(Bloomberg) -- AT&T Inc. and its DirecTV unit were sued by the U.S. Justice Department for allegedly colluding with rival pay-TV services to gain leverage in negotiating for rights to televise Los Angeles Dodgers baseball games.
Dodgers games have been unavailable to many fans in Los Angeles for the last three years because DirecTV and its competitors banded together to stall licensing negotiations with SportsNet LA, which airs the team's games, according to the complaint filed Wednesday in Los Angeles federal court.
“Those consumers were deprived of a fair competitive process when DirecTV unlawfully exchanged strategic information with three competitors during their parallel negotiations,” the complaint says.
The lawsuit comes as regulators and politicians are scrutinizing AT&T's planned $85.4 billion acquisition of Time Warner Inc., a deal that would combine giants in content distribution and production. AT&T has dismissed concerns voiced by policy groups and lawmakers that it would use its control over Time Warner content to harm rivals.
Antitrust Review
The government's new lawsuit amounts to “a shot across the bow” concerning any antitrust review, said Ira Gorsky, a securities analyst with Elevation LLC in Jersey City, New Jersey. A Justice Department spokesman declined to comment on that characterization.
The case covers conduct that took place before mergers among four of the companies involved. Time Warner Cable, which controlled rights to Dodgers games, was bought by Charter Communications Inc. this year. DirecTV was bought by AT&T in 2015.
The U.S. is seeking a court order barring DirecTV and AT&T from sharing non-public information about their negotiating positions and strategies with any other distributors of multi-channel video programming.
“We see the facts differently,” AT&T's general counsel, David McAtee, said in an e-mailed statement, noting that the alleged conduct occurred before the Dallas-based telecommunications company acquired 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.” McAtee said the company looked forward to presenting its case in court.
DirecTV as ‘Ringleader'
During negotiations with Time Warner Cable to broadcast Dodgers games, DirecTV swapped information with Cox Communications Inc., Charter and AT&T about their plans to carry the Dodgers channel, according to the U.S. The complaint describes DirecTV as the “ringleader” of the information exchange that “corrupted” the carriage negotiations. Cox and Charter weren't named as defendants in the Justice Department lawsuit.
“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 complaint states.
The dispute that's kept Dodgers games out of many homes for three seasons stems from a 25-year pay-TV agreement reached in 2013 between Time Warner Cable, then the top cable service in Los Angeles, and Guggenheim Partners LLC, the private-equity group that bought the team for $2.15 billion a year earlier.
Under an accord valued at $7 billion to $8 billion, Time Warner Cable became the primary distributor of the Dodgers' SportsNet LA channel and set about pressing other pay-TV providers to charge all of their regional subscribers more than $4 a month apiece for games. That's more than the New York Yankees charge for the YES Network, according to researcher SNL Kagan.
DirecTV, Charter, Dish, Verizon Communications Inc., AT&T's U-verse cable service and Cox all refused.
Non-Public Information
Steve Brener, a spokesman for the Dodgers, didn't immediately respond to a phone message seeking comment.
Gorsky, the analyst, said he interprets the allegations as a Justice Department warning about the hazards of industry consolidation, an issue he said is likely to be raised in formal opposition to the AT&T-Time Warner tie-up.
“The concern is consolidation. It's not about specific overlaps,” he said. “In a concentrated industry, there's an incentive and an ability of competitors to share information to the detriment of customers.”
The case is U.S. v. DirecTV Group Holdings LLC, 16-cv-8150, U.S. District Court, Central District of California (Los Angeles).
To contact the reporters on this story: Andrew Harris in Washington at aharris16@bloomberg.net, David McLaughlin in Washington at dmclaughlin9@bloomberg.net. To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, David S. Joachim, Rob Golum
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