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FCC Ex Parte with DIRECTV and DISH NETWORK regarding the Comcast-NBCU Joint Venture

Submission Date: 
11/23/2010

 

REDACTED - FOR PUBLIC INSPECTION 

November 23, 2010

BY ELECTRONIC FILING

The Hon. Julius Genachowski
Chairman
Federal Communications Commission
445 12th Street, S.W.
Washington, D.C. 20554

Re: Applications of Comcast Corporation, General Electric Company, and NBC Universal, Inc., MB Docket No. 10-56

Dear Chairman Genachowski:

In a recent ex parte submission, Comcast argues that the national cable networks involved in this proceeding should not be made subject to pro-competitive arbitration safeguards because the Commission has declined to impose such safeguards on other national networks in past transactions. I Comcast asks the Commission to infer from these past transactions that national cable networks "by their nature" cannot be used for anticompetitive purposes.

This argument is meritless. The Commission has never held that national networks cannot be the kind of "marquee" programming that can give a vertically integrated programmer the incentive and ability to disadvantage its MVPD rivals. To the contrary, the Commission has found that national programming can be used to disadvantage rivals just like "must have" regional sports network ("RSN") programming because "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." In the cases cited by Comcast, the Commission simply found - based solely on a foreclosure analysis - that the collection of national networks at issue in those proceedings did not pose a sufficient threat to competition. The Commission can and should reach a very different conclusion in this proceeding for at least two reasons.

First, the collection of national networks at issue in this proceeding far surpasses the national networks at issue in past transactions. As set forth in the confidential appendix attached hereto, Comcast's own internal documents demonstrate the importance of NBCU's national networks. These sentiments are confirmed by Comcast's public statements as well. For example, in the words of Comcast CEO Brian Roberts, NBCU's portfolio "includes one of the largest and most profitable collections of cable channels," including

• USA Network, which "is number one in primetime ratings for 13 consecutive quarters;"
• CNBC, "the world's number one business channel;"
• Syfy, which "in October [2009] was the third highest-rated cable channel in America;" and
• MSNBC, the nation's "fastest-growing news channel."

Comcast has elsewhere characterized MSNBC as the "#2 cable news (primetime ratings A25-54)" and Bravo as the "#2 fastest growing top 20 cable entertainment network A18-49 over past 2 years." Moreover, other NBCU networks hold particular importance because of their strong appeal to targeted demographics. For example, Oxygen is "[t]op 25 in ratings for women 18-49" and "#3 in working moms 18-49." Overall, the Comcast-NBCU joint venture would control more than one out of every five television-viewing hours. Given the uniqueness and the breadth of this programming, it is hard to imagine how an MVPD could compete without it.

The same cannot be said of the programming at issue in the transactions cited by Comcast. Exhibit A attached hereto lists the national cable networks that would be controlled by Comcast-NBCU against the national cable networks controlled by the parties in two other transactions cited by Comcast: News Corp.-Hughes and Liberty-DIRECTV. Consistent with the description of the networks provided by Comcast's CEO, the national networks involved in this transaction are significantly more impressive than those at issue in the past transactions. The disparity is borne out by subscribership statistics. In the News Corp.-Hughes transaction, not one of the national cable networks was among the top-20 most-subscribed cable networks at the time, and in the Liberty-DIRECTV transaction, only a single network - QVC, which was ranked 14 - was in the top 20. By contrast, Comcast has proposed to take control of two of the top twenty most widely distributed networks - USA Network (number 5) and CNBC (number 17) - both of which are distributed to 100 million subscribers. In addition, it has proposed to take control of four other networks with subscribership greater than 75 million, in addition to the three it already owns. (See attached Exhibit B.)

Second, the economic record in this proceeding is more complete and amply demonstrates the harm that would result from the transaction absent proper conditions. In past transactions, the Commission has focused on whether a merger would allow an entity to profit from permanent or temporary foreclosure. For example, in News Corp.-Hughes, the Commission recognized that bargaining dynamics and changes in bargaining position are the key to determining the incentives created by vertical integration. The Commission identified two factors that might change a vertically-integrated programmer's bargaining position: (1) the profits generated from subscribers who switch from the foreclosed MVPD to the affiliated MVPD (in this case, Comcast); and (2) increased compensation for the programming going forward. However, its economic analysis could only measure the effect of switching. Accordingly, the Commission performed an analysis based solely on the first factor (i.e., subscriber gains from foreclosure), which it described as "an estimate of the minimum increase in incentive and ability to obtain additional compensation from MVPDs." Thus, the Commission recognized that the methodology used in News Corp.-Hughes would systematically understate the effects of vertical integration, capturing only the effects of the short-term strategy (causing subscribers to switch) rather than the long-term goal (raising prices). Similar limitations applied to the analysis of other past transactions as well.

In this proceeding, by contrast, the record includes a more complete analysis of the incentives created by vertical integration. For example, using publicly available data, Professor William Rogerson used a sophisticated bargaining analysis to demonstrate that the price increases expected for NBCU's national networks in the absence of appropriate safeguards would be approximately $1.1 billion. Applying a similar analysis using confidential data, Professor Kevin Murphy confirmed that the likely increase in prices for NBCU national networks would be substantial. Because this crucial evidence was lacking in prior proceedings but is available here, the Commission need not feel constrained by conclusions reached on a less complete record. Moreover, in prior cases, the Commission drew comfort from the fact that such networks would be subject to the program access rules' ban on exclusive carriage arrangements. However, that safeguard expires in just two years and thus cannot be relied upon to safeguard competition against an integrated Comcast-NBCU.

Accordingly, Comcast's attempt to equate the analysis of national networks in this proceeding with that performed in prior proceedings must fail. The networks at issue here are more significant and numerous, while the evidence of harm is also more complete. Under these circumstances, the Commission should conclude that the proposed transaction cannot be approved in the absence of appropriate pro-competitive safeguards applicable to the national networks that would be controlled by Comcast-NBCU.

Respectfully submitted,

DIRECTV

By: /s/
Susan Eid
Sr. Vice President, Government Affairs

DISH Network L.L.C.

By: /s/
Jeffrey H. Blum
Senior Vice-President and Deputy
General Counsel

AMERICAN CABLE ASSOCIATION
By: /s/
Ross J. Lieberman
Vice President of Government Affairs

[FOOTNOTES, EXHIBITS, AND CONFIDENTIAL APPENDIX OMITTED]

AttachmentSize
National Network ex parte (11 23 2010 -- Public).pdf4.14 MB

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