By Liana B. Baker
Feb 26 (Reuters) - Cablevision Systems Corp has
accused Viacom Inc in an antitrust lawsuit of forcing
it to pay for more than a dozen low-rated cable networks in
order to get access to Viacom's more popular channels such as
Nickelodeon, MTV and Comedy Central.
The case represents the latest flare-up in the contentious
relationships between distributors and program makers.
Industry observers will be watching to see if the lawsuit
could disrupt the model of selling bundles of cable channels to
operators, a common practice employed by Viacom and its media
company peers in the $97.6 billion cable industry.
"Viacom effectively forces Cablevision's customers to pay
for and receive little-watched channels in order to get the
channels they actually want," Cablevision said in a statement.
In response to the lawsuit, Viacom said that "these
arrangements have been upheld by a number of federal courts and
on appeal."
The two companies signed a long-term programming agreement
in December 2012 for Cablevision to carry Viacom's networks for
an undisclosed sum.
The lawsuit seeks to void that agreement and it also wants
Viacom banned from making similar deals involving networks it
calls "ancillary." Cablevision says these less popular channels
include CMT, MTV Hits, Nick Jr, Nicktoons, Palladia and VH1
Classic.
Viacom said it "will vigorously defend this transparent
attempt by Cablevision to use the courts to renegotiate our
existing two month old agreement."
The case is under seal and not available for public viewing.
The Cablevision press release does not reveal how much money
is at stake in the case.
According to SNL Kagan, a firm that tracks fees for cable
networks, Cablevision pays about $38.8 million a year for the 14
networks it says are not must-have channels. Four of the 14
Viacom networks in dispute are available to some, but not all,
of Cablevision's subscribers.
That is about half of the roughly $76.8 million Cablevision
pays Viacom for the eight networks it deems must-haves, which
include MTV, MTV2, VH1, Comedy Central, BET, Nickelodeon, Spike,
and TV Land.
LONG FIGHT AHEAD
Todd Mitchell, a Brean Capital analyst who follows the cable
industry, said that Cablevision is setting itself up for a
prolonged dispute with Viacom, since its programming agreement
with the media company is already set and it is not looking to
gain leverage in carriage negotiations, which are over.
"Cablevision is not looking for relief in the next couple of
quarters. They are looking at this as a long-term fight,"
Mitchell said.
Bernstein Research analyst Todd Juenger called Viacom "an
obvious target" for pay-TV distributors since it has been
struggling with declining cable ratings, most notably at its
Nickelodeon network.
Mitchell said he expects more lawsuits from other cable and
satellite operators who have been complaining about programming
costs spiraling out of control. DirecTV declined to comment on
whether it would consider its own lawsuit against Viacom while
Time Warner Cable did not respond to a request for comment on
that issue.
James Dolan, Cablevision's chief executive, has dropped
channels instead of agreeing to high carriage fee increases. In
recent years, Cablevision has blacked out channels owned by Fox
and Tribune Co, for instance. Fox and its affiliated
networks are owned by News Corp. News Corp had no
comment.
Blackouts occur when programmers and operators cannot reach
an agreement before their programming contract expires, making
networks unavailable for consumers to watch.
Time Warner Cable CEO Glenn Britt has been another
critic of high programming costs. After Al Gore's low-rated
Current TV announced its sale to Al Jazeera America in January,
Time Warner Cable promptly dropped the channel from its lineup.
The company also dropped arts-focused network Ovation. Time
Warner Cable said at the time that the channels' low ratings did
not merit the fees it was paying for them.
A Time Warner Cable spokesman said on Tuesday: "We think
this lawsuit raises important issues, and we look forward to
their resolution in the courts."
Last summer, the biggest U.S. satellite provider, DirecTV
, dropped Viacom's networks in 20 million homes for nine
full days.
Comcast, which ranks as not only the nation's
largest cable distributor but also owns cable networks such as
USA, SyFy, and MSNBC, declined to comment.
Charlie Ergen, the outspoken billionaire chairman of Dish
Network, has argued for an "a la carte" model of
programming that would give consumers the choice to drop
channels they do not watch and drive down carriage fees for Pay
TV operators.
"Cable companies are looking to push back at this practice
where the networks have tied these guys into a business model,"
Brean Capital's Mitchell said.
The case is Cablevision Systems Corporation, et al., v.
Viacom International Inc, et al., U.S. District Court, Southern
District of New York, 13-1278.
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