Viacom v Malone -- Part 1

[Michael Ward <mike@essential.org>]

TAXPAYER ASSETS PROJECT
INFORMATION POLICY NOTE
OCTOBER 5, 1993

     PARTIAL TEXT OF VIACOM ANTITRUST ACTION AGAINST CABLE
     COMPANIES CONTROLLED BY JOHN MALONE

     PART 1 - "NATURE OF THE ACTION"

Enclosed are the first six pages of text from the antitrust
complaint filed by Viacom on September 23, 1993 against Tele-
Communications, Liberty Media Corp., Satellite Services, Encore
Media, Netlink USA, and QVC Network, Inc., companies which are
partly owned or controlled by John Malone.  The Viacom antitrust
complaint comes at a time when Congress and the Clinton
Administration are considering dropping line of business
restrictions on the telephone industry, so they can enter the
"content" market in a big way.  The complaint is a good read, and
instructive for those who are evaluating assertions that
"competition" will be promoted by dropping current restrictions
on vertical and horizontal integration in telecommunications and
information markets.    

     james love; 215/658-0880; love@essential.org
     michael ward; 202/387-8030; mike@essential.org

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Complaint 93 Civ.

VIACOM INTERNATIONAL INC.,
                          Plaintiff,

              -against-

TELE-COMMUNICATIONS, INC.,93 Civ.
LIBERTY MEDIA CORPORATION, Satellite
SERVICES, INC., ENCORE MEDIA CORP.,
NETLINK USA, and QVC NETWORK, INC.,

                           Defendants.

          Plaintiff Viacom International Inc.  ("Viacom"), by its
attorneys, alleges for its complaint, upon knowledge with respect
to its own acts and upon information and belief with respect to
all other matters, as follows:
                         NATURE OF THE ACTION
          1.   In the American cable industry, one man has, over
the last several years, seized monopoly power.  Using bully-boy
tactics and strong-arming of competitors, suppliers and
customers, that man has inflicted antitrust injury on plaintiff
Viacom and virtually every American consumer of cable services
and technologies.  That man is John C. Malone ("Malone").
          2.   Malone seeks to exert monopoly power over key
stages of the delivery of cable programming to the American
consumer: control over the creation of programming in studios;
control over cable programming services; control over the
mechanics of transmitting programming by cable and satellite; and
control over delivery of programming to the home.  At every stage
in this process, the consumer has paid -- and will continue to
pay -- a monopoly tax to John Malone.
         3.   Malone's scheme to monopolize cable television
begins with his empire of cable television systems.
Malone-controlled defendants Tele-Communications, Inc.  ("TCI")
and Liberty Media Corporation ("Liberty") have amassed local
cable monopolies controlling approximately one in four of all
cable households in the United States.  Malone's empire is the
result of a dizzying series of acquisitions of cable systems
around the country -- 482 deals over a 16 year period, or one
every two weeks, according to The New York Times.  Through his
strategy of ceaseless acquisition, Malone has created a
formidable base upon which to expand his control over every
aspect of cable television, and inflict antitrust injury on his
customers, suppliers and competitors.
         4.   Defendants' monopoly power as cable operators,
together with their expanding interests in all other aspects of
the cable industry, gives them unparalleled power to dictate
terms to cable television programmers, such as Viacom.  Without
access to Malone's cable systems, cable network programmers
cannot achieve the "critical mass" of viewers needed to attract
national advertising or a sufficient number of subscribers
required to make the network viable.
          5.   As a result of Malone's unique control over this
life-line, he can -- and does -- extract unfair and
anticompetitive terms and conditions from cable programmers,
including Viacom.  Malone's anticompetitive tactics have not gone
unnoticed.  The Wall Street Journal has reported that many
believe that TCI represents "the worst in American business -- a
monopolistic strong-arm bully . . . that squeezes other cable
operators, denies free competition to programmers and flagrantly
disrupts the plans of rivals."  Even Malone's partner, Barry
Diller, has referred to him as "an unscrupulous monopolist."
         6.   As part of his monopolistic scheme, Malone has set
his sights on controlling the transmission of programming by
cable and satellite.  Commencing at least as early as 1991, and
continuing until today, Malone and the other defendants, both
among themselves and with others, have devised a strategy to use
proprietary technology to create and to tie up narrow bottlenecks
in the distribution of programming.  By seizing control of the
delivery mechanisms for non-broadcast television programming
services, Malone and the defendants herein intend to take control
of the cable television and home satellite distribution markets,
and will eliminate competition and raise prices in the national
market for non-broadcast television programming services and
submarkets thereof.
         7.   Specifically, under Malone's orchestration,
defendants have attempted to create and then control bottlenecks
in the delivery of non-broadcast programming to homes throughout
the nation.  These bottlenecks include seizing control of digital
compression technology, encryption systems and positioning the
use of the TCI Authorization Center as essential to the delivery
of programming to subscribers served by many cable operators.
         8.   Malone and his controlled companies have also
sought to use their monopoly power over access to approximately
one in four American cable homes, in TCI's own words, to
"crucify" Viacom's Showtime and The Movie Channel services as
viable competitors and thereby to coerce extortionate concessions
from Viacom.
         9.   Using the leverage afforded by his monopoly power
over access to American cable homes and programming delivery
systems, Malone's quest for control of the American cable
industry is now directed at cable programming.  Malone has
already expanded into cable programming through a complicated
structure of majority and minority interests in at least 25
national and regional cable networks, including the networks of
defendant QVC Network, Inc. ("QVC") and Turner Broadcasting
System, Inc.  ("TBS").
         10.  On September 20, 1993, Malone, through QVC, made a
proposal to acquire Paramount Communications Inc.  ("Paramount")
in a stock and cash transaction.  Through cross-stock ownership
and interlocking directorates, the acquisition of control of
Paramount by Malone would be but the latest step in a systematic
and broad ranging conspiracy to monopolize the American cable
industry in violation of the federal antitrust laws.
         11.  QVC's acquisition of Paramount, a premier producer
of the programming used by cable programmers such as Viacom,
would allow defendants to take their anticompetitive plan to the
next level. QVC's acquisition of Paramount would allow Malone to
secure another ingredient to the defendants' scheme -- the
product needed to bypass programmers such as Viacom.  By
combining Paramount with QVC, defendants will increase their
dominance in the markets for cable television services, and, at
the same time, deprive Viacom of a pending transaction with
Paramount (the "Viacom-Paramount Merger Agreement") that would
make it a viable competitor to Malone's empire, in furtherance of
their anticompetitive purposes.
          12.  The Malone-led efforts to dominate the U.S. cable
television industry constitute monopolization, joint
monopolization, conspiracy to monopolize and attempted
monopolization in violation of Section 2 of the Sherman Act;
combinations, contracts or conspiracies in restraint of trade in
violation of Section 1 of the Sherman Act; and acquisitions the
effect of which may be to substantially lessen competition or
tend to create a monopoly in violation of Section 7 of the
Clayton Act.
          13.  Viacom seeks treble damages for past injury
inflicted by defendants and injunctive relief preventing
defendants from engaging in the latest example of their predatory
and anti-competitive activity -- consummation of QVC's bid for
Paramount.

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--------------------------|
Michael Ward
Taxpayer Assets Project
Domain: mike@essential.org