Viacom Threatened $1 Billion Penalty For Dropped Networks, Claims Cablevision
March 9, 2013

Viacom Threatened $1 Billion Penalty For Dropped Networks, Claims Cablevision

redOrbit Staff & Wire Reports - Your Universe Online

Cablevision has revealed more information about its lawsuit against Viacom, including claims the mass media company had threatened to hit the cable TV provider with massive fines if they refused to carry lesser-watched networks, various media outlets reported this week.

As reported by the Wall Street Journal, the New York-based cable provider wanted to carry Viacom´s “core networks” — which included Nickelodeon, Comedy Central, BET, MTV, VH1 and Spike TV. However, it did not want to carry any other channels owned by the media provider.

The cable provider goes on to claim Viacom attempted to “strong-arm” them by “"threatening to charge Cablevision a ten-figure penalty" unless they carried 14 other channels (known as Suite Networks) that the cable provider wanted to drop — including CMT, Nick Jr., Nicktoons, Palladia, VH1 Classic, Logo and MTV Jams.

They said the additional charge would have amounted to more than their entire programming budget for this year, though a Viacom spokesman countered by pointing out the agreement between the two companies was a multi-year deal and could not be compared to a one-year budget.

"This suit is nothing more than a hypocritical attempt by Cablevision to void a long term carriage deal they agreed to only two months ago. Cablevision is crying foul over a standard business practice that expands choice and lowers cost for consumers — a practice they use extensively to sell their own services," Viacom said in a statement.

The practice of requiring cable providers to carry less popular channels in order to gain access to more popular ones is known as tying, Forbes writer Daniel Fisher explained. Cablevision is claiming this practice is illegal. However, Viacom representatives assert such deals are not in violation of the law and are currently in place with several cable TV providers throughout the country.

“Tying can be illegal in some circumstances, but it´s getting exceedingly hard to prove,” Fisher said. “Economists figured out a long time ago a monopolist can only reap a monopoly profit once, so forcing customers to buy two products bundled together doesn´t allow the monopolist to charge an extra, excessive profit on the second one if that one is sold in a competitive market. Even if Cablevision doesn´t want Viacom´s other channels, in a competitive market it probably isn´t paying any more for them than it would for just the channels it does want.

“The Sherman Antitrust Act prohibits conspiracies that allow companies to restrict output and raise prices,” he added. “Cablevision says it can prove market power by showing Viacom´s history of raising prices in the face of declining viewership. It also claims that there are serious barriers to increasing the supply of high-quality entertainment like the Jon Stewart Show on Comedy Central or the programs on MTV.”

The provider is also asserting Viacom is essentially attempting to hoard the limited number of bandwidth that it has access to, partially because they offer high-speed Internet and other services that require data transmission resources. The company said in a statement they are not willing to re-allocate bandwidth from these non-cable services in order to carry more television networks, Forbes reported.

“At the heart of the suit is a longstanding complaint from cable and satellite operators that entertainment companies bundle their channels together in carriage negotiations, making it hard for distributors to drop less-watched channels and just keep the popular outlets,” WSJ's Shalini Ramachandran wrote.

“Pay-TV distributors have said that tactic makes it harder for them to beat back the persistent increase in programming costs. They have also said it is the primary obstacle standing in the way of offering consumers smaller, cheaper and more genre-based cable bundles of channels, or even ℠a la carte´ choices,” he added.