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Comcast Sizes Up Net Pacts

Though still nervous, programmers last week claimed that so far, Comcast Corp. hasn't set forth any broad "agenda" or made any unilateral demands in terms of seeking big cuts in license fees.

"They're taking things on a case-by-case basis," one cable-network official said. "They're looking for any vulnerability in a particular contract. There is no across-the-board agenda that is in place yet. They are not using their size willy-nilly."

As part of its acquisition of AT&T Broadband, last year Comcast said it expected to save from $250 million to $450 million a year in programming costs. It intended to reap that windfall by taking advantage of greater volume discounts, which vary from one affiliation agreement to the next, since the post-merger company would become a 22-million-subscriber behemoth.

So far, a number of programmers said, Comcast is only doing what it said it would do in a Federal Communications Commission filing: comparing its own carriage deals with those of AT&T, and cherry-picking the most financially advantageous deals for the merged mega-MSO, now the country's largest.

In most cases, the best deal is the one AT&T had. For instance, at least one cable-network affiliate sales chief said that Comcast has informed him that going forward, it wants to be bound by AT&T's contract and not its own.

"I have no inkling what they may want beyond that," he said.

In some cases, sources said Comcast is trying to "finagle" to get the best of both worlds, in terms of cherry-picking from parts of both AT&T and Comcast agreements. In those instances, Comcast is attempting to retain a feature it likes from its own carriage deal with a programmer — perhaps a clause mandating upfront launch fees — while also trying to get the low license fee from AT&T's contract.

One industry source familiar with Comcast said that to date, he was aware of only one situation in which the mega-MSO was seeking a license fee below what AT&T had been getting.

In that case, Comcast was seeking "the MFN minus 10 percent," the source said. "MFN" stands for "most favored nation," a clause that big cable operators typically have in their contracts to insure they pay the lowest license fees in the industry.

In its heyday, AT&T predecessor Tele-Communications Inc. would ask programmers for "the MFN minus 50 percent" — a discount of half of the industry's lowest going rate, according to the source.
A published report last Tuesday claimed Comcast had sent letters to 50 programmers demanding a 10-percent decrease in license fees from them all. But as of late last week, executives representing several dozen cable networks told Multichannel News
they had yet to receive any such letter.

Comcast officials declined to comment on the purported letters.
Several affiliate-sales executives said they would be surprised if savvy Comcast would be foolish and heavy-handed enough to ever put such a demand in writing, regardless of the huge MSO's leverage and clout. Legally, such a unilateral demand for price reductions would seemingly be in violation of the various programmers' affiliation deals.

"A contract is a contract," one network official said.

And it seems likely that Comcast wouldn't want to repeat the mistake Charter Communications Inc. made last year, when it sent out a mass mailing to programmers demanding license-fee rebates for non-paying subscribers. The FBI is looking into that matter.

A more likely scenario, several programmers said, would be for Comcast to carefully pick its battles and seek the "MFN minus 10 percent" in private negotiations with select programmers.

In such cases, a programmer might be will to take "a haircut" on license fees for one network in exchange for getting broader distribution for another, or in order to get Comcast to launch a high-definition service.

Leverage seen

Comcast is likely to have the most leverage with services that need something from the MSO, such as a contract renewal. For example, sources said Lifetime Television's affiliation agreement with Comcast has expired.

Lifetime declined to comment, and Comcast officials couldn't be reached for comment on that matter.

The mega-MSO has also been engaged in some bitter negotiations with Turner Network Television, which is trying to extract a 10 percent mid-contract rate increase for "TNT Plus," to offset the costs of its National Basketball Association and National Association for Stock Car Auto Racing packages. Now that Cable One Inc. has signed a deal for TNT Plus, Comcast is the sole holdout for the rate increase. TNT declined to comment.

Last November, Comcast filed suit against Starz Encore Group LLC, claiming it should not be bound by a controversial and pricey 25-year carriage deal that AT&T Broadband inherited from its predecessor, TCI.

Since July 2001, Starz Encore also has a suit pending against AT&T over that contract in a Colorado court. A stay had been issued in that case until Jan. 31 (last Friday), so the parties could try to reach a settlement.

Starz Encore and Comcast declined to comment on the pending litigation.

R. Thomas Umstead contributed to this report.