A new antitrust lawsuit could set the table for cable companies to shake loose the bundles of channels being sold to them by sports content providers.
This week, Cablevision filed suit against Viacom in federal court in New York, charging that Viacom’s practice of “block booking” its channels constitutes a violation of antitrust law. Block booking refers to a tactic that is commonplace among sports media such as ESPN and Fox, too – bundling together packages of channels to sell to cable companies, rather than negotiating separate deals for each individual channel.
In effect, bundling forces the cable companies to buy ancillary channels such as the Longhorn Network and ESPN Classic if they want to have core offerings such as ESPN and ESPN2 as well. In its suit against Viacom, Cablevision is charging that it was coerced into purchasing the rights to less valuable properties such as VH1 Classic that had been tied to popular channels such as Comedy Central and MTV. In an appeal to the public, Cablevision contends that bundling runs counter to the best interests of consumers by diverting subscription fees towards less popular channels, thereby stifling potential competition.
While Viacom is couching the suit as an effort to redo a contract signed just two months ago, industry analysts are portraying Cablevision’s move as a longer-term play to take back some leverage in negotiations with content providers and rein in costs for cable programming. As Ryan Lawler of Tech Crunch points out, if Cablevision is successful, the suit would set a precedent for other bundling deals.
Why is this such a big deal for a media conglomerate like Disney, which owns the ESPN family of networks? The lavish spending of late on skyrocketing contracts for sports media rights has been driven in part by a bundling strategy.
If ESPN loses the ability to handcuff the LHN or the forthcoming SEC network to its more popular offerings, it eliminates a de facto subsidy for its products with more limited appeal. At the very least, that would call into question the viability of those ancillary networks.