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Liberty Capital to Split Into Two Separate Tracking Stocks

Liberty Media will split Liberty Capital Group into two separate tracking stocks.

As part of a reclassification of the Liberty Capital tracking stock, Liberty will create a new tracking stock called Liberty Entertainment that will hold the 38.5% stake in DirecTV that Liberty will receive from News Corp., as well as three regional sports networks and $588 million in cash that the company will receive in the deal.

"The reclassification should achieve two purposes,” Liberty president and CEO Greg Maffei said in a statement. “It will create a focused distribution and programming business in Liberty Entertainment. We believe this new Liberty Entertainment group equity should increase shareholder value and provide a strong currency that will increase our strategic flexibility. Second, the new Liberty Capital group will focus the complexity that contributes to our trading discount into a single, smaller group of assets that can be more effectively simplified over time."

Liberty will fold other assets into the new Entertainment group, including its interest in Starz Entertainment, Starz Media, FUN Technologies, GSN and WildBlue Communications. Those assets are currently held by the Capital group.

Also attributed to the new group will be $550 million of Liberty Media's publicly traded exchangeable debt.

All other businesses and assets at Capital will remain.

Liberty Interactive is unaffected by the reclassification.

Also Wednesday, Liberty Media reported second-quarter results for its Liberty Interactive Group and Liberty Capital.

Consolidated revenues were up for both groups but mixed for their largest holdings -- QVC and Starz Entertainment, respectively.

Liberty Interactive's second-quarter revenue increased 4% to $1.79 billion and operating cash growth was 2% to $393 million, fueled by growth at QVC. Total QVC revenue was up 4% to $1.69 billion from $1.63 billion in Q2 2006, with both domestic and international revenue rising 4%. The rise came on higher home-product sales and was adversely impacted by the higher price of gold.

QVC’s operating cash flow rose 1% to $383 million from $378 million, with domestic cash flow 3% higher but 4% lower in international. Operating income at QVC for the quarter was $244 million, up from $242 million a year ago.

"While we are disappointed with our second-quarter results, our U.S. business continued to grow, but at a reduced rate, driven in part by difficult comparisons and continued challenges in the jewelry category,” QVC CEO Mike George said in a statement.

Liberty Capital’s consolidated revenue rose 30% to $402 million due to the inclusion of Starz Media and Major League Baseball’s Atlanta Braves. A 38% decline in operating cash flow to $24 million was blamed on a decline at TruePosition and losses at Starz Media.

Capital’s Starz Entertainment revenue decreased 4% to $254 million from $264 million a year ago. The decrease resulted from a reduction in the effective rate for Starz’s services for certain contracts that reduced revenue by $24 million. That was partially offset by increased subscriber growth that added $14 million in revenue. The average subscription units for Starz were up 7%, while Encore increased 6%.

"We are pleased with the continued solid growth in subscription units at Starz and Encore and with the continued reduction in our programming costs, both contributing to improved cash flow,” Starz Entertainment CEO Robert B. Clasen said in a statement. “Our major goal in the coming months will be to complete new, mutually beneficial agreements with the two affiliates whose carriage contracts have expired."

Starz Entertainment’s operating cash flow was up 10% to $55 million. Operating income was $42 million in the quarter versus $44 million in Q2 2006.