April 19, 2013 9:54 AM

Captive Audience: Any Freedom In Sight?

In my earlier post on Susan Crawford's Captive Audience, I concluded by noting that some of the most interesting questions raised by the book are not actually discussed, or even articulated.  The questions raised all relate to how Professor Crawford explains that Comcast, as the dominant incumbent provider of subscription television service, has used (and, she predicts, will continue to use) sports programming to maintain its current market dominance in subscription TV, and possibly transfer some of this market power into Internet content.  

The Comcast/NBCU Merger

Crawford weaves together a compelling story about Comcast's past anticompetitive behavior toward competitive subscription video providers, like RCN and Verizon.  Comcast's pre-NBCU exclusionary behavior was also predicated on vertical integration with regional sports networks (RSNs).  The acquisition of the NBC broadcast network, she adds, will enable Comcast to purchase even more sports content in the future and extend its pattern of anticompetitive behavior.  Therefore, she speculates that, with the addition of the NBCU cable channels Comcast will have other, non-sports tools with which to weaken, or exclude, video competitors.

This is where Professor Crawford leaves us, but is this it?  Crawford expresses regret at the failures of the FCC and the Antitrust Division to protect consumers in the context of this merger.  Her disappointment is understandable, but it is also crying over spilt milk.  

For Professor Crawford, the only hope would be a regulatory re-write in order to separate content ownership from cable/broadband distribution.  But, if RSNs are the source of Comcast's power over competition, then Comcast obtains this power as a result of an agreement with the sports team or a league.  Agreements that "unreasonably" restrain trade are always a violation of Section 1 of the Sherman Act

Antitrust, Sports and Broadcast Television

 All professional sports leagues get some limited antitrust exemptions to allow their teams to cooperate for reasons that are integral to producing their product.  For example, Congress passed the Sports Broadcasting Act of 1961 to allow professional sports leagues to have antitrust immunity in negotiating television contracts with broadcast networks (not cable, satellite, or RS networks).  

The motivation for this exemption was to allow the leagues to set what were considered commercially reasonable blackout policies in order to protect the live gate revenues of home teams.  In order to protect the home teams' ability to continue to maximize ticket sales, the league believed that it had to prevent other individual teams from striking their own bargains with broadcasters that would allow other games to be broadcast in competition with the home teams' game.

What is interesting about the Sports Broadcasting Act is that, with respect to broadcasters, negotiating a "television contract" was not fraught with much competitive peril.  No matter who won the broadcast rights, every television owner could still watch every broadcaster's channel.  Would Congress have still passed this law if the exemption gave the league and the network owner the power to harm consumers or other networks?  

This is the situation Crawford describes with Comcast and the RSNs.  They make deals with teams or leagues for the "exclusive" rights to games--but not just the exclusive right to televise games to their customers on their systems.  No, the RSN is buying an "exclusive" for an entire market area, and can therefore decide on what, if any, terms competitors and other incumbent cable operators will be able to distribute these games to their customers.  Are the leagues using contracts with RSNs to restrain trade?                                     

 A Second Chance for the Government?  

Yes, of course they are.  This was the recent conclusion of a federal district court judge in Manhattan in ruling that allows class action plaintiffs to move forward to discovery on their antitrust complaints against the NHL, MLB, Comcast, DirecTV, and several RSNs.  In a 53 page opinion the court explains that plaintiffs' complaints make a "plausible" showing that the defendants have violated the antitrust laws through distribution agreements that amount to territorial market allocations that unreasonably restrain competition.

 comcast dr evil.jpg                                             Restrain trade?  moi?

Note, however, that the counts in these complaints do not allege harm to competition and competitors, the harm on which Professor Crawford is focused.  But this does not mean that these antitrust complaints cannot succeed, they just haven't been brought.  In these two cases (joined as Laumann v. NHL, et al.) the class action plaintiffs are consumers (viewers) of the NHL, MLB, and of Comcast.  See plaintiff's complaint against MLB here.

The plaintiffs contend that they have been harmed as the result of an elaborate territorial allocation scheme devised by MLB and the NHL, and enforced through agreements with the RSNs, who understand that none will attempt to compete outside of its specific service territory.  These agreements prevent consumers from buying out-of-market games on anything less than an "all or nothing" basis, and the leagues have agreed to protect the RSNs from competition so that "in market" games are not available, either online or on any other cable/satellite channel, at any price.

Contrast these professional sports RSN agreements with the NCAA agreements, which--as a result of the NCAA's prior antitrust violations--do not mandate exclusivity.  Thus, if a local channel (like UHF channel 20 here in the DC area) buys the rights to broadcast Maryland Terrapins basketball games, their broadcast will still air even though the same game might also be purchased by a national network like ESPN.

While the plaintiffs in the Laumann case have won the ability to move to discovery and a trial, they probably won't, because Comcast, the other RSNs, and the leagues have every incentive to write big checks to the plaintiffs in order to avoid the "NCAA" precedent.  But, the success of these class action suits may well embolden other antitrust enforcers, like state attorneys general, or even the Department of Justice, to bring their own actions.  So perhaps consumers can avoid much of the long-term "captivity" Professor Crawford predicts.




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