Column: Why the Justice Department gets it right in lawsuit over Dodgers channel
For as long as Southern California sports fans have suffered a blackout of Dodgers telecasts — and this has been the case since 2014 — the cable and satellite systems that have refused to carry the games have offered the same explanation: Time Warner Cable, which owns the telecast rights, has been demanding too much money from its rival services.
As it turns out, if you believed that, you’ve been had.
The U.S. Department of Justice has now pulled back the curtain on this scam. According to a lawsuit the feds filed Wednesday against DirecTV and its owner, AT&T, the satellite service was at the hub of a circle of collusion in which all the participants — the cable services Cox and Charter Communications, the fiber video service of AT&T, and DirecTV itself — all effectively agreed among themselves to refuse to carry the Dodgers.
[DirecTV was the] ringleader of information-sharing agreements with three different rivals that corrupted the Dodgers Channel carriage negotiations.
— U.S. Department of Justice complaint against DirecTV and AT
Their joint goal was to force Time Warner Cable to reduce its asking price. The arrangement unfolded via calls and messages among executives of the companies in which they exchanged supposedly secret information among themselves, including their negotiating stances with TWC, and all pledged to hold firm against TWC.
The problem, as the feds allege, is that this is illegal. It’s illegal because the ultimate victim of such secret arrangements is you, the consumer. In our free market, competition is regarded as one of the best guarantees of the lowest price for goods or services. Collusion is how companies transform what appears to be a competitive market into a hydra-headed monopoly.
DirecTV was a competitor of AT&T at the time this alleged scheme was being executed, but it was acquired by AT&T last year. Having been on both sides, AT&T defended its role Wednesday by repeating that “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.†It said it makes “our carriage decisions independently, legally and only after thorough negotiations with the content owner.â€
When the proposed merger between AT&T and DirecTV was announced in 2014, we warned that the Dodgers blackout illustrated why the deal should be blocked by federal regulators. There was already too little competition in the video space, we observed; the AT&T/DirecTV merger would reduce it even further. The allegations of collusion merely underscore the danger.
AT&T, as it happens, is now bidding to take over Time Warner, which owns CNN, HBO and Warner Bros., among numerous other entertainment and news offerings (but is no longer related to Time Warner Cable). If federal regulators need more reason to block that deal, they should read the 57-page collusion complaint filed by the Department of Justice Wednesday in Los Angeles federal court.
According to the lawsuit, DirecTV was the “ringleader of information-sharing agreements with three different rivals that corrupted the Dodgers Channel carriage negotiations.†It was the key, because it competed with all three other services. Unlike the others, it could potentially serve every home in Dodgerland, while the others were geographically constrained. (Cox and Charter — which has now merged with Time Warner Cable — effectively were monopolies in their service areas, like most cable providers, and AT&T’s fiber service was only a minor rival to all, and served only neighborhoods where it had installed fiber lines.)
If DirecTV chose to carry the Dodgers, all the others would have had to fall into line to avoid losing Dodger fans to the satellite service. That made it “the first domino in the sequencing of deals,†as a DirecTV executive observed. But if it held out, all the others could safely stand pat.
As the lawsuit observes, as long as the other services refused the Dodgers, DirecTV would be in a stronger bargaining position against TWC. So DirecTV made sure the others all knew that it was holding out. DirecTV executives were candid about this in public, with one advising a conference of media executives that video distributors should stand together against content providers, “like most of us have been doing in Los Angeles for the first time ever … with the Dodgers on outrageous increases and excesses.â€
The excuse they all gave the public was credible enough. Time Warner Cable was greedy, as were the Dodgers. The team’s new owners, led by Guggenheim Partners, had reached a deal in which TWC would pay an astronomical $8.35 billion over 25 years to create a Dodgers-only cable channel. TWC plainly figured it could get much of that back by hawking the channel to the other pay-TV outlets in the region.
TWC figured that the team was such a huge draw that it could mulct the other pay-TV companies for every last dime because, really, what TV service would dare not carry the Dodgers, whatever the price? The other companies explained to their customers that their decision to turn down TWC was done for the benefit of the fans themselves — TWC was demanding so much that cable rates would have had to rise. Of course, they didn’t reveal that they were also making a secret deal with each other.
The one problem with the government’s lawsuit is that it isn’t asking enough in punishment. The Department of Justice seeks a permanent injunction barring DirecTV and AT&T from trading nonpublic information with other pay-TV services about their negotiations for content, and “training†their executives how not to do it again.
But the real remedy is also obvious. If companies like these can’t be trusted to negotiate at arms’ length with one another and with content providers when they’re independent of each other, the negotiations can only be compromised further when they’re owned by one another.
Can Congress and the regulators not recognize the answer? There should be a moratorium on mergers in the telecommunications and media space, starting with the AT&T/Time Warner deal. It’s all right if the moratorium is temporary, as long as it lasts at least from now to the end of recorded time.
Keep up to date with Michael Hiltzik. Follow @hiltzikm on Twitter, see his Facebook page, or email [email protected].
