March 20, 2014 11:02 AM

How the FCC Looks at Sports, Blackouts, and Broadband Consumers

The first day of March Madness is one of the greatest TV watching days in America, made even better by our special devotion to drinking and gambling.  Monday's article on Recode reminds us, though, that broadband-only consumers will be forced to spend this great national holiday watching TV in a bar.  

wheeler_zero_sign_2_caption.jpgThe value consumers place on sports content is as obvious as the rising prices of subscription TV.  But, sports content, and its regulation (or lack thereof) can also provide some insights into the FCC's priorities, and the relative value that the FCC places on the sports consumer (vs. the sports programming distributors).  It is also interesting to compare how the FCC views sports content distribution practices with how a court might view the same practices under the antitrust laws.

The FCC On Sports Blackouts

A good way to see just how the FCC views sports content consumers, relative to broadcasters and pay TV providers is to look at the FCC's NPRM to eliminate its sports blackout rules.  The proceeding began in November of 2011, when a group called the Sports Fan Coalition (Public Knowledge, Media Access Project, and some sports fan sounding groups) filed a petition to eliminate the rules.  

The petitioners were absolutely right and reasonable.  The FCC should have simply said, "we agree--and we're actually a little embarrassed that the rule was adopted at all, much less still on the books."

In reality, it took the FCC two more years to unanimously approve . . . a Notice of Proposed Rulemaking to ask questions about the effects of "repealing" the sports blackout rules (that it had no clear authority to adopt in the first place).  To reassure industry that the FCC hadn't found religion, Acting Chairwoman Clyburn was careful to explain that, "[e]limination of our sports blackout rules will not prevent the sports leagues, broadcasters, and cable and satellite providers from privately negotiating agreements to black out certain sports events."

Because, you know, what could go wrong with private blackout agreements between leagues, RSNs, and their MPVDs?  It's not like the agreements could be more anticompetitive than the rules themselves, right?

A Year Earlier, In a Court of Law . . .

In December 2012, a federal district court in New York issued an opinion refusing to dismiss antitrust complaints filed by TV and Internet consumers against Major League Baseball, the National Hockey League, Comcast, DirecTV, and other affiliated RSNs.  (Yes, the defendants are the same parties the FCC "will not prevent" from entering into private blackout agreements.)  The Southern District of New York ruled that the complaints presented a "plausible" claim that blackout agreements between the baseball and hockey leagues, and Comcast, DirecTV, and their RSNs were being used to eliminate Internet competition, require customers to purchase from MVPDs, and generally increase prices to consumers.

Here are some excerpts from the court's opinion describing how real consumers view the types of agreements the FCC "will not prevent" (internal quotes refer to the plaintiffs' complaints):

Plaintiffs challenge "defendants' . . . agreements to eliminate competition in the distribution of [baseball and hockey] games over the Internet and television [by] divid[ing] the live-game video presentation market into exclusive territories, which are protected by anticompetitive blackouts" and by "collud[ing] to sell the 'out-of-market' packages only through the League [which] exploit[s] [its] illegal monopoly by charging supra-competitive prices."  Opinion, at 2. Emphasis added.

The Complaints allege that the "regional blackout agreements," made "for the purpose of protecting the local television telecasters," are "[a]t the core of Defendants' restraint of competition." "But for these agreements," plaintiffs allege, "MVPDs would facilitate 'foreign' RSN entry and other forms of competition." Plaintiffs argue that the "MVPDs also directly benefit from the blackout of Internet streams of local games, which requires that fans obtain this programming exclusively from the MVPDs." Id. at 8.

Back at the Commission . . .

Public comments on the FCC's sports blackout NPRM were a filed a few weeks ago.  Major League Baseball does not typically blackout telecasts in response to gate sales.  But, realizing that its own private blackout agreements may soon be illegal, the MLB, predictably, argues the FCC rules are still needed--as an anticompetitive backstop to the anticompetitive agreements the FCC "will not prevent."  Of course, the MLB doesn't tell the FCC why it might not have as much access to private blackout agreements in the future.

In its comments, the Sports Fan Coalition devoted a several pages of its comments to explaining (as then Acting Chairwman Clyburn noted) that, even without the FCC's rules, anticompetitive private blackout agreements will still be available to the leagues, the RSNs, and the big cable and satellite companies.  But, the SFC is simply responding to the FCC's primary concern in the NPRM.

full fcc at meeting_caption2.jpgFCC Priorities: TV, TV, and TV

The contrast between the federal district court's skepticism and the FCC's comfort with private blackout agreements could not be clearer.  It is notable, but not terribly surprising, that there is no reference to the two year old consumer antitrust cases anywhere in the sports blackout docket; not in the original petition, the FCC's NPRM, or in any party's comments.  It's almost as if the FCC and sports consumers are in different worlds.    

If you just read the FCC's press releases, and the speeches from the Chairman and other Commissioners (and their tweets), you might think broadband Internet was a huge priority.  Yet, it's difficult to reconcile the FCC's statements with the fact that the Commission tolerates agreements by regulated TV distributors (broadcast, cable and satellite) that require sports leagues/teams to refuse to deal with broadband-only consumers on any terms for "in market" games.

The Chairman says that he will target legal restrictions on the ability of cities and towns to offer broadband service.  I'd be more impressed if he targeted restrictions in sports content distribution agreements that intentionally reduce the value of the broadband Internet to all consumers.




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