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SPE INTERNAL Liberty Media Analysis GSN-FUN Transaction January 2009.

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Presentation on theme: "SPE INTERNAL Liberty Media Analysis GSN-FUN Transaction January 2009."— Presentation transcript:

1 SPE INTERNAL Liberty Media Analysis GSN-FUN Transaction January 2009

2 1 Liberty Media Corporation is Comprised of 3 Tracking Stocks Liberty Capital Liberty Interactive Backcountry.com (81%) Bodybuilding.com (83%) Borba (25%) BUYSEASONS (100%) Expedia (24%) GSI Commerce (19.7%) HSN (30%) IAC / InteractiveCorp (30%) Interval Leisure Group (30%) Provide Commerce (100%) QVC (100%) Ticketmaster (30%) Tree.com (Lending Tree) (30%) Atlanta National Baseball Club (100%) Current Group (8%) Embarq Corporation (3%) Hallmark Entertainment Invest. (11%) Jingle Networks (9%) Kroenke Arena Company (6.5%) Leisure Arts (100%) LodgeNet Entertainment (9%) MacNeil / Lehrer Productions (67%) Motorola (3%) Overture Films (100%) Priceline.com (1%) Sprint Nextel Corporation (3%) Starz Media (100%) Time Warner (3%) TruePosition (100%) Viacom (1%) WFRV / WJMN Television (100%) NOTE: Percentages in parenthesis represent Liberty ownership stake; figures are approximations and when applicable, apply conversion to common stock. “LINTA”, “LINTB”“LCAPA”, “LCAPB” Liberty Entertainment DirecTV (54%) FUN Technologies (100%) GSN (50%) Liberty Sports Holdings (100%) Starz Entertainment (100%) Wildblue Communications (37%) Note: Checking if PicksPal, Inc. (73%) is already in this entity “LMDIA”, “LMDIB”

3 2 Liberty Plans to Split-Off A Subset of its Liberty Entertainment (LMDIA) Assets Into a Separately Traded Public Entity Liberty Capital Liberty Interactive Backcountry.com (81%) Bodybuilding.com (83%) Borba (25%) BUYSEASONS (100%) Expedia (24%) GSI Commerce (19.7%) HSN (30%) IAC / InteractiveCorp (30%) Interval Leisure Group (30%) Provide Commerce (100%) QVC (100%) Ticketmaster (30%) Tree.com (Lending Tree) (30%) Atlanta National Baseball Club (100%) Current Group (8%) Embarq Corporation (3%) Hallmark Entertainment Invest. (11%) Jingle Networks (9%) Kroenke Arena Company (6.5%) Leisure Arts (100%) LodgeNet Entertainment (9%) MacNeil / Lehrer Productions (67%) Motorola (3%) Overture Films (100%) Priceline.com (1%) Sprint Nextel Corporation (3%) Starz Media (100%) Time Warner (3%) TruePosition (100%) Viacom (1%) WFRV / WJMN Television (100%) “LINTA”, “LINTB”“LCAPA”, “LCAPB” Liberty Entertainment DirecTV (52%) FUN Technologies (100%) GSN (50%) Liberty Sports Holdings (100%) Starz Entertainment (100%) Wildblue Communications (37%) “LMDIA”, “LMDIB” Liberty Entertainment Inc. DirecTV (54%) FUN Technologies (100%) GSN (50%) Liberty Sports Holdings (100%) PicksPal, Inc (73%) “LEI” Liberty Media Corp Tracking Stocks New Wholly-Owned Subsidiary Assets Transferred to Liberty Entertainment Inc. (Split-off Entity) After the Split-Off: Liberty Media will continue to utilize its three tracking stocks Liberty Media will also own Liberty Entertainment, Inc. a publicly traded subsidiary

4 3 Rationale for Split-Off Provide management of LEI with greater flexibility to make acquisitions and raise capital Enable businesses and assets to be valued by the market without the complexities of a tracking stock, thus reducing the discount at which Liberty’s stake in DirecTV currently trades Increase flexibility in structuring equity-based incentive awards

5 4 After the Split-off, a Shareholder that previously held 100 Shares of Liberty Entertainment Tracking Stock would hold 10 Shares of Liberty Ent. Tracking Stock and 90 Shares of Liberty Entertainment Inc. (LEI) Shares 100 Liberty Entertainment Starz Entertainment (100%) Wildblue Communications (37%) “LMDIA”, “LMDIB” 10 Shares Liberty Entertainment Inc. DirecTV (54%) FUN Technologies (100%) GSN (50%) Liberty Sports Holdings (100%) PicksPal, Inc (73%) “LEI” 90 Shares 0.9 of each share of LMDIA or LMDIB will be redeemed for 0.9 of a share of LEI Series A or B stock 0.1 of each share of LMDIA or LMDIB will remain outstanding as the Liberty Entertainment tracking stock This structure will enable holders of LMDIA or LMDIB stock to retain their pro-rata ownership stake in LEI

6 5 John Malone Controls Roughly 34% of Votes in Liberty Media Corp. *B shares entitle owner to 10 votes for every share owned Note: Liberty Media Proxy suggests Malone has more shares in LMDIB than total shares outstanding—the discrepancy appears immaterial John Malone Liberty Media Voting Rights by Tracking Stock* John Malone Share Ownership by Tracking stock After the Split-off, John Malone will control 34% of the votes in Liberty Entertainment Inc., which will own 54% of DirecTV

7 6 It appears Liberty is interested in having the GSN financials signed off to be utilized as party of the analysis for the split-off –The financials are currently open (i.e., with GSN’s auditor) pending resolution of the treatment of the DTV carriage fee situation GSN Issues Related to the Split-Off Operating agreement entitles SPE to a right-of-first-refusal for any change of control in the ownership of GSN—impact on SPE’s ability to block the split-off is uncertain GSN is a 5 year business asset which is highly likely required in the split-off for the transaction to be treated as tax free by the IRS. Tax free treatment is traditionally mandated in Liberty’s transactions

8 7 ISSUES TO DATE GSN’s affiliate agreement with DirecTV has been out of contract since February 2007 and is currently being renegotiated Since the expiration of the contract, DirecTV has paid a rate of $0.04 / sub as opposed to the previous rate of $0.082 The reduced rate caused GSN to take a reserve against revenue of $5.6MM for 2007 and $6.8MM for 2008 GO – FORWARD IMPACT If negotiations with DirecTV retroactively trigger the MFN provisions for Comcast and Echostar, this would cause an additional decrease to revenue of $9.6MM in 2007 and $10.1MM in 2008 Assuming the DirecTV rate triggers the MFN, GSN could lose approximately $18.1MM in 2009 (inclusive of lost DirecTV, Comcast, and Echostar revenues) (1) Any change in affiliate revenue has no associated costs and therefore is a direct EBITDA impact Potential Impact of Carriage Fee Negotiations on GSN Annual Revenue / EBITDA

9 8 Potential Impact of Carriage Fee Negotiations Assuming MFNs are triggered; the loss of revenues from Comcast and Echostar outweighs any DTV savings However, the potential $7.6MM net decrease inside LEI is a small subset relative to 54% of DirecTV’s roughly $4.8BN of EBITDA Estimated CY09 Revenue / EBITDA Impact Potential Valuation Impact The potential lost market value assumes GSN loses 3 rd party revenues due to MFNs Again, this decrease may be considered small relative to 54% of DTV’s $25BN enterprise value

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