DirecTV Charges Tribune With Violating 'Good Faith' Rules

WASHINGTON: The retransmission stalemate between Tribune and DirecTV pits the current Tribune CEO against the satellite TV company he launched in 1990.

Eddy Hartenstein, now president and CEO of Tribune, led DirecTV until 2004, when it was sold to News Corp. His name is among a series of emails accompanying a formal complaint DirecTV filed with the Federal Communications Commission April 2 over Tribune’s conduct in retransmission negotiations. Tribune pulled 23 TV stations in 19 markets from DirecTV over the weekend. WGN America was pulled from the national lineup as well.

“We are on with Eddy now and wrapping in a few,” Tribune’s Julio Marenghi, executive vice president and general manager of WGN, wrote in an email to DirecTV’s Derek Chang Thursday afternoon. The emails indicate Chang was waiting for a phone confirmation regarding an agreement Tribune’s chief investment officer, Nils Larsen emailed Wednesday night.

“Please find attached our response to your proposal from Sunday March 25th,” Larsen’s email says. “In our response we have attempted to take to heart your expressed desire that this deal not create an off-market result for DirecTV. Accordingly, we have made a proposal that addresses the retransmission license fee [most-favored nation], the monthly retransmission fees and our overall advertising relationship. These three components operate together. We believe this proposal provides you with significant comfort on your concerns and provides us similar consistency in the overall relationship between the two companies.”

Thursday’s emails indicate Dan Hartman, DirecTV’s senior vice president of programming acquisition, and Tribune’s Larsen traded draft agreements and appeared to be close to a deal. All appears to have fallen apart by Friday evening.

“I just spoke to Dan, who relayed a conversation that Eddy had with Mike [White, chairman and CEO of DirecTV] which sounds inconsistent with the discussion you and I had last night,” DirecTV’s Chang wrote to Larsen. “Please call me on my cell.”

The next correspondence in the exhibit is one from Saturday morning in which Hartman states that DirecTV is accepting an offer made by Larsen to Chang on Thursday evening.

Larsen responds that he finds Hartman’s email “puzzling.”

“You are purporting to accept and offer Tribune never made,” he said.

A final email from Marenghi to Hartman says the Trib stations were still being carried by DirecTV as of Sunday, April 1 at 12:15 p.m. Eastern and “should have been taken down. This is a violation of federal law.” The existing carriage agreement expired on Saturday at midnight.

DirecTV’s complaint said it’s seeking an “immediate intervention and expedited ruling against Tribune for failing to negotiate in good faith,” as required by FCC rules. The satellite TV provider took its argument a step further, however, by charging that Tribune’s creditors stepped in to squeeze more money out of the deal.

“Two days prior to expiration of the existing carriage arrangement, the parties reached an agreement in principle for continued carriage,” DirecTV’s complaint states. “The following day, however, Tribune reneged on that agreement. Tribune later confirmed that its management had been overruled by the hedge fund and investment bank creditors that hold the company’s debt, including Oaktree Partners, Angelo Gordon, JP Morgan Chase, Bank of America, and Citibank.”

DirecTV says the maneuver violated FCC rules that retransmission negotiations be carried out in “good faith.” Current FCC rules require good-faith conduct under a two-part framework. The first is a list of seven actions, each of which could constitute a violation of the “good faith” requirement. The second part gives the commission discretion to make a determination outside those seven parameters:

Refusing to negotiate.
Refusal to designate someone with binding authority.
Refusal to meet at “reasonable times and locations.”
Refusal to put forth more than a “single, unilateral proposal.
Failure to respond to the proposal of another party.
Refusal to execute a written agreement.

DirecTV charges that Tribune violated the second rule requiring designation of a representative with binding authority.

“DirecTV negotiated with Tribune for months, only learning on the very eve of expiration that it had never been dealing with anyone who had the authority required under the rules,” the complaint reads. “DirecTV still [sic] does not know with whom it should be speaking—Tribune’s CEO or its associated hedge funds and investment banks.”

As such, DirecTV questions who is in control of the Tribune broadcasting licenses.

“Tribune has sought commission permission to transfer control of its broadcast licenses to its creditors but has not yet obtained that permission,” the complaint states. “It nonetheless appears that Tribune may have already granted these entities control of at least its retransmission consent negotiations—essentially granting them control over the finances of Tribune’s broadcast licensees,” a violation of commission rules.

Tribune responded Monday afternoon, reiterating that no formal agreement was reached prior to the take-down.

“Over the course of any negotiation, parties may agree in principle on some terms and disagree on others, but it takes closure on all terms by both parties to reach an agreement,” Trib’s statement said. “We never reached agreement with DirecTV on all the terms of the contract—not in principle, not by handshake and not on paper. We didn't have an agreement on Thursday, March 29, and we do not have an agreement now.

“Claims of ‘bad faith’ and ‘outrageous conduct’ are nothing more than negotiating tactics in an attempt to unfairly disadvantage Tribune from receiving fair market compensation from DirecTV for carriage of Tribune’s local television stations and WGN America,” it continued. “Tribune seeks an agreement with DirecTV that is similar to those DirecTV already has in place with hundreds of other content providers.”

DirecTV is the third party this year to file a “bad faith” charge with the FCC. Allbritton did so in January after talks with Shentel Communications broke down and the Virginia cable operation dropped Allbritton’s Washington, D.C. ABC affiliate, WJLA. That complaint remains unanswered, and WJLA is still off of Shentel systems. KRIS-TV in Corpus Christi, Texas also charged Time Warner Cable with bad-faith negotiations.

The enforcement of good faith, along with the rest of the FCC’s retransmission rules, are open for comment under a Notice of Proposed Rulemaking issued last March. In it, the commission specifically seeks feedback on what constitutes “good faith” negotiations. Having reluctantly taken up the issue, the FCC has given no recent indication that it intends to tackle it anytime soon.
~ Deborah D. McAdams