And You Think Your Cable Bill is High? Cablevision Claims Viacom Wanted to Charge It $1 Billion If Cablevision Had Not Agreed To Take Some Cable Channels It Did Not Want

Mar 8, 2013  •  Post A Comment

"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."

One Comment

  1. This is nothing new. Viacom has been doing this for years. When the cable company I work for attempted to add Viacom channels several years ago to a small conservative farming community we wanted to add channels like MTV, VH1, CMT, Nickelodeon, etc. to our lineup. Viacom told us we had to add one of their other channels or else we couldn’t have any of their channels. We went back and forth with them and at one point we even offered to add the channel in its own digital tier so that people who wanted to watch that channel could request it and receive it free of charge. They refused and insisted it was either all or nothing. In the end, we decided on nothing and never put on any Viacom channels. Several years later we tied that system via fiber to a larger system and now those customers do have Viacom channels and we never did add that other channel.
    I don’t agree with comment above:
    “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.”
    I certainly believe content providers do not want a la carte since many of their low rated channels would simply evaporate because consumers would not be forced to pay for channels they do not want. I don’t believe cable operators are against a la carte because it might retain customers instead of driving them away as the cost of programming imposed upon cable providers increases every year and, of course, these additional charges by content providers is generally passed on to the consumer. Also, understand that true a la carte solution is only possible in a digital environment and has never been technically possible in an analog environment due to the insertion loss of traps and the endless number of possibilities. The other issue with a la carte, with regards to digital, is that a set top box has to be programmed with a
    “channel map”. These are generally created in advance and are usually kept to a small number since in most cases there are a limited number of cable packages available. It would be a huge technological burden on a cable company, and in some cases, simply impossible, to create these a la carte “Channel Maps” on the fly or in a reasonable time frame.
    The problem is that people who continuously toss the “a la carte” concept around apparently just do not know how a Set Top Boxes operates or how Clear QAM works as well for that matter.
    I am not saying a la carte digital is not possible but only that it is probably technically unfeasible at this time. It would certainly take a radically different approach to the ways things are done today.
    But first, you have to get the content providers on board, which is highly unlikely unless forced to by the FCC or some congressional act. Some channels have some 40 million subscribers because cable operators/dish providers are forced to offered it but according to the ratings may only have a viewership of 500K to 1M. Imagine how much money that content provider would loose on that channel and others.
    Many niche channels would simply be force to close their doors in an a la carte environment.

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