KHON-TV in $10M dispute
The station's buyers say the seller violated a deal with Fox
The new owner of KHON-TV has accused its former owner of violating the affiliation agreement with Fox Broadcasting Co. and is claiming damages in excess of $10 million.
Emmis Communications Corp. disclosed the allegation in its 10-Q report filed with the U.S. Securities and Exchange Commission July 10, for the period ending May 31.
The allegations and damage claim were contained in a letter sent to Emmis on behalf of SJL Acquisition LLC, now more widely known as Montecito Broadcast Group.
In the filing, Emmis said it "disputes the allegations and intends to defend itself vigorously in the matter."
Montecito Chief Executive Officer George Lilly did not respond to inquiries and KHON President and General Manager Joe McNamara had no comment.
Former KHON Senior Vice President and General Manager Rick Blangiardi also had no comment.
A source familiar with the matter says SJL/Montecito is accusing KHON of running local commercials over network commercials and programs, a practice known as network clipping that allegedly earned the station more than $800,000 in additional revenue.
SJL alleges that the additional income inflated the station's broadcast cash flow and therefore, the purchase price it paid for the station.
However, SJL's supporting documentation did not substantiate the allegation, according to the source.
Broadcast stations must provide affidavits to program providers and advertisers to show what aired and when.
"The claim is ridiculous," said Emmis spokeswoman Jodi Wright. "We have no evidence that this was taking place at KHON and intend to vigorously contest the matter should they decide to litigate."
Thus far no lawsuit has been filed.
KHON switched to Fox affiliation from NBC in 1996, following a station sale.
Emmis then took its first foray into television ownership with the $307 million purchase of KHON and three other stations from Barry Diller's SF Broadcasting in 1998.
In 2000, Emmis bought further into television in a 15-station deal with Iowa-based Lee Enterprises Inc., a deal that included KGMB-TV.
In 2005, Emmis sold KHON and three sister stations to affiliates of private equity firm Blackstone Group and SJL for $259 million.
KGMB was purchased in a separate deal earlier this year by HITV Operating Co. Inc., a subsidiary of Virginia-based MCG Capital Corp.