Viamedia, Inc. v. Comcast Corp.

• Decision Date: 04 November 2016
• Docket Number: Case No. 16–cv–5486
• Parties: VIAMEDIA, INC., Plaintiff, v. COMCAST CORPORATION and Comcast Spotlight, LP, Defendants.
• Court: U.S. District Court — Northern District of Illinois

218 F.Supp.3d 674

VIAMEDIA, INC., Plaintiff,

v.COMCAST CORPORATION and Comcast Spotlight, LP, Defendants.

Case No. 16–cv–5486

United States District Court, N.D. Illinois, Eastern Division.

Signed November 4, 2016

Britt Marie Miller, Matthew David Provance, Mayer Brown LLP, Chicago, IL, Mark W. Ryan, Mayer Brown, Sean Patrick McDonnell, Mayer Brown LLP, Washington, DC, for Plaintiff.

Arthur Burke, Davis, Polk & Wardwell, David B. Toscano, Davis Polk & Wardwell L.L.P., New York, NY, Ross Benjamin Bricker, Sally Kristen Sears Coder, Thomas Edward Quinn, Jenner & Block LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Court Judge:

Defendants Comcast Corporation ("Comcast") and Comcast Spotlight, LP ("Comcast Spotlight")¹ have moved to dismiss Plaintiff Viamedia, Inc.'s ("Viamedia") complaint under Federal Rule of Civil Procedure 12(b)(6). (R. 22.) For the following reasons, the Court grants in part and denies in part Defendants' motion.

BACKGROUND²

This case concerns the spot cable advertising business, which generates approximately $5.4 billion annually in television advertising revenues. (R. 1, Compl., at ¶ 3.) Spot cable advertisements account for two-to-three minutes per hour of television programming and are sold by cable service providers—called, according to industry terminology, "multichannel video programming distributors" ("MVPDs")—like Comcast. (Id. at ¶¶ 23–25, 27, 30.) Viamedia, a spot cable advertising representation company, "represents cable television companies in the sale, placement, and distribution of Spot Cable Advertising." (Id. at ¶¶ 1–2.) Comcast is "one of the largest" MVPDs in the United States with "more than 22 million cable and high-speed Internet subscribers." (Id. at ¶¶ 8, 24.) It also owns, among other assets, Comcast Spotlight, a direct competitor to Viamedia and "the country's largest Spot Cable Advertising Representative." (Id. at ¶¶ 8, 19.)

Broadly speaking, Viamedia alleges that "[t]hrough its control of technical and business infrastructure that is critical for the sale of Spot Cable Advertising time," Comcast has unlawfully "impaired the ability of Viamedia and other Spot Cable Advertising Representatives to compete with Comcast Spotlight." (Id. at ¶ 2.) To evaluate Viamedia's claim, the Court first describes how the spot cable advertising business functions and what role the parties play in the industry.

I. The Spot Cable Advertising Market

A. MVPDs

MVPDs—for example, Comcast, Wide Open West ("WOW"), and RCN Corporation ("RCN")—provide households across the United States with what is "colloquially referred to as ‘cable television service.’ " (Id. at ¶¶ 23, 25.) In some Designated Market Areas ("DMAs")—"a regional viewing area used to measure television ratings"—Comcast is the dominant MVPD. (Id. at ¶¶ 4, 24.) In the Chicago DMA (which encompasses Northeast Illinois and Northwest Indiana), for example, "approximately three out of every four cable households are Comcast subscribers." (Id. at ¶ 24.)

MVPDs enter into "carriage agreements" with cable networks (e.g. , ESPN and CNBC) under which (1) MVPDs pay the networks a fee to carry their programming, and (2) MVPDs gain the right to sell a percentage of advertising time. (Id. at ¶ 27.) "This reserved advertising time is referred to as ‘Spot Cable Advertising,’ " and a "15–second, 30–second, or one-minute block of [spot cable advertising] inventory is described as a ‘Spot Cable Advertising Avail’ or a ‘Spot Cable Avail.’ " (Id. at ¶¶ 27, 29.) Spot cable advertising is one of the two key ways in which MVPDs generate revenue, the other being the collection of subscription fees from households in exchange for providing cable service. (Id. at ¶ 26.) Thus, "[t]he ability to sell Spot Cable Advertising is crucial to the economic survival" of an MVPD. (Id. at ¶ 28.)

Spot cable advertising differs from traditional national advertising. A cable network sells traditional advertising time directly to advertisers, and traditional advertisements air simultaneously on the network across the United States. (Id. at ¶ 30.) In contrast, MVPDs sell spot cable advertisements. (Id. ) Consequently, a spot cable advertisement reaches only households that subscribe to the MVPD that sold the ad, while a traditional advertisement reaches any household watching the television network that sold the ad, irrespective of the MVPD providing cable service. (Id. )

Spot cable advertising allows advertisers to "geo-target" customers, "meaning that the advertiser does not have to buy advertising on a cable network throughout the entire nation, but can instead select a particular geographic area to display the ad by buying Spot Cable Avails from an MVPD serving that area." (Id. at ¶ 31.) By purchasing spot advertising during a national broadcast like the World Series, for example, a Chicago-area car dealership can advertise only in the Chicago DMA while a Cleveland restaurant can simultaneously advertise exclusively in the Cleveland DMA. (See id. at ¶¶ 31–33.)

B. The three mediums through which MVPDs sell Spot Cable Avails

"Spot Cable Avails are generally sold to advertisers in three ways," (id. at ¶ 34), each of which accounts for approximately one-third of an MVPD's Spot Cable Avail inventory, (id. at ¶¶ 41, 66–68). The Court describes each in turn.

1. Regional sales through an Interconnect

In the past, the market for regional spot cable advertising presented a problem for advertisers. Because individual MVPDs sold spot cable advertising rather than television networks, and because multiple MVPDs could operate in a single DMA, an advertiser wishing to run a commercial in all households in a DMA at a particular time during a particular broadcast would have to separately negotiate with each MVPD. (Id. at ¶ 36) "[M]any advertisers found [this] difficult, if not impossible." (Id. )

In the 1990s, however, competing MVPDs cooperated with one another to develop Interconnects in each DMA, "which act as a clearinghouse that aggregate Spot Cable Avails from the MVPDs in a DMA and sell packaged Avails to advertisers in such a way that the purchased advertisements will run on all MVPDs across a given DMA simultaneously." (Id. at ¶¶ 35–37.) Each DMA "has typically contained just one Interconnect, in which all of the MVPDs operating within that DMA have participated" by "making a portion of [their] Spot Cable Advertising inventory available through the Interconnect." (Id. at ¶¶ 35, 37.) In short, Interconnects "provide[ ] a business and technical interface that...provid[e] regional advertisers with a ‘one-stop shop’ where they can buy same-time Avails from all the MVPDs in the DMA." (Id. ) They "[are] the only viable and efficient option for advertisers that wish to purchase Spot Cable Advertising across the entire DMA." (Id. at ¶ 47.) An Interconnect therefore has no competitors, "[n]or could a competing Interconnect be developed." (Id. at ¶¶ 47–48.)

MVPDs "pay a fee to the Interconnect in exchange for its coordination services" and "receive the revenues generated from...regional sales on approximately a pro rata basis." (Id. at ¶ 35.) Because MVPDs compete with one another, "the Interconnects were originally designed to avoid giving preferential treatment to any single MVPD participant, and the dominant MVPD in the region was not able to exercise its influence over the Interconnect to the detriment of other participating MVPDs." (Id. at ¶ 41.) Thus, at least early on, Interconnect oversight "was performed by boards of directors that were elected by a vote of all the MVPD members of the Interconnect." (Id. at ¶ 42.) The boards would make decisions by majority vote "with the best interests of all MVPDs in mind." (Id. ) "In form and practice, Interconnects avoided discriminating among or disadvantaging individual MVPD or representative members." (Id. )

Over time, industry consolidation has led to the largest MVPD managing and controlling the Interconnect in each DMA. (Id. at ¶ 44.) "Interconnects controlled by dominant MVPDs other than Comcast generally continue to treat all participating MVPDs equally by, for example, charging the same fees to all MVPDs and ensuring all MVPDs or their representatives have open and equal access to the Interconnect." (Id. at ¶ 45.) Comcast, however, controls the Interconnect in fifteen of the twenty-five largest television markets and twenty-six of the largest fifty markets, including, for example, the Chicago, Detroit, Philadelphia, Boston, Washington D.C., and Denver DMAs. (Id. at ¶¶ 44, 86–94.) Viamedia's allegations of illegality, which are described below, stem in part from Comcast's conduct in DMAs in which it is the dominant MVPD.

2. Multiregional sales through National Cable Communications

If an advertiser wishes to air a commercial at a particular time during a particular broadcast across more than one DMA, it can purchase Spot Cable Avails from National Cable Communications LLC ("NCC"), a national clearinghouse that "historically functioned on a multi-DMA level in much the same way that the Interconnects have functioned on a single-DMA level." (Id. at ¶¶ 34, 49.) Thus, NCC collects fees from MVPDs, aggregates Spot Cable Avails from across multiple DMAs, and sells them to advertisers. (Id. at ¶¶ 51–52.) "Buying through NCC is the only practical option for advertisers that wish to purchase Spot Cable Advertising across multiple DMAs, and such advertisers have no choice but to use it. NCC has no competitors." (Id. at ¶ 54.)

NCC was created in 1981 "as a joint venture among the five largest MVPDs that existed at the time." (Id. at ¶ 50.) Through a series of acquisitions of other MVPDs, Comcast attained a 60% ownership stake in NCC, thereby gaining "the ability to effectively control NCC." (Id. ) "Historically, NCC has had agreements in place with virtually every MVPD or its representative in all 210 DMAs across the United States...." (Id. at ¶ 52.) Indeed, NCC says in its promotion materials that "its participating members...