FCC: Armstrong's RSN Price Is Right

Upholds 2011 arbitration win in dispute with DirecTV Pittsburgh RSN
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The FCC has sided with an independent cable operator in a dispute over regional sports net pricing.

In a 4-1 vote, the FCC has upheld a Media Bureau conclusion that cable company Armstrong Utilities' final offer for carriage of DirecTV Sports Net Pittsburgh's (DSNP) Fox Sports Pittsburgh was closer to fair market value.

In denying DSNP's petition to review the Media Bureau's August 2011 decision, the commission concluded that "the Media Bureau properly found that the rates and the rate renewal increase in the Armstrong final offer for carriage of the regional sports network (RSN) most closely approximated fair market value."

Commissioner Ajit Pai dissented and fellow Republican Michael O'Rielly dissented in part.

Armstrong's offer was at issue because under the terms of the FCC's transfer of control of DirecTV from News Corp. to Liberty Media, among the conditions was that Liberty had to abide by the same arbitration conditions News Corp., agreed to when it bought DirecTV. That condition says that when negotiations for carriage of a Liberty-owned RSN fail to produce an agreement, an MVPD can submit the last, best offers to outside, baseball-style arbitration.

Armstrong did. The Arbitrator sided with Armstrong's offer. Liberty submitted that to the Media Bureau, which said that faced with the binary choice of the two offers, concluded that yes, "Armstrong final offer most closely approximates the fair market value of the programming carriage rights for FSNP."

DSNP appealed that decision to the full commission, which found it to be "correct and supported by the record."

Pai said the price wasn't right, and that after reviewing the record himself, "I believe it is unlikely that Armstrong’s offer was closer to the fair market value than was DSNP’s." But he said his bigger issue was with the methodology used to come to that conclusion — he suggests the FCC's independent analysis of the fair market value was insufficient--and the precedent that sets.

Commissioner O'Rielly agreed that Pai had made a compelling case for the FCC's insufficient analysis, and dissented to that part of the decision. But he said he was going to let the Media Bureau decision stand because DirecTV's challenge was lacking, because Liberty agreed to the arbitration process, "however flawed," as part of the deal, and because DirecTV knew about this condition when it was spun off to Liberty. "Whether agreeing to this condition ultimately was a wise decision, is something for the company’s leadership to evaluate in hindsight," he added.

Armstrong was represented in the case by law firm Proskauer’s Sports Law Group partner Robert Freeman, litigation department partner Jennifer Scullion, and associate Sean Alford (New York). 

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