The push for à la carte cable TV spilled into courts this week when four Los Angeles residents filed a class-action complaint (pdf) against Time Warner Cable (TWC) for “invidious” bundling of expensive sports games. The aggrieved customers say Time Warner is passing on roughly 60 percent of its massive costs to broadcast Lakers basketball and Dodgers baseball games to all its local customers, including those, like the plaintiffs, who couldn’t care less about sports.
The filing alleges Time Warner is abusing its position as the primary cable provider in the area. “There is no legitimate business, legal, technological or economic reason why Time Warner cannot offer these Lakers and Dodgers games on a standalone channel basis,” the complaint argues. What the plaintiffs are seeking, beyond an unspecified amount of restitution and lawyer fees, is more flexibility to pick and choose the cable channels they pay for, a shift the cable-TV industry has resisted in favor of the current model offering masses of channels in big bundles, or “tiers,” of service.
Time Warner bought the rights to the Lakers in early 2011 for an estimated $3 billion, and earlier this year the cable provider struck a reported $7 billion deal for the rights to broadcast 25 years of Dodgers games. All told, those agreements will show up on cable bills as an additional $8 to $9 a month, according to the filing. Time Warner, which declined to comment on the case, raised rates immediately after the Dodgers deal.
In an age of seemingly infinite consumer choice, it seems like it would be fairly tough for a customer to claw back cash for unwanted add-ons. Imagine an airline traveler who doesn’t use the inflight entertainment system suing over the cost of his ticket. But the skyrocketing cost of broadcasting sports may be testing an important boundary in the TV business, with even cable companies such as Time Warner showing signs of resistance. Time Warner refused to budge on broadcast rights for the New York Knicks last year, for example, and was promptly sued by basketball fans who missed out on the hot streak of Jeremy Lin.
By and large, though, broadcasters keep paying huge sums to lock up games, because live competition is one of the last barriers to time-shifting recording devices and streaming services such as Roku. Consider NBC’s Sunday Night Football: Almost 22 million people, on average, tuned into each installment last season. That’s a huge audience, and one that likely isn’t skipping commercials or can’t easily wait to stream it the next day.
Even cable pioneer John Malone, chairman of Liberty Media (LMCA), has floated the idea that companies offer more expensive sports services such as ESPN (DIS) on an à la carte basis. Here’s how he described the situation to the Los Angeles Times in November: “We’ve got runaway sports rights, runaway sports salaries and what is essentially a high tax on a lot of households that don’t have a lot of interest in sports. The consumer is really getting squeezed, as is the cable operator.”
Time will tell how the new legal challenge to the status quo plays out in Los Angeles courts. But the plaintiffs may have an unlikely ally: the company they are suing. At an analyst meeting earlier this month, Time Warner Chief Executive Glenn Britt suggested big TV packages are getting “too expensive for lower-income people.” He said: “It would behoove the whole industry—including the content companies who are all crowing about their pricing power—to pay attention, because it will come to some end that we may not like if we all keep behaving the way we are.”