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Operators, programmers tussle over potential AT&T/Time Warner deal conditions

As a district court judge reviews AT&T Inc.'s purchase of Time Warner Inc., a number of small and midsize cable operators have offered up what they see as a compromise solution. But some major programmers are concerned about the impact of the compromise on their own businesses.

The U.S. Department of Justice is seeking to block AT&T's $106.40 billion purchase of Time Warner, arguing that the combination would give the resulting entity too much power in the video market and raise prices for consumers. AT&T has disputed this claim, instead asserting that the deal will benefit consumers and should be approved without any conditions.

The American Cable Association, or ACA, a group that represents about 800 small and midsize independent operators, along with RCN Telecom Services LLC, Grande Communications Networks LLC and WaveDivision Holdings LLC said in a filing that although the opposing sides in the case "offer only an all-or-nothing approach to the court," they believe a compromise that would allow the deal with several important conditions is possible.

Specifically, the operators point to an offer that Time Warner's Turner previously made, which replicated some of the conditions placed on the Comcast Corp./NBCUniversal Media LLC deal. That offer stipulates that during a programming dispute with any distributor, Turner will submit to binding arbitration and guarantee continued access to Turner programming access while arbitration is pending. In other words, Turner will not pull its channels from an operator's lineup while a dispute is being settled. Like the Comcast/NBCUniversal conditions, this offer would last seven years and apply to traditional and online distributors.

The ACA agreed with the Justice Department that the offer does not go far enough in its protections, but said it can be adapted to answer any anticompetitive concerns. Specifically, the group of operators said the offer did not apply to all of Time Warner's networks, with HBO / Cinemax (US) being notably excluded. The ACA said all of Time Warner's networks should be required to submit to binding arbitration in the event of a dispute, and all should commit to continued carriage during the arbitration process.

"Absent such a requirement, the merged entity could shift valuable programming (e.g., March Madness) from Turner to another network outside of the scope of the arbitration standstill provisions (e.g., HBO)," the operators said.

The group also said there should be an opportunity to extend the term of the conditions beyond the initial seven years. In addition, the court should require an exchange of rate information as part of any arbitration process. Specifically, if a dispute occurs and a rival distributor gives notice of its intent to arbitrate, AT&T/Time Warner would provide that distributors with "the rates, terms, and conditions in programming agreements with other video distributors." Moreover, the rival operator would also provide the merged entity with "the rates, terms, and conditions in agreements for programming it acquires from other programmers." This exchange of information, according to the group, would facilitate an equitable resolution of the dispute.

But five major programmers — CBS Corp., 21st Century Fox Inc., Univision Communications Inc., Viacom Inc. and Walt Disney Co. — said in their own May 29 court filing that they had strong objections to this compulsory disclosure proposal. They said the pricing and terms of carriage agreements "are among the most competitively sensitive, closely guarded, and confidential information in the video programming and television distribution business." Moreover, the proposal would create more antitrust problems than it would solve as it would "facilitate price fixing among competing [distributors] by granting them access to one another's pricing information."

While taking no position on whether the court should permit the AT&T/Time Warner combination to occur, the content companies said the court "should not adopt any remedy in this action that would require the disclosure of … highly confidential and competitively sensitive licensing terms."

ACA President and CEO Matthew Polka responded to the programmers' filing on May 30, saying the court should reject any effort to deny access to this information. "Neutering the arbitration process may serve the private interests of these programmers, but not the public interest," he said.

The decision in the AT&T/Time Warner antitrust case is expected by June 12.