Charter 2005 Annual Report Download - page 156

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
content relating to technology and video gaming for Charter’s per share of Oxygen Media common stock on the conversion
interactive television platforms through December 31, 2006 date.
(exclusive for the first year). For the years ended December 31, The Company recognized the guaranteed value of the
2005 and 2004, the Company recognized approximately $1 mil- investment over the life of the carriage agreement as a reduction
lion and $5 million, respectively, of the Vulcan Programming of programming expense. For the years ended December 31,
payment as an offset to programming expense. 2005, 2004 and 2003, the Company recorded approximately
$2 million, $13 million, and $9 million, respectively, as a
Oxygen. Oxygen Media LLC (‘‘Oxygen’’) provides programming reduction of programming expense. The carrying value of the
content aimed at the female audience for distribution over cable Company’s investment in Oxygen was approximately $33 mil-
systems and satellite. On July 22, 2002, Charter Holdco entered lion and $32 million as of December 31, 2005 and 2004,
into a carriage agreement with Oxygen whereby the Company respectively.
agreed to carry programming content from Oxygen. Under the
carriage agreement, the Company currently makes Oxygen Digeo, Inc. In March 2001, Charter Ventures and Vulcan
programming available to approximately 5 million of its video Ventures Incorporated formed DBroadband Holdings, LLC for
customers. In August 2004, Charter Holdco and Oxygen entered the sole purpose of purchasing equity interests in Digeo. In
into agreements that amended and renewed the carriage connection with the execution of the broadband carriage
agreement. The amendment to the carriage agreement agreement, DBroadband Holdings, LLC purchased an equity
(a) revised the number of the Company’s customers to which interest in Digeo funded by contributions from Vulcan Ventures
Oxygen programming must be carried and for which the Incorporated. The equity interest is subject to a priority return
Company must pay, (b) released Charter Holdco from any of capital to Vulcan Ventures up to the amount contributed by
claims related to the failure to achieve distribution benchmarks Vulcan Ventures on Charter Ventures’ behalf. After Vulcan
under the carriage agreement, (c) required Oxygen to make Ventures recovers its amount contributed and any cumulative
payment on outstanding receivables for launch incentives due to loss allocations, Charter Ventures has a 100% profit interest in
the Company under the carriage agreement; and (d) requires DBroadband Holdings, LLC. Charter Ventures is not required to
that Oxygen provide its programming content to the Company make any capital contributions, including capital calls to Digeo.
on economic terms no less favorable than Oxygen provides to DBroadband Holdings, LLC is therefore not included in the
any other cable or satellite operator having fewer subscribers Company’s consolidated financial statements. Pursuant to an
than the Company. The renewal of the carriage agreement amended version of this arrangement, in 2003, Vulcan Ventures
(a) extends the period that the Company will carry Oxygen contributed a total of $29 million to Digeo, $7 million of which
programming to its customers through January 31, 2008, and was contributed on Charter Ventures’ behalf, subject to Vulcan
(b) requires license fees to be paid based on customers receiving Ventures’ aforementioned priority return. Since the formation of
Oxygen programming, rather than for specific customer DBroadband Holdings, LLC, Vulcan Ventures has contributed
benchmarks. For the years ended December 31, 2005, 2004 and approximately $56 million on Charter Ventures’ behalf.
2003, the Company paid Oxygen approximately $9 million, On September 27, 2001, Charter and Digeo Interactive
$13 million and $9 million, respectively. In addition, Oxygen amended the broadband carriage agreement. According to the
pays the Company launch incentives for customers launched amendment, Digeo Interactive would provide to Charter the
after the first year of the term of the carriage agreement up to a content for enhanced ‘‘Wink’’ interactive television services,
total of $4 million. The Company recorded approximately known as Charter Interactive Channels (‘‘i-channels’’). In order
$0.1 million related to these launch incentives as a reduction of to provide the i-channels, Digeo Interactive sublicensed certain
programming expense for the year ended December 31, 2005 Wink technologies to Charter. Charter is entitled to share in the
and $1 million for each of the years ended December 31, 2004 revenues generated by the i-channels. Currently, the Company’s
and 2003, respectively. digital video customers who receive i-channels receive the
In August 2004, Charter Holdco and Oxygen also amended service at no additional charge.
the equity issuance agreement to provide for the issuance of On September 28, 2002, Charter entered into a second
1 million shares of Oxygen Preferred Stock with a liquidation amendment to its broadband carriage agreement with Digeo
preference of $33.10 per share plus accrued dividends to Charter Interactive. This amendment superseded the amendment of
Holdco on February 1, 2005 in place of the $34 million of September 27, 2001. It provided for the development by Digeo
unregistered shares of Oxygen Media common stock required Interactive of future features to be included in the Basic i-TV
under the original equity issuance agreement. Oxygen Media service to be provided by Digeo and for Digeo’s development of
delivered these shares in March 2005. The preferred stock is an interactive ‘‘toolkit’’ to enable Charter to develop interactive
convertible into common stock after December 31, 2007 at a local content. Furthermore, Charter could request that Digeo
conversion ratio, the numerator of which is the liquidation Interactive manage local content for a fee. The amendment
preference and the denominator which is the fair market value provided for Charter to pay for development of the Basic i-TV
service as well as license fees for customers who would receive
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