By Amir Nasr
November 2, 2016 at 2:29 pm ET
The Justice Department sued DirecTV LLC and AT&T Inc. for an alleged information-sharing scheme with two competitors that deprived many fans of the chance to watch Los Angeles Dodgers games on TV for the past three seasons.
In an antitrust complaint filed Wednesday in the U.S. District Court for the Central District of California, the DOJ describes DirecTV as the “ringleader” of information-sharing pacts with Cox Communications Inc., Charter Communications Inc. and AT&T that “corrupted Dodgers Channel carriage negotiations and the competitive process.”
The agency says DirecTV exchanged “competitively-sensitive” information with Cox, Charter and AT&T while the companies negotiated for the rights to broadcast the Dodgers Channel, which was created in 2013 through a partnership between the Dodgers and Time Warner Cable that gave the company exclusive rights to telecast almost all of the team’s live games in the Los Angeles area.
The DOJ alleges DirecTV Chief Content Officer Daniel York gave information to his counterparts at Cox, Charter and AT&T when Time Warner Cable was negotiating a deal to carry the Dodgers Channel. That exchange of information, according to the Justice Department, was made with the intention of reducing “each rival’s fear” that a competitor would carry the channel, therefore giving the four companies “artificially enhanced bargaining leverage” to force Time Warner Cable to accept their terms.
The exchange of that non-public information made it less likely that any of the four companies would reach a deal “because they no longer had to fear” that failing to carry the Dodgers Channel would result in subscribers switching to a rival that offers the channel, according to the 57-page complaint.
The DOJ alleges the four companies agreed to future plans to carry or not carry the channel in order to unlawfully obtain bargaining leverage and reduce the risk of losing subscribers. The information learned through these unlawful deals was a material factor in the companies’ decisions not to carry the Dodgers Channel, the complaint says.
DirecTV, Cox and AT&T still do not carry the Dodgers Channel. DirecTV had about 1.25 million video subscribers in the Los Angeles area as of 2014, according to the DOJ, while AT&T had roughly 400,000 video subscribers in the area the same year.
The Dodgers have won the National League West division championship the past three seasons, and in 2016 season the team reached the National League Championship Series but lost to the Chicago Cubs.
AT&T’s general counsel David McAtee says the company, which completed its acquisition of DirecTV in July 2015, “sees the facts differently” than the Justice Department.
“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,” McAtee said in a statement emailed to Morning Consult.
“We make our carriage decisions independently, legally and only after thorough negotiations with the content owner,” he added. “We look forward to presenting these facts in court.”
The Justice Department said AT&T and DirecTV were acting against the wishes of consumers.
“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,” Deputy Assistant Attorney General Jonathan Sallet of the DOJ’s Antitrust Division said in a statement. “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.”
Consumer advocacy group Public Knowledge said the lawsuit shows “obvious concerns” over AT&T’s plan to acquire Time Warner Inc. — not to be confused with Time Warner Cable, bought by Charter Communications — for $85.4 billion.
“This suit is evidence that merger conditions that are designed to control the behavior of large companies can be difficult to enforce,” John Bergmayer, senior counsel at Public Knowledge, said in a statement. “Corporate executives communicate with each other through informal channels and have many opportunities to unlawfully collude or otherwise violate competition law or evade merger conditions.”
Bergmayer said behavior conditions in large-scale mergers such as AT&T and Time Warner’s might be too difficult to enforce, to the point that the “best path” would be for the Justice Department to simply block deals “that would harm competition.”