June 25 (Bloomberg) -- DirecTV and Dish Network Corp. have received requests from the U.S. Justice Department about pricing contracts with television networks, part of a broader probe into whether pay-TV companies are squeezing out Internet-video rivals, according to three people with knowledge of the matter.
The Justice Department sent civil investigative demands, which are similar to subpoenas, to DirecTV and Dish, the two largest U.S. satellite-TV providers, said the people, who asked not to be named because they lacked authority to talk publicly about the situation.
The government is seeking information about so-called most- favored-nation provisions, which give pay-TV companies favorable pricing and terms, two of the people said. Regulators are concerned that the conditions are preventing smaller startups and Internet-video distributors from obtaining programming rights, according to the people.
Information about the satellite providers' terms will help the Justice Department learn more about the contracting practices of the industry, another person familiar with the situation said. The department also is investigating whether Comcast Corp. and other cable companies are limiting competition from Internet-video providers -- a probe that was first reported by the Wall Street Journal earlier this month.
Darris Gringeri, a spokesman at El Segundo, California- based DirecTV, declined to comment, as did Aaron Johnson at Englewood, Colorado-based Dish and Comcast's Jennifer Khoury. Gina Talamona, a Justice Department spokeswoman, also declined to comment.
Shares Drop
DirecTV shares fell 1.4 percent to $46.82 at the close in New York. They've gained 9.5 percent this year. Dish's stock, down 5.2 percent this year, dropped 4.9 percent to $26.99 today.
As part of the investigation, the department is reviewing whether Comcast, Time Warner Cable Inc. and other cable providers used their dominance to pressure programmers into letting them buy content at lower prices than online providers, the people said. The satellite companies don't have as much market share as cable companies at a regional level, so their contract terms are less of an antitrust concern, one of the people said.
By stipulating that cable companies get the best prices on content, most-favored-nation clauses may make it harder for TV networks to turn around and sell their programming to Internet services, such as Netflix Inc. Those types of buyers can't always afford the same terms as pay-TV giants.
Cheaper Purchases?
If most-favored-nation clauses were struck down as anticompetitive, Netflix and other online-video providers might be able to expand their video offerings by buying programs at lower prices -- possibly in smaller chunks than what gets sold to the cable companies.
Justice Department officials also are probing whether Philadelphia-based Comcast broke the law by creating incentives to watch programming through its cable services, instead of through online-video providers, the person said.
The department is examining Comcast's decision to not count videos viewed on its own Xfinity application via Microsoft Corp.'s Xbox toward a monthly limit on the amount of data users can consume.
Comcast counts video viewed through online-video rivals Hulu LLC or Netflix against the limit. That's prompted complaints by Los Gatos, California-based Netflix that Comcast unfairly penalizes its customers.
Comcast received a civil investigative demand from the department that inquired about its contractual procedures, including how it secures so-called TV Everywhere rights -- an effort to make content available on mobile devices for pay-TV subscribers, one of the people said. The letter didn't ask for any information about Internet data limits, the person said.
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