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Racial and Ethnic Discrimination Charges Fly in TV Distribution Fights

Is it a new frontier in the fight for racial equality or a below-the-belt effort to gain advantage in business negotiations?

TV carriage brawls between programmers and distributors have long produced heated rhetoric when battles go public. But in recent months, some disputes have moved to a new level of conflict with allegations that institutionalized racism at large media companies is driving discriminatory business decisions.

This month, Univision accused AT&T, parent company of DirecTV and U-Verse, of conducting a form of “redlining” in the TV business by refusing, in Univision’s view, to pay the company’s Spanish-language stations retransmission fees on a par with its English-language network counterparts in a new contract with U-Verse. AT&T blasted Univision in response for what it described as having “stooped to despicable allegations in an effort to extort an outrageous price increase.” (After a four-day blackout of Univision channels on U-Verse, Univision’s flagship channel was restored in time for the network’s March 9 Democratic presidential debate, and the sides have agreed to a series of short-term extensions since then.)

Since late 2014, Entertainment Studios, led by African-American entrepreneur Byron Allen, has filed lawsuits against Comcast, Charter Communications and AT&T requesting an eye-popping $10-$20 billion in damages based on what Entertainment Studios believes is the value of the company would be if it had been able to secure distribution for its channels.

The suits assert that the media giants have violated a provision of the 1866 Civil Rights Act by refusing to conduct business with his firm. Entertainment Studios is home to seven niche cable channels, including Justice.TV, Pets.TV, Comedy.TV and Cars.TV. In December, AT&T reached a settlement with Entertainment Studios that led to its DirecTV and U-Verse units adding the channels to their lineups.

The flaring of racial politics in TV distribution deals adds another layer of tension at a time when relations between programmers and distributors are already strained by the vast changes in the pay TV arena. It’s no accident that allegations of discrimination in business are surfacing more prominently at a time when thorny questions of race, inclusion, justice and equality are front and center in the culture, spurred by everything from a series of fatal police shootings of unarmed black men to two consecutive years of all-white acting nominees for the Academy Awards.

In this environment, an assertion of racism becomes a leverage point when disputes between private businesses go public, according to Maurice Schweitzer, a professor at the Wharton School. Schweitzer studies the dynamics of negotiations and is the co-author of the 2015 book “Friend or Foe: When to Cooperate, When to Compete, and How to Succeed at Both.”

“From a negotiation standpoint, this is a very aggressive move,” said Schweitzer said of Univision’s accusation of discrimination against AT&T. “It’s a calculated decision. But the pay-off for them could be pretty big. I don’t think there’s an onus of proof for Univision. This allows them to demonstrate that they’re on the side of the underdog. They can throw this charged accusation at AT&T and basically sees how it plays out.”

Univision maintains that its stations in the largest Hispanic markets — including New York, Los Angeles and Miami — deliver audiences that match or exceed the viewership of the major English-language networks in those markets. As such, AT&T’s refusal to pay Univision the going rate in retransmission fees for U-Verse carriage amounts to discrimination against Spanish-speaking viewers by deeming them less valuable than English-language viewers, in Univision’s view.

“AT&T is redlining our audience by refusing to recognize the value of the Univision networks and the consumers we serve. AT&T’s discriminatory behavior is preventing Hispanic America from receiving content and information in language and in culture, which is especially vital during this election year. These disputes can be confusing for consumers, but in our case it’s simple: we must receive fair compensation, on par with English language broadcasters,” Univision said in its March 4 statement.

From AT&T’s perspective, the hurdle is the rate of increase that Univision is seeking. That suggests that Univision stations are starting from a low base in retrans fees, meaning that an increase to parity with English-language stations would require a big leap that could become a slippery slope for AT&T in future negotiations with other programmers. As AT&T explained in the FAQ on its “We’re Fighting For You” microsite addressing the Univision-U-Verse blackout: “If we give in to every unreasonable demand that content providers make, we couldn’t deliver a service that is priced fairly and competitively, and it could set a harmful precedent with other content deals and costs.”

The toughest question is how to determine if business decisions by private companies cross the line into behavior motivated by bias. Univision’s use of the term “redlining” invokes the legal battles of the 1940s, ‘50s and ‘60s against banks that refused to make mortgage loans in minority neighborhoods. Allen’s legal crusade paints a picture of MVPD giants shunning African-American entrepreneurs but setting deals with similarly situated white-owned companies including Rural Media Group, owner of rural lifestyle networks RFD TV and FamilyNet.

Minority representation in media and entertainment has become a critical issue for Hollywood in the past year amid the heightened focus in culture and politics on race relations and diversity. There is no question that minority ownership of high-profile media assets remains stubbornly low.

Of the nation’s roughly 1,782 full-power commercial and public broadcast TV stations, only nine are wholly owned by African-Americans. The Pew Research Center’s State of the News Media 2015 report cited seven stations owned by African-Americans; in October, after the publication of the Pew report, conservative commentator Armstrong Williams acquired two more stations. In 2011, Hispanics owned 39 TV stations in the U.S., according to the FCC. Univision is owned by billionaire Haim Saban and a clutch of private equity firms.

Entertainment Studios’ suits assert a pattern of discrimination based on what is characterized as a refusal to do business with companies wholly owned by African-Americans. The three suits were filed in federal court in Los Angeles when Comcast, AT&T and Charter were particularly sensitive about their corporate image because each were shepherding mega-mergers through the federal approval process— a time when they least want to be accused of using their industry clout to discriminate against a smaller concern.

Comcast has since withdrawn its bid for Time Warner Cable, opening the door for Charter to cut a deal that is now in the final stages of the review process. AT&T closed its $49 billion acquisition of DirecTV last July; the distribution deals for the Entertainment Studios channels were announced in late December.

In January, Entertainment Studios filed a $10 billion discrimination suit against Charter and the FCC. The complaint takes aim at Charter CEO Tom Rutledge — calling him a “blatant racist” — for what the suit asserted was his refusal to meet with Allen, among other allegations.

The FCC is accused of helping to facilitate the bias against African-American-owned companies through its approvals of past media mergers such as Comcast’s acquisition of NBCUniversal. The suit takes the additional step of attacking prominent African-American leaders and organizations, including the Rev. Al Sharpton and the NAACP, as “tokens” and “shills” for voicing their support for media mergers, according to the suit, in exchange for corporate donations to their organizations.

The legal crux of the argument is that Section 1981 of the 1866 Civil Rights Act establishes equal rights under the law in business relationships, specifically “the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.”

Entertainment Studios attorney Louis Miller, of Miller Barondess, says the suits document a clear pattern of media giants refusing to do business with media companies wholly-owned by African-Americans. The initial suit against Comcast included the allegation that an unnamed Comcast executive told Allen that they would not carry his channels because “we’re not trying to create any more Bob Johnsons,” a reference to the billionaire founder of BET Networks.

“Under the law you can’t say ‘I refuse to sell my house to a black family,’ ” Miller told Variety. “You can’t refuse to carry a television company’s channels owned by a black man like Byron on account of race.”

Comcast and Charter have vehemently denied the allegations in the suits, with Comcast calling it “offensive” and Charter calling it a “desperate tactic.” The $20 billion claim against Comcast was dismissed in August by U.S. District Judge Terry Hatter in Los Angeles, saying he found “no plausible claim for relief.” But the judge allowed Entertainment Studios to file an amended complaint that is pending.

Many see the Entertainment Studios suits as an aggressive interpretation of civil rights protections. George Rutherglen, a professor at the University of Virginia School of Law, said the courts have recognized that a corporation, rather than an individual, can be a victim of discrimination. But proving a company’s intent to discriminate based on race is difficult, Rutherglen said.

“They would need to find some kind of smoking gun in the discovery process,” such as a derogatory comment about Allen or the company in an email, Rutherglen told Variety. Once the suits were filed, the defendants became obligated to retain all correspondence and material related to its dealings with Entertainment Studios as evidence, presuming the cases continue to move forward.

A similar case involving an African-American contractor who clashed with Domino’s Pizza went all the way to the Supreme Court a decade ago. In 2006 the high court reversed a lower court’s ruling in favor of the contractor on the grounds that his company had reached a settlement with Domino’s and that he as an individual did not have the standing to pursue the claim.

Rutherglen noted that the charge of racism adds urgency to the litigation no matter what is ultimately uncovered during the discovery process. “Just the existence of the complaint puts some pressure on the defendants to make some concessions,” he said. “This makes it a very visible issue that can harm the reputation of the firm.”

Privately, top executives at major media companies express dismay that racial charges are coming to the fore at a time when the industry, particularly the cable TV business, is facing a fundamental shakeup of its economic foundations. The threat of CEOs and companies being publicly branded racists or worse could make programming and carriage decisions that much more fraught as the pay TV arena moves toward digital a la carte and skinny-bundle style offerings.

Schweitzer sees the prospect of discrimination charges becoming more frequent in business disputes, in media and other sectors, as frustration builds over the generally slow pace of advancement for minorities and women in many corners of corporate America.

“This is a hot-button issue,” he said. “It’s not as if in a post-Obama world we’ve solved racial inequality in the United States. When charges of racism are raised, people pay attention. There’s a leverage point here because people are really desperately afraid of being called a racist.”

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