Are we beginning to see the end of channel bundles?

Tying exists when two or more products are packaged together for sale.  In general terms, tying arrangements are often pro-competitive business arrangements because of the cost savings derived from economies of scope.  The courts, however, are concerned with the business practice of tying if they believe that a firm can extend its dominance in the tying product market to gain dominance or rents in the tied product market.  In 1962, The Supreme Court in United States v. Loew’s, Inc. found that the practice of licensing or selling desired films to television stations on the condition that they purchase a block of films that included unwanted or inferior films was a violation of Section 1 of the Sherman Act.  The Court ordered that the defendants price the films individually and prohibited differences in prices when films were sold individually or part of a package, unless there were legitimate cost differences. 

Fast forward to 2013.  Cablevision filed an antitrust lawsuit against Viacom alleging the content provider forced it to carry and pay for fourteen lesser-watched channels in order to have the right to carry its more popular channels, specifically Nickelodeon, Comedy Central, and MTV.  What’s behind the sudden shake-up in the relationship between content owner and distributor? 

For decades, in an expanding MVPD market, the channel bundles allowed new programming to be introduced at lower risk and costs.  MVPDs and programmers, together, espoused the benefits of the channel bundles sold to consumers and defended the absence of a la carte pricing.  More recently, however, the accelerated rivalry from broadband and wireless networks delivering new and unbundled content anytime and anywhere, has led to an increasing number of MVPD subscribers cord-cutting or cord-shaving.  Consequently, MVPDs will find it increasingly difficult to pass along higher programming costs to consumers without some push back.  The crack in the business model may have come in the recent move by 60 rural cable companies to drop Viacom programming completely from their channel line-ups.  Will the courts play a disruptive role too by declaring these programming bundles illegal?  If they do, the impact will be far-reaching and long-lasting.