Charter 2004 Annual Report Download - page 141

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2004 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Mr. Allen and his affiliates have made, and in the future number of or fewer TechTV viewing customers. Additionally,
likely will make, numerous investments outside of the Company pursuant to the affiliation agreement, the Company was entitled
and its business. The Company cannot assure that, in the event to incentive payments for channel launches through Decem-
that the Company or any of its subsidiaries enter into ber 31, 2003.
transactions in the future with any affiliate of Mr. Allen, such In March 2004, Charter Holdco entered into agreements
transactions will be on terms as favorable to the Company as with Vulcan Programming and TechTV, which provide for
terms it might have obtained from an unrelated third party. (i) Charter Holdco and TechTV to amend the affiliation
Also, conflicts could arise with respect to the allocation of agreement which, among other things, revises the description of
corporate opportunities between the Company and Mr. Allen the TechTV network content, provides for Charter Holdco to
and his affiliates. The Company has not instituted any formal waive certain claims against TechTV relating to alleged
plan or arrangement to address potential conflicts of interest. breaches of the affiliation agreement and provides for TechTV
High Speed Access Corp. (‘‘High Speed Access’’) was a to make payment of outstanding launch receivables due to
provider of high-speed Internet access services over cable Charter Holdco under the affiliation agreement, (ii) Vulcan
modems. During the period from 1997 to 2000, certain Charter Programming to pay approximately $10 million and purchase
entities entered into Internet-access related service agreements, over a 24-month period, at fair market rates, $2 million of
and both Vulcan Ventures, an entity owned by Mr. Allen, and advertising time across various cable networks on Charter cable
Charter Holdco made equity investments in High Speed Access. systems in consideration of the agreements, obligations, releases
On February 28, 2002, Charter’s subsidiary, CC Systems, and waivers under the agreements and in settlement of the
purchased from High Speed Access the contracts and associated aforementioned claims and (iii) TechTV to be a provider of
assets, and assumed related liabilities, that served the Company’s content relating to technology and video gaming for Charter’s
customers, including a customer contact center, network opera- interactive television platforms through December 31, 2006
tions center and provisioning software. Immediately prior to the (exclusive for the first year). For the year ended December 31,
asset purchase, Vulcan Ventures beneficially owned approxi- 2004, the Company recognized approximately $5 million of the
mately 37%, and the Company beneficially owned approxi- Vulcan Programming payment as an offset to programming
mately 13%, of the common stock of High Speed Access expense and paid approximately $2 million to Tech TV under
(including the shares of common stock which could be acquired the affiliation agreement.
upon conversion of the Series D preferred stock, and upon Oxygen. Concurrently with the execution of a carriage agree-
exercise of the warrants owned by Charter Holdco). Following
ment, Charter Holdco entered into an equity issuance agreement
the consummation of the asset purchase, neither the Company
pursuant to which Oxygen Media LLC’s (‘‘Oxygen’’) parent
nor Vulcan Ventures beneficially owned any securities of, or
company, Oxygen Media Corporation (‘‘Oxygen Media’’),
were otherwise affiliated with, High Speed Access.
granted a subsidiary of Charter Holdco a warrant to
The Company receives or will receive programming for
purchase 2.4 million shares of common stock of Oxygen Media
broadcast via its cable systems from TechTV (now G4), USA
for an exercise price of $22.00 per share. In February 2005, the
Networks, Oxygen Media, Trail Blazers Inc. and Action Sports.
warrant expired unexercised. Charter Holdco was also to receive
The Company pays a fee for the programming service generally
unregistered shares of Oxygen Media common stock with a
based on the number of customers receiving the service. Such
guaranteed fair market value on the date of issuance of
fees for the years ended December 31, 2004, 2003 and 2002
$34 million, on or prior to February 2, 2005 with the exact date
were each less than 1% of total operating expenses with the
to be determined by Oxygen Media, but this commitment was
exception of USA Networks which was 2%, 2% and 2% of total
later revised as discussed below.
operating expenses for the years ended December 31, 2004,
The Company recognizes the guaranteed value of the
2003 and 2002, respectively. In addition, the Company receives
investment over the life of the carriage agreement as a reduction
commissions from USA Networks for home shopping sales
of programming expense. For the years ended December 31,
generated by its customers. Such revenues for the years ended
2004, 2003 and 2002, the Company recorded approximately
December 31, 2004, 2003 and 2002 were less than 1% of total
$13 million, $9 million, and $6 million, respectively, as a
revenues. On November 5, 2002, Action Sports announced that
reduction of programming expense. The carrying value of the
it was discontinuing its business. The Company believes that the
Company’s investment in Oxygen was approximately $32 mil-
failure of Action Sports will not materially affect the Company’s
lion and $19 million as of December 31, 2004 and 2003,
business or results of operations.
respectively.
Tech TV. The Company receives from TechTV programming
In August 2004, Charter Holdco and Oxygen entered into
for distribution via its cable system pursuant to an affiliation
agreements that amended and renewed the carriage agreement.
agreement. The affiliation agreement provides, among other
The amendment to the carriage agreement (a) revises the
things, that TechTV must offer Charter certain terms and
number of the Company’s customers to which Oxygen pro-
conditions that are no less favorable in the affiliation agreement
gramming must be carried and for which the Company must
than are given to any other distributor that serves the same
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