A New York cable provider, Cablevision, sued Viacom for antitrust violations in connection with its practice of wholesale bundling, in which it forces cable providers to purchase packaged channels owned by the wholesaler.
How it affects you:
Wholesale and retail bundling of TV channels may both violate antitrust law. Wholesale bundlers sell TV channels to retailers. Retail bundlers sell TV channels to consumers. The current lawsuit focuses on wholesale bundling, but could have implications for retail bundling, including eventually allowing consumers to select the channels they want. All readers of this blog who have cable service inevitably have access to cable channels they never watch. This is retail bundling, and there are two primary ways retailers bundle their channels. Sometimes it is done by genre of channel. For example, there are sports packages that include ESPN, FOX sports and CBS sports channels. Sometimes channels are bundled by wholesale company. For example, Viacom owns Comedy Central and MTV, and those are often packaged together.
In both wholesale and retail bundling, consumers are forced to buy channels they do not want. More investigation is needed to ultimately determine whether the practice violates antitrust law. Bundling entails the provision of more than one item or service to a customer as a package, in which the purchase of one item is conditioned on the purchase of the other or others. The practice is inherently suspect for two primary reasons. First, it requires the customer to purchase one or more items or services they do not want or need. Second, it creates a situation in which predatory pricing may arise. If there are multiple items or services, the bundler can offer discounts on the product with high demand, and then spread the cost of that item or service over the remaining bundled items.
In the cable TV context, there is no current indication of predatory pricing, because there is no indication that individual channels are being offered at deep discounts but conditioned on the purchase of other higher priced channels. Both wholesale and retail bundling, however, are suspect and worth more investigation. If the procompetitive justification outweighs the anticompetitive effects, then wholesale bundling will not run afoul of antitrust law. If the anticompetitive effects outweigh the procompetitive justification, wholesale bundling will violate antitrust law. We do not have enough information to make a sweeping announcement whether the practice does or does not violate antitrust law. Fortunately, the practice is getting examined. We will have to wait and see about retail bundling.