Conditions Prohibit Charter from Imposing Restrictions that Impede Online Video Distributor Access to Video Content
Washington, DC–(ENEWSPF)–April 25, 2016. The Department of Justice announced today a settlement that permits Charter Communications Inc. to complete its $78 billion proposed acquisition of Time Warner Cable Inc. (TWC) and its related $10.4 billion acquisition of Bright House Networks LLC (BHN) from Advance/Newhouse Partnership. The settlement forbids the merged company, referred to as “New Charter,” from entering into or enforcing agreements that could make it more difficult for online video distributors (OVDs) to obtain video content from programmers.
The Justice Department’s Antitrust Division filed a civil antitrust lawsuit today in the U.S. District Court for the District of Columbia to block the merger, along with a proposed settlement that, if approved by the court, would resolve the competitive harm alleged in the lawsuit. The department’s complaint alleges that, as a result of the proposed merger, New Charter would have greater incentive and ability to impose or broaden contractual restrictions on programmers that limit their ability to distribute their content through OVDs. According to the complaint, TWC has been an industry leader in seeking such restrictions; with its much larger subscriber base, New Charter would have even more to gain from frustrating OVD competition.
The Chairman of the Federal Communications Commission (FCC) today will circulate an order that would approve the combination of Charter, TWC and BHN subject to conditions. The department and the FCC consulted extensively to coordinate their reviews of the proposed merger and devise remedies that were both consistent and comprehensive.
“Online video distributors offer consumers greater choices for video services,” said Principal Deputy Assistant Attorney General Renata B. Hesse, head of the Antitrust Division. “This merger would have threatened competition by increasing the merged company’s leverage to demand that programmers limit their licensing to these online providers. Together with our counterparts at the FCC, we have secured comprehensive relief and we will work together to closely monitor compliance to ensure that New Charter will not have the power to choke off this important source of disruptive competition and deny consumers the benefits of innovation and new services.”
According to the department’s complaint, the combination of Charter, TWC and BHN into New Charter would create the second-largest cable company and the third-largest multi-channel video programming distributor (MVPD) in the United States, with over 17 million video subscribers. As the complaint explains, TWC has been the most aggressive MVPD in the industry in securing Alternative Distribution Means (ADM) clauses in its contracts with programmers that either prevent the programmer from distributing its content to OVDs or place certain restrictions on such online distribution. The complaint alleges that New Charter, which will have almost 60 percent more subscribers than TWC standing alone, would have even more to gain from imposing ADMs and other contractual provisions that make OVDs less competitive. As a result, the complaint alleges that the merger would likely result in a substantial lessening of competition for video programming distribution services.
Under the terms of the proposed settlement, New Charter will be prohibited from entering into or enforcing any agreement with a programmer that forbids, limits or creates incentives to limit the programmer’s provision of content to one or more OVDs. The settlement further provides that New Charter will not be able to avail itself of other distributors’ most favored nation (MFN) provisions if they are inconsistent with this prohibition. The settlement also prohibits New Charter from retaliating against programmers for licensing to OVDs. The department said that it would continue to closely monitor developments in the industry and would vigorously enforce compliance with the proposed settlement to ensure that New Charter does not use the influence it will have as one of the nation’s largest MVPDs to restrict or discourage programmers from licensing their content to OVDs.
The department said it also examined whether the merger would allow New Charter to become an unavoidable gatekeeper for internet-based services, including OVDs, that rely on a broadband connection to reach consumers. The department previously expressed significant concerns about an earlier attempt to acquire TWC by Comcast Corporation, which is significantly larger than Charter, because that transaction would have enabled the combined firm to control access to nearly 60 percent of high-speed broadband subscribers, and would likely have resulted in higher internet interconnection fees that could have limited OVDs’ ability to compete effectively with traditional MVPDs. The order circulated by the FCC Chairman today would impose an obligation on New Charter to make interconnection available on a non-discriminatory, settlement-free basis to companies that meet basic criteria. In light of the remedy sought by the FCC Chairman, the department elected not to pursue duplicative relief in its own lawsuit.
Charter is a Delaware corporation headquartered in Stamford, Connecticut. It is the third-largest cable company in the United States and the sixth-largest MVPD, with over 4.3 million video subscribers across 28 states. Charter’s reported revenues for 2014 were approximately $9.1 billion.
TWC is a New York corporation with its headquarters in New York City. With approximately 11 million video subscribers across 30 states, TWC is the second-largest cable company in the United States and the fourth-largest MVPD. TWC’s 2014 reported revenues were approximately $22.8 billion.
Advance/Newhouse is a New York partnership with headquarters in East Syracuse, New York, and is the sole owner of BHN, a Delaware limited liability company headquartered in East Syracuse. BHN is the sixth-largest cable company in the United States and the ninth-largest MVPD. BHN’s cable systems serve approximately 2 million video subscribers across six states. BHN’s 2014 revenues were approximately $3.7 billion.
The department will file a competitive impact statement after the FCC adopts an order allowing the merger to proceed. As required by the Tunney Act, after the department has filed its competitive impact statement, the proposed settlement will be published in the Federal Register. At such time, any person may submit written comments concerning the proposed settlement during a 60-day comment period to Scott Scheele, Chief, Telecommunications & Media Enforcement Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 7000, Washington, D.C. 20530. At the conclusion of the 60-day comment period, the U.S. District Court for the District of Columbia may enter the proposed settlement upon finding that it is in the public interest.