3:22pm PT by Eriq Gardner
Showtime Becomes Third TV Network This Summer to Sue Charter Over License Fees
Big television networks didn't put up much of a fight when Charter Communications sought regulatory approval for its $71.4 billion merger with Time Warner Cable. Now that the deal has closed, there could be some regrets about this.
On Wednesday, Showtime Networks filed a breach-of-contract lawsuit in New York state court against Charter, following suits brought in July by both Univision and Fox News, all contending that Charter is manipulating its acquisition to pay lesser license fees.
Similar to the earlier lawsuits, Showtime is arguing that its agreement with Charter — not its agreement with TWC — is the one that governs carriage going forward. Over the years, TWC apparently was able to wrangle more favorable terms, and Charter clearly wishes to now take advantage of this. Showtime, Univision and Fox News, however, are blanching at the way Charter has structured its transaction to ensure the survival of the TWC carriage agreements.
According to the latest lawsuit, "Charter has claimed that a company called Spectrum Management Holding Company, LLC acquired the Legacy Charter Systems and that Spectrum owns and manages the Charter and TWC/BH Systems. But Charter's argument is in direct conflict with Charter's own public characterizations of the Acquisition and of the ongoing management and operations of the business."
In other words, Showtime says that since Charter acquired TWC, it's the Charter agreement that's the important one.
Univision and Fox News were both more straightforward in pointing to the way in which they were getting more licensing money under Charter deals, renewed after TWC ones.
The reason why Showtime has been getting more from Charter than TWC is less clear — obscured by heavy redactions in its complaint (see here). Given that Showtime is a "premium" network, subscriber sign-ups factor heavily in how license fees are computed. Showtime's complaint discusses this and says that its fee structures vary by distributor "depending on how those distributors intend to price, package and otherwise market [Showtime's] services and how they want to allocate risk with [Showtime] for good or poor subscriber performance in their systems."
Maybe as the case is litigated, and especially if it goes to trial, some of the details will become public, but for now, the lawsuit focuses on whether the Charter agreement or the TWC agreement is the live one. The analysis is informed both by contractual provisions dealing with the modification of license fees in the event of an acquisition as well as what Charter officials have said in regulatory filings.