Prosecutors make the case for how a DirecTV executive corrupted Dodgers channel negotiations
It all started with the Lakers.
In 2012, after Time Warner Cable had acquired the rights to televise L.A. Lakers games and with the 2012-13 NBA season about to start, the company managed to sell its new — and pricey — Lakers channel to every major cable provider in Southern California.
With Time Warner Cable reportedly asking $3.95 per subscriber per month, satellite TV provider DirecTV held out, but ultimately capitulated as it feared losing customers to other services.
And that experience, federal prosecutors allege in a lawsuit filed Wednesday, is why a DirecTV executive orchestrated a scheme to collude with rival pay-TV providers to drive down the even higher price — an estimated $4.90 a month — that Time Warner Cable wanted for the Dodgers channel it launched in 2014.
“DirecTV rolled the dice during the Lakers channel negotiations but lost,” prosecutors said in an antitrust case filed Wednesday against DirecTV and AT&T, which acquired the satellite TV company last year. “Having been burned by this experience, DirecTV approached the Dodgers channel negotiations differently.”
At the root of the lawsuit is the allegation that Daniel York, DirecTV’s chief content officer, shared information with rival TV carriers during negotiations over the Dodgers channel, corrupting those negotiations and resulting in none of the carriers picking up the channel.
His goal, prosecutors say, was to convince rival carriers that DirecTV would not add the Dodgers channel, making it less likely that rival carriers would do so themselves and ultimately giving all carriers the bargaining power to demand a lower price from Time Warner Cable.
Those exchanges of information with executives at cable providers Cox, Charter and AT&T violated federal antitrust laws, prosecutors said.
For instance, prosecutors say York and an AT&T executive had a 12-minute phone call in March 2014, one day before that executive told AT&T’s CEO that the company should not pick up the Dodgers channel.
The same executive, prosecutors say, sent York a text message later that month indicating that Time Warner Cable had offered AT&T a new price for the Dodgers channel and asking if the price was in line with offers made to DirecTV.
York and a Charter executive, prosecutors say, not only discussed the Dodgers channel but also shared nonpublic information about negotiations with other parties, including the Weather Channel and Hulu.
Prosecutors say the Charter executive in 2014 left a voice mail for York, promising to prevent the Weather Channel from running ads that attacked DirecTV for blacking out the channel.
A Cox executive testified that he and York had several conversations about the Dodgers channel — including over breakfast in New York in 2013 and on 10 different occasions in early 2014 — and that they promised to tip each other off before either company decided to add the channel, according to the suit.
Though prosecutors say there was illegal information sharing between DirecTV and the three other companies — AT&T, Cox and Charter — only DirecTV is alleged to have violated the Sherman Antitrust Act.
Prosecutors called DirecTV the “ringleader” of the scheme, saying it was uniquely positioned and motivated to keep other companies from picking up the Dodgers channel.
Although the cable companies serve specific geographic areas, often with little or no direct competition from other cable providers, DirecTV is available everywhere, making it a direct competitor for all pay-TV providers.
Prosecutors also cited internal documents from other pay-TV providers indicating that they would base their decision on whether to add the channel in large part on whether DirecTV added it.
In the case of the Lakers channel, prosecutors say DirecTV initially refused to carry the channel because it believed the price was too high. Time Warner Cable, in turn, went to other pay-TV providers and offered the channel for a bargain price if they signed up before DirecTV. Prosecutors raised no issues with that strategy, which they dubbed “divide and conquer.”
Once Charter, AT&T and Cox agreed to carry the Lakers channel, prosecutors say DirecTV started losing customers, forcing the satellite provider to accept the channel and to pay the initial price Time Warner Cable had demanded — a price nearly 50% higher than an internal DirecTV analysis suggested it was worth.
Prosecutors would not disclose what sparked their investigation, but the lawsuit notes that there were multiple internal ethics complaints about York’s communications with other pay-TV providers. Justice Department officials said the inquiry started more than a year ago.
The lawsuit paints a picture of a lengthy investigation, one that AT&T and other companies involved have likely known about for some time.
The suit mentions a bevvy of evidence, including handwritten notes taken by executives at DirecTV and AT&T and records of phone calls, emails texts and voice mails establishing communication between York and other executives.
The suit also mentions testimony from executives at DirecTV and other companies, which sources said came from depositions taken in the course of the Justice Department’s investigation.
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