The Southern District of New York took the extraordinary step of granting competitor Fubo’s effort to preliminarily enjoin the launch of “Venu Sports,” a sports-streaming joint venture between Disney, Fox, and Warner Brothers Discovery.1 The defendants would license their collective sports content unbundled from non-sports programming exclusively to the joint venture while continuing to require competing distribution platforms like Fubo to purchase sports programming as part of a bundle with non-sports programming. Indeed, the court explained that “shortly before the JV was announced, the JV Defendants explicitly agreed to ‘stay clear’ of supporting another platform like the JV for at least the next three years.” In determining that the joint venture would likely substantially lessen competition, the court stated that the defendants’ history of bundling provided “crucial context” for its determination that the joint venture’s market power and structure created incentives for the defendants to monopolize a segment of the live pay TV market. The defendants plan to appeal the ruling.
The court found that the joint venture would “exercise near-monopolistic control over the ability for a different live-sports-only streaming service to exist and compete with the [joint venture].” The joint venture members collectively own “at least 60 [percent] of all nationally broadcast U.S. sports rights” and nearly 75 percent of the rights for NFL, NBA, MLB, NHL, and college football. While noting that the members of the JV competed against each other for licensing live sports content, it stated that “together, they are dominant.”
The court identified five ways the creation of Venu Sports would result in a substantial lessening of competition:
- Venu Sports included an explicit non-compete agreement among the defendants that would prevent any defendant from licensing its unbundled sports content outside of the joint venture.
- Even absent the non-compete agreement, the existence of Venu Sports incentivizes the defendants to “prevent and suppress other potential sports-focused bundles from meaningfully competing,” noting also the defendants collectively “have the market power to follow through on these incentives.”
- Venu Sports disincentivizes meaningful competition among the joint venture participants, as at least one of them would need to be involved in the emergence of a legitimate challenger to live sports distribution.
- Venu Sports creates a “comfortable backstop” in all negotiations, leaving them free to raise prices or inflate bundling requirements without consequence.
- The joint venture defendants would ultimately be able to raise downstream prices for consumers, with the court noting that internal documents projected around 10 percent price increases year-over-year after launch.
In the end, the court found that the launch of Venu Sports was likely to substantially lessen competition in the market for live pay TV, including both traditional and streaming distributors, because of the defendants’ history of bundling, their market power, and their incentives to “suppress other potential sports-focused bundles from meaningfully competing.”
The court found the defendants’ persistent use of bundling to force distributors to carry unwanted content has led to increased consumer costs. Bundling occurs when a programmer, such as Disney, sells their channels together in a package to distributors. Programmers frequently bundle popular channels with less popular ones, helping them “extract significant value from under-performing or lower-performing channels.” Like other programmers, the court found that the joint venture members historically bundle their popular sports networks with non-sports networks, effectively forcing distributors like Fubo to pay for non-sports content. Fubo alleges this practice has caused it to offer a “bloated” channel offering, leading it to charge high prices to stay in business. The defendants’ joint venture service, Venu Sports, would be a streaming service containing 14 of the top sports channels in the United States unbundled from non-sports channels.
The court reasoned that these bundling practices have prevented distributors like Fubo from offering sports-only packages despite their desire to do so. Thus, the defendants would be granting Venu Sports exclusive rights that they denied distributors, thereby capturing the demand their history of bundling generated. The court did not determine if the programmers’ bundling practices were illegal. Still, it stated, “it is difficult to avoid the conclusion that, on balance, these practices are bad for consumers.”
The court found that United States v. Columbia Pictures Industries, Incorporated, provided a “strikingly similar scenario to this case.” In Columbia Pictures, film studios’ controlling over half of first-run theatrical releases were attempting to launch a joint venture in the form of a TV channel that would air the studios’ films. The Southern District of New York found that the studios were attempting to capture a burgeoning section of the market at a time (1980) of rapid change, and the Second Circuit ultimately affirmed a preliminary injunction blocking the service’s launch.
The court declined to assess Fubo’s tying allegations, having determined that the joint venture’s likelihood of substantially lessening competition under a Clayton Act merger assessment is sufficient grant the injunction.
In the end, the combination of the joint venture’s market power and structure, as well as the defendants’ history of bundling, led to the court to conclude that “Fubo and American consumers will face irreparable harm in the absence of an injunction.”
The court’s enjoining of Venu Sports emphasizes the challenges that may face joint ventures and reinforces the availability of private rights of action to arrest illegal conduct at its incipiency. Please contact Beau Buffier, Franklin Rubinstein, Brendan Coffman, or another member of Wilson Sonsini’s antitrust and competition practice if you have any questions.
[1] FuboTV Inc. v. Walt Disney Co., No. 24-CV-01363 (S.D.N.Y. Aug. 16, 2024).
