Starz Encore Takes a Hit in Settlement with Comcast

The standoff between Comcast and Starz Encore Group came to an end this week with a multi-year carriage deal that will significantly cut into the programmer's profit margin. Under the agreement, Starz Encore forfeits an annual payment of around $230 million, but gains continued carriage of its movie channels, as well as the launch of its subscription video-on-demand service, its 5.6 Mbps version of a high-definition channel, and a new kids' channel.

The deal, announced Tuesday, ends a lawsuit against Starz Encore Group filed last year by Comcast in the wake of its acquisition of AT&T's 13 million cable subscribers. Comcast sued the programmer in order to shed a carriage deal that AT&T inherited when it bought TCI, the cable system once owned by Liberty Media Chairman John Malone, who also owned Starz Encore. As owner of both the cable system and the network group, Malone constructed an unheard of 25-year carriage agreement that paid Starz Encore a flat fee of around $230 million a year, instead of the usual per-subscriber fee of around $5 for a premium (pay) channel. There were also provisions for AT&T to pay Starz Encore an additional programming subsidy. Analysts estimate that Starz Encore will get about $200 million a year less in the new arrangement with Comcast.

While Starz Encore Group will now have to foot the entire bill for its programming costs, it did secure distribution for Starz! on Demand and eventually, Encore on Demand, on systems where Comcast has launched VOD. Also, Starz!HD will be added to Comcast's high-definition package, and the new children's service, STARZ! Kids, will be rolled out to an unspecified number of subscribers.