Baseball

Department of Justice Sues DirecTV Over Dodgers Network

The Department of Justice alleges that the satellite provider colluded to prevent channel's distribution

Baseball
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Nov 02, 2016 at 4:42 PM ET

The Los Angeles Dodgers have amassed the most expensive roster in baseball history on the heels of an $8.35 billion media deal negotiated with Time Warner Cable, which launched a team-owned channel, SportsNet LA, to broadcast its games.

Pricing woes, however, have plagued the network’s distribution, and its limited availability on local television has become a punchline, with more than half the area unable to watch the four-time division champions or celebrate legendary broadcaster Vin Scully’s final season.

Now, it seems, there may have been more than bungled negotiations hampering fans’ ability to watch the Dodgers. The U.S. Department of Justice filed suit in California on Wednesday against DirecTV, alleging collusive communication that violated the Sherman Act’s antitrust protections, saying “consumers were deprived of a fair competitive process when DIRECTV unlawfully exchanged strategic information with three competitors during their parallel negotiations concerning carrying Dodgers games.”

The complaint also named AT&T as a defendant, as DirecTV’s corporate successor. AT&T purchased DirecTV for $49 billion in 2015 and is now attempting a $85.4 billion purchase of Time Warner. The suit was first reported by Bloomberg.

When Time Warner began negotiating distribution for SportsNet LA in early 2013, the principal area TV providers were Cox, Charter, and AT&T, as well as satellite provider DirecTV. The suit claims that DirecTV’s chief content officer, Daniel York, communicated with his company’s competitors “at important points in the negotiations with TWC, such as within days of each company receiving TWC’s initial offer and when Mr. York and his counterparts were preparing to make recommendations to their CEOs.”

The motivation, according to the complaint, was that all the companies would benefit by negotiating down Time Warner’s demanded price rather than cut separate deals with price protections, as happened when Time Warner launched a channel dedicated to Los Angeles Lakers coverage. According to the suit, “DIRECTV’s CEO Mike White told Mr. York that he believed the distributors ‘may have more leverage if we all stick together’ and Mr. York ‘[a]greed’ that ‘others holding firm is key.’”

“During negotiations with TWC and as he prepared for those negotiations, DIRECTV’s Chief Content Officer, Daniel York, exchanged information with his counterparts at Cox, Charter, and AT&T about their carriage plans for the Dodgers Channel. These unlawful exchanges were intended to reduce each rival’s fear that competitors would carry the Dodgers Channel, thereby providing DIRECTV and its competitors artificially enhanced bargaining leverage to force TWC to accept their terms.

The sharing of this competitively sensitive information among direct competitors made it less likely that any of these companies would reach a deal because they no longer had to fear that a decision to refrain from carriage would result in subscribers switching to a competitor that offered the channel. As each company’s contemporaneous business documents show, the elimination of this risk was valuable because each company identified a competitor’s decision to telecast the Dodgers Channel as a significant development that could force it to reach a deal with TWC.”

One example of the communication between the parties: the suit said that AT&T’s president of content texted York two day after Time Warner indicated its asking price was likely to remain constant, “Forgot to tell you but we got a [##] mph pitch yesterday,” referring to the offer price, and added, “Consistent with what you got?” York responded, per the complaint, “Hope u hit it out!”

In a response sent to Bloomberg, AT&T emphasized that the price of SportsNet LA—initially $4.90 per month for each subscriber, according to the L.A. Times, before a reduction to $3.50 in March—was the primary reason the channel didn’t receive broader distribution.

“We see the facts differently,” AT&T general counsel David McAtee said in the statement, while noting that the allegations occurred before AT&T purchased DirecTV. “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 L.A. Dodgers baseball.”