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Starz Encore Profits Plunging - Broadcasting & Cable

Starz Encore Profits Plunging

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Liberty Media Corp. warned that programming costs at its Starz Encore Group LLC services are
ballooning and will badly crunch the company’s profits.

Liberty said license fees for theatrical movies will surge $175 million-$225
million next year.

Salomon Smith Barney media analyst Niraj Gupta said that’s up 41%-52% over the $430
million he estimated that Starz will incur this year, hitting $605 million-$655
million.

Gupta said the company had earlier been expecting a $50 million increase.

Meanwhile, revenue growth has stalled out as subscriber counts have actually
fallen.

Liberty blamed the increase on the strong performance of recent theatrical
releases, license fees for which are based on their box-office performances.

Also, contracts kicking in next year come with higher prices for video-on-demand rights.

In the past, Starz Encore could pass through much of the rising costs for movies
onto AT&T Broadband, which acquired Liberty’s former parent company, Tele-Communications Inc.

An old sweetheart deal called for TCI to cover much of Starz Encore’s
programming-cost increases.

AT&T Broadband sued to break the deal when its executives realized how expensive it
was getting.

Thenm when Comcast Corp. bought AT&T Broadband last year, it went to court
declaring that its own, less expensive affiliation with Starz Encore was now
effective.

Starz Encore is fighting back, but it said it can’t assume that Comcast can be
forced to pay up.

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