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Time Warner Cable Lawsuit: Another Attack on Channel Bundling

The cable industry’s practice of bundling channels is facing pressure from plenty of consumer groups, upstart competitors and John McCain. But the question posed by a class action suit is whether there is a case to be had for the many customers who pay the bills.

Four subscribers to multichannel services filed a class action suit earlier this week against Time Warner Cable, claiming that that $11 billion in rights deals it has made with the Dodgers and the Lakers will be passed on to customers who have no choice other than to get the sports channels in enhanced basic cable packages. Time Warner Cable has had no comment, but is expected to file a response in Los Angeles County Superior Court.

In February, Cablevision filed suit against Viacom, challenging Viacom’s practice of bundling, or forcing it to accept lower-rated channels in exchange for getting the more prized ones, like MTV and Nickelodeon. Cable operators and satellite providers have long complained about such take-’em-all-or-take-none negotiating tactics, and say that they are the ones that take the blame when they try to recoup the elevated costs with consumers.

What is different about the suit against Time Warner Cable is that it comes from the consumer, on the grounds that it is violates California law against unfair competition. The attorneys for the plaintiffs, Maxwell Blecher and Courtney Palko, note that the statute prohibits “any unlawful, unfair or fraudulent business act or practice.”

“The practices have caused cable subscribers in Southern California to part with money they would not have, if given free choice,” the suit stated. “There is no practicable way consumers could avoid this injury.”

Another difference is that Time Warner Cable owns the Dodgers and Lakers channels, and, Blecher said in an interview, “They don’t have any contractual obligation to market them as part of a bundle.” The Dodgers and the Lakers also were named in the suit.

The next hurdle for the plaintiffs will be to get past Time Warner Cable’s inevitable motion to dismiss the case. Aaron Liskin of Kinsella, Weitzman, Iser, Kump & Aldisert said that a challenge is that “every provider bargains for prices and those get passed on to consumers all the time.”

“It seems to be the complaint is really a complaint about the way the entire cable industry operates,” said Liskin, who said that he “understands the frustration” but has doubts about the unfair competition claim.

“I kind of feel like if you don’t like the options of cable, cancel it, and send a message that way,” he said.

But Blecher uses the analogy of going to the supermarket, and the business forcing you to take and pay for a case of Pepsi as you go through the checkout line. The statute, he notes, is meant to protect competitors and consumers, broadly covering three varieties of unfair competition.

“Somebody doesn’t get the chance to say, ‘I don’t want this,'” he said.

Blecher, a prominent Los Angeles antitrust attorney, challenged the industry before: He filed a class action last year on behalf of subscribers who claimed that channel bundling violated the Sherman antitrust act. But a federal court dimissed the suit, and the 9th Circuit Court of Appeals last year refused to reverse that decision. The appellate panel ruled that the plaintiffs had not shown that the bundling practices created an injury to competition.

What the Time Warner Cable suit does do is only add to complaint over cable bills, even as operators contend that they are hamstrung by major media companies demanding ever-greater license fees. The National Assn. of Broadcasters, pushing back against efforts to reform the way that TV stations negotiate with operators for the right to carry their signals, cited the lawsuit as an example of how flush the cable business is with cash.

McCain last month proposed legislation to spur operators to offer channels ala carte, and seems determined to trumpet the bill even if it is unlikely to get very far in this Congress.

A  longtime Democrat, Blecher said, “Politics makes strange bedfellows.”

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