Not much attention has been paid to this: a federal lawsuit is challenging Major League Baseball’s management of media rights — and it all hinges on a modern interpretation of MLB’s famed anti-trust exemption.
The class-action lawsuit is simple: a group of fans argue that they’re being denied access to games because of MLB’s blackout rules, MLB AM’s refusal to sell access to broadcasts of local teams even if the team is on the road, and that fees are way too high for game broadcasts. MLB’s counter argument in a motion for dismissal: its antitrust exemption allows it to establish any sort of broadcast contract it sees fit, even if they would be anticompetitive without the exemption. U.S. District Judge Shira Scheindlin rejected that argument earlier this month, and MLB is appealing that decision to the 2nd U.S. Circuit Court of Appeals. From The Hollywood Reporter:
In Judge Scheindlin’s ruling, she determined that MLB’s antitrust exemption doesn’t apply “to a subject that is not central to the business of baseball, and that Congress did not intend to exempt — namely, baseball’s contracts for television broadcasting rights.” As a result, she allowed the plaintiffs to pursue claims that MLB, Comcast and DirecTV have violated antitrust law by making anticompetitive agreements that negatively impact the output, price and perhaps even quality of game telecasts.
MLB is quite disturbed by the opinion and now wants to go before the 2nd U.S. Circuit Court of Appeals to present this issue: “Whether the professional baseball exemption to the antitrust laws bars Plaintiffs’ claims against Major League Baseball with respect to Major League Baseball’s territorial broadcast rules and structure.”
It’s an interesting issue. On the one hand, the power wielded by MLB AM when it comes to digital rights is tremendous, and for baseball junkies like us a league pass is great entertainment. But it’s also a pain in the butt not to be able to watch local broadcasts, essentially forcing us to buy a cable or satellite TV subscription in order to watch a favorite team. We’re seeing a direct clash between an old business model and a new business model. The cable model is pretty simple: you’re forced to pay a high monthly subscription to pay for a whole lot of channels you’ll never watch. But we’re seeing the Internet challenge this model, as cord cutters are dumping the cable subscriptions and buying content a la carte (Netflix, Hulu Plus, Crackle) without the cable tax.
This is a case that could decide the future of Major League Baseball financials. MLB’s business model is based on three legs: increased ballpark revenues thanks to new facilities; rapidly rising broadcast fees from RSNs; and digital media/licensing fees from MLB AM. The first part of the business model is solid: revenues have never been higher. The second part of the business model would surely be severely challenged by a decision going against baseball: prying exclusive rights from the RSNs would surely lead to decreases in broadcast-right revenues. But the third leg, MLB AM, could actually be enhanced by a decision going against MLB. Offering local broadcasts would immensely increase the value of an MLB.TV subscription. And more subs means more revenue, without necessarily cutting into national broadcast deals negotiated by MLB AM. Of course, the sound legal theory for MLB is to ride the antitrust exemption as far as it goes. But if a court — whether it’s an appeals court or the U.S. Supreme Court — holds that the antitrust exemption can’t be stretched to cover broadcast rights (and Congress certainly never did intend for that to happen), then expect some big changes on the media side of the baseball equation.
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