AT&T, DirecTV May Nab Bankrupt Houston RSN

Many Details Need To Be Ironed Out
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The 2014 Houston Astros season will come and go, but more pay TV subscribers in the Houston DMA may get to see the local National Basketball Association team’s upcoming campaign on TV if a plan pitched by AT&T and DirecTV Sports Networks to become the owners of troubled regional sports network Comcast SportsNet Houston ultimately connects in a bankruptcy court.

Under an investment agreement involving AT&T, DirecTV Sports Networks, Major League Baseball’s Astros and the NBA’s Houston Rockets, the Houston Regional Sports Network partnership would be reorganized as a limited liability company with 1,000 common shares.

The plan calls for 40% to be held by AT&T, with the remaining 60% to be controlled by DirecTV Sports Networks, which already operates three other RSNs under the Root Sports banner.

Currently the Astros own 46.5% of CSN Houston, the Rockets 31% and Comcast-NBCUniversal 22.5%. The RSN’s limited distribution has prevented it from paying the clubs their expected rights fees.

Documents submitted to Judge Marvin Isgur of the U.S. Bankruptcy Court, Southern District of Texas, Houston Division, on Aug. 7 point toward an Oct. 2 hearing date that could result in the approval of the AT&T/DirecTV ownership gambit.

The network’s conversion to Root Sports Houston could come in time for the first Rockets preseason game on Oct.5.

However, a valuation of the proposal has not yet been submitted, nor have the rights payments the clubs would receive been outlined.

Moreover, Comcast-NBC Universal said it has concerns about the reorganization plan: “The reorganization plan presented raises significant concerns regarding the equitable treatment of the network and its various constituencies. We intend to exercise all of our available rights as part of a fair process.”

The next hearing is set for Sept. 4, at which time AT&T and DirecTV Sports are expected to present their valuation for the network.

Since launching in October 2012, CSN, managed by NBCU, has only secured carriage with its parent and a handful of small providers that combine to reach around 40% of its potential viewers in the Houston DMA, and much less its five-state TV territory.

AT&T U-verse counts almost 23% of the TV households in Houston, while DirecTV has 21%. If an agreement could be reached whereby the subscribers of AT&T and DirecTV, which are looking to pass federal muster for their proposed merger, could be combined with those of Comcast, which is awaiting approval to purchase No. 2 cable operator Time Warner Cable, there would be a substantial uptick in the new RSN’s reach in the DMA and beyond.

While Comcast, which could conceivably submit its own reorganization plan, has a carriage deal with CSN Houston, the establishment of a succeeding entity would require a new affiliate contract. Comcast’s carriage commitment represents one of the main assets to an RSN serving the Houston market.

Affiliate negotiations, the status of unpaid rights fees, the repayment of a $100 million loan from Comcast that was used for a variety of startup costs (including monies deployed for the construction of the RSN’s studio facilities), and the fates of CSN Houston employees are among the matters that have to be addressed. All told, the bankruptcy case includes unsecured claims of $106.5 million.

According to documents filed with the bankruptcy court, some $133 million in rights payments have gone unpaid. The Rockets didn’t receive any of the team’s $44.4 million in rights fees for the 2013-14 season, while the Astros were owed $27.8 million for the 2013 MLB season and have not been paid at all for the current campaign.

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