One Lawsuit Down for Comcast

Cable World, Sept 29, 2003

Byline: K. C. NEEL

Comcast proved last week that size does matter when it used its clout to help settle a lawsuit with Liberty Media's Starz Encore unit. But its size - the result of its acquisition of AT&T Broadband in 2002 - could work against it if a class-action lawsuit by former @Home shareholders gains traction in the courts.

Shareholders of the defunct @Home Internet service were given the green light last week by a New York federal judge to proceed with a class-action lawsuit against @Home's former owners and directors, which includes Comcast and CEO Brian Roberts.

The shareholders claim AT&T Corp. unfairly took intellectual property from @Home shareholders. AT&T may have committed the alleged theft, but Comcast could end up having to foot half the damages related to any @Home litigation, according to its 2002 annual report.

Comcast declined to discuss the issue. Stifel Nicolaus analyst Ted Henderson says it's too soon to determine how Comcast will be affected by the litigation, noting that although a number of class-action suits have been filed over the past couple of years, few have produced results for shareholders.

Meanwhile, Comcast and Starz celebrated the settlement of litigation that was a result of Comcast's refusal to adhere to the affiliation deal it inherited when it bought AT&T Broadband.

Many analysts surmised that Comcast came out on top in the deal because it will now pay Starz a per-subscriber fee versus the flat fee AT&T and its predecessor Tele-Communications Inc. paid. However, Henderson says Starz benefits, too, because Comcast will roll out new Starz services and market Starz's products again after a four-year hiatus.

Starz Encore president of distribution/marketing Bob Clasen agrees. Clasen, who worked for Comcast in several capacities in the 1980s and '90s - and held the title of president before Brian Roberts took over that job - negotiated the settlement.

"The nuclear winter is over," Clasen says. "Our products will now be available to 22 million Comcast customers. [Comcast] will also launch Starz Kids, Starz on Demand and Starz HD. The question came down to whether we wanted to wait three more years to win the litigation or did we want to go back into the marketplace with one our best customers?"

It is likely other MSOs that have been paying the flat fee as a result of buying systems formerly owned by TCI and AT&T will also renegotiate their fee structure with Starz, Clasen admits.

"The flat fee limited the downside for us," he says. "But it also limited the upside. We want to be flexible with our affiliates, and our door is always open to talk to everyone."

THE NEXT QUESTION:

*How much revenue could Starz lose if other MSOs want to renegotiate their affiliation deals?