Charter 2004 Annual Report Download - page 97

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
He remained a director of TechTV along with Mr. Allen until In August 2004, Charter Holdco and Oxygen also amended
Vulcan Programming sold TechTV. the equity issuance agreement to provide for the issuance of
1 million shares of Oxygen Preferred Stock with a liquidation
Oxygen Media Corporation
preference of $33.10 per share plus accrued dividends to Charter
Oxygen Media LLC (‘‘Oxygen’’) provides programming content Holdco on February 1, 2005 in place of the $34 million of
aimed at the female audience for distribution over cable systems unregistered shares of Oxygen Media common stock. Oxygen
and satellite. On July 22, 2002, Charter Holdco entered into a Media will deliver these shares in March 2005. The preferred
carriage agreement with Oxygen, whereby we agreed to carry stock is convertible into common stock after December 31, 2007
programming content from Oxygen. Under the carriage agree- at a conversion ratio, the numerator of which is the liquidation
ment, we currently make Oxygen programming available to preference and the denominator which is the fair market value
approximately 5 million of our video customers. The term of the per share of Oxygen Media common stock on the conversion
carriage agreement was retroactive to February 1, 2000, the date date.
of launch of Oxygen programming by us, and was to run for a As of December 31, 2004, through Vulcan Programming,
period of five years from that date. For the year ended Mr. Allen owned an approximate 31% interest in Oxygen
December 31, 2004, we paid Oxygen approximately $13 million assuming no exercises of outstanding warrants or conversion or
for programming content. In addition, Oxygen pays us market- exchange of convertible or exchangeable securities. Ms. Jo Allen
ing support fees for customers launched after the first year of Patton is a director and the President of Vulcan Programming.
the term of the carriage agreement up to a total of $4 million. Mr. Lance Conn is a Vice President of Vulcan Programming.
We recorded approximately $1 million related to these launch Marc Nathanson has an indirect beneficial interest of less than
incentives as a reduction of programming expense for the year 1% in Oxygen.
ended December 31, 2004. Portland Trail Blazers
Concurrently with the execution of the carriage agreement, On October 7, 1996, the former owner of our Falcon cable
Charter Holdco entered into an equity issuance agreement systems entered into a letter agreement and a cable television
pursuant to which Oxygen’s parent company, Oxygen Media agreement with Trail Blazers Inc. for the cable broadcast in the
Corporation (‘‘Oxygen Media’’), granted a subsidiary of Charter metropolitan area surrounding Portland, Oregon of pre-season,
Holdco a warrant to purchase 2.4 million shares of Oxygen regular season and playoff basketball games of the Portland Trail
Media common stock for an exercise price of $22.00 per share. Blazers, a National Basketball Association basketball team.
In February 2005, this warrant expired unexercised. Charter Mr. Allen is the 100% owner of the Portland Trail Blazers and
Holdco was also to receive unregistered shares of Oxygen Trail Blazers Inc. After the acquisition of the Falcon cable
Media common stock with a guaranteed fair market value on systems in November 1999, we continued to operate under the
the date of issuance of $34 million, on or prior to February 2, terms of these agreements until their termination on Septem-
2005, with the exact date to be determined by Oxygen Media, ber 30, 2001. Under the letter agreement, Trail Blazers Inc. was
but this commitment was later revised as discussed below. paid a fixed fee for each customer in areas directly served by the
We recognize the guaranteed value of the investment over Falcon cable systems. Under the cable television agreement, we
the life of the carriage agreement as a reduction of programming shared subscription revenues with Trail Blazers Inc. We paid
expense. For the year ended December 31, 2004, we recorded approximately $96,100 for the year ended December 31, 2004 in
approximately $13 million as a reduction of programming connection with the cable broadcast of Portland Trail Blazers
expense. The carrying value of our investment in Oxygen was basketball games under the October 1996 cable television
approximately $32 million as of December 31, 2004. agreement and subsequent local cable distribution agreements.
In August 2004, Charter Holdco and Oxygen entered into
agreements that amended and renewed the carriage agreement. Digeo, Inc.
The amendment to the carriage agreement (a) revises the In March 2001, Charter Ventures and Vulcan Ventures Incorpo-
number of our customers to which Oxygen programming must rated formed DBroadband Holdings, LLC for the sole purpose
be carried and for which we must pay, (b) releases Charter of purchasing equity interests in Digeo. In connection with the
Holdco from any claims related to the failure to achieve execution of the broadband carriage agreement, DBroadband
distribution benchmarks under the carriage agreement, Holdings, LLC purchased an equity interest in Digeo funded by
(c) requires Oxygen to make payment on outstanding receiv- contributions from Vulcan Ventures Incorporated. The equity
ables for marketing support fees due to us under the carriage interest is subject to a priority return of capital to Vulcan
agreement; and (d) requires that Oxygen provide its program- Ventures up to the amount contributed by Vulcan Ventures on
ming content to us on economic terms no less favorable than Charter Ventures’ behalf. After Vulcan Ventures recovers its
Oxygen provides to any other cable or satellite operator having amount contributed and any cumulative loss allocations, Charter
fewer subscribers than us. The renewal of the carriage agree- Ventures has a 100% profit interest in DBroadband Holdings,
ment (a) extends the period that we will carry Oxygen LLC. Charter Ventures is not required to make any capital
programming to our customers through January 31, 2008, and contributions, including capital calls, and may require Vulcan
(b) requires license fees to be paid based on customers receiving Ventures, through January 24, 2004, to make certain additional
Oxygen programming, rather than for specific customer contributions through DBroadband Holdings, LLC to acquire
benchmarks. additional equity in Digeo as necessary to maintain Charter
Ventures’ pro rata interest in Digeo in the event of certain future
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