Cablevision: Viacom Made $1 Billion Threat Over Bundling

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Cablevision Systems is claiming that Viacom sought to extract a nearly $1 billion penalty if it refused to pay for low-rated channels it did not want in order to access more popular channels such as Comedy Central, MTV, and Nickelodeon.

The allegation was made in an antitrust lawsuit filed on Feb. 26, but first made public on Thursday. The dollar figure was blacked out in the public version of Cablevision's complaint, but Viacom confirmed the amount in a statement.

Cablevision had in December signed what it now calls a "coercive" long-term agreement to carry Viacom networks, estimated to cost more than $115 million a year in fees.

(Read More: Cablevision Sues Viacom Over Fees for Low-Rated Networks)

In its complaint, Cablevision said Viacom "strong-armed" it into distributing 14 lesser channels known as "Suite Networks," as a condition of having access to Viacom's most popular channels, or else face a nearly $1 billion "penalty."

Cablevision said this "bundling" arrangement, also known as a "tying agreement," sapped bandwidth it could have used for other channels from other programmers.

Viacom called the lawsuit by Bethpage, New York-based Cablevision "nothing more than a hypocritical attempt" to void that transaction, and the $1 billion figure "rhetorical math" that has nothing to do with actual deal terms.

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"Cablevision received a significant discount on a package of networks that account for nearly 20 percent of the total viewing audience," New York-based Viacom said. "Now they want the lower price without the obligation to offer our networks to their customers. For Cablevision, it's 'do as we say and not as we do' — an arrogant approach all too familiar to its customers."

Bundling Debate

Industry experts are watching to see whether the case breaks new ground in the debate over bundling.

This is where programmers such as Viacom sell packages of channels to distributors such as Cablevision, rather than sell only channels that the distributors want.

Bundling can help programmers boost profit, but can also result in viewers paying higher cable fees as distributors pass on the extra costs.

James Dolan, Cablevision's chief executive, has in recent years decided to temporarily drop channels rather than accept high carriage fee increases, including channels owned by Tribune Co. and News Corp.'s Fox.

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Other distributors, including Time Warner Cable and Dish Network, have also objected to high programming costs.

Charles Ergen, Dish's billionaire chairman, as well as Cablevision founder Charles Dolan, have advocated an "a la carte" model to let consumers choose, and drop, whichever channels they want.

'All About the Bundle'

Cablevision said in its complaint that during negotiations on the long-term carriage agreement, Samantha Cooper, a Viacom senior vice president for content, refused to consider any agreement to let Cablevision take only eight "core" channels, which also include BET, MTV2, Spike, TV Land and VH1.

"Ms. Cooper emphasized that there could be no deal, from Viacom's perspective, that did not include the Suite networks, and that 'it's all about the bundle' and has 'always been about the bundle,"' it said.

Cablevision said the Suite Networks channels are Centric, CMT, CMT Pure Country, Logo, MTV Hits, MTV Jams, Nick 2, Nick Jr., Nicktoons, Palladia, TeenNick, Tr3s, VH1 Classic, and VH1 Soul, and that Viacom lists BET Gospel as a Suite Network.

It also said that absent bundling, it could have room to launch Magic Johnson Enterprises' ASPiRE, GMC, Me-TV, Ovation, Retirement Living TV, and foreign language channels that could be particularly appealing in the New York City area.

SNL Kagan, which tracks cable fees, has estimated that Cablevision pays $38.8 million a year for the 14 channels it does not want, and $76.8 million a year for the eight it wants.

The lawsuit seeks to void the December agreement, ban Viacom from ever requiring Cablevision to accept channels it does not want in order to carry channels it wants, and triple damages.

The case is Cablevision Systems Corp et al. v. Viacom International Inc et al., U.S. District Court, Southern District of New York, 13-01278.