Liberty Media

(L) - Get Report

is about to spin off its Discovery Communications unit, but investors are still waiting to see what John Malone has up his sleeve.

The company is due to spin off this Thursday the operation that controls television networks including The Discovery Channel, TLC, Animal Planet and The Travel Channel, as well as a host of other emerging channels and international feeds. The move is aimed in part to

simplify Liberty's byzantine setup and make it easier for investors to understand the company.

But the spinoff, while welcomed by investors, fails to resolve many of the basic questions surrounding Liberty. For one thing, Discovery Holding's creation comes at a time when ratings at the cable TV enterprise have been softer than usual. The cable upfront ad session in June failed to capture the imagination of media buyers who opted instead for increased broadcast commitments and Internet plays. For another, Liberty has yet to signal what it will do with its big stake in rival

News Corp.

(NWS) - Get Report

.

The market's reaction to Discovery -- which will be owned half by the public and half by a pair of media companies, Cox and Newhouse -- could also provide a valuation reference for the coming split-off of

Viacom's

(VIA.B)

growth unit, which is dominated by the MTV networks. Though significantly smaller than the new Viacom, Discovery could shed some light on what Viacom shareholders will see when they get terms of their split-up in early August.

The run-of-the-mill upfront may mean that Discovery will be forced to lower its guidance of low double-digit growth into the single digits, according to media analyst Kathy Styponias of Prudential. Most Discovery networks, including Travel Channel, Animal Planet, TLC and Discovery, showed year-over-year ratings declines last year, and the results so far in 2005 have been weaker still.

Despite mediocre results, Styponias says the timing of the spin still makes sense. Her views are largely in line with those of CSFB analyst William Drewry, who initiated coverage of Liberty last week.

Both Prudential and CSFB rate Liberty neutral. Prudential has a price target of $13, compared with CSFB's $11.50.

Drewry says in a research note that there are several key issues for Liberty looking forward. He says Liberty "remains more of an equity stake holding company than an operating company, and the market's inclination is to attach a sizable discount to that."

By all appearances, Liberty's 18% stake in News Corp. is acting as an overhang on the company's stock.

"On the News Corp. share situation, we think a resolution or visibility that nothing will be done with the shares indefinitely needs to be reached quickly," says Drewry. Styponias says that "discussions with News Corp. seem to be going slowly" and adds that management at Liberty suggested at a recent meeting that "receiving cash from News Corp. in exchange for the shares is not what it considered to be the most attractive option for Liberty."

One theory is that the hard-hitting Malone will seek at some point to spin the News Corp. holdings off to Liberty shareholders, along with an operating asset the company has owned for at least five years -- such as Starz!, for example.

Liberty Media has stakes in outfits including QVC, Encore, Starz! and

IAC/InterActiveCorp

(IACI)

as well as News Corp. and the soon-to-be-divested Discovery.