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Commitments and Contingencies
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12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2013
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies |
- Commitments and Contingencies
Programming Rights
On February 11, 2013, Starz announced a new, multi-year output licensing agreement for qualifying films that are released theatrically in the U.S. by Sony Pictures Entertainment Inc.’s (“Sony”) Columbia Pictures, Screen Gems, Sony Pictures Classics and TriStar labels that extends its relationship with Sony through 2021, subject to certain limitations. The previous agreement had covered motion pictures released theatrically through 2016. In addition, Starz has an exclusive long-term licensing agreement for theatrically released films from the Walt Disney Company (“Disney”) through 2015. The agreement provides Starz with exclusive pay TV rights to exhibit qualifying theatrically released live-action and animated feature films under the Disney, Touchstone, Pixar and Marvel labels. Theatrically released films produced by DreamWorks are not licensed to Starz under the agreement. The programming fees to be paid to Sony and Disney are based on the quantity and domestic theatrical exhibition receipts of qualifying films. Starz has also entered into agreements with a number of other motion picture producers and is obligated to pay fees for the rights to exhibit certain films that are released by these producers.
The unpaid balance for film rights related to films that were available at December 31, 2013 is reflected in accrued liabilities and in other liabilities in the accompanying consolidated balance sheets. As of December 31, 2013, such liabilities aggregated approximately $40.8 million and are payable as follows: $32.2 million in 2014 and $8.6 million in 2015.
Under the agreements with Sony and Disney, Starz is obligated to pay fees for the rights to exhibit films that have been released theatrically, but are not available for exhibition by Starz until some future date. The estimated amounts payable under Starz’s programming license agreements, including the Sony and Disney agreements, which have not been accrued as of December 31, 2013, are as follows: $380.4 million in 2014; $159.7 million in 2015; $101.7 million in 2016; $96.6 million in 2017, $91.7 million in 2018 and $206.4 million thereafter.
Starz is also obligated to pay fees for films that have not yet been released in theaters. Starz is unable to estimate the amounts to be paid under these agreements for films that have not yet been released in theaters; however, such amounts are expected to be significant.
Total amortization of program rights was $581.1 million, $617.8 million and $611.0 million for the years ended December 31, 2013, 2012 and 2011, respectively. These amounts are included in programming costs in the accompanying consolidated statements of operations.
Operating Leases
Starz leases office facilities, back-up transponder capacity, and certain other equipment under operating lease arrangements. Rental expense under such arrangements amounted to $7.1 million, $7.1 million and $6.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. Such amounts are included in operating expenses and selling, general and administrative expenses in the accompanying consolidated statements of operations.
The future minimum payments under noncancelable operating leases, net of subleases, at December 31, 2013 are as follows (in thousands):
Foreign Currency Hedge Contracts
Starz has entered into foreign currency hedge contracts to manage its foreign currency risk in connection with certain original programming series produced in South Africa. Starz has committed to pay US$11.3 million for ZAR117.8 million during 2014.
Guarantees
Canada Co. entered into an agreement with the Ontario government whereby Canada Co. is eligible to receive funds under the Canadian Next Generation of Jobs Fund Grant (“NGOJF”) through the termination date of March 31, 2014. The maximum amount of the grant available and the guarantee was $23.1 million. Starz Entertainment entered into a guarantee for any amounts owed to the Ontario government under the grant if Canada Co. did not meet its obligations. The Ontario government released Starz Entertainment from the NGOJF guarantee in December 2013 due to completion of the project in September 2013. As a result of this release, Starz recognized income of $8.8 million in other income (expense), net during the year ended December 31, 2013, for amounts accrued in prior years under the guarantee. As discussed in Note 3, Starz sold its controlling interest in Canada Co. on March 3, 2011.
Starz Entertainment is the guarantor on two noncancelable operating leases in which an affiliate within each of the Starz Distribution and Starz Animation businesses is the tenant. The maximum potential amount payable under these guarantees is $9.0 million at December 31, 2013. Starz Entertainment does not currently expect to have to perform under these obligations. The leases expire in 2014 and 2016.
Legal Proceedings
On May 3, 2011, Starz Entertainment filed a lawsuit against DISH Network L.L.C. (“DISH”) in Douglas County, Colorado District Court, 18th Judicial District, alleging that DISH breached its affiliation agreement with Starz Entertainment by providing a free preview for one year of eight of the Starz and Encore channels to a substantial number of DISH customers without Starz Entertainment’s written approval. On May 2, 2011, Disney Enterprises, Inc. filed a lawsuit against DISH in connection with the same free preview in U.S. District Court for the Southern District of New York, seeking damages for copyright infringement. In addition, on July 19, 2011, FX Networks filed a separate lawsuit against DISH and Starz Entertainment in connection with the same free preview in Los Angeles County, California Superior Court, seeking damages for tortious interference with its contracts for studio movie content. DISH filed a counterclaim against Starz Entertainment in the first lawsuit, seeking indemnification from Starz Entertainment against Disney Enterprises, Inc. in the second lawsuit and against FX Networks in the third lawsuit. In April 2013, Starz Entertainment and DISH entered into a confidential settlement agreement with respect to the first lawsuit. In addition, in June 2013, Starz Entertainment and FX Networks entered into a confidential settlement agreement with respect to FX Networks’ claim against Starz Entertainment in the third lawsuit. The remainder of FX Networks’ claims against DISH in the third lawsuit are set for trial in June 2014. The resolution of these matters and its potential impact on Starz is uncertain at this time.
In the normal course of business, Starz is subject to lawsuits and other claims. While it is not possible to predict the outcome of these matters, it is the opinion of management, based upon consultation with legal counsel, that the ultimate disposition of known proceedings, other than as discussed above, will not have a material adverse impact on our consolidated financial position, results of operations or liquidity.
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