Peter Kafka

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Maybe You’ll Get the Pay TV You Want, After All: Cablevision Sues Viacom to Break Up the Bundle

tv chainPay TV has a simple model: If you want to watch one channel, you have to pay for dozens — or hundreds — of others, whether you watch them or not. That model drives lots of consumers nuts, but it has looked very, very hard to dislodge.

Now one cable provider says it will try to break up the bundle: Cablevision has sued Viacom for “illegally forcing Cablevision to carry and pay for 14 lesser-watched ancillary networks its customers do not want.”

On the face of it, Cablevision is directly attacking the core bundling principle the industry has used for years, and continues to implement as pay-TV providers and programmers sign new, long-term deals. It is accusing Viacom of an “illegal tying arrangement in violation of the federal antitrust laws,” and if it is successful, the repercussions could be widespread and significant.

But note that the conventional wisdom in the pay-TV industry is that “tying” rules aren’t applicable to cable bundles — people have tried repeatedly to break the bundle using the courts and failed (here’s the most recent attempt, from last year). And the main remedy Cablevision seems to be seeking is to get out of a carriage agreement it signed with Viacom a few months ago, in December 2012.

If that’s the case, the suit would fit into a familiar pattern in the pay-TV business, where programmers and pay-TV providers joust with lawyers and press releases before agreeing to keep the status quo.

That seems to be what Viacom is suggesting with its response:

“At the request of distributors, Viacom and other programmers have long offered discounts to those who agree to provide additional network distribution. Many distributors take advantage of these win-win and pro-consumer arrangements. Reflecting the highly competitive cable programming business, these arrangements have been upheld by a number of federal courts and on appeal. Viacom will vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two month old agreement.”

All that said, if the case does go all the way through the court system and ends up in Cablevision’s favor, then we might finally see real change in the pay-TV world: You could imagine a scenario where pay-TV providers and their customers end up paying Disney for ESPN, but not ESPN 2 or ESPN3. Or the Disney channel. Or where News Corp. (which owns this website) wouldn’t be able to require Fox News viewers to take the FX channel as well.

It’s also possible that, given all those choices, consumers might end up choosing the bundles anyway, since pay-TV buyers could experience sticker shock when they see the “real” price of unbundled programming. If ESPN is currently getting more than $5 per subscriber when it sells as part of Disney’s bundle, it’s going to have to charge a multiple of that in an on-demand world — or cut its programming costs way, way, way down.

And even that scenario will take years to play out. Which means that, in the meantime, anyone who’s looking to get into the pay-TV business right now — like, say, an Apple — is still going to have work with the bundle. That’s what Google has already worked out as it steps cautiously into the pay-TV world, and that’s what Intel is doing as it prepares its Web TV subscription service.

Here’s Cablevision’s press release:

CABLEVISION FILES FEDERAL ANTITRUST LAWSUIT AGAINST VIACOM FOR ILLEGALLY FORCING PURCHASE OF PROGRAMMING SERVICES

BETHPAGE, NY, February 26, 2013 – Cablevision Systems Corporation (NYSE: CVC) filed an antitrust lawsuit today against Viacom (NYSE: VIA), in federal court in Manhattan, for illegally forcing Cablevision to carry and pay for 14 lesser-watched ancillary networks its customers do not want, such as Palladia, MTV Hits and VH1 Classic, in order to carry must-have networks such as Nickelodeon, MTV and Comedy Central.

Commenting on the lawsuit and Viacom, Cablevision offered the following statement:

“The manner in which Viacom sells its programming is illegal, anti-consumer, and wrong. Viacom effectively forces Cablevision’s customers to pay for and receive little-watched channels in order to get the channels they actually want. Viacom’s abuse of its market power is not only illegal, but also prevents Cablevision from delivering the programming that its customers want and that competes with Viacom’s less popular channels.”

Cablevision’s suit contends that:

[-] Viacom abused its market power over commercially critical networks, including must-have networks such as Nickelodeon, Comedy Central, and MTV, to coerce Cablevision into carrying the 14 far less popular ancillary channels.

[-] Viacom coerced Cablevision by threatening to impose massive financial penalties unless Cablevision complied with Viacom’s demands.

[-] Viacom’s conduct harms Cablevision and its customers, and impairs competition by making Cablevision pay for and carry networks that many subscribers do not want to watch, while other networks are excluded from distribution, preventing Cablevision from being able to differentiate its services and harming subscribers.

Cablevision’s complaint asserts that Viacom engaged in a “per se” illegal tying arrangement in violation of the federal antitrust laws. Cablevision’s antitrust lawsuit also asserts that Viacom has engaged in unlawful “block booking,” which is a form of tying that conditions the sale of a package of rights on the purchaser’s taking of other rights. Viacom’s conduct also violates the Donnelly Act in New York State Law, which parallels federal anti-trust laws.

The complaint was filed under seal and a public version is not yet available.

Cablevision is seeking a number of remedies including:

[-] Declaratory relief voiding the December 2012 carriage agreement.

[-] A permanent injunction barring Viacom from conditioning carriage of any or all of its Core networks on Cablevision’s licensing any or all of Viacom’s ancillary networks.

[-] To effectuate the permanent relief, a requirement that Viacom permit Cablevision to carry the Core networks and ancillary products on terms pending negotiation of a new, lawful agreement

[-] Treble damages and legal fees.

Viacom’s eight core networks:

MTV
MTV2
Nickelodeon
VH1
Spike
TV Land
Comedy Central
BET

Viacom’s 14 ancillary networks:

Centric
CMT
MTV Hits
MTV Tr3s
Nick Jr.
Nicktoons
Palladia
Teen Nick
VH1 Classic
VH1 Soul
Logo*
CMT Pure Country**
Nick 2**
MTV Jams**

*Optimum East Only
**Optimum West Only

Antitrust Legal Background
[-] Federal antitrust laws protect competition. By protecting competition, antitrust laws secure lower prices, higher quality, and other benefits for consumers.

[-] The antitrust laws prohibit tying, where a powerful firm wields its leverage from a product in one market, called the “tying” product, to compel a customer to take another product, called the “tied” product, when that customer would have preferred instead to take a product that competes with the “tied” product.

[-] The reason antitrust law prohibits such tie-ins is to protect competition and consumers. If powerful firms can leverage their power from one market to another, they can insulate the tied product from competition. Forcing customers such as Cablevision to take Viacom networks instead of competing networks, in turn, hurts consumers because they get less for what they pay for video services.

Cablevision officials indicated that there would be no immediate disruption in programming offerings pending the resolution of this matter.


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