Before the FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of REVISION OF THE COMMISSION’S PROGRAM ACCESS RULES

MB Docket No. 12-68

COMMENTS OF DIRECTV, LLC

William M. Wiltshire Michael Nilsson Kristine Laudadio Devine WILTSHIRE & GRANNIS LLP 1200 Eighteenth Street, NW Washington, DC 20036 (202) 730-1300 Counsel for DIRECTV, LLC

Susan Eid Executive Vice President, Government Affairs Stacy R. Fuller Vice President, Regulatory Affairs DIRECTV, LLC 901 F Street, NW, Suite 600 Washington, DC 20004 (202) 383-6300

December 14, 2012

i

SUMMARY

Just two months ago, the Commission allowed the prohibition against exclusive

programming arrangements between cable operators and cable-affiliated programmers to

sunset, removing one of the pillars of the Commission’s program access regime in favor

of an approach based on case-by-case adjudication of complaints. In doing so, the

Commission extended the evidentiary presumption related to terrestrially-delivered

regional sports networks (“RSNs”) to those delivered by satellite, and sought comment

on the adoption of additional presumptions in cases where cable-affiliated programming

has been withheld from competitors.

DIRECTV supports these proposals, and urges the Commission to adopt the

following rebuttable presumptions:

• An exclusive carriage arrangement involving a cable-affiliated RSN is an “unfair

act” under Section 628(b) of the Communications Act.

• Exclusive carriage arrangements involving a cable-affiliated national sports

network (“NSN”) is both an “unfair act” and has the purpose or effect of

“significantly hindering or preventing” the complainant from providing satellite

cable programming under Section 628(b).

• A complainant challenging an exclusive contract involving a cable-affiliated RSN

or NSN is entitled to a standstill of an existing programming contract for that

programming during the pendency of the complaint proceeding.

In each case, well-understood and documented economic incentives create a rational

expectation that one fact will likely follow from another, providing a valid foundation for

ii

the Commission to exercise its predictive judgment and adopt the presumption in

question.

In the absence of the blanket cable exclusivity prohibition, such presumptions will

provide much-needed disincentives against anticompetitive withholding of high-value,

non-replicable content by cable operators seeking to obtain an unfair advantage over rival

distributors, and will streamline Commission proceedings to redress any case that arises

nonetheless. Thus, they are both legally sustainable and designed to promote the

compelling public policy goal of ensuring the continued vibrancy of competition in the

multichannel video programming distribution market. DIRECTV urges the Commission

to put these presumptions into place expeditiously so that their salutary effect can be

realized as soon as possible.

TABLE OF CONTENTS

Page

SUMMARY ........................................................................................................................ i

DISCUSSION .................................................................................................................... 2

A. The Commission Should Presume That an Exclusive Carriage Arrangement Involving a Cable-Affiliated RSN is an “Unfair Act” ............ 3

B. Exclusive Carriage Arrangements Involving a Cable-Affiliated National Sports Network Should Also Be Presumed to Satisfy Both the “Unfair Act” and the “Significant Hindrance” Prongs of Section 628(b) ........................... 7

C. A Complainant Challenging an Exclusive Arrangement Involving a Cable-Affiliated RSN or NSN Is Presumptively Entitled to a Standstill During the Pendency of the Complaint ............................................................................. 13

CONCLUSION ............................................................................................................... 15

1

Before the FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of REVISION OF THE COMMISSION’S PROGRAM ACCESS RULES

MB Docket No. 12-68

COMMENTS OF DIRECTV, LLC

DIRECTV, LLC (“DIRECTV”) respectfully submits these comments in favor of the

adoption of three rebuttable presumptions proposed in the Commission’s Further Notice of

Proposed Rulemaking1 with respect to program access complaints involving cable-affiliated

programming. Specifically, the Commission should adopt the following rebuttable

presumptions:

• An exclusive carriage arrangement involving a cable-affiliated regional sports network

(“RSN”) is an “unfair act” under Section 628(b) of the Communications Act.

• An exclusive carriage arrangement involving a cable-affiliated national sports network

(“NSN”) is both an “unfair act” and has the purpose or effect of “significantly hindering

or preventing” the complainant from providing satellite cable programming under Section

628(b).

• A complainant challenging an exclusive contract involving a cable-affiliated RSN or

NSN is entitled to a standstill of an existing programming contract for that programming

during the pendency of the complaint proceeding.

1 See Revision of the Commission’s Program Access Rules, 27 FCC Rcd. 12605 (2012) (“FNPRM”).

2

In each case, well-understood and documented economic incentives create a rational expectation

that one fact will likely follow from another, providing a valid foundation for the presumption in

question. With the sunset of a blanket prohibition against exclusive programming arrangements

between cable operators and cable-affiliated programmers, moreover, such presumptions will

provide much-needed disincentives against anticompetitive withholding of high-value, non-

replicable programming.

Of course, in each case the complainant still bears the ultimate burden of proof. But

placing the burden of going forward with the evidence on the defendant could provide a

significant deterrent to anticompetitive behavior and streamline Commission proceedings to

redress any case that arises nonetheless. DIRECTV encourages the Commission to adopt these

vital safeguards to shore up the program access regime that has been a lynchpin for competition

in the multichannel video programming distribution (“MVPD”) market for over two decades.

DISCUSSION

The Commission has the discretion to adopt evidentiary presumptions for use in program

access proceedings. As the D.C. Circuit recently explained in upholding one such presumption,

courts defer to an agency’s predictive judgment underlying an evidentiary presumption when

“there is a sound and rational connection between the proved and inferred facts, and when proof

of one fact renders the existence of another fact so probable that it is sensible and timesaving to

assume the truth of [the inferred] fact ... until the adversary disproves it.”2 The presumptions

discussed above satisfy these criteria, and would serve a valuable function in fortifying a

procompetitive program access regime.

2 See Cablevision Sys. Corp. v. FCC, 649 F.3d 695, 716 (D.C. Cir. 2011) (citation omitted)

(“Cablevision II”).

3

A. The Commission Should Presume That an Exclusive Carriage Arrangement Involving a Cable-Affiliated RSN is an “Unfair Act” In order to prevail in a program access claim under Section 628(b), a complainant must

show both that the defendant engaged in “unfair or deceptive acts or practices” and that doing so

had the purpose or effect of significantly hindering or preventing the complainant from providing

satellite cable programming.3 For both satellite-delivered and terrestrially-delivered RSNs, the

Commission has adopted a presumption that withholding such programming has the prescribed

purpose or effect.4 It has not adopted a parallel presumption, however, with respect to whether

such acts are “unfair” in the first place. As discussed below, there is ample evidence to support a

similar presumption with respect to the “unfair act” component of the statute, and doing so will

significantly enhance the procompetitive effect of the Commission’s program access regime.

One can infer that exclusive RSN arrangements are “unfair” in part because there is no

evidence that they have ever been used for legitimate, procompetitive purposes. As the

Commission and courts have noted, economic theory recognizes that exclusive arrangements in

general can arise from both procompetitive and anticompetitive motivations and can have both

types of results.5 Exclusive arrangements can have procompetitive effects by aligning the

parties’ interests and thereby creating incentives for the distributor to expand the customer base,

preventing free riding on promotional efforts, and facilitating negotiation of lower prices. Yet 3 See 47 U.S.C. § 548(b). 4 See FNPRM, ¶ 55; Review of the Commission’s Program Access Rules and Examination of Program

Tying Arrangements, 25 FCC Rcd. 746, ¶ 52 (2010) (“2010 Program Access Order”). 5 See, e.g., Cablevision II, 649 F.3d at 721 (noting “the generally accepted view in antitrust and other

areas that exclusive contracts may have both procompetitive and anticompetitive purposes and effects”); Implementation of the Cable Television Consumer Protection and Competition Act of 1992 – Development of Competition and Diversity in Video Programming Distribution: Sunset of Exclusive Contract Prohibition, 22 FCC Rcd. 17791, ¶ 63 (2007) (“2007 Extension Order”) (discussing potential benefits and harms of exclusivity), aff’d sub nom. Cablevision Sys. Corp. v. FCC, 597 F.3d 1306 (D.C. Cir. 2010) (“Cablevision I”).

4

the Commission has never found any evidence that the ability or inability to enter into exclusive

arrangements had, in fact, affected the incentives for cable operators to distribute, create, or

invest in programming.6

The evidence is more striking even than that. It shows that, in circumstances where

programming exclusivity could be expected to lead to procompetitive outcomes, it almost never

happens – but it almost always happens where it can lead to anticompetitive outcomes. Until

earlier this year, the program access rules generally prohibited exclusive arrangements between

cable-affiliated programmers and cable operators. Cable operators, however, were always free to

enter into exclusive arrangements with non-cable-affiliated RSNs (such as those owned by Fox).

Likewise, non-cable MVPDs have always been free to enter into exclusive arrangements with

any RSN at all (including one affiliated with cable).7 Nonetheless, DIRECTV is unaware of any

case in which such an exclusive arrangement with an RSN was put in place.8

6 See 2010 Program Access Order, ¶ 38; 2007 Extension Order, ¶ 63; Implementation of the Cable

Television Consumer Protection and Competition Act of 1992 – Development of Competition and Diversity in Video Programming Distribution, 17 FCC Rcd. 12124, ¶ 64 (2002) (“2002 Extension Order”); Verizon Tel. Cos. and Verizon Svcs. Corp. v. Madison Square Garden, L.P. and Cablevision Sys. Corp., 26 FCC Rcd. 13145, ¶ 33 (MB 2011) (“Verizon HD Access Order”), aff’d, 26 FCC Rcd. 15849 (2011); AT&T Svcs. Inc. and Southern New England Tel. Co. d/b/a AT&T Connecticut v. Madison Square Garden, L.P. and Cablevision Sys. Corp., 26 FCC Rcd. 13206, ¶ 34 (MB 2011) (“AT&T HD Access Order”), aff’d, 26 FCC Rcd. 15871 (2011).

7 The lone exception is DIRECTV, which is subject to conditions that limit its ability to enter into

exclusive arrangements with affiliated programmers. 8 Indeed, rather than seeking exclusive carriage of non-affiliated programming, large cable operators

have recently been fighting to deny or limit carriage rights (even for sports programming). See, e.g., Tennis Channel, Inc. v. Comcast Cable Commc’ns, LLC, 27 FCC Rcd. 8508 (2012) (upholding ALJ’s finding of carriage discrimination); NFL Enter. LLC v. Comcast Cable Commc’ns, LLC, FCC 09M-42 (rel. May 19, 2009) (dismissing settled claim over carriage complaint); Game Show Network, LLC v. Cablevision Systems Corp., 27 FCC Rcd. 5113 (MB 2012) (Hearing Designation Order for carriage discrimination complaint). Moreover, although cable operators and their affiliated programmers had the ability to petition the Commission at any time for relief from the cable exclusivity prohibition where a particular arrangement would serve the public interest, only ten such petitions have ever been filed, none in the last fourteen years. See Revision of the Commission’s Program Access Rules, 27 FCC Rcd. 3413, ¶ 8 and n.28 (2012) (citing cases).

5

By contrast, exclusive arrangements between cable operators and cable-affiliated RSNs

were generally prohibited by Congress. Under the prior formulation of the rules, such

arrangements were permissible for cable-affiliated RSNs delivered terrestrially, and therefore not

covered by the cable exclusivity prohibition applicable to satellite-delivered programming. In

those circumstances, withholding was almost always found. The evidence thus demonstrates that

exclusive RSN carriage arrangements are employed principally – if not only – when they are

likely to be anticompetitive.

This perhaps unsurprising observation corresponds with predictions based on standard

economic principles. The record in this proceeding includes an economic analysis of exclusive

program carriage arrangements by Professor Kevin Murphy.9 As Professor Murphy explains, an

important feature of many procompetitive exclusive vertical arrangements is that they do not

limit end-users’ access to the product and thus achieve other efficiencies at low cost in terms of

customer access. Rather, they simply concentrate distribution in a way that creates value without

restricting access.10 MVPD exclusives, by contrast, nearly always reduce end-user access to the

product. The loss of access generally reduces efficiency and would have to be offset by another

benefit, such as enhanced investment or service, or by better pricing (that would expand overall

output) from the exclusive MVPD. However, the nature of MVPD services makes it unlikely

that these sorts of efficiencies would arise through exclusive dealing.11 Moreover, precisely

because programmers formerly covered by the exclusivity ban were vertically integrated, they

9 Kevin M. Murphy, “Report of Professor Kevin M. Murphy” (June 22, 2012) (“Murphy Report”)

(attached as Exhibit A to Comments of DIRECTV, LLC, MB Docket Nos. 12-68, 07-18, and 05-192 (June 22, 2012)).

10 Murphy Report at 10-14. 11 Id. at 16-17.

6

could obtain such “offsetting benefits” without exclusivity. This is because vertical integration is

itself a substitute for exclusivity as a way to align the incentives of supplier and distributor.12

Professor Murphy concludes that, “[t]aken together, these factors imply that there likely is little

benefit from MVPD exclusives and non-trivial costs in lack of access to customers.”13

Professor Murphy’s analysis further demonstrates that cable-affiliated programmers will

find it in their interest to withhold content precisely in those cases where withholding has the

worst price impacts for consumers and is thus most detrimental to competition. Specifically,

[v]ertically integrated programmers will find it in their interest to withhold precisely when withholding has the worst price impacts for consumers, i.e., in those cases where the prices of the vertically integrated MVPD would fall the most and its competitor’s prices would increase the least if the rival MVPD had access to the programming. The competitive conditions where extending the cable exclusivity prohibition likely will benefit consumers the most through price competition are those where the vertically integrated firm has the greatest incentive to refuse to license.14

This supports the conclusion the Commission has reached consistently in multiple proceedings as

to the anticompetitive incentives that lead to withholding sports programming.15

RSNs, of course, contain the sort of non-replicable content that, if withheld, is most

detrimental to competition. The impact of withholding such programming, moreover, is

increasing rather than decreasing. To the extent cable operators are able to increase the value of

each subscriber by combining services into a double-, triple-, or even quad-play bundles, their

12 Id. 13 Id. at 18. The evidence that non-cable affiliated programmers rarely use exclusive distribution

arrangements provides empirical support for Professor Murphy’s analysis. 14 Id. at 28. 15 See Comcast Corp., General Electric Co. and NBC Universal, Inc., 26 FCC Rcd. 4238, ¶¶ 29, 39

(2011) (“Comcast/NBCU Order”); Verizon HD Access Order, ¶ 41; AT&T HD Access Order, ¶ 42; 2010 Program Access Order, ¶ 25.

7

incentive to withhold affiliated programming (and thereby drive subscriber switching) also

increases.16 As bundling continues to become more prevalent, it will make subscribers

increasingly valuable to cable operators and widen the gulf in their value to competing MVPDs,

resulting in even greater incentive for cable-affiliated programmers to withhold in order to afford

their distribution affiliates an unfair advantage.

Thus, both empirical observations and economic theory demonstrate a sound and rational

connection between withholding of cable-affiliated RSN programming and unfair acts in

derogation of competition. Accordingly, the Commission should adopt a presumption that such

withholding constitutes an unfair act for purposes of a program access complaint under Section

628(b).

B. Exclusive Carriage Arrangements Involving a Cable-Affiliated National Sports Network Should Also Be Presumed to Satisfy Both the “Unfair Act” and the “Significant Hindrance” Prongs of Section 628(b) Cable-affiliated RSN exclusives are presumed to be a “significant hindrance” to

competition, and DIRECTV has argued above that they should also be considered “unfair acts.”

Yet there is no reason that only RSNs should be subject to such presumptions.17 The

16 Murphy Report at 25-26. 17 For purposes of its program access rules, the Commission has defined an “RSN” as follows:

any non-broadcast video programming service that (1) provides live or same-day distribution within a limited geographic region of sporting events of a sports team that is a member of Major League Baseball, the National Basketball Association, the National Football League, the National Hockey League, NASCAR, NCAA Division I Football, NCAA Division I Basketball, Liga de Béisbol Profesional de Puerto Rico, Baloncesto Superior Nacional de Puerto Rico, Liga Mayor de Fútbol Nacional de Puerto Rico, and the Puerto Rico Islanders of the United Soccer League’s First Division and (2) in any year, carries a minimum of either 100 hours of programming that meets the criteria of subheading 1, or 10% of the regular season games of at least one sports team that meets the criteria of subheading 1.

2010 Program Access Order, ¶ 53. This definition could be extended to cover NSNs as well by simply striking the phrase “within a limited geographic region.”

8

Commission has recognized that sports programming is unique, in that “no amount of investment

can duplicate the unique attributes of such programming, and denial of access to such

programming can significantly hinder an MVPD from competing in the marketplace.”18 It has

also recognized the time-sensitivity of the airing of important professional sports events, such as

opening days and playoffs.19

The characteristics that make RSNs critical to viewers (and thus ideal tools for

anticompetitive acts) are related not the fact that they are “regional” but rather to the fact that

they carry “sports” – i.e., programming that is non-replicable and for which there is no close

substitute. National sports networks have the same essential qualities, and should enjoy the same

presumptions. Indeed, such networks typically carry (and often preempt) games that would

otherwise appear on an RSN, as evidenced by the attached schedule of nearly 100 National

Hockey League games carried NBC Sports Network (formerly Versus) last year. Moreover,

NSNs carry a large slate of MLB, NBA, and NHL playoff games every year, which are not

reflected on these schedules but are likely some of the most compelling programming that they

show.

In other words, national networks with significant sports programming have content that

is just as non-replicable, highly-valued, and time-sensitive as sports programming carried by

RSNs. For example, ESPN carries (among other things) Monday Night Football, Sunday Night

Baseball, a full slate of over 75 National Basketball Association games per season, a wide array

18 See 2010 Program Access Order, ¶ 9. 19 General Motors Corp., Hughes Elec. Corp., and The News Corp. Ltd., 19 FCC Rcd. 473, ¶ 148

(2004) (“News/Hughes Order”).

9

of NCAA Division I football and basketball games, and the NASCAR Sprint Cup Series.20 As a

result, the network commands one of the highest per-subscriber carriage fees in the industry yet

still achieves near-universal distribution.21 Similarly, TNT will carry over 50 NBA regular

season games this season, not including the playoffs and the All-Star Game, as well as the

NASCAR on TNT Summer Series, and is one of the most widely distributed and highest rated

cable networks.22 While neither of those networks is currently affiliated with a cable operator

(and therefore neither is currently subject to the program access rules), they are nonetheless

examples of the type of national networks with significant sports content that would have a

significant effect on competition if withheld.23 Other NSNs are already cable-affiliated,

including MLB Network, NHL Network, and NBC Sports Network – which Comcast clearly

intends to position as a direct competitor to ESPN. 24

20 See List of ESPN Sports Properties, WIKIPEDIA (available at

http://en.wikipedia.org/wiki/List_of_ESPN_sports_properties). 21 See, e.g., Kurt Badenhausen, “Why ESPN is Worth $40 Billion as the World’s Most Valuable Media

Property,” FORBES (Nov. 9, 2012) (affiliate fees for ESPN are more than four times the fee for the next most costly network) (available at http://www.forbes.com/sites/kurtbadenhausen/2012/11/09/why-espn-is-the-worlds-most-valuable-media-property-and-worth-40-billion/); FNPRM, Appendix F, Table 2.

22 See NBA on TNT (available at http://www.tntdrama.com/sports/nba/); NASCAR on TNT Summer

Series (available at http://www.tntdrama.com/sports/nascar/); FNPRM, Appendix F, Tables 2 and 3. The TNT schedule includes nine games of the Los Angeles Lakers (otherwise carried on the new RSN controlled by Time Warner Cable) and seven games of the Chicago Bulls (otherwise carried on the RSN affiliated with (but not controlled by) Comcast).

23 It is also worth noting that TNT was cable-affiliated until 2009, and ESPN could have become so in

2004 had Comcast’s take-over attempt been successful. See Press Release, “Comcast Corporation Makes Proposal to Merge with The Walt Disney Company” (Feb. 11, 2004) (available at http://www.comcast.com/About/PressRelease/PressReleaseDetail.ashx?PRID=261&SCRedirect=true). As the Commission has recognized, “[v]ideo programming has evolved over time,” and it can be expected to continue to do so. Comcast/NBCU Order, ¶ 46.

24 See, e.g., Bob Fernandez, “Comcast’s NBC Sports to launch radio network, compete with ESPN,”

PHILLY.COM (June 13, 2012) (available at http://www.philly.com/philly/business/158493425.html); Dan Hirschhorn, “NBC Sports Network Plans a Long Game Against ESPN,” AD AGE (Dec. 8, 2011) (available at http://adage.com/article/media/nbc-sports-network-plans-a-long-game-espn/231447/).

10

As discussed above, one would expect to have seen exclusive arrangements involving

NSNs in the past if such arrangements were economically efficient. Similarly, one would expect

to see either a dearth of national sports programming or a lack of investment in NSNs if

exclusivity were important to their development. Yet here again, this is not the case.25 Thus, for

the reasons discussed above, it is logical to conclude that when a cable-affiliated NSN enters into

such an arrangement with one or more cable operators, such conduct is an unfair act.

As for the effect of such withholding by cable-affiliated NSNs, there is no recent example

available for analysis. As the Commission has recognized, because the cable-affiliated

programmers were prohibited from entering into exclusive arrangements with cable operators

over the last 20 years, there is limited direct evidence of anticompetitive foreclosure available for

analysis.26 In a small handful of cases, RSNs distributed via fiber fell outside the prohibition,

and provided a window onto the incentive and ability of cable-affiliated programmers to

withhold such programming to the detriment of competition and consumers. NSNs, by contrast,

have a national footprint which has made terrestrial distribution impractical and therefore

effectively prevented any exploitation of the terrestrial loophole.

See also Jon Lafayette, “A Gold Medal Year for Lazarus,” BROADCASTING AND CABLE, at 13-16 (Dec. 3, 2012) (discussing development of NBC Sports Network and coordination with Comcast-affiliated RSNs).

25 For example, CBS Sports Network carries numerous live NCAA Division I football and basketball

games, and notes that in the past few years, its “quality of programming has increased and it has become the extension of CBS Sports.” See CBS Sports Network – About Us (available at http://www.cbssportsnetwork.com/about). News Corporation is also reportedly in the process of launching its own NSN. See, e.g., Andy Fixmer and Alex Sherman, “News Corp. Said to Plan U.S. Sports Network to Rival ESPN,” BLOOMBERG (Mar. 28, 2012) (available at http://www.bloomberg.com/news/2012-03-28/news-corp-said-to-plan-u-s-sports-network-to-rival-espn.html).

26 2007 Extension Order, ¶ 14.

11

Yet the resulting lack of direct evidence does not preclude the Commission from drawing

conclusions with respect to the likely effect of withholding NSN programming. Indeed, in

determining whether to extend the cable exclusivity prohibition, the Commission was not limited

to considering only specific factual evidence that particular types of programming had been

withheld in the past, but could also apply economic theory and its own predictive judgment to

determine likely outcomes and appropriate policy responses.27 Using those tools, the

Commission twice extended the prohibition with respect to all programming, including national

networks.28 Its analysis in 2007 is instructive in this regard:

We also believe that a competitive MVPD’s lack of access to popular non-RSN networks would not have a materially different impact on the MVPD’s subscribership than would lack of access to an RSN. We are unaware of examples of nationally distributed programming being withheld from willing buyers as has occurred with some RSNs. Instead, we must turn to indirect evidence of the popularity of nationally distributed programming networks. A number of networks receive ratings higher than or equal to those of RSNs that are currently withheld from DBS providers. While ratings are not a perfect predictor of consumer response to the withholding of a network, they do provide us with sufficient evidence to conclude that some nationally distributed networks are sufficiently valuable to viewers such that some viewers may switch to an alternative MVPD if the popular programming were not made available on their current MVPD.29

Because their content is non-replicable, highly-valued, and time-sensitive, NSNs fall into the

category of programming the Commission envisioned.

The Commission has more than sufficient evidence from the impact of withholding sports

programming on a regional basis to exercise its predictive judgment to conclude that withholding

27 2002 Extension Order, ¶¶ 16, 25; 2007 Extension Order, ¶¶ 13-14. 28 2002 Extension Order, ¶¶ 32-33; 2007 Extension Order, ¶¶ 37-42. The Commission also conducted

an economic analysis from which it concluded that withholding of some nationally distributed networks could be profitable if as little as 1.9 percent of non-cable subscribers were to switch to cable as a result. 2007 Extension Order, Appendix C, ¶¶ 20-21.

29 2007 Extension Order, ¶ 39.

12

on a national scale would have a similar effect. It recently recognized that “today certain

national cable programming networks produce programming that is more widely viewed and

commands higher advertising revenue than certain broadcast or RSN programming.”30

Accordingly, it has in the past imposed safeguards on national programming to mirror those

applicable to regional programming.31 The FNPRM cites two instances in which commenters

failed to provide sufficient evidence of harm to competition resulting from exclusive

arrangements for “out-of-market, non-regional sports programming” to justify specific action

with respect to such programming.32 Those findings arose in the context of an exclusive

arrangement between a non-cable MVPD – which lacked the market power to harm competition

– and non-cable-affiliated programmers – which lacked the incentive to do so. Thus, contrary to

its conclusion with respect to the ability of dominant cable operators to withhold programming to

achieve anticompetitive ends, the Commission found “no evidence in the record to conclude that

a competitive MVPD can make exclusivity a profitable strategy over the long term.”33

By contrast, a cable-affiliated NSN would have both the incentive and ability to use its

programming as a weapon against non-cable MVPDs. It could, for example, engage in a cable-

only exclusive agreement to aggregate the market share of non-overlapping cable systems so as

to limit the amount of carriage foregone through the withholding strategy. In such a case, the

NSN would still be distributed to nearly 60 percent of MVPD subscribers nationwide. This

30 Comcast/NBCU Order, ¶ 46. 31 Id., Appendix A, Section II. 32 FNPRM, n.317 (citing 2010 Program Access Order, n.182 and 2007 Extension Order, n.380). By

comparison, NSNs typically carry sports to all markets, including the home markets of the teams involved.

33 2007 Extension Order, n.380.

13

option is not available to an NSN affiliated with a competing MVPD. Alternatively, a cable-

affiliated NSN could withhold just in the areas in which its cable affiliate was dominant – a

strategy that would be particularly problematic for a national MVPD such as DIRECTV, which

packages, prices, and promotes content on a nationwide basis. Moreover, as discussed above,

the increasing prevalence of bundled services increases the value of each switching subscriber,

shifting the economics of foreclosure in a manner more favorable to cable operators.34

Accordingly, there is ample evidence to support a presumption with respect to withholding of

cable-affiliated NSN programming, and doing so would not be inconsistent with prior precedent.

C. A Complainant Challenging an Exclusive Arrangement Involving a Cable-Affiliated RSN or NSN Is Presumptively Entitled to a Standstill During the Pendency of the Complaint

Under the Commission’s program access rules, a complainant may seek a standstill of an

existing programming contract during the pendency of a complaint if it can meet its burden of

showing that: (1) it is likely to prevail on the merits of its complaint; (2) it will suffer irreparable

harm absent a stay; (3) grant of a stay will not substantially harm other interested parties; and (4)

the public interest favors grant of a stay.35 In a complaint proceeding where the presumptions

discussed above with respect to RSN and NSN programming will apply, there is a sound and

rational basis for concluding that each of these elements will likely be satisfied, because of the

very nature of the services being withheld. This provides the proper basis for adopting a

rebuttable presumption to that effect, rather than requiring repetitive individual showings in all

cases.

34 See Murphy Report at 25-26. 35 See 47 C.F.R. § 76.1003(l)(1).

14

First, where these presumptions are applicable, there is every reason to expect the

complainant to prevail on the merits. The very existence of the presumptions evidences the

Commission’s judgment that an exclusive arrangement involving a cable-affiliated RSN or NSN

and a cable operator will likely constitute an unfair act that will significantly hinder MVPD

competition, and thus violate Section 628(b). That alone is sufficient to support a further

presumption of likelihood of success on the merits.

Second, where there is a presumption that the defendant’s actions have the purpose or

effect of significantly hindering or preventing the complainant from providing satellite cable

programming, it is logical to conclude that such actions cause irreparable harm. The

Commission has ample empirical evidence of the competitive harm suffered by MVPDs that

have been denied sports programming in the past, especially in terms of subscriber losses.36

Subscribers who switch in order to retain access to valuable sports programming may not return,

given the recognized effects of inertia on such decisions.37 Moreover, the specter of past service

disruptions could lead consumers to avoid non-cable MVPDs, causing irreparable damage even

if access to content is ultimately restored.

Third, grant of a standstill would not impose substantial harm on any third party. In

particular, because the defendant programmer has already sold its programming to the

complainant in the past and will be paid for carriage during pendency of the complaint, there is

no harm imposed by an interim carriage requirement. This is especially true in light of the

Commission’s recent adoption of a six-month deadline (calculated from the date the complaint is

36 See, e.g., 2007 Extension Order, ¶¶ 39-42 and Appendix B; Verizon HD Access Order, ¶¶ 46-48;

AT&T HD Access Order, ¶¶ 47-49 . 37 See News/Hughes Order, ¶ 79.

15

filed) for the Media Bureau to act on a complaint alleging a denial of programming,38 which will

substantially limit the duration (and therefore impact) of any standstill.

Fourth, as the Commission has recognized, disrupting service to consumers does not

serve the public interest.39 A standstill would allow interim carriage for a brief period while the

merits of complainant’s claim are being sorted out, and thereby avoid unnecessary disruption if

the complaint is ultimately successful.

It is also worth bearing in mind that, like the other presumptions discussed above, a

presumption with respect to a standstill merely shifts the burden of going forward. The

complainant would still bear the ultimate burden of persuasion on all four required showings.

Moreover, the same evidence that would enable a defendant to overcome the underlying

presumption with respect to the “unfair act” and “significant hindrance” prongs of Section

628(b) would also be relevant with respect to this presumption, primarily the first and second

factors.

CONCLUSION

Sunset of the cable exclusivity prohibition threatens to weaken the program access

regime, which has been a bulwark against anticompetitive conduct for twenty years. Adopting

the presumptions discussed above will help shore up that regime in a way that is fully justified

and legally sustainable based on the evidence and economic analysis available to the

Commission. For the foregoing reasons, the Commission should adopt these presumptions as

expeditiously as possible.

38 See FNPRM, ¶ 63. 39 See, e.g., Amendment of the Commission’s Rules Related to Retransmission Consent, 26 FCC Rcd.

2718, ¶ 17 (2011) (initiating proceeding to adopt rules designed to protect consumers against the disruptive effects of the loss of video programming).

16

Respectfully submitted, __/s/__________________________

William M. Wiltshire Michael Nilsson WILTSHIRE & GRANNIS LLP 1200 Eighteenth Street, NW Washington, DC 20036 (202) 730-1300 Counsel for DIRECTV, LLC

Susan Eid Executive Vice President, Government Affairs Stacy R. Fuller Vice President, Regulatory Affairs DIRECTV, LLC 901 F Street, NW, Suite 600 Washington, DC 20004 (202) 383-6300

December 14, 2012

Attachment