With the ink barely dry on its deal to purchase Charter Communications Inc. systems in Charleston, W.Va., for about $800 million, Suddenlink Communications finds itself engaged in a major retransmission-consent battle with Sinclair Broadcasting Group.
Sinclair, which owns ABC affiliate WCHS and has a local marketing agreement with Fox affiliate WVAH in Charleston, told the St. Louis-based cable company that in order to keep carrying the stations, it would have to pony up a one-time $40 million upfront fee and a $1 per subscriber per month charge ($2.4 million annually). Suddenlink, which already has much less onerous carriage deals with Sinclair in its other markets, has refused the charges.
Those fees represent more than twice the $19.2 million in retransmission-fee revenue Sinclair reported in 2005. It also exceeds what Suddenlink customers currently pay per year for 75 analog channels.
But what prompted the flurry of FCC filings was Sinclair’s request that Suddenlink drop the stations — originally by July 1 — because it was out of contract. Suddenlink countered that it was bound by FCC rules to carry the stations through the end of the July Nielsen sweep period. Sinclair countered that rule was made to benefit broadcasters, not distributors.
Things heated up again on July 6, when Suddenlink filed a supplement to its July 5 filing, stating that Sinclair informed it via e-mail that continuing to carry the two channels constitutes an acceptance of its retransmission-consent offer. Sinclair filed its own FCC petition last Thursday, asking the agency to compel the operator to stop carrying the stations immediately.
Suddenlink vice president of government relations Pete Abel said the stations were still being carried as of press time Friday morning. One locale — Berkley, W.Va., with about 46,000 subscribers — is not receiving the signals because it is outside of Sinclair’s broadcast area. Abel added that Suddenlink has informed Sinclair that the continued carriage is in compliance with FCC regulations, and does not mean the cable operator has accepted the retrans proposal.
Suddenlink, formerly known as Cebridge Connections, closed the Charter deal on July 1.
In late May, senior vice president of programming Patty McCaskill contacted Sinclair to start retrans negotiations because Charter’s agreement had expired and was hanging on a month-to-month extension.
But according to Suddenlink, when Sinclair found out about the size of the Charter deal — Suddenlink paid about $800 million for the systems — its price rose from $4 million over three years to more than $42 million.
Sinclair vice president and general counsel Barry Faber, who was involved in the Suddenlink negotiations, didn’t dispute that Sinclair’s price tag rose, noting that it was merely just a good business practice to do so.
“We’re not trying to punish anyone,” Faber said, adding that as video competition increases, the value of broadcast stations rises. “I do not want to by any means imply that we’re not sensitive to the needs of our viewers. … At the same time, we have to make rational business decisions for the benefit of the public company.”
Faber claimed that originally, Sinclair expected Suddenlink’s offer would be in line with deals the broadcaster has with it in other markets. But Suddenlink came back with an offer that was essentially equal to carrying the stations for free.
VALUE OF SUBS CITED
A letter from Charter representatives before the Suddenlink deal closed — claiming that the lack of a retrans agreement could jeopardize the Suddenlink acquisition — convinced the broadcaster of the true value of its stations.
“As a result of all of that activity, it made us sit up to a point and say maybe it’s worth a lot more than we thought it was worth,” Faber said. “If they’re paying $3,200 per sub, why shouldn’t a piece of that be coming to us?”
Suddenlink is requesting that the FCC issue an order to allow it to continue carrying the stations through Dec. 31, 2008 at financial terms similar to the past Charter agreement.