Antitrust laws, such as the Sherman Antitrust Act of 1890, exist to keep competition free and fair in our capitalist economy. We’ve talked about these antitrust laws before in the context of the United States v. Capitol Services case. Antitrust laws prevent cooperation or collusion between competitors in such a way that would stifle free trade and competition in the marketplace.
The details of how to fairly protect free and fair trade in each unique situation are a lot more complicated than the general aim of the antitrust laws themselves. And the nuances of different industries and different circumstances can make the line between collusion and competition anything but clear. Such were the superficial appearances with respect to the case of Ralph C. Wilson Industries v. ABC, Inc.
This 1984 case involves a dispute with regard to antitrust laws between a television broadcast station, its competitor stations, and the television production companies that license content for the stations to air.
RCWI Contended That ABC Used Collusion and Restraint, Triggering a Focus on Antitrust Laws
Ralph C. Wilson Industries (RCWI) was a modest-sized television station in the San Francisco area. RCWI brought suit against several television production companies (including ABC) and several of its competitor television stations in the region – contending that there was collusion and restraint on trade, both vertically and horizontally, paving the way for a look at antitrust laws.
To understand the facts and reasoning in the RCWI case, one must first understand how television programs are licensed to TV stations. Television production companies’ new shows or programs are offered up for bidding in each broadcasting market region, and then the stations in each region bid on the rights to air the show to local viewers. The winning station gains the exclusive rights to air the content.
The licenses usually last for a term of months or years, depending on the arrangement with the production company. And there is sometimes a right of first refusal included on the licensing agreements – which means that, when a current license ends, the license holder will have first opportunity to renew their license at whatever price is demanded by the production company, before the license is offered up to the rest of the station market.
RCWI Accused ABC of Violating the Sherman Antitrust Act
Television station regions throughout the United States have historically been defined by ratings companies like Nielsen. Arbitron was another ratings company that published regional demarcations for television station markets in the 1980s, but it has since been purchased by Nielsen.
The RCWI case essentially boiled down to a dispute about appropriate market boundaries and the fairness of licensing agreements within markets. RCWI sued both its competitors and the production companies who licensed content in the San Francisco region – arguing that collusion and unfair market design violated the Sherman Antitrust Act.
In the RCWI vs. ABC, Inc. case, RCWI principally contended that they were unfairly forced to compete in a market region primarily composed of much larger and more financially robust television stations than itself.
RCWI was an ultra-high frequency (UHF) station – with a certain power and range for broadcasting wireless TV signals. Most of RCWI’s competitor stations in its market region were very high frequency (VHF) stations – which meant that, by comparison, they could broadcast further than RCWI.
An Improper and Unfair Nielsen Ratings Region
RCWI also contended that its geographical region allocation was improper and unfair. The region to which RCWI was assigned by Nielsen (and Arbitron at the time) was the greater San Francisco area – and most of the VHF stations that RCWI competed with were located in San Francisco proper or immediately adjacent to the city. By contrast, RCWI was located in what it described as the “South Bay” area, i.e., the area of the southern San Francisco Bay, which is closer to San Jose.
Finally, RCWI argued that the aggregate circumstances of the licensing agreements (i.e., their exclusive nature, their long terms of possession for licenses, and the right of first refusal provisions they often contained) amounted to an unreasonable restraint on free trade and made things even worse for RCWI.
An example in 1984 might involve ABC’s “Dynasty” – a prime-time soap that was one of the most popular television shows in the 1980s. When ABC brought “Dynasty” to market in the early 1980s, they would offer it up for bidding in the San Francisco market. And then RCWI, and its competitors, would have an opportunity to bid on the rights to air “Dynasty” on their station to local viewers.
But according to RCWI, because it was being forced to compete with much larger (and more profitable) TV stations in San Francisco, it was effectively denied a realistic opportunity to vie for this extremely popular show, which topped the 1984-1985 Nielsen ratings. The purchase prices for programs like “Dynasty” were huge. Large stations could afford to engage in bidding wars, but smaller stations (like RCWI) could not. And the exclusive rights, long-term possessory interests, and rights of first refusal meant that RCWI had little chance of ever being able to realistically compete in this heavyweight television arena.
By contrast, if RCWI had been reassigned to a different market region – say, the more suburban South Bay/San Jose region where other smaller stations were located – the average licensing price for a show like “Dynasty” might be far less than what it was in the larger San Francisco TV station market – meaning RCWI could have more affordably competed.
The Case Focused on Antitrust Laws Before the US District Court for the Northern District of California
The RCWI vs. ABC case was brought before the United State District Court for the Northern District of California as federal courts possess exclusive jurisdiction over federal antitrust claims.
First, with respect to the exclusive licensing agreements, the Court did not find anything improper about their terms or scope. Such licensing agreements were used fairly ubiquitously throughout the television licensing industry – and RCWI itself had been party to such agreements many times in the past. So they were not found to be an unreasonable restraint on trade.
Market Allocation and the Ratings Companies
With respect to market allocation, however, the analysis was a bit more complex. As discussed previously, the primary basis for market region delineation was the judgment of ratings companies like Nielsen and Arbitron. And Nielsen has the following to say on their website about region delineation:
“DMA (Designated Market Area) regions are the geographic areas in the U.S. in which local television viewing is measured by Nielsen…a DMA region is a group of counties and zip codes that form an exclusive geographic area in which the home market television stations hold a dominance of total hours viewed. There are 210 DMA regions, covering the entire continental U.S., Hawaii, and parts of Alaska.”
But this begs an obvious question: What logic is used by television ratings companies in determining the regions? Is it based on some objective criteria? Is it arbitrary? Should it even be relied upon as an authority for these purposes?
Television Market Boundaries
The U.S. District Court probed the propriety of the ratings companies’ demarcations. Obviously, market coverage appears to play a role in these determinations, but the details of geographical boundaries are vital.
Just as gerrymandering of political districts dramatically effects the outcomes of some elections, television market boundaries also affect the viability of competition. Therefore, the Court heard evidence beyond the opinions of the ratings companies to review the propriety of market region decisions in this case.
First, they considered that the Federal Communications Commissions (FCC) – the federal regulatory agency that oversees the television industry – also considered San Francisco and the South Bay/San Jose region to be in the same market area.
UHF and VHF Signal Overlap
Secondly, and perhaps most compellingly, the Court reviewed evidence which indicated that there was a significant overlap in signal coverage area and viewer markets between RCWI (a UHF station) and the VHF stations in San Francisco. So hand-drawn market line boundaries aside, there was no denying that RCWI competed for the same markets as the larger stations. Subsequently, the Court felt that the market region to which RCWI had been assigned was proper.
Ultimately, the U.S. District Court did not find sufficient support for any of RCWI’s arguments – and it granted summary judgment in favor of the defendant stations and production companies.
What Is the Lesson to Be Learned About Antitrust Laws from the RCWI Case?
It is understandable that RCWI wanted a reassignment to the more suburban television market of San Jose – as this would have substantially reduced licensing costs for the little station. But given that it was actually competing for much of the same market share as the large stations in San Francisco, its exclusion from the San Francisco market would have been inappropriate.
Just because a business must compete in a market with other larger and better-equipped businesses, does not automatically mean that illegally collusive behavior is afoot and that antitrust laws are being violated. And attempting to weaponize antitrust laws for the purposes of simply furthering business interests was proven to be unsuccessful in the RCWI vs. ABC Inc. case.