Just as AT&T prepares to try and get its Time Warner merger through the Justice Department, DOJ said Wednesday it is suing DirecTV and its "corporate successor," AT&T, claiming it is the ringleader in a series of "unlawful information exchanges."
The civil antitrust suit was filed by the Department of Justice in a California district court. AT&T says it sees the facts differently and will make its case in that court.
The suit alleges that DirecTV "unlawfully exchanged competitively-sensitive information with Cox, Charter and AT&T during the companies’ negotiations for the right to telecast the Dodgers channel," as well as future plans to carry the channel—or not carry it.
The complaint alleges that information "was a material factor in the companies’ decisions not to carry the Dodgers Channel,” and points out that the Los Angeles Dodgers channel “is still not carried by DIRECTV, Cox or AT&T."
The suit alleges that Cox and Charter agreed to share the information about the negotiations, which refelected "concerted action between horizontal competitors," but they were not named as defendants in the suit. Charter had no comment on the allegations. “We are gratified that we were not named as a defendant," Cox said in a statement. "We continue to be committed to making independent decisions on program content.”
DOJ called information-sharing unjustifiable, saying it was "privately shared between high-level executives was disaggregated, company specific, forward-looking, confidential, and related to a core characteristic of competition between them," over channel rights.
DOJ said DirecTV got information from Cox, Charter and AT&T (not then the parent) that "reduced the uncertainty that DIRECTV should have faced from not knowing whether its subscribers would have the option of switching to these competitors in order to watch Dodgers games on television. This knowledge was a material factor in DIRECTV’s decision not to launch the Dodgers Channel."
“As the complaint explains, 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,” said deputy assistant attorney general Jonathan Sallet of the Justice Department’s antitrust division, who until recently was the FCC's general counsel. “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.”
“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," said David McAtee, AT&T general counsel. "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.”
Time Warner Cable launched SportsNet LA in February, but a number of distributors complained about the price — some reports put is as high as $4 per sub per month — especially when combined with three other RSNs in the market (Prime Ticket, Fox Sports LA and Time Warner Cable SportsNet) and aren't taking the network.
FCC Chairman Tom Wheeler's office had no comment on the suit.
Back in 2014, Wheeler had written to then Time Warner Cable CEO Rob Marcus, saying in no uncertain terms that he had "strong concern" that it was TWC’s actions that had "created the inability of consumers in the Los Angeles area to watch televised games of the Los Angeles Dodgers."
Wheeler vowed that the FCC would intervene as necessary to protect consumers. At the time, TWC had suggested the FCC widen its net and look at others, including DirecTV, for the lack of carriage. “We’re grateful for the FCC’s intervention and happy to work with them to gain carriage for the Dodgers – that has been our goal all along," the company said at the time. "We hope that Chairman Wheeler is making similar inquiries of DirecTV and other LA television distributors to determine their rationale for refusing to carry SportsNet LA, which we have offered at terms similar to other regional sports networks, including those owned by DirecTV. We look forward to a productive discussion.”
DOJ clearly widened its net.
DOJ presented its case this way, evoking halcyon fields of play denied baseball fans by colluding media companies, led by DirecTV.
"For almost 60 years, the Los Angeles Dodgers have been a beloved professional sports team in Los Angeles (“LA”). During this time, LA Dodgers fans have seen their team win five World Series championships, closely followed the Hall of Fame careers of baseball greats such as Sandy Koufax and Tommy Lasorda, and listened to the play-by-play calls of broadcast legend Vin Scully. But a significant number of Dodgers fans have had no opportunity in recent years to watch their team play on television because overlapping and competitive pay television providers did not telecast Dodgers games."
It pointed the finger at DirecTV: "Those consumers were deprived of a fair competitive process when DIRECTV unlawfully exchanged strategic information with three competitors during their parallel negotiations concerning carrying Dodgers games.
"This Complaint focuses on DIRECTV, the ringleader of information sharing agreements with three different rivals that corrupted the Dodgers Channel carriage negotiations and the competitive process that the Sherman Act protects.
"DIRECTV was the one company that unlawfully exchanged information with multiple rivals, and without it competition would not have been harmed and none of the violations would have occurred."
DOJ is seeking both declaratory and injunctive relief. It wants the companies enjoined from similar future conduct, monitoring, compliance and reporting requirements, court costs and anything else the court thinks is appropriate.
Public Knowledge, which opposes the AT&T/Time Warner combo, was quick to link the suit to the proposed merger and government oversight in general.
“We're glad to see strong antitrust enforcement from the Department of Justice. The allegations in this complaint demonstrate how difficult is can be for law enforcement to monitor the behavior of large companies," said senior counsel John Bergmayer. Although thorough enforcement uncovered evidence of wrongdoing in this instance, we should not allow further consolidation that invites this type of behavior across the entire market.
“This case raises obvious concerns about whether AT&T would have the incentive and ability to harm consumers if it were permitted to acquire Time Warner."