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Sony Sees Starz in Movie-Output Deal

Starz Encore Media Group LLC and Sony Pictures
Entertainment agreed to a complex long-term deal, valued at roughly $1.7 billion, that
gives the premium service first-run rights to the studio's theatricals, as well as
licenses for the new digital world of subscription video-on-demand, officials said last
week.

Sony Pictures' new pact with Starz Encore doesn't
take effect until several years from now, when Home Box Office's long-standing deal
with the studio expires.

At that time, the new pay TV output agreement gives Starz
Encore exclusive, first-run pay TV rights to all films released by Sony Pictures --
including Columbia Pictures, Screen Gems and Sony Pictures Classics -- for a six-year
period, from January 2005 through 2011. Sony is expected to provide Starz Encore with more
than 200 movies during that time span.

The agreement also includes immediate SVOD and future
Internet rights for Sony films to Starz Encore. The premium service secured similar SVOD
rights in August as part of a 10-year renewal, valued at $1 billion, of an output deal it
had with The Walt Disney Co.

"If you project into the future, Sony has decided to
partner with the leader in the digital world, not HBO," Starz Encore chairman John
Sie said.

In Sie's current SVOD model, a subscriber would pay $6
per month, on top of Starz Encore's subscription, to access a selection of movies
on-demand for that flat fee, rather than ordering movies on an individual pay-per-view
basis. Starz Encore plans to start testing SVOD this year, and to begin deploying it
commercially next year, according to Sie.

"This will increase our revenue base and make us a
dominant player in digital," he said.

Sony executives said they bought into, and agreed with,
Sie's ideas about digital and SVOD.

"It really involved some extensive discussions with
Starz and HBO on their vision of the future and how pay TV can use other forms of delivery
to effectively deliver motion pictures to the consumer," said Michael Grindon,
president of Columbia TriStar International Television. "Sony is very bullish on the
future of new delivery forms, like the Internet."

For its part, HBO contended that it has a solid theatrical
lineup even without a new deal with Sony Pictures, and it didn't want to be bound to
an agreement with the studio until 2011, or 2014 with a special extension -- the two
options Starz Encore has under its pact.

"We have the superior lineup of movies, the leading
offerings out to 2011," HBO chairman and CEO Jeff Bewkes said. "We didn't
choose to add Sony movies to that. And we did not want to commit to out to 2014."

He also pointed out that apart from theatricals, and unlike
Starz Encore, HBO believes "a strong original-program lineup is also important, and
we plan to keep expanding that."

And HBO challenged Sie's assertion that Starz Encore
is the only pioneer in digital and SVOD. HBO has been aggressively laying groundwork in
the digital world, with an "HBO On Demand" service "ready to go" once
cable operators have the two-way infrastructure in place for it to be implemented,
according to Bewkes.

He added that HBO already has the necessary digital rights
from studios to offer that kind of on-demand service.

Even without the Sony Entertainment renewal, HBO has a
couple of deals under its belt and in the works to fill out its theatrical lineup. In
December, it extended its output deal with 20th Century Fox -- an agreement
valued at more than $1 billion -- and it is now negotiating such an agreement with its
corporate siblings, New Line/Fine Line. New Line's current output deal is with Starz
Encore, and it expires in December 2005.

Starz Encore's new agreement with Sony Pictures also
includes extending the premium service's existing pay TV license agreement with the
movie studio for second-run output product, which covers more than 100 movies. Those
titles include Jerry Maguire, Men in Black and My Best Friend's
Wedding
.

And the new commitment licenses more than 1,000 movies from
Sony's library to Starz Encore over the next five years, including movies such as Groundhog
Day
, Taxi Driver and Boyz N the Hood.