The Future of Channel Bundling: Full Course Option, or TV à la Carte?

Two summers ago, we highlighted in these pages the potential significance of an injunction action—then-pending before Judge Alison Nathan in the Southern District of New York—brought by several broadcasters (including CBS, ABC and NBC) against the start-up Aereo, a company that challenged existing broadcasting norms by using tiny antennas to receive broadcast signals and then transmitting the content to its users via the Internet. This past June, the U.S. Supreme Court handed the broadcasters a definitive victory, finding that Aereo’s service violates the Copyright Act of 1976.¹ Considerably less ink has been devoted thus far to another lawsuit now pending in the Southern District, which to a different degree also threatens long-standing commercial practices in the cable and satellite industry. In Cablevision Systems v. Viacom Int’l,² a major distributor of cable television programming, Cablevision, sued one of the industry’s largest programmer conglomerates, Viacom, over the common practice of “channel bundling” (i.e., offering popular, or “must-have,” channels together with unpopular channels). Cablevision claims that its 2012 license agreement with Viacom, which allegedly requires Cablevision to license a dozen, less-popular networks (such as Palladia, MTV Hits and VH1 Classic) as a condition to licensing four more desirable networks (such as Nickelodeon, Comedy Central and MTV), constitutes a per se illegal “tying” arrangement under federal and New York antitrust laws, as well as prohibited block-booking.

On June 20, 2014, Judge Laura Taylor Swain denied Viacom’s motion to dismiss, and as the parties proceed to discovery, it behooves industry-watchers to follow developments in this latest challenge to channel bundling, as it could have ramifications on how channels are licensed at the wholesale level (from programmer to distributor) and then sold at the retail level (from distributor to consumer). Indeed, Cablevision’s lawsuit comes on the heels of Brantley v. NBC Universal,³ an unsuccessful attempt by a putative class of television consumers in the Ninth Circuit to bar channel bundling in both the programmer-to-distributor and distributor-to-consumer markets as illegal tying arrangements. Notably, both Viacom and Cablevision were defendants in Brantley.