Viacom Demands Cablevision Loses Rights to MTV, Nickelodeon, Comedy Central (Exclusive)

In response to an antitrust lawsuit, Viacom is now accusing the nation's eighth-biggest MVPD of fraud.
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Cablevision's James Dolan; Viacom's Philippe Dauman

Viacom is ramping up its defense of an antitrust lawsuit brought by Cablevision by alleging the cable operator committed fraud in the parties' last TV carriage deal. In counterclaims lodged in New York federal court, Viacom is now demanding that its contract with Cablevision be rescinded.

The charge focuses on the agreement worked out between the two sides in December 2012. Viacom now says that Cablevision had a "secret plan" during those negotiations and wouldn't reveal the secret lest "negotiations would have come to a screeching halt."

Just two months after the contract was executed, Cablevision filed a lawsuit that alleged that Viacom engaged in a "per se" illegal tying arrangement by bundling "must-have networks" with lesser-viewed ones such as Palladia, MTV Hits and VH1 Classic. According to the complaint, Viacom threatened a "10-figure penalty" if the bigger networks were licensed but not the smaller ones. (Viacom sees it differently: Cablevision got a discount on the bigger networks by taking the smaller ones.) The harm alleged was that Cablevision couldn't use its resources on other independently operated networks.

Viacom initially reacted to the lawsuit by challenging whether the bundling of channels was really a "per se" tying arrangement and arguing that the plaintiff had failed to demonstrate marketplace foreclosure.

Despite the arguments, U.S. District Court Judge Laura Taylor Swain rejected Viacom's motion to dismiss in June because Cablevision had "pleaded facts sufficient to support plausibly an inference of anticompetitive effects."

As part of Cablevision's demand for relief, it wanted Viacom ordered into a short-term license that allowed the cable company to have core networks such as MTV, Comedy Central and Nickelodeon but without the noncore networks. Viacom told the judge not to invalidate its carriage agreement, arguing that Cablevision wanted "to reform the contract to its liking so as to keep only the rates and terms it would like to have."

The judge declined to take an immediate step to void the licensing deal. But now, it's Viacom's turn to argue for the contract's rescission.

Viacom filed its answer and counterclaims under seal last week (read the public version here), and the papers question how Cablevision came to an agreement with a lawsuit so quickly proceeding. In Viacom's eyes, Cablevision never had any intention of performing its obligations under the contract, so what was said during negotiations amounted to misrepresentations.

In December 2012, Cablevision proposed eliminating the lesser channels, but Viacom says it saw it as "nothing more than a negotiating tactic." That month, Cablevision allegedly made clear that it didn't want to drop the channels to free up bandwidth or launch non-Viacom services. It was then that a Viacom executive reminded a counterpart at Cablevision that it "enjoyed payment of significantly lower cash license fees as a result of, among other things, its broad carriage of Viacom services."

Less than two weeks later, Cablevision brought the other channels (called Suite Services) back onto the table, says the counterclaims. Negotiations happened in a "business as usual" fashion, and near the end, the attorneys began thanking each other for the quick turnaround.  Cablevision is also said to have affirmatively represented and warranted that the contract was valid and lawful.

According to Viacom's court papers, "at no time did anyone from Cablevision inform Viacom that Cablevision believed that any of Viacom's conduct in the negotiation of the 2012 Agreement was illegal in any manner, that Cablevision intended to sue Viacom promptly upon entering into the proposed agreement to declare the Agreement void, or that Cablevision intended to request that a court rewrite the 2012 Agreement so that Cablevision could obtain license fees and other terms and conditions that it would not have been able to attain had it been honest in its negotiation with Viacom of the 2012 Agreement."

Cablevision — owned by the Dolan family and the eighth-largest cable or satellite provider in the country — wants Viacom's premium networks alone (which also include VH1, BET, TV Land and Spike TV), but Viacom doesn't believe that Cablevision gets a price discount without taking up those lesser channels in need of exposure and ad income. By demanding rescission, Viacom essentially wants to nix the 2012 deal, bring Cablevision back to the negotiating room and see how things turn out.

According to a statement given to The Hollywood Reporter by Cablevision, "this baseless filing is a transparent attempt by Viacom to delay and distract attention from Cablevision's valid antitrust claim against Viacom for illegal channel tying. Viacom's practice of tying of its popular networks to carriage of its lesser-watched networks is anti-consumer and ultimately drives up the cost of cable, and we look forward to further pressing our case at the next stage of the proceeding."

Twitter: @eriqgardner