Carriage Battle Ignites Over Network Bundling - Multichannel

Carriage Battle Ignites Over Network Bundling

CABLE ONE, TURNER FACE OFF OVER NCTC CONTRACT
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The latest version of the carriage wars began in earnest last week, and for once the biggest dispute wasn’t between the biggest players.

While many eyes were focusing on the Sept. 30 showdown between Dish Network and The Walt Disney Co. — they reached a short-term extension while they continued to negotiate — for sheer heat, the biggest dispute appears to be taking shape in Phoenix, the home of Cable One, a midsized operator that dropped Turner Broadcasting System’s networks on Oct. 1.

While on the surface the battle seems to be typical of past carriage negotiations — Cable One claims Turner is demanding a 50% rate hike — it could prove to have much broader implications, possibly challenging the channel bundling practices of programmers that have confounded cable operators for years.

Cable One contends that an agreement Turner signed with the National Cable Television Cooperative in the past year allows it to purchase channels from the media giant individually — and economically — selecting only what it wants to carry. That is just what it did: purchasing TBS, TNT and Cartoon Network, and passing on six other channels, CNN, CNN en Español, Boomerang, Turner Classic Movies, HLN and truTV.

Cable One contended that even paying a rate for the three channels that was 50% above its previous deal was cheaper than purchasing the whole bundle.

Shortly after Cable One announced that it had dropped the six Turner channels and retained only the other three, Turner deauthorized all of its networks to the operator. Cable One contends the deauthorization was a retaliatory move.

“We signed contracts for TBS, TNT and the Cartoon Network through the [NCTC], which allows for the purchase of individual channels rather than the entire bundle of eight,” Cable One CEO Tom Might said in a statement. “In a disgraceful, punitive reaction, Turner Networks refused to recognize the NCTC contracts and immediately deauthorized all Cable One systems in order to ‘teach’ Cable One a lesson about the power of cable programmers to tie and bundle channels together and force carriage of unwanted bundles. They refuse to give cable operators or their customers any choice about what they can or cannot buy.”

Cable One said it will reimburse customers for the lost channels and would eventually replace them with other networks in the lineup if a resolution does not come.

Other programmers allow distributors to buy channels outside of the bundle, but they are priced at such a high premium that it is cheaper to purchase the bundle. If Cable One has found a way around that, it could have serious repercussions across the industry.

Operators have tried before to challenge the practice of bundling channels and have lost — a class action suit against a handful of programmers was thrown out in federal court in 2011. Most recently, Cablevision Systems sued Viacom in federal court over the practice. That case is still pending.

Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said he thinks Cable One’s Turner dispute will ultimately be decided in the courts.

“The language in each of these programming deals can be incredibly complex and vary tremendously deal to deal,” Wlodarczak said. “I find it hard to believe that Turner would let operators pick and choose; bundling (especially if they own national networks) is a key part of their leverage.”

Turner would not comment on its individual negotiations with distributors, but in a statement said it is simply seeking fair value for its content.

“We are simply asking that Cable One pay the established and accepted rates already in the marketplace for our portfolio and remain willing to discuss a new agreement that recognizes the strength and value of our networks and the popular programming they offer,” the statement read.

Earlier this month, Time Warner chairman and CEO Jeff Bewkes said at an industry conference that he expected the Turner networks to secure double-digit carriage fee increases through 2016.

In 2005, Cable One was embroiled in a nearly year-long dispute with Nexstar Broadcasting over retransmission-consent charges.

Cable One has been a maverick in the programming cost debate — it carries an average of about 40 channels on its expanded-basic package, about half that of other MSOs. As a result, its $75 Triple Play bundle of video, voice and 50-Mbps high-speed Internet is more than 20% lower than most MSOs’ $99 bundle.

TAKEAWAY

When Cable One opted to purchase only three Turner channels under an agreement the programmer signed with the NCTC, Turner de-authorized all nine of its networks on the MSO’s systems.

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