LOS ANGELES _ The U.S. Justice Department on Wednesday took the extraordinary step of suing AT&T, alleging that its DirecTV television unit orchestrated an illegal campaign to block wide carriage of the television channel owned by the Los Angeles Dodgers.
In a lawsuit filed in federal court in Los Angeles, the Justice Department accused DirecTV of being a ringleader in an effort to make sure that three other pay-TV companies _ Cox Communications, Charter Communications and AT&T (which was then separate from DirecTV) _ would refuse to carry SportsNet LA, the Dodgers-owned TV channel that broadcasts the team's games.
The lawsuit alleges that the four companies engaged in illegal conduct, sharing nonpublic information among themselves, to gain bargaining leverage in negotiations with Time Warner Cable, which was struggling to get other pay-TV companies to sign up for the service. The companies were steadfast in their resistance to carrying the channel. The government zeroed in on what it said was the coordinated effort because trading information in such a manner is forbidden by U.S. antitrust laws.
DirecTV, now owned by AT&T, and Cox Communications still refuse to carry the channel, citing its high cost. The 57-page lawsuit painted a picture of a behind-the-scenes effort, spearheaded by DirecTV's programming chief, Dan York, to make sure that no other pay-TV companies would distribute the channel.
The shutout was costly. For three seasons, thousands of fans were deprived of regularly watching games as the Dodgers improved their standing and repeatedly won their division. They missed watching standout performances by ace pitcher Clayton Kershaw, first baseman Adrian Gonzales and shortstop Corey Seager. Earlier this year, Time Warner Cable made a last-ditch pitch to get DirecTV and other pay-TV companies to carry the channel during the final season featuring Hall of Fame announcer Vin Scully _ but struck out. Scully last month ended his career after 67 years in the broadcast booth.
"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 Justice Department'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."
The Justice Department is demanding injunctive relief, perhaps including monitoring of dealings in the pay-TV industry, to make sure that powerful companies do not gang up against other channel owners. While the Justice Department stopped short of requiring that AT&T/DirecTV carry SportsNet LA, that could become part of any settlement that AT&T ultimately might reach with the federal government.
AT&T is one of the largest pay-TV operators in the Los Angeles region, with more than 1.25 million customers for its DirecTV and U-verse systems.
Time Warner Cable (now owned by Charter Communications and rebranded as Spectrum) has the rights to distribute the channel, which is controlled by Dodgers owner Guggenheim Baseball Management.
"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," the Justice Department lawsuit said.
Documents underscored that point, the suit said. "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," the suit said.
The lawsuit comes at an awkward time for AT&T, which just unveiled its $85.4-billion deal to buy media and entertainment giant Time Warner Inc. (Time Warner Cable is a separate entity). AT&T will need Justice Department approval for that deal to go through, and critics were already worried that the merger would make AT&T even more powerful in the market.
In responding to the lawsuit, AT&T's general counsel, David McAtee, said: "We respect the (Justice Department's) important role in protecting consumers, but in this case, which occurred before AT&T's acquisition of DirecTV, we see the facts differently."
AT&T maintained its position that the reason it does not carry the channel is because of the its high cost _ nearly $5 per month per subscriber home.
"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. "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."
Nonetheless, the suit provides new ammunition for opponents of AT&T's acquisition of Time Warner.
"Although thorough enforcement uncovered evidence of wrongdoing in this instance, we should not allow further consolidation that invites this type of behavior across the entire market," said John Bergmayer, senior counsel at Public Knowledge, a digital-rights group.
"This case raises obvious concerns about whether AT&T would have the incentive and ability to harm consumers if it were permitted to acquire Time Warner," he said.
Matt Wood, policy director of Free Press, another digital-rights group, said the Dodgers channel suit "shows the danger of concentrating too much media power in too few hands."
"AT&T and DirecTV had too much power over the pay-TV, Internet and content markets even before their ... merger closed last year," he said. "Now that they've joined forces, the absolute last thing we need is approval of a deal to put these bad actors in control of Time Warner's video content empire."
