LA sues Time Warner Cable over past fees
3/15/2014Time Warner Cable Inc. has stirred anger over its hike in subscription rates for customers and its efforts to extract hefty fees from rivals to air the L.A. Dodgers channel.
Now it has incurred the wrath of city officials.
On Friday, the city of Los Angeles sued the cable giant, alleging it stiffed the city on franchise fees over four years through 2011. The city seeks nearly $10 million in fees, money it said could have helped ease its budget problems during the financial crisis.
“Time Warner owes L.A.’s taxpayers millions of dollars for the privilege of having its franchise,” City Attorney Michael Feuer said during a City Hall news conference announcing the lawsuit. “This is a day where we are standing up and saying enough is enough.”
The 24-page lawsuit, filed in U.S. District Court in Los Angeles, contends that Time Warner Cable “blatantly refused to live up to its obligations to the city” to pay franchise fees to operate its cable network over city-owned rights of way while collecting more than $500 million a year from customers in the city.
Feuer said the city has been negotiating with Time Warner Cable for several years.
“The negotiations haven’t been fruitful and we have to do something about that,” Feuer said. “Time Warner pocketed the money from its subscribers and then did not turn it over to the city of Los Angeles.”
The city contends that Time Warner Cable owes $9.7 million in fees, money that Feuer said could have been used to hire 100 police officers and make sidewalk repairs.
Time Warner Cable, in a statement, denied the allegation that it had cheated the city.
“As a major job creator, tax contributor and service provider in the city of Los Angeles, Time Warner Cable is an active and responsible corporate citizen,” the company said in a statement. “We are disappointed the city has chosen to bring this action, which we strongly believe is without merit.”
The lawsuit contends that Time Warner Cable owed $2.5 million in franchise fees and public, education and governmental channel fees in 2008 and 2009 and an additional $7.2 million in fees in 2010 and 2011.
The city contends that once in 2008 and again in 2011, Time Warner Cable withheld more than $5 million in fees the city said it was owed. The company finally paid a portion of the disputed fees, Feuer said, but then subtracted the same amount from its franchise fee payment, resulting in another underpayment.
The lawsuit comes just a few weeks after Time Warner Cable alerted its Southern California customers that it planned to hike rates by an average of about 6% a month for homes that are not covered by a promotional package.
The higher bills, which are expected to affect about 30% of its estimated 1.5 million customers in the region, kick in this month. The company said higher fees are needed to pay for rising programming costs and technical upgrades to the company’s system.
Meantime, Time Warner Cable has been playing hardball with DirecTV, Dish Network, Charter Communications, AT&T Inc.’s U-Verse, Cox Communications and Verizon Communications Inc.’s FiOS over terms to carry the new Los Angeles Dodgers channel.
The new channel launched on Time Warner Cable and Bright House Networks systems late last month. However, most other pay TV distributors have been balking at the terms for providing the channel, contending that Time Warner Cable is demanding fees that are too high.
Until this season, Dodgers games were available in Los Angeles on local television station KCAL-TV Channel 9 and Fox’s Prime Ticket regional sports cable network.
But for the first time in the team’s history, none of the team’s games will be available on free, over-the-air television. Fans must subscribe to a pay-TV service if they want to watch the Dodgers. So far, only Time Warner Cable and Bright House have the channel.
Time Warner Cable agreed to an $8.35 billion, 25-year deal with the Dodgers’ organization for the rights to distribute the channel, called SportsNet LA.
The carrier has been asking other distributors for more than $4 a month per subscriber, meaning the channel would cost their customers at least $50 a year — regardless of whether those viewers watched the Dodgers.
Last summer, a contract dispute between Time Warner Cable and CBS Corp. resulted in a month-long blackout of KCBS-TV Channel 2 and KCAL-TV Channel 9 for customers of the cable company.
The city’s lawsuit stems from its authority to charge cable companies franchise fees of 5% of a cable operators’ gross revenues, in lieu of rent for the public right-of-way to install and maintain the company’s wires and cable boxes.
The city also assesses fees to help pay for public, educational and governmental channels. Cable operators were required to pay fees to help support government and public access TV channels, including the construction and operation of TV studios. Cable subscribers receive those channels as part of their packages.