What initially looked like a skirmish between Charter
Communications' California systems and Fox/Liberty Networks' regional sports services
escalated into a bitter war of words last week that could have significant legal
ramifications for both parties.
The dispute could also be a harbinger of battles to come as
ever-growing MSOs start demanding volume discounts from programmers.
At issue is Fox/Liberty's decision to pull the signals of
Fox Sports Net West 1 and Fox Sports Net West 2 from several Charter-owned Marcus Cable
systems in the Los Angeles area June 2.
Fox/Liberty blamed Charter for refusing to honor Marcus'
license-fee agreements for the two services. Charter -- which bought Marcus earlier this
year, and which will have more than 5 million subscribers when pending deals close -- pays
less for programming than Marcus, which had about 1.2 million subscribers.
Charter wants to pay its lower contractual rate for the
networks, and not the Marcus rate.
Complicating things further, the dispute may be linked to
Charter's reluctance to renew an affiliation deal with FX, another Fox/Liberty network.
FX has dangled sports-network license-fee discounts as an
enticement to renew. But Charter hasn't renewed its FX deal, which expired June 1, and
several Southeast Charter systems reportedly dropped the entertainment service.
Charter's former Marcus systems in Los Angeles informed
their 90,000 subscribers that FX could be dropped July 1.
Whatever the reason, when Fox/Liberty pulled the FSNW1 and
FSNW2 feeds over the weekend of June 3, the disagreement angered many Southern California
baseball fans, as they were unable to watch the highly publicized Los Angeles
Dodgers-Anaheim Angels interleague Major League Baseball series.
This kind of brouhaha between operators and programmers
could become more common as a direct effect of cable consolidation.
Cable networks have expressed concern that large MSOs,
which typically pay lower bulk license fees, will insist on applying those lower rates to
operators they acquire, rather than honoring the acquired companies' agreements to pay
higher rates.
According to informed sources, Fox/Liberty pulled the FSNW
signals due to Charter's unwillingness to pay Marcus' license fees for the regional sports
networks, which are higher than what Charter currently pays.
Fox/Liberty argued last week that Marcus' deal for the two
networks is separate from the Charter affiliation agreement.
On average, FSNW1 carries a rate of 90 cents to $1 per
subscriber, per month, while FSNW2 charges 45 cents to 55 cents, sources said.
"It's unfortunate for [Marcus] subscribers that they
will miss West and West 2 programming, including Dodgers and Angels baseball, but we
expect Marcus to abide by the contracts and pay the proper rates," FSNW spokesman
Steve Webster said.
Initially, Charter localized the dispute on FSNW1. Marcus
California regional manager Tom Belcher said in a prepared statement that the MSO had paid
all legitimate fees to Fox/Liberty.
But he added that Fox was driving up rates for its regional
sports networks to "offset investments like [pitcher] Kevin Brown's $100 million-plus
contract with the Fox-owned Los Angeles Dodgers by raising rates and adding
surcharges."
In that release, Belcher briefly referred to FX, saying,
"Marcus has also balked at the high programming costs of FX, another Fox offering
that our customers do not find attractive."
One day later, a second, more tersely worded statement from
Charter claimed that Fox/Liberty pulled FSNW1 and FSNW2 as a direct retaliation against
the MSO "for not renewing an expired programming agreement for FX in systems in the
South and Southeast United States and for considering cancellation of the network
elsewhere."
In that second statement, Charter said, "We notified
Fox of our intent to discontinue carriage of FX, and that same day, they turned off our
signal for the Fox Sports networks."
That Charter statement claimed that Fox was violating
federal antitrust laws by attempting to "illegally tie programming offerings
together."
Fox Sports Net senior vice president of media relations
Vince Wladika lashed back at Charter, saying the MSO was sending mixed messages about the
dispute.
"[The statements] are bush-league," Wladika said.
"Charter released two separate press releases that not only changed their tune, but
accused us of everything under the sun. We expect that the next press release will accuse
us of causing the sun to rise."
He also said a Charter attempt to obtain a temporary
restraining order in U.S. District Court in California was denied by Judge Jerry Hatter.
Wladika added that Fox was "looking at our next
possible steps regarding legal action in terms of libel."
A Charter spokeswoman said she did not know how many
systems dropped FX or how many subscribers were on those systems. FX declined to comment
on that issue.
FX has been able to reach contract renewals with MSOs
representing 85 percent of its subscribers, or 35 million homes.
When it launched five years ago, FX gave operators
retransmission consent for Fox-owned and affiliated TV stations in exchange for carriage.
But this year, FX didn't have retransmission consent as a bargaining chip.
Instead, FX has offered MSOs license-fee discounts on its
regional sports services as part of the renewal deals. At the same time, the network
increased its monthly license fee slightly, to 28 cents per subscriber from 25 cents.
Some MSOs argued that FX should have cut its rate because
retransmission consent wasn't part of the deal. FX officials replied that the service has
become more valuable than it was at launch because of a heavy investment in programming.
Last week, for example, FX said it acquired two off-network
series -- The Practice and Ally McBeal --from sister company
Twentieth Television.
The Practice will air in fall 2001, while Ally
McBeal will joinFX's lineup in either fall 2001 or 2002.
FX didn't respond directly to Charter's criticism about its
service.
But spokeswoman Ellen Cooper, citing her network's purchase
of the two shows, said FX "is in the process of putting together an unprecedented
lineup on cable" that will benefit its affiliates and their subscribers.
As for the dispute with Charter, she said, "We have
confidence that we will be able to reach an agreement. We are looking to restore a
dialogue and negotiate in good faith."
