MSOs Demand Concessions for DirecTV

A group of cable operators last week spelled out two conditions they want the FCC to impose on the proposed News Corp./DirecTV combo.

Without conditions, they said, News Corp. could threaten to withhold regional sports networks and Fox broadcast stations as a way to jack up the fees cable systems must pay for the programming.

"Control of the DirecTV distribution platform effectively reduces the costs and risks to News Corp. of employing 'take-it-or-leave-it' bargaining tactics" with competing cable and satellite-TV distributors, wrote attorneys for Advance Newhouse, Cable One, Cox Communications and Insight Communications. The companies have been urging conditions on the transactions since soon after the deal was announced but had not provided specifics until last week.

Absent the requirements, the cable operators argued, "the transaction harms competition and consumer welfare by affording News Corp. undue pricing power that will yield higher cable rates and/or increase the likelihood of service interruptions for customers."

The companies demanded that News Corp. be banned from requiring that cable operators offer regional sports nets to all subscribers and from requiring that News Corp. cable channels be carried on the most popular channel tiers as condition of permission to carry Fox O&Os.

Sports nets, they said should be required to be made available either as "mini-tiers" that only sports enthusiasts would need to buy or as individual channels on an "à la carte" basis.

Nearly all cable operators pay for sports nets because programmers require distributors to offer them on an all-or-nothing basis and, given the importance of sports fans to system operators' subscriber base, MSOs have no choice but to agree.

Regarding contracts for retransmission of Fox O&Os, the MSOs warned that the DirecTV deal would eliminate the Cold War-style "balance of terror," where both sides lose if a deal can't be reached. "With News Corp. and DirecTV coupled, the terror becomes very one-sided, since DirecTV benefits whenever a cable operators and a programmer reach an impasse."

Consequently, the FCC should extend News Corp.'s pledge not to charge discriminatory prices for pay-TV channels to Fox broadcast channels, too.