Well, the love is sure gone between DirecTV and soon-to-be-shut-down Gems TV.
Gems TV made its U.S. debut on DirecTV in November 2006. At that time, DirecTV lauded the network.
“[GemsTV’s] innovative reverse-auction format is unprecedented in the history of American television and offers viewers a fun and easy way to shop for high-quality gemstone jewelry from the comfort of their own homes,” said DirecTV EVP of programming acquisitions Dan Fawcett, a straight-up guy who we know from our days covering cable.
But that was then, and now is now.
Before Gems TV, which is ceasing operations, filed for Chapter 11 bankruptcy protection on Monday, DirecTV had already been in court and won a restraining order barring the home shopping network from taking any action that would leave the channel with less than $25 million in money or assets, until further order of the court. Presumably, DirecTV believes it is owed that same $25 million.
DirecTV’s lawsuit has been stayed pending the bankruptcy proceeding, but we got a look at it. Large portions of the suit have been “redacted,” or blacked out. Those include the details of DirecTV’s carriage agreement with Gems TV. The suit charges Gems TV with breach of contract and fraudulent conveyance.
Basically DirecTV, which brought Gems TV to 18 million homes, was trying to stop the network from moving all its assets to the Cayman Islands — out of the reach of creditors.
In February, Gems TV came to DirecTV and asked to renegotiate their carriage deal, telling the satellite provider that it “was losing money and might be forced to discontinue their programming activity,” according to the suit.
DirecTV refused to amend or modify the contract. On March 8, Gems TV gave DirecTV written notice that it was terminating their contract because the network was in fact going black. The satellite company says that’s a breach of contract.
In one of the exhibits, a letter dated March 19 to DirecTV’s Toby Berlin, Gems TV president (and Charter Communications alum) Diane Schneiderjohn said that under their carriage deal, the pact can be terminated if the programmer “discontinues operation and distribution of the service.”
She writes that Gems TV will cease operations April 15, and therefore there is no breach of contract.
Around this time, DirecTV learned that Gems TV was planning to invest $60 million in Multimedia Commerce Group, which operates Jewelry Television. “Gems TV thus seeks to transfer its assets in a fashion that will leave no assets available to compensate DirecTV for damages caused by Gems TV’s breach of the contract,” according to the suit.
The transfer of assets to the Cayman Islands or to invest in JTV “is undertaken in bad faith and constitutes fraudulent transfer,” DirecTV alleges.
That investment was a way for Gems TV to liquidate the rest of its inventory, by taking it to JTV, according to DirecTV’s suit.
This may all be moot now, to be decided by a bankruptcy judge. In its Chapter 11 filing, Gems TV claims to have $51.2 million in assets and $120 million in debt, all unsecured.