U.S. sues DirecTV for illegal information trading during Dodgers talks

November 2, 2016 12:26 PM EDT

DirecTV satellite dishes are seen on an apartment roof in Los Angeles, California in this file photo taken May 18, 2014. REUTERS/Jonathan Alcorn/Files


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By Diane Bartz

WASHINGTON (Reuters) - The U.S. Justice Department filed a lawsuit on Wednesday against AT&T's (NYSE: T) DirecTV, alleging it acted as a ringleader to illegally swap information with rival pay-TV providers about negotiations over showing Dodgers baseball games in the Los Angeles area.

The department said DirecTV, before its 2015 acquisition by AT&T, exchanged confidential information with Cox Communications, Charter Communications (NASDAQ: CHTR) and AT&T, to get leverage against Time Warner Cable, which distributes a channel showing Dodgers games in Los Angeles.

These companies have refused to carry the SportsNet LA channel, a partnership between the Dodgers baseball team and Time Warner Cable, contending that carriage fees sought by Time Warner Cable were too high.

As a result, much of Los Angeles was unable to watch the Dodgers play for the past three seasons, the Justice Department said.

The lawsuit comes at a time when AT&T is preparing for an antitrust review of its planned purchase of Time Warner Inc (NYSE: TWX), a separate entity from Time Warner Cable. The Justice Department is expected to scrutinize the deal.

While the spat with the Justice Department over the Dodgers channel is legally distinct from the antitrust review of AT&T's planned purchase of Time Warner, analysts said the lawsuit was bad timing given the vehement opposition the deal faces from some lawmakers and public policy groups.

"It is hard to see how this can help the deal," said Spencer Kurn, an analyst with New Street Research.

The department said in its complaint that a DirecTV executive assured executives at the other three companies that DirecTV had no plans to strike a deal to show the Dodgers. Cox, Charter and AT&T responded with similar assurances.

The result was that the companies knew that they would not lose subscribers to competitors if all of them refused to air the Dodgers channel, the complaint said.

The department said DirecTV, as the largest pay-TV provider in the United States with over 25 million video subscribers and a nationwide footprint, had the most subscribers that could watch the Dodgers Channel and without it, competition would not have been harmed.

Among other evidence, the complaint cited then DirecTV CEO Mike White's public comments in a May 2014 industry conference, where he said it was important that "the distributors start to stand together, like most of us have been doing in Los Angeles for the first time ever, by the way, with the Dodgers on outrageous increases and excesses."

The complaint names DirecTV and its owner AT&T as defendants, but not Cox or Charter. AT&T is named because it is DirecTV's parent company.

"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,” said Deputy Assistant Attorney General Jonathan Sallet of the Justice Department’s Antitrust Division.

AT&T said the information trades occurred before its DirecTV acquisition last year, and said it disagreed with the department's action.

"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," said David McAtee, AT&T general counsel, in a statement.

"We make our carriage decisions independently, legally and only after thorough negotiations with the content owner. We look forward to presenting these facts in court," McAtee said.

In its complaint, the Justice Department asked court to bar future similar communications between the companies, require them to create a compliance program and pay the government's legal costs.

Cox said in a statement that it was "gratified" that it was not named as a defendant. "We continue to be committed to making independent decisions on program content."

Charter, which completed its takeover of Time Warner Cable earlier this year, declined to comment.

The drawn-out battle over the distribution of the Dodgers’ channel highlights how pay-TV operators have been struggling with high sports programming costs charged by networks from regional sports channels to ESPN.

In 2013, Time Warner Cable partnered with the Dodgers' owners to create a new regional sports network called SportsNet LA to distribute Los Angeles Dodgers games. Under the deal, Time Warner Cable was in charge of negotiating local affiliate fees for the new network with rival cable and satellite-TV providers.

The channel launched in 2014 but Time Warner Cable was unable to get pay-TV operators, such as DirecTV, who complained that the carriage fees were exorbitant, to pay for it.

(Additional reporting by Malathi Nayak in New York; Editing by Soyoung Kim and James Dalgleish)



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