facility we have with Deutsche Bank, which is a – for accounting purposes is really that's fully drawn, but as a practical matter I believe we have about $340 million of it drawn today.
And that is offset on the asset side by sub-debt and senior debt in TMT companies that we've invested in. And we have a positive – not only a positive carry, but we are more than covered by the gains in the investments we've made against that debt.
So in my mind, that is effectively covered. Obviously, the world could change subjected – we could do.
We owe that money. But that’s effectively covered as well.
And then, you've got the Sprint caller and which were borrowed – which we borrowed against, if you may recall, because we wanted to ensure our liability against certain financial institutions, Doug. And so that money is effectively covered as well because the caller is actually larger than the underlying borrowings.
That is the – other than some minor pieces of – I think we have the money up and we've gone up in Canada, some minor pieces on Starz Media. That is effectively the debt of Liberty Capital.
Those three groupings are – there’s under $100 million of other debt. I think it’s 50-ish, right, Chris?
Correct me.
Chris Shean
It's $150 million.
Greg Maffei
$150 million? Other than that, other than those.
Chris Shean
There’s $838 million on the caller loan. The investment fund facility is $750 million.
And of course some of that money is sitting in restricted cash, over half of it. And then, a little over $1.1 billion Time Warner debt, and then the $150 million other.
Greg Maffei
So excuse me, $150 million of other. I was a little light there.
I apologize. $150 of others, that’s really – the $150 million of other, in my mind, is the non-deceived, non-covered portion of the debt at Liberty Capital.
Go ahead, Doug.
Doug Mitchelson – Deutsche Bank
All right. So we've got essentially almost virtually no debt at Liberty Capital pro forma.
I'd have to adjust my assets a little bit, but that’s fine. And the cash that you reported $2.2 billion, you obviously have some cash going out the door.
But you also have $158 million coming in from QVC. And you still have the WildBlue cash coming in, correct?
So essentially pro forma cash around $2.7 billion.
Greg Maffei
WildBlue cash is in. WildBlue cash is in the – you have other cash, which will become again – which as we noted that the Liberty Interactive will pay – will repay its loans to Liberty Capital.
What that down is $135 million, is that right? $158 million, excuse me.
Good then we have people to keep me on it, $158 million.
Doug Mitchelson – Deutsche Bank
Okay. So you essentially have $2.5 billion of pro forma cash and virtually no debt because your debt's covered by assets.
And I guess, I’m just–
Greg Maffei
Go ahead, Chris.
Chris Shean
It’s important to know that there is about $400 million plus of restricted cash from that investment fund facility that's sitting in other assets.
Doug Mitchelson – Deutsche Bank
Understood.
Greg Maffei
So the point to make here is when you take the $400 million and the sub-debt, right, it covers the – that covers the $750 million. The way I think about it that was really – we've only – utilizing $340 million, and the assets cover that.
There is a complete match between the drawn debt and the restricted cash for the balance.
Doug Mitchelson – Deutsche Bank
Understood again. So you virtually have no debt at LCAP pro forma, all these assets allocations.
You have $2.5 billion of cash. So what level of cash now with re-attributions changes that you've made to – you need to have it LCAP?
How much would you reserve excess cash? And what’s the plan in terms of the share purchases versus – (inaudible) than others.
Greg Maffei
I think the liabilities other than the debt that we have there are really tax liabilities. Now we significantly reduced pro forma, the tax liabilities for Liberty Capital, with this transaction because all of the tax liabilities related to the early retirement of certain Sprint exchangeables back in 2009, or the future, or the other future productions already taken, that is now Liberty Interactive, so just looking at Liberty Capital for a second, significantly reduced tax liabilities.
Tax liabilities fall into two categories broadly, one is related to the Sprint derivative and the shore against the box there. And the other is the gain in Sirius.
I do not believe it is likely that we will trigger the gain in Sirius. There is virtually no scenario I can think of that my chairman would let me even talk about doing that.
So you’re talking about something we’re either likely to, somewhere down the road, find another way to get liquidity in Sirius or become a purchaser of Sirius. And I think we've talked about that in the past.
So it’s a logical alternative. So you’re left with looking at the other liabilities that might come due, and we obviously need to keep some cash balance on that.
And you’re looking at what else we might invest in over time, and that’s really our choices as I mentioned, investing in our own equity; investing in our debt, which would mean effectively the Time Warner debt in this case; investing in other company’s debt, another company’s equity. We obviously think our equity is attractive.
But I would note some of the other investments we've made have turned out pretty attractively as well, like Sirius. So I’m not going to pre-judge which way we’re going to go with any of that money.
Doug Mitchelson – Deutsche Bank
All right. And then the question for Chris, and it follows my peers.
But thanks for the question, but just quickly, Starz outlook for OIBITDA in 2010, any sense? Obviously, people are certainly nervous that TV spending could take away from the core OIBITDA growth of the business.
Can you give us any sense of where you think 2010 will come out?
Chris Albrecht
Sure. As we've said or as Bill read, we think we’re well positioned for 2010.
And we certainly expect to meet the targets that we've set for ourselves. There is a unique challenge of the need to invest in additional original content to help position the network, both with the affiliates and with the consumer, and we intend to do that.
But at the same time, we do not want to negatively impact the P&L growth that we've predicted. So we are actively working on innovative message to be able to increase the amount of spending that we can handle on the original side and accomplish both goals.
And we are confident that we’re going to be able to ramp up at the scale that we need to with the kind of programming that’s going to be important for the continued health and growth of Starz Entertainment, and at the same time, detect and potentially even improve the things that we’re projecting.
Greg Maffei
Glenn Curtis is the CFO of Starz, as you know. Glenn, you might just reiterate what we’re – what Chris says what we've said, or reiterate – he's endorsing what we've said.
What are we talking about projecting for growth next year, this year 2010?
Glenn Curtis
Yes, we've previously had said on call that 5% to 10% was the range that we gave.
Chris Shean
And free cash flow.
Greg Maffei
And OIBITDA growth. And we're still comfortable with those numbers.
Doug Mitchelson – Deutsche Bank
Thank you very much.
Operator
Thank you. And our next question is from James Ratcliffe with Barclays Capital.
James Ratcliffe – Barclays Capital
Good morning, guys. Thanks for taking the question.
Chris, a couple for you. I mean you clearly – at HBO, you were known for driving original content.
Can you talk more about how much original content you think Starz really need to have, particularly it sounds like for the shutdown of Crash here at one-hour long drama? Do you expect that you'll be replacing that going forward?
Chris Albrecht
Sure. The job of programming, any of these premium services, I think is to create value and also differentiation from the other entries in the category.
I never felt that the pay-TV game – with the ratings game is really more and attitudinal gain with the subscribers and with the operators. So we intend to have the year-long presence in original programming.
And we're talking about working on having a brand that feels cohesive with the other pieces of the network on the theatrical side. And I would expect that while it will take a little while, these things just don't grow in trees, ramp up to the full complement of what we're expecting to do.
I think between series and mini-series type events or other forms of long form programming, we'll have a full complement hopefully by the end of 2011. And as I said before, we expect to be able to do that with some innovative financing method so that we can continue to meet our growth targets.
James Ratcliffe – Barclays Capital
And at HBO, you were part of a much larger portfolio of cable content assets. Can you talk about the plusses and minuses of Starz essentially being a stand-alone?
Chris Albrecht
Well, I think they would be what you would expect. On one hand, you don't have to worry that there's someone else who is mocking up the relationship with the distributors or content suppliers that you're going to have to be drawn into.
At the same time, it would be fair to say that a stand-alone operation has some challenges in terms of leveraging other strengths with distributors. Having said that, I think the most important thing for us now is to create a vibrant brand for the Starz network.
Encore's a terrific product that the distributors and the consumers enjoy and like very much, so. We feel very good about that.
And I think if we can take Starz and make it the network that we planned, we're going to have the appropriate leverage and the appropriate relationships with the necessary suppliers and distributors.
James Ratcliffe – Barclays Capital
Thank you.
Operator
And our next question from Bridget Weishaar from J.P. Morgan.
Bridget Weishaar – J.P. Morgan
Hi. Thanks for taking my question.
I just want to clarify this re-attribution and its impact on the Liberty Interactive. So my understanding is cash flow increased by $807 million.
That will increase by $1.4 million. The Live Nation asset will be eliminated.
And the part I'm confused then is you have that $830 million in net taxable income that resulted from the cancellation. Can you just explain exactly how that got generated and how we should recognize it on the financial statements?
Chris Shean
We retired in 2009 some of the Sprint exchangeable debentures. There was both EOD income and prior tax liability for deductions taken, i.e.
interest deductions taken larger than cash payments made, it's under the new tax loss that were adopted in 2009, caused those to be recognized over a five-year period. And so that is how we get the numbers we're showing out in future years we expect to be taking in that taxable income.
Okay? In years 2014 to 2018 because the – under the – some of the law changes that were related to the stimulus package.
They extended that period for five years. You got a holiday.
And then you recognize your COD and related income over a five-year period. One that's worth noting is that this will even be cash flow positive in those years because the interest deductions taken in those years will be larger than the taxable income generated.
Because these Sprint exchangeable debentures and Moto exchangeable debentures that are being transferred or re-attributed across have that feature, they will actually generate tax deductions, i.e. interest deductions larger than cash interest paid, in excess of the amount being recognized here, the $830 million being recognized over the five years.
So I don't think from a cash flow it will still be negative.
Bridget Weishaar – J.P. Morgan
Okay. And then, how will that be recognized on the financial statements now?
What impact would it have?
Greg Maffei
Well basically, a lot of these – these liabilities are already reflected in deferred taxes. And so, we haven't running – I guess in the first quarter, you'll see the movement of the balance sheets accounts amongst the tracking stock groups.
But you'll see movements in deferred taxes from one group to the other.
Bridget Weishaar – J.P. Morgan
Okay. And then, one last quick clarification, the GSI and the low vote IC, you said that it generated $220 million in cash.
Is that recognized for Q1 to a mix? Can you give me any indication?
Greg Maffei
GSI, was it $220 million? (inaudible) And IC was – Bill, you have the numbers?
Bill Myers
Just over $50 million.
Greg Maffei
In Q1, recognized that we've been selling – in prior periods, in Q4 and the like, we've sold more. In Q1, it's $50 million, which obviously won't be recognized until we report the Q1 financials.
Bridget Weishaar – J.P. Morgan
Got it. Thanks.
Operator
Thank you. And our next question is from Matthew Harrigan with Wunderlich Securities.
Matthew Harrigan – Wunderlich Securities
Thanks for taking my question. Firstly, on Q3, you had a grade impact on new customer activity at Direct and Dish from the channel repositionings.
And it looked like that probably accounted for a disproportion in the amount of the benefit in that quarter. Q4 was so strong.
I assume you were probably good across the board with most of the MSOs. And given that and how attractive people find QVC once they sample it, would you be tempted to do another campaign paralleling what you did with IBO on 1Q?
That's my first question. And the second question is World Space.
It looks there are a number of angles you could take with that. And then thirdly, I too got a little confused on some of the shifting.
Does the full $830 million on the movement of deferred taxes happen right away on the balance sheet between respective trackers?
Chris Shean
Yes.
Matthew Harrigan – Wunderlich Securities
Okay. Great.
Greg Maffei
And it's just the last question. Chris, do you want to talk about – excuse me, Mike, you want to talk about QVC?
And then, I'll come back and talk a little bit about World Space.
Mike George
Sure. When you look at the strong new name growth in Q4, it attributed three or four primary factors.
Number one is we just put out a set of product offerings that really appeal to new customers. Keep in mind that at any given point in time, we have 10, 9 customers watching QVC for every customer watching QVC.
So when we get it just right and get the right kind of products that have high appeal to new names as we did in Q4, you can really explosive growth without any additional advertising or other support, just by people coming by the channel. That's the number one driver.
And number two driver, I do think we've been helped the good work of our affiliate team in improving our channel positioning in DirecTV and EcoStar, Dish as well as getting us more HD placement. We're up to 25-plus million HD SUBs.
So then a number of things to improve the quality of our real estate on the TV dial. And I think the third factor is we have never in our history had the level of publicity, buzz, PR coverage around what we're doing as we had in Q4.
And so, we aim to keep up all three of those. I certainly can't promise that we'll get the kind of growth we got in Q4.
But we feel good about our ability to attract new names. I wouldn't think of that necessarily as an expensive paid advertising campaign.
I think for us, we're finding that combination of get the right products out there, continue to optimize channel positioning. And then, drive energy, excitement around the brand.
A lot of it was unpaid media, basically buzz. But also, continuing to optimize paid search, continuing to optimize natural search, doing some forms of graph marketing, all those things coming together to help us sustain that kind of growth in new customers.
Greg Maffei
On World Space, we're – it's an evolving relationship. We are currently a lender to World Space, to the debt in possession (inaudible) because we purchased a loan as a percentage of debt financing to that.
We had discussions about a broader relationship that are not yet resolved. Our interest in that – and frankly, it's somewhat of a venture capital-type play.
It could take several forms. We obviously like satellite radio.
We think it's a great property. Could there be opportunities for satellite radio outside the United States?
We're certainly looking at that. In addition, World Space has L-Band spectrum in virtually every place in the world, except the US, Japan, and South Korea.
And it's got a couple of satellites in the air that might be of value. Our views, our plans are evolving.
Matthew Harrigan – Wunderlich Securities
Great. Thank you.
Operator
Thank you. Our next question is from Jason Bazinet with Citi.
Jason Bazinet – Citi
Thanks. I apologize if I missed this in the flurry of numbers you gave out.
But as of the third quarter, at least I have $2.178 billion of net deferred tax liabilities at LCAP.A. Did you say how much that deferred liability is going down as a result of the transfer?
Chris Shean
We did not say that. But it's going down about roughly $1.1 billion.
Jason Bazinet – Citi
$1.1 billion. Okay.
Chris Shean
But keep in mind that deferred tax number is not a discounted number. For GAAP, deferred taxes are reported at their gross basis, different stands, whatever the expected and active tax rates, whereas the actual economics of this transaction were evaluated on a present value basis.
Jason Bazinet – Citi
So there are four. When you go through all of those–
Greg Maffei
We're looking at these numbers – Liberty Capital in effect got paid for the discounted value of those futures options. And you have this perversity where Liberty Interactive is booking deferred taxes due a great deal – the bulk of which is due in 2029 and '31 on its balance sheet today.
And that's obviously a non-discounted, non-present value liability.
Chris Shean
And as a result of that, Jason, once we reflect these numbers through the tracking stock schedules, there'll be a pretty large movement from book equity from one tracker to the other, and the difference is largely due to this – the fair value, if you will, of deferred taxes versus book value.
Jason Bazinet – Citi
Is another way of saying that the numbers that are reported on the financials when you say gross basis is it doesn't reflect the time value of money? Is that the way to think about it?
Greg Maffei
That is absolutely–
Chris Shean
That is absolutely correct.
Jason Bazinet – Citi
Okay. Thank you very much.
Operator
Thank you. And next, we'll go to Barton Crockett with Lazard Capital Markets.
Barton Crockett – Lazard Capital Markets
Thank you. Great.
Thanks for taking the question. I was wondering if you could comment a bit more about the Live Nation investment.
In particular, you guys have described this as an investment. I just wanted to clarify, of all of the things that you could put money into that you have available to you out there, your view is that Live Nation is the best or were other – some strategic or secular things that's your view to do that, perhaps something in conjunction with your stake in Sirius.
Greg Maffei
When you put it that way, is it the best possible thing we could with the money, that's the high bar. We obviously think that it's an attractive investment among the alternatives.
We think that the merger in which have – the merged company in which we already had just under a 15% stake is attractively positioned, and owning more of it is a positive, whether there are more strategic things that down the road we can do in the music space, now that's the glorious dream. We have assets which have – and relationships with companies at various points that have a lot to do with music, starting with Sirius XM, but even going to DirecTV, which we have no obvious economic tie today, but we have pretty good relations with, and they're important for other music.
Whether those kinds of things evolve, that's the glorious future. I wouldn't on that.
We'd like that. But we look at the numbers that they're producing on their own, I think it's pretty.
Mark Carlton who's in the room is on the Board of the merged company, maybe you could comment, Mark.
Mark Carlton
No, I think we definitely like the business. We love the management team that they have in place and what their opportunities are.
And we think what they're going to be able to put forth together is great for music fans. It should help drive the business as well.
Barton Crockett – Lazard Capital Markets
Okay. Great.
And then on – turning to Sirius, you commented about the option to either spinning off – with avoiding the tax liability or purchasing Sirius. But Sirius, obviously, has taken a huge leg up just in the past few weeks.
And with another track – with another investment you guys have at HSM when that stock landed, it did get to a point where you started to suggest that perhaps it was pricier than your appetite lies. Is Sirius at that level or can you even go there and comment on that?
I know it's a year ahead of the standstill. But can you comment on your Sirius value now?
Greg Maffei
I think the comparison is just a little bit false in the sense that on the HSN one, we said that with the comp, a better performing, stronger comp. And while we like the HSN, we have one called QVC, which outperforms it and it's undervalued compared to it.
Well it's hard to look and say, "Jeez, today, our best use of capital will be putting more money in HSN versus more money in QVC given the relative performance and the relative valuation." In the case of Sirius, there is nothing out there like it.
It has a unique position, obviously, in satellite radio. But it also has a relatively unique position about being a scaled media company, which is growing at an enormous rate, well good top line growth and excellent bottom line growth through synergies related to the merger and opportunities around that.
So what's fair value on that is a lot harder to calculate because there's nothing out there, as I said, like it. And there's nothing out there that is growing as quickly.
They reported a number this morning, the flip that they had in operating losses from 2008 to operating income in 2009. It was over $900 million swing.
That's a pretty good run. I don't think – no one's quite predicting that big a number for next year.
But it also still has a – is forecasted for very good growth, again, above anything else in the media space. So it's a little harder to make the call.
Barton Crockett – Lazard Capital Markets
Okay. And then one final question, just turning to Starz, I think you said in the discussion of revenues that there was some benefit from non-affiliate piece versus I think sales and programming perhaps, either at networks DVD sales.
I was wondering if you can give us any sense of the quantification of that. And then, Chris, if you – obviously, HBO did great with this or has been great with it.
What's the opportunity to ramp up more this type of revenue at Starz?
Greg Maffei
Let me just stop Chris and say, we are not making public to scale yet some materials of the overall business yet. But we're not making scale yet to public of both ancillary revenue sources.
Obviously, it's an area that we think has opportunity. And I'll let Chris pick up on how he thinks that's working out in the future.
Chris Albrecht
I think the opportunity for Starz to grow revenue off of the content businesses will come primarily from being able to distribute that content in other areas. That felt for a while that it's probably not as important to outright own the IP as it might have been – as people might have thought in the past.
At HBO, we certainly grew a very large driver off of the original content that was put on the network. But it was a different time, different opportunities, different realities in some of the ancillary markets.
So we want to fund this in an innovative way that's going to allow us to retain some valuable off Starz distribution rates. But at the same time, our primary goal is to make sure that we're investing the appropriate amount of money to help the networks, and ancillary revenue off of those products is not the primary driver of our investment.
Barton Crockett – Lazard Capital Markets
Okay.
Greg Maffei
Great. So operator, with that, I want to thank everybody for joining us today.
We've gone more than an hour. But I guess we had a fair amount of stuff to cover today.
And thank you all for your continued interest in Liberty Media. And we'll talk to you next quarter, not before.
Operator
This concludes Liberty Media Corporation quarterly earnings conference call. Thank you for attending, and have a good day.