DOJ Sues DirecTV Over Blackout Of SportsNet LA

Image courtesy of Atwater Village Newbie

The Justice Department has filed a lawsuit against DirecTV, alleging that the nation’s largest satellite TV provider illegally shared non-public information with other pay-TV companies about their negotiations to carry SportsNet LA, the only cable channel in Los Angeles to air most Dodgers games.

SportsNet LA is co-owned by Time Warner Cable (now Charter) and Guggenheim Baseball Management, better known as the Los Angeles Dodgers ownership group. TWC was also — until its merger with Charter — the only provider in the city to offer SportsNet LA. It still is not available to satellite, fiber, or subscribers to Cox cable service in the Los Angeles area.

Given the Dodgers’ success in recent years, and the team’s perennial appeal to baseball fans, the other pay-TV providers wanted to carry SportsNet LA, but TWC was reportedly demanding too high of a price, or refusing to let these other providers put the channel on a non-basic, premium service tier.

Negotiations between pay-TV providers and networks are supposed to be kept quiet, but according to the DOJ’s complaint [PDF], filed this morning in a federal court in California, DirecTV acted as the “ringleader” of an information sharing agreement between itself, Cox, AT&T (before it bought DirecTV) and a pre-merger Charter — an alleged violation of the Sherman Antitrust Act.

The lawsuit alleges that starting in 2014, DirecTV Chief Content Officer Daniel York exchanged competitively-sensitive information with other executives at these companies about their negotiations with SportsNet LA (referred to as the “Dodgers Channel” throughout the complaint).

“These unlawful exchanges were intended to reduce each rival’s fear that competitors would carry the Dodgers Channel, thereby providing DIRECTV and its competitors artificially enhanced bargaining leverage to force TWC to accept their terms,” reads the complaint.

Because each of the players now had some idea where each of the other companies stood in their negotiations, the DOJ contends that it became less likely for any one of the providers to actually reach a deal with TWC.

“[T]hey no longer had to fear that a decision to refrain from carriage would result in subscribers switching to a competitor that offered the channel,” explains the DOJ in the lawsuit.

In other words, if you know your competition isn’t going to offer the product, you don’t have any immediate reason to offer it.

As the DOJ notes in the complaint, knowing DirecTV’s negotiation status is the biggest component to this alleged collusion. As a satellite provider that isn’t restrained by having to connect to a physical network of cables, DirecTV competes with virtually all pay-TV providers, whereas terrestrial cable companies like TWC, Cox, or Charter rarely compete directly with each other because of prescribed boundaries on franchise agreements.

So, for example, if Cox were to have gotten SportsNet LA, it wouldn’t have mattered much to Charter, as its customers can’t just flip a switch and choose a different provider. But if DirecTV gets the channel, then all the cable companies are at risk of seeing pay-TV customers defect.

In fact, the complaint quotes a DirecTV executive as referring to the satellite provider as the “first domino in the sequencing of deals,” implying that the company was well aware of how important it would be for Cox, Charter, and AT&T to know of its negotiating position with TWC.

The DOJ says that then-CEO of DirecTV Mike White told York in 2014 that it and the other pay-TV providers “may have more leverage if we all stick together” with York agreeing that the “others holding firm is key” to this strategy.

The lawsuit cites examples of York communicating with executives at other companies about the negotiations. In one instance, he allegedly told a senior Cox exec that DirecTV was not the pay-TV provider that was rumored to be close to a deal with TWC to carry SportsNet LA.

There was also an email from an unnamed AT&T executive who referred, in thinly veiled code, to receiving a “[###] mph pitch” from TWC, presumably where the redacted speed figure is a reference to the amount of the offer. The AT&T exec then asked York if that pitch was “Consistent with what you got?”

In a statement about today’s lawsuit, which names both DirecTV and its new parent company AT&T as defendants, Deputy Assistant Attorney General Jonathan Sallet says that “Dodgers fans were denied a fair competitive process when DirecTV orchestrated a series of information exchanges with direct competitors that ultimately made consumers less likely to be able to watch their hometown team.

Adds Sallet, “Competition, not collusion, best serves consumers and that is especially true when, as with pay-television providers, consumers have only a handful of choices in the marketplace.”

In a statement emailed to Consumerist, AT&T General Counsel David McAtee says, “We respect the DOJ’s important role in protecting consumers, but in this case, which occurred before AT&T’s acquisition of DIRECTV, we see the facts differently. The reason why no other major TV provider chose to carry this content was that no one wanted to force all of their customers to pay the inflated prices that Time Warner Cable was demanding for a channel devoted solely to LA Dodgers baseball. We make our carriage decisions independently, legally and only after thorough negotiations with the content owner. We look forward to presenting these facts in court.”

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