On many
occasions, the FCC and reviewing courts have to decide who bears the burden of
proving something, what they have to prove and how convincing they have to be.
Far too often, this process lacks science, or any semblance of discipline. The various stakeholders march their researchers
who offer economic “rules,” specific to the last dime cost or benefit estimates
and vicious attacks on the credibility of other experts with opposing views.
It does not
take an economist, antitrust expert, or rocket scientist to infer that Comcast
has a vested financial interest to favor its golf programming over other sports
programming generated by unaffiliated ventures. Some might call it a conflict
of interest. At the very least, a simple
“smell test” detects a disincentive to carry competing content which does
impose some minor additional programming cost for the basic tier.
However,
the appellate court considering the merits of tennis versus golf programming established
a near impossible set of burdens on the unaffiliated network relegated to the
more expensive sports tier. § 616 of the Communications Act unambiguously
prohibits multichannel video programming networks (like Comcast) from “unreasonably
restrain[ing] the ability of an unaffiliated video programming vendor to
compete fairly.” Notwithstanding this mandate, the D.C. Circuit Court of
Appeals imposed a remarkably high burden of proof on the Tennis Channel (which previously
had convinced an FCC Administrative Law Judge that discrimination had occurred
only to have that finding overturned by a majority of Commissioners.) See https://www.cadc.uscourts.gov/internet/opinions.nsf/EC6B700AE22F118585257B790052AFB0/$file/12-1337-1438011.pdf;
and https://www.cadc.uscourts.gov/internet/opinions.nsf/AFBD6CE03C0BF51585257FE7005038A6/$file/15-1067-1622957.pdf.
The
court-imposed burden required the Tennis Channel to prove that Comcast would
accrue a financial benefit by changing the tier location of the network. How can one meet that burden of proof? The experts retained by the Tennis Channel
would have to come up with a plausible mathematical equation proving that Comcast
would earn more money if it re-tiered the Tennis Channel, i.e., that Comcast
could raise the basic tier rate, or accrue more advertising revenues that would
offset the cost of placing the network in a cheaper, but more heavily
subscribed tier.
I do not
see how counsel for the Tennis Channel could create a formula and an accompanying
narrative showing how increased viewership of the Tennis Channel and a commensurate
increase in advertising rates would satisfy the financial benefit to Comcast
burden of proof.
The bottom
line: Comcast can handicap a competing sport network through a seemingly innocent
and business-driven program tiering decision.
Of course corporate non-affiliation had nothing to do with such decision
making.
This high stakes game
has profound impacts on consumers and the degree of competitiveness in various
sectors of the economy. In many
instances the burden lies with the party opposing a merger and other types of official
blessings required before a commercial transaction can take place.
Consider
this real world scenario. Comcast has an
ownership interest in the Golf Channel.
It stands to reason that Comcast would want to maximize viewership of
this network. It can benefit the Golf
Channel, itself and its cable television subscribers by including this network
in the basic service tier, rather than a more expensive one having fewer
subscribers and a higher monthly subscription price. Arguably, we have a
win/win/win situation. So far, so good.
Along comes
another specialized sport network in which Comcast does not have an ownership
interest. In this scenario, Comcast has
to undertake a more granular financial analysis: does adding this channel
generate more revenues for the company in the basic tier than in a more
expensive sport tier? Comcast presumably
uses math and “real economics” to calculate the financial benefits in any
advertising revenue sharing with the network, plus revenues from advertising it
sells, plus any possible increase in the basic tier monthly subscription rate, plus
savings in its costs of carrying the network in the sports tier. If Comcast can generate such a composite figure,
it then must subtract the per subscriber per month cost of adding carriage of
this network in the basic tier. Bear in
mind, the cost of carriage can vary as a function of tier placement.
In reality,
there are additional factors, not easily quantified even if Comsat wanted to
undertake the calculation (which it most certainly would not want to do so if
obligated to share it with the FCC). Comcast
benefits on both sides of its cable television platform when it places the Golf
Channel in the basic tier. Comcast Cable
pays Comcast the programmer of the Golf Channel. Comcast Cable also receives payments from its
cable subscribers. For sport networks,
which Comcast does not have an ownership interest, only one revenue flow
exists: subscription payments from cable subscribers.