Rainbow connection cabler may add Liberty nets for studio leverage

Encore, Starz would strengthen company, lead to spin-off

NEW YORK — The decision of John Malone’s Liberty Media to buy Encore and Starz and their sister multiplexed pay networks (Daily Variety, March 16) could be a prelude to a deal that would put these networks under Chuck Dolan’s Rainbow Programming Services.

Although the parties declined to comment, sources say talks started a few months ago in which Liberty Media would get a minority stake in Rainbow in exchange for funneling Encore, Starz and six “thematic multiplex” channels into the Rainbow operation.

Rainbow is a strong cable network distributor, employing its affiliate-sales force to clear such services as AMC (American Movie Classics), Bravo, Much Music, Independent Film Channel and Romance Classics.

But Rainbow has held on-and-off talks for a number of years now with all of the major studios, looking for what Jessica Reif, a showbiz analyst for Merrill Lynch, calls “a strategic partner” that would “help Rainbow to rebrand its networks” and assure a steady flow of movies to AMC, Bravo, IFC and Romance.

These talks have not resulted in any deals, which has frustrated Rainbow and spurred it to explore the addition of Encore, Starz and the other movie networks from Liberty Media.

These additions would help to burnish the value of Rainbow and make a deal with a major studio easier to pull off.

Rainbow’s talks with Liberty Media are linked to the company’s frequently stated intention of eventually spinning off Rainbow from its Cablevision Systems Corp. parent. James Dolan, CEO of Cablevision Systems, said on CNBC Monday that he’s ready to make Rainbow a separate company because its full asset value is going “unrecognized.”

An Encore-Rainbow alliance could parallel the deal Cablevision struck last year with Fox-Liberty Sports, which paid $850 million for a 40% stake in Rainbow’s seven regional sports networks. Rainbow, in turn, scrapped the Sportschannel logo, which never caught on, and rebranded six of the seven regionals with the Fox Sports trademark. (The seventh, Madison Square Garden network, kept its unique label.)

Liberty’s parent, Tele-Communications Inc., owns a 34% interest in Cablevision Systems as part of a deal last year in which TCI transferred cable systems reaching close to 1 million subscribers to Cablevision.

Rainbow’s interest in gaining access to Encore, Starz and the multiplex networks ties in with its future strategy of offering packages of cable channels to cable systems as they expand their capacity through digital compression.

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