News

Battle Against Bundles Gains New Life

7/04/2008 8:00 PM Eastern

A federal judge in Los Angeles refused to throw out a year-old antitrust lawsuit against programmers and multichannel-TV distributors challenging the program bundling arrangements that prevent consumers from buying only the channels they want to watch from cable and satellite TV providers.

Groups including the Parents Television Council and the American Cable Association — representing small cable operators that oppose bundling practices compelling distributors to buy several networks from the same programmer in order to receive certain vital channels — said they were pleased the case would continue.

The ACA pointed out that contractual confidentiality restrictions prevent small operators from offering direct evidence of bundling practices in complaints to the Federal Communications Commission, which is in the midst of a “wholesale untying” rulemaking.

But in this lawsuit, the contracts will be discoverable, the ACA said, and could demonstrate that small cable firms are required to carry as many as 60 channels for the rights to 13 popular ones.

“With this never-before-seen evidence available, the court will determine whether the country's largest programmers have market power, and by its virtue coerce cable operators into taking bundled deals that limit choice and value in the pay television market,” the ACA said.

The ACA stance is not shared by bigger cable operators, such as those that were sued, nor by programmers. Attorneys for Comcast, who argued points of law on behalf of the program distributors, and The Walt Disney Co., who argued in court for the content providers, did not respond to requests for comment on the June 25 ruling by U.S. Judge Christina Snyder.

Snyder said the cable operators, direct-broadcast satellite companies and studios had not proven the consumers who sued them weren't injured by the defendants' business practices.

The sued companies also questioned the consumers' standing to sue, during written and oral arguments.

Plaintiffs' attorney Maxwell Blecher said his clients were “gratified that the complaint has been sustained and look forward to beginning the discovery phase of the case.”

In December 2007, consumers in four states — on behalf of multichannel-TV subscribers nationwide — sued programming conglomerates NBC Universal, Viacom, The Walt Disney Co., Fox Entertainment Group and Time Warner Inc. All of them own studios, cable networks and broadcast networks.

The suit also targets multichannel-TV distributors Comcast, Coxcom Inc., The DirecTV Group, EchoStar Satellite (Dish Network), Charter Communications and Cablevision Systems.

The suit claims contracts between programmers and distributors harm consumers because they force subscribers to buy programming that they don't want or watch. Bundling programming causes consumers to overpay for their video options, according to the suit.

Buttressing their argument in court papers was information from an FCC report that indicates consumers may overpay for cable by as much as $100 million annually by paying for undesirable channels. The plaintiffs seek four years worth of overcharges, $400 million, as damages.

Snyder said attorneys for the consumers raised real antitrust issues that should be argued in court.

She wrote in her decision that the programming owners that were sued control key broadcasting and cable channels and can use them to exclude independent programmers from the marketplace.

That makes a case for a bona fide reduction in independent competition rather than “mere dissatisfaction by consumers with the choices in a well-functioning free market.”

Snyder in March was poised to dismiss the complaint as inadequate but instead allowed the consumers' attorneys to amend their complaint.

The new version did not focus on a “conspiracy” between buyers and sellers, a change that satisfied the judge.

A consumer's ability to buy video programming on a channel-by-channel basis is favored by FCC chairman Kevin Martin, who is pressuring video providers to offer rebates to consumers for channels they block out with their parental controls; and to create family friendly tiers. In June, he threw his support behind a bipartisan House bill that would mandate such rebates.

Parents Television Council president Tim Winter said in a statement: “It is a breath of fresh air to know that cable consumers still have a voice in our court system. Sadly, the consumer's voice in Washington, D.C. and elsewhere has been muted by the cable industry's enormous wallet. This lawsuit will directly confront the cable cartel's anti-competitive and anti-consumer product bundling practices. Consumers should be allowed to choose and pay for only the cable networks they want, just like they do when they go to a movie at the Cineplex or to buy a magazine at the newsstand.”

Over the years, programmers have used their most popular networks as bargaining chips to gain distribution for newer outlets.

In 2004, Dish Network actually lost retransmission rights to 15 CBS affiliates and 10 cable channels — all at the time owned by Viacom — for about two days because Dish chairman Charlie Ergen objected to such contract terms as being required to add Viacom's Nicktoons network.

“We didn't want to add the Nicktoons channel, we didn't want to add another cartoon channel, we have several of them up there. But that was very important to Viacom,” Ergen said after settling the dispute and adding Nicktoons.

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