Liberty with Content for All: Q&A with Greg Maffei

Like a chameleon changing its colors, Liberty Media is becoming an owner and distributor of television content.

The media company run by cable pioneer John Malone is expected to close on its acquisition of a 38.4% stake of DirecTV from News Corp. in the fourth quarter. In advance, Liberty announced that it will split Liberty Capital into two tracking stocks to group the satellite-television service under the same roof as its programming assets such as Starz Entertainment, GSN and regional sports networks it will receive as part of the deal with News Corp.

Liberty anticipates that the move will increase the valuation of the new stock holding the operating assets, Liberty Entertainment, so that it can be used as currency to consolidate DirecTV.

The move does not affect Liberty Interactive, which holds a portfolio of e-commerce and digital businesses and QVC, Liberty’s largest revenue generator, with $3.4 billion in the first half of the year.

Liberty CEO Greg Maffei spoke with B&C’s Jonathan Hemingway about acquiring DirecTV, competition in the video-service business and the prospects for its digital operations.

Q: Does it worry you that AT&T may make a bid for EchoStar Communications’ Dish Network?

A: Of course we respect AT&T and we’ve been their partner in the BellSouth territory before the purchase of BellSouth and still afterward. We have a contract and we are partners with them. And it’s a great and successful relationship. So we know that they can be a very helpful partner. We also have been living under the case where they’ve been partnered with Dish in the old AT&T and SBC [Communications] territory. We’ve continued to succeed and prosper, and had video subscribers in that territory, nonetheless. While I respect them, love to partner with them, I don’t think their purchase of Dish, if it occurs, would be a knockout blow for DirecTV.

Q: What about reports of their interest in DirecTV?

A: Right now, we’re just focused on trying to complete our deal with [News Corp.]. At such time we are the owner, if somebody comes and makes an offer, whether it’s AT&T or anyone else, we’ll try to respond in the best interest of the shareholders.

Q: DirecTV is using its HD package as a competitive differentiator. How will it respond as cable companies increase their capacity?

A: You have a couple of things happening. You know, the cable companies are playing catch-up in HD. They are adding capacity. That’s one of the reasons why their free cash flows, it appears, have not been up to what Wall Street really wanted. We have an edge … in particular in the delivery of HD-video product because we made investments earlier and in many ways because satellites are a more efficient platform for the delivery of HD. We have an edge that I believe is now, and I think it’s an edge DirecTV will continue to press going forward. I think it’s a lead that cable will address in some markets, but certainly not uniformly. I think it’s a lead we will continue to press as we add more HD channels. So stay tuned.

Q: Do you have any plans to buy more programming assets?

A: Liberty and DirecTV are great believers in the power of distribution content [entity] interplay -- strength in distribution can create content opportunity, strength in content can create opportunity in distribution. [DirecTV Group president and CEO] Chase [Carey] is a believer in that, John Malone is a believer in that. While we have no plans to announce, we’ll certainly be looking for those. I think you’ll see a lot of the independent content companies become available over the next few years. They’d be better-served being in the hands of either a consolidated content entity or consolidated content-distribution entity, and there are probably only a handful of consolidators or likely consolidators, and I’d put us in the category of being one.

Q: Is a slowdown in consumer spending a concern for QVC?

A: We’ve seen for a while that retailers -- I’d call in the upper end, but not necessarily the highest end to the lower end -- have all been reporting less than killer results. So, they’ve been reporting OK to poor reports. I think QVC is in the category of reporting OK results. So, on a relative basis I think we’re doing OK, but I … clearly, if you look across that industry, the entire retail market is not as robust as, say, a year ago. So ‘concern’ may not be my word, but we certainly are aware of the environment.

Q: What are the long-term plans for Liberty Interactive?

A: We are continuing to generate large free cash flow because QVC is enormously profitable. And we are continuing to redeploy that cash flow primarily in two ways.

First, at looking at incremental e-commerce opportunities like the three that we bought: Provide Commerce, Buyseasons and Secondly, we continue to repurchase equity because we are long-term believers in the future of QVC and [Liberty Interactive].