In an apparent bid to set a legal precedent, Cablevision on Tuesday announced that it has filed a lawsuit against Viacom for “bundling,” the practice by which programmers force distributors to carry low-rated channels as a condition of carrying their more popular networks.
“The manner in which Viacom sells its programming is illegal, anti-consumer and wrong,” Cablevision charged in a statement, adding that the parent company of MTV and Nickelodoen “effectively forces Cablevision’s customers to pay for and receive little-watched channels in order to get the channels they actually want.”
Among the smaller networks named in the complaint are Palladia, MTV Hits and VH1 Classic. The latter channel closed out 2012 as the third least-watched outlet on the cable dial, averaging a mere 24,000 viewers in total day. Palladia and MTV Hits are not sufficiently distributed to be officially rated by Nielsen.
According to Cablevision, Viacom forces it to carry 14 low-rated channels in return for the rights to carry franchise networks such as MTV, Nickelodeon, Comedy Central, VH1 and BET. Most of the outlets in question are spinoffs (MTV Jams, Nicktoons, etc.).
Viacom is hardly alone in practicing this sort of strategic bundling. To some extent, every multi-network cable programmer finds a way to piggyback smaller channels atop their more desirable properties.
In seeking declaratory relief, Cablevision would be sprung from its current contract with Viacom, a witching-hour deal that both parties signed off on just two months ago. The operator is also looking to win a permanent injunction that would require Viacom to sell all of its networks to it on an a la carte basis.
Another injunction hopes to force Cablevision to carry Viacom’s networks while they negotiate a new contract.
Agreements between a large cable company like Viacom and an MSO the size of Cablevision—as of last fall, it is the ninth-largest operator in the country, boasting 3.25 million subscribers—are traditionally multi-year and measured in hundreds of millions (if not billions) of dollars.
While the complaint was filed under seal, it is believed to include the financial details of the Viacom-Cablevision carriage agreement.
Viacom has been at the center of at least one high-profile dispute in the last year, butting heads with DirecTV for nine days in July. The eventual resolution appeared to favor Viacom heavily inasmuch as it walked away having secured carriage for its flegdling premium movie network, Epix.
Analysts note that Viacom has worn a bull’s-eye on its back for some time now. “Viacom is in the weakest position of all the network groups in terms of ratings and brand health,” Bernstein Research senior analyst Todd Juenger wrote Tuesday in a note to investors. “At the same time, it is the most aggressive at making its content available via online sources (that go around the traditional distributors). When a distributor decides to take a stand, pick a fight, Viacom is the obvious target.”
Chad Gutstein, COO of independent cable network Ovation, praised Cablevision for filing the suit. "The television market in the United States is not a free market," he said. "Everything's dominated by regulations." Ovation was unceremoniously dropped by Time Warner Cable earlier this year, supposedly in response to the rising cost of cable subscriptions (though Ovation said now and then that Time Warner refused to negotiate). "They have the luxury to say no because we're an independent and they're a bully," Gutstein said. "They'd never do this to a bundled player."
"Every day, Ovation has to earn its distribution and its slot," said Gutstein. "VH1 Classic doesn't have to earn a damn thing. Logo doesn't have to earn a damn thing. They're bundled with Nickelodeon and with MTV."
Viacom came out swinging at the news of lawsuit, spinning what Cablevision calls a strongarm tactic as a competitive pricing structure. “At the request of distributors, Viacom and other programmers have long offered discounts to those who agree to provide additional network distribution,” the net fired back in an unsigned statement. “Reflecting the highly competitive cable programming business, these arrangements have been upheld by a number of federal courts and on appeal.”
Viacom added that it would “vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two-month-old agreement.” Sources at the company reiterated that they believed legal precedent was firmly on their side.
Juenger agrees. “[A]fter the DirecTV dispute … the outcome was viewed by many as battle-tested proof positive of the sturdiness of affiliate fees, both for Viacom and the whole sector,” he said.
For his part, Gutstein disputed the characterization of the bundled prices as a discount. "If I were to offer to sell you a Snickers bar, a Milky Way bar and some Jujubes for $3.25, but if you only wanted to buy the snickers and the milky way I'd charge you $10,000, you'd definitely be getting a huge discount for the Jujubes," he said. "And I don't actually think the scale is too far off on that."