Cablevision sues Viacom for making it pay for low-rated networks

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By Liana B. Baker | February 27, 2013 7:28 AM EST

New York-based cable operator Cablevision Systems Corp said it filed an antitrust lawsuit on Tuesday alleging that Viacom Inc forced it to pay for 14 cable networks it did not want as a condition of carrying the media company'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 as the Pay TV industry's growth appears to have peaked. Viacom and its media company rivals regularly sell bundles of cable channels to operators as a common practice.

"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.

Viacom, in response, 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.

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.

Mitchell said he expects more lawsuits from other cable and satellite operators who have been complaining about programming costs spiraling out of control.

James Dolan, Cablevision's chief executive, has been among the most aggressive in terms of dropping channels instead of agreeing to high carriage fee increases. In recent years, Cablevision has blacked out channels owned by Fox Networks and Tribune Co, for instance. Fox Networks is owned by News Corp.

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 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.

Charlie Ergen, the outspoken billionaire chairman of Dish Network, has not only put his company at the forefront of fights with operators, but also has argued for an "a la carte" model. An "a la carte" model of programming 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," 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.

(Reporting By Liana B. Baker in New York. Editing by Peter Lauria, Andre Grenon and Carol Bishopric)

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