Cablevision Suit Claims $1 Billion-Plus Threat From Viacom

2:49 PM PST 3/7/2013 by Eriq Gardner

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The cable distributor releases a complaint alleging the threat of a "10-figure penalty" and says Viacom's alleged coercive tactics left no choice but to "surrender," then sue.

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Cablevision's James Dolan, left; Viacom's Philippe Dauman, right

Cablevision has released its complaint against Viacom over alleged antitrust violations.

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The lawsuit was filed under seal in late February and has now been made public, with certain redactions. It can be viewed below.

In making the case that Viacom has engaged in a “per se” illegal tying arrangement by bundling "must-have networks" such as Nickelodeon, Comedy Central and MTV with lesser-viewed ones including Palladia, MTV Hits and VH1 Classic, Cablevision must clear a host of legal hurdles.

Two questions in particular might shape the outcome: Why is Cablevision bringing the lawsuit just two months after agreeing to a carriage contract with Viacom? And how does Viacom's behavior threaten competition?

The two companies came to a carriage agreement in December.

Cablevision presents Viacom's offer as a "10-figure penalty" if the bigger networks were licensed but not the smaller ones.

"Viacom's coercive tactics left Cablevision with only one viable economic choice: to accept a deal under which Cablevision would continue to carry both the core networks (which Cablevision wants to distribute) and the suite networks (which Cablevision wishes to replace with alternative networks). Cablevision accordingly surrendered..."

At a conference this week in Florida, Viacom CEO Philippe Dauman responded that Cablevision got a discount for taking its lesser networks. He said, "I guess their theory is: 'We got the discount. We got three suits for the price of two. Now we want just the two,' " he said. "That doesn't happen in our business."

Viacom further clarifies that the “penalty” is simply the difference between the standard rates and the significant "discount" Cablevision negotiated -- multiplied over the number of years in the deal.

As for the nature of the competition injury, Cablevision says it has "identified other general programming networks that Cablevision would prefer to distribute in place of the suite networks, including new networks it has not carried in the past as well as HD versions of networks Cablevision already carries in SD."

And if there's going to be any fuss over whether Cablevision has standing to pursue such injuries, the cable distributor says later in its complaint that "absent Viacom's foreclosure of competing general programming networks, Cablevision would have greater flexibility to assemble its programming packages to meet consumer demand. Instead, Viacom's tie-in hinders Cablevision's ability to differentiate its service from rivals, thereby further depriving Cablevision of subscribers (and profits) it otherwise could obtain or retain."

Here's the full complaint from the law firm of Ropes & Gray, which goes into surprising detail in attempting an economic theory on how the current TV business operates.

Twitter: @eriqgardner