A lawsuit filed against Comcast today accuses the cable company of using its market power to try to drive a regional sports network out of business.

The lawsuit was filed in US District Court in Colorado by Altitude Sports, a network that broadcasts games played by the Denver Nuggets, Colorado Avalanche, and other local professional and college teams. Altitude has been blacked out on Comcast since August 31, as the companies haven’t agreed on what price Comcast should pay to carry the network.

Filing a lawsuit is at least partly a negotiating tactic in cases like this one, but Altitude claims that this is more than a simple price dispute. Comcast is offering less than Altitude’s actual costs because it wants to drive Altitude out of business and then acquire the TV rights to the Denver sports teams itself, Altitude alleges.

“This complaint alleges textbook anticompetitive conduct,” Altitude lawyer William Isaacson said in an announcement of the suit. “This lawsuit aims to stop Comcast from abusing its monopoly power to impose terms on Altitude to drive it out of business and prey on Denver-region families.”

Comcast would be able to “quickly and easily take over regional sports production” in the Denver area if it forces Altitude out of business, the lawsuit said.

Comcast dominates Denver TV market

Comcast owns the regional sports networks in major cities such as New York, Boston, Chicago, Philadelphia, and Washington, DC. But Altitude is owned by Kroenke Sports & Entertainment, which also owns the Nuggets and Avalanche, so Comcast has to purchase access to the channel in order to broadcast the top sports teams in Denver.

Comcast has a 57-percent share of the pay-TV market in the Denver area, compared to DirecTV’s 25 percent, the lawsuit said. Comcast’s dominance of the market “has increased since its first Altitude agreement over 15 years ago, as part of an unprecedented wave of [pay-TV] consolidation, expansion, and vertical integration,” the lawsuit said. Altitude says this allows Comcast to exercise monopsony power, in which a buyer becomes so large that it effectively controls the market.

In the recent negotiations, Altitude offered a five-year contract renewal with terms similar to the previous deal, but Comcast demanded “dramatic cuts in rates to be paid to Altitude,” Altitude’s lawsuit said. Comcast also proposed moving the Altitude channel from a cable package that reaches at least 70 percent of Comcast’s local subscribers to one that only 15 percent of Comcast customers subscribe to, which would lower the amount Altitude can charge for TV advertisements, the lawsuit said.

Comcast knows these proposals “are economically unsustainable for Altitude or any RSN [regional sports network],” Altitude said. The rates offered by Comcast “were entirely unreasonable and unworkable for Altitude given the costs it pays to rights holders and its production costs,” the lawsuit said.

Comcast also rejected Altitude’s offer of a one-year extension under the previous rates and terms, which would have given “the parties more time to negotiate a long-term solution and avoid a situation in which Altitude was blacked out by Comcast,” the lawsuit said.

Here’s one of the key parts of the complaint, in which Altitude details its allegation that Comcast’s long-term plan is to buy the broadcasting rights to Denver sports teams:

By negotiating fees and carriage that undermine an independent RSN and require it to charge below its costs, Comcast knows that it can cause any independent RSN to go out of business. Comcast may then reacquire the content by either purchasing the RSN’s television rights themselves or by ensuring that the RSN becomes part of some other consolidated ownership. Once Comcast reacquires the content, the subscribers return, mitigating any longterm losses. For these reasons, Comcast is incentivized to suffer a short-term temporary loss of subscribers to achieve enormous long-term gains.

Comcast is now using its monopsony power in the wholesale purchase of sports programming in the Denver DMA (designated market area) to drive Altitude out as a competitor in this exact manner.

After Comcast puts Altitude out of business, Comcast will attempt either to buy Altitude or set up its own RSN to replace Altitude. This means that Comcast is not only violating the antitrust laws’ prohibition on acquiring or maintaining monopoly (monopsony) power as a buyer in the Programming Market (the market where Altitude sells its productions); Comcast is also illegally attempting to monopolize the Production Market (the market in which Altitude and other RSNs compete to create programming) by replacing Altitude with Comcast’s own captive RSN. Comcast’s attempt to monopolize the Production Market is a separate and independent violation of the antitrust laws.

Comcast has taken a far different approach with RSNs it owns itself, Altitude said. “Comcast has not made demands of or imposed drastic rate cuts or carriage reductions on its own affiliated RSNs throughout the country,” Altitude said. For the Comcast-owned networks, Comcast continues to “sign new contracts for rates, equal to or higher than what it previously paid to Altitude,” the lawsuit said.

Altitude’s lawsuit asks the court for a declaratory judgment that Comcast violated antitrust laws and “tortiously interfered” with Altitude’s business relationships with sports teams and advertisers. Altitude also asked for compensatory and punitive damages and an order that Comcast “distribute Altitude’s programming on reasonable, non-discriminatory terms.”

Comcast charges regional sports fee

Altitude was also blacked out on DirecTV, but the blackout ended in early November when the companies agreed on a price and distribution terms. Both Comcast and DirecTV charge a monthly “Regional Sports Network” fee to cover the cost of distributing networks like Altitude. Colorado Attorney General Phil Weiser is investigating the companies’ decision to keep charging the fee during the blackout.

While DirecTV owner AT&T made it difficult for customers to get refunds on that fee during the blackout, Comcast automatically issued partial bill credits to account for the blacked-out channel. Comcast justified its decision to charge the remainder of the fee by noting that it also carries AT&T SportsNet Rocky Mountain channel, which broadcasts Colorado Rockies baseball games, and the Pac-12 network that broadcasts college sports.

Altitude’s lawsuit criticizes the Regional Sports Network fee, saying that it amounts to a “monopoly rent” charged to consumers. “The fees Comcast pays for regional sports programming in the Denver DMA dropped dramatically, but Comcast offered only a token bill reduction (as a public relations move after consumer outcry),” Altitude said.

We contacted Comcast about Altitude’s lawsuit and will update this article if we get a response.

https://arstechnica.com/?p=1603643