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Sony and Viacom Ink Landmark Deal: Part II

By Jacob Reiser

Viacom recently announced an agreement with Sony to provide at least 22 of Viacom's networks for Sony's planned new web-based TV service. A major selling point of Sony's new service is expected to be its cheaper price as compared with cable TV for similar live programming offerings. The announcement of the agreement with Viacom is somewhat ironic, as Viacom is currently facing an antitrust lawsuit in Federal Court, accusing it of contributing to high cable TV prices.

In a sealed Complaint, Cablevision alleged that Viacom's policy of "bundling" popular networks with unpopular ones violates antitrust law and amounts to coercing distributers to pay for networks that their customers don't want. Cablevision's complaint asserts that Viacom engaged in a "per se" illegal tying arrangement in violation of both Federal Antitrust Law and the New York State Donnelly Act, the latter of which parallels Federal Antitrust Law. As the Complaint was sealed and not yet made available to the public, all information about the allegations contained in the Complaint are taken from Cablevision's press release concerning the lawsuit, available at: http://www.cablevision.com/pdf/news/022613.pdf.

Bundling is the practice of selling networks to cable and satellite providers in a package, where, for example, if a cable company wants to buy highly rated networks, such as MTV and Comedy Central, it must also buy lower rated networks. Comcast alleged that in Viacom's case, some of its networks are so popular that they are "commercially critical" and cable distributers are forced to buy them at any price. By wielding control of the "tying" product, i.e., the must-have networks, Viacom is able to insulate the "tied" product, i.e., the low rated networks, from competition. According to Cablevision, bundling forces consumers to pay for networks they've never wanted and is a major factor in high cable bills.

For the lawsuit to succeed, Cablevision must prove that Viacom's licensing practice not only harms consumers but also impairs competition by forcing Cablevision to carry networks they don't want, instead of competing networks that could be potentially more profitable.

Viacom argues that it does not demand that distributors buy anything. It only encourages cable companies to purchase smaller networks by providing incentives in the form of lower prices for bigger networks when purchased together with smaller ones. "Viacom's programming licensing arrangements are flexible, competitive and the result of good-faith negotiations with distributors," the company said in a statement.

However, the U.S. District Court for the Southern District of New York does not concur with this characterization. The court recently denied Viacom's motion to dismiss, stating that "Cablevision has pleaded facts sufficient to support plausibly an inference of anticompetitive effects." (http://www.scribd.com/doc/Motion-to-Dismiss)

The terms of Viacom's agreement with Sony were not disclosed and it is unclear if Viacom maintained its ordinary licensing practices in the deal. However, a quick look at the 22 networks Viacom agreed to provide Sony reveals that many of the lower rated networks Cablevision alleges would not be purchased but-for Viacom's oppressive bundling policy, such as Centric, Logo and Palladia, are included in the deal. Sony, for its part may be willing to stomach the cost of the bundle if the web-TV service is only part of a more comprehensive strategy to sell more game consoles and other consumer electronics, in which case Sony would recoup the bundling costs on the increased sales of hardware.

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This page contains a single entry from the blog posted on September 20, 2014 8:02 AM.

The previous post in this blog was Sony and Viacom Ink Landmark Deal: Part I.

The next post in this blog is Center for Art Law Case Updates.

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