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UPDATED: Time Warner Cable Claims Fox Hijacked Retrans Consent Process

FCC filing in Mediacom-Sinclair flap says Fox is controlling affils' negotiations 12/09/2009 10:15:26 PM Eastern

In the latest twist in the retransmission consent saga, Time
Warner Cable claims that Fox "has brazenly sought to hijack the retransmission
consent process" by inserting itself into its affiliates' retrans negotiations,
in a Dec. 8 FCC filing in support of Mediacom Communication's retrans consent
complaint about Sinclair. 

The filing comes as TWC, the nation's second-largest
cable operator, is in the throes of a negotiation with News Corp. over carriage
agreements for Fox-owned stations, cable networks and regional sports networks that
expire Dec. 31. Fox is widely understood to be pursuing cash--a dollar per
sub, according to a report in the Wall
Street Journal
--as part of Time Warner Cable's compensation for Fox's
O&Os.

TWC announced Dec. 7 that it had agreed to a one-year extension
of its carriage agreement with Sinclair
, which has several Fox affiliates among
other affiliate stations in TWC markets. That deal also was up at the end of
the year. TWC's filing essentially claims their deal with Sinclair was
controlled by Fox, in violation of the FCC's good faith bargaining requirement
in retrans negotiations. TWC's FCC filing reads, "To the extent that Sinclair
has ceded its authority over retransmission consent negotiations to Fox
Broadcasting, it more fundamentally has transferred control of its broadcast
licenses and violated the Commission's rules."

The filing says Fox has hijacked retrans by "threatening to
exercise veto power over any station's negotiation of a retransmission deal
that does not extract a satisfactory kickback for the network."

It further says that Sinclair claims distributors must meet
price demands or the network in question (Fox) "will use contractual mechanisms
to preclude any retransmission agreement."

Time Warner Cable's documents assert that Fox has been engaged in
similar ways with other station owners' retrans deals.

Fox commented on TWC's filing Dec. 10 with the following statement:

"Time Warner Cable’s recent action is an extension of its desperate campaign to mask its impressive profits and instead malign its program suppliers’ efforts to receive fair compensation. Rather than legal and public relations maneuverings, Time Warner Cable would be better served by acknowledging the tremendous value provided by its content partners. 

"Time Warner Cable has a signed agreement with Sinclair Broadcasting and there is no reason the FCC should intervene on a contract the Company executed in good faith.

"This filing (in a matter between Mediacom and Sinclair, not even involving Time Warner or Fox) is obviously just an attempt to undermine and interfere with Fox’s existing contractual relationship with its affiliate stations as well as artificially influence the negotiation process."

Sinclair could
not be reached for comment.

A TWC spokeswoman said, "This issue affects all
distributors--so customers can switch, but they can't hide. TV program
providers demand outrageous price increases from DirecTV, Verizon FiOS,
AT&T U-verse and Dish Network as well. DirecTV and Dish Network have had
similar fights too, and the newer providers, AT&T U-verse and FiOS will
encounter this more and more as they start to renew their agreements."

Fox and
other broadcast network executives have made clear during recent earnings calls
and speaking engagements that they intend to pursue a share of the compensation
their affiliates receive in retrans negotiations. News Corp.'s Chase Carey
indicated at the UBS Media Conference
this week that affiliates should be
driving harder bargains in retrans negotiations, saying "They're selling it
cheap, that's pretty clear. We believe that what we'll be asking is more than
fair."

In a Dec. 9 letter to Media
Bureau Chief Bill
Lake, Mediacom tried to buttress its case claiming Sinclair violates "good faith"
retrans bargaining requirements by negotiating retransmission consent for both
its owned stations and ones it has local marketing agreements (or, LMAs) within the same
markets.

Mediacom Counsel Seth Davidson submitted copies of a bunch
of letters that had been sent to the commission from members of Congress, state
legislators, city officials and one University president over the past five
weeks supporting the complaint and Sinclair's interim request for carriage
while the complaint is being considered.

"We believe that it is imperative that the FCC use its
authority to prevent any interruption in broadcast service during this round of
negotiations between the parties," a group of seven congressmen, senators
and representatives, wrote to FCC Chairman Julius Genachowski on Nov. 23,
according to a copy of one of the letters.

He also complained about procedural objections Sinclair has
filed "with respect to virtually every pleading submitted in these
matters."

Cable operators argue that stations negotiating for their
LMA partners are violating at least the spirit of FCC duopoly rules, and the
FCC's retrans rule requiring good faith bargaining, a point echoed in Time
Warner Cable's filing. Matt Polka, president of the American Cable Association, of
which Mediacom is a member, interviewed last week about the growing retrans
debate, said that networks negotiating for stations may violate the FCC rules
that stations must exercise independent authority over their operations.

Broadcasters counter that the practice is widespread and
that the Justice Department has not found LMAs to be noncompetitive. One
veteran broadcast attorney who spoke on background points out that networks
handling retrans negotiations for their affiliates is not a new phenomenon. He
says Fox, for example, negotiated for affiliates in the first round of
negotiations in the early 1990s, though in that case the compensation was not
cash but carriage of the fledgling FX.

When asked if ACA had any problem with a network
negotiating for their affiliates, Polka said: "There is currently a fire
dance between networks and affiliates as networks look at the whole retrans
marketplace and say, 'Hey, why aren't we getting our own cut?' Particularly that
stations have talked about real money for retrans to the tune of five or six
dollars a month per sub on the wholesales level when you add up all the
stations in a market. Yes, that is a concern as we see the networks trying to
hone in on the marketplace as well."

A veteran
cable attorney says if the FCC gets involved, "it would react to problems that
one or the other side has. The affiliates may not like it. If the affiliates
suggest it is usurping their rights, the FCC might not like it for that reason.
But the FCC has been pretty slow about getting into network-affiliate
relationship problems."

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