Who Comcast's Seeing in Court

The Starz Encore Group LLC-Comcast Corp. dispute is a judicial tangle involving several lawsuits.

But the bottom line is the allegation that programming companies that are part of John Malone's Liberty Media Corp. — Starz Encore Group LLC and DMX Inc. — were essentially granted sweetheart deals by Tele-Communications Inc., the predecessor to AT&T Broadband.

It was all in the family, since at the time those deals were done — roughly six years ago — Liberty Media was a unit of TCI, which Malone once headed.

The chain of lawsuits stems back to July 2001, when Starz Encore sued AT&T Broadband for breach of its affiliation contract. In January, Starz Encore filed an amended complaint that included Comcast as a defendant.

The suits revolve around the TCI carriage deal for John Sie's premium service, which AT&T inherited — a pact that Broadband charged was onerous. Starz Encore's TCI deal was incredibly favorable to the programmer: a 25-year arrangement that AT&T argued was far above market prices.

Starz Encore and Comcast declined to comment in detail on the litigation.

A press release dated July 14, 1997, sets forth the terms of the TCI-Starz Encore pact. The release said TCI had to pay the premium service huge fixed annual fees, starting in 1998 with a payment of $270 million. Those fees were to rise to $360 million this year, increasing at the rate of inflation after that point.

Leo Hindery Jr., the former CEO of TCI and AT&T Broadband, discussed the Starz Encore deal that AT&T inherited from TCI in his book, The Biggest Game of All.
"In plain black and white, we told AT&T it would have to pay $300 million a year to carry Starz! and its suite of 13 movie channels," Hindery wrote. "But there was a catch: $300 million was just the floor; the fees would ratchet up over time.

"At $300 million, AT&T would be paying about $3 per subscriber a month. That was twice the going rate of similar movie services. And the term of the of the contract — 25 years — was about 20 years longer than normal."

The TCI-Starz Encore contract also called for TCI to pay extra money to offset what the programmer was paying for content such as theatricals if that amount exceeded a certain benchmark.

"There was no cap on AT&T's overrun obligations," Hindery wrote in his book. "The sky, quite literally, was the limit."

In May 2001, Starz Encore informed AT&T, formerly TCI, that programming costs had risen above that benchmark, and therefore, the MSO owed it $44.1 million. AT&T refused to pay, prompting Starz Encore to file suit.

The litigation on that lawsuit, which is pending in Colorado, had been stayed so the parties could try to negotiate a settlement. Last October, AT&T had won an extension of that stay due to its pending deal with Comcast.

But the same day Comcast merged with AT&T, last Nov. 18, Comcast sued Starz Encore.

Comcast's suit against Starz Encore maintains that its 22 million subscribers should be bound by Comcast's carriage deal with the premium service, not the controversial pact that AT&T inherited from TCI.

In its amended complaint, Starz Encore claims that when AT&T bought MediaOne Group Inc. in 2000, it applied its 25-year deal with Starz to those acquired systems.

Starz argues that "by this choice," AT&T accepted that long-term affiliation deal as "valid … and not above market rates."

Comcast has also told Starz Encore that it has elected to extend its pre-merger affiliation agreement — one that is more favorable than the old AT&T deal and expires the end of this year — for five more years, under the same terms and conditions, according to the 10-Q Liberty Media filed in May.

In January, in another round of litigation, Liberty Digital's DMX filed a breach of contract suit against Comcast, alleging the MSO was not complying with the programmer's carriage deal with AT&T. That contract calls for DMX to get $18 million per year.