Change of Format Puts American Movie Classics in Breach of Cable Carriage Agreement

In the cable television business, there is inevitably tension between networks, which periodically reposition themselves to maintain and build a loyal audience, and cable operators, who seek a variety of programming on their channels to attract different audiences for their systems as a whole. This tension can be faced either up from, in prolonged and derailed negotiations that often act as sinkholes – or, worse, deal killers – or the parties can contract in general terms, thus postponing the issue, and hope it will never arise.

When parties choose to postpone, however, which party should bear the consequences if a problem ultimately occurs?

In a recent decision, American Movie Classics Co. v. Time Warner Entertainment Co. (No. 6032625-03, N.Y. Sup. Ct., July 8, 2005), a New York trial court placed a significant burden on a cable network’s ability to reposition itself under standard cable carriage terms.

The dispute between American Movie Classics (AMC) and Time Warner (TW) began when TW took steps to terminate carriage of AMC because of AMC’s substantial programming changes in 2002. AMC responded by seeking a declaratory judgment that it was not in breach, to which TW counterclaimed. Sustaining TW’s right to terminate, the court, on summary judgment, held AMC in breach.

In 1993, when AMC entered into the TW carriage agreement, AMC described itself as a service “generally made up of movies from the 1930s, ’40s and ‘5Os … primarily … older, classic, black and white movies”. By contrast, after its 2002 repositioning, less than 20% of AMC’s movie mix was pre-1960 movies, while post-1960 movies increased to more than 80%. During that same period, AMC changed its non-movie programming as well.

In the AMC/TW litiagtion, the key provision in question was the so-called “Content Clause” of the carriage agreement, which provides:

[A]s of the date hereof, the programming on [AMC’s] Service consists of classic motion picture films first released for theatrical exhibition during the 60-year period prior to the date hereof [and certain other programming] … A representative sampling of Service programming is listed in the [attached] program schedule … If at any time during the License Period the general quantity and quality of the programming on the Service materially changes from that contained on the Service as of the date hereof, [TW] shall have the right … to terminate this Agreement…

While there is language in this clause that plainly mimics programming changes, there’s also support for AMC’s right to reposition its service by (among other things) updating its movie programming.

It is worth noting that the contractual description of the service as including movies from “the [priorl 60-year period” is, in part, a fiction. That is because, insofar as the court’s decision discloses, in 1993 AMC was not regularly exhibiting any movies from the ‘7Os forward, and only a small number from the ’60s.

This drafting fiction is traceable to the negotiating history cited by the court. While TW had initially proposed restricting AMC’s service to movies from the 1930s, ’40s and ’50s, the parties ultimately agreed that AMC could exhibit movies as recent as the date of the TW carriage agreement. AMC had sought this flexibility in light of the agreement’s duration.

In determining the scope of permitted changes, the Content Clause’s prohibition of material change to the “general quantity and quality” (emphasis added) of programming impliedly permits change that is less than “general.” AMC’s express right to expand its range of movies by more than 30 years makes clear that at least some major changes were not prohibited.

Nevertheless, the court created a particular AMC representative program sampling, which was an exhibit to the carriage agreement, as defining the overall age profile for movies in AMC’s service and, by implication, what would be considered a “general” change. The sampling, however, is arguably no more than a listing of movies and other programs that, on an individual basis, meet quality standards such as production values, country and language of origin, genre and artistry and, collectively, demonstrate the quantity of expected monthly programming.

Although, in this case, the Court favored the cable operator, there is another approach to weighing the balance. Looking at cable networks such as AMC as brands, with the knowledge chat branded products are routinely repositioned, the burden of not addressing the problem in advance arguably should fall more heavily on a cable operator who challenges evolution of the brand.

Seated differently, if a cable operator is to have this much control over a network’s programming, the carriage agreement ought to be very clear on the subject.

Postscript: In its coverage of the case, Daily Variety referred to the “contentious” history between the litigants and reported that, regardless of the outcome on appeal, “the industry does not expect TW to drop AMC from any of its cable systems … But TW may be able to negotiate a more favorable price” for future carriage of AMC’s services.

Ezra Doner is an entertainment and copyright lawyer who has represented clients in the filmed entertainment sector, both as an in-house business and legal executive and as a lawyer in private practice, for more than 25 years.Before entering private practice, he worked at film companies in LA and NY, including Gladden Entertainment, Cinema Group and Miramax Films.