Pay-TV providers like Comcast Corp., DirecTV, and Dish Network Corp. rival the major airlines when it comes to customer dissatisfaction. They have long been criticized for bundling the most sought after channels like HBO or Showtime with niche channels that most people don’t want.
In the Bush administration, Federal Communications Commission Chairman Kevin Martin went after this business model by teaming up with the commission’s two Democrats to begin rules that would have required cable companies to offer their channels “a la carte.” People should only have to pay for what they want, he argued.
The 2007 effort didn’t make it past the drafting stage. But it was significant as one of the first high-profile government pushbacks against a tried-and-true pay-TV business model that says, in a nutshell, “If you want HBO, you must pay for Animal Planet.”
Since then, legislation has floated through Congress – in multiple years by Sen. John McCain (R-Ariz.), for example – to require cable TV to offer channel subscriptions individually. The industry so far has been adept at squashing those efforts, arguing that prices for popular channels would skyrocket and programming diversity would suffer because less well-known channels wouldn’t get enough viewers to underwrite the cost of offering them.
Now channel bundling, a chronic sore spot for cable watchers, has a new antagonist. The Justice Department is holding up the practice in court as evidence that AT&T and Time Warner would wield too much market power over competing content providers if they’re allowed to merge.
DOJ attorneys pressed a Turner Broadcasting executive about the business model last week during the ongoing trial before U.S. District Court for the District of Columbia Judge Richard Leon. The executive, Coleman Breland, testified that Time Warner, which owns Turner, is free to tell rival pay-TV companies that they have to accept all of Turner’s channels if they want to give their customers HBO, Bloomberg reported. Time Warner is under no obligation to offer a different deal.
Comments like that may come back to haunt Time Warner because they show the executives aren’t afraid to brandish the market power they already have. The DOJ says a combined AT&T and Time Warner could force rivals to pay more for content in order to keep prices low for its own DirecTV subscribers.
Rivals, be they upstarts like YouTube or traditional competitors like Comcast, in theory would have no choice but to pay up because Turner Broadcasting’s treasure trove of popular channels is considered “must have.” In addition to HBO, Turner also owns CNN and the rights to broadcast the men’s college basketball tournament March Madness.
The picture DOJ is painting looks a lot like a dominant cable provider swinging its weight around to crush competition. AT&T presents the opposite view in court papers, saying its merger with Time Warner is the only thing that will allow it to compete with internet giants, like Google Inc. or Netflix Inc., that are on the cutting edge of streaming content.
The possible saving grace for the merger of AT&T and Time Warner is twofold. First, if they can prove there’s still meaningful competition after they merge, it doesn’t matter from a legal perspective if they’re beating out their rivals.
Two, these predictions are theoretical, and Leon has shown an unwillingness in the past to rely on conjecture about the future in his own decisions.
But if even a piece of the DOJ’s argument that channel bundling freezes out competition sinks in, it could spell trouble for a controversial business practice used by all traditional pay-TV carriers.
On Monday, the DOJ’s antitrust division will hold a roundtable on corporate compliance and criminal antitrust issues.
Also on Monday, the DOJ-AT&T trial before Judge Leon enters its third week. It is expected to continue for at least another three weeks.
On Tuesday, the American Bar Association convenes its antitrust annual spring meeting in Washington. The conference will run through Friday with a panel featuring DOJ antitrust officials on Wednesday and another with Federal Trade Commission officials on Friday.
On Tuesday, acting Deputy Assistant Attorney General Marvin Price for the DOJ’s antitrust division will give a keynote address at GCR Live’s 3rd Annual Cartel Conference.
On Tuesday, DOJ antitrust chief Makan Delrahim will give a keynote address and Deputy Assistant Attorney General Roger Alford will speak on a panel at a conference on “IP, Antitrust, and Innovation Policy – Enabling the Fourth Industrial Revolution.”
On Tuesday, Deputy Assistant Attorney General Luke Froeb for the antitrust division will speak on a panel at the Georgetown Law Workshop on economic effects and antitrust law.
On Wednesday, Zuckerberg will appear before the before the House Energy and Commerce Committee.
On Thursday, the House Financial Services Committee will hold a hearing on updating the review process for the Committee on Foreign Investment in the United States.
“Today’s complaint is part of a broader investigation by the antitrust division into naked agreements not to compete for employees — generally referred to as no-poach agreements.”
--DOJ antitrust chief Makan Delrahim, announcing a settlement with Knorr Bremse AG and Westinghouse Air Brake Technologies Corp. in which the two rail equipment supplies agreed to terminate agreements not to hire one another’s employees and assist the division in investigating other such agreements in the industry.
(Correction: An earlier version of this blog misstated the timing of Zuckerberg’s appearance at a House hearing.)
Want to be alerted to the next post? Contact Fawn Johnson at fjohnson@bloomberglaw and you’ll be added to the list.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)