AT&T, DirecTV Want To Buy CSN Houston

After wending their way through 11 months of Chapter 11 bankruptcy proceedings, the problems with Comcast SportsNet Houston could be coming to an end. Maybe.

AT&T and DirecTV Sports Networks have pitched a plan to become the owners of CSN Houston, the troubled regional sports network home to MLB’s Houston Astros and the NBA’s Houston Rockets that has been crippled by a lack of distribution preventing it from paying rights fees to the clubs.

However, a valuation of the proposal has not yet been submitted, nor has the rights payments the clubs would receive been outlined.  Meanwhile, Comcast-NBC Universal, which owns a minority stake and operates the network, has concerns about the reorganization plan.

According to an investment agreement involving AT&T, DirecTV Sports Networks and the teams, which was signed by Astros owner Jim Crane and Rockets CEO Tad Brown, the Houston Regional Sports Network partnership will be reorganized as a limited liability company with 1,000 common shares. Under the plan, 40% would be held by AT&T, with the remaining 60% by DirecTV Sports Networks, which operates three other RSNs under the Roots Sports banner.

Currently, the Astros own 46.5% of CSN Houston, the Rockets 31% and Comcast-NBCUniversal holding the balance.

The next hearing is slated for Sept. 4, at which time AT&T and DirecTV Sports are expected to present their valuation for the network.

According to aHouston Chroniclestory, based on a numbers of deadlines presented to U.S. Bankruptcy Judge Marvin Isgur, who set an Oct. 5 hearing date that could result in the approval of the AT&T/DirecTV ownership gambit. If that were the case, the suggestion is that the network conversion to Root Sports Houston could come in time for the Rockets' first preseason game on Oct.5.

The parties’ interest could serve to end a protracted battle that may ultimately result in the succeeding network playing in front of more subscribers. Currently, only Comcast and a handful of small providers carry the network in the Houston DMA reaching just 40% of its potential viewers, much less its five-state TV territory.

AT&T U-verse counts almost 23% of the TV households in Houston, while DirecTV has 21%. If  an agreement could be reached whereby the subscribers of AT&T and DirecTV, which are looking to pass federal muster for their proposed merger, could be combined with those of Comcast, which is awaiting approval to purchase No. 2 cable operator Time Warner Cable, there would be a substantial uptick in the new RSN’s reach in the DMA and beyond.

But without such carriage cooperation, the network essentially could find itself in the same distribution limbo CSN Houston has experienced since it launched in October 2012. CSN Houston had been seeking a monthly subscriber fee of $3.40, a rate that DirecTV and U-verse, among others, have balked at.

As one observer noted: “What’s been proven here is that the network doesn’t work reaching only 40% of the Houston market.”

In a statement Thursday morning, the companies said, “The Houston Regional Sports Network, along with the Houston Astros and Houston Rockets, filed with the US. Bankruptcy Court in Houston a proposal to transfer ownership to a joint venture between DirecTV and AT&T. Once the proposal is voted on by the creditors and approved by the court, DirecTV and AT&T look forward to providing this great sports programming to Astros and Rockets fans throughout the region.”

Comcast responded on Thursday afternoon following a bankruptcy hearing by saying: "The reorganization plan presented raises significant concerns regarding the equitable treatment of the network and its various constituencies. We intend to exercise all of our available rights as part of a fair process.”

While Comcast, which could submit its own reorganization plan, has a deal with CSN Houston, the establishment of a succeeding entity would require a new affiliate contract. Comcast’s carriage commitment represents one of the main assets to an RSN serving the Houston market.

Affiliate negotiations thereunto, the status of unpaid rights fees, as well as the repayment of a $100 million loan from Comcast that was used for a variety of start-up costs, including monies deployed for the construction of the RSN’s studio facilities, and the fates of CSN Houston employees, are among the matters that have to be addressed. All told, there are unsecured claims of $106.5 million in the bankruptcy case.

According to documents filed with the U.S. Bankruptcy Court, Southern District of Texas, Houston Division, some $133 million in rights payments have gone uppaid. Documents reveal that the Rockets didn’t receive any of their $44.4 million in rights fees for the 2013-14 season, while the Astros were owed $27.8 million for the 2013 MLB season, and have not been paid at all for the current campaign.

Comcast spent $157 million in 2010 to buy its 22.5% share of the Houston Regional Sports Network partnership. However, it took a $236 million write-down on its investment in 2012.