The cash-for-retransmission-consent battle between cable operators and broadcasters reached new heights Wednesday when St. Louis-based Suddenlink Communications asked the Federal Communications Commission to block Sinclair Broadcast Group from pulling two broadcast stations in the Charleston, W. Va., market from its systems because the operator has refused to pay $40 million in upfront retrans fees.
Suddenlink -- which closed its purchase of 240,000 subscribers in West Virginia from Charter Communications July 1 -- said in the FCC filing that Sinclair, which owns WCHS (an ABC affiliate) and has a local marketing agreement with WVAH (a Fox affiliate), demanded that Suddenlink pony up a one-time upfront fee of $200 per subscriber for the 200,000 Suddenlink subscribers who reside in its service area ($40 million) and $1 per month, per subscriber ($2.4 million annually) for the right to carry the stations.
Charter’s retrans deal with Sinclair had expired and was not transferred in the asset-purchase deal.
This is the first time Sinclair -- an outspoken advocate of cash for retrans -- has asked for an upfront fee. And at $40 million, it marks more than double the $19.2 million Sinclair received in cash for retrans for all of 2005 and represents what Charter customers are currently paying per year for 75 analog channels.
Suddenlink said in the filing that Sinclair has threatened to pull the stations -- it already notified Suddenlink customers that the stations will not be available after July 1 -- if Suddenlink refuses to pay. The operator countered that FCC rules prohibit it from dropping stations during Nielsen Media Research sweeps week, which ends July 26.
But the larger issue revolves around the retrans deal, which Suddenlink called oppressive and Sinclair said is just good business.
Suddenlink, which has about 1.4 million subscribers across the country, announced the $800 million Charter purchase in late February. Because the Sinclair retrans deal with Charter had expired -- Charter was on a month-to-month extension -- Suddenlink had to negotiate a new deal with the broadcaster.
Suddenlink senior vice president of programming Patty McCaskill tried to do just that in late May, according to the FCC filing. But after weeks of back-and-forth negotiations, although Suddenlink claimed that it was negotiating in good faith, when Sinclair learned of the size of the operator’s West Virginia deal, its asking price rose exponentially.
According to Suddenlink, one week prior to the closing of the Charter deal, Sinclair asked for $4 million in fees over the three-year life of the deal. The day the deal closed, July 1, that price rose more than tenfold, including an upfront fee of $40 million and the $1-per-month, per-subscriber charge.
Sinclair VP and general counsel Barry Faber, who was involved in the Suddenlink negotiations, didn’t dispute that Sinclair’s price rose, but he added that it was just good business practice to do so. “We’re not trying to punish anyone,” he said.
“As satellite gets bigger, as the telcos come in, our asset becomes, to me, much more valuable,” Faber added. “We have to look at this from a business perspective. We’re a public company. 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.”
Suddenlink also claimed that when it informed Sinclair that it was obligated to carry the stations at least through the Nielsen sweeps -- which Sinclair disputes -- it was told by the broadcaster that another multichannel-video provider had agreed to pay “$200 per defecting Suddenlink subscriber.”
In an interview, Faber said that claim was inaccurate, but he declined to elaborate.
Faber claimed that originally, Sinclair expected Suddenlink’s offer to be in line with deals the broadcaster has with Suddenlink in other markets. But Suddenlink came back with an offer that was essentially equal to carrying the stations free-of-charge.
Faber added that a letter he received from representatives of Charter as the Suddenlink deal was getting closer to a conclusion convinced Sinclair of the value of its stations.
According to Faber, Charter wrote him a letter warning that the lack of a retrans agreement could jeopardize the Suddenlink deal.
“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.