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DirecTV sues Nexstar over retransmission fees

The satellite company says Nexstar is using two shell companies to raise fees for its channels.

The satellite company says Nexstar is using two shell companies to raise fees for its channels.

A DirecTV satellite installation van in Ypsilanti Township, Michigan. (Photo by Dwight Burdette via Wikimedia Commons, Graphic by The Desk)

Satellite broadcaster DirecTV has filed an antitrust lawsuit against Nexstar Media Group for allegedly concocting an illegal conspiracy to raise retransmission consent fees on behalf of other broadcasters.

The suit concerns around three dozen broadcast stations owned by third party companies like White Knight Broadcasting and Mission Broadcasting that are operated through a shared services agreement with Nexstar. Those stations have been unavailable on DirecTV since a carriage agreement for those channels lapsed.

Federal law caps the number of licensed, local broadcast stations that a company like Nexstar may own at a single time. DirecTV says Nexstar sidesteps these ownership caps by creating pacts with companies like White Knight and Mission that allows Nexstar to effectively control every aspect of a local TV station’s business, including how much to charge for retransmission on pay TV systems.

A spokesperson for Nexstar this week said its shared services agreements with White Knight and Mission “are in full compliance with FCC rules, and each station group independently negotiates its own retransmission consent agreements with its cable, satellite, and telco partners.”

But DirecTV doesn’t see things that way. Instead, it says Nexstar influences the third party broadcasters it works with through shared services agreements in a way that results in DirecTV and other companies paying more to retransmit local broadcast systems on their platforms. DirecTV says Nexstar does this, so it can eventually charge more for the local ABC, CBS, Fox and NBC stations it owns outright when those retransmission consent agreements come up for discussion.

In its lawsuit, DirecTV says its agreement with Nexstar concerning nearly 200 local broadcast stations is almost up, though the precise time frame or date for that expiration is redacted in a version of the complaint made available by the court on Tuesday.

To that end, DirecTV accused Nexstar of hiring Denver-based attorney Eric Sahl to serve as an “independent consultant” for all the companies it works with through shared services agreements. DirecTV says Sahl is nothing more than a puppet who works on behalf of Nexstar and its partners to get the highest retransmission consent fees it can.

DirecTV says proof of this orchestration between Nexstar and its partners can be found in a recent carriage dispute involving White Knight, Mission and pay TV platform Verizion Fios last year. After stations were dropped from Verizion Fios, White Knight and Mission issued nearly-identical press releases. One day after the press releases were sent, Nexstar itself issued a similar public statement that largely used the same language.

“These cut-and-paste talking points are not the result of independent action, but rather constitute a concerted effort by [Nexstar, White Knight and Mission] to further coordinate in their negotiating process,” DirecTV alleged in its complaint.

Further proof of the alleged conspiracy is the lack of an executive management team at White Knight. DirecTV said the listed president of White Knight works full time as a lobbyist and appears to be nothing more than a figurehead for the shell company that exists to allow Nexstar complete ownership of stations licensed to White Knight.

The executive, Toby Malara, is the vice president of government relations for the American Staffing Association, according to documents reviewed by The Desk. DirecTV didn’t specifically name Malara in the suit, but did say White Knight’s listed corporate address is the same as his private residence.

But the biggest proof of a conspiracy points to Sahl and his purported independence from Nexstar, which DirecTV says is a complete sham.

While negotiating carriage of the White Knight and Mission statements on DirecTV, Sahl reported referenced information about Nexstar’s next generation broadcast technology — believed to be ATSC 3.0, or “NextGen TV” — that wasn’t publicly available. He also demanded DirecTV pay retransmission consent fees for CW Network affiliated stations that White Knight didn’t own, with apparent foreknowledge that Nexstar was about to acquire a majority stake in the network (which it did two weeks later, DirecTV says).

All of this suggests Nexstar gave Sahl whatever ammunition he needed to extract higher carriage fees for the White Knight and Mission stations that, to this day, continue to be unavailable on DirecTV.

“Had Nexstar not been guiding Sahl during the Mission and White Knight negotiation process, Sahl would not have known this sensitive and confidential Nexstar information and demanded the terms that he did,” DirecTV alleged.

Related: See The Desk’s coverage of carriage disputes at CarriageDispute.com

It is the second time in two years that Nexstar has been forced to defend its shared services agreements in federal court. Last year, cable giant Comcast filed a complaint with the Federal Communications Commission over the arrangement ahead of a retransmission consent dispute concerning WPIX (Channel 11) that ultimately came and went. Nexstar fired back with a lawsuit against Comcast, accusing the cable company of failing to pay retransmission fees owed to the broadcaster.

The agreement between Nexstar and Comcast ultimately settled the FCC complaint filed by the latter, but the federal case filed by Nexstar is still pending in court.

The disputes involving Nexstar come at a time when retransmission consent revenue has become a larger part of a broadcaster’s business. Over the last year, The Desk has noted that retransmission consent has eclipsed traditional advertising revenue to become the chief money-maker for companies like Nexstar, TEGNA, Cox Media and others.

For DirecTV, the potential for a carriage dispute with Nexstar raises the stakes for its own business: Cable and satellite customers want access to their local ABC, CBS, Fox and NBC stations. At the same time, pay TV customers have grown frustrated with higher bills, and have increasingly ditched expensive cable and satellite TV for antennas and cheaper streaming services.

Those bills are only high because broadcast station and cable network owners like Nexstar charge more for the same channels, cable and satellite companies have alleged. In the lawsuit filed on Tuesday, DirecTV said Nexstar charges more for its channels than any other broadcast station owner, and its purported conspiracy with White Knight and Mission could drive up the cost of those channels even more. (The precise amount Nexstar and others charge for their channels is largely unavailable, because neither side voluntarily makes those figures public.)

While DirecTV and Comcast have taken their fight to court and public regulators, others have simply decided to drop channels. Earlier this year, DirecTV rival Dish Network dropped all channels licensed to White Knight and Mission after being asked to pay more for them. The channels are still unavailable to Dish subscribers.

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About the Author:

Matthew Keys

Matthew Keys is a nationally-recognized, award-winning journalist who has covered the business of media, technology, radio and television for more than 11 years. He is the publisher of The Desk and contributes to Know Techie, Digital Content Next and StreamTV Insider. He previously worked for Thomson Reuters, the Walt Disney Company, McNaughton Newspapers and Tribune Broadcasting.
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