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HomeMy WebLinkAbout1995-06-27 - AGENDA REPORTS - CABLE TELEVISION (2)NEW BUSINESS DATE: June 27, 1995 City SUBJECT: Cable Television: Approval of transfer of control of the King Videocable Franchise from the Providence Journal Company to Continental Cablevision, Incorporated. DEPARTMENT: Public Works BACKGROUND In 1987, the County of Los Angeles granted a cable television Franchise to King Videocable Company -Newhall ("King"), King is a wholly owned subsidiary of King Videocable Company ("KVC" ), which in turn is a wholly-owned subsidiary of King Broadcasting Company ("KBC"). In 1992, the City approved the transfer of the Franchise to King Holding Corp.("KHC"), which is equally owned by the 'Providence Journal Company (PJC) and Kelso Partners IV, L.P. ("Kelso"). On February 27, 1995, Continental Communications, Inc., the third largest cable operator in the country, filed an application with the City seeking to acquire control of King. The City must review the transfer request and either approve or deny it. In connection with reviewing the proposed transfer, the City has identified three areas of concern. The fust is a Franchise compliance issue concerning payment of Franchise fees, and the second is in regards to public broadcast capabilities from City Hall. The third concern deals with the amount of Possessory Interest Tax currently being charged to subscribers. In order to resolve these issues with King, it is proposed that the City enter into a settlement agreement prior to acting on the Transfer. The principal provisions of the settlement agreement will be to: change the method of calculating the advertising revenues King reports to the City to be included as part of gross revenues subject to the 5% Franchise fee. This will increase S*y kWMSAjd 1. Continued To; o- v-4921`Item: future Franchise fees to the City by at least $12,500 per year; • require King to install remote controlled video cameras and other broadcast equipment in the Council Chambers; • require King to install a trunk from the Council Chambers to the system head -end, to permit the live broadcast of City Council meetings; • require King to reduce the amount charged for Possessory Interest Taxes. Continental has a good industry reputation and is well qualified to operate the cable system. It is further recommended that the City Council approve the Franchise transfer to Continental from Providence Journal Company, along with the Settlement Agreement as outlined above. Approve the Settlement Agreement between the City and King subject to revision and City Attorney approval. 2. Adopt the Resolution N 95-89 subject to revision and City Attorney approval. ATTACHMENTS The following attachments can be located in the reading file: - Transaction Information - Summary of Social Contract S;�p4 k`0IMAJ'j SETTLEMENT AGREEMENT BETWEEN THE CITY OF SANTA CLARITA AND KING VIDEOCABLE COMPANY-NEWHALL REGARDING CABLE TELEVISION FRANCHISE OBLIGATIONS WHEREAS, on September 29, 1987, the Board of Supervisors of the County of Los Angeles, pursuant to Section 16.58.010 of the Los Angeles County Code (the "Cable Television Ordinance"), adopted Ordinance No. 87-1069F (the "Franchise Ordinance") granting King Videocable Company -Newhall ("King or Grantee"), a cable television franchise to construct, operate and maintain a cable television system. The Cable Television Ordinance and the Franchise Ordinance constitute and hereinafter will be referred to as the "Franchise"; WHEREAS, on December 15, 1987, the City of Santa Clarita was incorporated. Following incorporation, the City codified the Cable Television Ordinance at Chapter 4.10 of the Santa Clarita Municipal Code, and readopted and amended the Franchise Ordinance pursuant to City Ordinance No. 88-27; WHEREAS, King is a wholly-owned subsidiary of King Videocable Company ("KVC"), which in turn is a wholly-owned subsidiary of King Broadcasting Company ("KBC")• WHEREAS, pursuant to Resolution No. 92-14, the City approved the transfer of - control of the Franchise, whereby King Holding Corp. ("KHC"), which is equally owned by the Providence Journal Company and Kelso Partners IV, L.P.("Kelso"), became the owner of the stock of KBC; WHEREAS, PJC wholly owns and controls Colony Interconnect, Inc. ("Interconnect"). Grantee sells advertising time to Interconnect, which then sells it to advertisers. Grantee only reports approximately 20 % of the net advertising revenues received by Interconnect as gross revenues subject to the City franchise fee, although Section 4.10.020 of the Cable Television Ordinance provides that advertising receipts relating directly or indirectly Grantee's franchise activities and operations are to be included as part of gross revenues; WHEREAS, there is a good faith disagreement between the City and Grantee regarding the inclusion of Interconnect advertising sales as part of gross revenues for purposes of the franchise fee and whether subscribers' payments to Grantee for the possessory interest tax, franchise fee, and FCC regulatory fee are part of gross revenues subject to the franchise fee; and ��. � S:�"kabb�061995A.jry' 1 WHEREAS, there is an additional good faith disagreement between the City and Grantee regarding compliance with the Franchise requirements concerning the public, educational and governmental ("PEG") access equipment and facilities presently offered by the Grantee meets the demands, needs and interests of the community; WHEREAS, Grantee and City desire that there be no further disputes by and between them regarding the above -referenced terms and conditions of the Franchise. NOW, THEREFORE, City and Grantee agree as follows: A. Grantee shall include in gross revenues reported to the City for the purpose of calculating franchise fee payments, all the gross revenues for advertising on Grantee's system received by any affiliate of Grantee, which is controlling, under common control with or controlled by Grantee, which is engaged in the business of selling local or regional advertising on Grantee's system. Gross revenues may be reduced by the amount of any commission paid to any advertising agency unaffiliated with Grantee. Grantee further agrees that this method of calculation of advertising fees shall be effective as of July 14, 1994, and forward. Grantee shall pay the City the currently - owed difference between the franchise fees paid and franchise fees owed pursuant to ( } the foregoing within thirty (30) days of this Agreement. Said payment shall include simple interest calculated at the same rate the Federal Internal Revenue Service applies to delinquent tax payments for the same period of time. B. Grantee shall include as part of gross revenues reported to the City for the purpose of calculating franchise fee payments all amounts itemized on subscriber bills, including, but not limited to, the possessory interest tax, the FCC regulatory fee, and public, educational and governmental access fees, unless and until the FCC orders otherwise, and all administrative and judicial appeals of the FCC order are exhausted. Should it ultimately be held that such amounts are not part of gross revenues subject to the franchise fee, then Grantee may cease including the itemized amount as part of gross revenues, provided that the City shall have no liability to Grantee for any franchise fees previously paid. - C. Grantee currently includes the franchise fee itemized on subscriber bills as part of gross revenues subject to the 5 % franchise fee. The Federal Communications Commission ("FCC") is currently considering whether the franchise fee itemized on subscriber bills may be included as part of gross revenues for purposes of calculating the franchise fee owed the franchising authority in the proceeding entitled "In the Matter of United Artists Cable of Baltimore", DA 95-737 (decision of Chief of the FCC Cable Services S:\gs\c&ble\06 (995A j6 2 i Bureau, released April 6, 1995) ("In re Raltimnre"). In re Raltimnrn is on appeal. (, Grantee shall continue the practice of including the franchise fee as part of gross revenues unless and until all administrative and judicial appeals are exhausted and in In Re Raldmnre holds that the inclusion of the subscriber payment in gross revenues is preempted. Should In re Raltimnre ultimately hold that franchise fees itemized on subscriber bills may not be included as part of gross revenues subject to the franchise fee, then, notwithstanding subsection B above, Grantee may cease including the itemized franchise fee as part of gross revenues, provided that the City shall have no liability to Grantee for any franchise fees previously paid. Sertinn 2 Arrpcc Facilities and Equipment. Grantee shall pay the City $200,000 to be used for installing a cable television studio within the City Council chambers for the purposes of cablecasting City Council and other public meetings. By January 1, 1996, Grantee shall install a trunk between the City Council chambers and the cable system headend to permit line cablecasting of City Council meetings. Sertinn 't. It is understood and agreed that this Settlement Agreement represents settlement of disputed claims and is not to be construed as representing an admission on behalf of either party to this Agreement. The parties, however, intend to buy their peace and to forever resolve their differences regarding the matters more particularly identified herein above. Section 4. Failure of Grantee to comply with any material provision of this Agreement shall be grounds for the City to invoke any of the City's remedies under and in accordance with the Franchise. Section i. This Agreement shall be binding upon the successors and assigns of the parties. 1, s:kss%c&b1eW61995AJd 3 IN CESS WHEREOF, the parties hereto certify that they have read and understood all the terms and conditions contained herein and have duly authorized and caused this Settlement Agreement to be executed as of June 27, 1995. CITY OF SANTA CLARITA ATTEST: By: City Clerk APPROVED AS TO FORM: By: Carl Newton City Attorney SAP%"b1e%061995A.j4 4 0 Mayor KING VIDEOCABLE-NEWHALL By: Name:. Title:. RESOLUTION NO. 95-89 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CLARTTA, CALIFORNIA, APPROVING THE TRANSFER OF CONTROL OF A CABLE TELEVISION FRANCHISE FROM THE PROVIDENCE JOURNAL COMPANY TO CONTINENTAL CABLEVISION, INC. WHEREAS, on September 29, 1987, the Board of Supervisors of the County of Los Angeles, pursuant to Section 16.58.010 of the Los Angeles County Code (the "Cable Television Ordinance"), adopted Ordinance No. 87-1069F (the "Franchise Ordinance") granting King Videocable Company -Newhall ("King" or "Grantee"), a cable television Franchise to construct, operate and maintain a cable television system. The Cable Television Ordinance and the Franchise Ordinance constitute, and will be hereinafter referred to as the ("Franchise"); WHEREAS, on December 15, 1987, the City of Santa Clarita was incorporated. Following incorporation, the City codified the Cable Television Ordinance at Chapter 4.10 of the Santa Clarita Municipal Code, and readopted and amended the Franchise Ordinance pursuant to City Ordinance No. 88-27; WHEREAS, King is a wholly-owned subsidiary of King Videocable Company ("KVC"), which in turn is a wholly-owned subsidiary of King Broadcasting Company ("KBC"); WHEREAS, pursuant to Resolution No. 92-14, the City approved the transfer of control of the Franchise, whereby King Holding Corp.("KHC"), which is equally owned by the Providence Journal Company and Kelso Partners IV, L.P.("Kelso"), became the owner of the stock of KBC; WHEREAS, on June 27, 1995, the City and Grantee entered in an agreement entitled "Settlement Agreement between the City of Santa Clarita and King Videocable Company - Newhall, regarding Cable Television Franchise Obligations"; WHEREAS, PJC and Continental Cablevision, Inc. ("Continental") have entered into an Amended and Restated Agreement and Plan of Merger dated as of November 18, 1994 (the "Agreement"), subject to, among other considerations, any required approval of the franchising authorities with respect thereto; WHEREAS, in connection with the merger and other transactions (hereinafter referred to as the "Transaction") contemplated by the Agreement, the fifty (50%) percent interest in KHC held by Kelso will be sold to PJC; WHEREAS, Continental will be a publicly owned company; �� S:\8"kab1c\061995A.Jd WHEREAS, the effect of the Transaction will be to transfer effective control of the Grantee from PJC and Kelso to Continental; WHEREAS, the Cable Television Ordinance requires City Council consent to any transfer or change of control of the Franchise; WHEREAS, FCC Regulations (47 CFR § 76.502(1)(1)) require that in order for a cable operator to obtain City approval of a transfer or change in control of the Franchise, it must submit to the City a FCC Form 394 and any other information as may be required by the City; WHEREAS, PJC and Continental have filed a FCC Form 394 with the City requesting City Council approval of the transfer of control of the Grantee to Continental (hereinafter referred to as the "Transfer"); WHEREAS, effect of the Transaction and the Transfer will change effective control of the Grantee from PJC and Kelso to Continental; WHEREAS, in support of its Form 394 Application, PJC and Continental have submitted to the City the following documents which are on file with the City Clerk, and are collectively referred to as the "Transfer Documents": 1. Form 394 with Exhibits, filed with the City on February 28, 1995; 2. Letter with a three (3) volume appendix: from Continental to City of Santa Clarita, dated April 17, 1995: WHEREAS, the Conference Report to the 1992 Federal Cable Television Act, in discussing Franchise renewal under Section 626 of the Communications Act of 1934 (47 U.S.C. § 546) states that transferees of a cable television Franchise are not responsible for breaches of the Franchise committed by the transferor. Consequently, the City Council finds that it is necessary that all Franchise noncompliance issues be remedied prior to the Transfer; WHEREAS, the City has evaluated the Grantee's compliance with the Cable Television Ordinance and the Franchise Agreement; WHEREAS, all disputes regarding Franchise compliance have been remedied pursuant to the "Settlement Agreement between the City of Santa Clarita and King Videocable-Newhall, regarding Cable Television Franchise Obligations" (hereinafter referred to as the "Settlement Agreement"); S:\s"k"ble1061995A.jej 2 ... ` NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA CLARITA, CALIFORNIA, DOES RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. The Santa Clarita City Council finds that, based upon the representations contained in the Transfer Documents, and the terms and conditions of this Resolution, Continental will have the legal, financial, character, technical and public interest qualifications to control the Franchise. The City Council hereby approves and consents to the Transfer, subject to the Grantee complying with the terms and conditions of this Resolution. Section 2. Upon the close of the Transfer, the Grantee shall comply with and be bound by the following documents: L Chapter 4.10 of the Santa Clarita Municipal Code; 2. Los Angeles County Ordinance No. 87-1069F as readopted and amended pursuant to City Ordinance No. 88-27; 3. Resolution No. 92-14, inclusive of Exhibits A, B and C thereto; 4. Letter from Shirley Aronson to Ellie Kane, dated April 27, 1989; 5. The Settlement Agreement; and 6. This Resolution. Section 3. At the present, the City has chosen not to regulate the rates and associated equipment and installation charges for the basic service tier pursuant to Section 76.900, et sect of Title 47 of the Code of Federal Regulations (the "Rate Regulations"). This decision has been based upon the expectation that the Grantee would conform its rates and charges to the Rate Regulations. The City Council finds that the itemization on subscribers' bills of the possessory interest tax ("PIT") contrary to the Rate Regulations. Consequently, beginning July 21, 1995, Grantee shall charge subscribers a PIT of not more than $0.28 per month. Said amount shall not be increased without the approval of the City Manager. Grantee may apply for an increase in this amount by submitting documentation demonstrating an incremental -increase in the PIT since March 1994. The City Manager shall evaluate the application for an increase pursuant to same criteria and within the same time as required under the Rate Regulations. Section 4. Grantee and Continental agrees that notwithstanding Section 521 et. sect. of Title 47 of the United States Code, following the close of the Transfer, the Grantee shall assume responsibility with respect to the Franchise for all prior acts or omissions of the Grantee while `,_� i Ugsk"ble1061995A.id 3 under the control of PIC. The City Council hereby finds that the Franchise is presently in full force and effect. The City Council further finds that the Grantee is currently in compliance with the Franchise and its obligations. Section 5. Following the close of the Transfer, the Grantee, in partnership with Time -Warner Cable, shall continue to operate the existing public access studio located in Santa Clarita, California, and the related facilities required for public, educational and governmental ("PEG*) access at the same level of effort as currently provided as of the effective date of this Resolution. Said facility shall be made available for use by City residents. Section 6. Grantee and Continental shall apply to the Federal Communications Commission to extend to the City of Santa Clarita the "Social Contract," as set forth at FCC 95-137. Section 7. Failure of Grantee or Continental to comply with any material provision of this Resolution, the Settlement Agreement or the Franchise shall be grounds for the City to invoke any of the City's remedies under and in accordance with the Franchise. Section 8. The consent herein granted shall be effective upon the closing of the proposed transfer and the City shall be notified by letter directed to the City Clerk promptly upon such closing. Section 9. Grantee and Continental shall, within ninety (90) days of the adoption of this Resolution, file in the office of the City Clerk, a written Acceptance and Guarantee of this { Resolution executed in the form of Exhibit A, attached hereto. By executing and filing the Acceptance and Guarantee, Grantee accepts and Continental guarantees performance of all obligations hereunder. The Acceptance and Guarantee shall be notarized so as to indicate that the persons executing the Acceptance and Guarantee have the authority to bind Grantee and Continental. Failure of Grantee and Continental to timely file the Acceptance and Guarantee shall void the approval of the Transfer. Section 10. Grantee shall reimburse the City its reasonable administrative, accounting, consulting and legal costs incurred in processing the application for approval of the Transfer within 30 days of receiving an invoice from the City. The reimbursement amount shall not exceed Ten Thousand Dollars ($10,000). Grantee shall reimburse the City said costs regardless of whether the Transaction closes. Grantee shall not treat this obligation as an "external cost" under Title 47, Sections 76.922 and 76.925 of the Code of Federal Regulations. Section 11. The City Administrator and the City Attorney, or their designees, are hereby authorized and empowered to execute any documents necessary, in their discretion, to implement the approvals contained herein. SAgskabk1061995A.jd PASSED, APPROVED AND ADOPTED this _ day of , 1995. MAYOR, CITY OF SANTA CLARTTA ATTEST: CITY CLERK ^" SAV%cmbk5061995A.jry 5 EXHIBIT A ACCEPTANCE AND GUARANTEE OF TRANSFER OF CONTROL OF FRANCHISE King Videocable company -Newhall ("Grantee"), hereby accepts and guarantees each and every term of Resolution No. 95-89 of the City of Santa Clarita, entitled: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CLARITA, CALIFORNIA, APPROVING THE TRANSFER OF CONTROL OF A CABLE TELEVISION FRANCHISE FROM THE PROVIDENCE JOURNAL COMPANY TO CONTINENTAL CABLEVISION, INC. Grantee hereby further agrees to reimburse the City of Santa Clarita's costs in the amount of not to exceed Ten Thousand Dollars ($10,000.00) by August 1, 1995 regardless of whether the Transfer referred to in said Resolution has not closed by said date. Dated: 1995 KING VIDEOCABLE COMPANY-NEWHALL By: Name: Title: Continental Cablevision, Inc. ("Continental"), hereby unconditionally guarantees each and every term of Resolution No. 95-89 of the City of Santa Clarita, entitled: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA CLARITA, CALIFORNIA, APPROVING THE TRANSFER OF CONTROL OF A CABLE TELEVISION FRANCHISE FROM THE PROVIDENCE JOURNAL COMPANY TO CONTINENTAL, CABLEVISION, INC. J S:*k"b1ck061995A.j6 6 " -.� Continental hereby waives any right to require the City to proceed first against Grantee or % pursue any other remedy in City's power. Dated: , 1995 Name: Title: `-! S:1pbabkV061995Ajj 7 CONTINENTAL CABLEVISION, INC.