UPDATE 2-Cablevision sues Viacom over fees for low-rated networks
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.