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Cablevision Says Viacom Threatened Billion-Dollar Penalty

March 8 (Bloomberg) -- Cablevision Systems Corp. said Viacom Inc. threatened to impose a penalty of at least $1 billion on the cable operator unless it agreed to buy the rights to networks it didn’t want, according to a court filing.

Cablevision is suing Viacom on antitrust grounds tied to the content provider’s alleged practice of bundling cable channels. Cablevision claims it was forced to accept all of Viacom’s programming -- including low-rated channels it didn’t want -- because Viacom would have imposed a “10-figure” penalty if the Bethpage, New York-based operator only licensed certain networks.

Cablevision claimed Viacom controls “commercially critical networks,” including Nickelodeon, Comedy Central and MTV, that the cable operator must accept to avoid losing significant numbers of subscribers, according to a copy of the complaint unsealed yesterday in federal court in Manhattan.

While the fifth-largest U.S. cable operator said it only wanted to license Viacom’s highly rated networks, the penalty that it would have paid to avoid taking low-rated networks such as Logo and Palladia was more than its “entire programming budget,” according to the complaint.

“This anti-consumer abuse of market power is a key reason cable bills continue to rise and programming choice remains limited,” Cablevision said in its e-mailed statement.

Viacom responded in an e-mailed statement that Cablevision’s lawsuit is “nothing more than a hypocritical attempt” to void a deal signed in December.

‘Walking Dead’

“Cablevision’s suit is misguided, without legal merit, and as factual as an episode of ‘Walking Dead’ on AMC, which like all the networks controlled by Cablevision’s management is also offered in a bundle to distributors,” Viacom said in the statement.

Viacom doesn’t consider its rates a penalty, according to spokesman Jeremy Zweig. The programmer’s standard rate card is the price they prefer for their networks. Typically, distributors can negotiate for a discount from that rate.

James Dolan is the chief executive officer of Cablevision. His family controls shares in AMC Networks Inc., which airs “The Walking Dead.”

Cablevision received a “significant discount” by accepting all of Viacom’s networks, the New York-based programmer said. Cablevision chose the discounted packaged “precisely because it offers greater value for them and their customers,” Viacom said.

The case is Cablevision Systems Corp. v. Viacom International Inc., 13-cv-01278, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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