sensible thinking on TV sports contracts

by on May 11, 2008 · 4 comments

NFL Network logo For those of you who monitor the ongoing drama over TV sports contracts, you’ll definitely want to read this new paper by my PFF colleague Barbara Esbin, “State Mandates for Program Carriage Dispute Resolution: Welcome to the Wide World of Regulation.” The key dispute du jour involves efforts by the NFL Network to require cable companies to enter into arbitration if the parties fail to strike program carriage deals. The NFL is pushing states to pass legislation mandating this. But, as Barbara notes, the mandatory arbitration procedures are quite silly:

Although characterized as “arbitration bills,” the legislative proposals go well beyond the question of private dispute resolution. Rather, they effectively require vertically integrated cable operators to carry every sports, news and entertainment programming service at a price set by an arbitrator on the terms and conditions of carriage proposed by the programmer. In contrast to the federal requirement that the programmer demonstrate discrimination and competitive harm, this legislation would permit a programmer to demand arbitration merely if it “believes” it is being treated unfairly.

In other words, what the NFL Network is looking for here is a free ride at the expense of video distributors and their subscribers. The NFL thinks they possess a “must have” network and that every operator must carry it even if the cable operators and their customers don’t want it or at least don’t think it’s worth the price the NFL wants them to pay for it. Barbara addresses what’s so wrong-headed about this thinking:

That the NFL Network owns valuable content is indisputable, as is its right to seek the maximum revenues it can get for its programming in the marketplace. But video programming distributors too own valuable property — their distribution systems — and they have a constitutionally protected right to act as editors and choose the type of programming they will carry, where they will carry it, and to negotiate a market rate for its carriage. This right to choose is not absolute; it is subject to federal must carry, commercial leased access and other statutory carriage obligations contained in Title VI of the Federal Communications Act. Nonetheless, with few exceptions, the federal regulatory framework for in general, and cable operators in particular, relies on a system of private negotiations for the carriage of all other programming, and this system has resulted in thousands of successful national and regional programming carriage agreements over the years.

She uses a good hypothetical to explain why the regulatory system the NFL desires is actually very anti-consumer:

The NFL Network first argues that consumer, rather than cable operator, choices should govern program carriage disputes. This may sound pro-consumer, but how can we be certain that the interests of the consumer and the programmer seeking carriage are in fact consistent? And why would they be more consistent than the interests of the consumer and distributor, both of whom may be trying to hold down costs? For example, I like to watch figure skating competitions, and would be delighted it my MVPD carried the “Icenetwork,” a new subscription programming channel featuring exclusive content from the United States Figure Skating Association, and currently available only by subscription online at Hypothetically, what if the Icenetwork had developed a business model based on MVPD distribution that depended on being placed on the most widely viewed programming tier. Further, assume that it sought affiliate fees that were generally higher than the average nationally-distributed satellite programming network, but failed to convince my MVPD, already carrying several of its own national sports networks, to carry the Icenetwork on those terms and conditions. Would it be entitled to mandatory carriage simply because the network desires carriage and I would like my MVPD to carry the sports programming network? How many such specialty networks could also demand carriage?

Under the legislation advanced by the NFL Network, Icenetwork could demand that the dispute be submitted to arbitration on its terms and conditions, with the arbitrator’s sole task to determine level of compensation it will receive. How is this framework superior to continued commercial negotiations between the video programming supplier and distributor over an appropriate carriage arrangement? How does it better reflect consumer choices as a whole? What about the other subscribers of the MVPD who loathe figure skating and would prefer to watch almost any other sport — ice hockey, golf or football — whose favored sports programming networks might find themselves displaced once arbitration had filled the expanded basic cable line-up with programming choices dictated by a class of deep-pocketed programmers? Cable capacity, like other MVPD systems, is not unlimited. Simply substituting the choices of the cable operator with the choices of the programming provider through the vehicle of mandatory arbitration appears no more likely, and in fact may be less likely, than the current framework of commercial negotiations to reflect consumer choices. While far from perfect, leaving program carriage choices for the most part to the video programming distributor appears to have resulted in a popular product; approximately 65 million consumers have chosen to remain with cable service even though the vast majority of them have other choices for MVPD service.

Further, mandatory arbitration will not be “costless” as its proponents would like legislators to believe. It is by no means obvious that commercial arbitration is cheaper, quicker and more effective than litigation. Ultimately, it remains a form of litigation, involving the hiring of lawyers, the gathering of evidence, and the preparation of pleadings and hearings. These costs will ultimately be born by the subscribers of the MVPDs who will effectively be forced to carry the unwanted programming and potentially uneconomic costs, either as a result of a decision to avoid arbitration or an unfavorable decision by the arbitrator. One must keep in mind that the terms and conditions of carriage under the proposals before the states are set by the party seeking arbitration, which will almost invariably be the programming supplier. The programming distributor saying “no” is not an option under the proposed bills.

I encourage you to read the entire paper.

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