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OCT
28
3 YEARS

Cablevision Customers File $450 million Class Action Lawsuit

UPDATED

The impasse between Cablevision and Fox over retransmission consent was bound to produce a class-action lawsuit.

A group of New York customers filed one Thursday in federal court in New York, arguing that the cable company has an obligation to give its customers rebates for depriving them of Fox News, Glee, House, The Simpsons, New York Giants football, the Major League Baseball postseason and other content.

The plaintiffs are asking for about $450 million in damages, which is about the equivalent of one month's cable bill for the company's 3 million subscribers. Here's the complaint.

This isn't the first time that Cablevision has faced a class action after channels were pulled. A suit was filed this year after HGTV and Food Network were removed from the dial, but it went nowhere because Cablevision soon came to an agreement that restored service.

In that lawsuit, plaintiffs argued that Cablevision had breached its contract with customers by making a "material change" of its service.

The new lawsuit, Gallo v. Cablevision Systems Corp., goes a step further.

According to the complaint, plaintiffs want a federal judge to settle several legal questions including whether Cablevision breached its agreements with customers, whether Cablevision has been unjustly enriched, whether Cablevision has engaged in unfair and deceptive and fraudulent practices and whether "Cablevision should be enjoined from employing its negotiating strategies at the expense of its customers in the future."

It's worth noting that in additions to the large monetary damages, common in most class-action lawsuits, the plaintiffs are seeking permanent injunctive relief. It's premised on the allegations that Cablevision "played a game of chicken with News Corp. at the expense of Cablevision's customers" and failed to engage in constructive negotiations prior to the deadline. The plaintiffs are not impressed with Cablevision's binding arbitration offer to Fox either, saying it was tardy and lacked a sense of urgency.

The customers, who say they were deprived of Fox News Channel and its "distinctive viewpoint in the political speech arena" on the eve of a national election, want a federal judge's order that Cablevision submit to mandatory dispute resolution mechanisms in the future. 

"News Corp. is the company that deserves a lawsuit, for blacking out the World Series in 3 million New York-area homes," Cablevision said Thursday. "The FCC has all the facts, and our customers are demanding that the FCC act to end the Fox blackout."

Meanwhile, Fox's retransmission agreement with Dish Network expires Sunday night, which could lead to yet another broadcast signal loss by a major distributor. Dish at the beginning of the month already lost regional sports and some cable networks from Fox.

Officials at both companies said they are continuing talks but wouldn't qualify them or detail their status.

Meanwhile, Wall Street analysts discussed Cablevision's decision to pick up the tab of $10 for subscribers who want to see the World Series via MLB.com given the cable operator couldn't reach a new retransmission agreement with News Corp./Fox in time. And some expressed surprise or pointed out certain inconsistencies.

BTIG analyst Richard Greenfield highlighted that the decision comes in the midst of a debate about whether consumers are starting to drop their cable and satellite TV subscriptions to instead watch TV content online. "One would never expect to see a cable company actively encouraging its consumers to watch live TV programming over the web without the need for a multichannel video subscription," Greenfield said.

"Given Cablevision's high triple play penetration and the hassle of switching, we suspect 1% or less of subscribers have churned to-date, but fear that number could grow meaningfully if the dispute continues," he also estimated.

Meanwhile, RBC Capital Markets analyst David Bank argued that the move to pay for the World Series online coverage "illustrates a very important data point in the fight for retransmission consent - the value of broadcast network programming."

Cablevision has said that Fox was looking for an incremental annual fee increase of about $80 million a year, or about $2 per subscriber per month. "Cablevision pushed back on this rate, yet, offers to subsidize subscribers by $10 per sub for the World Series on MLB.com, at least for this month," he pointed out.

In another calculation, Bank estimated that about 5% of Cablevision's subscriber base, or around 150,000 users, may go for the MLB.com offer. The total cost to Cablevision would then be $1.5 million. Spread across the company's 3 million subscribers, that would amount to 50 cents per user just for the World Series.

"Given the World Series comprises only about 13% of the week's programming or 3% of the month, one could easily see how Cablevision is valuing Fox at a figure greater than $1 per sub," he concluded.