Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
Commitments and Contingencies
Programming Rights
Starz has an exclusive multi-year output licensing agreement for qualifying films that are released theatrically in the U.S. by Sony Pictures Entertainment Inc. (“Sony”) through 2021. The agreement provides Starz with exclusive pay television rights to exhibit qualifying theatrically released films under the Sony, Columbia Pictures, Screen Gems, Sony Pictures Classics and TriStar labels. Theatrically released films produced by Sony Pictures Animation are not licensed to Starz under the Sony agreement. In addition, Starz had an exclusive licensing agreement for qualifying films that were released theatrically in the U.S. by The Walt Disney Company (“Disney”) through 2015, with initial license periods for those films extending into 2017. The agreement provided Starz with exclusive pay television rights to exhibit qualifying theatrically released films under the Disney, Touchstone, Pixar and Marvel labels. Theatrically released films produced by DreamWorks and released by Disney were not licensed to Starz under the Disney 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 licensed from these producers.
The unpaid balance for program rights related to films that were available for exhibition at September 30, 2016 is reflected in accrued liabilities and in other liabilities in the accompanying condensed consolidated balance sheets. As of September 30, 2016, such liabilities aggregated approximately $92.1 million. The estimated amounts payable under programming license agreements related to films that are not available for exhibition until some future date, including the rights to exhibit films that have been released theatrically under the Sony agreement, totaled $562.4 million and had not been accrued as of September 30, 2016. Total estimated payments under programing license agreements, accrued and not accrued, as of September 30, 2016 were as follows: $70.1 million in 2016; $179.3 million in 2017; $108.3 million in 2018; $99.3 million in 2019; $71.6 million in 2020 and $125.9 million thereafter.
Starz is also obligated to pay fees for films that have not yet been released in theaters by Sony. Starz is unable to estimate the amounts to be paid under the Sony agreement for films that have not yet been released, however, such amounts are expected to be significant.
Total amortization of program rights was $163.0 million, $145.7 million, $438.4 million and $426.8 million for the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016 and 2015, respectively. These amounts are included in programming costs in the accompanying condensed consolidated statements of operations.
Legal Proceedings
On October 29, 2015, Keno Thomas, a former Starz Entertainment employee, filed a complaint in Los Angeles County Superior Court against Starz, Starz, LLC, Starz Entertainment (collectively, “Starz Parties”) and Liberty Media, and certain individual defendants. The plaintiff alleges that the Starz Parties and certain of the other defendants engaged in retaliation, wrongful termination of employment, failure to prevent retaliation and intentional infliction of emotional distress, all in connection with the plaintiff’s employment with Starz Entertainment. The plaintiff seeks compensatory, emotional distress and punitive damages, interest and an award of reasonable attorneys’ fees. On November 30, 2015, defendants removed this case to the United States District Court for the Central District of California. In February 2016, the parties stipulated to dismiss Starz and Starz, LLC without prejudice and to dismiss Liberty Media with prejudice. On February 29, 2016, the District Court dismissed one of the individual defendants without prejudice, dismissed certain claims for retaliation and for intentional infliction of emotional distress without prejudice and struck certain other allegations in the complaint, permitting the plaintiff to file an amended complaint with respect to the claims dismissed without prejudice. The plaintiff filed an amended complaint on March 30, 2016 with modified allegations of retaliation and intentional infliction of emotional distress. On April 13, 2016, the defendants moved to dismiss various causes of action in the amended complaint. On July 11, 2016, the District Court granted the defendants’ motion to dismiss the claim for intentional infliction of emotional distress without leave to amend, and to dismiss one claim for retaliation with leave to amend. On September 26, 2016, the District Court denied Starz’s motion to dismiss one of the plaintiff’s claims for retaliation under California Labor Code Section 1102.5(c), but agreed that plaintiff could not pursue one theory of his claim for retaliation within that claim. Starz believes that it has substantial defenses to the claims asserted in the foregoing action, is defending the action vigorously, and does not believe that the resolution of the action will have a material adverse effect on its business, financial condition or results of operations.
Between July 19, 2016 and July 29, 2016, six putative class action complaints were filed by purported Starz stockholders in the Court of Chancery of the State of Delaware: Freedman v. Malone, et al., C.A. No. 12571-VCG; Oklahoma Police Pension & Retirement System v. Malone, et al., C.A. No. 12584-VCG; The Firemen’s Retirement System of St. Louis v. Malone, et al., C.A. No. 12596-VCG; City of Cambridge Retirement System v. Malone, et al., C.A. No. 12598-VCG; Norfolk County Retirement System v. Malone, et al., C.A. No. 12599-VCG; and City of Providence v. Starz, et al., C.A. No. 12604-VCG. On August 16, 2016, the Court of Chancery of the State of Delaware entered an order consolidating these six putative class actions into one consolidated action, In re Starz Stockholder Litigation, Consolidated C.A. No. 12584-VCG. On August 30, 2016, a seventh putative class action was filed by purported Starz stockholders in the Court of Chancery of the State of Delaware, Teamsters Local 170 Pension Fund v. Lions Gate Entertainment Corp., et al., C.A. No. 12705, which was later added to the consolidated action. The verified consolidated class action complaint names as defendants Starz; Dr. John C. Malone; Mark H. Rachesky; Greg Maffei; Robert R. Bennett; Deborah J. Bennett; Irving L. Azoff; Susan M. Lyne; Christopher P. Albrecht; Daniel E. Sanchez; Robert S. Wiesenthal; Andrew T. Heller; Jeffrey F. Sagansky; Charles Y. Tanabe; Hilltop Investments, LLC; Leslie Malone; The Tracey L. Neal Trust A; The Evan D. Malone Trust A; Lions Gate; and Merger Sub. The consolidated complaint alleges that the Starz Board of Directors breached their fiduciary duties by failing to obtain adequate consideration for the Merger and that other defendants breached their fiduciary duties and/or aided and abetted the board in breaching their fiduciary duties. In two counts, the consolidated complaint asserts a claim for breaches of fiduciary duty against Dr. Malone and the Starz Board of Directors, as well as a claim for aiding and abetting the breaches of fiduciary duty against Dr. Malone, Robert Bennett, Deborah Bennett, Hilltop Investments LLC, Leslie Malone, The Tracey L. Neal Trust A, The Evan D. Malone Trust A, Mark H. Rachesky, Lions Gate, and Orion Arm. The consolidated class action complaint seeks damages, rescission of the merger, costs, attorneys’ fees, experts’ fees, and other equitable relief. On August 18, 2016, plaintiffs in the consolidated action filed a motion for expedited proceedings; on September 22, 2016, the court denied the motion.
On August 9, 2016, an eighth putative class action complaint was filed by a purported Starz stockholder in the District Court for the City and County of Denver, Colorado: Gross v. John C. Malone, et al., 2016-CV-32873. The complaint names as defendants the members of the board of directors of Starz, Dr. Malone and Mr. Bennett, as well as Lions Gate and Merger Sub. The complaint alleges, among other things, that the members of the Starz board of directors breached fiduciary duties owed to Starz and the holders of Starz Series A common stock in connection with the merger and the transactions contemplated by the merger agreement, and that Dr. Malone, Mr. Bennett, Lions Gate, and Merger Sub aided and abetted such breaches of fiduciary duty. On October 7, 2016, the Colorado court entered an order granting a joint motion for extension of time to respond to the complaint by and including November 9, 2016.
Defendants believe that the complaints are without merit and intend to defend the actions vigorously.
In the normal course of business, Starz is subject to other lawsuits and other claims, including claims of alleged infringement of the trademarks, patents, copyrights and other intellectual property rights of third parties. While it is not possible to predict the outcome of these other matters, it is the opinion of management, based upon consultation with legal counsel, that the ultimate disposition of known proceedings will not have a material adverse impact on Starz’s business, financial condition or results of operations.
|