Starz Fights Whistleblower Lawsuit: Diversity Problems, Mergers, Inflated Revenue

Chris Albrecht - H 2015
AP Images/Invision

Chris Albrecht - H 2015

On Tuesday, Starz CEO Chris Albrecht was in New York telling an investment conference about the direction of his company and addressing consolidation speculation. Meanwhile, in California, Starz lawyers are fighting back against former senior vp Keno Thomas, who, in a scorching lawsuit brought in October, spoke about how Albrecht once pleaded no contest to attacking his girlfriend in a parking lot and, in negotiations with DirecTV in 2014, allegedly directed his team to respond so aggressively that when the company's general counsel saw the response, the in-house lawyer's "balls would shrivel back into his little 'girly-man' body."

Welcome to the rough-and-tumble world of the TV business.

In his lawsuit, Thomas identifies himself as the only senior-level African-American at the company until his termination in 2014. Now, he's trying to blow the whistle on everything from what caused Starz to back a merger between Comcast and Time Warner to how the company allegedly falsified revenue and subscriber numbers.

Starz doesn't see its former executive as a whistleblower at all. Telling a judge that Thomas was fired because of "poor performance," who took medical leave only to delay his termination, the company attacks the plaintiff as bring a lawsuit that is "more public-relations puff-piece than legal pleading," with Albrecht thrown in as a co-defendant as a "pure publicity stunt." 

According to Thomas, the cable industry suffers from great diversity problems and points to what Albrecht said at another investment conference earlier this year. "There are ten guys in Hollywood, maybe 12, and five women," he said in January. "We all know each other, and we all eat in the same restaurants and we do a lot of things together ... this is one incestuous giant mess."

At the time, Albrecht was addressing how rumors get started, but in Thomas' complaint, it becomes evidence how "given the cable industry's push towards consolidation, there are fewer and fewer executives who make the final decisions on major deals."

Although Thomas is not suing for racial discrimination per se, he attempts to present various ways in which diversity problems have allegedly manifested at Starz.

For example, he says that when Albrecht came aboard after leaving HBO as its chief in the wake of the girlfriend assault arrest, many women at the company were concerned about the hiring. Thomas says that in 2013, he advised others at Starz they should reconsider using the artist 50 Cent in advertisements because the rapper was facing domestic violence charges much like Albrecht's prior ordeal. Thomas was allegedly warned to be careful about what he said, and his superior "dismissed Mr. Thomas' concerns and threatened him and ordered him to keep quiet about the issue of workplace violence."

In court papers on Monday, Starz accuses Thomas of attempting "to convert this wrongful discharge dispute between a single employee and his employer into a referendum on an entire industry." Further, Starz says that the lawsuit's reference to allegations of domestic violence involving 50 Cent and Albrecht is included "gratuitously" with the aim of dragging Starz and its chief "through the mud." Starz also responds to Thomas' separate beef that the company does not have enough TV programs specifically created for minorities by touting its "strong commitment to such programming with shows like Power — a series produced by rapper Curtis '50 Cent' Jackson that has become the highest-rated show in Starz' history."

Amazingly, this is mere background to the crux of the lawsuit, perhaps best illustrated through Thomas' allegations directed at two events in Starz' recent history — and the response by the company. (There's much more in the complaint, but due to space, we'll only address these two for now.)

The first concerns the since-aborted marriage between Comcast and Time Warner Cable. Back in 2014, when those cable giants were attempting to get regulators to approve a merger, Comcast reached a side deal with Charter to spin off a separate cable company. 

At the time, reports Thomas, Comcast's affiliate-carriage contract with Starz was set to expire. But then, the lawsuit alleges, Starz's chief revenue officer Michael Thornton (Thomas' superior) and Starz chairman Gregory Maffei, "who is on the Boards of both Starz and Charter, conspired to manipulate the Charter/Comcast deal. Mr. Thornton boasted that he had urged Mr. Maffei to call Comcast and demand that, as a clandestine part of the Charter/Comcast deal, Comcast extend its Starz affiliate carriage deal at a loss for Comcast and a great profit for Starz. ... Tellingly, Starz later was one of the few programming services to file in favor of the Comcast and Time Warner Cable merger."

Thomas says he raised the issue of the legality of the arrangement, saying Maffei's actions may constitute "insider manipulation and unfair influence on a pending merger." The plaintiff also says that, to no avail, he voiced concerns that "industry consolidation would harm minorities and women."

Starz' reaction to Thomas here certainly demands attention and is worth considering when one examines what interested parties inside the industry are saying about proposed mergers. The company says that what Thomas is alleging can't form the basis of a retaliation-for-whistleblowing claim. Here's why:

"Thomas alleges that Starz leveraged Charter’s position in connection with its merger to obtain a favorable contract extension with Comcast," states Starz in a motion to dismiss. "Thomas again fails, however, to identify any statute, rule or regulation that prohibits such conduct regarding a pending merger. He has not identified any such authority because none exists; indeed, the law presumes that sophisticated parties will bargain at arm’s length."

In other words, everyone is free to use tie-ups and the subsequent regulatory review process to their own advantage.

The second event concerns allegations that Thomas refused to go along with "illegal practices" arising from a carriage contract between Starz and DirecTV.

According to his lawsuit, Thomas told his superior that DirecTV's removal of Starz from marketing campaigns would impact revenue and, after the concern bore out, the two companies had to re-engage discussions over the issue with a solution not coming immediately. Supposedly, Albrecht didn't want to present unfavorable revenue figures to the company's board, and so a finance director instructed Thomas and his staff to "arbitrarily inflate the revenue figures and subscriber numbers because the optics did not look good and so that Mr. Thornton and Mr. Albrecht would have plausible deniability when they go back to the Board in case the Board realized the revenue figures were fabricated."

Starz reacts to this by saying the "figures" to which Thomas is referring to "are revenue targets that were used for internal budgeting and as objectives against which Thomas' performance would be measured to calculate Thomas' bonus compensation."

Presented this way, instead of the nefarious falsification that Thomas alleges occurs, Starz goes on to say that "Thomas opposed any increase in those figures because a higher revenue target would have required more effort to achieve, and it would have put Thomas' bonus compensation in jeopardy. Thomas would not stand for that."

In other words, Thomas says Albrecht and others didn't want to be embarrassed. The company hits back by saying Thomas was merely being selfish.

Here's Starz's motion to strike and its motion to dismiss, which goes into further arguments against Thomas' claims.