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Comcast sues Starz over carriage deal

Nov 25, 2002  •  Post A Comment

Call it the $44.1 million question.
Which carriage agreement governs Starz Encore Group and Comcast Corp, the newly created giant of cable television-the one between SEG and AT&T Broadband, the larger of the two pre-merger entities, or the one between SEG and the pre-merger Comcast Cable?
The new Comcast Corp. has gone to court to extricate itself from the carriage agreement between SEG and AT&T Broadband that it inherited in the merger, taking the dispute to the U.S. District Court for the Eastern District of Pennsylvania.
The AT&T agreement contains a provision, disputed first by AT&T Broadband and now by Comcast Corp., that could trigger additional multimillion-dollar payments to SEG. Those payments could total at least $44.1 million.
The Comcast complaint in Pennsylvania alleges that the distribution of Starz Encore Group programming on the former AT&T systems “will be governed by” the former Comcast’s affiliation agreements with SEG, rather than by the former AT&T Broadband’s affiliation agreements with SEG, according to Starz Encore.
Comcast declined comment beyond a statement: “Comcast is prepared to work toward resolution of its dispute with Starz. Comcast’s declaratory judgment action against Starz was filed to preserve our legal rights.”
Starz Encore also released a statement saying the “claims made in the [Comcast] complaint are without merit and [we] will vigorously contest them.”
The dispute, which also is the subject of a separate Colorado legal action brought in July 2001 by Starz against AT&T Broadband, stems from a 1997 Starz carriage deal that AT&T inherited when it bought the TCI cable systems.
That 25-year agreement, which was reached when both TCI and Starz were owned by John Malone, calls for the cable operator to pay fixed percentages of increases in programming acquisition costs.
That agreement called for AT&T to pay additional fees if Starz’s program acquisition cash costs were 10 percent or more higher than a schedule of costs forecast in the contract, according to the 2001 complaint by Starz, filed in District Court in Arapahoe County, Colo. (Those fees also were subject to being lowered if the costs were 10 percent or more below that schedule, according to the complaint.)
“For the first three and one half years of this contract … actual cash programming costs fell within 10 percent of the costs forecast,” says the complaint. In 2001, however, Starz’s costs soared. On May 16, 2001, according to the complaint, Starz notified AT&T that it was requesting “payment of two-thirds of the higher cash programming costs, or $44,140,000.”
This dispute turns on its head one of the expected savings-of-scale from the merger that created the company. Some analysts expected that the new entity would renegotiate pre-existing Comcast program deals to take advantage of the much larger AT&T Broadband’s presumably lower rates, thereby generating as much as $500 million in savings.
Liberty Media, owned by Mr. Malone, recently said it would challenge any effort by Comcast to apply AT&T’s lower negotiated rate for program license fees to all of the company for any of the programmers in which Liberty has an interest.