Justice Dept Sues AT&T/DirecTV Over Dodgers Broadcasts

For the last three years, the overwhelming majority of baseball fans in Los Angeles have been unable to watch the Dodgers play on television. In 2014, the team partnered with cable provider Time Warner to launch SportsNet LA, a network dedicated to the franchise. Citing the excessive price that Time Warner was demanding from other cable providers for the rights to air SportsNet LA — such as an initial asking price of roughly $5 per subscriber per month — other service providers like AT&T, DirecTV, and Cox have subsequently refused to carry the network.

As a result, since 2014, upwards of 70% of Los Angeles residents have not had access to televised Dodgers games. Indeed, because Time Warner only offers cable services in parts of the Los Angeles metropolitan area, in many cases even if fans were willing to change cable providers to gain access to the Dodgers, they were nevertheless still unable to do so because none of the available providers in their neighborhood carried SportsNet LA.

Given its high asking price for the network, it’s not surprising that the public has typically painted Time Warner as the bad guy throughout this ordeal. According to a lawsuit filed last week by the U.S. Department of Justice, however, Los Angeles sports fans’ anger may have been misdirected, as it now appears that DirecTV — now owed by AT&T — may in fact be largely to blame for the Dodgers’ three-year blackout across much of Los Angeles.

The complaint filed against AT&T and DirecTV by the government last week in California federal court lays out a pretty detailed case against the satellite service provider. According to the Justice Department, executives at DirecTV unlawfully conspired with other Los Angeles-area cable providers to refuse to carry SportsNet LA, all in the hopes of forcing Time Warner to dramatically lower its asking price for the network. If proven in court, such collusion would violate Section One of the Sherman Antitrust Act, the law prohibiting competing companies from working together to restrain trade.

In particular, the government’s lawsuit cites a number of instances in which DirecTV’s Chief Content Officer, Daniel York, communicated with his counterparts at other competing cable providers in order to exchange confidential, non-public information regarding the providers’ respective negotiations with Time Warner. During a conversation with Cox’s senior vice president of content acquisition, for example, York allegedly told his competitor that DirecTV was nowhere close to agreeing to carry the network, with the two executives promising to give each other a heads-up before either signed a deal with Time Warner.

In other cases, the competing cable providers allegedly discussed the terms of the various confidential offers they had received from Time Warner to carry the network. Along these lines, the government’s complaint also cited discussions between York and DirecTV’s CEO Mike White, in which White stressed that the competing cable providers “may have more leverage if we all stick together,” with York agreeing that “others holding firm is key.”

The Justice Department contends that York’s allegedly unlawful communications with his competitors enabled the cable providers to present a unified front in their negotiations with Time Warner. Had each company been forced to make a decision about whether to carry SportsNet LA individually, then the possibility that one of their rivals would sign a deal with Time Warner and use it to recruit away their customers likely would have motivated many of them to reach an agreement years ago. Without the fear that their competitors would cave into Time Warner’s demands, however, these companies were instead able to confidently continue holding their ground.

As a point of contrast, the government’s lawsuit notes that a very different scenario played out in 2011, for instance, when Time Warner launched a similar network for the Los Angeles Lakers of the National Basketball Association. Even though DirecTV initially refused to carry the new Lakers network, it quickly gave in to Time Warner’s demands after seeing several of its competitors sign their own deals with Time Warner for the network.

Last week’s lawsuit asserts that DirecTV — intent on avoiding a repeat of its 2011 experience — served as the linchpin to the cable providers’ group boycott of SportsNet LA. Not only did its executive, York, facilitate the discussions between the competing providers, but the company’s dominant position in the Los Angeles market also made it the most important decision-maker among the competing firms. As the Justice Department noted, so long as DirecTV held firm in its negotiation with Time Warner, the other providers with smaller market shares also felt secure in refusing to accede to Time Warner’s demands, without fear that their customers would flock to the satellite service provider in order to receive Dodgers games.

Representatives of DirecTV — now owned by AT&T — have denied the government’s charges, contending that the company makes its “carriage decisions independently, legally and only after thorough negotiations with the content owner.” Nevertheless, the allegations in last week’s lawsuit are well supported, drawing upon documents the government collected from DirecTV, as well as sworn testimony from executives at Cox and Charter who admitted that York relayed confidential information about DirecTV’s negotiations with Time Warner to them.

Ultimately, the government’s lawsuit requests that the court issue an injunction blocking AT&T and DirecTV from colluding with their competitors during future negotiations with content providers. As a result, even if the Justice Department ultimately prevails in the suit, the case will not directly result in the carriage of SportsNet LA on a wider basis in the Los Angeles area.

That having been said, it would not be at all surprising were several cable providers to begin carrying the network in the near future. Having been called out on their alleged conspiracy, these cable providers will likely feel greater pressure to reach an agreement with Time Warner to air SportsNet LA for the 2017 season. Indeed, in the absence of explicit or implicit assurances that their rivals will continue to oppose Time Warner’s demands, many of these companies may very well decide to carry the network in the coming year to avoid the possibility that they would otherwise lose customers to a competing provider.

Moreover, as for AT&T/DirecTV, the company may also feel pressure to resolve the lawsuit on a relatively quick timetable due to another pending legal matter, one coincidentally also involving Time Warner. Late last month, AT&T announced its plans to acquire Time Warner for over $85 billion, a merger that is likely to face considerable scrutiny by the government. As a result, AT&T may be motivated to settle last week’s lawsuit quickly in the hopes of putting the company back in the Justice Department’s good graces. And if AT&T believes that it will ultimately be allowed to move forward with its purchase of Time Warner, then reaching an agreement with the government regarding SportsNet LA may be viewed as a small price to pay.

So, although last week’s lawsuit does not itself mark the end of the Dodgers’ blackout in Los Angeles, it does suggest that change is likely on the horizon. And, at a minimum, the suit helps to paint a more complete picture of why so many Los Angeles area fans have been unable to watch the Dodgers on television for the last three seasons.

Nathaniel Grow is an Associate Professor of Business Law and Ethics and the Yormark Family Director of the Sports Industry Workshop at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.

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Is anyone surprised, given how dirty the Cable business inherently is? One thing is sure, and that is Cable companies will screw their customers every chance they get