MTV-Liberty tune up

'Net pact prompts spin-off, e-commerce web

NEW YORK — Viacom’s MTV Networks will spin off its online music venture into a separate publicly traded company in the next nine to 15 months, MTV chairman Tom Freston revealed Thursday, in the wake of an Internet music alliance struck between MTV and John Malone’s Liberty Media.

A key element in the music alliance will be an e-commerce-oriented interactive music channel, highlighting Liberty’s broader plans to become a major player in e-commerce via interactive television, Liberty execs told an investment conference Thursday.

Separately on Thursday, Liberty disclosed results for its first quarter that showed sharply higher cash flow (earnings before interest, taxes, depreciation and amortization) from its pay movie channel operator Encore Media Group, and more moderate growth from Discovery Communications, in which it owns a 50% stake.

Liberty also announced plans for a two-for-one stock split, which comes in the wake of a big run-up in its stock. Liberty shares closed up $2.62 to $73.25 Thursday.

As expected, Liberty’s TCI Music confirmed it would sell its music Web site operator SonicNet to MTV in exchange for a 10% stake in MTV Online, the company to be spun off in the next year.

“We’re taking Liberty on as a partner in the online music business, which will be a separate public enterprise,” Freston told Daily Variety. “This is a move to increase our market share and reach.”

Freston added the new ‘Net music company will actively look to acquire other music-related Web sites.

The MTV chief said Gotham-based SonicNet — which owns six different music-oriented online sites — will benefit from on-air promotion from MTV’s channels around the globe. MTV previously announced it will commit $250 million to promote its Web sites.

Freston said a key part of the Liberty deal was an agreement to develop an interactive music channel available to cable subscribers who pay for new digital set-top boxes to be deployed later this year.

This new channel will essentially serve as a home-shopping web where viewers can order music CDs at the push of a button.

Music is the “next really big frontier” on the Internet, TCI Music CEO Lee Masters told the investment conference, adding that “we believe we can exploit music downloading capabilities” through deals like that struck with MTV.

MTV’s Web sites generate much more traffic than other music-oriented sites, giving it more leverage with companies to negotiate revenue-sharing terms, Masters said.

Liberty said several weeks ago that it plans to channel all its Internet and interactive TV efforts through TCI Music, which will be renamed Liberty Digital. And Masters’ plans for home shopping via interactive TV go far beyond music, as he revealed Thursday that TCI Music had registered a company called TV Portals that will develop “impulse e-commerce” sites for interactive television.

These proposed sites will market merchandise in areas like books, CDs, videos and tickets — all products that have been successfully sold over the Internet. TCI Music might try and develop e-commerce in autos, consumer electronics and other luxury items later, Masters added.

Despite the overall bullish presentation, Masters went out of his way to lower expectations for TCI Music, emphasizing it would take “a number of years to realize the true potential that we have.”

Masters noted that there are a number of risks in TCI Music’s strategy, including consumer reaction to the rollout of digital cable. The company’s stock fell $2.06 to $46.93 on Thursday.

Also focusing on e-commerce within the Liberty group is Encore Media, which operates the Encore and Starz premium movie channels, as well as Discovery Channels. Encore CEO John Sie revealed Thursday that he plans to introduce home shopping through Encore’s thematic multiplex channels.

Separately at the investment conference, Malone made a rare public appearance and answered questions from investors and reporters on a range of subjects. He said Liberty decided to sell out of Fox/Liberty sports networks recently because he expects a “real shin kicking” between ESPN and Fox that will hurt Fox’s short-term financial performance.

Malone also deflated expectations about TCI Satellite Entertainment, a company that is now a shell after sale of PrimeStar to DirecTV. TCI Satellite has declared in public filings that it is seeking new business opportunities, a disclosure which sent its stock price moving up sharply, but Malone said he had no “current thoughts” about the company’s future plans.