Starz sues AT&T Broadband

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In a strange case of a subsidiary suing it's parent company, Starz Encore Group sued AT&T Broadband for not paying all its license fees.

Starz! is a movie network subsidary of Liberty Media, which is in turn a "tracking stock" subsidiary of AT&T Corp. While public shareholders own the economic interests flowing from Liberty assets, it is AT&T itself that technically holds title to Liberty and its subsidiaries. Go figure.

As initally reported by Broadcasting & Cable Wednesday, AT&T Broadband is disputing the amount of money it has to pay for Starz! and has withheld $44 million in license payments. AT&T Broadband has notified Liberty that it believes the entire affiliation agreement is "voidable."

The Starz! lawsuit asks the state court to declare that the affilation agreement valid, and asks the court to order AT&T to abide by the terms and pay the license fees. AT&T is very likely to try and move the suit to federal court.

An AT&T Broadband spokeswoman said that the suit "Attempts to sidestep the real issue which is the unenforceability of the term sheet. The terms are a bit inapporriate and the terms are excessive."

The dispute centers on an extraordinary license fee deal the old Tele-Communications Inc. signed with Starz! Rather than paying Starz!'s standard $3 per-subscriber monthly license fee and Encore's typical 77 cents, TCI signed a flat rate deal. It guarantees Starz! $270 million in the first year and $360 million in 2003 for as many subscribers as TCI was able to sell. In addition, Starz has a clause under which AT&T has to shoulder some of the escalation of Starz!'s spending on Hollywood movies, particularly under its deal with The Walt Disney Co.

The license fee has turned out to be double what other operators are paying, and that doesn't even count the programming surcharge. Analysts say that the surcharge could get much higher than the $44 million quarterly it is running now. - John M. Higgins

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