Venu Legal Fight Could Have Major Antitrust Implications for Hollywood (original) (raw)

Don’t underestimate the repercussions of what might seem like just another legal drama, as Disney, Fox and Warner Bros. Discovery scramble to appeal the injunction blocking the launch of their joint-venture sports streamer Venu.

It initially seemed unlikely that plaintiff FuboTV would convince regulators to block the service, particularly given the long history of pro-consolidation rulings in the U.S. entertainment business. Any judicial system that would allow the Disney-Fox merger to proceed would surely never block Venu.

But Biden-appointed District Court Judge Margaret Garnett signaled just how much that judicial system has shifted under the current president, laying out a convincing argument for Venu’s antitrust violations in her opinion granting the injunction.

The partner companies’ exclusive deal for Venu to offer their networks outside the cable bundle “allows them to use the [joint venture] to ‘capture demand’ in the market: demand that is the byproduct of their own historical (and ongoing) bundling practices,” Judge Garnett wrote. “The JV is structured and incentivized to maximize the extent to which the JV Defendants keep that demand to themselves.”

This fulfilled my prediction for how Fubo might find a road to victory: As I argued when the lawsuit was filed, the media giants’ anti-“skinny bundle” policies, which prohibit pay TV providers from offering their cable networks outside the bloated multichannel bundle, look much more malicious — and anticompetitive — when the companies are offering such a product themselves.

And indeed, Garnett left the door open for future legal challenges to the cable bundle practices that have defined the pay TV business for decades.

While “the Court need not (and does not) determine the legality of programmers’ bundling practices in order to decide the Motion, it is difficult to avoid the conclusion that, on balance, these practices are bad for consumers,” the judge wrote.

The business practices underlying the cable bundle have been challenged in court before, multiple times in fact, to no avail. Given the enormous transformations of the media landscape since then, however, and with a legal precedent in hand (should the ongoing lawsuit against Venu ultimately end in Fubo’s favor), one can see the contours of a potentially successful case beginning to take shape.

In the opinion dismissing one such case, a U.S. Circuit judge wrote that, while the cable bundle does constitute a “tying arrangement” (forcing consumers to buy a second product or service in order to purchase the one they want), “plaintiffs must also allege facts showing that an injury to competition flows from these tying arrangements.”

With Venu now on the table, Fubo — or whoever wants to invest in an anti-cable bundle lawsuit — could credibly show just that. By reserving the power to offer a skinny bundle for themselves, a plaintiff could argue, the major media conglomerates harmed cable companies’ competitive position in the pay TV marketplace. Garnett’s opinion shows such an argument could win favor with the right judge or jury.

But there are even more potentially seismic implications for the entertainment business in the Venu ruling. If one wanted to advocate for a broader definition of skinny bundles, for instance, one could argue the media giants have been selling such products for several years now — and calling them streaming services.

Indeed, a major headache of the streaming era for cable companies — against which they’re already fighting back — has been the near-instant availability of linear TV content on streamers such as Hulu and (HBO) Max. What are such services if not skinny bundles of their parent companies’ owned cable networks, offered outside the traditional bundle for a much lower price and with additional exclusive content to further sweeten the deal?

Garnett’s injunction even describes Peacock and Paramount+, which offer live feeds of some of their parent companies’ linear networks, as “proprietary [virtual] MVPDs that prominently feature the programmer’s own channels and content.” It’s these kinds of flexible definitions and labels that might allow some brave plaintiff to challenge the entire subscription video on demand model.

Doing so would seem like a leap, to be sure. But it’s not much of a leap to say that the studios launching vertically integrated, direct-to-consumer streaming services restricted competition in the pay TV marketplace. In bypassing distributors, a plaintiff might argue, the studios fundamentally altered this market, thereby limiting traditional providers’ ability to compete for subscribers.

Could such a case break up Hollywood as we know it? Likely not on its own. But the Venu case also has the potential to draw the attention of regulators at the Federal Trade Commission and the Department of Justice back to Hollywood. (Indeed, the DOJ is already reportedly probing Venu itself.) Perhaps the current administration’s emboldened stance on antitrust enforcement could be leveraged to institute new restrictions on vertical integration in the entertainment business.

Or rather, to bring back old restrictions: Students of media history will know studios were once banned from owning the means of distribution for both theatrical films, via the Paramount Decrees, and TV shows, via the FCC’s Financial Interest and Syndication (“Fin-Syn”) rules. Both statutes are now repealed but could be reworked and reintroduced for the streaming era.

To be clear, I’m not saying all of this will happen as a result of the Venu case. The odds of this course of events playing out are slim; while the Biden Justice Department and FTC have shown remarkable willingness to pursue an aggressive antitrust agenda, the coming change in administration could reverse all that, even if Democratic VP (and Dana Walden chum) Kamala Harris prevails.

But the Venu ruling has planted the seeds of a case with the potential to unravel the way the entertainment giants do business, or at least facets of it. If the next administration, or another pay TV provider, is willing to cultivate those seeds, there is a chance, and not an insignificant one, that they could bear fruit.

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