Showtime, Rainbow Rumor Denied

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A potential Showtime Networks Inc.-Rainbow Programming
Services merger is not on the drawing board, according to sources close to the situation.

At the same time, discussions about a Rainbow-Encore Media
Group union have stalled, leaving some observers to wonder if any major premium network
alliance will be completed in the near future.

Reports in Variety last week claimed that executives
from Showtime owner Viacom Inc. and Rainbow owner Cablevision System Corp. were in
discussions to create a new entity that would oversee Showtime's pay television
divisions and Rainbow's basic networks. But sources close to the situation said that
executives from the two companies never met to discuss such a merger.

Representatives from Rainbow Services would not comment on
the matter, and a Showtime spokeswoman said the company does not comment on rumors.

A Viacom-Cablevision deal would provide Showtime with a
strong strategic MSO alliance that would help the pay service increase distribution among
Cablevision-owned systems, as well as provide product for digital distribution.

Sources said Showtime has lost a number of Cablevision
subscribers recently in favor of the Tele-Communications Inc.-owned Encore and Starz! pay
services. TCI owns a one-third interest in Cablevision.

But one insider said the only discussions Cablevision and
Viacom have had recently were to iron out current distribution issues, not to talk about
merger deals.

"A Showtime-Rainbow deal doesn't make any
sense," said a source close to the situation. "If anything happens, it will
probably be between TCI and Cablevision."

But discussions to merge Rainbow and Encore have cooled of
late. Sources said that disagreements over how much stake TCI will have in the new entity
and personnel issues have stalled the talks.

Such a deal would make sense for both parties. Encore,
which consists largely of movies from the 1960s to 1980s, and Starz!, a first-run network,
would complement Rainbow's American Movie Classics, Bravo and The Independent Film
Channel.

Since Hollywood movies seems to be the primary driver of
digital tier penetration, a Rainbow-Encore entity would provide thousands of movie titles
and possibilities for analog and digital cross-promotions.

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