Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies.

Commitments and Contingencies

Note 10 — Commitments and Contingencies

Programming Agreements — We obtain non-exclusive rights to show recently released major motion pictures from motion picture studios pursuant to an agreement with each studio, which is typically two to five years in length.  The royalty rate for each movie is predetermined, with the studio receiving a percentage of the gross revenue from the movie.  For our television on-demand programming, we obtain rights to release television on-demand content, for which we pay a predetermined percentage of gross revenue or a one-time fixed fee.  In addition, we obtain non-exclusive rights to cable or premium television programming through an agreement with a third-party provider, whereby we pay a fixed monthly fee.  We obtain independent films, most of which are non-rated and intended for mature audiences, for a one-time fixed fee.  We also have rights to digital music content through our wholly-owned subsidiary.  We obtain our selection of Nintendo video games pursuant to a non-exclusive license agreement with Nintendo.  Under the terms of the agreement, we pay a monthly fee based on revenue generated from Nintendo video game services.  For our Hotel SportsNETSM programming, we obtain the rights to exhibit on-demand sporting event content for which we pay a predetermined percentage of gross revenue, subject to a minimum guarantee.  These agreements contain various restrictions, including default and termination procedures.

Minimum Guarantees — In connection with our programming-related agreements, we may guarantee minimum royalties for specific periods or by individual programming content.  Generally, our programming contracts are two to five years in length.  The unpaid balance of programming-related minimum guarantees, reflected as a liability in our Consolidated Balance Sheet as of December 31, 2011, was approximately $0.9 million.  Additionally, purchase commitments are made as a result of long-term agreements with our vendors.  At December 31, 2011, our programming-related guarantees and purchase obligations were $12.6 million, including the amount noted above.

Operating Leases — We have entered into certain operating leases which, at December 31, 2011, require future minimum lease payments as follows: 2012 — $1.1 million; 2013 — $0.7 million; 2014 — $0.3 million; 2015 — $0.3 million; and 2016 — $0.1 million.  The leases, which relate to combination warehouse/office facilities for service operations or administrative offices for our subsidiaries, expire at dates ranging from 2012 to 2016.  Rental expense under all operating leases was $1.6 million, $2.0 million and $2.0 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Legal Proceedings — We are subject to litigation arising in the ordinary course of business. We believe the resolution of such litigation will not have a material adverse effect upon our financial condition, results of operations or cash flows.

On July 11, 2008, LinkSmart Wireless Technology, LLC, a California limited liability company based in Pasadena, California, filed several actions for patent infringement in the U.S. District Court in Marshall, Texas.  The suits allege the Company and numerous other defendants infringe a patent issued on August 17, 2004, entitled “User Specific Automatic Data Redirection System.”  All pending cases have been consolidated.  The complaint does not specify an amount in controversy.  The Company believes it does not infringe the patent in question, has filed responsive pleadings and is vigorously defending the action.  The case was stayed in October 2010, pending a re-examination of the patent by the U.S. Patent and Trademark Office (the “PTO”).  In January 2012, the PTO issued a notice it intended to re-issue the patent with certain claims canceled, other claims confirmed, and other claims modified.  In February 2012, the Court removed the stay, but in light of the substantial changes to the patent, cleared the docket by denying all outstanding motions without prejudice.  The parties are in the process of examining the case in light of the significant revisions to the patent.  The Company believes the changes to the scope of the patent may reduce or eliminate liability for past infringement, and the patent as amended remains subject to further review by the PTO and by the Court.  As a result of these events, the case remains at a very preliminary stage, and the Company believes any possible loss would be immaterial to the consolidated financial position, results of operations or cash flows.