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Adelphia Leaves Nets Holding The Bag

6/30/2002 8:00 PM Eastern

Even Tony Soprano and his mob crew couldn't get back all the of the money — some $64 million — that Adelphia Communications Corp. owes AOL Time Warner Inc., the parent of Home Box Office Inc. and Turner Broadcasting System Inc.

Media giant AOL Time Warner was the top programmer on the long-awaited list of unsecured creditors for Adelphia, which filed for Chapter 11 protection last week. HBO alone is due $34.4 million, more than any other individual network.

As unsecured creditors, programmers are just about the last in line among those who will get paid under the bankruptcy reorganization. Many expect to only recoup a fraction of what they're owed — perhaps five to 20 cents on the dollar.

In addition to HBO, a trio of Turner networks also made the list of Top 50 creditors. The networks are collectively due $29.3 million, with Turner Network Television owed $13.9 million, TBS Superstation $7.8 million and Cable News Network $7.5 million.

Added to HBO's past-due bill, the AOL Time Warner networks sum is a whopping $63.7 million — almost 38 percent of the $169.8 million Adelphia owes to programmers on its list of top 50 creditors. And that's not all of the money that Adelphia owes programmers, as other, smaller networks also hold unpaid bills from the Coudersport, Pa.-based MSO.

HABITUALLY LATE

Adelphia's debt to programmers is mainly the result of months of delinquent monthly license-fee payments. According to a number of cable affiliate-sales executives, Adelphia made it a habit of not paying its license fees on time, lagging for six to nine months in some cases.

Many programmers felt they had no recourse or leverage against Adelphia, because if they pulled their signals from the MSO they would lose as many as 5.7 million subscribers, undercutting their national ad-sales efforts.

In anticipation of Adelphia's filing, affiliate-sales executives have been getting a crash course in Chapter 11 — and its jargon — from company attorneys.

"Everybody is learning about bankruptcy law," one affiliate-sales chief said.

But in general, these affiliate executives see the Adelphia situation as an anomaly, since most cable operators, particularly Cox Communications Inc. and Comcast Corp., pay their license fees to programmers pretty promptly.

In addition to Time Warner, other media conglomerates have also been left holding the Adelphia bag. Viacom Inc.'s services are owed $27.6 million. A breakdown shows that MTV Networks is due $11.6 million, Showtime Networks Inc. $11.9 million and Black Entertainment Television $4.1 million.

"The economic impact is not material to Viacom," said spokeswoman Susan Duffy.

AOL Time Warner had the same response, with spokesman Tricia Primrose adding, "We've been evaluating the situation and we have taken the proper reserves."

Only two networks owned by Rainbow Media Group, part of Cablevision Systems Corp., were on Adelphia's Top 50 creditor list — namely American Movie Classics, owed $6.9 million; and Fox Sports Net Ohio, owed $4.9 million, for a combined $11.8 million.

But in a Securities and Exchange Commission filing last week, Cablevision disclosed that Adelphia owes it a total of just under $18 million. That number includes payments for Rainbow networks such as Bravo, Independent Film Channel and Fox Sports Net Florida, as well as Cablevision New York Group's Madison Square Garden Network.

One source said that Rainbow's affiliate-sales force had been lenient with Adelphia because Cablevision chairman Chuck Dolan was a close friend of Adelphia founder and ex-CEO John Rigas.

"They [Rainbow] were told to back off Adelphia, so they let it slide," the source said.

Cablevision's only official comment came in its SEC filing: "The company intends to closely monitor the bankruptcy proceedings and vigorously pursue its payment rights."

The Walt Disney Co.'s fully owned networks, Disney Channel and ESPN, are owed a combined $14.2 million. Disney Channel is due $7.3 million, and ESPN $6.9 million. Disney also owns half of Lifetime Television, which is owed $4.1 million. Lifetime, ESPN and Disney's ABC Cable Networks Group declined to comment.

Adelphia has racked up $12.2 million in bills to NBC Cable, with $7.1 million owed to CNBC and $5.1 million to MSNBC. USA Network is owed $5 million. NBC Cable couldn't be reached for comment and USA declined comment.

Starz Encore Group LLC is also on the creditor list, for $11.2 million, as is pay-per-view purveyor In Demand, for $4.2 million.

Satellite Service Inc., the programming arm of AT&T Broadband, is owed $11.1 million. The MSO is Adelphia's joint-venture partner in a number of cable systems. In those systems, SSI would pay programmers and then supposedly be reimbursed by Adelphia.

SOME PAYMENTS MADE

Conspicuously missing from Adelphia's leading creditor list: Fox Cable Networks Group and Discovery Networks U.S. In Discovery's case, Adelphia has contracts with the programmer through the National Cable Television Cooperative, according to Bill Goodwyn, Discovery's executive vice president of affiliate sales and marketing.

The NCTC handles the administration and payment of license fees to programmers like Discovery, and is then reimbursed by members such as Adelphia. And the co-op pays its bills on time.

In Fox Cable's case, it has been vigilant keeping in touch with Adelphia, and part of that has been an effort to keep the MSO's license-fee payments as current as possible. Lindsay Gardner, Fox Cable executive vice president of affiliate sales and marketing, said he and his team have been to Coudersport six times over the past 18 months.

Over the past few weeks, Fox Cable and Turner have received sizable payments from Adelphia, according to sources. Some cable-network officials last week argued that under bankruptcy law, payments made to vendors within the 90 days before a Chapter 11 filing are considered "preferential treatment," and must go back into the funds that the MSO will use to pay its debts.

That's why programmers haven't taken any legal action to collect their money from Adelphia.

"Last month, we did receive a check for a few million dollars from Adelphia," Gardner said. "We considered it a good sign that Adelphia took its obligation seriously."

But Gardner doesn't believe that payment will have to be given back under the "preferential treatment" provision. He added that Adelphia still owes Fox Cable some money.

Turner has declined any comment on Adelphia.

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