Media Decoder Blog: Cablevision Sues Viacom Over Bundling of Little-Watched Channels

1:30 p.m. | Updated In the escalating battle between media companies and cable and satellite providers, Cablevision filed a lawsuit against Viacom on Tuesday, accusing the media company of forcing it to carry 14 little-watched cable channels.

The lawsuit filed in federal court in Manhattan alleges that Viacom illegally bundled its channels, forcing Cablevision to pay for Palladia, MTV Hits and VH1 Classic, in order to offer consumers the company’s more popular cable channels like MTV, Comedy Central and Nickelodeon. The cost of carrying those smaller channels is passed on to customers’ cable bills, Cablevision said.

“The manner in which Viacom sells its programming is illegal, anticonsumer and wrong,” Cablevision said in a statement. “Viacom effectively forces Cablevision’s customers to pay for and receive little-watched channels in order to get the channels they actually want.”

In a statement, Viacom said it would “vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two-month-old agreement.”

Viacom said that like other programmers, it does not explicitly require distributors to bundle all of its channels together; rather, the company provides financial incentives to bundle by offering lower prices when smaller channels are grouped together with bigger channels.

In its statement, Viacom said that it had “long offered discounts to those who agree to provide additional network distribution” and that most distributors view these arrangements as “a win-win and pro-consumer.” Federal courts have upheld these arrangements in the past, Viacom said.

Cablevision, which is controlled by Charles F. Dolan, said in a statement the dispute would not result in an immediate disruption in programming. The company said the lawsuit was filed under seal, so it will not be accessible to the public.

The lawsuit represents a turning point in the debate over “bundling,” or the practice of selling channels to cable and satellite providers in a package. Partly because of the rising cost of cable, pressure has been mounting on the bundling system for years. But there has been little if any structural change — both channel owners and distributors have found it in their best interests to keep it intact.

Class action lawsuits against bundling have failed in the courts to date. But the lawsuit on Tuesday was different, since it was filed by a distributor. Antitrust experts could not immediately recall a similar suit.

Time Warner Cable, the second biggest cable company in the country behind Comcast, supported Cablevision in a statement on Tuesday that read, “We frequently have pointed out that there are serious problems with the current programming environment. We think this lawsuit raises important issues, and we look forward to their resolution in the courts.”

For Cablevision, the lawsuit may be a way to garner public support for its point of view and simultaneously tar Viacom. Cable distributors like Cablevision have been trying to portray themselves as pro-consumer and resistant to price increases, even while carrying out those very same price increases. They have argued for years — more and more loudly of late — that channel owners like Viacom are the ones requiring them to raise the monthly cost of television service.

The channel owners rebut that position by pointing to the big profits that distributors report on a quarterly basis.

The number of disputes between the two sides have increased in recent years, partly due to concerns about the aforementioned price increases. Last summer DirecTV pulled Viacom’s channels for nearly three weeks after the companies could not agree on a new contract. Around the same time the Dish Network took down AMC, IFC and WE tv, all channels owned by AMC Networks. Dish claimed that AMC required the company to carry its low-rated channels in order to get AMC, the channel that televises “Mad Men” and the zombie thriller “The Walking Dead.” Dave Shull, the senior vice president for programming at Dish, said at one point during the nearly four-month programming blackout that “AMC Networks requires us to carry low-rated channels like IFC and WE tv to access a few popular AMC shows. The math is simple: it’s not a good value for our customers.”

But AMC said the blackout was due not to a bundling dispute, but rather to an unrelated lawsuit involving allegations of breach of contract between Dish and VOOM, a former subsidiary of Cablevision. That suit was settled in October, and the channels were restored at that time.

Meanwhile, some customers continue to agitate for the right to pick and choose which channels they receive from distributors, an idea sometimes called “a la carte,” while others say they are content with the buffet of channels they currently receive. The issue came up again just last month, when Suddenlink, the No. 11 distributor in the country in terms of subscriber base, proposed to Fox Networks, the cable unit of News Corporation, that Fox could set prices for each of its channels, big ones like FX and tiny ones like Fox Soccer and Fuel, and then customers could choose to pay for only the ones they wanted.

The two companies were at odds over the terms of a new contract. Suddenlink publicized the offer, calling it “an attempt to respond to what our customers have said they wanted.” But Fox refused the offer. Four hours later, the companies said they had reached an agreement in principle to keep all the channels — and thus keep the system intact.

Article source: http://mediadecoder.blogs.nytimes.com/2013/02/26/cablevision-sues-viacom-over-bundling-of-little-watched-channels/?partner=rss&emc=rss