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2 YEARS

Cablevision Files Antitrust Lawsuit Against Viacom

The cable company accuses Viacom of coercion and is seeking to void a carriage agreement.

Cablevision logo - H 2012

Cablevision says it has filed an antitrust lawsuit against Viacom for allegedly forcing the cable company to carry and pay for 14 lesser-watched ancillary networks. It is seeking declaratory relief voiding its carriage agreement inked in December.

“The manner in which Viacom sells its programming is illegal, anti-consumer and wrong," says Cablevision in a statement. "Viacom effectively forces Cablevision’s customers to pay for and receive little-watched channels in order to get the channels they actually want.  Viacom’s abuse of its market power is not only illegal, but also prevents Cablevision from delivering the programming that its customers want and that competes with Viacom’s less popular channels.”

The lawsuit contends that Viacom is exploiting the market power it has gained from "must-have networks" such as Nickelodeon, Comedy Central and MTV and threatening to impose massive financial penalties to coerce Cablevision into carrying lesser networks including Palladia, MTV Hits and VH1 Classic.

The lawsuit has been filed under seal.

According to a press release, Cablevision’s complaint asserts that Viacom engaged in a “per se” illegal tying arrangement in violation of federal antitrust laws. Besides seeking to void its current carriage agreement, Cablevision also is looking for a permanent injunction barring Viacom from conditioning carriage of its bigger networks on the licensing of the lesser ones.

"At the request of distributors, Viacom and other programmers have long offered discounts to those who agree to provide additional network distribution," Viacom countered in a statement Tuesday.

Allegations of tying arrangements are common in antitrust lawsuits. The most famous case might be the one made in the late 1990s by the Justice Department against Microsoft for bundling together its software packages and harming smaller software vendors.

A number of consumer class-action lawsuits have been attempted over the years on the cable network tying front. Most have not been successful. For instance, a Ninth Circuit Court of Appeals last year declined to overrule a lower court's dismissal of a suit that alleged NBCUniversal, Fox and other TV programmers were using their market power to force consumers to accept bundled packages of channels.

"Tying arrangements, without more, do not necessarily threaten an injury to competition," wrote the appellate court. "Plaintiffs must also allege facts showing that an injury to competition flows from these tying arrangements."

This latest lawsuit from Cablevision represents what could potentially be the biggest antitrust challenge ever in the cable TV marketplace. To prevail, the plaintiff will need to meet several tests, and the one that will probably gain the motion attention by the parties involved is whether Viacom has, in the Supreme Court's words, "sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product."

Some industry analysts are questioning the alleged coercion and anti-competitive grounding of Cablevision's claims.

"Viacom, like other network companies, offers a rate card where networks can be bought separately -- at higher prices," writes Barton Crockett at Lazard Capital Markets. "So the bundle is not forced. Also, we struggle to see how carriage of 14 channels in a 200-channel universe is exclusionary. And bundled pricing for TV network carriage is common, with similar bundles sold, for instance, by Cablevision sibling AMC, as well as Disney and Discovery."

Once in court, Viacom also could challenge whether the tying arrangement is per se illegal. Some courts have adopted a balancing test that examines both the negative and positive effects of a tying arrangement to see which outweighs the other.

In its statement Tuesday, Viacom said: "Many distributors take advantage of these win-win and pro-consumer arrangements. Reflecting the highly competitive cable programming business, these arrangements have been upheld by a number of federal courts and on appeal. Viacom will vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two month old agreement."

UPDATE:

Some other distributors are coming to Cablevision's side.

Here's a statement from DirecTV:

"There's no question that the current all-or-nothing system dictated by programmers is completely broken. Our customers have told us time and time again they don't want to pay for channels they don't watch. For programmers to force this system on all pay-TV customers, just so they can line their pockets with extra profits, is shameful."

And here's a statement from Time Warner Cable:

"We frequently have pointed out that there are serious problems with the current programming environment. We think this lawsuit raises important issues, and we look forward to their resolution in the courts.”

And one more from Charter Communications: 

"We applaud Cablevision’s efforts to rein in programming costs. … We believe lawsuits like the one brought by Cablevision today send a clear message to programmers that unlawful and irresponsible market tactics will not be tolerated."

Additionally, smaller networks such as Ovation and GMC TV also are taking the opportunity to rally behind an effort to break the cable caboose. Here's GMC's statement:

“The aggressive stance taken by large media conglomerates leaves less room and money to go around for independent, vibrant programmers that serve smaller but passionate audiences that love and want the family-friendly programming offered on GMC and Aspire.  We have raised this issue to Washington D.C. lawmakers for years; however, it is one that continues to plague independent programmers. This is another concrete example of how this problem that has not been addressed continues to play out, ultimately hurting the consumer.”

E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner