Dear Fellow Shareholders:

We last issued a letter to Liberty Media Group shareholders in the spring of 1998 as part of the TCI Stockholder Report. At that time we were a tracking stock of TCI, most of our activities were concentrated in domestic cable and satellite programming businesses and we had a total market value of approximately $13 billion. Much has changed in the past twelve months.

First, TCI was acquired by AT&T. In that transaction, TCI Ventures Group was folded into Liberty, and the expanded Liberty emerged as a tracking stock of AT&T. As a result, Liberty added large stakes in Sprint PCS, United Video Satellite Group, Inc., General Instrument Corporation and Tele-Communications International, Inc. (TINTA) to its existing portfolio. We also received $5.5 billion of cash in exchange for certain TCI Ventures Group assets that were transferred to AT&T.

In separate transactions, Liberty acquired the 15 percent of TINTA that had been owned by the public and United Video acquired TV Guide Magazine, changing its name to TV Guide, Inc. Liberty also agreed to acquire approximately 8 percent of The News Corporation Limited in exchange for a combination of cash and our half interest in the Fox Sports regional sports networks, and we increased our interest in General Instrument to 21% percent. Finally, we agreed to contribute all of our assets related to interactive TV and Internet content to TCI Music, Inc. and to change this subsidiary’s name to Liberty Digital, Inc.

As of this writing, we have interests in a broad range of video programming, communications, technology and Internet businesses in the United States, Europe, South America and Asia. We have more than $4 billion in cash and short-term investments and a market value of approximately $45 billion.

Despite the sweeping changes that these transactions have yielded in the scope and composition of our business, our fundamental purpose remains the same as it was when Liberty was established in 1991: to maximize the per share value of our equity over a rolling five- to ten-year horizon.

Growth in Liberty’s equity value results from the convergence of two forces:

Internal Growth: the underlying growth of our existing businesses and their ability to use scale, brand power and market position to create new businesses; and

Strategic Opportunism: our efforts to identify and execute transactions that improve the value or reduce the risk of our existing assets; that add new businesses with attractive growth and strategic dynamics; or that optimize the efficiency of our assets and capital resources.

Liberty owns a unique set of assets. These businesses are leaders in their markets and they benefit from a host of competitive, technological and demographic trends. A few examples:

Time Warner, Inc., one of the largest media companies in the world, posted all-time record cash flow of $4.5 billion on revenues of $26.8 billion for 1998, increases of 14% and 11%, respectively, over 1997.

Sprint PCS is the nation’s largest and fastest growing PCS provider. Since the end of 1997, Sprint PCS customers have more than tripled to 3.35 million and the number of metropolitan markets served has doubled to 280. During 1998, revenues increased by $967 million, or 375%, compared to 1997. This trend continued in the first quarter of 1999 with revenue growth of 189%.

TV Guide, Inc. markets and distributes products in the United States to over 100 million cable and satellite homes every week. TV Guide also markets its products internationally in over 30 countries. TV Guide Magazine, TV Guide Channel, TV Guide Interactive and TV Guide Online are the largest print, electronic, interactive and Internet guidance products in the world.

Telewest Communications ended 1998 with 1.4 million residential and business customers, making it the largest provider of residential cable service in the United Kingdom. Revenues grew by 40% in 1998 and cash flow increased by 194% to approximately $233 million.

The above are all publicly traded entities which, in addition to internal growth, have also benefited from the robust stock market. Our privately held assets are well-managed, high-growth businesses that have also benefited from solid economic fundamentals. Our largest privately held assets include Discovery Communications, Inc., Encore Media Group and QVC Inc.

Discovery owns four broadly distributed networks in the U.S., namely The Discovery Channel, The Learning Channel, Animal Planet and The Travel Channel, as well as seven digital channels. It also operates additional networks which reach over 73 million subscribers in 155 countries.

Consumer research consistently cites Discovery as one of the most recognized and respected brands in the U.S. The quality of its content and its brand make Discovery an excellent platform for creating new channels and interactive services.

One of the most exciting projects under way at Discovery is the development of a new subsidiary called Discovery Health Media, which will focus on the delivery of health-related programming. This entity will be among the first to offer consumers fully integrated video and Internet programming. Today’s consumers are bombarded by confusing and often contradictory information about how to live more healthy lives. At the same time, health care companies are continuously seeking more efficient and effective means of reaching consumers. With the credibility of its consumer brand, its vast programming library and its excellent relationships with distributors and advertisers, Discovery is in an excellent position to meet the demands of both these groups.

Encore Media Group is the fastest growing provider of cable and satellite-delivered premium movie networks in the United States. Its 13 domestic networks with 26 different feeds reach over 49 million pay units. Encore’s services include the Encore and STARZ! premium movie networks, ten thematically programmed digital movie services and MOVIEplex, a ‘‘theme by day’’ channel. In 1998, Encore generated cash flow of $100 million, compared with a loss of $28 million in 1997.

With the benefit of digital technology, cable operators and DBS providers can position themselves as virtual video stores. The all-movie programming and everyday low pricing of the STARZ! and Encore services allows distributors to package these services with pay-per-view channels and other pay movie services such that movie viewers have practically the same level of choice and the same cost as video rental without the inconvenience of renting and returning.

As digital growth accelerates, Encore’s unit growth will continue to increase. Encore already has agreements in place with 15 major cable operators and many smaller operators to carry Encore’s thematic multiplex services in new digital packages. These services will be available to over 80 percent of cable homes as digital service becomes available.

QVC continued to break electronic retailing records in 1998. Sales at QVC increased by 15% in 1998 to over $2.4 billion, with operating cash flow increasing by 28% to $434 million. Over the past 10 years, QVC’s revenue and operating cash flow have grown at compound average annual growth rates of approximately 20% and 30%, respectively. Simply put, QVC’s core domestic business is a powerhouse. QVC’s international businesses have also enjoyed success. Operations in the United Kingdom have become profitable, and operations in Germany are improving and approaching profitability.

QVC is also an Internet success story. QVC operates a retail website, iQVC, which is one of the fastest growing websites. Customers can shop iQVC 24 hours a day, seven days a week for more than 100,000 products.

Liberty’s attributed share of the operating cash flow of all its private assets increased by more than 100% in 1998. That figure is inflated somewhat by the turnaround at Encore and we anticipate that our performance in 1999 will be more modest. However, the cash flow of these private assets still should grow by approximately 30 percent this year — a very healthy increase by any standard.

While we are very pleased with the historical and prospective growth of our affiliated companies, as shareholders, we expect Liberty’s equity value to grow faster than the combined rate of our assets. Accomplishing this goal requires us to manage our capital resources and the portfolio of our business interests at least as aggressively as the businesses themselves are managed.

Our management approach has three principal components. We actively seek acquisition or investment candidates that have attractive growth prospects and, preferrably, the potential to make our other assets more valuable. We seek opportunities to improve the value of our existing business interests with transactions that will create economies of scale, reduce risk, improve liquidity or increase management or shareholder focus. Ideally, we achieve two or more of these objectives. Finally, we enhance the returns to our equity with capital structure transactions, such as debt issuances and share repurchases. In the past several months, we have announced three very significant transactions that illustrate our approach to value creation and equity appreciation.

First, we agreed to purchase an 8 percent stake in News Corp. in exchange for $695 million in cash and our 50 percent interest in the Fox/Liberty regional sports networks. This transaction was attractive to us for four reasons. First, we purchased the News Corp. stock, which we felt was already undervalued, at a 20% percent discount to the trading price immediately following announcement of the transaction. Second, we believe we received fair value for our joint venture interest. Third, we converted an illiquid partnership interest into a liquid security that, if we desire, can be borrowed against or monetized. Fourth, because of the structure of the deal, we deferred taxes on the appreciation of our Fox Sports interest until we decide, if ever, to sell our newly acquired News Corp. stock in a taxable transaction.

In other words, this deal met all of our criteria for creating shareholder value: buy low, sell high in exchange for an undervalued, liquid security that can be used to raise additional capital in the future and defer taxes as long as possible.

In our second transaction, we entered into a seven-year ‘‘cashless collar’’ with respect to 15 million of our 114 million shares of Time Warner stock. In effect, we purchased a put option that gives us the right to require our counterparty to buy the 15 million Time Warner shares from us in seven years for $67.45 per share. We simultaneously sold a call option giving the counterparty the right to buy the same shares from us in seven years for $158.33 per share. The transaction was cashless because the cost of buying the put right was equal to the proceeds from selling the call right. By doing this, Liberty guaranteed that the assets involved would have at least $1 billion of value in the future, regardless of potential shifts in the stock market.

Our purpose in this transaction was to enable us to increase our debt. Because most of our businesses do not return cash to us, we are somewhat constrained in our ability to service debt. However, we recognize that using borrowed money to make investments or acquisitions is an effective means of increasing the returns on our equity. When planning to increase our debt level, we take steps — such as entering into the ‘‘cashless collar’’ — to ensure that we have the means available to repay the debt.

The third transaction was our agreement to contribute our interactive television and Internet content assets into TCI Music, a public company of which we currently own 86 percent. Upon completion of this transaction, we will change TCI Music’s name to Liberty Digital and increase our ownership to approximately 94 percent.

This transaction fulfills several objectives. It will allow us to place these assets into a single public entity, thereby improving their visibility to investors. It will allow us to form an entrepreneurial management team that is focused exclusively on developing businesses and opportunities within the field of interactive TV and Internet content. Finally, it will enable us to create a public stock that will trade in relation to the stocks of other Internet companies, giving us a viable currency for making acquisitions of businesses in this arena. The market has responded quite well to this proposed transaction.

Our sole objective has always been to maximize the value of Liberty’s stock. We pursue this goal with diligence, focus, energy and creativity. Liberty is managed by shareholders for the benefit of shareholders. Every corporate employee owns stock and has a direct stake in the success of our efforts. Every action we take in the future will be consistent with that goal.

Our strategy for this is straightforward. It starts with the robust growth potential of our diverse collection of industry-leading, entrepreneurially managed businesses. We leverage this growth potential with acquisitions and various forms of portfolio and capital structure management.

For the first time in our history, Liberty has substantial cash resources. We intend to be patient, selective and opportunistic in the use of this cash. Our industry dynamics change very rapidly and we need to be able to take advantage of any opportunities that arise out of these changes.

Acquisition candidates must meet certain core criteria. They must have the potential to be market leaders with predictable, growing cash flow and a tradition of aggressive management. They must be businesses that will benefit in some way from our ownership or that have the potential to profit from an important consumer or technological trend. Most importantly, we must be able to acquire these businesses on terms that will result in above-average after-tax returns to our own equity. We generally seek to be the largest shareholder with at least a 25% stake and substantial influence over management and strategic direction.

Portfolio management will be designed to accomplish at least one of four broad objectives: creating scale economies by combining entities; increasing market awareness or visibility of certain assets; reducing the risk profile of a business by combining it with a larger, more diverse entity; or creating additional financial resources by converting an illiquid asset into a publicly traded security.

Capital structure management will be directed at taking advantage of the inherent value of our existing assets to finance suitable acquisitions or, under the right circumstances, stock repurchases. This will likely mean increasing our debt. We will seek to take advantage of historically low, long-term interest rates, but we will be conservative in how the debt is structured.

We are confident that our strategy can be an effective one. Our stock price increased by more than 90 percent in both 1997 and 1998, compared with the S&P 500 which increased 31% and 27% in the same periods. While this confirms the effectiveness of our management methods, we are not content to focus on our past successes. Rather, we use them to raise our expectations for the future.

One of Liberty’s hallmarks since its inception has been a very small corporate staff. In March of 1998, we surpassed $1 billion of market value per employee. Although our corporate staff has recently increased to 33 employees, our market value per employee has grown to approximately $1.4 billion.

Any discussion of Liberty’s past, present or future would be incomplete without mentioning the instrumental role played by our Chairman. John Malone is the chief architect and visionary of our Company. His fertile imagination, combined with his business acumen and his dedication to creating shareholder wealth are primary factors in our success.

On behalf of John and the entire Liberty corporate staff, I would like to thank you, our fellow shareholders, for your support. No company can make promises about its success in the future. But I can assure you that we will continue to concentrate the full measure of our efforts and our energy on increasing the value of our Company now and in the next millennium.

Very truly yours,

Robert R. Bennett
President & Chief Executive Officer
May 20, 1999

On March 9, 1999, Tele-Communications, Inc. completed its merger with AT&T. Prior to the merger, Liberty Media Group Series A and Series B Common Stock were tracking stocks of TCI and traded on the Nasdaq Stock Market under the symbols LBTYA and LBTYB. Also on March 9, 1999, TCI Ventures Group was combined with Liberty Media Group. Upon completion of the AT&T merger and the Liberty/Ventures combination, each share of TCI Liberty Media Group Series A and Series B Common Stock was exchanged on a one-for-one basis for shares of new Liberty Media Group Class A and Class B Common Stock which are tracking stocks of AT&T. Each share of TCI Ventures Group Series A and Series B Common Stock was exchanged for 0.52 of a share of the new Liberty Media Group Class A and Class B Common Stock. The new Liberty Media Group Stock trades on the New York Stock Exchange under the symbols LMG.A and LMG.B.

The following graphs illustrate the performance of the Liberty Media Group Class A Common Stock since it was initially issued by TCI in August of 1995, and a comparison of the performance of the Liberty Media Group Class A Common Stock with the performance of the S&P 500.

Liberty Media holds interests in a broad range of video programming, communications, technology and Internet businesses in the United States, Europe, South America and Asia. Liberty Media’s principal assets include interests in Encore Media Group, Discovery Communications, Inc., Time Warner Inc., QVC Inc., USA Networks, Inc., Telewest Communications plc, TV Guide, Inc., General Instrument Corporation, Sprint PCS Group and The News Corporation Limited (assuming completion of the proposed transaction to exchange Liberty’s interest in Fox/Liberty Sports for an interest in News Corp.). Liberty Media Group also has interests in certain other domestic and international programming networks and businesses included in the table below.

The following table sets forth Liberty’s assets that are held directly and indirectly through partnerships, joint ventures, common stock investments and instruments convertible into common stock. Ownership percentages in the table are approximate and, where applicable, assume conversion to common stock by Liberty and, to the extent known by Liberty, other holders. In some cases, Liberty’s interest may be subject to buy/sell procedures, repurchase rights or, under certain circumstances, dilution.

On March 9, 1999, AT&T acquired Tele-Communications, Inc. by merger. In conjunction with the completion of the AT&T merger, the TCI Ventures Group and the Liberty Media Group of TCI were combined. Immediately prior to the closing of the AT&T Merger, in exchange for $5.5 billion in cash TCI Ventures transferred to the TCI Group its interest in At Home Corporation, National Digital Television Center, Inc., Western Tele-communications, Inc. and approximately 47 million shares of AT&T common stock.

The results of the combined Liberty/Ventures Group for the year ended 1998 are included in the AT&T Form 8-K which was filed with the Securities and Exchange Commission on March 22, 1999. The results of the Liberty Media Group for the first quarter of 1999 are included in the AT&T Form 10-Q which was filed with the Securities and Exchange Commission on May 17, 1999. These documents may be obtained without charge by contacting Liberty’s Transfer Agent, EquiServe, whose address is listed on the back cover of this report, or through Liberty’s Web site at www.libertymedia.com. Liberty’s press releases which provide additional information regarding Liberty’s year end 1998 and first quarter 1999 results can also be obtained by accessing Liberty’s Web site.

Liberty Media Corporation
9197 South Peoria Street
Englewood, CO 80112
720.875.5400
www.libertymedia.com