Tech

Starz-Comcast contract dispute draws Department of Justice informal inquiry

Key Points
  • Lions Gate told Comcast customers last month that they may soon lose access to Starz content amid a contract dispute.
  • Lawmakers have expressed their dismay and asked the Department of Justice to look into the matter, according to people familiar with the situation.
  • The dispute is just one of many spats taking place as legacy media companies figure out how to manage cord-cutting.
Brian Roberts, Chairman and CEO of Comcast
David A. Grogan | CNBC

Comcast and Lions Gate, the owner of Starz, have both been contacted by the Department of Justice as part of an informal inquiry into two companies' contract negotiations, according to people familiar with the matter.

Lions Gate, as well as members of Congress, called upon the Justice Department to look into whether TV providers such as Comcast could be abusing their market position in negotiations over content licenses, said the people who asked not to be named because the inquiry is confidential. The DOJ was responsive to the requests and has been asking for information from the two parties, the people said.

The New York Post was first to report on the informal inquiry, adding that no subpoenas or requests for discovery have been issued.

Michael Burns, vice chairman of Lions Gate Entertainment Corp., left, and Jon Feltheimer, chief executive officer of Lions Gate.
Jonathan Alcorn | Bloomberg | Getty Images

Comcast, the owner of CNBC parent NBCUniversal, accounts for about one-third of Starz's 24.4 million domestic subscribers. On. Oct. 16, Lions Gate warned Comcast Xfinity customers that they may lose access to Starz amid the contract dispute.

If the two companies don't strike a new deal before the contract expires, Comcast has said it will replace Starz channels with Epix channels in its Xfinity TV bundle, starting Dec. 10. That would force Comcast customers who want to watch Starz popular originals "Outlander" and "Power" to either pay for the $9 a month Starz app or $12 to add the Starz channel to their package.

Lions Gate shares have plunged 49% this year, including dipping more than 9% since the company notified Comcast customers of the potential cutoff last month.

The burgeoning conflict is the latest sign of the broader tension that's becoming commonplace in the streaming wars. Comcast is under pressure from cord-cutters and facing growing competition from a la carte streaming apps running on platforms from Amazon, Apple, Roku and Google. Starz, meanwhile, is struggling to maintain its economic strength as carriers, flush with content options, reconsider the amount they're willing to pay. Another factor that could come into play is that Comcast is planning to launch an ad-supported streaming service next year called Peacock.

The Comcast-Starz dispute isn't the only one the industry faces. HBO has been blacked out since last year on Dish.

A number of lawmakers are now weighing in on the matter. In September, Sen. Susan Collins, R-ME, wrote to Assistant Attorney General Makan Delrahim about her concern that her constituents may lose access to Starz programming.

"These changes could lessen competition in the video programming market and limit choices for many thousands of consumers in Maine and millions more across the nation," Collins wrote. The letter notes that the DOJ's antitrust division sought to block Comcast's 2011 acquisition of NBCUniversal, and asks the department to "evaluate the current situation."

Sen. Dianne Feinstein, D-CA, also sent a letter to the DOJ asking that it look into the conflict between Starz and Comcast, according to a person close to the senator. Feinstein is not taking sides but just looking for a resolution for her constituents, the person said.

CNBC has obtained the letter that Feinstein sent to the CEOs of the two companies. "I encourage both of you to seek a win-win solution and consider all options to keep STARZ programming on the air," Feinstein wrote.

'Good faith negotiations'

Additionally, several members of Congress, including Democratic Caucus Chair Hakeem Jeffries, sent a letter to Comcast CEO Brian Roberts and Starz CEO Jeffrey Hirsch, urging them to come to terms and noting that "this programming is of particular cultural significance to the African-American community."

"We encourage both sides to engage in good faith negotiations and come to a mutually agreeable resolution," the representatives wrote.

A DOJ spokesperson declined to comment.

Comcast said in a statement that it's working to negotiate a deal "that makes sense for us and our customers." It's also telling customers that they won't lose access to Starz because it's available through so many services, including on Amazon and Comcast's X1 on-demand platform. "Starz makes its content available a-la-carte on Amazon Prime and Roku and direct to consumers through the Starz app. All we are asking for is the same treatment," Comcast said.

The company added, "At the end of the day, this is a routine commercial negotiation that raises no conceivable antitrust concerns."

Starz disagrees and says that Comcast is harming its customers.

"By unilaterally taking Starz out of its packages with no refund and charging its subscribers more to receive the service, Comcast is unfairly depriving them of relatable programming that reflects their cultural experience," Starz said.

Correction: A previous version of this story had an incorrect subscriber number for Starz.

WATCH: Lions Gate takes on Altice

VIDEO4:4004:40
Lions Gate takes on Altice