Viacom Presses Claim for 9/11 Business Interruption

In an effort to recover revenue lost following the 9/11 attacks, Viacom is claiming to its insurers that its broadcast properties—CBS and Infinity stations—had no choice under its public-interest responsibilities in preempting hundreds of millions of dollars of advertising.

According to sources, Viacom makes the argument that, while there was clearly no government order to remain on the air sans commercials—which many radio and TV entities did for days following the attacks—doing so was nonetheless mandated by its public-interest obligation as well as by the belief that running commercials at that time risked alienating the public.

The company declined to comment on the issue.

Some insurers as well as media lawyers contacted called the argument that Viacom could not run its commercials "novel," but none said it was without merit. One source said Viacom is asking for $200 million.

Insurance experts say business-interruption insurance is intended to protect prospective earnings when a policyholder is unable to continue normal operations. In television, such insurance has typically been used, insurers say, to cover losses from technical breakdowns like tower or antenna failures.

Viacom saw the potential for a claim early. President and COO Mel Karmazin said in a statement a week after the attacks that the company was working with advertisers to respond to some of the challenges presented by 9/11, including whether some "campaigns are inappropriate for today's business environment" and the possibility of additional, related disruptions.

And, he said, "We anticipate some benefit from the availability of business interruption and other insurance, which have the potential to offset a portion of our losses."

Of the networks that responded to questions, both CNN and Fox said they did not make claims to insurers based on business interruption. Federal Communications Act public-interest obligations do not apply to cable channels CNN and Fox News, however, although they do to Fox's TV network, which does not have nightly newscasts but ran news on the broadcast network on Sept. 11 and the days that followed.

A media insurer suggested that the notion of Viacom's news properties' having no choice but to eschew commercials was strongest immediately following the attacks but became increasingly strained as time went on "and they were repeating the same clips and information."

One network executive said the wall-to-wall coverage was a choice made by the networks and one that enhanced their image as well as their public service. And a broadcaster suggested that, by seeking reimbursement, CBS was "putting a price tag on [television's] finest hour."

Others said the media giant would be remiss and in breach of its duty to its shareholders if it didn't pursue a legitimate claim that could mean hundreds of millions of dollars.

But Washington attorney and former FCC General Counsel Bruce Fein wondered whether the approach attributed to Viacom could put handcuffs on the media later. "This kind of acknowledgement that coverage of highly newsworthy events is imperative could be used by competing interests or opponents at license-renewal time.

"No one's saying the FCC told these folks that it would come in and yank their licenses if they didn't provide this coverage," he continued. "But the networks have to be forward-looking." He noted that a network can hardly know the full significance of an event at its beginning. Viacom may believe the risk is small now, against the possibility of many millions in reimbursement, he said, "but the license is worth so much more."

Though agreeing with defenders of Viacom's argument that the 9/11 disasters would fit any definition of newsworthiness, Fein suggested that "an invasion of Iraq might be equally high in importance or urgency and who knows what other instances" and that CBS could be locking itself into a precedent it could regret later.