New Charter Seen Possibly Facing Number of Affiliation Complaints
Charter Communications, facing a pair of programmer legal challenges to its affiliation practices after its buys of Bright House Networks and Time Warner Cable, could see others, cable industry insiders and watchers told us. One cable programmer said there are “rumblings” that other such lawsuits against Charter may be forthcoming.
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Affiliation agreement language dealing with the possible purchase of a distributor is always "hotly negotiated" due to rampant industry consolidation, so whether Charter ends up facing more such suits depends on how its other such agreements with programmers were structured, one lawyer with cable clients told us. Multichannel video programming distributors typically will structure their transactions around the terms of their existing affiliation agreements, with the goal of getting the best contract terms, the lawyer said.
The suit filed earlier this month by Univision (see 1607080022) and a similar Fox News Network (FNN) complaint filed Tuesday in New York State Supreme Court in Manhattan cover similar terrain. Both allege Charter, now with TWC under its belt, is trying to have the TWC contractual fees supersede any contractual fees and terms Charter had with the programmers. "To avoid the clear application of the Charter agreement, which has higher rates than Fox News Networks’ contracts with TWC, Charter is claiming TWC was the party that survived the acquisition and that TWC’s contracts with Fox News Network survive as a result," FNN said in its 19-page complaint.
FNN said its Jan. 1, 2014, affiliation agreement with Charter makes clear that any party combining with that operator will be covered under that pact. FNN said it wrote TWC in June to notify it that any TWC/FNN agreements were deemed terminated as of the close of Charter’s takeover of TWC, only to be told by Charter that in fact Spectrum Management Holding -- also a defendant -- was actually the holder of both Charter and TWC assets.
In the suit, FNN is asking for a declaration that legacy TWC agreements were terminated in May, when Charter closed on the deals; and unspecified damages for breach of contract, breach of duty of good faith and fair dealing, and for fraud and misrepresentation. “We have a contract with Fox News and expect them to honor it,” Charter said in a statement.
The Univision and FNN disputes go “to the core assumption behind cable deals” that buyers will see material savings in programming cost synergies, Barclays analyst Kannan Venkateshwar wrote investors Wednesday. Charter’s buys of BHN and TWC were based partly on the ability of Charter to move its programming contracts to TWC’s lower rate cards, Venkateshwar said. And if the FNN agreement wasn't actually up for renewal, he said, "similar disputes could arise" -- though the risk of that could be lessened by the fact programming agreements tend to be very individualized.
And in a note to investors Wednesday, BTIG analyst Rich Greenfield said a key issue is whether Charter's "complex corporate structuring" of the deals will "get around programmer clauses specifically designed to prevent programming cost savings" or if the court decides New Charter is the same as old Charter for the purposes of interpreting programming contracts. "How the courts view these lawsuits could be a material industry swing factor, especially if the rate issues at hand impact more than just Univision and Fox," Greenfield wrote.