Like some other cable networks, Court TV has been engaged in tough contract negotiations with Comcast Corp. and its chief of programming, Matt Bond.
Bond, an industry veteran who's known to drive a hard bargain, is relatively new to Comcast, where he succeeded Tom Hurley after the Philadelphia-based MSO bought AT&T Broadband.
As a joke to reflect its challenging talks with post-merger Comcast, Court TV had T-shirts made up that said, "Bring back Hurley." The shirts featured a photo of a smiling Hurley — who himself was no pushover with programmers.
"These T-shirts exist, so I'm not going to deny that," said Court TV CEO Henry Schleiff, who then quipped, "We plan to make up any license-fee deficits with the sale of these T-shirts ... Forget bobbleheads."
Spreading the pain
Court TV, owned by Liberty Media Corp. and AOL Time Warner Inc., isn't the only content provider feeling the pain when it heads to Philadelphia for talks with Comcast. Seven months after its merger — in an era in which programmer-MSO tensions are at an all-time high — the nearly 22-million-subscriber Comcast is in the most enviable position of any multichannel distributor. And it's taking advantage of it.
Comcast continues to negotiate with cable networks to obtain the cost savings to which it says it is entitled. This year alone, the mega-MSO expects to slash $270 million from its programming costs.
Last month, Liberty Media Corp. chairman John Malone called on Comcast CEO Brian Roberts to lead the industry's charge against rising program costs, particularly for sports. Yet ironically, even as Malone spoke, Comcast was embroiled in disputes with three programming services in which Liberty holds stakes, or owns outright.
Comcast reportedly has been pushing hard not only on Court TV, but Starz Encore Group LLC and TV-music provider DMX Inc. as well.
Lawsuits have flown: Comcast is suing Starz Encore; DMX is suing Comcast; and Starz Encore has complaints pending against AT&T and Comcast. And that's not all.
Comcast has also been involved in trying talks with The Walt Disney Co.'s ABC Cable Networks Group — parent of Disney Channel, ABC Family and SoapNet — according to numerous sources.
Wringing savings
At times tensions between Disney and Comcast, who've had a strained relationship in the past, have run high, one source said.
Lifetime Television, A&E Network, NBC Cable and Home Box Office — among others — have also faced difficult rounds at the negotiating table in Philadelphia, sources said.
"They [Comcast officials] are looking to wring a lot out of programmers," said one network affiliate-sales chief. "They're going to find a way to get 10% [rate decreases] … It's to be expected when you're a 800-pound gorilla.
"Everyone feels trepidation and will have to redo their budgets. It has a domino effect, in that you will fall short of revenue so you may have to lay off people or cut your programming."
Comcast, which won't discuss its negotiations with individual services, flatly denies that it is demanding uniform, industry-wide decreases in license fees. The huge MSO says it is not putting the squeeze on programmers or acting like a heavyweight. In fact, Comcast contends that it has only engaged in talks with a small number of networks since it closed its deal with AT&T.
"It's very difficult to talk about anything we're doing in programming on a generic, across-the-board basis," said Comcast executive vice president David Cohen, no stranger to high-powered negotiations as former chief of staff to former Philadelphia Mayor Ed Rendell (now governor of Pennsylvania). "Frankly, although some people would like to think that we're taking that type of a meat-ax approach to our programming, we don't do that," Cohen said.
"We are literally going contract by contract, programmer by programmer, analyzing what our rights are under existing agreements, and exercising those rights on an appropriate basis."
According to Cohen: "By definition, that's not big, bad Comcast flexing the muscle of a 21-million-subscriber company, because by definition, none of those contracts were negotiated or executed by a company with 21 million subscribers.
"All those contracts were done by a company with 13 million or fewer subscribers, or a company with 8 million or fewer subscribers. We are therefore taking advantage, on a very careful and very appropriate basis, of contractual rights that were negotiated by much smaller cable companies previously."
There's no question that as soon as Comcast became cable's mega-MSO, it demonstrated that it was became willing to act –— rather than just sound off to lawmakers in Washington – when it comes to pricey programmers.
The very day Comcast closed its deal with AT&T — last Nov. 18 — the newly minted entity slapped Starz Encore with a sealed lawsuit, challenging the premium service's affiliation agreement with the former AT&T.
"Comcast acted to flex their new-found muscle as the largest cable operator in the United States," Starz Encore later claimed in legal papers.
No STARZ support
The premium service has an incredibly lucrative — some have called it astounding — above-market-rate sweetheart deal with AT&T Broadband. And that 25-year agreement (struck when the former Broadband systems were owned by Malone's Tele-Communications Inc.) is at the center of an ongoing legal dispute, one that started when Starz filed a suit against AT&T back in 2001.
Even after filing its own lawsuit against Starz Encore this fall, Comcast has stepped up the pressure on John Sie's premium service. Early this year, Comcast instructed its marketing employees nationwide to end all marketing-support meetings and initiatives with Starz Encore, according to a complaint filed Jan. 31 by the programmer in Colorado.
Comcast won't discuss the pending litigation, but Cohen said, "All we have done under the Starz agreements is to take advantage of clear contractual rights that are available to us, and in doing so, we have honored scrupulously all the terms of those agreements."
He also asserted that Comcast's beef with Starz Encore is not reflective of its overall relations with programmers.
"It would be a mistake to characterize the steps that Comcast has taken to protect its rights under the Starz contracts as being at all typical of the way it has approached its programming discussions," Cohen said.
But that's not the only litigation that's pending.
Liberty Media unit Liberty Digital Inc., DMX's parent, in January sued Comcast, alleging that the MSO is breaching the company's deal with the former AT&T.
The contract called for DMX to be paid $18 million a year by AT&T, according to a 10-K annual report filed by Comcast.
Merger or buyout?
Some industry insiders predict there will be more litigation between programmers and Comcast, hinging on the legal issue of whether or not the Comcast-AT&T transaction was a merger or an acquisition. That technicality affects millions of dollars in programming license fees.
"Anyone with a deal up, or close to up, they're pushing hard," one affiliate-sales official said. "Anybody who had any real discrepancy between their AT&T deal and their Comcast deal, they're really hitting hard. The truth is they are trying to do what anybody who thinks 'size is leverage' does, which is to lower their programming costs."
Since programming is both Comcast's biggest and fastest-growing cost, Roberts and Comcast Cable Communications Inc. president Steve Burke are personally keeping a close watch on affiliation agreements to make certain savings are achieved.
"Steve Burke and Brian Roberts are up to speed on the programming deals," the affiliate-sales official said. "Princely Brian Roberts can glad-hand and smooth-talk the public, but he's just as tough as any programming executive."
Another joke
Court TV tweaked Roberts and Comcast at a recent awards dinner where the executive was honored. In a video clip, Schleiff and his head of affiliate relations, Bob Rose, appear — beaten up, on crutches and missing some limbs — purportedly after a round of negotiations with the mega-MSO. They boast that they don't think they fared that badly.
Cohen was at the dinner with Roberts and saw the brief video.
"People have to distinguish between humor and reality," said Cohen. "I thought everyone, including Henry, laughed pretty loudly at that clip."
Not every programmer who makes the trip to Comcast's headquarters is complaining. Showtime Networks Inc. has done a new Comcast agreement. Oxygen has won an extension of its deal with the old AT&T systems, where it has 7 million homes, and is upbeat about getting launched on some Comcast systems.
"The merger has opened the door for us to have a bigger relationship with Comcast," said Lisa Hall, Oxygen's chief operating officer. "We're very optimistic about the possibilities there."
Viacom Inc. president Mel Karmazin doesn't think the post-merger Comcast is harder to deal with than the old company.
"If you were to speak with anybody who negotiated with Comcast when Comcast was much smaller, no one looked forward to going into the room with Brian," Karmazin said. "It was always a very difficult negotiation, as it is with everybody … I don't anticipate that a meeting with Brian and his team will be any more difficult [now] than it's always been."
Picking spots
Officials at a number of small and medium-sized networks also say they have had very amicable talks with Bond, Comcast's executive vice president of programming, and that the MSO has not asked them for rate rollbacks.
Some observers claim there's a good reason why not every network is grousing about Comcast: The MSO is carefully selecting its battles as it seeks to rack up cost savings from programmers.
"Comcast is not going to get where it needs to be by picking on the weak and the feeble," one network affiliate-sales executive said. "To get the money that they're trying to amass here, they're going to have to go after the major programming groups. That's where the money is."
Comcast reportedly expects to save a huge chunk of programming money annually through its challenge of Starz Encore alone, which is why the operator is so aggressively fighting the premium service. Comcast would be on the hook for $360 million to Starz Encore this year under AT&T's decades-long deal.
"Matt is not being unreasonable," one affiliate-sales chief said. "He's just got to clean up some of the ugly things here. Any smart person in that seat would do the same thing."
Volume discount
Comcast's game plan includes taking advantage of its larger scale through greater volume discounts, as it as more than doubled in size from 8 million homes.
"As a 21-million-subscriber cable company, we think we provide a different value proposition to our programmers than as an 8-million-subscriber cable company," Cohen said. "We provide a greater capacity to reach larger numbers of people in a single negotiation, and consistent with the way programming contracts have been written for decades in this industry, we think that that increased scale does entitle us to lower rates for the benefit or our customers."
Comcast's strategy has included taking a stand against giant Turner Broadcasting System Inc. It's a testament to Comcast's clout that it was the only MSO to refuse sign off on a 10 % midcontract rate increase to Turner Network Television for "TNT Plus," to offset the cost of new programming such as National Basketball Association games, NASCAR and theatricals.
Both Cohen and Turner executives declined to discuss TNT Plus.
Nets shy, on record
In fact, cable-network officials are so worried about jeopardizing their relationship with Comcast that no one who was critical of the MSO — and only a few who had positive remarks — would comment on the record by name for this story. A&E Television Networks, Lifetime Televison, Starz Encore, HBO and ABC Cable declined to comment. NBC Cable, CNBC's parent, couldn't be reached for comment.
At Court TV, officials said they have been talking to Comcast for months.
"These are extremely tough negotiations," Schleiff said. "These guys are smart. They're well-informed. There's no question we have a long history with these guys of ultimately resolving these issues. It's never an easy process. But we'll get there in a way that truly will end up working for both of us."
Cohen said he "unequivocally" denies past reports that Comcast has "either generically across the board or frankly, even individually, demanded MFN [most favored nation] minus 10% in our programming negotiations."
Said Cohen: "First of all, we're only in negotiations with a handful of our programmers right now because with most of our programmers, we're under contract and the contracts haven't expired. We have not sought to break one contract.
"We have not taken a channel off the air. We have not done one of the things that I have seen us accused of doing."
The MSO tipped its hand, in terms of its post-merger strategy with programmers, in an FCC filing last year. It was there that Comcast essentially said it would cherry-pick from the most advantageous license fees "of either AT&T Broadband or Comcast for AT&T Comcast's entire service area with respect to most programming contracts."
As it turns out, in some cases Comcast — as with Starz Encore — had better carriage deals that AT&T, even though Broadband was bigger.
Also in the filing, Comcast said it would reduce program costs under existing contracts or renewals through volume discounts, because of its increased size.
Comcast's position in that FCC document — that it could choose the most favorable deal, either Comcast's or AT&T's, for all its subscribers — raised programmers' eyebrows back then. And it's a big bone of contention now.
Acquiring leverage
A number of programmers, including Starz Encore in its lawsuit, maintain that Comcast had positioned its transaction with AT&T as a merger, with a new corporate parent to be created to house its Comcast and AT&T subsidiaries. In a merger, generally speaking, an existing carriage deal with a programmer would remain intact.
"You just can't walk away from that contract," a source said.
Comcast says it acquired AT&T. Typically, a buyer is not bound by the affiliation contracts of its acquisitions. So now, several programmers complained, Comcast is saying it can pick whichever deal was least expensive — be it Comcast's or AT&T's — for its entire subscriber base. In fact, Comcast is doing exactly what it said it would in its FCC filing.
"That's the constant theme that's running through the fabric of this," one high-level affiliate-sales official said. "Comcast is saying, 'It was a merger, yeah, but it was really an acquisition.' The industry is saying, 'Come on, an acquisition didn't occur, and therefore here is my deal.' "
Added another industry veteran, "The view is that Comcast is trying to have it both ways … They are having this fight with quite a few people."
Cohen argued that Comcast's rock-solid legal position is that its deal with AT&T was an acquisition, not a merger.
"There really isn't any ambiguity under the law that Comcast acquired AT&T Broadband," he said. "That's the way it's been reported as a securities matter. Under accounting standards, this is an acquisition.
"Anyone who would look at this transaction and attempt to argue with a straight face that Comcast has not acquired AT&T Broadband is truly stretching to make an argument that does not have a lot of legitimacy."
Either way, one affiliate-sales executive said that ultimately, it's foolish for a programmer to play the "merger-versus-acquisition" card with Comcast.
"Legally you may have that [merger-acquisition] claim, but you use it — if you're smart — to get something else that you want [from Comcast] and you let it go," he said. "It's really foolish to rely on it, because there are too many legitimate places for them to hurt you if you act like an idiot about it."
Contract shopping
One of Comcast's strategies, according to another source, is to move all of a network's subscribers to whichever affiliation contract, be it Comcast's or AT&T's, expires soonest.
When a network's affiliation deal has expired, Comcast would be under no legal obligation to carry it and could drop it at will.
That leaves a network in a vulnerable position during negotiations with Comcast for a deal renewal.
"When someone is out of contract, there's a bigger leverage shift," an affiliate-sales official said. "And when you're out of contract, the issue of acquisition-merger is no longer in play."
Another programming veteran claimed that Comcast is trying to drop "ridiculous" broad clauses regarding video-on-demand, at no charge for the term of deal, into some affiliate agreements.
"That's the biggest grab out there, because with VOD they could actually wind up competing against your service," the source said. "No one knows where VOD is going right now and it could be a detriment to existing programming services and not an enhancement, which is how it is being positioned."
Cohen noted that Showtime's and Oxygen's deals included VOD rights, and that it was a benefit for both sides.
"We think VOD is a terrific platform and enhancement to the digital product," Cohen said. "So it should not be headline news that we are interested in securing broad VOD right from as many of our programmers as possible." He added, "We don't charge customers an extra fee for VOD or for the accessing of those VOD programs."
'Fighting back'
Some programmers claim there have already been some heated talks with Comcast.
"They have the ability to pay what they want to pay, and what is your recourse?" one network executive said. "It's a big bridge to burn. Some companies are fighting back, and some are saying, 'Listen, I can fight you on this. I don't want to, let's try to resolve something.' There's a lot of negotiations going on. There are a lot of deals that are not resolved that may end up in litigation."
Since the merger, Comcast has unveiled two major affiliation deals, namely the pacts with Showtime and Oxygen.
"The negotiation was tough, but it was fair," said Pat Burks, Showtime's senior vice president of field operations. "It was no different than with any other MSO, or Comcast in the past. The negotiation was a win-win [for both sides]."
Burks declined to discuss the deal's specific terms, or if Comcast got fee reductions from Showtime.
Oxygen and the Fox Cable Networks Group said they have had smooth dealings with Comcast. Oxygen, for example, has a carriage deal with AT&T but never had one with Comcast.
"We're in the process of discussing ways to launch Oxygen in more Comcast homes," Hall said.
"They've really interested in us because we're reaching an underserved audience, which is younger women. And we're very pleased with the renewal."
Gardner: strong ties
Lindsay Gardner, Fox Cable's executive vice president of affiliate sales and marketing, said he's had "very productive discussions and negotiations" with Comcast since the merger.
"We've always had a strong relationship with Comcast," Gardner said. "We have actually pretty similar companies. We both are huge into localism.
"In the case of us, we've got our local TV stations and our regional sports networks, and in the case of Comcast, they've invested a lot in CN8, their local programming initiative. They own and operate a couple of regional sports channels."
There has been an internal debate within Comcast about how aggressive it should be with programmers, according to an industry source.
"Some insiders feel the company should be more statesmanlike, and others think they should be Attila the Hun," the source said.
'We need each other'
Cohen denies any internal disagreement regarding Comcast's treatment of programmers. He said the MSO's philosophy, as expressed by Roberts at a recent analysts meeting, is that the MSO and programmers are partners.
"We need each other," Roberts said.
Some cable operators think Comcast should be the trendsetter, because of its clout and size, and lead the way in the battle for lower programming costs.
"Comcast will force the networks to take steps to control their highly inflated costs of doing business," said Bob Wilson, senior vice president of programming with Cox Communications Inc.
But Comcast apparently won't be fighting most of those battles in public.
"Whatever differences the cable industry and our programmers may have," according to Cohen, "need to be resolved at the negotiating table, and not in the media or in Washington."
Mike Farrell contributed to this story.
