Charter 2005 Annual Report Download - page 106

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
interactive television platforms through December 31, 2006 approximately $2 million as a reduction of programming
(exclusive for the first year). For the year ended December 31, expense. The carrying value of our investment in Oxygen was
2005, we recognized approximately $1 million of the Vulcan approximately $33 million as of December 31, 2005.
Programming payment as an offset to programming expense. As of December 31, 2005, through Vulcan Programming,
We believe that Vulcan Programming, which is 100% Mr. Allen owned an approximate 31% interest in Oxygen
owned by Mr. Allen, owned an approximate 98% equity interest assuming no exercises of outstanding warrants or conversion or
in TechTV at the time Vulcan Programming sold TechTV to an exchange of convertible or exchangeable securities. Ms. Jo Allen
unrelated third party in May 2004. Patton is a director and the President of Vulcan Programming.
Mr. Lance Conn is a Vice President of Vulcan Programming.
Oxygen Media Corporation Marc Nathanson has an indirect beneficial interest of less than
Oxygen Media LLC (‘‘Oxygen’’) provides programming content 1% in Oxygen.
aimed at the female audience for distribution over cable systems
and satellite. On July 22, 2002, Charter Holdco entered into a Portland Trail Blazers
carriage agreement with Oxygen, whereby we agreed to carry On October 7, 1996, the former owner of our Falcon cable
programming content from Oxygen. Under the carriage agree- systems entered into a letter agreement and a cable television
ment, we currently make Oxygen programming available to agreement with Trail Blazers Inc. for the cable broadcast in the
approximately 5 million of our video customers. In August 2004, metropolitan area surrounding Portland, Oregon of pre-season,
Charter Holdco and Oxygen entered into agreements that regular season and playoff basketball games of the Portland Trail
amended and renewed the carriage agreement. The amendment Blazers, a National Basketball Association basketball team.
to the carriage agreement (a) revised the number of our Mr. Allen is the 100% owner of the Portland Trail Blazers and
customers to which Oxygen programming must be carried and Trail Blazers Inc. Under the letter agreement, Trail Blazers Inc.
for which we must pay, (b) released Charter Holdco from any was paid a fixed fee for each customer in areas directly served
claims related to the failure to achieve distribution benchmarks by the Falcon cable systems. Under the cable television
under the carriage agreement, (c) required Oxygen to make agreement, we shared subscription revenues with Trail Blazers
payment on outstanding receivables for launch incentives due to Inc. We paid approximately $116,500 for the year ended
us under the carriage agreement; and (d) requires that Oxygen December 31, 2005 in connection with the cable broadcast of
provide its programming content to us on economic terms no Portland Trail Blazers basketball games under the October 1996
less favorable than Oxygen provides to any other cable or cable television agreement and subsequent local cable distribu-
satellite operator having fewer subscribers than us. The renewal tion agreements.
of the carriage agreement (a) extends the period that we will Digeo, Inc.
carry Oxygen programming to our customers through Janu- In March 2001, a subsidiary of Charter, Charter Communica-
ary 31, 2008, and (b) requires license fees to be paid based on tions Ventures, LLC (‘‘Charter Ventures’’) and Vulcan Ventures
customers receiving Oxygen programming, rather than for Incorporated formed DBroadband Holdings, LLC for the sole
specific customer benchmarks. For the year ended December 31, purpose of purchasing equity interests in Digeo, Inc. (‘‘Digeo’’),
2005, we paid Oxygen approximately $9 million for program- an entity controlled by Paul Allen. In connection with the
ming content. In addition, Oxygen pays us launch incentives for execution of the broadband carriage agreement, DBroadband
customers launched after the first year of the term of the Holdings, LLC purchased an equity interest in Digeo funded by
carriage agreement up to a total of $4 million. We recorded contributions from Vulcan Ventures Incorporated. The equity
approximately $0.1 million related to these launch incentives as interest is subject to a priority return of capital to Vulcan
a reduction of programming expense for the year ended Ventures up to the amount contributed by Vulcan Ventures on
December 31, 2005. Charter Ventures’ behalf. After Vulcan Ventures recovers its
In August 2004, Charter Holdco and Oxygen amended an amount contributed and any cumulative loss allocations, Charter
equity issuance agreement to provide for the issuance of Ventures has a 100% profit interest in DBroadband Holdings,
1 million shares of Oxygen Preferred Stock with a liquidation LLC. Charter Ventures is not required to make any capital
preference of $33.10 per share plus accrued dividends to Charter contributions, including capital calls to Digeo. DBroadband
Holdco in place of the $34 million of unregistered shares of Holdings, LLC is therefore not included in our accompanying
Oxygen Media common stock required under the original equity consolidated financial statements. Pursuant to an amended
issuance agreement. Oxygen Media delivered these shares in version of this arrangement, in 2003, Vulcan Ventures contrib-
March 2005. The preferred stock is convertible into common uted a total of $29 million to Digeo, $7 million of which was
stock after December 31, 2007 at a conversion ratio, the contributed on Charter Ventures’ behalf, subject to Vulcan
numerator of which is the liquidation preference and the Ventures’ aforementioned priority return. Since the formation of
denominator which is the fair market value per share of Oxygen DBroadband Holdings, LLC, Vulcan Ventures has contributed
Media common stock on the conversion date. approximately $56 million on Charter Ventures’ behalf.
We recognized the guaranteed value of the investment over On March 2, 2001, Charter Ventures entered into a
the life of the carriage agreement as a reduction of programming broadband carriage agreement with Digeo Interactive, LLC
expense. For the year ended December 31, 2005, we recorded (‘‘Digeo Interactive’’), a wholly owned subsidiary of Digeo. The
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