"Cablevision Systems Corp. said Viacom Inc. threatened to impose a penalty of at least $1 billion on the cable operator unless it agreed to buy the rights to networks it didn’t want, according to a court filing," reports Bloomberg Businessweek.
The story continues, "Cablevision is suing Viacom on antitrust grounds tied to the content provider’s alleged practice of bundling cable channels. Cablevision claims it was forced to accept all of Viacom’s programming — including low-rated channels it didn’t want — because Viacom would have imposed a ’10-figure’ penalty if the Bethpage, New York-based operator only licensed certain networks.
The article adds, "While the fifth-largest U.S. cable operator said it only wanted to license Viacom’s highly rated networks, the penalty that it would have paid to avoid taking low-rated networks such as Logo and Palladia was more than its ‘entire programming budget,’ according to the complaint.
“ ‘This anti-consumer abuse of market power is a key reason cable bills continue to rise and programming choice remains limited,’ Cablevision said in [an] e-mailed statement [to Bloomberg Businessweek.]"
The story also notes, "Viacom responded in an e-mailed statement that Cablevision’s lawsuit is ‘nothing more than a hypocritical attempt’ to void a deal signed in December."
Writes Dorothy Pomerantz, a Forbes staff writer, about the Cablevision/Viacom dispute, "The fact that the lawsuit is coming just two months into Cablevision’s new deal with Viacom is strange timing. Some feel it’s posturing to try and get a better deal next time; others think it could be the beginning of a real shakeup in the cable industry.
"That’s understandable. If Cablevision triumphs, it could mean you no longer have to wade through hundreds of channels you have no interest in (and that have almost no viewers) to find what you really want."
However, Pomerantz adds, "But before you start ticking off what channels you are willing to pay for in the new world, reconsider. Both the cable guys and content providers are invested in keeping a la carte a fantasy.
“ ‘It sounds good in theory,’ says Derek Baine, an analyst at SNL Kagan. “But the economic model doesn’t really work.” Networks rely on having a certain amount of revenue coming from cable providers to pay for their shows. If suddenly half of the subscribers go away, that means production budgets get severely cut, quality falls and fewer people want to watch. It’s a killer cycle."
She concludes, "Instead of a la carte, expect smaller tier packages if Cablevision prevails. That might turn out to be the worst of all worlds. You’ll still be getting channels you don’t want but you may have to pay more to cobble together all of the channels you do want. One thing is for sure, the entertainment industry will be watching this case very carefully."