By Brent Kendall and Joe Flint
WASHINGTON -- The Justice Department filed an antitrust lawsuit Wednesday against AT&T Inc.'s DirecTV, alleging that it engaged in unlawful information-sharing with rival pay-TV operators when they all resisted carrying a pricey Los Angeles-area sports channel owned by the Dodgers baseball team.
The civil lawsuit thrusts the government into a bitter dispute over SportsNet LA, a channel launched by Time Warner Cable in 2014 to carry Dodger games, and inserts antitrust enforcers into a heated debate about the costs of sports television.
The lawsuit also could cast a shadow over AT&T's proposed $85.4 billion deal to acquire entertainment giant Time Warner Inc. Some critics of the deal say further media consolidation could increase the likelihood of the kind of collusive behavior alleged in Wednesday's lawsuit.
The pushback by DirecTV and its competitors against carrying the Dodger channel meant millions of Los Angeles homes were without access to games. Adding the channel, however, would have meant higher cable bills for consumers already complaining that prices were too high.
Though the Dodgers own SportsNet LA, Time Warner Cable -- a separate company from Time Warner -- paid for the rights to distribute it, with a 25-year deal that the team and Major League Baseball have valued at $8.35 billion. Most other pay-TV distributors have refused to carry the channel, saying the carriage fees sought by Time Warner Cable were excessive.
The Justice Department lawsuit, filed in a Los Angeles federal court, alleges DirecTV was the "ringleader," sharing information with three then-rivals -- AT&T, Cox Communications and Charter Communications -- that "corrupted" the pay-TV operators' negotiations with Time Warner Cable about carrying the Dodger channel.
DirectTV had bilateral conversations with each of the rivals on their decisions about whether to carry the Dodger channel, the department alleges.
The lawsuit alleges that Daniel York, DirecTV's chief content officer, orchestrated the information-sharing.
The Justice Department says Mr. York assured his competitors that DirecTV wasn't launching the Dodger channel anytime soon and received similar assurances in return, giving the companies confidence that they wouldn't risk losing subscribers if a rival decided to air the games.
In a statement Wednesday, AT&T denied the Justice Departments allegations, saying major TV providers chose not to carry the sports channel because "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." The company said it makes its carriage decisions "independently, legally and only after thorough negotiations with the content owner."
AT&T acquired DirecTV last year, and Charter this year bought Time Warner Cable. AT&T is named as a defendant in the case along with DirecTV because of its new role as the satellite-TV provider's corporate parent.
"The allegations against DirecTV in today's complaint by the U.S. Justice Department are shocking, but not surprising," said Dodgers President and Chief Executive Stan Kasten. "We hope today's action leads to all Dodger fans finally being able to view all Dodger games everywhere in the market."
The Justice Department's suit asks a judge to issue an injunction barring AT&T and DirecTV from sharing non-public information about their positions or tactics in negotiations with TV programming suppliers. Such an injunction would have broad application beyond the Dodgers dispute.
The Justice Department also wants a court order requiring AT&T to periodically report to the government about certain communications it has with rivals.
"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 Justice Department lawyer Jonathan Sallet.
The Justice Department lawsuit is separate from an expected antitrust review of AT&T's proposed deal for Time Warner. But the new case immediately added to concerns that a post-acquisition AT&T would have too much media power.
"Although thorough enforcement uncovered evidence of wrongdoing in this instance, we should not allowfurther consolidation that invites this type of behavior across the entire market," said John Bergmayer, a lawyer with Public Knowledge, a public-interest group that has opposed big telecommunications mergers.
Time Warner Cable's deal for Dodger distribution rights came during a backlash against rising sports programming costs. It bid $2 billion more than Fox Sports West, the 21st Century Fox-owned channel that previously carried the Dodgers. Distributors and consumers complained that sports costs were the main driver of rising pay-TV bills. While sports programming is typically the most expensive part of a monthly pay-TV bill, the audiences often are quite small. (21st Century Fox and Wall Street Journal owner News Corp share common ownership.)
In Los Angeles, the standoff has meant that millions of viewers have been unable to watch the Dodgers, an issue of particular consternation in 2016 because it was the last season for legendary team broadcaster Vin Scully.
Cox and Charter weren't named as defendants in the lawsuit.
The Justice Department focused on DirecTV because it was the only company involved in all the alleged information sharing, and because its large subscriber base meant its decision about carrying SportsNet LA would likely have a domino effect on the other providers, said people familiar with the matter.
Cox said in a statement that "We are gratified that we were not named as a defendant. We continue to be committed to making independent decisions on program content."
A Charter spokesperson declined to comment.
Write to Brent Kendall at firstname.lastname@example.org and Joe Flint at email@example.com
(END) Dow Jones Newswires
November 03, 2016 02:47 ET (06:47 GMT)
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