We have said in our recent Faultline Revisited paper that channel unbundling will come, we’re just not sure that any single act has the power to make it happen, and that this will be a gradual process. The US courts have perhaps the most power to get this done.
But in order to bring that about, someone has to complain to those courts and a class action lawsuit filed this week against Time Warner Cable, might be just the opportunity for the US legal system to get involved. The courts are already involved in disputes between content owners and cablecos, but this one involves consumers and their rights.
In this case it is not the cable company who is complaining about a content business forcing its customers to pay for channels they do not want, but instead it is customers complaining directly that in order to pay for $11 billion in sports rights, cable TV prices will have to go up.
The Disney sports channel ESPN has been used as an example by litigator John McCain, who is trying to push through a new law to unbundle cable TV channels. The figure of $5 a month per subscriber has been bandied around for ESPN, when other TV channels are worth a fraction of that. But ESPN seems to be charged to everyone, so that sports fans are not left holding the real bill, which might be $40 a month each, if ESPN fees had to be met by just those homes which want to have EPSN.
This is the same issue, with Time Warner Cable trying to build its own sports channel rival against ESPN, but having to shell out money to buy hyper inflated sports rights, which make average sportsmen in the US millionaires. Time Warner went one better and bought the teams themselves (LA Dodgers and the LA Lakers) and then began negotiating with the associations which run the sports so that it could keep TV rights.
The class action argues that it is only a matter of time before the $11 billion is passed onto the cable bill and the consumers have tried to pre-empt the move by filing in the Los Angeles County Superior Court alleging that it violates California law against unfair competition.
The first anti-channel bundling move in the recent spate of altercations, was filed by New York cable company Cablevision in February against Viacom, and since then it has been joined in similar moves by Verizon, and has gathered support from both Charter and Suddenlink. Comcast, Time Warner Cable and AT&T are the only large US pay TV companies holding out, and if Time Warner’s position can be turned in a court, then it could be the tipping point for unbundling cable TV channels or at least some compromise which is at least a halfway house.
Our view is that making more and more content available in catch up mode, will lead to less and less viewing of unpopular bundled channels, leading to them being financially unsustainable and that as OTT multiscreen entertainment rolls out, this is eventually inevitable. But a successful legal action will make that happen a lot sooner.
Time Warner Cable will most certainly argue that every cableco has to haggle over content and cut deals with content owners over how those deals will be afforded. But a court doesn’t have to simply throw this out because this is how the process has always worked in the past. A judge has to decide if the consumers here have any choice to take their viewing elsewhere, or if there is some form of monopoly going on. If a customer is halfway through a 2 year contract, they may have to pay a sport inflated price for part of that contract, at least, so cancellation the moment Time Warner Cable ups the bill, is not an option.
If the case is not immediately dismissed it will create a climate of nervousness among content businesses which conduct the practice of channel bundling, and there may be some movement in the position of the larger content business in the US, such as Viacom. Offering smaller bundles, and making more optional, would probably prevent any other case going to court, and act as a holding position, until OTT and catch up takes more of a hold.
The case between Viacom and Cablevision actually hit the courtroom this week, and the first move was for Viacom to ask for the case to be dismissed because Cablevision recently supported the opposite view in a similar case. Viacom said Cablevision helped it persuaded a federal appeals court in March last year to throw out a similar lawsuit. Viacom also said Cablevision has been going along with its channel bundling rules since 2008, so it’s a little late to complain.