Cablevision, Viacom War Could Cost a Bundle

Few visible clues to be unearthed in heavily-redacted complaint

Cablevision, which is suing Viacom for illegally bundling its networks, on Thursday released a heavily-redacted version of its complaint against the cable conglomerate, which includes the charge that Viacom threatened to impose a fine in excess of $1 billion if Cablevision didn’t carry its entire suite of networks. 

For anyone hoping to get a fly-on-the-wall perspective of how carriage negotiations are conducted, think again. Thanks to Viacom’s legal team, anything of material interest has been inked over into oblivion. 

The lack of transparency makes it difficult to conclude that Viacom has been trying to strong-arm the cable operator. It seems rather unlikely, as bundling is usually a more cooperative effort. “The truth is they do not typically force multichannel operators to take the whole bundle, they just give them discounts when they take multiple networks and more discounts when they hit certain penetration hurdles,” said SNL Kagan analyst Derek Baine in a report on the suit. “That’s how they have always gotten around this argument in the past.”

If there is indeed a significant gap between the agreed-upon fee for the bundle and Viacom’s pricy a la carte option, there is no way to prove it without the relevant data. Because Viacom asked that all pricing information be redacted from the complaint, Cablevision is only at liberty to charge that the a la carte penalty is anywhere between $1 billion and $9 billion, and that that total is “more than Cablevision’s entire programming budget” for 2013.

Viacom responded by characterizing the redacted figure as “nothing more than rhetorical math, an inflated, irrelevant number manufactured to create artificial sticker shock.” 

Per Kagan estimates, Cablevision pays $76.8 million per year for the eight must-have MTVN channels (MTV, Nickelodeon, Comedy Central, et al) and approximately $38.8 million for the baker’s dozen it does not particularly value. All told, the operator forks over an annual fee of $115.5 million for the entire bundle. Again, without knowing the duration of the carriage deal or the actual dollar amount of the alleged a la carte penalty, very little substantive intel can be culled from the complaint.

Still, the dual-revenue stream hides a lot of blemishes when the advertising revenue starts drying up. Viacom has been dealing with falling ratings for consecutive upfront seasons at Nickelodeon and now has to leverage under-deliveries at MTV as well. Naturally, that translates to an artificial tightening of its top-shelf inventory as it heads into the 2013-14 upfront marketplace. If both nets want to achieve significant volume increases, they almost certainly will have to do so at the expense of the CPMs.

All of which would suggest that Viacom is best served by remaining aggressive as it negotiates its affiliate deals. Viacom chairman Sumner Redstone is in the habit of characterizing CEO Philippe Dauman as “a great warrior,” and investors can only hope that this is an accurate assessment—because Viacom and Cablevision are going to war.