The year-long impasse with Cablevision has just settled, and I would like to describe that settlement from YES’s perspective, since many press accounts have, in my opinion, misstated and misinterpreted it.
In early 2002, the YES Network began long-term carriage negotiations with New York area multi-channel operators, which ultimately led to thirty-seven cable deals plus an agreement with DirecTV.
The only area cable operator that did not agree to carry YES was Cablevision, which owns MSG Network and Fox Sports New York, the two networks with which YES competes.
The attention which the dispute between Cablevision and YES has garnered strongly suggests that: (1) the ability of a vertically integrated cable operator to discriminate against an independent programmer has been forever altered, (2) “content neutral” legislation and regulations are now likely to be imposed which will hold cable programming to different carriage standards than the industry has today, and (3) independent programmers should start to be assured of receiving fair non-discriminatory treatment, and, importantly, fair market value for their programming.
I have been in the cable industry far too long to try to predict the outcome of the arbitration to which Cablevision and YES have agreed. I am thrilled, however, about the outcome of the settlement.
YES has overcome Cablevision’s monopoly power and obtained a contractual guarantee that it will have a long-term carriage agreement, retroactive to March 31, 2003, that will be based upon the actual “fair market value of the YES programming” rather than upon Cablevision’s anticompetitive control over cable distribution.
The rule of “unintended consequences” has asserted itself, as well, and consumers will benefit when that standard is generally enforced to protect independent programmers, which I think will be soon.
I also smile more than a little at my cable operator friends who likely will have to live in a much changed environment for all programming services (including, of course, the ones they own), thanks to Cablevision’s refusal a year ago to simply enter into a standard carriage agreement with YES based upon the “fair market value” of YES’s programming.
YES has always insisted that its programming be offered to all Cablevision subscribers, that there be complete parity between the way Cablevision treats MSG and FSNY and the way Cablevision would treat YES (which was the premise of our antitrust litigation), and that YES receive the “fair mar/ket value” of its programming, as it has from every other cable operator in the area.
YES accomplished all three of these objectives in the new agreement signed on March 31, just minutes before the start of the Yankees’ opening game, which was then minutes later successfully launched on Cablevision.
The interim deal with Cablevision is expressly a “bridge” to a long-term carriage agreement to be reached by March 2004 through negotiation or arbitration. Focus on the price and packaging terms of the interim deal itself is misplaced. No definitive payment terms have been set; the payments during the interim period are solely advances on whatever terms will be reached in the long-term agreement.
Similarly, the parties have agreed that Cablevision’s right to tier during the interim period “shall have no effect” on the arbitration decision.
The key purposes of the interim deal are (1) to make sure that the fans in Cablevision territory can see the Yankees this season and (2) to obtain a contractual guarantee that, within a year, YES will have a long-term carriage agreement with Cablevision “based upon the fair market value of the YES programming.”
The settlement with Cablevision reflects the following key points:
- If YES and Cablevision are unable to negotiate a long-term agreement through mediation by Nov. 1 of this year, the arbitrators must begin to determine the price, packaging, MFN and term for a long-term agreement on the basis of the “fair market value of the YES programming,” for which, of course, the best measure will be the long- term carriage agreements already entered into between YES and every other area cable operator. n Cablevision must give YES complete parity with MSG and FSNY, and must price, package, market and promote YES on terms at least as favorable as those for either MSG or FSNY.
YES, of course, would have preferred a long-term carriage agreement based on the fair market value of its programming today. Instead, YES got a guaranteed near-term (and retroactive) pathway to a fair market value agreement.
Specifically, YES and Cablevision will enter into binding arbitration to determine the fair market value of YES programming in a year if they are unable to reach a negotiated resolution. Over the next year, YES will receive advance payments on that long-term carriage agreement and will not bear any negative effects resulting from the interim agreement with Cablevision.
YES is also protected from any discriminatory conduct by Cablevision resulting from Cablevision’s vertical integration both in the interim and for the long term, and YES will have at least complete parity with Cablevision’s affiliated RSNs (MSG and FSNY).
If the fair market value of the YES programming is more than that of MSG or FSNY, as we believe, then Cablevision will be obligated to pay YES – retroactive to March 31, 2003 – based upon the higher market value of the YES programming.
The cable operator press has suggested that Cablevision is the winner in this settlement, and YES the loser. But that flies in the face of what actually was accomplished by the time the final settlement was reached on March 31.
(Leo Hindery is chairman and CEO of t he YES network.)