On February 26, 2013, Cablevision Systems Corporation (“CSC”) filed a sealed complaint against Viacom and BET in the United States District Court for the Southern District of New York seeking injunctive relief and monetary damages for alleged violations of state and federal antitrust laws. A redacted copy of the complaint has now been made public and is briefly summarized below.
CSC’s complaint arises out of its recently concluded agreement with Viacom for the carriage of various cable television programming networks. According to CSC, Viacom abused its market power over access to its “commercially critical” networks to force CSC to license and distribute more than a dozen other Viacom networks that CSC did not want to carry. CSC has alleged that Viacom “strong-armed” it into agreeing to carry these unwanted networks by threatening to impose an unreasonable financial “penalty” on CSC. (The specific amount of this “penalty” is redacted from the public version of the complaint, but apparently is in excess of one billion dollars). CSC alleged that Viacom’s “diabolical and coercive scheme” constitutes per se “tying and block booking” in violation of both the federal Sherman Antitrust Act and New York’s Donnelly Act and causes harm to competition, consumers, and CSC.
CSC’s complaint distinguishes between Viacom’s “Core” Networks (a relatively small group of popular networks that CSC desires to carry and that includes the “Tying Networks”) and Viacom’s “Suite” Networks (a larger group of networks that many CSC subscribers do not watch and that CSC would prefer not to carry). The “Tying Networks” – commercially critical networks that CSC cannot do without – are Nickelodeon, Comedy Central, BET, and MTV. The other “Core Networks” are VH1, TV Land, MTV2, and Spike TV. The “Suite Networks include services such as Centric, CMT, CMT Pure Country, Logo, MTV Hits, MTV Jams, Nick Jr., Nick 2, Nicktoons, Palladia, Teen Nick, Tr3s, VH1 Classic, and VH1 Soul).
CSC asserts that the Suite Networks are not commercially critical to video distributors because they have “low or extremely low viewership” and reasonable alternatives to these networks “abound.” According to CSC, if the Suite Networks had to compete on their merits against other programming networks, many distributors (including CSC) would elect to carry other networks instead of the Suite Networks. CSC alleges that, in order to prevent that from happening, Viacom has leveraged its market power over the Tying Networks to force Cablevision to carry the Suite Networks, thereby foreclosing competitors and harming the competitive process.
CSC’s complaint recites how it sought without success to negotiate an agreement with Viacom under which CSC would not be required to distribute the Suite Networks. While Viacom apparently was willing to offer CSC an agreement covering only the Tying Networks or only the Core Networks, Viacom’s “rate card” terms for an agreement that did not include the Suite Networks would impose a “ten figure penalty” on CSC. The amount of this “penalty” would be greater than CSC’s entire 2013 programming budget (covering the fees for hundreds of networks). It also would, allegedly, exceed Viacom’s advertising revenues from CSC’s carriage of the Suite Networks. CSC contends that by not offering viable terms for a Core Networks-only agreement, Viacom was effectively refusing to license the Core (and Tying) Networks unless CSC also agreed to distribute the Suite Networks. Cablevision alleges that it was left with “only one viable economic choice”: to accept Viacom’s deal.
Faced with this all or nothing choice, CSC “surrendered” and entered into an agreement with Viacom to carry both the Core Networks that CSC wanted and the Suite Networks it wished to replace with other options (including new networks CSC has not carried in the past as well as high definition versions of networks CSC carries in standard definition). CSC’s complaint identifies three reasons why the agreement with Viacom has effectively foreclosed it from carrying these other networks: (i) the value to CSC of obtaining and carrying a substitute for a tied Suite Network is not as great if CSC has to carry the tied Suite Network; (ii) CSC possesses a finite amount of capacity for carrying programming; and (iii) CSC has a limited budget for acquiring programming.
While CSC focuses on the Tying Networks as the relevant product market, it also asserts that Viacom enjoys substantial market power in more broadly defined tying markets, including the Core Networks as a whole and even various commercially critical programming categories (such as “popular children’s programming,” “popular comedy programming,” “popular African-American programming,” and “popular young adult programming”). The complaint also identifies a number of programming services (such as Ovation, GMC, Me-TV, ASPiRE, and Retirement Living TV) that CSC might be more likely to launch (or launch earlier) but for Viacom’s unlawful tying of the Suite Networks.
CSC’s complaint characterizes the harm resulting from the foreclosure of CSC’s opportunities to carry substitutes for the tied programming as “concrete and on-going” since it prevents CSC from attracting and retaining more subscribers by distributing different programming and causes CSC to spend more on programming than would otherwise be the case. These harms to competition and CSC translate into consumer harm by forcing consumers to pay for networks they do not value as much as the networks that CSC would otherwise distribute. CSC also alleges that Viacom has applied the same coercive tactics to other video distributors and thus is harming competition nationally.
Based on the allegations in the complaint, CSC is asking the court to find that Viacom’s tactics are per se unlawful under Section 1 of the Sherman Act both as a tying arrangement and as “block booking” (an unreasonable restraint of trade). CSC also alleges that Viacom’s tactics violate the Donnelly Act, a New York statute whose prohibitions mirror those in the Sherman Act. CSC has asked for a jury trial.