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Regulators Ready to Take the Field for Dodgers Dispute

The impasse over rights to the Los Angeles Dodgers, which has left 70% of television viewers in the market unable to access broadcasts of the hometown baseball team’s games, indicates that there may just be a limit to the stratospheric cost of sports rights.

More than halfway through the season, Time Warner Cable has been unable to come to an agreement with DirecTV or other major distributors to carry SportsNet LA, the channel that carries only Dodgers programming, including all games, for which it snapped up rights at the staggering cost of reportedly more than $8 billion over 25 years. It is seeking between $4 and $5 per subscriber to pay the freight.

The imbroglio has federal regulators and elected officials paying increasing scrutiny to the complex world of regional sports networks, in which demand for live events drives programmers to pay increasing rates that are at least in part passed on to the consumer.

The situation with the Dodgers, though, is an extreme case of rights gone awry — and there could be long-term implications.

“There is something wrong when people can’t access television coverage of their hometown baseball team, and that has to be corrected,” said Rep. Henry Waxman (D-Calif.). “Consumers are stuck in the middle.”

The situation drew public condemnation by D.C. lawmakers last week. Rep. Tony Cardenas (D-Calif.) and seven other members of the state’s congressional delegation urged the FCC to step in and mediate the dispute. Rep. Brad Sherman (D-Calif.) and five other lawmakers pressed TW Cable and DirecTV to enter into binding arbitration. TW Cable agreed to the concept; DirecTV did not.

The situation is not without precedent. In 2003 Cablevision came to an agreement with YES Network, which carries New York Yankees baseball and Nets basketball, after a yearlong impasse that ultimately ended when New York Mayor Michael Bloomberg helped set up mediation.

In the case of SportsNet LA, there has been a wider bombshell — with tremors felt in corporate boardrooms. FCC chairman Tom Wheeler fired off a letter last week to TW Cable CEO Rob Marcus, noting that lawmakers are concerned that the dispute has the potential to become a model in which vertically integrated companies hold consumers hostage to assert “unfair market dominance.” He cited a provision of the 1992 Cable Act that authorizes the FCC to stop anticompetitive activity in the pay-TV marketplace.

One avenue to exert that authority: merger review. While the FCC is holding off for now, analyst Paul Gallant of Guggenheim Partners, whose chief executive is lead owner of the Dodgers, wrote that Wheeler could use the dispute to address the broad issue of rising pay-TV prices.

For its part, TW Cable said it was grateful for the FCC’s intervention. While that politesse may reflect confidence that there is nothing unfair about the way it has been negotiating carriage deals for the Dodgers, the cabler has every reason to appear friendly: The FCC is reviewing the proposed acquisition of TW Cable by Comcast, and the baseball standoff may well add to the scrutiny the agency pays to the wider transaction.

While the Justice Dept. will look at the merger on antitrust grounds, the FCC will examine whether the deal is in the public interest — which gives it much more leeway in making its decision.

Amanda Wait, antitrust attorney and partner at Hunton & Williams in Washington, D.C., said that during such reviews, a company’s track record is part of the public-interest standard. “The FCC might be thinking that if TW Cable is not playing nice in the sandbox today, and it becomes part of an even bigger cable company with even more power, that would give it less incentive to play nice in the future,” Wait said.

While many on Wall Street predict the Comcast-TW Cable merger will go through, Gallant wrote that a concern for the merged company is that the FCC will demand “onerous conditions.” That might include the idea of a la carte pricing, in which a consumer could single out which channels to pay for, rather than having to choose among pre-bundled options. DirecTV is arguing for a la carte pricing in its dispute with TW Cable over the Dodgers. The satcaster said that forcing all its subscribers to ante up for SportsNet LA would be like demanding everyone “bail Time Warner Cable out” of a bad deal.

The problem is that it’s doubtful such economics would work. Offered a la carte, the Dodgers channel would cost much more than $4 to $5 a month — perhaps exponentially more.

But David Rone, president of Time Warner Cable Sports, called DirecTV’s argument hypocritical, noting that the satcaster’s customers have a “regional sports fee” on their bills, with the price raised earlier this year in what Rone contended was anticipation of landing a Dodger deal that hasn’t come to pass. Rone also said that what they are seeking a deal to distribute Sportsnet LA “in the same manner DirecTV distributes every other sports network in the country.”

DirecTV contends that the fee increase was to cover the cost of carrying the Lakers network, which TW Cable also distributes.

Meanwhile, as the first-place Dodgers — flush with a lineup of pricey stars, financed in large part by their rich sports rights deal — seem headed for the playoffs, pressure figures to mount to get a deal done, while many Angelenos try to wrap their minds, and wallets, around the idea of paying for games they used to watch for free.

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