February 28, 2013
Cablevision Systems sued Viacom this week, alleging antitrust violations and representing simmering tensions within the television industry about how TV channels are packaged and priced. The pay TV distributor alleges that Viacom forced it to carry and pay for more than a dozen less popular channels for the right to carry its more popular networks including Nickelodeon, MTV and Comedy Central.
“The suit pits two of the television industry’s best-known moguls against each other,” reports the Wall Street Journal. “Cablevision is controlled by 86-year-old Charles Dolan and his family, while Viacom is controlled by 89-year-old Sumner Redstone.”
The suit was filed in federal court in Manhattan. Cablevision is seeking “to void a carriage agreement negotiated with Viacom at the end of last year,” explains the article. “Cablevision alleged that Viacom had ‘coerced’ it ‘by threatening to impose massive financial penalties unless Cablevision complied with Viacom’s demands.’”
Viacom responded that it would “vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two month old agreement.” Viacom explained that it has “long offered discounts to those who agree to provide additional network distribution,” and “these arrangements have been upheld by a number of federal courts and on appeal.”
“The suit goes to the heart of a longstanding complaint from cable and satellite operators about entertainment companies’ practice of bundling all their channels together in their agreements with distributors,” notes WSJ. “The practice makes it hard for distributors to drop channels with small audiences, undercutting their ability to deal with rising programming fees.”
This scenario has fueled the ongoing argument between offering cable channels in tiered bundles or a la carte.
“The bundling practice is lucrative for big entertainment companies,” suggests the article. “If Cablevision prevails in the suit, entertainment companies could find it much harder to sell big packages of cable channels, hurting their revenue as a result.”
One media investor said this case could have a broad impact on the industry as a whole, not exclusive only to Cablevision and Viacom.
“Some cable executives concede that letting viewers pick whatever channels they want could be complicated for viewers. But they say more flexibility in shaping packages would be better,” adds WSJ. “Pay TV distributors have recently introduced smaller packages that cost less, excluding some pricey sports channels. But they tend not to market these offerings heavily for fear of violating contracts with entertainment companies.”