SBJ/20110103/This Week's Issue

Adelphia buyout issues linger for Comcast

Comcast is entering the New Year waiting to find out the conditions federal regulators will place on its NBC acquisition. But the cable operator still is dealing with conditions regulators imposed as part of its Adelphia acquisition 4 1/2 years ago.

Due to those conditions, at least three of Comcast's regional sports networks are in the middle of arbitration proceedings with the country's two national satellite providers: Dish Network and DirecTV.

As part of Comcast's 2006 Adelphia acquisition, the Federal Communications Commission, worried about Comcast's potential market power, allowed distributors to select a "baseball-style" arbitration option with Comcast's RSNs if they are unable to reach a carriage deal. That means an arbitrator picks the deal he feels is closer to fair market value; there is no compromise.

Dish Network has filed for arbitration against three of Comcast's RSNs: California, Mid-Atlantic and Chicago. DirecTV is in arbitration with one: Mid-Atlantic. Once a distributor files for arbitration, the channels have to stay on the air.

"This isn't buying a house. This is a hundred times worse than that," Comcast SportsNet President Jon Litner told an industry conference in November. "But ultimately, you get to the right place."

One week after making those comments, a federal arbitrator sided with Comcast in its CSN California arbitration proceeding with Dish Network.

That meant that Dish would have to pay an unknown rights fee increase and move the RSN to a better distributed tier. The problem for Dish is that once it moves CSN California to a better tier, it opens the door for other RSNs — typically among the most expensive channels on the lineup — to join that tier, as well.

Dish responded by dropping the network entirely, a move that infuriated Comcast executives, but was within the satellite provider's rights as part of the Adelphia conditions.

Two days before Christmas, Dish Network quietly filed an official appeal of the arbitrator's ruling — a filing that shed some light onto the arbitration process.

Dish's original affiliate deal with CSN California ended Oct. 1, 2009. The two sides worked out an extension until Dec. 29, 2009. But when they couldn't reach an agreement, Dish Network filed for arbitration.

Arbitration hearings were held in Washington, D.C., over the summer. On Nov. 23, the arbitrator ruled in favor of Comcast on CSN California. Dish's arbitration proceedings with CSN Chicago and CSN Mid-Atlantic are in a holding pattern until CSN California gets resolved.

Like most deals, the main issue revolves around cost and tiers. Dish Network complains that Comcast's proposed rate hike is too high (the actual price increase is not known).

Dish Network also is complaining that, thanks to the arbitrator's ruling, CSN California would become the only RSN on its expanded basic tier, AT-120. All other RSNs are on Dish's AT-200 tier.

In its appeal, Dish complained that "Comcast seeks to secure a competitive advantage for its cable affiliate by forcing Dish to either drop CSN California altogether or to change its business model and increase substantially the rates Dish would have to charge its own customers."

Few arbitration cases get this far. Previously, DirecTV went to arbitration over two Comcast RSNs: Bay Area and New England. Both of those cases were settled.

"Ultimately, we got to a resolution with Comcast without going through the entire arbitration process," said DirecTV's Derek Chang, speaking on the same panel as Litner. "But that's the intent of the process."

Litner agreed. "Ultimately, you get to the right place," he said. "Arbitration is designed to, in essence, encourage both sides to reach fair market value. That's what it's intended to do."

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