[Senate Hearing 109-762]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-762
 
   COMPETITION IN SPORTS PROGRAMMING AND DISTRIBUTION: ARE CONSUMERS 
                                WINNING?

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 14, 2006

                               __________

                          Serial No. J-109-119

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
           Michael O'Neill, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Feinstein, Hon. Dianne, a U.S. Senator from the State of 
  California.....................................................     2
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    57
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1

                               WITNESSES

Fawcett, Daniel M., Executive Vice President, Business and Legal 
  Affairs and Programming Acquisition, DIRECTV, Inc., Washington, 
  D.C............................................................     9
Hobbs, Landel C., Chief Operating Officer, Time Warner Cable, New 
  York, New York.................................................    13
Noll, Roger, Senior Fellow, Stanford Institute for Economic 
  Policy Research, Stanford, California..........................    16
Pash, Jeffrey, Executive Vice President and General Counsel, 
  National Football League, New York, New York...................     5

                         QUESTIONS AND ANSWERS

Responses of Landel C. Hobbs to questions submitted by Senator 
  Specter........................................................    25
Responses of Daniel M. Fawcett to questions submitted by Senator 
  Specter........................................................    27
Responses of Jeffrey Pash to questions submitted by Senators 
  Leahy and Specter..............................................    30

                       SUBMISSIONS FOR THE RECORD

Fawcett, Daniel M., Executive Vice President, Business and Legal 
  Affairs and Programming Acquisition, DIRECTV, Inc., Washington, 
  D.C............................................................    40
Hobbs, Landel C., Chief Operating Officer, Time Warner Cable, New 
  York, New York.................................................    50
Pash, Jeffrey, Executive Vice President and General Counsel, 
  National Football League, New York, New York...................    59


   COMPETITION IN SPORTS PROGRAMMING AND DISTRIBUTION: ARE CONSUMERS 
                                WINNING?

                              ----------                              


                       TUESDAY, NOVEMBER 14, 2006

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:01 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Arlen 
Specter, Chairman of the Committee, presiding.
    Present: Senators Specter and Feinstein.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Chairman Specter. Good morning, ladies and gentlemen. The 
Judiciary Committee will now proceed with our hearing on the 
National Football League and its practices on pay television. 
Nine days from today, on Thanksgiving Day, the NFL on its own 
network, the NFL Network, will begin showing what is called the 
Thursday-Saturday package, and this will doubtless have the 
effect of raising subscription rates for consumers who watch 
football very materially. This hearing will examine whether the 
so-called Sunday Ticket is a violation of the antitrust laws, 
whether the new Thursday- Saturday package is a violation of 
the antitrust laws, or whether the two in combination violate 
the antitrust laws, and whether or not additional legislation 
is necessary.
    Professional sports in America has a unique position. Other 
businesses--and it is acknowledged that professional sports 
does constitute a business, but other businesses are subject to 
the antitrust laws. But by virtue of a special exemption under 
legislation enacted in 1961, professional sports may combine 
and deal with the networks in a way which other businesses 
cannot. We will be examining today the question as to whether 
there is any exemption from that statute, but it appears to me 
on the face that there is not.
    There is no doubt that America has a love affair with 
professional sports. Perhaps it could be more accurately called 
an addiction, maybe even a drug addiction. But there is no 
doubt that people are attracted to the televising of sports, 
especially the National Football League, where the Super Bowl 
has consistently been the highest-drawing television program 
that is on the air.
    In 1999, the Court of Appeals for the Third Circuit handed 
down a decision saying that DIRECTV's Sunday Ticket was not 
exempt under the 1961 statute, that the 1961 statute covered 
broadcast television where there were sponsors and did not 
cover pay television. And, in fact, Pete Rozelle testified at 
the hearings when that legislation was enacted that it did not 
cover pay television, and those were the findings of the House 
Judiciary Committee as well.
    A key issue of the entire arrangement turns on which of the 
subscribers are required to pay for the additional coverage. 
Comcast, illustratively, has three tiers of coverage: one is 
what is called analog, where you have about 24 million 
subscribers; another is digital, with about 11 million 
subscribers; and a sports tier, which has less than 1 million. 
Efforts are being made by cable companies to carry the new 
Thursday-Saturday package on their sports tier, but that is 
being resisted by the NFL.
    The result is that if it is covered on the basic package, 
many more people have to pay the fare, whether they want the 
NFL or not, if they already get the cable coverage. One 
question which will be pursued here is: Why has the Sunday 
Ticket not been available for competitive bidding? The 
Committee is advised--and we will be pursuing this more 
specifically--that the NFL told Comcast they wouldn't entertain 
a bid from Comcast. And the question obviously arises: Why 
isn't the bidding open? And why isn't the bidding competitive?
    We will be pursuing another hearing on this overall subject 
on December 7th on the question of vertical integration, which 
poses some different issues with the Yankees and their 
television station, where it is reported that their TV station 
is now worth more than the baseball team, and the vertical 
integration which involves the Braves and the vertical 
integration which involves Comcast with the Philadelphia sports 
teams.
    Let me yield at this time to the Senator from California.

  STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE 
                      STATE OF CALIFORNIA

    Senator Feinstein. Thank you very much, Mr. Chairman, and 
let me thank you for holding these hearings. And I gather from 
what you say there will be a series of them, and I think that 
is good. I would like to urge that they be widened somewhat, 
and I am very concerned. I happen to be a big NFL fan. You know 
I was mayor for 9 years. I had the privilege of going to the 
Super Bowl several times. The San Francisco 49ers have become a 
treasured value in San Francisco. And I have been very 
disturbed to learn that the 49ers are countenancing a move 
outside of the city. And I began to take a look at what has 
happened, and what I find is that with Major League Baseball 
you had one move during this period of time, and with the major 
league football there have been seven moves during a period of 
time: the Oakland Raiders to Los Angeles in 1982, the Baltimore 
Colts to Indianapolis in 1984, St. Louis Cardinals to Tempe in 
1988, Los Angeles Rams to St. Louis in 1994, the Raiders to 
Oakland again in 1994, the Cleveland Browns to Baltimore in 
1996--and in that case they did not take the name essentially 
with them--and the Houston Oilers to Nashville in 1997.
    Major league football is a very important factor to big 
cities of America. It is the great leveler in a diverse city. 
People come together. They mourn the losses. They share the 
pride of the wins. Once in a while they go to the Super Bowl, 
and there is a tremendous investment of the cities of America 
in their teams. And when a team just announces that it may pull 
out and go to another community and take the name of the city 
and the name in this case of the heritage of the city with 
them, it causes great consternation.
    I have my staff, Mr. Chairman, looking at the law. It is my 
view that the league should approve all moves. It is my view 
that these constant moves are not healthy for the communities. 
And I have deep concern over the taking of the name of a team--
in this case, the San Francisco 49ers. 49er is the tradition of 
the city. San Francisco is the city of the Gold Rush. This has 
been with us for more than a hundred years. You cannot move to 
Santa Clara and call yourself a 49er. You are not. And you 
certainly can't call yourself the San Francisco 49ers. You are 
not.
    So it seems to me that we ought to look at legislation 
which would prohibit the taking of a city's name outside of its 
jurisdiction without the approval of that city. I have always 
contended that major league sports isn't like Post Toasties. It 
isn't a commodity. It is a very ethereal, general concept that 
so deeply enriches a city. I was passionate about this when I 
was mayor, and I am passionate about it as a U.S. Senator.
    I pulled together the owner of the 49ers, whom I respect 
very much, John York--I have known the family for a very long 
time--and the mayor, Gavin Newsom, this past Friday to try to 
see if negotiations couldn't resume, and I believe they will 
resume. I understand the mayor may be meeting with Mr. York 
again Wednesday. And I am very hopeful that something can be 
worked out.
    But this U.S. Senator intends to fight every way I possibly 
can to keep the San Francisco 49ers in San Francisco and to see 
that this kind of move of just picking up and leaving a city 
can really be modified to the point where, if the name is going 
to go, the city provide some approval.
    So I wanted you, because we have worked closely together on 
a number of other issues, to know that and to know my deep 
concern, to thank you for holding these hearings, and I hope 
they can be expanded.
    Chairman Specter. Well, thank you, Senator Feinstein. You 
have raised some important issues. And this Committee held 
hearings in the early 1980s on the subject you referred to, and 
at the same table, we had Pete Rozelle and Al Davis when they 
came in to testify about the move of the Oakland Raiders--I 
think the table is the same; the witnesses are just different--
and when there was a threat to move the Philadelphia Eagles. 
And I share your passion and I share your concern for the 
hometown team. When there was a move to take the Eagles to 
Phoenix in the early 1980s, I introduced legislation to take 
away the antitrust exemption unless major league football, the 
NFL, respected the hometown teams.
    I believe that sports franchises are--I put it in the 
terms, perhaps unduly legalistic, as opposed to Post Toasties, 
``affected with the public interest.'' And I still recall, as 
do many people, the move of the Brooklyn Dodgers to Los 
Angeles. Walter O'Malley got a lot of real estate, and Brooklyn 
lost their baseball team. And the Giants followed suit. And I 
am sure you opposed the move of the New York Giants to San 
Francisco at that time. And then the Colts left in the middle 
of the night with Irsay to go to Indianapolis. And then we had 
the rash of stadium building where we spent $1 billion in 
Pennsylvania and a lot of it has come out of the taxpayers. I 
introduced legislation when that wave started to condition the 
antitrust exemption on Major League Baseball and the NFL paying 
three-quarters of the stadium costs. The NFL has a multiyear, 
$24 billion television contract, and they can afford to build 
their own stadiums, and they can afford to leave teams in 
place. I agree with you totally.
    The more imminent problem is the problem as to what is 
going to happen to cable subscribers all around the country. 
People are going to want to see this Thursday-Saturday package, 
and the NFL has sued Comcast involving this matter. We are soon 
going to explore that. And I cannot find out what that lawsuit 
is about. It is under seal. They have docket entries so you can 
see that there is a lawsuit, but it is under seal. So the 
public has a really major interest, and there has been a 
concern that the attitude of professional sports is that the 
public be damned. And that is highly questionable in a context 
where you have this unique status of an antitrust exemption.
    Well, we are going to talk--
    Senator Feinstein. If I may?
    Chairman Specter. Sure, you may.
    Senator Feinstein. Thank you very much. I would just say 
that I agree with everything you have said. I would really like 
to work with you in this regard. You clearly have the 
background, the history, and have done much more in the arena 
than I.
    As you know, our side of the aisle has the organizing 
meeting at 9:30 this morning, so I look forward to speaking 
with you in the coming days and seeing what we might be able to 
put together for the new Congress. And I thank you very much.
    Chairman Specter. Well, thank you, Senator Feinstein. We 
had set this hearing thinking that the organizing meetings were 
going to be on Wednesday and not on Tuesday. And as it works 
out, as usual, there is a disagreement between the parties as 
to when to organize. We can disagree on almost everything. The 
Democrats are organizing on Tuesday and Republicans on 
Wednesday. But your organization meeting may not take too long, 
and if you have the time and inclination, come back. These men 
will be here for a while.
    Senator Feinstein. Thank you. Thank you very much.
    Chairman Specter. We now turn to our first witness, Mr. 
Jeffrey Pash, Executive Vice President and General Counsel of 
the National Football League. Prior to coming to the NFL, he 
was Senior Vice President and General Counsel to the National 
Hockey League, had been a partner at Covington & Burling, 
graduated from Harvard College and Harvard Law School.
    Thank you for joining us, Mr. Pash, and we look forward to 
your testimony.

STATEMENT OF JEFFREY PASH, EXECUTIVE VICE PRESIDENT AND GENERAL 
     COUNSEL, NATIONAL FOOTBALL LEAGUE, NEW YORK, NEW YORK

    Mr. Pash. Thank you, Mr. Chairman, and good morning. I 
appreciate the opportunity to talk about our television 
policies today. They have been, as you indicated, reviewed over 
many years in many different forms, and the conclusion I think 
has been that these policies are consistent with the public 
interest, they are responsive to consumer demand, and they 
provide NFL fans with exceptional access to television at 
little or no cost.
    We are, like any sports league, a unique business entity. 
Our teams jointly produce a product that no team could produce 
on its own. And, in turn, we compete in a broad entertainment 
marketplace that includes other sports products and all kinds 
of entertainment products.
    Let me touch on three points before we get to the 
questioning: first, just an overview of NFL TV policy; second, 
the Sunday Ticket package; and, third, our new NFL Network.
    The centerpiece of NFL television policy is the free, over-
the-air broadcasting of NFL games. Every NFL regular season 
game and every post-season game is televised on free, over-the-
air television. As a general matter, a fan in a particular city 
will have available 90 or more games on free television during 
the course of the year. That will include all of that local 
team's away games, all of the home games if they are sold out, 
a wide range of other NFL games, and all playoff games. Thus 
far this year, every game has been sold out and has been 
televised locally in the home city.
    This is true even of games that are shown on ESPN or on the 
NFL Network. Those games are simultaneously broadcast over the 
air in the home cities of the participating teams. So the game 
last night between Tampa Bay and Carolina was shown nationally 
on ESPN and also on over-the-air television in those two 
communities. That is a unique requirement. It is not imposed by 
any other league. It is not imposed, to my knowledge, in the 
context of any other sports television product.
    Second, with respect to NFL Sunday Ticket, that is, as the 
Chairman knows, a satellite package that allows fans to view 
out-of-market games that would not otherwise be available in 
their home community. So a fan in Washington, for example, 
would ordinarily on Sunday see the Redskins and one or two 
other games. If that fan purchases Sunday Ticket, he can see 
any NFL game being played on that day.
    NFL Sunday Ticket is structured to supplement but not 
displace the broadcast packages. No fan has to purchase Sunday 
Ticket in order to see the local teams' games, the prime-time 
contests, any of the post-season games, or a wide range of 
other games. Those 90 games I referred to are available without 
regard to whether a fan purchases Sunday Ticket or not. It does 
not displace the primary role of broadcast networks or local 
affiliates. It expands output and enhances consumer choice, 
which is precisely what the antitrust laws encourage firms to 
do. And as DIRECTV's testimony makes clear, it has also 
promoted broader competition in a broader television 
marketplace.
    Finally, with respect to the NFL Network, the NFL Network 
was started 3 years ago. It is a year-round channel devoted to 
football. It is currently available in approximately 40 million 
homes, both on cable as well as DIRECTV and EchoStar. 
Interestingly, DIRECTV and EchoStar, for example, as is also 
true of the telephone companies that carry the NFL Network, 
have included it on their basic tier at no additional cost to 
consumers, no up-charge whatsoever for any of those homes.
    While we have allowed cable companies to launch the network 
on widely distributed digital tiers, we have not been willing 
to do so on the sports tiers. We do not believe the pricing of 
those sports tiers or the very narrow distribution of those 
sports tiers is consistent with the interests of our fans or, 
frankly, with our own interests. We have always tried to have 
broad-based distribution of our product, and those sports tiers 
are not broadly based.
    Later this month, we will begin live telecasts of a package 
of eight regular-season games. Those games will also be shown 
on over-the-air broadcast in the home cities of the competing 
teams.
    We are in the midst, as you know, of some difficult 
negotiations with cable systems over carriage of the network. 
Those are tough commercial negotiations. They are not unusual 
or unprecedented in the context of sports or television. There 
have been similar disputes in the past between cable systems 
and other rights holders. As a general matter, they get 
resolved when one party or another reassesses and modifies its 
positions. But they do not raise antitrust issues and do not 
get resolved by reference to the antitrust laws. They are 
commercial disputes that get resolved in the ordinary course.
    We believe that our use of the NFL Network, Sunday Ticket, 
and our broadcast package, which is where the overwhelming 
amount of our television product is placed, is consistent with 
the public interest and with the antitrust laws as they have 
developed over the past 45 years.
    Thank you.
    [The prepared statement of Mr. Pash appears as a submission 
for the record.]
    Chairman Specter. Mr. Pash, why do you say or fundamentally 
how can you say that not offering the Thursday-Saturday package 
to a sports tier is consistent with the fans' interest? By way 
of definition, if you have it in the basic package, everybody 
has to pay for it whether they want to watch the games or not, 
whether they are a football fan or not. If they could select 
their menu a la carte, it would be the channels they wanted. So 
how can you say it is consistent with the fans' interest when, 
if you put it on a sports tier, only the fans who wanted to 
watch the games would be paying for them and not everybody have 
to pay for them to get the basic coverage?
    Mr. Pash. Well, the interest of fans, I think, Senator, is 
best served by broad distribution. That is why so many cable 
channels are carried on a basic tier. We do not have an a la 
carte model. This is not about a la carte. This is not 
selecting the NFL Network.
    Chairman Specter. Well, why not? Why is it in the fans' 
interest to have to pay for the Thursday-Saturday package when 
they do not have any interest in professional football? Why not 
let the people who want it--we are not talking about going a la 
carte all the way. We are talking about two different tiers: 
the basic package everybody has to pay for, and a sports tier, 
where you have those who are identifiable as wanting the sports 
would pay for what they see.
    Mr. Pash. Well, they do not have to pay for it. If you look 
at DIRECTV and you look at EchoStar, the NFL Network and these 
eight games are available on the basic tier. When EchoStar 
added the NFL Network earlier this year, there was no increase 
in charge to the consumers. There was no increase in charge to 
the subscribers for DIRECTV. The telephone companies that are 
carrying this on their basic tier, they do not charge the 
consumers anything extra for it. That is a false dichotomy. 
That is not how it has to work out. It can be part of the basic 
cable charge, or it can be part of the basic digital tier 
charge. There is no reason why there has to be a separate 
package, and four of the five largest distributors in the 
country carry the NFL Network without imposing a separate 
charge. It is a false dichotomy.
    Chairman Specter. Which cable companies carry it without 
any additional charge?
    Mr. Pash. There is no additional per subscriber fee passed 
through on Cox, on Comcast; there was not on Adelphia before 
Time Warner took over the Adelphia systems and dropped the NFL 
Network; and there is not on DIRECTV; and there is not on 
EchoStar.
    Chairman Specter. Well, you mentioned Comcast. Is it true 
that the NFL has sued Comcast?
    Mr. Pash. Yes, we are in litigation with Comcast.
    Chairman Specter. And what is the thrust of that 
litigation?
    Mr. Pash. It is a contract dispute involving whether 
Comcast has the right to tier the NFL Network starting next 
year.
    Chairman Specter. Well, that is precisely the point I am 
making. Comcast does not want to have it in a tier where people 
pay for it where the people are not interested in the sporting 
event.
    Mr. Pash. Well, we think that the contract that we signed 
with Comcast does not permit that, and we have asked a judge to 
make a ruling on that issue. We think we have already 
negotiated that issue with Comcast, and there is a dispute 
about what the contract permits.
    Chairman Specter. Mr. Pash, do you know if the NFL, through 
its former Commissioner, Mr. Tagliabue, declined to entertain 
any bid by Comcast for the Sunday Ticket?
    Mr. Pash. I do not believe that we declined to enter a bid. 
I know there were conversations with Comcast and other cable 
systems about Sunday Ticket. I do know that we have been quite 
reluctant, as have our broadcast partners, to have Sunday 
Ticket go on to cable because we are very concerned that it 
would really undermine the broadcast television model, 
including the role the local affiliates play--
    Chairman Specter. Well, before you give your explanation, 
let's come back. You used the word ``reluctant.'' Was the 
reluctance carried to the extent of Commissioner Tagliabue 
telling Comcast he would not entertain a bid?
    Mr. Pash. I cannot say. I was not party to a discussion, 
whatever discussion Mr. Tagliabue may have had with people at 
Comcast.
    Chairman Specter. Well, would you find out about that and 
let the Committee know, please?
    Mr. Pash. Yes, I will.
    Chairman Specter. And you were starting to describe why you 
don't want to have it over cable.
    Mr. Pash. Right. As I said, Senator, the primary means of 
our telecast is over free, over-the-air television. That has 
been the case going back to the 1960s. And we do not want to 
have Sunday Ticket undermine or substitute for that. We want to 
preserve the health of the broadcast television model. We want 
to maintain the local affiliates as the principal means for 
viewing NFL television. And there is concern on our part, and I 
think on the part of the broadcast networks, that if Sunday 
Ticket were to be available on 80 or 90 million cable 
households, it would seriously cannibalize and undermine the 
viability of broadcast television. We think our primary 
responsibility, Mr. Chairman, is to deliver NFL Football to a 
broad audience through broadcast television.
    Chairman Specter. Well, how about on 24 million, which is 
what Comcast has on its basic, or even less than that, 11 
million on its digital line, or even less than that, a million 
on its sports tier?
    Mr. Pash. To put Sunday Ticket on the sports tier?
    Chairman Specter. Well, it is not going to undermine your 
broadcast television. We are not talking about 80 million. We 
are talking about a much smaller number. How many subscribers 
does DIRECTV have?
    Mr. Pash. Well, we currently have on DIRECTV about 1.8 
million subscribers to Sunday Ticket, and I do not know the 
total universe that DIRECTV has off the top of my head. I am 
sure Mr. Fawcett knows. But our Sunday Ticket has about 1.8 
million subscribers on DIRECTV.
    Chairman Specter. 1.8 million?
    Mr. Pash. Yes, sir.
    Chairman Specter. Is that on the basic coverage of DIRECTV?
    Mr. Pash. Yes. Well, you have to purchase it. It is a 
separate package that you purchase.
    Chairman Specter. So you have DIRECTV on a tiered basis.
    Mr. Pash. We have a package of games that can be purchased 
on DIRECTV, yes.
    Chairman Specter. Because I have DIRECTV, and I do not have 
the Thursday-Saturday package.
    Mr. Pash. Well, the Thursday-Saturday package, Mr. 
Chairman, you do not have to buy separately on DIRECTV. Those 
are on the NFL Network. The NFL Network is on the basic tier of 
DIRECTV and EchoStar. You do not have to pay anything extra to 
get the Thursday-Saturday games on DIRECTV.
    Chairman Specter. Well, what is the basis of the litigation 
with Comcast? Comcast has the NFL Network, and there is a 
contention that Comcast wants to put it on the sports tier, and 
the NFL wants to put it on the broader base, either analog or 
basic coverage. Isn't that right?
    Mr. Pash. Comcast has informed us that they want to put it 
on the sports tier beginning next year. We want to keep it 
where it is now. We believe that the contract that we 
negotiated with Comcast does not give Comcast the right to move 
the NFL Network to the sports tier, and that is the question 
that we have asked the judge to resolve.
    Chairman Specter. But with DIRECTV, you do permit it to go 
on just the sports tier.
    Mr. Pash. No, Mr. Chairman, that is not correct.
    Chairman Specter. Everybody on DIRECTV gets the Thursday-
Saturday package.
    Mr. Pash. That is correct. Yes, sir. The Thursday- Saturday 
games are available on the basic tier on both DIRECTV and 
EchoStar.
    Chairman Specter. Is it true that Cox has it on just the 
sports tier?
    Mr. Pash. No, that is not correct.
    Chairman Specter. Well, we will take up the Time Warner 
situation with the Time Warner witness.
    We turn now to Mr. Daniel Fawcett, Executive Vice President 
for Business and Legal Affairs for DIRECTV, Incorporated. 
Previously, he had been Executive Vice President for Legal and 
Business Affairs for FOX, served in several positions at FOX, 
including Senior Vice President for Business and Legal Affairs; 
a bachelor's degree from Tufts, an MBA from Carnegie Mellon, 
and a law degree from the University of Pittsburgh.
    Thank you for joining us, Mr. Fawcett, and the floor is 
yours.

   STATEMENT OF DANIEL M. FAWCETT, EXECUTIVE VICE PRESIDENT, 
    BUSINESS AND LEGAL AFFAIRS AND PROGRAMMING ACQUISITION, 
                DIRECTV, INC., WASHINGTON, D.C.

    Mr. Fawcett. Thank you, Chairman Specter. My name is Dan 
Fawcett, as you said, and I am also the head of Programming 
Acquisition at DIRECTV, and I am happy to be here today to 
testify on the role of NFL Sunday Ticket in fulfilling the 
goals of the program access statute and in fostering 
competition to the incumbent cable providers.
    Over the last decade, Congress has helped develop the 
competitive video marketplace that exists today. In a little 
over 10 years, DBS--that is DIRECTV and dish, EchoStar--has 
grown to more than 28 million subscribers. Increased 
Competition means consumers have more choice; customer service 
and pricing are more responsive; and technological innovation 
is flourishing. Because of this competitive marketplace, all 
Americans, not just DIRECTV customers--are enjoying a better 
television experience, no matter who their provider.
    Congress helped make this possible by enacting the program 
access provisions in the 1992 Cable Act. The point of the Act 
was to ensure that new entrants had access to programming that 
cable operators would otherwise withhold. Congress, therefore, 
required that programming owned by cable be made available to 
all competitors on nondiscriminatory terms.
    Yet when adopting the program access provisions, Congress 
treaded carefully, and rightfully so. It did not prohibit all 
exclusive arrangements. It instead sought to encourage the 
development of unique product offerings, such as local news. 
And because it was principally concerned about the abuse of 
market power, it only prohibited exclusive contracts by 
dominant cable operators for programming owned by cable.
    On the other hand, Congress recognized that exclusive 
contracts could enhance the competitive viability of new 
entrants, like DIRECTV.
    Perhaps the best example of an exclusive arrangement 
helping, and not harming, competition is the NFL Sunday Ticket. 
DIRECTV was able to get a foot in the door of this highly 
concentrated industry by offering unique content like Sunday 
Ticket. The introduction of competition from DBS in turn has 
forced cable to innovate and become more responsive to 
customers' concerns. This is exactly what Congress had in mind 
when it enacted the program access provisions.
    DIRECTV believes that Sunday Ticket raises no meaningful 
antitrust concerns. To the contrary, it has served the purpose 
of the antitrust laws by contributing to a competitive 
marketplace for video services.
    The same cannot be said for cable. Cable has found ways to 
evade the law and harm competition. They have used the 
terrestrial loophole to deny programming they own to DBS 
providers in places like Philadelphia and San Diego. They have 
also imposed substantial and arbitrary price increases for home 
team sports events in places like Chicago.
    A comparison of the differences between Sunday Ticket and 
these kinds of anti-competitive arrangements by cable 
exemplifies this point. One key difference is that DIRECTV has 
less than 15 percent market share. By contrast, in 
Philadelphia, where Comcast has given itself exclusive rights 
to the Phillies, the Flyers, and the 76ers, Comcast has a 70-
percent market share. It owns the programming. It even owns a 
controlling interest in two of the three teams. This was 
clearly not an arm's-length negotiation.
    Another key difference is that Sunday Ticket is a premium 
package of out-of-market games that historically did not exist 
and, as Mr. Pash said, complements and supplements the NFL's 
basic broadcast packages. It allows football fans to see games 
that are not broadcast in the regions where they live. As a 
native of Pittsburgh and a diehard Steelers fan, Sunday Ticket 
allows me to watch the Steelers from my house in Los Angeles. 
But in all markets, every football fan can still enjoy watching 
his home team play on free, over-the-air television. My father 
in Pittsburgh watched the Steelers on free, over-the-air 
television through Comcast Cable until last year when I forced 
him to switch to DIRECTV.
    By contrast, in Philadelphia and elsewhere, incumbent cable 
operators deny local fans the right to see their home team 
unless they subscribe to cable. So in Philadelphia, the only 
way you can watch the 76ers and the Phillies and the Flyers is 
by subscribing to Comcast.
    You have called this hearing today to look at whether 
consumers are the winners when it comes to competition in 
sports programming and broadcasting. The answer is simple. When 
programming is available in a fair and open bidding process, 
consumers clearly benefit. As Congress envisioned, competition 
thrives and consumers have more choice as each competitor 
strives to provide innovative content programming and service. 
When the incumbent provider, however, uses its entrenched 
market power to deny certain must-have programming to 
competitors, consumers only lose.
    Congress should act steadfastly to ensure that providers 
don't use their market power to artificially limit choice and 
raise prices, and DIRECTV is eager to work with Congress to 
ensure that the vision of the program access rules is fulfilled 
by closing the terrestrial loophole. And DIRECTV urges this 
Committee to consider examining any antitrust concerns raised 
by the cable industry's abuses of its market power.
    Thank you, Senator. I am happy to answer questions.
    [The prepared statement of Mr. Fawcett appears as a 
submission for the record.]
    Chairman Specter. Well, thank you, Mr. Fawcett. You say 
that Congress should act to see to it that prices are not 
raised. Isn't what is happening now with the Thursday- Saturday 
package on the NFL Network going to result in prices being 
raised as the NFL insists, as Mr. Pash has just testified, on 
putting that program on a broad base on basic coverage and not 
permitting you to go on a limited sports tier so the fans, the 
people that want it pay for it, but the others don't have to?
    Mr. Fawcett. Well, I think, first of all, our packages at 
DIRECTV will not increase as a result of the Thursday- Saturday 
package, which is eight games that are included on the NFL 
Network, which you as a DIRECTV customer--
    Chairman Specter. Well, okay, yours may not be, but right 
now Time Warner is refusing to carry the Thursday- Saturday 
package because it is going to raise prices. And Comcast is in 
litigation, started by the NFL, because they want to carry it 
on a sports tier so the only people who pay for it are the ones 
who want it. So if the NFL has its way, won't prices be raised?
    Mr. Fawcett. Well, first of all, Senator, I believe that it 
is somewhat ironic that Comcast and Time Warner are wanting to 
put the NFL Network in a sports tier when they with their own 
sports networks require that distributors carry it on basic 
cable. Comcast, for example, in all of its regional sports 
network--its Outdoor Life Network, which is now called Versus, 
its Golf Channel--they require carriage on basic cable, not on 
a sports tier.
    Chairman Specter. Okay. Aside from the irony--and we will 
come back to that.
    [Laughter.]
    Chairman Specter. Aside from the irony, aren't prices going 
to be raised? I mean, I liked your line where you said Congress 
ought to act if prices are going to be raised. It looks to me 
like prices are going to be raised. It looks to me like 
Congress ought to act. It is your idea, Mr. Fawcett, not mine.
    Mr. Fawcett. Yes, Senator. I think that certainly our costs 
increase, but we do not pass along costs of programming in our 
basic tier to consumers. If it is in a sports tier, the price 
that we would charge would be very-- first of all, the networks 
wouldn't allow it or wouldn't want us to do it. And the prices 
that they would charge for that service on an a la carte basis 
would be very high and they wouldn't have their advertising 
revenues to make it a viable business model.
    So virtually every sports network with live professional 
games of a major league are carried on basic cable. The Sunday 
Ticket package is an ancillary product of out-of-market games, 
not games of the local professional teams. In Chicago, for 
example, where I am talking about prices increasing is where 
Comcast takes over the regional sports network in Chicago and 
doubles the price to people like DIRECTV, which it can afford 
to do because it has 60 or 70 percent of the Chicago market, 
and requires--you know, arbitrarily increases the price for 
that must-have local programming, that is, the games of the 
Black Hawks, the Cubs, the White Sox, and the Bulls.
    That is certainly must-have programming, and in those types 
of situations, yes, prices are increasing, and that is because 
of the terrestrial loophole and the dominance of cable and 
local markets which, after the Adelphia transaction, are 
staggering.
    Chairman Specter. Okay. Let's come back to the irony now--
the irony of Comcast raising prices. Do you think Comcast is 
violating the antitrust laws?
    Mr. Fawcett. No. I am not suggesting that. The irony is 
that when it doesn't--MASN, for example, the Mid-Atlantic 
Sports Network, which is carrying the Washington Nationals and 
the Baltimore Orioles, Comcast refused to launch that on its 
cable systems in this area and then ultimately, as part of the 
Adelphia transaction, agreed to launch it, but then it passed 
on a $2 price increase to its customers.
    Chairman Specter. Well, you are talking about Comcast 
having a regional sports network, and you referred to Chicago, 
you referred to Philadelphia. And you say that they are raising 
the prices. It is vertical integration, and as I said earlier, 
we are going to take that up on December 7th. But since you 
brought it up, I would like to pursue it a little further now. 
And that is, since, as you say, Comcast is raising the prices, 
but you say the antitrust laws are not being violated, do you 
think Congress should modify the antitrust laws to deal with 
that kind of vertical integration which results in increased 
prices?
    Mr. Fawcett. I am not an expert in the antitrust area, 
Senator, so I am not suggesting that.
    Chairman Specter. You are not an expert in the antitrust 
area? You have a law degree from the University of Pittsburgh.
    Mr. Fawcett. I do.
    Chairman Specter. You are the Executive Vice President for 
Legal Affairs at DIRECTV. Aren't they dodging the antitrust 
issue all the time at DIRECTV?
    Mr. Fawcett. Again, I have some knowledge of the antitrust 
laws, but I am not an antitrust expert, and obviously we have a 
number of issues--
    Chairman Specter. Well, let me ask you to study that issue, 
do a crash course--we have had crash courses around here 
before--on antitrust law and follow up the testimony which you 
have offered with respect to--you are defending your conduct by 
bringing up the conduct of Comcast, so I would like to get your 
view on that.
    We turn now to Mr. Landel Hobbs, Chief Operating Officer of 
Time Warner Cable, had been Vice President in the Financial 
Analysis Operation with AOL Time Warner, had been Chief 
Accounting Officer for Turner Broadcasting Systems; bachelor's 
degree in business administration from Angelo State University 
in Texas.
    Thank you for coming in today, Mr. Hobbs, and we look 
forward to your testimony.

  STATEMENT OF LANDEL C. HOBBS, CHIEF OPERATING OFFICER, TIME 
                WARNER CABLE, NEW YORK, NEW YORK

    Mr. Hobbs. Thank you, Mr. Chairman. My name is Landel 
Hobbs, as you said, and I am Chief Operating Officer at Time 
Warner Cable, the Nation's second largest cable operator. I 
want to thank you for inviting me to appear here today to 
discuss the question of how consumers are faring in the current 
marketplace for sports programming.
    From Time Warner Cable's perspective, the answer to the 
question of whether consumers are winning is yes and no.
    On the one hand, consumers who enjoy sports programming 
clearly are winning in that there is a staggering amount and 
variety of sports programming available to them on broadcast 
television, cable, satellite networks, and increasingly through 
the Internet. On the other hand, over the past few years, Time 
Warner Cable has been monitoring and trying to deal with two 
troubling trends relating to sports programming that are less 
than ideal for consumers.
    The first is the spiraling rise in costs that affects every 
level of the sports food chain and which ultimately must be 
paid by consumers.
    The second trend is the ever increasing fragmentation of 
television sports rights that has undoubtedly added to the 
increases in costs that consumers are being asked to bear.
    An example of both of these trends is the decision by the 
NFL to take eight games that were previously available on 
broadcast or other programming services and put them on the 
league-owned NFL Network while simultaneously demanding that 
distributors pay a significantly higher price for the network 
and refusing to allow the network to be carried on any tier 
other than the one reaching virtually all customers.
    There is also another disturbing element to this situation. 
The NFL is preventing individual teams that want to do deals 
for non-game content from entering into any agreements with 
cable operators unless they also carry the league's NFL 
Network.
    In the setting of a Congressional hearing, the question, of 
course, is: What, if anything, should Government regulators do 
about these problems? We believe that the best thing that 
Government can do is to leave the solutions to the marketplace. 
Government favoritism can serve only to deprive consumers of 
the full benefits of today's vigorously and highly competitive 
video distribution marketplace. Thus, Government should not 
only refrain from additional regulation, but also should re-
examine existing rules to make sure they are not contributing 
to any problems or tilting the playing field in favor of some 
participants against others?
    In particular, while I am not an expert in antitrust law, 
it seems important to make sure that certain exemptions granted 
to sports leagues are not reducing competition and contributing 
to the escalation in prices to consumers or reducing their 
viewing options. In addition, Government should examine whether 
the imposition of access obligations and anti-exclusivity rules 
on some video distributors but not others is warranted and how 
it contributes to problems in the sports and video 
marketplaces.
    We recognize that the marketplace is not always perfect. We 
are not always able to obtain the carriage terms that would 
allow us to give our customers everything we would like to 
while keeping down our costs. But whatever the shortcomings of 
the marketplace, they pale in comparison to the shortcomings 
that result from attempts by Government to impose outcomes by 
regulatory intervention.
    In closing, let me add one final thought. Government should 
be especially wary of the claims of some companies that rush 
into advocate Government intervention when it would restrict 
their competitors, but vehemently oppose such regulation when 
it would apply to them. In particular, it is simply 
disingenuous for DIRECTV, which is larger than Time Warner 
Cable, and every other video distributor but one, to claim here 
and elsewhere that it is in need of special Government 
protection against exclusivity while continuing to enter into 
exclusive agreements itself and demanding that it be left free 
from any similar restrictions.
    Indeed, DIRECTV's exclusivity with the NFL applies not only 
against cable operators that are generally a fraction of its 
size, but also against the Nation's other smaller DBS provider. 
And it is competitively far more significant than any 
exclusivity about which it complains.
    It is now well past the time for DIRECTV to recognize that 
it can no longer credibly play the new entrant card. Time 
Warner Cable has never acted in such a disingenuous manner but, 
rather, has consistently been of the view that the marketplace 
is generally the best regulator, and the marketplace functions 
the best when any truly necessary Government intervention, 
absent any special circumstances, applies equally to all 
players.
    Thank you.
    [The prepared statement of Mr. Hobbs appears as a 
submission for the record.]
    Chairman Specter. Mr. Hobbs, what are the core 
considerations that Time Warner has in declining to take on the 
Thursday-Saturday package?
    Mr. Hobbs. The programming is too expensive.
    Chairman Specter. Too what?
    Mr. Hobbs. Expensive.
    Chairman Specter. Too expensive.
    Mr. Hobbs. The value equation is out of whack. So for our 
customers for the eight games, eight out-of-market games that 
they will see in their own local hometowns, it is just too 
expensive. And I have heard a lot today about other people not 
raising prices. Anytime your costs continue to escalate at 
increasingly rising rates, like sports programming, especially 
targeted sports programming, it causes you eventually to raise 
rates. Some people may not do it through a sports package, but 
I would suggest that people do raise their prices, and that is 
because their costs are growing.
    So that is what happens when you have programming that is 
too expensive.
    Chairman Specter. Well, isn't it true that Time Warner has 
sought to have the Thursday-Saturday package but on a sports 
tier?
    Mr. Hobbs. We think that by placing this type of sports 
programming, that is very targeted, in a sports package 
benefits all of our customers because it allows those who 
actually want to see the programming to pay for it if they 
would like it, and those that don't have to bear the burden of 
the cost.
    Chairman Specter. Well, where you have the NFL in effect 
raising prices and limiting distribution without any 
countervailing reasons for it, don't you have a violation of 
the Sherman Act rule of reason? That may be beyond your own 
training, but you have been in this field a long time. The 
Sherman Act does not--we do not deal here with what we call a 
per se violation, that is, an automatic violation. But isn't 
that really subjected to the rule of reason? And don't you have 
at least a prima facie showing of a violation there when prices 
are raised and distribution is limited without any 
countervailing business purpose?
    Mr. Hobbs. You are right, you are outside of my expertise--
I am not an attorney, but what I would say is that from our 
perspective, let's let the marketplace handle that question. 
Let's let our consumers handle that question. We balance those 
things every day, so when we have this type of programming that 
is so expensive and NFL would like it on a broadly distributed 
basis, so many people who don't watch the programming have to 
pay for it, our view is no, let's give the consumers what they 
want. The people who want the programming should be able to get 
this in a sports programming package, and that would take care 
of it. The marketplace would deal with the issue.
    Chairman Specter. Did Time Warner have an opportunity to 
bid on the Sunday Ticket, which went to DIRECTV?
    Mr. Hobbs. I am sure we did. We did not bid on that 
package. Again, we look at economics, and we look at the impact 
on our customers.
    Chairman Specter. The Wall Street Journal today reports 
that the NFL left on the table as much as $400 million during 
its last round of television right negotiations to reserve for 
its fledgling cable network the eight season games. Do you 
think that that is accurate?
    Mr. Hobbs. That is what has been reported. What I do know 
is that based on our negotiations, what they want out of us, 
this would make this particular programming in the top five in 
terms of how expensive it would be. Compared to everything else 
we carry, this would be in the top five in terms of expense. 
And yet the ratings at this point are not even in the top 30.
    Chairman Specter. Well, you have taken a resolute position 
here, and the NFL may have a little different view as to how it 
is going to work out. The Times quotes two of the owners of the 
NFL teams saying that there may be some short-run holdouts but 
in the long run they have a real plan. And they cite Marc 
Ganis, a sports marketing consultant, saying that, ``The cable 
companies won't be shooting themselves in the foot. The cable 
companies will be shooting themselves in the chest.'' And this 
is in the context of the NFL speculating--they use the words 
``can hope''--that the fans will cry, ``I want my football,'' 
pressure their cable companies to make a deal, or threaten to 
switch to another provider.
    How do you evaluate the aspect of your customers switching 
to another provider to get from another provider what they 
cannot get from you?
    Mr. Hobbs. We have to evaluate those trade-offs every day, 
and, again, it comes back to analyzing the type of programming, 
the cost, and the impact on all of our customers, not just the 
ones who like football.
    For example, there are a lot of our subscribers who love 
football, which everyone here acknowledges. But from our 
research, there may be 75 to 80 percent who aren't as enamored 
with football. So we have to keep those customers in mind as 
well. So that is the reason we made the decision we have.
    Chairman Specter. Do you think the quotation by Marc Ganis 
as it appears in the Wall Street Journal that the cable 
companies won't be shooting themselves in the foot but shooting 
themselves in the chest is inaccurate?
    Mr. Hobbs. It is inaccurate, in my view.
    Chairman Specter. Shooting yourselves anywhere?
    Mr. Hobbs. It would be painful. But, no, we are comfortable 
with our decision.
    Chairman Specter. We now turn to our final witness, 
Professor Roger Noll, professor emeritus at Stanford 
University, where he taught for 22 years, Senior Fellow at the 
Stanford Institute for Economic Policy Research, and one of the 
Nation's foremost experts in sports economics and regulatory 
policy, has authored 11 books in these areas; a bachelor's 
degree in mathematics from the California Institute of 
Technology, and a Ph.D. in economics from Harvard.
    Thank you for being with us today, Professor Noll, and we 
look forward to some real expert guidance here. It is up to 
you.

STATEMENT OF ROGER NOLL, SENIOR FELLOW, STANFORD INSTITUTE FOR 
         ECONOMIC POLICY RESEARCH, STANFORD, CALIFORNIA

    Mr. Noll. Thank you very much. I appreciate the opportunity 
to speak on this issue. I have been here many times talking 
about antitrust issues in professional sports, and, indeed, my 
interest in professional sports was created by Sam Ervin when 
he was considering the proposed merger of the two basketball 
leagues 35 years ago. That is what got me into this interesting 
area.
    I have been teaching the Sports Broadcasting Act for 40 
years to my undergraduates because it illustrates everything 
that can possibly go wrong with legislative antitrust 
exemptions. And what I want to do today is put the current 
disputes that are going on in professional football in a much 
larger context. I think these disputes are useful in causing a 
re-examination of policy, but the reality is this is all within 
the context of some much bigger issues, and that is what I want 
to focus on.
    When the Sports Broadcasting Act was passed, there were 
many fewer teams. There were two competing football leagues. 
There were no significant multichannel video distribution 
systems. The only ones that existed at the time were systems 
that did nothing other than retransmit over-the-air television. 
There were no cable-only channels, and there was no satellite 
broadcasting.
    All of these are important because they get to the point 
about what did Congress do in 1961 and what is the implication 
of that today. Congress did pass a law that reduced 
competition, but there were still two competing football 
leagues. And, indeed, there were two competing basketball 
leagues. And as we know, in the 1960s and 1970s, there were 
entries of other competing leagues.
    When leagues compete to sell their broadcasting rights, the 
implication of an antitrust exemption is much less significant. 
That is to say, two isn't as good as four or five, but it is 
better than one.
    Likewise, at the time the Act was passed, there was no 
conception of what the world would look like when cable and 
satellite companies were competing for viewers, which, if you 
remember, has only been going on for less than a decade. It has 
only been in the current millennium that the satellite 
companies began to retransmit local broadcasts and to offer a 
realistic competitive alternative to cable television. And now 
I think it would be an overstatement to say this is a 
competitive industry, but it is three, and that is a lot better 
than one.
    So the world has changed in dramatic ways. The bargaining 
strength of existing sports leagues relative to broadcasters 
has increased dramatically because each sports league is a 
monopoly, but the broadcasting environment is much more 
competitive than it was at the time the Act was passed.
    One could make something of an argument to say a world of 
three networks and two leagues was similar to bilateral 
bargaining. But that isn't the right way to think of it today 
when we have four networks instead of three, many more strong, 
independent over-the-air channels, and in every major 
metropolitan area in the United States three competing 
multichannel video distribution systems. Hence, the validity of 
the Sports Broadcasting Act has changed. Whatever it was to 
begin with, it requires re-examination.
    The right template that we economists use for deciding 
whether an action such as the creation of the NFL Network is 
pro- or anti-competitive is whether there is a profit-enhancing 
reduction in output. It seems to me, without having done the 
analysis--I would ask you to collect the data--that the NFL 
Network is a profit-enhancing reduction in output in the sense 
that the eight games that are on NFL Network, will be available 
to fewer people than had those games been offered on broadcast 
television. Now, that, I think, is the right template to think 
about this issue.
    One last point. It seems to me, because of the equities 
involved in the Sports Broadcasting Act and the reliance for 
over 40 years of both broadcasters and the leagues on this Act 
is great, I would suggest that the appropriate mechanism is 
sunset--that is to say, Congress should enact a law saying the 
Act will expire in 5 years, which will force Congress to re-
evaluate the Act from ground up over the next few years and see 
if all the changes I described say that, no, this thing really 
should be put to bed.
    [The prepared statement of Mr. Noll appears as a submission 
for the record.]
    Chairman Specter. Mr. Noll, thank you very much for those 
insights. Do you have any suggestions as to which way Congress 
ought to go on revising the 1961 Act?
    Mr. Noll. Yes. My personal belief is that it was a mistake 
to begin with because it did have the profit-enhancing quantity 
reduction. The passage of the Sports Broadcasting Act led to an 
elimination of the then common way to sell broadcasting rights, 
which was consortiums of teams.
    The but-for would is either professional sports prior to 
1962 or current collegiate sports because of the NCAA case. In 
these cases consortiums of teams, in order to get a reasonable 
broadcast schedule available, sell collectively their broadcast 
rights, but they still compete because the number of consortia 
is large enough to create a competitive market.
    In the NCAA, for example, each major conference sells 
television rights. And in professional sports, prior to the 
passage of the Sports Broadcasting Act, there were four 
consortia of professional sports teams that sold national 
broadcasting rights.
    That would be the world we would have, and it seems to me 
that in a world of many channels and many competing MVDS 
operators, the whole issue of exclusivity, for example, would 
go away. If DIRECTV had exclusivity to 20 percent of the NFL 
and Dish-TV has another 20 percent and then three television 
networks had 20 percent more each, the whole issue of 
exclusivity would be much less important if there were 
competition in the selling of the national broadcasting rights.
    Chairman Specter. Well, if we just repeal the 1961 Act, the 
antitrust laws would then be violated by the joint action of 
the NFL teams, NFL members, which is what the United States 
District Court for the Eastern District of Pennsylvania found 
back in 1961, which led to the adoption of the statute.
    Mr. Noll. In order for it to be an antitrust violation for 
the NFL to negotiate as a league for broadcasting rights, one 
has to prove that televised professional football games are a 
separate relevant market. Every time that issue has been 
litigated, it has been determined to be a separate relevant 
market. And in that case, without the antitrust exemption, not 
only the NFL but Major League Baseball and the NBA all would be 
in violation of the antitrust laws if they sold their 
broadcasting rights nationally as a league-wide consortium.
    Chairman Specter. Professor Noll, would you think that it 
would make sense or be appropriate to condition the antitrust 
exemption on, say, the franchise move limitation, which Senator 
Feinstein suggested earlier?
    Mr. Noll. No, I do not believe that is appropriate, and 
that is because it is making mistake number two to deal with 
mistake number one. The antitrust exemption in broadcasting is 
more harmful, as I said before, because of the antitrust 
exemption that was granted to the AFL and NFL to permit them to 
merge.
    One reason people care a great deal about losing a team, as 
Senator Feinstein said, is the issue of naming. The Cleveland 
Browns name is a good example. But the main issue is the 
inability of a city to find a replacement. Many cities that are 
viable locations for major league professional sports teams do 
not have one because monopoly leagues create scarcity in teams 
to give each individual team more bargaining power over a 
locality to get a stadium subsidy.
    The presence of Los Angeles as an area without an NFL team 
is the universal golden threat point for every NFL team in the 
country: Give me my stadium or I go to LA, which is obviously 
an attractive option. So I don't think to use one antitrust 
exemption to deal with a problem created by the other is the 
right way to go. I think the right way to go is more 
competition.
    Chairman Specter. How about conditioning the antitrust 
exemption on the teams or the NFL paying for their own stadiums 
as opposed to imposing a tax burden, as four sporting teams 
did--two in Pittsburgh and two in Philadelphia--on the 
taxpayers of the Commonwealth of Pennsylvania?
    Mr. Noll. That would have been a great idea in 1990. 
Unfortunately, almost all teams in all sports have gotten their 
nice new subsidized stadium. Actually, some NFL teams did not 
get a subsidy, but most of them did. In all the major 
professional sports, nearly one hundred new arenas and stadiums 
have been built in the past twenty years. Eighty percent of the 
teams are already playing in their subsidized arenas. So, 
unfortunately, those horses have left the barn.
    Chairman Specter. Well, they may come back. The Vet in 
Philadelphia was opened in 1971, and we have already torn it 
down and built two new stadiums.
    Mr. Noll. That is exactly right. There--
    Chairman Specter. So we may be looking at building two new 
stadiums 25 years from now.
    Mr. Noll. Yes, the useful life of a stadium is about 25 to 
30 years, and sometimes it has been even shorter than that. And 
you are right, eventually teams will be back at the well. But 
that is a very slow process. One of the problems that 
Philadelphia and San Francisco find themselves in is that by 
being the last cities to replace an old stadium, an obsolete 
stadium, their teams are at a competitive disadvantage. And it 
is not obvious that preventing the last two or three cities 
from having new stadiums is pro-competitive.
    It would have been pro-competitive to do something about 
the subsidies right at the beginning, but now that almost all 
the teams have them, the few that do not are disadvantaged 
relative to their subsidized brethren.
    Chairman Specter. Mr. Pash, is the Wall Street Journal 
accurate today that the NFL left $400 million on the bargaining 
table during this last round of television rights negotiations 
to reserve for its fledgling cable network the eight Thursday 
night/Saturday night package?
    Mr. Pash. I have not seen the articles. I do not know the 
source of the--
    Chairman Specter. I had not seen it until a few moments 
ago. It is just in today's paper. It was not even in my 
briefing materials. The Wall Street Journal did not let me know 
in advance.
    Mr. Pash. As I say, I have not--
    Chairman Specter. Aside from what the Wall Street Journal 
knows, you know more about what the NFL left on the table than 
the Wall Street Journal does, presumably.
    Mr. Pash. Well, I know we could have sold those eight games 
to other carriers. We could have sold them to cable carriers. 
There were a number of reasons why we did not want to do so, 
including the fact that the cable carriers, some of the ones we 
were talking to about them, did not want to simultaneously 
broadcast them on over-the-air the way we do with ESPN and the 
way we do with the NFL Network.
    Chairman Specter. They did not want to broadcast them 
simultaneously? What did they want to do?
    Mr. Pash. They wanted to have them exclusively on cable so 
that the only way you could watch those eight games is if they 
were on cable. There would not be a simultaneous over-the-air 
broadcast in the competing cities. That was one consideration 
for us.
    Another consideration was we are trying to develop the NFL 
Network. We are trying to build that as a new entrant into the 
television world. We think it has got a lot of high-quality 
programming. It is growing. It is getting better in terms of 
the quality of the programming and the quality of the 
offerings. We think by having the games on the NFL Network it 
is a good value proposition. We obviously have disagreements 
with some cable carriers, with other cable carriers, and with 
satellite carriers we don't have those disagreements. But we do 
think there is a good value proposition there.
    Chairman Specter. Well, your last answer raises the 
question as to where the NFL Network is heading. We already see 
the NFL Network on this Thursday-Saturday package raising 
prices. What is next? What does the NFL Network have in store 
which will pose problems for Time Warner and other cable 
companies to have to raise their prices and pass them on to the 
consumer? Is the NFL Network heading for more programming, 
which will cost the consumers more money?
    Mr. Pash. Well, as I say, Mr. Chairman, I don't think that 
the NFL Network and price increases automatically go hand in 
hand, and the experience of many other cable companies 
demonstrates that, and the experience of the satellite 
companies demonstrates that. And that is the current state of 
the record.
    Chairman Specter. Well, how can you say that in the face of 
what Mr. Hobbs testified to, which is perfectly obvious, that 
when you have increased costs, you have to pass them on? How 
can you say it is not going to cost the consumer more money?
    Mr. Pash. Well, because I--
    Chairman Specter. May the record show that Professor Noll 
thought that was very funny, and I am going to come back to 
you, Professor Noll, to explain your smile.
    Go ahead, Mr. Pash.
    Mr. Pash. Because I look at the experience of four other 
large distributors that have put the NFL Network on a broad 
distribution tier and have not raised their prices to 
consumers.
    Chairman Specter. Can you give me a few examples of that?
    Mr. Pash. Yes, sir: DIRECTV, EchoStar, Cox, Comcast-- four 
of the five largest distributors.
    Chairman Specter. Isn't Comcast demonstrably different in 
the current contest you have with them as to whether it is 
going to go on the sports tier or some broader coverage tier?
    Mr. Pash. Well, I don't know how that litigation will end 
up. I accept that. But as we--
    Chairman Specter. Well, wait a minute. How the litigation 
is going to end up is what the judge says, but Comcast thinks 
they are going to have to raise their prices, or they would not 
be defending that lawsuit.
    Mr. Pash. Well, I don't know. They may feel as though they 
can raise their prices more by putting it on a sports tier. 
They may feel that an underutilized sports tier that has 
relatively unattractive programming on it today will become 
much more attractive and bought at a much higher rate for much 
more money if all of a sudden it includes NFL programming, 
which is the most attractive programming out there in the 
sports world.
    Last week, the highest rated broadcast television program 
was an NFL game, and the highest rated cable television program 
was an NFL game. And if those are forced onto a sports tier, it 
may well be that you will see consumers paying more money for 
it. But to date, the carriers that have put the NFL Network on 
a basic tier have not done that, and so I do not think it is 
inevitable that one leads to the other.
    Chairman Specter. Professor Noll, you have heard the 
conflicting testimony of Mr. Hobbs and Mr. Pash. What is your 
view?
    Mr. Noll. Senator, you get an A in my course. You are the 
good economist.
    Here is what is happening in multichannel video 
distribution: We have gone from one to three in urban areas. 
That has reduced the profit margins of incumbent cable 
companies. Companies like Time Warner and Comcast are subject 
to much more competition than they were 10 years ago. Because 
their profit margins have gone down, not all of the increase in 
programming costs have been passed on to subscribers due to 
increased competition between cable and satellite services.
    Nevertheless, holding the extent of competition constant, 
when a pay-TV service adds another channel, its costs go up on 
a per viewer basis. All else equal, that causes the pay-TV 
service to raise price. Indeed, economics research has shown 
that higher programming costs, all else equal, cause higher 
subscription prices.
    A final complication arises when a pay-TV service obtains a 

highly popular type of program on an exclusive basis. For 
example, if DIRECTV succeeded in having the NFL Network 
exclusively in Philadelphia, DIRECTV's market share in 
Philadelphia would go up while Comcast's and Dish-Tv's shares 
would go down. In this case DIRECTV could earn its current 
markup on a larger number of customers, and so it could be the 
case that its profits would not be undermined by taking on an 
expensive channel and not raising its price.
    But in the long run, Time Warner or Comcast have to respond 
with something in kind to attract those viewers back. The 
nature of the competitive process is to drive prices to costs. 
if programming generally becomes more expensive, prices will go 
up.
    Chairman Specter. Mr. Pash, do you disagree with the 
conclusion of the Court of Appeals for the Third Circuit, 
Federal Court of Appeals, that the DIRECTV arrangement is not 
cleared by the 1961 antitrust exemption?
    Mr. Pash. Well, we certainly accept that conclusion as the 
law in the Third Circuit. We did not seek further review of 
that opinion, and as I am sure you know, Mr. Chairman, we 
ultimately settled that litigation so there were no further 
appeals or further review. So we accept that decision.
    Chairman Specter. Well, it is obvious that you accepted it 
when you did not apply for certiorari, correct?
    Mr. Pash. Correct.
    Chairman Specter. You did not ask the Supreme Court of the 
United States to review it.
    Mr. Pash. That is correct.
    Chairman Specter. Well, when you say in that jurisdiction, 
that is the prevailing law in the country generally, isn't it?
    Mr. Pash. This is the only court of appeals opinion that 
addresses that issue; that is correct, Mr. Chairman.
    Chairman Specter. Well, if you do not ask the Supreme Court 
to review it and if you accept it, that is that nationwide, 
isn't it?
    Mr. Pash. Well, that is where we are right now. As you 
know, of course, Mr. Chairman, sometimes appellate courts in 
different parts of the country see issues differently.
    Chairman Specter. But if there is a disagreement with the 
court of appeals, you ask the Supreme Court to review it. They 
may not, but at least you asked them, which you did not do in 
this case.
    Mr. Pash. Which we did not do in this case. As I say, we 
settled the litigation so there was no need to ask for any 
further review.
    Chairman Specter. The specific language of the 1961 Act 
grants the exemption for sponsored telecasting where there are 
commercials, and the House Antitrust Subcommittee found flatly, 
``The bill does not apply to closed circuit or subscription 
television.'' And Commissioner Rozelle conceded on the record 
that the bill ``covered only the free telecasting of 
professional sports contests and does not cover pay TV.'' So 
all of that leads to the conclusion that the Sunday Ticket is 
not covered by the exemption.
    That then leads you to considerations as to the rule of 
reason. The Sherman Act prohibits any contract, combination, or 
conspiracy that unreasonably restrains trade, and the Sunday 
Ticket would not be, as I referred to earlier, a per se 
violation, which means automatic on its face. It would be 
subjected to the rule of reason. And that turns on whether 
there is reduced output and fixed prices without any 
corresponding justification.
    Doesn't that pretty much indicate that the Sunday Ticket is 
a violation of the Sherman Act?
    Mr. Pash. I would say precisely to the contrary, Mr. 
Chairman. Sunday Ticket is as clear a pro-competitive act as 
could be imagined. It increased output. It enhanced consumer 
choice. It delivered a new product that did not previously 
exist. It allowed consumers, particularly commercial 
establishments, to legally obtain a product that the only way 
they had been able to obtain it before was by violating the 
copyright laws, and the FCC has repeated looked at this 
question and identified Sunday Ticket as a pro-competitive, 
output-enhancing step. They have identified it as a key point 
in allowing satellite to grow and become an effective 
competitor to cable and restrained pricing in the way that 
Professor Noll has talked about on several occasions. I think 
it frankly would be difficult to think of something that is 
more pro-competitive than creating this new package.
    Chairman Specter. Would your answer be different if it were 
established as a conclusive fact that Commissioner Tagliabue 
told Comcast they could not bid on Sunday Ticket?
    Mr. Pash. No, Mr. Chairman, it would not. It would not. 
Exclusivities are perfectly acceptable. That was reviewed as 
recently as 2 years ago by the FCC, and the FCC specifically 
commented that it was perfectly lawful for DIRECTV to purchase 
Sunday Ticket on an exclusive basis.
    Chairman Specter. Did the FCC have before it the fact that 
the NFL through its Commissioner said Comcast could not bid?
    Mr. Pash. I don't know if they had that particular 
statement before them or not, but it is true--irrespective of 
whether that was said or not, or when it was said, it is true 
that exclusive arrangements in the television industry have 
been in existence for decades and are well respected and 
considered lawful and pro-competitive.
    Chairman Specter. Professor Noll, how would you apply the 
Sherman Act's rule of reason to Sunday Ticket, realizing that 
the NFL litigated, lost in the court of appeals, then settled 
the case?
    Mr. Noll. The relevant benchmark for whether an action is 
pro- or anti-competitive is the circumstance that would prevail 
in a competitive world. The argument that NFL Sunday Ticket 
increased output is correct, but it increased output in a 
monopolized market. The issue is what is the alternative in the 
absence of monopolization, and in the absence of 
monopolization, the market for televised NFL games would be 
like other pro sports were or like college sports are today. 
For example, if all broadcasting of college football games were 
put together into a single package priced at $150 a month and 
shown exclusively through DIRECTV, the effort would be a 
profit-enhancing reduction on output.
    From my perspective, if one adopts the right 
counterfactual, the right but-for world in the competitive 
environment, it is obvious that NFL Sunday Ticket is a 
palliative compared to the output and prices that would exist 
in a competitive environment.
    Chairman Specter. Mr. Hobbs, you are satisfied to leave it 
all to the market. Do you think in light of the Third Circuit's 
opinion that the 1961 Act does not apply to Sunday Ticket and a 
class action brought and settled by the NFL that there is any 
basis for concern about an antitrust violation here?
    Mr. Hobbs. Our view is that we are fine with exclusivities, 
as long as everyone has the same approach and rules. So we are 
fine with people having exclusive programming. Again, as long 
as every party is treated the same way, then we are fine.
    Chairman Specter. Well, would that require that the NFL 
entertain bids from other than DIRECTV?
    Mr. Hobbs. Yes.
    Chairman Specter. And if they do not?
    Mr. Hobbs. Then I think it does continue to cause problems.
    Chairman Specter. Well, anybody else have any additional 
comment you would care to make?
    [No response.]
    Chairman Specter. Thank you very much for coming in, 
gentlemen. The Judiciary Committee is going to be looking at 
the vertical integration issue, and we are going to be studying 
the ramifications of the Thursday-Saturday package and DIRECTV, 
and we are intrigued, to put it mildly, by what the NFL has in 
mind. The Wall Street Journal quotes Mr. Jones and Mr. Kraft, 
the owners of the Dallas Cowboys and the New England Patriots, 
as saying they are willing to take some short-term losses for 
some long-term gains. So we will see what happens next. And the 
Judiciary Committee will continue to be vigilant on this 
important subject.
    Thank you all very much. That concludes our hearing.
    [Whereupon, at 10:26 a.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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