Valuation of Warrants

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Kristin Tucker
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1 Valuation of Warrants November 9, 2012

2 Situation Overview ($ in millions) Liberty Media announced that it is spinning off its Starz LLC ( Starz ) business into a new public company through a tax free distribution to its shareholders. The IPO is expected to be completed in December 2012 or January As part of the transaction, $1.8bn of cash will be distributed from Starz to parent. To facilitate the transaction, $600mm of revolver is expected to be drawn. The remainder of the distribution will be financed through cash on the Starz balance sheet. Starz will also refinance its existing term loan in order to increase term. The following table summarizes the sources and uses of cash as part of the transaction: Sources New Bond Issuance $500 Paydown Existing TL A $500 Existing Revolver Drawdown $600 Cash Distribution to Liberty $1,800 Cash on Hand $1,210 Trans. Fees and Expenses $10 Total Sources: $2,310 Total Uses $2,310 Uses Post transaction, Starz is expected to have a total revolver availability of $400mm. Pro Forma Capitalization Cash $30 Existing Revolver $600 New Bond Issuance $500 Capitalized Leases $80 Net Debt $1,150 Net Debt/CY12 EBITDA 2.5x 1

3 Financial Projections & Valuation Summary ($ in millions) Financial Projections FYE December 31 LTM 9/30/ E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Revenue $1,640 $1,632 $1,688 $1,724 $1,768 $1,809 $1,847 $1,882 $1,917 % Growth % 2.1% 2.5% 2.4% 2.1% 1.9% 1.8% EBITDA $436 $454 $478 $504 $530 $538 $510 $485 $488 EBITDA Margin 27% 28% 28% 29% 30% 30% 28% 26% 25% Free Cash Flow -- $248 $200 $215 $230 $235 $218 $202 $204 FCF Conversion -- 15% 12% 12% 13% 13% 12% 11% 11% Valuation Summary METHODOLOGY IMPLIED VALUATION COMMENTS SPT View: $2,900 DCF (Exit Multiple) $2,400 $3,100 WACC Range: 10.2% % Terminal Multiple: 5.0x - 7.0x DCF (Perpetuity Growth) $2,400 $3,000 WACC Range: 10.2% % Perpetuity Growth: 2.5% - 3.5% LTM EBITDA Trading Multiples $3,180 $3,634 LTM EBITDA Multiple Range: 7.0x - 8.0x 2012 EBITDA Trading Multiples $2,953 $3, E Multiple Range: 6.5x - 7.5x Analyst Average $3,089 Analyst estimates from Barclays, Morgan Stanley, & Macquarie $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 Enterprise Value 2 Note: Starz 2012E 2017E projections based on Morgan Stanley report dated 8/13/12

4 Warrant Valuation Using Black-Scholes Methodology DISCUSSION OF METHODOLOGY Starz has not announced the number of shares that it plans to issue post-ipo. For ease of calculations, we have assumed 100mm total number of shares. In our analysis, SPE is acquiring warrants to purchase 1.01mm to 5.25mm shares. This implies SPE ownership of 1% to 5%. Based on our valuation and assumed share count, the Starz stock price is $ There are a few critical variables that drive warrant value: Stock price: $17.50 was determined based on our valuation; will be set by the market at the IPO. Strike/exercise price: subject to negotiations. The lower the strike price, the more valuable the warrants are to SPE. In our sensitivity analysis, we have illustrated warrant values under a range of strike prices - from penny warrants (in-the-money) to out-of-the-money warrants. If at-the-money warrants are issued, price can be set based on the average trading stock price 30 days from the IPO. Term: the longer the time to expiration, the higher the option value to SPE. Our analysis assumes a 10 year term. The Low and High columns illustrate the warrant value based on (i) the number of warrants SPE can receive and (ii) various strike prices - from penny warrants to at- and out-of-themoney warrants. Assumptions Enterprise Value ($mm) $2,900 Less: Net Debt 1,150 Equity Value ($mm) $1,750 Shares (based on SPT Estimate) (mm) 100 Stock Price (Actual $) $17.50 Option Time to Expiration (Years) 10.0 Sensitivity Analysis: Warrant Valuation Using Black-Scholes Strike Price (Actual $) Low: 1% Ownership ($mm) High: 5% Ownership ($mm) $0.00 $17.7 $ Key In-The-Money At-The-Money Out-Of-The-Money 3

5 Appendix A Supporting Financial Analysis

6 Public Company Comparables ($ in millions) Public Company Comparables Valuation Size Enterprise Value / 11/9/2012 Revenue EBITDA Enterprise Market LTM LTM CY'12 CY'13 LTM CY'12 CY'13 Value Capitalization Revenue Pure Play Networks AMC Networks Inc. 4.3x 4.4x 4.0x 12.0x 11.2x 10.5x $5,705 $3,733 $1,325 Crown Media Holdings Inc. 3.1x NA NA 7.5x NA NA $1,062 $608 $347 Discovery Communications, Inc. 5.4x 5.3x 4.9x 12.2x 11.4x 10.3x $23,946 $20,360 $4,460 Outdoor Channel Holdings, Inc. 1.7x 1.7x NA 12.5x 9.4x NA $125 $184 $76 Scripps Networks Interactive, Inc. 4.6x 4.5x 4.1x 10.0x 9.8x 8.9x $10,346 $9,002 $2,256 Diversified Media CBS Corporation 1.9x 1.8x 1.7x 8.0x 7.6x 7.1x $27,139 $22,159 $14,602 Walt Disney Co. 2.3x 2.3x 2.1x 9.0x 8.5x 7.7x $97,562 $84,439 $42,278 News Corp. 1.9x 1.8x 1.8x 9.3x 9.1x 8.2x $63,084 $57,473 $33,883 Time Warner Inc. 2.1x 2.0x 2.0x 8.5x 8.6x 8.0x $58,984 $42,296 $28,758 Viacom, Inc. 2.2x NA NA 7.8x 7.9x 7.4x $32,308 $24,778 $14,577 High 5.4x 5.3x 4.9x 12.5x 11.4x 10.5x $97,562 $84,439 $42,278 Median 2.3x 2.2x 2.1x 9.2x 9.1x 8.1x $25,543 $21,260 $9,519 Mean 2.9x 3.0x 3.0x 9.7x 9.3x 8.5x $32,026 $26,503 $14,256 Low 1.7x 1.7x 1.7x 7.5x 7.6x 7.1x $125 $184 $76 5

7 Comparative Company Analysis ($ in millions) Comparative Analysis Size Size Historical Growth Historical Growth LTM Revenue Enterprise Value 2 Year CY Revenue 1 Year CY Revenue Walt Disney Co. $42,278 Walt Disney Co. $97,562 Scripps Networks Interactive, Inc. 23% Viacom, Inc. 23% News Corp. $33,883 News Corp. $63,084 Discovery Communications, Inc. 11% Crown Media Holdings Inc. 13% Time Warner Inc. $28,758 Time Warner Inc. $58,984 AMC Networks Inc. 10% Discovery Communications, Inc. 12% CBS Corporation $14,602 Viacom, Inc. $32,308 Crown Media Holdings Inc. 8% AMC Networks Inc. 10% Viacom, Inc. $14,577 CBS Corporation $27,139 Time Warner Inc. 7% Scripps Networks Interactive, Inc. 10% Discovery Communications, Inc. $4,460 Discovery Communications, Inc. $23,946 Walt Disney Co. 6% Time Warner Inc. 8% Scripps Networks Interactive, Inc. $2,256 Scripps Networks Interactive, Inc. $10,346 News Corp. 5% Walt Disney Co. 5% Starz $1,640 AMC Networks Inc. $5,705 CBS Corporation 5% News Corp. 3% AMC Networks Inc. $1,325 Starz $3,023 Starz 2% CBS Corporation 1% Crown Media Holdings Inc. $347 Crown Media Holdings Inc. $1,062 Viacom, Inc. 0% Starz 1% Outdoor Channel Holdings, Inc. $76 Outdoor Channel Holdings, Inc. $125 Outdoor Channel Holdings, Inc. NMF Outdoor Channel Holdings, Inc. NMF Historical Growth Historical Growth Projected Growth Projected Growth 2 Year CY EBITDA 1 Year CY EBITDA 1 Year CY EBITDA 1 Year CY Revenue CBS Corporation 31% Starz 34% AMC Networks Inc. 19% Scripps Networks Interactive, Inc. 12% Scripps Networks Interactive, Inc. 28% Viacom, Inc. 33% CBS Corporation 14% AMC Networks Inc. 10% Starz 27% CBS Corporation 27% Discovery Communications, Inc. 10% Discovery Communications, Inc. 7% Outdoor Channel Holdings, Inc. 24% Crown Media Holdings Inc. 24% Scripps Networks Interactive, Inc. 9% Walt Disney Co. 6% Discovery Communications, Inc. 21% Outdoor Channel Holdings, Inc. 21% Walt Disney Co. 8% Outdoor Channel Holdings, Inc. 5% Crown Media Holdings Inc. 20% Discovery Communications, Inc. 20% News Corp. 7% CBS Corporation 5% Walt Disney Co. 15% AMC Networks Inc. 15% Starz 5% News Corp. 4% News Corp. 13% News Corp. 15% Time Warner Inc. 2% Starz 3% AMC Networks Inc. 12% Scripps Networks Interactive, Inc. 14% Viacom, Inc. 1% Time Warner Inc. 0% Time Warner Inc. 8% Time Warner Inc. 8% Crown Media Holdings Inc. 0% Crown Media Holdings Inc. 0% Viacom, Inc. 0% Walt Disney Co. 8% Outdoor Channel Holdings, Inc. 0% Viacom, Inc. NMF 6 Profitability Profitability Leverage LTM EBIT / LTM Revenue LTM EBITDA to LTM Revenue Total Debt / Enterprise Value Discovery Communications, Inc. 42% Scripps Networks Interactive, Inc. 46% Crown Media Holdings Inc. 46% Scripps Networks Interactive, Inc. 41% Discovery Communications, Inc. 44% AMC Networks Inc. 40% Crown Media Holdings Inc. 39% Crown Media Holdings Inc. 41% Starz 38% AMC Networks Inc. 29% AMC Networks Inc. 36% Time Warner Inc. 34% Viacom, Inc. 27% Viacom, Inc. 29% News Corp. 26% Starz 25% Starz 27% Viacom, Inc. 25% Time Warner Inc. 21% Walt Disney Co. 26% Discovery Communications, Inc. 22% Walt Disney Co. 21% Time Warner Inc. 24% CBS Corporation 22% CBS Corporation 20% CBS Corporation 23% Walt Disney Co. 15% News Corp. 17% News Corp. 20% Scripps Networks Interactive, Inc. 13% Outdoor Channel Holdings, Inc. 9% Outdoor Channel Holdings, Inc. 13% Outdoor Channel Holdings, Inc. 0%

8 Discount Rate Discount Rate Discounted Cash Flow Analysis ($ in millions) Discounted Cash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Year E (1) 2013E 2014E 2015E 2016E 2017E Net Unlevered Cash Flows $35 $200 $215 $230 $235 $218 Discount Period Discount 10.7% 99% 94% 85% 77% 70% 63% Present Value of Net Unlevered Cash Flows $35 $188 $183 $177 $164 $137 Terminal Value Method NPV of Cash Flows $884 NPV Terminal Year EBITDA (FY2017E) $510 Terminal Exit Multiple Terminal Multiple 6.0x $2, x 5.0x 6.0x 7.0x 8.0x Terminal Value $3, % $2,175 $2,493 $2,811 $3,129 $3,447 Present Value of Terminal Value $1, % 2,136 2,447 2,758 3,069 3,380 % of Enterprise Value 67.4% 10.7% 2,098 2,402 2,706 3,010 3,314 Enterprise Value $2, % 2,062 2,359 2,656 2,953 3,250 Implied EV as a Multiple of 2012E EBITDA 6.0x 11.7% 2,026 2,316 2,607 2,897 3,188 Implied EV as a Multiple of 2013E EBITDA 5.7x Implied Perpetuity Growth Rate 3.3% EV Range $2, $3,100 Perpetuity Growth Method NPV of Cash Flows $884 NPV FCF (FY 2016E) $218 Perpetuity Growth Rate Perpetuity Growth Rate 3.0% $2, % 2.5% 3.0% 3.5% 4.0% Terminal Value $2, % $2,776 $2,915 $3,075 $3,260 $3,478 Present Value of Terminal Value $1, % 2,616 2,737 2,874 3,031 3,213 % of Enterprise Value 67.5% 10.7% 2,475 2,580 2,698 2,833 2,988 Enterprise Value $2, % 2,349 2,441 2,544 2,661 2,793 Implied EV as a Multiple of 2012E EBITDA 6.0x 11.7% 2,236 2,317 2,408 2,509 2,624 Implied EV as a Multiple of 2013E EBITDA 5.7x Implied Terminal EBIT Multiple 5.7x EV Range $2, $3,000 7 (1) 14.0% of year remaining based on valuation date of 11/09/12

9 Comparable Company WACC Analysis ($ in millions) Comparable Company WACC Analysis Preferred Stock to Total Capitalization Equity Market Value to Total Capitalization Company Headquarter Country Debt Preferred Stock Equity Market Value Total Capitalization Debt to Equity Market Value Debt to Total Capitalization AMC Networks Inc. United States $2,280.1 $0.0 $3,732.6 $6, % 37.9% 0.0% 62.1% Crown Media Holdings Inc. United States , % 44.5% 0.0% 55.5% Discovery Communications, Inc. United States 5, , , % 20.4% 0.0% 79.6% Outdoor Channel Holdings, Inc. United States % 0.0% 0.0% 100.0% Scripps Networks Interactive, Inc United States 1, , , % 13.3% 0.0% 86.7% CBS Corporation United States 5, , , % 21.1% 0.0% 78.9% Walt Disney Co. United States 14, , , % 14.5% 0.0% 85.5% News Corp. United States 16, , , % 22.3% 0.0% 77.7% Time Warner Inc. United States 19, , , % 32.0% 0.0% 68.0% Viacom, Inc. United States 8, , , % 24.8% 0.0% 75.2% Median $5,579.0 $0.0 $21,259.5 $26, % 21.7% 0.0% 78.3% Mean $7,411.8 $0.0 $26,503.1 $33, % 23.1% 0.0% 76.9% Company Risk Free Rate Levered Beta Unlevered Beta Equity Risk Premium Size Premium Cost of Equity Cost of Debt WACC AMC Networks Inc. 2.4% % 0.9% 8.2% NA 5.1% Crown Media Holdings Inc. 2.4% % 2.5% 15.2% 9.4% 11.0% Discovery Communications, Inc. 2.4% % (0.4%) 8.3% 5.0% 7.2% Outdoor Channel Holdings, Inc. 2.4% % 4.3% 14.5% NA 14.5% Scripps Networks Interactive, Inc 2.4% % 0.8% 10.1% 4.0% 9.0% CBS Corporation 2.4% % (0.4%) 11.9% 7.0% 10.3% Walt Disney Co. 2.4% % (0.4%) 9.8% 2.6% 8.6% News Corp. 2.4% % (0.4%) 9.7% 6.5% 8.4% Time Warner Inc. 2.4% % (0.4%) 9.5% 7.1% 7.8% Viacom, Inc. 2.4% % (0.4%) 7.2% 5.6% 6.3% Median 2.4% % (0.4%) 9.8% 6.1% 8.5% Mean 2.4% % 0.6% 10.4% 5.9% 8.8% Assumptions Unlevered Beta (Β u ) 1.0 Peer group average Calculated Levered Beta (Β u ) 1.0 Calculated Levered Beta = Industry Adjusted Average Unlevered Beta * (1+[(1-Tax Rate) * Target Total Debt / Equity Value]) Market Premium (R m -R f ) 6.6% Based on simple differences of historical large company stock total returns and government bond income returns Equity Size Premium (R s ) 1.7% Size premium for companies with equity values in the 10th decile from Ibbotson Company Specific Premium 0.0% SPE Team Risk Adjustment Risk-Free Rate (R f ) 2.4% Based on 20-year Treasury Bond as of 11/9/2012 Pre-Tax Cost of Debt (R d ) 6.1% Median based on Comps Assumed Marginal Corporate Tax Rate (T) 40.0% Damodaran Equity as a Percentage of Total Capital 100.0% Target % based on comparable companies analysis Debt as a Percentage of Total Capital 0.0% Target % based on comparable companies analysis 8 Calculation of WACC: Cost of Equity (CAPM) Cost of Debt Ke = (Levered Beta * Market Premium) + Size Premium + Risk Free Rate + Country Premium Ke = (0.99 * 6.6%) + 1.7% + 2.4% + 0.0% Ke = 10.7% Kd = Pre-tax Cost of Debt * (1-Tax Rate) Kd = 6.1% * (1-40.0%) Kd = 3.6% WACC WACC = 10.7% % of Debt to Total Capital * Tax Effected Cost of Debt (Kd) + % Equity to Total Capital * Cost of Equity (Ke)

10 Appendix B Company Overview Citi / November 9, 2012

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14 Expiration Date Estimates (some dates are not publicly disclosed)

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Sample Questions and Solutions

Sample Questions and Solutions Public Comparables Question Facts for Company XYZ: Closing stock price is $18.00 1,000 shares outstanding, and 100 outstanding options outstanding with an average exercise