A federal judge in Colorado late last month said that an antitrust suit brought by regional sports network Altitude Sports against Comcast can move forward, a development that could have broader implications for future negotiations between sports channels and distributors. Or maybe not.
The rift between Altitude Sports and Comcast started more than a year ago. Back in November 2019, the RSN, owned by Colorado Avalanche, Denver Nuggets and Los Angeles Rams owner Stan Kroenke’s Kroenke Sports & Entertainment, claimed that Comcast refused to extend its carriage deal and instead proposed putting the channel on a separate sports tier, a move that would drastically reduce its revenue. Altitude Sports claimed that Comcast was taking that stance in a move to take over the RSN’s programming for its own sports channel -- NBC Sports Network -- and further exert its monopoly influence in the Denver market.
Comcast moved to have the case dismissed and in making his Nov. 25 decision to let the case go forward, U.S. District Court Judge William Martinez dismissed many of Altitude’s claims. For instance, he didn’t buy the idea that Comcast was trying to monopolize the Denver market because by dropping Altitude, it faces losing subscribers and diminishes its market power. But he cautiously accepted at least one of the programmer’s claims -- that Comcast’s hard line stance in the negotiations could be proof that it is refusing to deal with the channel. That is a fine line -- Comcast claims it wants to move the channel to keep costs down for its other customers -- but one the judge says he must consider fully, citing prior cases that have shown instances where “[a] refusal to deal may cross the line from permissible to predatory,” according to the suit. “... Although Comcast characterizes Altitude’s allegations that it will enter the market with its own RSN as baseless and speculative, viewing the allegations in the light most favorable to Altitude, and drawing all reasonable inferences in Altitude’s favor, as the Court must at the dismissal stage, the Court finds Altitude has alleged facts sufficient to show that its allegations of anticompetitive conduct are plausible.”
In a statement, Comcast said it is “encouraged that the Court dismissed most of Altitude’s frivolous claims at this early stage in the proceeding, and expressed skepticism about the one claim it did not reject outright. We agree with the Court’s skeptical view of the remaining allegations and look forward to getting the rest of the case dismissed promptly.”
Altitude Sports is available in 10 states -- Colorado, Kansas, Nebraska, Idaho, Montana, Wyoming, Utah, Northern New Mexico, Northeast Nevada and Southwest South Dakota. The RSN carries games and programming from the NHL Colorado Avalanche, the NBA Denver Nuggets, Major League Soccer’s Colorado Rapids, the National Lacrosse League Colorado Mammoth and college sports from the University of Denver.
Last year the RSN reached a deal with DirecTV in November after a two-month blackout. The network had previously gone dark to Dish Network in August 2019 and has yet to reach a deal. Dish has said it would return the channel to its subscribers if it was allowed to sell it directly to customers who want it, with all the proceeds going to the network. That is similar to putting the channel on a tier and Altitude has declined that offer.
Distributors have been trying for years to move sports channels to pricier tiers to offset their costs and to appease non-sports loving customers who complain about paying for channels they don’t watch, all to no avail. For the networks, being moved to a tier is basically a death sentence -- it drastically reduces the number of subscribers it is exposed to which severely lowers advertising rates. In the suit, Altitude said under its old deal with Comcast, it was available to about 70% to 85% of the distributor's customers in the Denver area. In a separate sports tier, that exposure would plummet to 15%-to-20% or less.
The Comcast dispute comes at a time when regional sport networks are coming under fire. Sinclair Broadcast Group, which paid about $10 billion for Disney’s former Fox Sports RSNs, has seen revenue plunge at those channels as the pandemic has shortened seasons for teams across the board. In Q3, Sinclair took a $4.2 billion charge related to its RSN assets when distribution revenue took a nosedive after the loss of two major virtual MVPDs (Hulu + Live TV and YouTube TV) and increased traditional subscriber losses.
So it’s pretty obvious that regional sports channels are looking for ways to make up the difference. And though it looks like Comcast could prevail, this is 2020, anything can happen.
But I’m not sure much changes, no matter which side wins.
If Comcast wins, they could technically put every sports network on a tier, but that doesn’t mean the networks have to accept that, so it’s likely the status quo would remain. And if Altitude does prevail in receiving broader carriage through the courts, they may get more than they bargained for, according to some analysts.
“It’s the law of unintended consequences,” MoffettNathanson principal and senior analyst Craig Moffett said. “If the Court decides that RSNs are within their rights to demand carriage on the basic tier, then it will only mean that more and more distributors will drop them entirely.”
One good thing that may come out of this is as the pandemic has bolloxed up the sports leagues, it has backed up the courts as well. Chances are it will take a while before a final decision comes.
“These are the sorts of procedures that in regular times take multiple years and my understanding is that the courts are slowed up in general because of the pandemic, so this is a long process,” said sports analyst Lee Berke, president and CEO of LHB Media & Entertainment. “If there are any implications from any of this, it will be years out. I don’t think it is anything that impacts current activity.”
So my guess is that everything remains relatively the same. Altitude is no pushover and Comcast has been known to play hardball with RSNs -- it didn’t carry the YES Network for the entire 2016 baseball season over a carriage dispute, but reached a deal in January 2017, with the network returning on March 31,just before Opening Day. But I think this time might be different.
This is simple economics. Even in an era where more and more customers are dropping video for streaming services, sports draws viewers, and Comcast probably doesn’t want to lose any more video customers than it has to. And Altitude probably doesn’t want to give up the affiliate fees and ad revenue associated with cable carriage for the uncertainty of streaming-only just yet. So, it is likely that they reach a deal, probably around the start of the NBA regular season (Dec. 22) or the NHL regular season (Jan. 1) give or take a few days or weeks, with both sides getting a little of what they wanted and a little of what they didn’t. That way, everyone gets to say they won.
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Mike Farrell is senior content producer, finance for Multichannel News/B+C, covering finance, operations and M&A at cable operators and networks across the industry. He joined Multichannel News in September 1998 and has written about major deals and top players in the business ever since. He also writes the On The Money blog, offering deeper dives into a wide variety of topics including, retransmission consent, regional sports networks,and streaming video. In 2015 he won the Jesse H. Neal Award for Best Profile, an in-depth look at the Syfy Network’s Sharknado franchise and its impact on the industry.