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Cablevision Sues Viacom in Antitrust Complaint

MANHATTAN (CN) - In a "diabolical and coercive scheme," Viacom forced Cablevision to pay for lame cable channels by withholding access to popular channels, under threat of a billion-dollar penalty, Cablevision claims in an antitrust lawsuit.

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Cablevision Systems and its wholly owned subsidiary CSC Holdings sued Viacom International and Black Entertainment Television, in Federal Court.

The 63-page complaint is redacted when money is mentioned, and sometimes dates.

For instance, the "Redacted Public Version" states: "Viacom strong-armed Cablevision into carrying Suite Networks by threatening to impose a near $ [redacted - appears to be a single number] billion penalty if Cablevision licensed only the Viacom networks Cablevision wanted, networks Viacom calls its Core Networks. Stated differently, unless Cablevision agreed to distribute Viacom's Suite, Cablevision would pay nearly [redacted - appears to be about 3 or 4 words] as much for just the Core (which includes commercially critical networks) than for the Core and Suite combined. Viacom's diabolical and coercive scheme, which harms competition, consumers, and Cablevision, constitutes tying and block booking in violation of the Sherman Act and New York law. Viacom wielded the threat of effectively withholding commercially critical networks to force Cablevision and its subscribers to pay for unwanted Suite networks while foreclosing Cablevision from distributing competing networks that consumers would likely prefer. Absent Viacom's illegal scheme, consumers would get more for what they pay for video services."

Cablevision filed the complaint on Feb. 26; it was recently unsealed.

Cablevision claims Viacom refused to let it carry popular channels such as MTV and Comedy Central unless it carried unpopular channels as well.

Based in Bethpage, N.Y., Cablevision provides digital TV and Internet in New York and seven other states.

Viacom controls commercially successful networks such as Nickelodeon, Comedy Central, BET, and MTV.

"This case involves Viacom's abuse of its market power over access to commercially critical networks - its highly popular Nickelodeon, Comedy Central, BET, and MTV networks - to force Cablevision to license and distribute over scarce bandwidth some dozen other Viacom networks, which Viacom calls suite networks, that many Cablevision subscribers do not watch and for which Cablevision would prefer to substitute competing networks," the complaint states.

This is followed by the paragraph with redactions cited above.

The complaint continues: "Viacom's market power stems from its exclusive right to distribute commercially critical networks (the 'tying networks'): Nickelodeon, Comedy Central, BET, and MTV. Viacom has called these networks, along with its popular VH1, TV Land, MTV2, and Spike TV ('Spike') networks, Viacom's 'core networks.'


"Viacom's tying networks are commercially critical because of the popularity of programming shown on each, as well as each network's brand image and reputation among subscribers. If Viacom withheld any, or all, of its tying networks from Cablevision for a significant period of time, Cablevision would be severely disadvantaged. Cablevision operates in an intensely competitive environment against both established and new distributors of video services. If Cablevision's video product offerings did not include Viacom's tying networks, a substantial number of subscribers would likely abandon (or refuse to consider) Cablevision and instead choose to receive video services from one of Cablevision's numerous competitors. Access to Viacom's tying networks is commercially critical even at the high prices Viacom charges for access to those networks. The same is true of other major distributors of video services: none can do without all (or at least many) of Viacom's tying networks for a significant period of time. Control over the tying networks -each of which comprises a tying product here - accordingly gives Viacom substantial market power no matter how the markets in which Viacom distributes those networks are defined." (Parentheses in complaint.)

Cablevision claims that Viacom's suite networks, which distribute channels such as CMT, MTV Hits, Palladia and VH1 Classic, have few viewers and do not attract subscribers.

It claims that by bundling its channels Viacom prevents distributors, including Cablevision, from carrying networks from Viacom's competitors, at more reasonable prices.

In late 2012, as Cablevision's contract with Viacom neared expiration, it tried to renegotiate its deal with Viacom, to carry only core channels, according to the complaint.

Cablevision claims Viacom refused to make it a reasonable offer for just core networks, and threatened to charge Cablevision penalties that exceeded its entire 2013 programming budget for distributing alternatives to Viacom's suite networks.

"Although Cablevision repeatedly attempted to negotiate more reasonable terms for a core-only agreement, Viacom flatly refused to provide any viable core-only option," the complaint states. "By threatening to charge Cablevision a ten-figure penalty for the core networks unless Cablevision distributed the suite networks, Viacom effectively refused to license Cablevision the core (including the tying) networks unless Cablevision agreed to distribute suite networks.

"Viacom's coercive tactics left Cablevision with only one viable economic choice: to accept a deal under which Cablevision would continue to carry both the core networks (which Cablevision wants to distribute) and the suite networks (which Cablevision wishes to replace with alternative networks). Cablevision accordingly surrendered to Viacom's coercive tactics and entered into an agreement with Viacom on Dec. 31, 2012, for distribution of both the core and the suite (the '2012 tying agreement' or '2012 tying arrangement'). Cablevision entered into the 2012 tying agreement only because Viacom refused to make an economically viable stand-alone offer for all, or any subset of, the core networks, including the tying networks." (Parentheses in complaint).

Cablevision says that because its network capacity and budget are limited, Viacom's deal prevents it from adding other channels that its subscribers want more than Viacom's suite networks.

It claims that Viacom's scheme prevents it from attracting and retaining subscribers, and forces consumers to pay for channels they do not want.

"The anticompetitive impact of Viacom's policy of tying its core and suite networks together extends beyond Cablevision and its subscribers; Viacom's conduct hinders competition nationally," the complaint states. "The top 15 video distributors in the United States, which together account for nearly 95 percent of the approximately 100 million subscribers to traditional video distribution services nationwide, carry every Viacom core and suite network, with the exception that Viacom does not compel a handful of distributors to carry one or two suite networks. These distributors include all the major video providers in the territories in which Cablevision operates, as well as operators throughout the country. This is no accident: Cablevision believes that Viacom has applied the same coercive tactics that forced Cablevision to succumb to Viacom's tying arrangement to compel other video distributors to carry Viacom's suite networks. Viacom's anti-consumer practices, therefore, work to foreclose competing networks not only in the territories in which Cablevision operates, including the New York designated market area ('DMA'), but also nationally. Absent Viacom's coercive tying arrangement, general programming networks that compete with Viacom's suite networks (some of which could evolve into threats to Viacom's core networks) would obtain greater distribution; subscribers to Cablevision and other video services would enjoy higher quality services (and, therefore, lower quality-adjusted prices); and video distributors such as Cablevision could better differentiate their channel line-ups to respond to consumer demand." (Parentheses in complaint).

Cablevision seeks treble damages for violations of the Sherman Act and the Donnelly Act, annulment of the 2012 agreement, and an injunction.

It is represented by Jerome Katz with Ropes & Gray.

Viacom said in a statement: "This suit is nothing more than a hypocritical attempt by Cablevision to void a long-term carriage deal they agreed to only two months ago. Cablevision is crying foul over a standard business practice that expands choice and lowers cost for consumers - a practice they use extensively to sell their own services. Cablevision received significant discount on a package of networks that account for nearly 20 percent of the total viewing audience. Now they want the lower price without the obligation to offer our networks to their customers. For Cablevision it's 'do as we say and not as we do' - an arrogant approach all too familiar to its customers."

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