Will Venu-Fubo ruling spell the end for bundles?

On the first day of the preliminary injunction hearing in FuboTV’s lawsuit against the three large media companies behind the sports streaming app Venu, a lawyer for Walt Disney declared if the litigation is about the pay-TV market’s practice of bundling channels together, then it was about 40 years too late.

Late last week, district court Judge Margaret Garnett granted the injunction blocking Venu , ruling that Fubo made a plausible case that the Disney, Warner Bros. Discovery, and Fox Corp. practice of requiring pay TV distributors to take bundled channels, while not requiring it of their own joint venture Venu, is an antitrust violation.

Disney’s lawyer remains right as the ruling did not technically decide whether bundling itself violates antitrust law. Judge Garnett’s ruling came down to the programmers’ having one set of rules for pay TV distributor customers and another for their joint venture.  But in perhaps the strongest words written by a federal judge on bundling, Garnett certainly suggested she held a dim view of the practice.

“[T] he Court need not (and does not) determine the legality of programmers’ bundling practices in order to decide the Motion, it is difficult to avoid the conclusion that, on balance, these practices are bad for consumers,” wrote Garnett, who presided over a four-and-a-half day hearing featuring 18 witnesses, including the president of ESPN, Jimmy Pitaro. “These mind-bending costs do not just hurt the wallets of sports-loving consumers by making them pay for non-sports channels they don’t want, but also hurt those customers who only want entertainment channels but pay significantly higher costs because they are made to pay for unwatched sports, the most expensive of all content.”

In 2012, the 9th Circuit Court of Appeals in a case brought by subscribers to cable TV, rejected their argument that bundling violates antitrust law. This decision ( Brantley v NBCUniversal et al ), arguably the most definitive ruling on the subject, closed the door on a political and consumer push to force programmers and distributors to allow subscribers to choose which channels they wanted to purchase.

“ Although plaintiffs may be required to purchase bundles that include unwanted channels instead of purchasing individual cable channels, antitrust law recognizes the ability of businesses to choose how they do business absent an injury to competition,” the 9th Circuit wrote.

But Judge Garnett’s words could resuscitate the anti-bundling effort, said Frank Hawkins, a former top NFL executive and currently a media consultant.

“ This opens the door on bundling, and it opens the door in a way that I don’t know whether this is the case that does it, but there’s going to be challenges to bundling,” Hawkins said. “My guess is that the parties here aren’t going to proceed with the JV (joint venture)… there is a reasonable chance they’ll abandon this project. And then the question becomes, is there a plaintiff who can, who would pursue the case?”

And the perfect plaintiff, Hawkins said, is the current one.

“Let’s say that they abandon this joint venture, does Fubo then amend its complaint to focus on bundling per se, because they’ve been harmed by the bundling?” Hawkins asked. “In the past, they have been forced to buy stuff that they didn’t want since they want to be a skinny sports bundle, and the judge has basically hinted that, at least in her court, bundling is going to be viewed suspiciously.”

Judge Garnett made clear she is not ruling on bundling per se, just the macro argument Fubo argued: that the three programmers enforced bundling and viewer reach requirements on distributors, but then formed a competitor that did not have to follow the same rules. Venu, if it is ever allowed to launch, is slated to carry 14 channels that either are all sports or whose programming has significant sports coverage.

“But that next question of whether bundling itself is a problem that may not even be decided here, may not even need to be decided here, but at some point, it is going to be decided,” Hawkins said. “Because, you know, technology now permits things a la carte, but business practices are being invoked and designed to inhibit a la carte sales, and a la carte sales are more favorable to consumers. So that conduct is going to be challenged somewhere.“

During the preliminary injunction hearing the media companies lawyers made the argument that pay TV distributors like Venu benefit from the inclusion of channels like Fox News and Discovery. The plaintiffs’ attorneys responded instead that what they want is the right to create a package of sports channels to sell on its own.

Venu is designed to solve a problem bedeviling the industry as streaming increasingly competes with and supplements linear: fragmented coverage of sports. In the pay TV bundle, still bought by about 70 million households, largely all sports are available (some like Comcast are increasingly moving sports-specific channels to tiers).

For a cord cutter or cord never, tapping into sports requires quite a few apps, ranging from Amazon Prime, Peacock, Netflix, Apple +, and antennas to get the broadcast channels (Judge Garnett made a good point that given digital distributors like Fubo, the term should be pay TV cutters). And next year Disney says it will make its ESPN channels available directly to consumers.

That’s a lot of apps, so Venu by bringing so many sports under one roof, gave the digital customer a new option, even if it wasn’t the complete coverage offered by pay TV. Fubo’s point is it has all along wanted to present that option but has been thwarted by the bundling requirements.

With Venu at least for now thwarted and possibly dead (the three media companies vow to appeal), Fubo could ultimately make a new legal case that it should be allowed to offer that sports bundle. And if it does, the company can only hope to return to Judge Garnett’s courtroom.

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