2002 in Review

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Mergers, corporate scandals and stock-market worries dominated cable-industry headlines in 2002, leavened by good news on new-service offerings and basic-cable programming.

Regulators approved Comcast Corp.'s acquisition of AT&T Broadband after a review of just nine months, yielding a much larger Comcast that claims some 22 million subscribers — double the size of No. 2 MSO Time Warner Cable. The $54 billion merger makes CEO Brian Roberts cable's king, with a foothold in 41 states. But much work lies ahead in shoring up subscriber losses in the former AT&T systems and in upgrading system plant.

A merger that threatened cable — EchoStar Communications Corp.'s planned union with DirecTV Inc. parent Hughes Electronics Corp. — did not survive the year. The Department of Justice and the Federal Communications Commission refused to approve the deal, calling it anticompetitive and injurious to consumers. The parties finally called it off last week.

Rupert Murdoch's News Corp. might take another stab at DirecTV.

Much ink was spilled over the accounting scandal and financial collapse of Adelphia Communications Corp., and the fall from grace of its founding Rigas family.

On March 27, Adelphia disclosed that it was liable for $2.3 billion in off-balance sheet debt accumulated by the Rigases. The Coudersport, Pa.-based MSO was quickly beset by woes, including a formal investigation by the Securities and Exchange Commission.

The stock plummeted and, by the week of April 15, Adelphia had dragged four other publicly traded MSOs — Comcast Corp., AT&T Corp., AOL Time Warner Inc. and Cablevision Systems Corp. — to 52-week lows.

Adelphia filed for bankruptcy protection. John Rigas, sons Timothy and Michael, and two other former executives were arrested and indicted on 24 counts of conspiracy and fraud. Adelphia sued them.

In October, the "Adelphia five" pleaded innocent. But the next month, former finance executive James Brown pleaded guilty to conspiracy and securities and wire fraud, and agreed to testify against his former co-defendants.

On a more positive note, new digital cable services such as video-on-demand and high-definition TV began to take root. Operators are testing different price points and, in some instances, offering free on-demand services to entice consumers.

Where advertising was concerned, 2002 marked a comeback. Cable's upfront selling bazaar last spring garnered a collective $4.5 billion or thereabouts, up 12.5 percent. Fourth-quarter scatter inventory sales have fetched high prices.

In programming, basic cable, boosted by new original series, surpassed its broadcast competition in primetime for the first time during the 2001-02 TV season — a year ahead of predictions.

January

A new year brought some new business relationships. Tom Rutledge, a former Time Warner Cable senior executive, landed a new job as president of Cablevision Systems Corp.'s systems in the New York metro area.

Former Charter Communications Inc. chairman Jerald Kent, who resigned from that MSO the previous fall, resurfaced with the formation of CEQUEL III, his new investment fund. In May, CEQUEL said it had partnered with Charterhouse Group International to buy a controlling interest in AAT Communications, which operates and manages some 5,700 wireless-communications sites.

Hallmark Channel brought former USA Network and CBS executive David Kenin back to cable as its programming chief.

The new year also signals a new thrust in the digital cable set-top arena.

WebTV founder Steve Perlman raised the curtain on Moxi Digital, a pet project he nicknamed "Reardon Steel" and kept under wraps for more than two years. Moxi introduced a roadmap for boxes and Linux-based middleware to accommodate on-demand, interactive and digital services, plus the ability to interconnect all communications devices in a residence through home networking techniques.

With AOL Time Warner Inc., EchoStar Communications Corp., Vulcan Ventures Inc. and Cisco Systems Inc. contributing to a $67 million war chest, Moxi's vision generated major buzz at the Consumer Electronics Show in Las Vegas. Cable operator CEOs also toured the CES, under the sponsorship of Cable Television Laboratories Inc.

On the programming front, the National Basketball Association inked a new TV deal worth a combined $4.6 billion. Turner Network Television kept a share of the games, while ESPN was brought in as a new cable partner. NBC was also dumped for ABC Sports — ESPN's The Walt Disney Co. sibling — on the broadcast side. And that over-the-air schedule was reduced to cable's benefit, as the league's All-Star Game and conference finals became cable-only affairs.

Another result: When ESPN tipped its NBA coverage in the fall, it became the first TV network to carry action from all four major professional sports leagues during a given year.

Meantime, AOL Time Warner made the call to quash CNN/Sports Illustrated, which started life in 1996 as a sports-news service and evolved into a mixed bag of news and events. The channel closed shop in May.

In another piece of sports news, Fox Sports Net said it would punt on its National Sports Report
in February — after expending millions of dollars — leaving ESPN as the only source for extensive national sports news. Rainbow Sports Networks' six regional channels took matters a step further, eliminating their Regional Sports Reports.

Viacom Inc.'s Showtime Networks Inc. unit disclosed that it was developing a premium service for the gay community. Later, Canada-based Pridevision joined the hunt to be first U.S. player in that genre. The chase continues without much new to report as 2002 ends.

On-camera, CNN legal analyst Greta Van Susteren, host of Burden of Proof
and The Point, switched to Fox News Channel, anchoring what would become On the Record.

Back-office software vendor CSG Systems Inc. spent $300 million to buy customer-care assets from Lucent Technologies Inc. — the same assets Lucent had paid Kenan Systems $1.4 billion for three years earlier.

And in a 6-2 decision, the U.S. Supreme Court held that cable operators are entitled to regulated pole-attachment fees, or the rates for attaching data transmission wires to utility-controlled poles and conduits. The decision was seen as an opening for more affordable high-speed Web services.

February

Charter Communications Inc. kicked off February by laying out its plans to launch Digeo Inc. interactive services to 1.5 million digital-cable subscribers in 2002. The combination of virtual channels, text-based news, sports, shopping and weather channels represented the most ambitious interactive offering yet among the major MSOs.

News Corp. chairman Rupert Murdoch made no bones about his opposition to the union of EchoStar Communications Corp. and Hughes Electronics Corp.'s DirecTV Inc. He argued to regulators that the deal was illegal under federal antitrust laws, but observers also noted that if the pact fell through Murdoch could revive his bid for DirecTV, something that may play out in the months ahead following the deal's break-up last week.

Cable networks dug out some programming ammunition to combat the 2002 Winter Olympics programming on NBC, CNBC and MSNBC. Networks including A&E, The History Channel, TBS Superstation and Cartoon Network debuted new series and specials. Among the fare was the historical miniseries Valley Forge, the Will Smith theatrical Wild, Wild West
and a 24-hour cartoon marathon dubbed Scooby's All-Star Laff-A-Lymics.

The fourth-quarter earnings season was a chilly one for cable operators. Stock prices fell, fueled by disappointing results posted by AT&T Corp. and AOL Time Warner Inc. In particular, slowing digital-subscriber additions worried investors, combined with the fallout of the Enron Corp. accounting scandal.

The Cabletelevision Advertising Bureau's 20th annual Cable Advertising Conference in New York tried to put a positive spin on the dubious economy. Noting that spending statistics from CMR/Taylor Nelson Sofres were showing a warming trend, American Advertising Federation CEO Wally Snyder said there was "light at the end of the tunnel."

The exodus of network chiefs at Discovery Networks U.S. continued as The Learning Channel's executive vice president and general manager Jana Bennett announced she would return to the British Broadcasting Corp. as director of BBC Television.

Comcast Corp. found itself in hot water when it was revealed the MSO was monitoring Web use among its 950,000 high-speed cable-modem subscribers. Comcast claimed it did so only to identify popular content for caching. But faced with protest from privacy advocates and U.S. Rep Edward Markey (D-Mass.), it discontinued the practice.

The U.S. Court of Appeals for the Washington, D.C., Circuit effectively reshuffled the TV deck when it ordered the Federal Communications Commission to abolish its long-standing ownership rules regarding TV stations and cable systems in the same market. The court deemed the 1970 rule "flimsy" and "half-hearted." Industry watchers viewed the decision as a boon to major media companies and cable operators.

Yankees Entertainment & Sports Network scored a hit when it reached a distribution deal with Time Warner Cable, but the fledgling sports outlet fell short of a home run. Under the deal, Time Warner would offer YES Network on a limited basis, offering only New York Yankees Major League Baseball games and future New Jersey Nets National Basketball Association games to about 80 percent of the MSO's 1.2 million subscribers in New York City.

March

Adelphia Communications Corp.'s fourth-quarter conference call March 27 began like any other meeting. But when Merrill Lynch & Co. high-yield debt analyst Oren Cohen asked Adelphia executives how the company was backing up the $2.3 billion in off-balance-sheet debt it had just disclosed, the air began to steadily leak out of the bubble that was Adelphia's stock.

"There are substantial other assets that back this beyond the cable systems that are owned there," responded Adelphia's then vice president of finance James Brown.

Former Adelphia chief financial officer Timothy Rigas then chimed in. "We're very comfortable that the debt can be paid off," Rigas said. "We will try to see if we can give you more clarity on that."

Adelphia's disclosure that day sparked the biggest accounting scandal in the history of cable, and news of the Rigas family's alleged looting of Adelphia triggered a flight from cable stocks, dragging down the entire industry.

While the Adelphia scandal dominated cable business stories in March, the industry quietly made some key moves on the technology front — namely with video-on-demand.

Comcast Corp. unveiled its marketing strategy for VOD at a Cable & Telecommunications Association for Marketing conference in Los Angeles, where it discussed a free-on-demand tier. Time Warner Cable also confirmed plans that month to eventually offer its subscribers free VOD content, and other operators would experiment with free-on-demand in 2002.

Comcast also reported plans for a $9.95 monthly "on-demand classic" tier that would contain content from several basic cable networks, and a $14.95 "on-demand plus" tier that would housethe same "classic content," in addition to subscription VOD packages from HBO, Showtime and Starz Encore Group, plus 40 basic channels.

Many cable networks declared their intentions to supply VOD content, including A&E Networks, ABC Cable Networks, BBC America, ESPN, Discovery Networks and Cartoon Network.

After its market capitalization fell from its 1999 peak at $3 billion, the MSO-backed @Home Corp. cable-modem network died on March 1, stripped of its Excite.com portal.

Peter Boylan resigned as co-president of Gemstar-TV Guide International Inc., which would face accounting and legal setbacks throughout the year.

Leo Hindery's Yankees Entertainment & Sports Network signed a carriage deal with Comcast, following up on a deal struck with Time Warner Cable in February.

EchoStar Communications Corp. asked the U.S. Supreme Court to strike down a law that forces direct-broadcast satellite companies to offer every local TV station in markets where they carry any over-the-air signals.

Changes in the MTV Networks suite saw Judy McGrath promoted to the newly created post of president of MTV Networks Music Group, overseeing MTV: Music Television, MTV2, Country Music Television and the struggling VH1. Parent Viacom Inc. moved CMT and VH1 head John Sykes to its Infinity Radio unit, where he assumed the chairman and CEO posts.

April

Adelphia Communications Corp. dominated the news in April, after its revelation on its March 27 fourth-quarter conference call with analysts that it was liable for $2.3 billion in off-balance sheet debt accumulated by its ruling Rigas family.

In subsequent weeks, news of further problems trickled out, including a warning from the NASDAQ stock exchange that the company faced a possible delisting because it had failed to file its 10-K annual report on time. In addition, Adelphia's largest shareholder — Citizens Communications Corp. chairman Leonard Tow — was assembling a group to force the Rigases to relinquish control of the company.

By mid-month, Adelphia said that the Securities and Exchange Commission had upgraded its inquiry into the company to a formal investigation, which hammered the stock again.

By the week of April 15, concerns about Adelphia's accounting problems finally affected other cable stocks. Five of the nine publicly traded MSOs — Adelphia, Comcast Corp., AT&T Corp., AOL Time Warner Inc. and Cablevision Systems Corp. — hit new 52-week lows.

By month's end, Adelphia stock was priced at $6.02 per share, 70 percent ($14.37 per share) less than its March 26 price.

As Adelphia's problems mounted, cable stocks were also hit hard by poor first-quarter results from the industry's top two operators. AT&T Broadband reported that it had lost about 179,000 basic-cable subscribers, about 1.5 percent of its total cable base, during the period. Cash flow margins — cash flow as a percentage of revenue — on the upswing in previous quarters, was down 4 percent to 19 percent.

At AOL Time Warner, Time Warner Cable results were better, but the company took a $54 billion charge to earnings — one of the largest in corporate history — to reflect the decline in its stock price since the merger of AOL and Time Warner Inc. in January 2001. The company also said it would focus its attention to the struggling AOL Internet unit, plagued by subscriber losses and declining advertising revenue.

While individual MSOs were feeling the pinch, talk of further federal rate regulation heated up after Sen. John McCain (R-Ariz.), the senior member on the Senate Commerce Committee — and a long-time critic of the cable industry — asked the General Accounting Office to look into cable rates.

Also in April, Gemstar TV Guide International Inc. said it had erroneously booked as revenue $107.6 million it never actually received from set-top box vendor Scientific-Atlanta Inc. The interactive programming guide vendor faced more changes later in the month, when its largest shareholder, News Corp., installed former Fox Cable Networks Group president Jeff Shell as chief operating officer. Shell replaced Peter Boylan, who resigned abruptly a month earlier.

May

Amid Adelphia Communications Corp.'s growing financial woes and the Rigas clan's legal problems, the MSO began shopping systems reaching 2.75 million subscribers in Los Angeles and elsewhere — but then quickly shelved that plan.

John Rigas and sons, Michael, James and Timothy, ended the month by quitting their Adelphia posts.

Solid first-quarter earnings reports from major MSOs like Comcast Corp., Charter Communications Inc., Cablevision Systems Corp. and Insight Communications Co. got the month off to a strong start. Still, looking back on weeks of cable stocks' taking a pounding, Insight executive vice president Kim Kelly observed, "I'm a little confused about all the negativity in the sector. We're having our best quarter in years."

As AOL Time Warner encountered investor anger over its plummeting value, Richard Parsons made his debut as CEO with a five-point plan to get the company back on track.

Discovery Networks U.S. looked for Billy Campbell, as its new president, to mine his Hollywood connections for future original programs.

Meanwhile, Steve Bornstein, who built ESPN into a sports powerhouse, suddenly bolted as ABC Television president. Many attributed his exit to The Walt Disney Co.'s management-heavy bureaucracy.

Earlier, ESPN had advised affiliates of another 20 percent rate hike under its long-term deal. And the thorny issue of soaring programming costs arose again during National Show sessions in New Orleans. But fewer industry folks were on hand to hear those discussions, as the sluggish economy, industry consolidation and Sept. 11 fallout lowered that show's attendance by 30 percent to 17,000 from the 24,000 present in 2001.

With the Major League Baseball season in full swing, Yankees Entertainment & Sports Network — embroiled in a bitter carriage dispute with Cablevision that left the fledging regional sports network with a 3 million-home hole in the middle of its distribution and advertising lineups — filed an antitrust suit, charging that the MSO was conspiring to protect its own Madison Square Garden Network.

Heading into the 2002-03 upfront ad-sales bazaar, early-bird forecaster Discovery Networks U.S. executive vice president Bill McGowan proved close to the mark in his cable projection — $4.5 billion, up 12.5 percent. But his call for a flat $7 billion broadcast outlook was too conservative, as the TV networks ultimately wound up with a record $8.3 billion, locking up an estimated 85 percent of their primetime inventory. That, in turn, fueled a robust scatter-sales market for cable.

On the marketing front, Cox Communications Inc. broke its first consumer branding effort in four years, under the theme line, "Your Friend in the Digital Age."

June

The industry was abuzz when Adelphia Communications Corp. defaulted on $1.4 billion in bonds, which got the company delisted from the NASDAQ exchange on June 3. An analysis of the operator's books unveiled irregularities such as vehicle purchases from a dealership in which founder John Rigas has an investment and millions in furnishings purchases through two decor stores owned by Rigas' wife, Doris.

That, though, was just the first blow to stockholders that month. A week later, it was revealed Adelphia had been inflating its subscriber count. The Coudersport, Pa.-based MSO counted customers who took only cable-modem service among its basic video subscribers, and tallied residents of multiple dwelling units as single accounts in cases where they were part of a bulk-service arrangement.

Due to Adelphia's fiscal condition, the National Hockey League took control of the Buffalo Sabres, which company executives had hoped to use as the centerpiece of a regional office and entertainment complex in the upstate New York City.

The Rigas dynasty came to an end at the company on June 24, when Adelphia filed for Chapter 11 bankruptcy.

After all the controversy and hype that led up to the event, the Lennox Lewis-Mike Tyson heavyweight-title boxing match proved to be a financial knockout for the struggling pay-per-view industry, breaking the all-time record for event revenue with $103 million. Lewis's eight-round dismantling of Iron Mike in Memphis drew 1.8 million buys, second only to Tyson's second loss to Evander Holyfield in 1997.

Turner Network Television began floating a proposal for a 2-cent to 6-cent-per sub, per-year increase to help pay for recently acquired marquee sports programming — notably its $2.2 billion, six-year pact with the National Basketball Association signed in January, as well as its piece of a $2.8 billion multiyear deal with the National Association for Stock Car Auto Racing.

USA Network returned to the original scripted programming business in a big way, with The Dead Zone
and Monk. Dead Zone's June 16 premiere earned a 4.7 household rating, the highest basic-cable debut for a drama series ever. Monk
starring Tony Shalhoub as a quirky detective beset by phobias — not only became a cable hit, but later crossed over to the broadcast realm, airing on ABC in a reverse-repurposing deal.

Elsewhere, Discovery's high-definition network, Discovery HD Theater, debuted on EchoStar Communications Corp.'s Dish Network direct-broadcast satellite service.

Satellite programmers were dealt a setback when the U.S. Supreme Court refused to hear a challenge to must-carry rules. That meant if a DBS provider opts to carry any broadcaster in a given market, it must carry all over-the-air stations that request coverage.

Digital deployments were stalled momentarily when Motorola Inc. announced that a faulty plug would mean the recall of "a number" of its DCT-2000 digital set-tops.

July

A few weeks after Adelphia Communications Corp. tumbled into bankruptcy, U.S. postal inspectors arrested company founder John Rigas and two sons who helped run the company.

Accused of looting the cable operator he founded for personal gain, John Rigas and his sons were led away from a Manhattan apartment in handcuffs, to illustrate the federal government's new get-tough policy on corporate accounting corruption to TV cameras.

Executives from WorldCom Inc. and Enron Corp. were not far from taking their own "perp walks."

While Adelphia self-imploded, AOL Time Warner Inc. tried to make amends with Wall Street by simplifying its cable business. Investors decimated AOL TW stock after merger synergies failed to materialize. As part of the balance sheet clean-up, the company restructured its Time Warner Cable unit by agreeing to turn over 2.1 million subscribers in Florida, Alabama, California, Indianapolis and Detroit to Advance/Newhouse Communications under A/N president Robert Miron.

A few weeks later, the company announced the complete restructuring of Time Warner Entertainment L.P., which brought with it a broadband carriage agreement with Comcast Corp. — online-service provider unit America Online's first such deal with an unaffiliated cable operator.

Another media giant that tried to escape turmoil was Vivendi Universal S.A., the French conglomerate groaning under the weight of $19 billion in debt amid reports of accounting irregularities. Chairman Jean-Marie Messier, who assembled the company's media assets when prices were high, was ousted by the board, which promptly began shopping assets and entertaining buyout offers.

The question everyone wanted answered: Would Barry Diller take over Messier's role? Diller didn't, as the post fell to Jean-René Fourtou. What role Diller will ultimately assume at Vivendi remains to be seen, as the company continues to contemplate a sale of its U.S.-based entertainment assets, including USA Network and Sci Fi Channel and Trio.

On the regulatory front, Jonathan Adelstein, President Bush's pick for a Democratic seat on the Federal Communications Commission, breezed through his confirmation hearing. But political disputes in the Senate delayed the South Dakota native's confirmation until after the November elections, which put Republicans in charge of the House, the Senate and the White House for the first time since the Eisenhower administration.

Digital television continued to preoccupy regulators. Although FCC chairman Michael Powell floated a voluntary DTV plan in April, House Commerce Committee chairman Billy Tauzin (R-La.) promised to introduce legislation to force movement. Tauzin decided to circulate a draft bill that ended up a positive for cable — no dual must-carry or multicasting mandate — and a negative for broadcasters — mandatory return of analog spectrum on Dec. 31, 2006. Tauzin vowed to pursue his legislation in 2003.

August

August was a month that may live in infamy for cable: The Anne Nicole Show debuted on E! Entertainment Television.

The reality series, featuring a woozy Anna Nicole Smith, broke Nielsen Media Research ratings records for the network. Even so, TV critics hammered the show as tasteless and lambasted E! executives for supposedly taking advantage of the slovenly blonde.

But Anna Nicole, in retrospect, may not have marked the shameful nadir of reality TV on cable. Just this month (Dec.), Home Box Office aired an American Undercover
episode, Cathouse,
in which johns at a Nevada brothel gleefully signed waivers permitting video of their seedy experiences to air. So historically speaking, maybe the controversial Anna Nicole
wasn't an all-time low for boob-tube voyeurism.

Big programming news also broke in August when broadcast TV — or at least beleaguered ABC — turned to cable for help, not once but twice. In the first instance, TV-critic-darling HBO inked a deal to create programming for ABC. And the Alphabet network, in a case of so-called "reverse repurposing," exercised an option to re-air USA Network's quirky, delightful surprise hit Monk.
There used to be a time when cable didn't get any respect. This year, broadcast turned to cable for fresh ideas and groundbreaking programming.

Cable operators reported their second-quarter earnings to Wall Street in August. Even though MSOs like Comcast Corp. and Cox Communications Inc. had good financial news, their stocks still took a drubbing, tainted by the fraud fallout from Adelphia Communications Corp., a drama that continued to shock the cable industry as it continued to unfolded through the summer.

Cablevision Systems Corp. also took its lumps in August when it tried to prop up its shares and soothe Wall Street by gathering analysts for a meeting to allay fears about the MSO's funding shortfall. But the Dolans disappointed the Street by not announcing any dramatic moves — and not declaring which of their Rainbow Media Holdings Inc. programming assets they planned to sell.

Media giant AOL Time Warner underwent a host of changes in August. First, CEO Richard Parsons managed to finally unravel Time Warner Entertainment L.P.'s longstanding partnership with AT&T Broadband. With AT&T officially out of the picture, AOL Time Warner gained the MSO's partial stake in assets such as Comedy Central and Court TV, a prelude to these non-core assets hitting the selling block.

There were also management switches at AOL's online unit in August, with Jonathan Miller coming in to fill the chairman and CEO slot formerly held by Barry Schuler. In early December, Miller finally outlined his broadband plans for the Internet unit, a plan that includes offering exclusive content from corporate sibling Time Inc.

September

A year after the Sept. 11 terrorist attacks on New York and Washington, cable programmers did their best to help America heal and remember a date that will live in infamy, presenting an array of news, shows and specials on and during the days leading up to the anniversary.

Later in the month, the cable industry returned en masse to Manhattan for Diversity Week. The Walter Kaitz Foundation dinner, which honored Comcast Corp. leader Brian Roberts, was packed, and netted its goal of raising $1.4 million to bolster employment diversity in the industry. The Cable & Telecommunications Association for Marketing and Women In Cable & Telecommunications luncheons were sold out, while two-day summits were staged by NAMIC and Paul Kagan Associates.

If the week's hustle and bustle restored a sense of normalcy to the industry, that sense was accompanied by more speeches and panels noting that while some progress has been made on the minority front, much work remains to be done in the workplace.

The Kaitz dinner was criticized in some quarters for being too California-centric in terms of entertainment and guests, many of whom were politicians. Kaitz president Art Torres, a former California state senator who remains the chairman of the state's Democratic Party, also came under fire for announcing a second round of grant winners that included non-cable organizations based in the Golden State: New California Media and the Southern California Indian Center.

Casting a pall over the industry as it convened in Manhattan, the Adelphia Communications Corp. watch ultimately bore news of indictments. Two months after their high-profile arrests, five former executives — former chairman John Rigas; his sons, former chief financial officer Timothy Rigas and executive vice president of operations Michael Rigas; former vice president of finance James Brown; and former assistant treasurer Michael Mulcahey — were indicted by a federal grand jury. The jury characterized the alleged fraud as one of the most elaborate in U.S. corporate history.

The executives face 24 counts of conspiracy, securities fraud, wire fraud and bank fraud.

There was some good news, too. With the official tallying completed on Sept. 22, basic cable topped the broadcast networks in primetime ratings for the first time during a full TV season, by a 28.2 to a 27.7 margin. Bolstered by a run of 52- and 53-share weeks — especially during the summer — victory during the 2001-02 season came a year earlier than Cabletelevision Advertising Bureau executives and other prognosticators had predicted.

The long-anticipated fourth season premiere of The Sopranos
on Sept. 15 whacked the competition, pulling a 23.3 rating in Home Box Office's universe and 13.4 million viewers, to make it the most-watched show in the premium network's 30-year history.
Speculation swirled that AOL Time Warner Inc. was looking to sell its 50 percent stakes in Comedy Central and Court TV. Viacom Inc., which owns the other half of Comedy Central, conducted preliminary talks about buying its partner out. Liberty Media Corp., which controls 50 percent of Court, is also considered likely to buy out its partner.

AOL Time Warner's interest: cleaning its balance sheet of nonstrategic assets.

Sadly, Peter Barton, Liberty Media's founding president and a key executive in the growth of MSO Tele-Communications Inc. and the home-shopping industry, died at age 51, after a long bout with stomach cancer.

October

In October, the focus shifted from the Adelphia Communications Corp. saga to the death of the direct-broadcast satellite merger.

At the beginning of the month, five former Adelphia executives — including founder John Rigas and his sons Timothy and Michael — pleaded innocent to fraud charges at an Oct. 2 arraignment in U.S. District Court in Manhattan. The Adelphia five were rounded out by former vice president of finance James Brown and former director of internal reporting Michael Mulcahey.

The Rigases' attorneys laid blame for the financial mess on the MSO's board of directors and auditors.

Then, the month's spotlight quickly shifted to the embattled merger attempt by DBS giants EchoStar Communications Corp. and Hughes Electronics Corp.

The proposed linkup of EchoStar and Hughes unit DirecTV Inc. would have created an 18 million subscriber behemoth and controlled 20 percent of the pay TV market. The Federal Communications Commission rejected the deal on Oct. 10, saying the merger represented a huge reduction in competition. The agency assigned the merger for a hearing before an administrative law judge, and on the last day of the month, the Department of Justice filed a suit that effectively slammed the door shut on the deal.

Charter Communications Inc. also grabbed its share of headlines, announcing that it would reduce its revenue and cash-flow guidance for the third-quarter and that it expected dismal fourth-quarter results. The news sent set Charter stock on a downward spiral that pushed it below $1 per share for the first time ever on Oct. 10.

In mid-month, the MSO placed vice president and chief operating officer David Barford on paid leave. The move was tied to an ongoing grand jury investigation into Charter's accounting practices.

Earlier in the month, Charter CEO Carl Vogel made a pitch to Paul Allen to buy $500 million of the MSO's debt. But by month's end, HDNet head Mark Cuban purchased 15.7 million shares — boosting the stock back over the $1 mark — to take a 5.3 percent stake in the troubled MSO.

October also featured a change at the top for a few programming networks. As part of a Crown Media Holdings Inc. reorganization, Lana Corbi was ousted as head of Hallmark Channel and replaced by Crown president and CEO David Evans.

A swap was on the books at A&E Networks, as the flagship service and History Channel traded top executives. History's Abbe Raven slid over to become executive vice president and general manager replacing A&E's Dan Davids. In turn, Davids took the reigns as executive vice president and GM of History.

Also, AT&T Broadband announced that it would cut 1,700 jobs by the middle of next year as part of its then-pending merger with Comcast Corp.

November

November marked the consummation of the biggest deal in cable industry history as the Federal Communications Commission and the Department of Justice gave their blessing to the $54 billion merger of Comcast Corp. and AT&T Broadband.

With more than 22 million subscribers, the new Comcast Corp. now has a presence in 41 out of 50 states. Although Comcast faces a host of integration and upgrade issues with the AT&T systems it has acquired, the behemoth carries more clout than any other MSO in history with regard to programming licensing deals.

Comcast immediately sought to use that leverage by filing suit against Starz Encore Group LLC to get out of a network-friendly carriage deal forged between the premium programmer and AT&T.

For its part, Starz! vowed to fight Comcast in the first of what many industry observers believe will be numerous licensing fee disputes between networks and the MSO.

In another high-profile November deal, Cablevision Systems Corp. sold arts-focused network Bravo to broadcast network NBC for $1.25 billion. Observers believe the deal is the first of further asset divestitures by the company, which is hoping to fill a projected cash shortfall of $400 million to $1 billion.

For NBC, which owns news networks CNBC and MSNBC, the acquisition provides its first cable outlet for entertainment programming.

Elsewhere, Cablevision, looking to hit its target of 150,000 to 175,000 digital homes in the metro New York area by year's end, launched a multimedia advertising and marketing blitz behind its year-old iO: Interactive Optimum digital-cable platform. Cablevision, which counted some 80,400 digital subscribers at the end of the third quarter, is the last major operator to roll out digital cable.

Adelphia Communications Corp. took another hit in November when the company's former vice president of finance James Brown cut a deal with federal prosecutors. Brown pleaded guilty to conspiracy, securities fraud and wire fraud in exchange for his testimony against his former co-defendants, Adelphia's founding Rigas family.

Meanwhile, Adelphia's search for a new CEO continued with now former AT&T CEO William Schleyer moving up the list, perhaps at the expense of Rod Cornelius. Talks with the Adelphia board member evidently broke down.

Already embroiled in federal investigations into its accounting practices, Charter was forced to reinstate its financial statements for the past two years because of accounting oversights. The changes reflected an additional $1.4 billion in franchise costs and $1.2 billion of deferred income tax liability that should have been recorded regarding the acquisition of 18 cable systems between 1999 and 2000. The result: a widening of losses during the three- and nine-month periods, ended Sept. 30, of $8.9 million and $25 million, respectively.

On Nov. 21, the U.S. Senate confirmed Democrat Jonathan Adelstein as the FCC's fifth member. His nomination had been held up for months, the result of partisan tensions concerning President Bush's nominees for the federal judiciary.

December

After encountering opposition at many turns — and getting rejected by the Justice Department and the Federal Communications Commission — EchoStar Communications Corp. finally put an end to its bid to purchase DirecTV Inc. from parent Hughes Electronics Corp. on Dec. 10.

EchoStar will hand over a $600 million break-up fee, but won't have to pay $2.7 billion to Hughes for an 81 percent stake in PanAmSat Corp. under the termination agreement.

But the demise of the DBS mega-merger —which would have created a combination serving some 17 million customers and made EchoStar the No. 2 pay TV distribution player, behind Comcast Corp. — figures to open the door for Rupert Murdoch's News Corp., to make a renewed run at DirecTV, perhaps in concert with Liberty Media Corp.

Also unclear at press time: Cablevision Systems Corp.'s game plan in the satellite space. Chuck Dolan is interested in launching a satellite service and was hoping to grab some spectrum from EchoStar and DirecTV as a condition of Justice and FCC approbation for the deal. Cablevision must launch a service by March or lose its license.

Charter Communications Inc. — just a week after naming former Cox Communications Inc. operations chief Margaret Bellville as its executive vice president of operations — announced it will restructure into five geographic clusters, each reporting to Bellville.

She took over for Dave Barford, who was placed on paid leave in October, tied to a grand jury investigation into the company's accounting practices. The restructuring completion is expected in first-quarter 2003, with attendant savings released in Charter's fourth-quarter earnings announcement in February.

Out West, a December staple was drawing less attention than in the past. At the 2002 Western Show in Anaheim, Calif., attendance fell to just under 10,000 — down from 17,000 who traveled to the 2001 confab. While light on programmers, the smaller show seemed to satisfy tech vendors, who were pleased to mix and mingle with many top-level MSO decision-makers.

Sony Corp. — which suffered a blow in the summer when Cablevision Systems Corp. moved beyond its relationship with the vendor and bought Explorer 4200 boxes from Scientific-Atlanta Inc. to jump-start its digital-cable rollout — turned many heads at the Western Show with the introduction of its Passage technology.

Sony's system provides a way to create two versions of conditional-access encryption that can flow side by side in a digital headend. Some observers believe the system could loosen the cable-gear duopoly that S-A and Motorola Inc. have long enjoyed.

NBC closed its $1.25 billion acquisition of Bravo from Cablevision. NBC Entertainment boss Jeff Zucker will oversee the arts network, while Jeff Gaspin, the programmer who lifted VH1's fortunes before moving to the Peacock, is in charge of day-to-day operations.

AOL Time Warner Inc. CEO Richard Parsons, speaking at the UBS Warburg LLC Media Conference in New York last week, said talks of a possible merger between his company's Cable News Network and ABC News have been put on hold. While the news combination makes business sense, he said, there are many operational and structuring issues that would have to be resolved.

Home Box Office's hit mob series, The Sopranos,
closed its fourth season with the second most-watched episode in its history on Dec. 8, attracting 12.5 million viewers and whacking all of the broadcast competition in its time slot.

Many viewers were also quite taken with the Sci Fi Channel maxiseries Taken. The 20-hour Steven Spielberg-produced alien abduction project produced record ratings for the network. Taken's performance should result in a very strong ratings month for basic cable, which will also be boosted by the culmination of ESPN's National Football League and college football coverage.

Although the year is not officially over, Lifetime Television has declared victory in the 2002 race for primetime households. The win gives the women's-targeted channel a second consecutive year atop the Nielsen charts — and gets its employees a week off.

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