Aug 9, 2007
TRANSCRIPT SPONSOR
Executives
Gregory B. Maffei - President and CEO Christopher W.
Shean - Sr. VP and Controller Michael A.
(Mike) George - President and CEO, QVC, Inc. Robert B.
Clasen - CEO, Starz Entertainment Dan O'Connell - CFO, QVC, Inc. John A.
Orr - VP John Malone - Chairman
Analysts
Robert Peck - Bear Stearns & Co. Imran Khan - JP Morgan Doug Michelson - Deutsche Bank Scott Devitt - Stifel Nicolaus Jeff Shelton - Natexis Bleichroeder April Horace - Janco Partners Jason Bazinet - Citigroup Benjamin Swinburne - Morgan Stanley
Operator
Good day everyone and welcome to the Liberty Media Incorporation Second Quarter Earnings Conference Call. Today's call is been recorded.
This presentation includes 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 not 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 including without limitation possible changes in market acceptance of new products or services, competitive issues, regulatory issues and continued access to capital on terms acceptable to Liberty Media.
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 changes in Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. Please refer to the publicly filed documents of Liberty Media including the most recent Form 10-Q for additional information about Liberty Media and about the risks and uncertainties related to Liberty Media's business which may affect the statements made in this presentation.
On today's call, we will discuss certain non-GAAP financial measures. The required reconciliations 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.
Gregory B. Maffei - President and Chief Executive Officer
Thank you and good morning and thank you all for joining us. Liberty has kept up rapid pace of activity through the second quarter and I look forward to sharing some of those developments of the past several months with you this morning.
I will discuss recent events of Liberty and take a look at the operating performance of some of the businesses and assets attributed to both Liberty Interactive and Liberty Capital's tracking stocks. I am joined on the call today by QVC's CEO Mike George; QVC's COO Meade Rudasill; QVCs Chief Financial Officer Dan O'Connell; from Starz we have the Chairman and CEO, Bob Clasen; President and COO, Bill Myers; and EVP and CFO, Glen Curtis; and from Liberty I am joined by our Chairman, John Malone; and several of our Senior Executives.
At the end of my remarks and the remarks of the others, we will be happy to answer any questions. After discussing the developments of the second quarter, I will turn over the call to our Controller Chris Shean, who will chat about Liberty Interactive and Liberty Capital's attributed businesses including recent financial results and our liquidity picture.
Mike George will pick up and address developments at QVC and Bob Clasen will chat about recent events at Starz, and I will close with a brief summary of the quarter and our outlook as we embark upon the remainder of 2007. Then we will open the call to questions.
So let me now turn to recent developments. As we noted this morning, upon completion of our asset exchange with News Corp., we will issue two new tracking stocks.
One of these groups designate, Liberty Entertainment, is expected to have attributed to it the assets obtained in the News Corp. exchange including the 38.5% stake in DirecTV which is probably now actually about a 40% stake in DirecTV given their share repurchases, the three regional sports networks and the North West, Rocky Mountain and Pittsburgh and $588 million in cash.
Liberty's interest in Starz Entertainment, Starz Media, FUN Technologies, our 50% interest in GSN and our stake in WildBlue and approximately $551 million of exchangeable debt are also expected to be attributed to Liberty Entertainment. The other new tracking stock will retain the Liberty capital name and will include all the businesses, assets and liabilities previously attributed to Liberty capital other than the list that I just went through that will be attributed to Liberty Entertainment.
No changes will be made to the Liberty Interactive tracking stock. We believe this change, the issuance of the two tracking stocks, will further our efforts to reduce the complexity inherent in the diverse group of the assets and financial instruments attributed to the existing Liberty capital.
It will give our investors the opportunity to further focus their investment and will create a currency to give us enhanced financial flexibility at Liberty entertainment. This structural change will also further concentrate the remaining non-core assets attributing them to the new Liberty Capital where each transaction to rationalize those assets including their conversion to operating assets will have a more material effect on reducing the discount at which the tracking stocks trade.
During the quarter we made additional progress towards simplifying Liberty Capital. We completed the sale or exchange of a number of our non-core assets including the exchange of 68.5 million Time Warner shares for a company holding the Atlanta Braves, Leisure Arts, and $984 million of cash, the sale of On Command, and the exchange of our stake in CBS for cash and their Green Bay affiliate.
We will continue to convert our remaining non-core businesses into operating businesses in an effort to transform Liberty into a well positioned focused operating entity. The foregoing transactions resulted in significant cash generation during the quarter and despite the completion of our $1.3 billion self tender for LCAPA shares, we closed the quarter with an increased cash balance attributed to Liberty Capital.
We are pleased with the progress to date on simplifying our assets while reducing Liberty Capital common share by over 8%. As we completed further transaction during the remainder of the year, we may further grow our cash reserves resulting in continued enhancement of our financial flexibility which can be used for acquisitions, business development and potentially further share repurchases.
On the operating side, the reduction of Starz programming costs drove a 10% increase in OCF. We expect ongoing reductions in programming costs and marketing costs this year and next.
Bob Clasen will detail these developments at Starz further later in the call. On the Liberty Interactive side, we also completed a self tender for $484 million of LINTA shares.
This resulted in an increase to our debt leverage to about 3.6 times 2006 OCF, and likely less on a pro forma basis, well sure about our target leverage of 4 to 5 times OCF. We have about $500 million remaining under our current share repurchase authorization.
Over the past 12 months, we have repurchased over 10% of LINTA's equity and will continue to evaluate opportunities to future reduce outstanding LINTA shares. QVC's domestic operations slowed during the quarter due to the difficult comparisons and some challenging market conditions.
On the international side QVC's UK business is picking up and showing signs of ongoing operational improvement. And as per the QVC German and Japanese operation continued to encounter difficulties, but management remains confident and has identified the key challenges and will drive better results in the periods ahead.
Mike George will discuss QVC's results and our investment branding and marketing initiatives at QVC in more detail. On the LINTA side also, Provide Commerce and BUYSEASONS produced solid financial results in the quarter and we were pleased to welcome backcountry.com to the Liberty family.
With that summary I will turn the call over to our controller, Chris Shean, who will walk us through the operating performance and liquidity picture across the Company.
Christopher W. Shean - Senior Vice President and Controller
Thanks Greg. Let's start by taking a look at Liberty Interactive.
The slide you are looking at is a quick glance at the second quarter revenue and OCF performance of LINTA. As the slide indicates, Liberty Interactive's attributed businesses continued to grow revenue and operating cash flow during the quarter albeit at a slower pace.
Slowing growth was primarily the result of difficult market conditions, challenging comparisons with last year's strong results and continuing operational challenges at QVC's international businesses most notably Japan and Germany. And we will get into that more shortly.
Looking more closely at LINTA, Liberty Interactive's businesses achieved 4% revenue growth and a 2% increase in operating cash flow. As I will discuss in more detail in a minute, the pace of revenue and operating cash flow growth slowed at QVC during the second quarter.
Provide Commerce and BUYSEASONS which were acquired in 2006, again experienced strong year-over-year revenue growth during the period and Provide also continued to experience solid operating cash flow increases. Backcountry, which was required in June and is not reflected in the second quarter results experienced 83% revenue growth during the quarter.
It's operating results will be consolidated starting in the third quarter this year. During the quarter we continued to repurchase Liberty Interactive shares.
Through June 30th we had repurchased 21.4 million shares in 2007 and 73 million shares or over 10% of the shares outstanding since the inception of the LINTA share repurchase program about a year ago. We continue to believe in share repurchases as a good means of enhancing shareholder value and we will continue to evaluate opportunities to cost effectively shrink Liberty Interactive equity.
We have remaining authorization from our Board of Directors to purchase up to an additional 500 million of Liberty Interactive equity. On taking a closer look at the quarterly performance in QVC, QVC experienced consolidate revenue of 4% to $1.9 billion during the quarter and 1% increase in operating cash flow to $383 million.
Domestic revenue grew 4% in the second quarter to $1.18 billion. This increase was mainly due to increased sale in the whole product category.
This was partially offset by ongoing challenges in the jewelry category as sales in this area declined due to continued increases in the price of gold. Total units shipped increased 1% from the quarter to $28.8 million while the average selling price grew 3% to $44.83.
Domestic OCF increased 3% from the quarter to $292 million while cash flow margins declined 16 basis points to 24.7% due to a decline in the gross margin. QVC.com sales continued to grow as a percentage of overall domestic sales rising from 20% last year to 23% this year for the second quarter.
International revenue increased 4% to $509 million for the quarter while OCF declined 4% to $91 million. Revenue increases were due to favorable foreign currency exchange rates in the UK and Germany partially offset by unfavorable exchange rates in Japan.
Also lower ASPs in the UK and Germany and the ongoing effect of changes in the enforcement at Japan's regulation of the marketing of health and beauty aids. The OCF decline was due to lower margins stemming from a greater inventory obsolescence provision and higher product distribution cost.
Excluding the effect of exchange rates, international revenue increased less than 1% while OCF declined 7%. International operating cash flow margins declined about 150 basis points during the quarter, primarily due to a 130 basis point decline in gross margins.
As anticipated on the first quarter call, we experienced improved results in the U.K. where QVC produced 7% revenue and operating cash flow increases in the local currency which is pound sterling.
Our QVC Germany and QVC Japan as expected continued to experience challenges. QVC Japan began to show signs of improvement in the latter half of the second quarter and management is taking corrective actions in Germany which it believes will lead to improved performance in that marketplace.
Before I walk through the LINTA liquidity picture, I am going to turn the call over to Mike George, who will discuss QVC's operations in a bit more detail and describe some interesting new initiatives the Company is undertaking. Mike?
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
Thanks Chris. First I thought I'd provide some color on QVC's performance in the quarter and then I will touch on some of the new initiatives we are pursuing for the back half.
In the U.S. as Chris mentioned, the biggest single driver of the reduced growth rate was jewelry led by double digit declines in our 14 carat gold business.
So we continue to struggle with the rising cost of gold and to a lesser extent silver. Candidly some of our performance challenge in jewelry is self inflicted.
We try to reduce the impact of the rising cost by simplifying our gold designs, providing the customer with a lighter alternative to keep the price point down and she told us clearly that that's not what she wants so we've reversed coursed and are focused on upgrading the quality of our assortments which will lead to higher price points but we are seeing very positive early results as we've begun to go back to what works for us in gold and silver. We had a very successful Italian gold mini series a few weeks ago and last week and all-day designer silver gallery that did well.
So we think we are beginning to get in front of the challenges in jewelry but by no means are we all the way through it. Part of what's working for us is the introduction of some hot new designers in the category; Anthony Nak and Siding Gang [ph] as an example along with some continued growth in designers that we've had for a while, that have a strong external presence as well like Judith Ripka, Michael Dawkins, Robert Lee Morris and Carolyn Pollack.
So again we are not out of the woods yet but feeling a little bit better about jewelry; clearly, though, it was an anchor on our performance in Q2. We also saw a general softness in our base business across all categories beginning around mid April and we've always felt that we could rise above macro economic challenges.
But we do think that the general softness, that we've been seeing in the retail marketplace and the somewhat skittish consumer spending is impacting us and we'll simply need to execute at higher levels to outrun some of that softness that we have all been seeing in the general retail marketplace. Now as I stressed in the past, we strive to maintain a disciplined long-term orientation to our business and because of that top line results can be lumpy from quarter-to-quarter.
This quarter was no exception. We chose not to become more promotional, to try and combat the environment.
We think becoming heavily promotional erodes customer trust and price credibility in the long run and is not in our interest. As such you will notice our gross margins did remain healthy through the quarter in the US roughly equal to last year if you exclude a couple of impacts, the Florence distribution center where we are incurring incremental expenses as we got ready to launch that.
We also had a strong computer TSV in April and that tends to depress margins a little bit. But by and large our product margins are fairly stable and we have avoided becoming promotional in this environment.
We've also kept a tight rein on fixed and variable expenses which were both favorable on a rate basis for last year despite the lower revenue. Let me touch on the UK as Chris and Greg mentioned we were pleased with our progress in Q2 although we are clearly not operating at the full growth potential of that business.
We are seeing strong growth in home electronics and apparel and we are beginning to see we think the early signs of a jewelry rebound. That business began to pick up a little bit of steam late in the quarter so we do think we are beginning to get our arms around the jewelry merchandizing in both the UK and the US but clearly we need to demonstrate that consistently over time.
Gross margin and expense performance was also strong in the UK. If you exclude the impact of obsolescence, gross margins were up over 50 basis points in the quarter.
However as we discussed in our Q1 call, the UK is anniversarying unusually low inventory obsolescence rates from the first four months of last year. So we are comfortable with our obsolescence rates this year but we are anniversarying an abnormally low rate from last year.
That had in total a 185 basis point impact on gross margin in Q2 but it should have a material impact on the rest of the year; we are largely past that issue. The operating expense rate was also favorable in the UK to last year and we are seeing good efficiency in our distribution costs.
So net, feel good about the margins and the expenses in UK and we are seeing sales pickup... we saw sales pick up nicely in Q2 although below where we'd like them to be.
Now let me turn to Japan. The revenue decline that we experienced in Japan reflects the first full quarter impact of the hiding [ph] regulatory environment that we talked about last call that hit us as you'll recall in March.
So we have now... we had a month of it in Q1 and obviously 3 months in Q2.
We do think as we mentioned in the last call that we are going to need to anniversary these changes in the regulatory environment before we see Japan business return to strong growth. In the interim, we are working to build our apparel accessories and jewelry categories to fill the gap that's been created by the decline in health and we are seeing solid gains in each of those three categories but certainly not enough yet to fully overcome the health shortfall.
Gross margins in Japan were largely stable. They were down slightly...
partly driven by the cost of readying the new distribution center in Japan which is launching this month. Much of the incremental expenses associated with the new DC are behind this so we don't see that as having a material impact on the rest of the year.
The operating expense rate was favorable... I am sorry, the operating expense rate was also below last year and that's primarily driven by commissions.
Recall that in Japan we have a fixed minimum commission we have to pay so when the volume is low we end up on the fixed part of that curve but that was our primary issue on the expense side. Finally let me touch on Germany.
Germany is clearly more challenging than the other markets, the business continued to struggle in Q2 on both the top and the bottom line. We are continuing to see the adverse impact of an over reliance on the home textiles category which was used to fuel growth in the past.
We were also overly dependent on a few big apparel brands and we've made some merchandizing missteps as we try to move away from dependence on those brands. And we have also struggled in jewelry as we have in the other markets.
So we have a number of challenges that we have been trying to work through on the merchandizing side. We are taking a number of actions to address it including diversifying our product mix and driving growth in under-served categories like beauty.
We are adding a number of brands and new concepts throughout the business. We are focused on key promotional drivers like the today's special value to improve our operations in those promotional techniques and we are taking a very aggressive line on expense management in Germany.
So we think we are on the right track with these changes but they are taking a while to work through. I am clearly disappointed with our pace of this; I would have expected it to be at a better price by now.
So I don't want to predict the timing of the turnaround until we are really confident that we see it. We think we are on the right track but I think we have some more bumps in the road as we try to continue to re-assort the merchandize to where we need it to be.
So in sum, with the... our result in each market are below were we'd like them to be but we do believe the revenue challenges are relatively focused and addressable in the US, the UK, and Japan, if we execute well.
We are also pleased with our tight management of gross margin and expenses in those markets and as I have said we have more work to do in Germany. Let we now close by turning to the future and talking about some of the key initiatives we will be launching in the back half of the year.
We remain focused as I have discussed on prior calls to adding top tier destination brands to our assortments and we are seeing increased vendor interest in our channel partially driven by the declining growth in consolidation department store sales. Our brands we will be launching in the next few months include Harry Slatkin, one of the leading home fragrance brands; Calvin Klein Intimates; Samsung in electronics; Garmin which is the number one GPS provider; Skil power tools and Acer computers which is one of the fastest growing computer brands and we think is a good value oriented compliment to our Dell product lineup.
And in September we will launch our exclusive partnership which we previously announced with the NFL and GSI. These brand introductions follow other few key launches in recent months including Bobbi Brown, Frederick Fekkai, Kena Rossi [ph], and Origins in Beauty, Magellan in electronics, Paula Dean in Cook, and Leslie Green, Decoy [ph], Siding Gang [ph], and Anthony Nak in jewelry.
And so we are clearly seeing when we add these kinds of brands to the assortment that the customer is responding and we think this will help fuel ongoing growth. We are also launching a major branding initiative in the fall which we believe captures the essence of what drives this royalty and passion among our customers while also updating the look and feel of the brand and helping us reach out to new customers.
We will share more specific at the September Liberty Investor conference, but it will be a multipronged effort involving updated visual imagery around our brand and an integrated advertising and promotional campaign. Coinciding with the launch of the brand initiatives, we are going to roll out the most comprehensive redesign we have ever undertaken of our website.
Key components of the new QVC.com will be a tighter integration of the video and web experience, more community and social networking elements, improved shopping tools, in fact in a more compelling visual design that's aligned with the new brand look that we are launching this fall. And finally in our efforts to ensure leading channel position which is a differentiator of our performance versus the competition, we were pleased to reach agreement on a new long-term channel position with EcoStar in Q2.
Although we have confidentiality restrictions in this agreement, the public has been informed through printed programs and electronic means that QVC was moved on July 1 from channel 226 in a shopping network genre with all the other TV shopping channels to channel 137, a much higher traffic location around leading cable networks like TBS, TNT and FX, which we believe is roughly equivalent to below channel 36 on an analog cable system. But we don't expect this to have an immediate impact and could even hurt sales in the very short term as customers adjust to the new location.
We are confident this will help support long-term growth with our 12 million plus dish subs. And with that, I will hand it back to Chris.
Christopher W. Shean - Senior Vice President and Controller
Thanks Mike. Let's take a quick look at the Liberty Interactive liquidity picture.
We continue to maintain a strong capital structure and good liquidity at the businesses attributed to LINTA, the group has attributed cash and public investments of $5.4 billion and has $6.9 billion in attributed debt. The increase in the debt balance during the quarter was a result principally of $484 million tender offer of LINTA shares that we completed in June.
Excluding the value of the investment positions in Expedia and IAC LINTA's attributed net debt of approximately $6 billion equates to a multiple of just over 3.5 times annual OCF. As previously stated we would be comfortable sustaining net debt levels of 4 to 5 times OCF.
As a result LINTA businesses have significant liquidity to grow organically and through acquisitions and to shrink LINTA equity as appropriate. Now let's move on to Liberty Capital's businesses.
As Greg mentioned earlier upon completion of our exchange with News Corp. group, we will classify [ph] Liberty Capital tracking stocks into separate [indiscernible] capital.
Meantime we made a new progress during the second quarter transforming the assets attributed to Liberty Capital and to well position focused operating assets. Overall during the quarter, Liberty Capital reported a 30% revenue gain while OCF declined 38%.
LCAPA's largest attributed operating asset, Starz Entertainment which excludes Starz Media, is continuing to strengthen its cash flow. In the quarter it's revenue declined 4% to $254 million while it experienced a 10% operating cash flow grow to $55 million.
We will talk more about this shortly. Taking a closer look at Liberty Capital's events during the second quarter.
As I just mentioned LCAPA attributed revenue grew 30% in the quarter while OCF declined 38%. Revenue growth resulted from the inclusion of Starz Media and the Atlanta Braves partially offset by lower GAAP revenue at True Position, which has been required to differ revenue recognition until it's delivered all software features required under one of its services contracts.
The OCF decline was primarily due to a decrease in OCF at True Position and operating cash flow deficits at Starz Media partially offset by gains at Starz Entertainment. As mentioned previously we have completed a number f divestitures and asset exchanges since the issuance of our tracking stocks.
These transactions have resulted in the generation of significant cash reserves attributed to Liberty Capital. We've put some of those reserves to work early in the second quarter as we completed a Dutch auction tender offer for Series A Liberty Capital common stock.
This tender resulted in the repurchase of approximately 11.5 million LCAPA shares at a price of $113 per share which yields total cash consideration spent of $1.3 billion. The repurchase represented 8.2% of Liberty Capital shares outstanding.
Nonetheless, our cash reserves increased during the quarter due to cash generation from the previously discussed transactions more than offsetting the funds used to complete the tender. We will continue to evaluate share repurchases as means of enhancing shareholder value as our liquidity position warrants.
We continue to work on the completion of the News Corp. exchange and expect to close that transaction in the second half of the year.
We are also evaluating numerous other transaction and will report on those as they arise. Taking a quick look at Starz, Starz continued to experience solid subscriber growth in the first quarter, as average subscribers...
as Starz average subscribers increased 7% while Encore's grew 6%. For the quarter revenue declined 4% as subscriber growth was more than offset by a reduction in the effective rate that resulted from certain of Starz fixed rate affiliation agreements and changes in the rate in which certain customers are paying under expired contracts that are currently under negotiation for renewal.
Additionally the sale of Adelphia Systems to Comcast and Time Warner in 2006 also contributed to the lower effective rate. Starz operating expenses declined 7% for the quarter, largely a result of the 10% decline in programming expenses partially offset by a modest increase in SG&A.
The reduction in programming costs results... resulted from lower effective rates for the movies shown in the quarter partially offset by increased costs from a higher ratio of first run movie exhibitions versus library product exhibitions.
Increase in SG&A resulted from higher sales and marketing expenses related to the timing of national marketing campaign. Now I will turn the call over to Bob Clasen who will say a few words about Starz Entertainment and Starz Media.
Robert B. Clasen - Chief Executive Officer, Starz Entertainment
With regard to Starz Entertainment, we are pleased that subscriptions to Starz and Encore continued to show solid growth in the second quarter. In addition we continue to experience a decline in programming cost which resulted in improve cash flow versus the same quarter a year ago.
However we saw a decrease in the average effective rate for each subscription, which resulted in a decline in revenue. Our major goal in the coming months will be to complete ongoing negotiation with two of our key affiliates for new mutually beneficial carriage agreements that will allow our business to continue to grow.
On the Straz Media side we have completed the integration of the former IDT Entertainment into our business. Our Home Video unit which accounts for the bulk of the Starz Media revenue, increased revenue this quarter versus the same quarter a year ago.
In addition, the addition of movies from our Overture Films unit will provide valuable new product for our Straz Home Video Company, which in the past has not had a slate of major first run films to sell. For it's part, Overture has announced its first slate of films including Mad Money, starting Queen Latifah, Katie Holmes and Diane Keaton; Last Chance Harvey with Dustin Hoffman and Emma Thompson; and Righteous Kill with Robert De Nero and Al Pacina.
The quality of these first films and the level of talents appearing in them reflect the fact that the Overture model is being very well received in the Hollywood creative community. Since this is the first time we have talked about this, investors should be aware that in the movie business even if the film is a hit, all the costs comes prior to the release of the film and all the revenue after it.
Even in the best case, a startup studio such as Overture will have a negative cash flow for several months until revenue from its first films begins to come in.
Christopher W. Shean - Senior Vice President and Controller
Thanks Bob. Taking a quick look at LCAPA's liquidity situation.
The LCAPA business has remained in a position of financial strength. At quarter end and including our News Corp.
stake, LCAPA was attributed with approximately $16.8 billion of public investments and derivatives. This declined from the first quarter principally due to the disposition of a portion of our Time Warner stake in our entire CVS position.
In addition to its public holdings Liberty Capital had attributed cash and liquid investment of just over $2.7 billion at quarter end. Total cash and public holdings approximate 19.5 billion and are only partially offset by $5.3 billion face amount of attributed debt.
This provides Liberty Capital with significant flexibility to grow its businesses and we will play an important role in the strategic direction of these assets going forward. That said, I will now turn the call back over to Greg who will quickly recap the second quarter and talk about what's ahead in 2007.
Gregory B. Maffei - President and Chief Executive Officer
Great. Thanks Chris and thank you to Mike and Bob for the updates on your respective businesses.
Well we have tried to give you a lot of detail today on both the operations of the businesses and some of our transactions and capital... oriented capital markets, oriented movements.
As you can see we remain busy during the quarter and had a number of important developments on the Liberty Capital side. As we've noted we completed number of asset sales and exchanges and we completed our first tender for the LCAPA shares.
Today we have announced our intent to take another important step in simplifying the asset attributed to Liberty Capital by reclassifying the equity into the two new tracking stocks, Liberty Entertainment and Liberty Capital. As I detailed earlier we believe this change will further our efforts to reduce complexity while giving investors the opportunity to focus their investment capital on the most attractive vehicle for their interest.
It will also create we believe a currency which should give us enhanced financial flexibility. Liberty Interactive did experience slow organic growth in the quarter but we remain confident in the long-term fundamental strength in QVC and the other Liberty Interactive businesses.
You heard today some of the reasons why and some of the actions that management is undertaking to get us back on our normal track. We again repurchased LINTA shares during the quarter bringing our total repurchases since we issued the tracking stock last May to over 10% and we are diligently seeking further strategic value enhancing acquisitions.
Looking ahead we will continue our strategic development efforts to determine the best path to increase shareholder value. We have maintained significant financial flexibility and look forward to putting that to work to enhance organic growth, shrink equity and make strategic acquisitions.
So thank you for listening and thank you for your continued interest in Liberty Media and I would now like to open the call for questions. Operator?
Question And Answer
Operator
Thank you. Today's question and answer session will be conducted electronically.
[Operator Instructions]. We will go first to Robert Peck with Bear Stearns.
Robert Peck - Bear Stearns & Co.
Hey guys, just two quick questions. I guess the first is give us sort of a bigger picture.
As we think about the domestic growth of being about 4%, I think HSM domestic, ex-America store was around 3% or so. Both were not doing as well as maybe you had originally anticipated.
Is there anything else bigger picture going on here besides the [ph] inventory issues and what have you? Are you losing industry share maybe to the internet with Amazon and eBay relatively and doing relatively strong quarters.
Can you talk maybe just picture beyond the prices of gold, what's happened domestic, and I just have a follow up?
Gregory B. Maffei - President and Chief Executive Officer
I would start and then I will ask Mike or Meade or any of the other folks from QVC there to follow in. My perspective is that we have a business which we have always suggested has lumpy elements and that if you look at what we have put forth as our long-term growth rate the business exceeded that in '05 and exceeded that in '06 and is trailing it in '07 and we don't believe we need to change what our suggestive long term growth targets are.
We do monitor that, we watch it and we think about it but we are comfortable that we can get back on track. I would...
I don't think you're seeing radical change in how video commerce is used by the consumer versus e-commerce and in fact as you know an increasing percentage of our sales are e-commerce. So in the way it's more of a continuum of which we are part despite the success of eBay and Amazon.
I also would say that there is somewhat of a difference the performance at H and the performance at Q. While we clearly were disappointed to get 4% revenue growth domestically, I mean that was below our targets as we said.
That was done with a pretty controlled cost structure and a pretty controlled maintained gross margin rather than what appears to have been just looking at the external numbers and the decline in operating performance at the EBITDA line, at the gross margin line, a far more promotional environment at H. So while we are disappointed and not satisfied with what we've got, I don't think it's the same animal as what occurred at H.
You want to add something to that Mike.
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
I'm just echoing your comments Greg. We've seen down quarters in the past, I don't think it portends any long-term trends in the business or any other channels.
We have always said... we need to execute well and if we execute well over the long-term we think the kind of guidance we've provided is attainable.
And again if you go back [indiscernible]. But they come back and you would have strong quarters to fall in [ph].
We think we can continue to beyond that kind of trajectory and achieve those results. So now, we really don't see any long-term shift-away from the business.
We need to continue to advance our business, make the internet even more impactful which we think we'll be doing this September. So start to say that we can stand still.
We got to bring in great brands, we've got to make internet commerce more powerful, we've got to leverage other multimedia platforms, but we think all of those trends, if anything, to our favor as long as we make the right kinds of investments to pursue those opportunities.
Robert Peck - Bear Stearns & Co.
And Greg has there been any recent talks about asset swaps at all and whether there would be anything preventing any sort of near-term tender?
Gregory B. Maffei - President and Chief Executive Officer
There have been forever talks about asset swaps. So this period would be not different than any other period.
And I don't think we as a practical matter, reveal whether we are blacked out from tendering or not. I don't believe we have done that in the past and I don't think that's a policy I would want to start with now.
So I am not going to... I think as a practical matter we are not going to disclose whether we are blacked or not.
Robert Peck - Bear Stearns & Co.
thank you very much.
Gregory B. Maffei - President and Chief Executive Officer
Thank you.
Operator
We'll take our next question from Imran Khan with JP Morgan.
Imran Khan - JP Morgan
Yes hi, thank you for taking my question; a couple of questions. Number one question is regarding the credit crunch in the current credit market.
Does that have any impact in your buyback for Liberty Interactive shares and secondly can you give us some breakdown on average selling price and unit growth for Germany, U.K. and Japan, and the last question; sorry for all these questions; I think you've mentioned that channel changes in EcoStar might impact the consumer behavior in the near term.
Can you give us some color, what kind of impact do you see in the near term and any sense how quickly you can have a channel shift for DirecTV after the News Corp. deal close?
Thank you.
Gregory B. Maffei - President and Chief Executive Officer
Well I'll take a shot at number one and I'll let off with... why don't we let you do two, Mike, and I'll split number 3.
So I think the liquidity we have at LINTA is committed. Certainly the funds of the open to buy and actually we have a credit facility that is committed through the end of the year; I don't believe we'll have any issue or have...
that will have impact upon our share repurchase or our ability to certainly do our open to buy the 500 million we've got open and in fact larger amounts. Mike do you want to talk about ASPs?
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
Yes, let me actually ask Dan O'Connell, our CFO, just to run through the numbers on ASP versus units in the few markets and then I can add additional commentary if needed.
Dan O'Connell - Chief Financial Officer, QVC, Inc.
Okay in the U.K. unit growth for the quarter was 7.6% and ASP was down roughly 3%; Germany, the unit growth was 5.3%, roughly 8.7% decline in the ASP.
Japan had just under 1% decline in unit growth and basically flat ASP.
Gregory B. Maffei - President and Chief Executive Officer
Do you have any color Mike?
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
Yes, just one thing I'd add to that is, just to give you a flavor of the dynamics; UK we are not particularly concerned about the ASP decline, in fact largely driven by the fact that with the strength of the pound, our purchasing costs are a little bit better in China on a relative basis in the way we price. We depend [ph] on customer; so those ASPs will ebb and flow but generally speaking our ASPs are positively healthy in the U.K.
That currency effect is probably part of the driver of the decline you are seeing. Germany is really an issue of the continued struggles in merchandizing, that does reflect some level of markdowns which obviously compressed the ASP as well as some of the challenges in the jewelry mix.
So I do think that low ASP performance is a reflection of some of the challenges we've talked about in Germany, and Japan is a pretty stable right now, and of course the US had a solid pickup in ASP. On the DirectTV question, a couple of thoughts and Greg can add to it.
I guess the comment I would make and then I will let Greg add is we are interested in an improved channel position on Direct, we don't think it is as material as a change in the channel position on Echo because our starting point is much better today on DirectTV than it is on Echo. So we think we can do better...
like to do better but we are already in a solid neighborhood and not next to other shopping channels. We want to generally avoid being mixed with shopping channels; that was our problem on Echo.
With Direct, we would love to see an improved position although again the caveat is we don't see the impact of it being as great as it is with echo.
Gregory B. Maffei - President and Chief Executive Officer
Again I think I'd echo, so to speak, Mike's remarks. We are in a better position on Direct and whatever we would do there we certainly hope that our friends at Direct would work with us and be as positive as they could be.
But they are... they have their own public shareholders and in fact they are not even...
even the 40% odd stake that we have is not even attributed to the Liberty Interactive business which is essential to group at Liberty Interactive, it's attributed to Liberty Capital. So all things while they could be done friendly, they would have to be done to justify and make sense for Direct as well.
Imran Khan - JP Morgan
Okay thank you.
Gregory B. Maffei - President and Chief Executive Officer
Thank you. Next question please.
Operator
We will take our next question from Doug Mitchelson with Deutsche Bank Securities.
Doug Michelson - Deutsche Bank
Thanks very much. I was interested in a little more information on the new tracking stock.
Will the terms you proposed be similar to those of the LINTA Liberty Capital split where companies can be put back together again without a shareholder vote and any other details you think might be relevant? And also what are the tax implications and any strategic limitations that the tracking structure might create, any more details on that might be helpful?
Gregory B. Maffei - President and Chief Executive Officer
I think I am going to hold on how those combinations would work until we distribute more information in the form of the proxy. But I think we will obviously endeavor to make sure that it's fair to all parties and that it make sense for all parties.
If you look what's happened here we've... I can just give some color, we split off Liberty Interactive and Liberty Capital because we thought we had a cogent group of companies and businesses and investments that fit together in Liberty Interactive and we had some or more of a mish mash at Liberty Capital.
We have now come together and put a... because of our proposed exchange which we believe will close we will have a logical group of companies and investments that fit together and are synergistic and additive together at Liberty entertainment.
So our focus is that these companies... not that they will come back with the Liberty Capital but really that they will have...
would make sense if they are their own cohesive unit and candidly I think they have more synergies over time with Liberty Interactive as a series of operating businesses than they do with joining with Liberty Capital. But we will outline all that in the proxies when that comes forward.
As far as the tax matters, I am not exactly sure about what you are aiming at there Doug, but there will be a tax treaty between the businesses... somewhat of a tax treaty that is currently in place between Liberty Interactive and Liberty Capital today.
Doug Michelson - Deutsche Bank
I guess what I am curious about is strategically is there anything that would stop you or limit you from taking any one of the three tracking stocks and you know selling them to another company or buying them.
Gregory B. Maffei - President and Chief Executive Officer
Well I think that's... look, I mean, candidly that's always a challenge only in that you could certainly do that but do that...
but do they... does the buyer want to be part of the group and still owning shares in a group in which they have issues because you are not disconnected from the group from a credit perspective, you are still some part of the same tax group, etc.
So that would need to be thought through. The other point about this all is that we are working hard to ensure that we have maximum flexibility and that if we have opportunities to have these in the hands of our shareholders eventually, if that makes sense at some point, that's not our plan today.
But we believe we are going to create as much flexible to do that if we want.
Doug Michelson - Deutsche Bank
I also ask, has your relative position changed in terms of competing with private capital buyers for assets given the liquidity in the debt markets and maybe some temporary liquidity but --
Gregory B. Maffei - President and Chief Executive Officer
Who knows and it may be the case right know that the capital market is so bad for borrowing that even relatively less leveraged corporate buyers who should be advantaged; right now the markets are probably so negative that unless you truly are willing to pay up and you need to get it done people are backing off even doing those kind of deals and you are seeing assets pulled from the market, Virgin Media being a good example, because the perception that there are not buyers may be creating such a condition that you don't... it's moved past helping us to the point were nothing is getting done.
But eventually I... without having a lot of absolute evidence but just prognosticating, we do believe that a situation where you can borrow but you can't leverage to the degree of the private equity has been able to leverage, is probably a good situation for us in terms of strategic acquisitions.
Doug Michelson - Deutsche Bank
Got it. Thank you.
Operator
We will take our next question Scott Devitt with Stifel Nicolaus.
Scott Devitt - Stifel Nicolaus
Thank you. I was wondering if you could talk about how much of QVC's inventory that you feel is proprietary in one way or another meaning a unique product, a bundle or a warranty customer service attachment versus the product that can be just directly comparison shopped on the internet?
And then secondly could you just explain the sale tax legislation that requires QVC to charge tax on TV and online despite only having a physical presence in a few states? Thanks.
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
Sure. On the...
in terms of the sales tax, we have charged sales tax for a numbers of years, we made the decision quite a while ago to err on the side of charging sales tax rather than trying to fight the game of physical presence, so that's been an ongoing strategy and I'm sorry, remind me of the first question.
Scott Devitt - Stifel Nicolaus
Just in terms of the proprietary nature of the inventory on the show, I mean historically you have stated that a significant percentage of the inventory that's displayed is proprietary in one way or another where they are providing distribution for a regional brand where there was a unique warranty customer service line like you have in your Dell presentations and I'm just wondering as the earlier question related to the internet in comparison shopping, how much of your inventory that you feel is protected because its proprietary.
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
Thank you. I would say its hard to put an exact number on it.
But the overwhelming majority of our product sales are exclusive and I want to clarify when I say that we have an extended assortment online at that... is similar to assortments...
other internet... but that's a very small percentage of our sales, less then 2% or 3%.
Majority of our product for on air and online is exclusive in some way. So for example about a third of our business we would classify as proprietary.
That means it is a QVC brand name like Denim & Company in apparel that is only on... when we make the product, it's only on QVC.
When you look at our national brands which is roughly another third of our business, much of that is proprietary in that it is an exclusive line like the Diva line by Dana Buckman. Dana Buckman you can find in department stores but you can't find the Diva line in a department store, it's made only for QVC.
And in the electronics area which is the one area where it's harder to have strictly exclusive merchandise we do have as you described generally speaking heavy hitters in terms of sales volume will be products where we have reached some agreement on exclusive configuration, exclusive features, bundles or something else that allows us to sell the whole bundle at a discount to what's available in the retail marketplace and we always want to be below the retail marketplace in price point and sometimes we get there to a proprietary product line, some times you get there to value added configurations that are exclusive to us. So a long way of saying, I'm going to put it in the 80% plus neighborhood that is needed on some dimension.
Scott Devitt - Stifel Nicolaus
That's helpful. Thank you.
Operator
We will take our next question from Jeff Shelton with Bleichroeder.
Jeff Shelton - Natexis Bleichroeder
Thanks. It appears that the increase in gold prices hit the UK market about a quarter ahead of the US.
I was wondering if there were any lessons to be learnt there and if you think the US market can dig out of it's second quarter hole quicker?
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
I don't know that there are any specific lessons. A lot of different...
two businesses, I think they were both hit by the challenge of how to absorb the price increases and probably the timing of when we took the price increases, what the condition of the existing inventory was, all of that impacted the results. As I mentioned, I do...
I am cautiously optimistic, but I will underscore cautiously, that we are beginning to see a little bit of a pickup in the market which I think is driven by a number of things although it's all speculation. Part of it is that customers have now had many, many months to get used to higher gold prices which they are obviously experiencing at all retailers.
Yes, I think we are getting smarter about our merchandizing and again and not dumbing down the product which we were a little guilty of doing as an initial reaction and partly quite frankly, the comparisons are getting a lit bit easier because the business started to soften last year. So as we go into the back half, the comparisons are a little bit easier.
Jeff Shelton - Natexis Bleichroeder
Okay. And do you have a revenue breakout for the international markets for the quarter?
Gregory B. Maffei - President and Chief Executive Officer
Yes that's included in the quarterly report that will be filed later today.
Jeff Shelton - Natexis Bleichroeder
Okay. And then could I also ask you, do you have OCF numbers for the international operations, so we can get a base for how those are performing on an individual basis?
Gregory B. Maffei - President and Chief Executive Officer
We have not disclosed that information at that level of detail.
Jeff Shelton - Natexis Bleichroeder
Okay, thank you.
Operator
We will go next to April Horace with Janco Partners.
April Horace - Janco Partners
Hi, thank you for taking my question. One, I just want to congratulate you on proposing this new tracker, I think it's a good thing with respect to having a...
flexibility for new currency. But my real question is, can you give me some clarification on the turnaround on the international, previously you said it was going to be three quarters and I am not sure I quite followed what you thought it was going to be for each of the individual markets going forward?
Michael A. (Mike) George - President and Chief Executive Officer, QVC, Inc.
Sure. I will go through it market-by-market.
The UK essentially had a tough quarter in Q1 of this year. We saw solid performance in Q2 and I don't want to try to predict obviously the current quarter performance or give a short-term outlook.
But there's nothing in the fundamentals that would make me think that the UK business isn't on anything other than a fairly healthy and improving track. Japan I think you have to look to a year from March...
a year from last March to see us fully anniversary the impact of this regulation that caused us to have to pull back on our health business. So our health business has declined in mix about 10...
our health business alone was in the low 20s in mix of our business, it's now in running in the 10 to 12 range. So that essentially took about 10 points of top line growth off the business.
And once you anniversary that next March that obviously you are on a cleaner comparison. In the interim we are trying to get these other businesses that I mentioned to a little bit stronger growth rate to fill in some of the gap.
We did see somewhat improving performance in Japan through the quarter. So a year to anniversary the full impact.
But clearly we are not standing still and we are trying to fill in some gaps in the interim. And Germany as I mentioned I'd be hesitant to try to predict a date because the bills...
the issues there are a little more fundamental and we need to resource the merchandise and we are doing that in a way that we think is going to be long-term healthy but it basically means earning credibility in a number of new brands and categories to offset over reliance on a few categories in the past. And so it's just...
so it's higher to predict how long that's going to take to work through while we also work through current inventory and to that one... I hate to put a date on that one.
April Horace - Janco Partners
Okay. Considering the current credit environment and what was previously thought about leveraging up DirecTV, can you give us an update as to what your thoughts are now with respect to when the transaction is closed and leveraging either DirectTV or Liberty Entertainment?
Gregory B. Maffei - President and Chief Executive Officer
Well I think as far as the transaction closing, we have no new information. I...
we expect to close in the next few months but we don't have much clarity beyond that. It's August in Washington DC, that's probably unlikely to be this month, so we are hoping for maybe September or October.
As far as the leverage at Liberty Entertainment and DirectTV, both will be at... Liberty Entertainment will be a net cash though it will not be a hugely cash flow generating entity, will have net cash and no net debt, and DirectTV today has probably got, depending on where their share of purchase is and I think they are going to announce tomorrow.
So I'm not going to tip all that off. They are probably at about $1 billion of net debt against heading towards $4 billion of EBITDA.
So it's not a... it's significantly below when...
what we would think as optimal leverage. Whether the credit markets are, this is the right time to go out and get that leverage and how you might want to use that leverage, are you using it for share repurchase, are you using it for combination, are you using it to buy other content assets, all of those are opportunities we think are interesting, but this may not be the optimal time in the next month to think about trying to go out and get a big yield out or a big offering out.
But clearly, both entities are underleveraged from what we would consider optimal.
April Horace - Janco Partners
Okay, thanks. That's all I got.
Operator
And we will take our next question from Mathew Harrington [ph] with Ferris Baker Watts.
Unidentified Analyst
Good morning. Can you comment or give us some more elaboration on some of the initiatives you talked about at your QVC Analyst Day last year?
I mean, specifically you talked about re-branding, trying to reach beyond 8.2 million so customers that you had, you are working I think with the shop in the Bay area IDO to that effect. And also I think you said that your advertising spend of sales was about 0.2%, and clearly the worst and the last thing you want to do is crank it up to what somebody like Amazon or Best Buy does, but you more or less imply that you thought that there were some elasticity to marketing spend that hadn't been fully capitalized on in the past?
Gregory B. Maffei - President and Chief Executive Officer
Sure. As I mentioned previously earlier in the call, we are going to be talking a lot more about our re-branding efforts in September.
We did retain IDO to help us, really take a hard look at the brand. And since that work we have taken a very deliberative posture in terms of really trying to sort out how to take the brand to the next level.
We think our brand is strong today. So we don't want to do anything knee jerk to go after new customers that would offend or turn off our current customers that obviously never works in our favor.
But having said that, we were kind of through those deliberations and in the design phase of some pretty exciting work, to just update the brand a little bit in terms of how we present ourselves on air, how we present ourselves on dotcom, how we advertise the brand. And you will see that unveiled in the back-half of the year.
We are not prepared at this point to talk in detail about it, but we likely will at our... at Liberty September investor conference.
When you look at marketing spend, the pure advertising portion of it is 0.2 to 0.3, although when you add in other dimensions of marketing, our total discretionary spend, I think, in the US is in the 0.6 to 0.7 range. And we may begin to take that up carefully, it won't be a massive increase by any means, but we do think a little more spend to get the word of mouth...
to help the word of mouth, which is one of our big drivers of new customers, is probably a value, but we'll do that in a pretty methodical way and test away to it beginning... again beginning later this fall.
Unidentified Analyst
Good, thank you.
Operator
We will take our next question from Jamie Neilson [ph] with AJS Ventures.
Unidentified Analyst
Hi Bob. The past two quarters operating cash flow has been negatively impacted by True Position and Star Media, and positively impacted by reduced programming expenses at Starz Entertainment.
As a percentage, what is the overall impact of the True Position and Starz Media? And how do you see the negative and positive trends for each of these three entities continuing through the rest of 2007 and 2008?
Gregory B. Maffei - President and Chief Executive Officer
Well, this is Greg and I will say we will probably let Bob not have... Bob Clasen not have to cover True Positions.
I don't think that's in his portfolio and probably not what he feels most comfortable commenting on. So, maybe, Bob, could you talk about the two Starz entities and then, John Orr, do you want to comment on True Position or Mark afterwards?
Go ahead Bob?
Robert B. Clasen - Chief Executive Officer, Starz Entertainment
This has not been released yet.
Unidentified Analyst
Yes, but the press release has got it.
Robert B. Clasen - Chief Executive Officer, Starz Entertainment
Starz Entertainment, which is the pay television company, we continue to expect, as we've reported previously, a continuing decline in our programming costs as amortization of bonus payments go away, and as we are able to buy in the spot market very high quality films for less than we could a few years ago. And so, we are optimistic that cash flow will continue to grow.
Starz, by the way, in 2006 when our studio partners in 2005 haven't... hadn't released the greatest slate of films, we were still the 12th rated service by Neilsen in homes where we existed.
So we have a pretty important position in the cable and satellite universe. So that's the trend there.
Starz Media is new, we are just starting to report it. We have --
Gregory B. Maffei - President and Chief Executive Officer
I don't believe we report it separately, we report as a part of the other right? The cash flow?
Robert B. Clasen - Chief Executive Officer, Starz Entertainment
Right.
Gregory B. Maffei - President and Chief Executive Officer
So you might just comment generally.
Robert B. Clasen - Chief Executive Officer, Starz Entertainment
Okay. Well, the decrease was influenced by Starz Media $16 million and $26 million in the period.
Both... Starz Media is in the business of both delivering the home video, but also in the business of television production, animation, theatrical, and for television, our film roaming unit just completed the successful Simpsons Movie and we have done The Simpsons Movie for years at that unit.
And yet because it's so heavily into production, there is an awful lot of spending that goes on and that gets amortized over the period of when the revenue comes in, and so we expect that that would be at cash flow negative for some period of time until the revenue catches up to the spending to do the production similarly to what I mentioned a little while ago at Overture. We've got an awful lot of spending to make the movies and market the movies and now all of a sudden, as the revenue starts to come in, the situation changes, but it does take quite a bit of time.
Gregory B. Maffei - President and Chief Executive Officer
Thank you Rob, and John or Mark... John Orr or Mark, do you guys want to comment on TP in general?
John A. Orr - Vice President
Greg, I'll cover this.
Gregory B. Maffei - President and Chief Executive Officer
Okay.
John A. Orr - Vice President
The True Position situation is one where revenue recognition from a financial reporting standpoint is virtually stopped due to some amendments to a contract that was done very late part of 2006. So, I mean, you are talking about a company that last year had for the 6 months over $50 million of revenue, that this year at least from a GAAP standpoint generated $6 million of revenue.
But I will point out that under these contracts, we continue to perform and the elements of the performance of the contract are hung up on the balance sheet in the form of deferred revenue and deferred costs. And that the entity itself is not burning cash at that rate.
So --
Gregory B. Maffei - President and Chief Executive Officer
Because of that SOP 97-2, they can't recognize this revenue until they deliver this software elements at the end. And so they are collecting a lot of cash, but not being able to recognize the revenue.
John A. Orr - Vice President
That's correct.
Gregory B. Maffei - President and Chief Executive Officer
Next question please. Maybe we could have two more and call it a morning.
Operator
We'll go next to Jason Bazinet with Citi.
Jason Bazinet - Citigroup
Thank so much for the question. I just had two questions regarding the news Liberty Entertainment tracker.
Gregory B. Maffei - President and Chief Executive Officer
We just want to make sure your research reports came true, Jason.
Jason Bazinet - Citigroup
Very kind of you to make strategic decisions based on our... the stuff we print.
Anyway, I was a little bit surprised on the $551 million of exchangeables that you're going to put at the Liberty Entertainment side. I was wondering if you could just talk a little bit about the thinking there.
And then second, I was also curious about the allocation of cash. I think you said $580 million of cash.
Gregory B. Maffei - President and Chief Executive Officer
The... what we are anticipating is that we will send over one of the exchangeable issues, which is...
in which the potential for exchange is very low and it is considerably... the stock is considerably out of the change money, therefore highly unlikely it will be exchanged and there is no real exposure.
We don't believe there is significant exposure or risk that Liberty Entertainment shareholders will have to pay more than the face amount of the debt.
Jason Bazinet - Citigroup
Got it.
Gregory B. Maffei - President and Chief Executive Officer
So we think that's the true anticipation, if we send that one issue over, it would be a be true... or if we attribute that one issue, obviously they are all part of the same legal entity, attribute the one issue, it would not be a burden on them in excess, the Liberty Entertainment shareholders in excess of the face amount of the 551.
Jason Bazinet - Citigroup
Understood.
Gregory B. Maffei - President and Chief Executive Officer
And the cash, the cash would be being received is the cash that we will receive upon the completion of the exchange with News.
Jason Bazinet - Citigroup
Understood.
Gregory B. Maffei - President and Chief Executive Officer
So our deal with News, we would give them exactly what we got from News, the Liberty Entertainment shows will get stake in Direct, the three RSNs and that cash.
Jason Bazinet - Citigroup
Okay, that's very helpful.
Gregory B. Maffei - President and Chief Executive Officer
That is the general... that's what we anticipate will be in there.
Jason Bazinet - Citigroup
Okay, thank you so much.
Operator
And our final question today comes from Ben Swinburne with Morgan Stanley.
Benjamin Swinburne - Morgan Stanley
Thanks, thanks for taking the question guys. Just one on QVC and then one strategic for the team.
Like, how much of the US business is jewelry this quarter versus a year ago, just so we can get a sense of that base business trend?
Gregory B. Maffei - President and Chief Executive Officer
Dan, do you have those numbers
Dan O'Connell - Chief Financial Officer, QVC, Inc.
The mix of jewelry in the second quarter '06 was about 23% and were down to 21% in the current quarter.
Benjamin Swinburne - Morgan Stanley
Great, thanks. And then looking at what we've seen this quarter from Sprint and the cable companies and the joint venture side, if you need moving in different directions, you can throw Clearwire in there as well, you obviously have some Sprint assets that you would look to exchange at some point down the road potentially.
I am just curious as you look at DirecTV position sort of development in the wireless broadband side, and what seems to be a moving apart from between cable and Sprint, any comment sort of on how you see wireless data playing out over the next couple of years and sort of how involved do you think DirecTV will be in that movement and any opportunities you see now to get closer to Sprint now that they have moved away from the cable venture?
Gregory B. Maffei - President and Chief Executive Officer
Well, that's a big wide open question and I will comment, maybe I will ask John Malone if he's got any additional thoughts, but I would say couple of things. First, we are not I think entirely surprised that Sprint and the cable company Spectrum venture has...
looks to be parting ways, didn't seem like a long term fit for a bunch of reasons. We have positive dialog with Sprint about 355 type exchanges, not clear that the Spectrum alone would qualify, but may some business shifting over and participating in the Spectrum, all those are potentially interesting.
DirecTV has expressed for a long time and looked at various ideas and we are I think in good dialog with them about how to think about broadband and particularly mobile broadband as an interesting opportunity. I would note that both Comcast and Time Warner appear to have significantly slowing rates of broadband customers.
And so one of the things that's been in the back of our minds without not a absolute certainty value, but with a fear or what we saw potentially was that you move toward saturation on broadband, and that if you were to come with a product in three or four year, the market could be quite saturated. It may turn out that it's happenings...
the rate of saturation is recurring quite earlier if you look at those slowing rates. And coming with something that we'd need to and didn't offer incrementally differentiated features would not be of high value for our customers or ultimately for DirecTV and/or Liberty in terms of what the economic opportunity was.
So, some broadband mobile, particularly where it provided the potential for mobile television, mobile video, is something we will look at very closely and if potentially something arose out of Sprint, given our position all the better. And as you note, the breaking of that partnership with the cable companies is perhaps the good first step in allowing us to reexamine that or look at that more closely.
But it got to be probably something that's different and unique and not something where you're just going to offer what's fixed... competing with fixed because just on feeds and speeds and unlikely where that is in terms of the saturation point in the three, four years when you're really out there ubiquitously, even if you had a launch today or...
you are not going to be particularly competitive. So we are weighing all those, weighing our stake and thinking about what interesting product in conjunction with DirecTV we might be able to offer.
John, do you want to add anything?
John Malone - Chairman
Yes, I think it's just very interesting this proposal coming out of the internet crowd that the architecture on these new licenses should be open because that could change the ballgame quite substantially in terms of bundling and bundling firepower of cable or satellite. So, we are watching that real close.
I mean, obviously, I agree with what Greg is saying, it's going to take several years for these licenses to be issued and deployed. And it's really going to come down to portability versus capacity and that's going to be a function of how much consolidation of Spectrum will take place and how saturated the broadband market will already be, and also how saturated the cellular or wireless will be with voice.
So there is a lot of things going on here, but clearly more technology in broadband is good for our potential investment in DirecTV. It reduces the leverage of bundling that the cable currently has relative to satellite.
Gregory B. Maffei - President and Chief Executive Officer
Might be worth just noting also it was interesting to see that in some of the competitive reports that slowdown in the rate of broadband customers and loss in at least one case of a major cable company, not just the mid level guys, but a big guy of basic video subs. And so we'll see what DirecTV reports tomorrow, but we are probably more optimistic than that about video growth, and are happy with the performance.
Great. So, I think thank you very much everybody for joining us this morning and for your questions and we appreciate your interest in the company and your continued support.
Operator
This does conclude today's conference call. We appreciate your participation, you may disconnect at this time.