[Senate Hearing 109-758]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-758
 
VERTICALLY INTEGRATED SPORTS PROGRAMMING: ARE CABLE COMPANIES EXCLUDING 
                              COMPETITION?

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 7, 2006

                               __________

                          Serial No. J-109-124

                               __________

         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

Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1

                               WITNESSES

Baller, James, Senior Principal, The Baller Herbst Law Group, PC, 
  Washington, D.C................................................     8
Cohen, David L., Executive Vice President, Comcast Corporation, 
  Philadelphia, Pennsylvania.....................................     4
Cooper, Mark, Director of Research, Consumer Federation of 
  America, Washington, D.C.......................................     6
Goodman, John, President, Coalition for Competitive Access to 
  Content, Washington, D.C.......................................     2
Salinger, Michael, Director, Bureau of Economics, Federal Trade 
  Commission, Washington, D.C....................................     9

                       SUBMISSIONS FOR THE RECORD

Baller, James, Senior Principal, The Baller Herbst Law Group, PC, 
  Washington, D.C., prepared statement...........................    30
Cohen, David L., Executive Vice President, Comcast Corporation, 
  Philadelphia, Pennsylvania, prepared statement.................    34
Cooper, Mark, Director of Research, Consumer Federation of 
  America, Washington, D.C., prepared statement..................    56
Goodman, John, President, Coalition for Competitive Access to 
  Content, Washington, D.C., prepared statement..................    72
Salinger, Michael, Director, Bureau of Economics, Federal Trade 
  Commission, Washington, D.C., prepared statement...............    76


VERTICALLY INTEGRATED SPORTS PROGRAMMING: ARE CABLE COMPANIES EXCLUDING 
                              COMPETITION?

                              ----------                              


                       THURSDAY, DECEMBER 7, 2006

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Arlen 
Specter, Chairman of the Committee, presiding.
    Present: Senator Specter.

 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 a hearing on the 
subject of whether consumers are being fairly treated by owners 
of sports franchises and cable and satellite companies with the 
overriding question as to whether activities now being 
undertaken violate the antitrust laws or whether the antitrust 
laws ought to be amended to provide fairness to the consumers.
    The backdrop is America's love affair, America's 
infatuation with sports, a national addiction to which I 
include myself, and we witness a rising cost of people watching 
pay television on cable television.
    We had a hearing earlier on the implications of the 
activities of the National Football League on their practices, 
and today we take up the question as to vertical integrated 
sports programming, whether the consumers are being unfairly 
treated.
    When we talk about integration, there are quite a number of 
situations where the cable companies own sports franchises--
Cablevision with the Knicks and the Rangers and Cox with the 
Padres and Time Warner with the Braves and Comcast with the 
Flyers and '76ers and Charter with the Seattle Seahawks and the 
Portland Trail Blazers. And the issue is whether the failure to 
provide programming to competitors is a violation of the 
antitrust laws, with the Seventh Circuit decision in MCI 
Communications v. AT&T holding that Section 2 of the Sherman 
Act is violated if the so-called four-part test is met under 
essential facilities.
    The Congress legislated in 1992 to prohibit vertically 
integrated companies, those that have ownership in programming, 
sports programming specifically our hearing today, from 
refusing to make their cable contact available to competitive 
multi-channel video programming. And the Congress applied this 
only to programming delivered via satellite. It is questionable 
whether it ought to be applied to programming delivered by 
cable, terrestrial transmission as well.
    The Commerce Committee considered a change in that law, and 
at least as of this time, Congress has not moved in that 
direction but perhaps we should. There are some strong 
arguments for moving in that direction.
    In July of this year, the FCC required Time Warner and 
Comcast to provide competitors with access to their sports 
programming as a condition to their acquisition of the assets 
of Adelphia. But the FCC did not impose this requirement on 
Comcast SportsNet Philadelphia, and one of our points of 
interest would be why the distinction there.
    We do not have anybody from Cablevision with us today, 
which I think is unfortunate. We gave Cablevision a lot of 
notice, and no reason was advanced why Cablevision could not 
cooperate with this Committee. And when we review the matter, 
seek any further explanation at our next hearing, people should 
know that the Committee does have the subpoena power. I do not 
want to lecture to the choir here, preach to the choir. All of 
you have come in on our invitation. But we do expect 
cooperation from companies who are programming and who are 
undertaking activities which affect consumers, affect the laws 
of the United States within the jurisdiction of the Judiciary 
Committee. We ought to have the cooperation from those folks 
coming forward.
    We have a very distinguished panel this morning, and our 
lead witness is Mr. John Goodman, who is President of the 
Coalition for Competitive Access to Content. He was Executive 
Director of the Broadband Service Providers Association. He had 
operating roles in Astound Broadband and also served with 
Motorola, holds an MBA from Northwestern University and a 
bachelor's degree from Bethel College in psychology.
    Thank you for joining us, Mr. Goodman, and we look forward 
to your testimony.

STATEMENT OF JOHN GOODMAN, PRESIDENT, COALITION FOR COMPETITIVE 
              ACCESS TO CONTENT, WASHINGTON, D.C.

    Mr. Goodman. Good morning. I want to express my 
appreciation to you and other members of the Judiciary 
Committee for the opportunity to participate today. I am 
pleased to represent the Coalition for Competitive Access to 
Content. It is a very diverse group of companies, including 
DBSs, BSPs, telco entrants, trade associations, and consumer 
groups that are all committed to expanded competition. These 
member organizations disagree on many public policy issues, 
but, nonetheless, they have come to the same conclusion 
regarding program access reform: assured access to content, 
particularly regional sports programming, is essential to the 
development of high-capacity networks that provide not only 
video but broadband competition.
    Congress has long recognized the direct linkage between 
access to programming and additional video competition. In 
1992, Congress did promulgate the original program access rules 
that required that video content owned by cable operators be 
made available to new entrants on fair and nondiscriminatory 
terms.
    Access to content today is every bit as important as it was 
then. The FCC reviewed the application of certain program 
access rules in 2002 and concluded they were still essential, 
and they extended them for 5 years. More recently, Senators 
Kohl and DeWine have sponsored several valuable GAO studies 
that document both the need for more wireline competition and 
the relationship between access to content and the ability to 
compete. Regulators reviewing media mergers, as you referenced, 
also came to the same conclusion. Proceedings for DirecTV/
NewsCorp and for Comcast, Time Warner, and Adelphia 
transactions were both approved with program access conditions 
both related to sports and other programming. While we applaud 
the FCC's vigilance in this area, the CA2C believes that a 
statutory mechanism--not piecemeal adjudication--is necessary 
and justified to assure access to content.
    The current level of vertical integration continues to be 
significant and expanding. Incumbent cable operator ownership 
of professional sports franchises and sports programming has 
actually expanded since 1992. In addition, a substantial 
portion of current vertical integration is concentrated in 
programming that has the highest viewership and, therefore, 
value. The CA2C has attempted to document the current level of 
vertical integration. As we submit some summary profiles today, 
we ask the Committee to feel free to share this information 
with all parties involved so that this information can be 
validated, corrected, and expanded as may be appropriate. And I 
have these here if you want to see them.
    Unfortunately, Congress's program access provisions, 
written in 1992, have not kept pace with today's technology and 
market structure. Cable operators can control exclusive rights 
to programming delivered over their headends by fiber as 
opposed to satellite. This is called the ``terrestrial 
loophole.'' That is why a DBS subscriber in Philadelphia cannot 
receive Comcast's Sports Network with Flyers, Phillies, and 
'76ers games. It is why a DBS subscriber in San Diego cannot 
receive Cox's sports network for Padres games. The FCC has 
looked at this issue several times and concluded it has no 
authority to deal with terrestrially delivered content unless 
there are changes to the current law.
    Accordingly, the CA2C provided input for the ``Sports 
Freedom'' provisions in the telecommunications legislation 
introduced by Senators Stevens and Inouye. These provisions 
closed the terrestrial loophole and enhanced the framework 
related to sports programming by, among other things, applying 
binding arbitration proceedings to certain disputes. These 
provisions were similar to the conditions created in the 
DirecTV/NewsCorp merger.
    We supported new legislation because it will have equal 
applications to all MVPDs, and it will sustain the right market 
structures to promote competition. We should not rely on 
mergers, acquisitions, or other market events to address these 
industry-wide matters. Moreover, the FTC and the FCC should be 
directed and empowered to deal with anticompetitive issues. In 
short, we do not seek for Congress to establish an entirely new 
legal framework of economic regulation or price controls, nor 
should particular players in the market be singled out. Rather, 
a rational and measured updating and extension of the rules is 
in order.
    Opponents to program access legislation have publicly 
acknowledged that the existing rules have been effective within 
their current application. However, they now oppose program 
access rules. They claim these rules are not needed because 
current markets are fully competitive and that there are 
limited examples of abuse or denied access. But the market 
reality of key programming, especially local and regional 
sports, is that it is concentrated in the hands of a few cable 
operators, and that undermines this view.
    Even incumbent cable operators have asked for conditions 
guaranteeing access to content. The DirecTV/NewsCorp merger was 
the first time that an incumbent video provider faced a 
potential threat of some other network operator having control 
of essential content. Suddenly, they were asking for merger 
conditions that sounded a lot like the standards CA2C members 
have promoted to bring video competition to the market.
    I want to again thank you for this opportunity to be with 
you this morning, and I look forward to your questions.
    [The prepared statement of Mr. Goodman appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Goodman. We now 
turn to Mr. David Cohen, Executive Vice President of Comcast 
Corporation; had been a partner and Chairman of the firm of 
Ballard Spahr Andrews & Ingersoll, one of the largest law firms 
in the country; served with great distinction as chief of staff 
to Mayor Ed Rendell of Philadelphia; bachelor's degree from 
Swarthmore and University of Pennsylvania Law School graduate 
summa cum laude.
    Thank you for coming in today, Mr. Cohen, and the floor is 
yours.

STATEMENT OF DAVID L. COHEN, EXECUTIVE VICE PRESIDENT, COMCAST 
            CORPORATION, PHILADELPHIA, PENNSYLVANIA

    Mr. Cohen. Thank you very much, Mr. Chairman, and thank you 
for the opportunity to testify today on vertical integration in 
sports programming. I would like to highlight three main points 
from my written testimony, which I understand will be made a 
part of the record: first, vertical integration is commonplace 
in commerce and can have real consumer benefits; second, there 
has been a dramatic decrease in vertical integration in cable; 
and, third, competitors to cable are getting access to all the 
programming they need, so there is no longer a need for special 
Government rules on program access. Let me briefly expand.
    When Congress passed the 1992 Cable Act, it was concerned 
that cable operators that owned programming networks would have 
the ability and incentive to withhold that programming from 
competing distributors, particularly the then-fledgling 
satellite operators. So Congress told the FCC to adopt special 
program access rules to ban exclusivity and ensure that all 
satellite-delivered, vertically integrated cable networks are 
made available to all competitors.
    Back then, many cable operators were vertically integrated. 
They had an attributable financial interest in almost 60 
percent of the 68 or so national cable networks then in 
existence. But as our industry grew and as we built more and 
more channel capacity the market for programming has exploded. 
Today, of the more than 530 national cable networks, the FCC 
reports that cable operators have an interest in approximately 
20 percent of them, although our data shows that number is 
closer to 12 percent. By any measure, though, vertical 
integration today is substantially less than what it was in 
1992.
    I would also like to stress that Comcast is among the least 
vertically integrated companies in the entertainment industry. 
We have an interest in a total of only 22 networks. Half of 
those carry sports, and eight of those would be considered 
regional sports networks. On a typical cable system, we are 
affiliated with only about 7 percent of the full-time networks 
that we carry. In comparison, our biggest competitor today, 
DirecTV, is owned by NewsCorp, which has a financial interest 
in over 30 of the networks that it carries--26 of those are 
sports networks, including 21 regional sports networks. The 
number of affiliated networks that DirecTV carries is, 
therefore, almost twice as many as Comcast carries.
    In today's marketplace, as I explain in my written 
testimony, there is simply no justification for the FCC's 
current program access rules. Those rules were an unusual 
exception to a well-established principle of law and economics: 
that vertical integration can have very positive pro-consumer 
effects. Vertical integration allowed cable to create 
innovative programming when others would not. This led to 
valuable networks like CNN, the Discovery Channel, TV One, and 
C-SPAN, among others. Those investments helped to make cable 
the preferred choice of American viewers.
    Let me give you another specific example that I know is 
near and dear to the Chairman's heart and that is near and dear 
to my heart. Sports fans in our hometown of Philadelphia had to 
settle for 2 second-rate regional sports networks until Comcast 
acquired the Flyers and '76ers and bought out those two 
networks in the mid-1990's. We then created Comcast SportsNet 
Philadelphia, which is exempt from the program access rules 
because it is terrestrially delivered. Congress permitted this 
limited exclusivity for a reason--not to prevent competition 
but because it did not want to deter investment in high-quality 
local programming. In fact, Congress wanted to make sure that 
it would continue to encourage such investments. In specific 
reliance on this exemption, Comcast has since invested over 
$450 million to build up SportsNet to the network that it is 
today. And although we make Comcast SportsNet Philadelphia 
available to every one of our terrestrial competitors, 
including Verizon and RCN, we do not make it available to our 
DBS competitors. However, in the seven other markets where 
Comcast has subsequently created regional sports networks, we 
make them available to all of our terrestrial and satellite 
competitors.
    We think that some exclusivity of programming can be a good 
thing, because it permits competitors to distinguish themselves 
from one another. And I realize that the satellite providers 
are unhappy that they cannot provide SportsNet Philadelphia to 
their customers. But I will admit to you that we are a little 
unhappy that DirecTV has exclusive rights to the NFL Sunday 
Ticket and that we cannot provide this service to our cable 
customers.
    The simple fact is that exclusivity can't simultaneously be 
a good thing when our competitors have it but a bad thing when 
we have it. It is one or the other.
    So thank you for the opportunity to testify today. I want 
to conclude by saying that it is past time to repeal the 
program access rules, especially the ban on exclusivity that is 
set to expire next year. Congress can reasonably rely upon the 
antitrust laws to guard against any problems here, and I will 
be happy to expand upon that in the question-and-answer 
session.
    Thank you.
    [The prepared statement of Mr. Cohen appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Cohen.
    Our next witness is Dr. Mark Cooper, Director of Research 
for the Consumer Federation of America, also President of 
Citizens Research, and a fellow at the Stanford Center on 
Internet and Society; the author of four books; undergraduate 
degree from CCNY, master's from University of Maryland, and a 
Ph.D. in sociology from Yale.
    We appreciate your coming in today, Dr. Cooper, and look 
forward to your testimony.

   STATEMENT OF MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER 
            FEDERATION OF AMERICA, WASHINGTON, D.C.

    Mr. Cooper. Thank you, Mr. Chairman, and I appreciate the 
opportunity to appear today to testify on one of the key 
aspects of the continuing failure of competition to protect the 
consumer in the cable industry. This continuing market failure 
is evident in rising prices for monthly service, discrimination 
in carriage of programming by cable operators, refusal to offer 
critical marquee programming to competing delivery systems, and 
anticonsumer and anticompetitive bundling.
    Entry into the industry remains extremely difficult from 
both the content and distribution sides. Satellite has been 
unable to discipline cable market power, and it appears that 
the entry of telephone companies is equally ineffective. 
Monthly prices for basic and expanded service have just about 
doubled since the passage of the Telecommunications Act of 
1996. Just last week, the two largest theoretical competitors 
in the Northeast each upped their rates dramatically, by 4 to 5 
times the rate of inflation.
    Intermodal competition and a cozy duopoly is not enough to 
discipline the abuse of market power in this sector. Every 
traditional measure of market structure--concentration ratios, 
the Lerner index, Tobin's q ratios--indicates the existence of 
market power in the cable industry. This market power stems 
primarily from a lack of competition at the point of sale. The 
market exhibits not only the classic barriers of entry, such as 
high capital costs, specialized inputs, and economies of scale, 
but cable operators have built barriers to entry with their 
regional concentration, vertical integration, and bundling 
strategies.
    The topic of this hearing, the withholding of vital 
geographically specific marquee programming from alternative 
distribution platforms, is one of the elements in a tightly 
woven web of business practices that have dampened competition 
in the sector.
    The incessant reduction in number of cable operators and 
their increasing size has led to the aggregation of cable 
systems into large regional clusters. Market power at the point 
of sale to the public and monopsony power at the point of 
purchase from programmers combine to undermine competition. 
Large MSOs have come to dominate specific regions of the 
country. They have moved into regionally specific sports 
programming that is itself a monopoly. They embed this 
programming in huge bundles, forcing consumers to pay for it 
all. They then deny access to this programming to competing 
distributors or make it available on anticompetitive and 
unfriendly terms and conditions.
    Their monopsony power is grounded in their market power at 
the point of sale, and the huge regional clusters and 
concentrated national market created over the past decade gives 
them the ability to secure control over this regionally 
specific programming. Since the programming is regional, it is 
rarely distributed through terrestrial means, subject to the 
so-called terrestrial loophole. Therefore, the programming can 
be withheld from competing distribution.
    As cable operators gain control of large contiguous 
geographic areas, they also are more able to obtain exclusive 
rights to programming they do not own. Restricting the flow of 
programming to alternative distribution platforms blunts 
competition at the point of sale. If the Congress intends to 
rely on market forces to discipline the market power of cable 
operators, it will have to break the stranglehold that the 
handful of vertically integrated, horizontally concentrated 
firms use to dominate the sector.
    Antitrust-type structural remedies that apply to the supply 
side and are very much in the tradition of antitrust and were 
not well crafted in the 1992 and 1996 Acts including the 
following: Congress should impose a strict horizontal limit on 
cable ownership to diminish cable's monopsony power in the 
programming market; Congress should ban the abuse of vertical 
leverage, both by closing the terrestrial loophole and adopting 
an effective policy to prevent discrimination in carriage; 
Congress should prohibit contractual anticompetitive tying 
arrangements by dominant media programmers that force 
distributors to carry all of a network's or all parent owner's 
cable channels just to receive the small number that the 
consumers want.
    We also think Congress should require cable operators to 
make available to consumers on an unbundled basis all 
programming that they choose to bundle. This will enable the 
demand side of the market to discipline the cost of programming 
and the size of their cable bill.
    I appreciate the opportunity to testify and look forward to 
any questions. Thank you.
    [The prepared statement of Mr. Cooper appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Dr. Cooper. Without 
objection, we will admit into the record the statement of 
Senator Herb Kohl, who is Ranking Member of the Antitrust 
Subcommittee.
    Our next witness is Mr. James Baller, Senior Principal of 
Baller Herbst Law Group, a firm specializing in 
telecommunications; led the successful challenge to Virginia's 
and Missouri's barriers to municipal entry into the 
telecommunications field; graduate of Dartmouth and Cornell Law 
School.
    We appreciate your being with us today, Mr. Baller, and the 
floor is yours.

STATEMENT OF JAMES BALLER, SENIOR PRINCIPAL, THE BALLER HERBST 
                LAW GROUP, PC, WASHINGTON, D.C.

    Mr. Baller. Thank you very much, Chairman Specter. I 
appreciate your invitation to testify, and I am honored to be 
here today.
    Since 1992, I have provided legal services to dozens of 
public and private providers of competitive communications 
services, and I have assisted several national and State 
associations that support such endeavors.
    Over the years, I have seen at first hand a wide range of 
practices through which established cable operators have sought 
to thwart competition from my clients and similarly situated 
new entrants. At a hearing in this room in February of 2004, we 
presented documentation of dozens of such practices. Many are 
still occurring, and they need to be curbed once and for all. I 
applaud you, Chairman Specter, for focusing on programming 
access issues at this hearing, and I hope that the Committee 
will focus on some of the other practices in the year ahead.
    In my testimony, I would like to focus on three points. 
First, I believe it is critically important not to treat 
programming access just as a cable entertainment issue, but to 
also see it as an infrastructure development issue that is 
essential to America's local, regional, and global 
competitiveness.
    As the Committee knows, America's international ranking in 
broadband deployment has fallen precipitously over the last 
decade, from first in the world in the mid-1990's to as low as 
21st today in some studies. The U.S. is also falling 
increasingly behind the leading nations in access to high- 
capacity Next Generation Networks and in cost-per-unit of 
bandwidth, where we are now ranked sixth, according to the 
International Telecommunications Union. These are alarming 
trends because virtually everything that we do at home, at the 
office, and at play will increasingly be done over broadband 
platforms in the future. As a result, the nations that lead the 
way in developing Next Generation Networks will be the ones 
that are most successful in the emerging information-based 
global economy ahead. I have given the Committee a handout that 
documents this point in greater detail.
    A century ago, when electricity was the must-have 
technology of the day, the private sector alone could not 
electrify America quickly enough to meet demand, particularly 
in rural areas. Recognizing that electrification would 
significantly enhance economic development and quality of life, 
thousands of communities in underserved or unserved areas 
stepped forward to form their own electric utilities. Most that 
did thrived, while many that waited for the private sector to 
get around to them, in some cases up to 50 years, did not.
    Today the history of electrification is repeating itself in 
the communications area, and many communities across the United 
States are ready, willing, and able to do their part to help 
America develop high-bandwidth Next Generation Networks as 
rapidly as possible. In this, they want to stay abreast of the 
most progressive municipalities abroad, and in my second 
handout, I have presented information about what is happening 
in some of the other leading cities in the world.
    If we are to succeed as a Nation in developing Next 
Generation Networks, these networks must be economically 
viable. To do that, they must be able to provide all services 
that they are capable of providing, including video 
programming. And to deny access to key video programming has 
implications not just in the entertainment field but in the 
development of these systems.
    Second, my second point is that the FCC has over the years 
supported the safeguards in the 1992 Cable Act. I completely 
agree with Mr. Goodman's testimony that it is essential that 
these safeguards be preserved and extended. If Congress wants 
to retain a competitive environment in the cable communications 
field, it is essential that all entities have access to 
critical programming. I can cite many examples where that need 
still exists today and, in any event, it is important to 
prevent such things from happening in the future. We cannot 
allow established cable operators to create or remove access to 
programming at their discretion.
    My last point is that when we look at antitrust remedies, 
it is important to recognize that for small to medium-sized 
entities, antitrust remedies are illusory. The time, cost, 
burdens, and risks involved make antitrust remedies essentially 
worthless to small operators. What we need are clear, 
unambiguous, enforceable standards that supply and provide 
sufficiently onerous multiple damages, penalties, and 
attorneys' fees to deter noncompliance. Also, we need help from 
the major agencies to step in and provide service to provide 
protection that small providers cannot provide for themselves.
    Thank you very much, and I look forward to answering 
questions that you may have.
    [The prepared statement of Mr. Baller appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Baller.
    Our final witness on the panel is Mr. Michael Salinger, 
Director of the FTC's Bureau of Economics, currently on leave 
from Boston University's School of Management, where he is a 
professor of economics. He previously taught at MIT, Columbia, 
and served as an economist with the FTC's Antitrust Division; a 
magna cum laude graduate of Yale and a Ph.D. from MIT in 
economics.
    Thank you, Mr. Salinger, for your contribution here, and we 
look forward to your testimony.

 STATEMENT OF MICHAEL SALINGER, DIRECTOR, BUREAU OF ECONOMICS, 
           FEDERAL TRADE COMMISSION, WASHINGTON, D.C.

    Mr. Salinger. Mr. Chairman, my name is Michael Salinger. I 
am, as you said, Director of the Bureau of Economics at the 
Federal Trade Commission. I am pleased to appear before you to 
present the Commission's testimony on the FTC investigation 
earlier this year into the acquisition by Comcast and Time 
Warner Cable of Adelphia's cable assets and into related 
transactions in which Comcast and Time Warner Cable swapped 
various cable systems. After a thorough investigation, the 
Commission closed the matter without taking any action. The 
Commission's decision not to file an antitrust case was 
explained in a statement by Chairman Majoras and Commissioners 
Kovacic and Rosch and in a second statement, concurring in part 
and dissenting in part, by Commissioners Harbour and Leibowitz. 
I have submitted a written statement which represents the 
testimony of the Commission. My oral presentation and answers 
to questions represent my views and not necessarily the views 
of the Commission or any of the individual Commissioners.
    Neither the acquisition of the Adelphia assets by Time 
Warner Cable and Comcast nor the system swaps between Time 
Warner and Comcast represented the acquisition of a direct 
competitor. In other words, this was not the kind of 
transaction that gives rise to most of the merger challenges 
under the antitrust laws. Moreover, several aspects of the 
transaction were likely to be beneficial to competition and to 
increase economic efficiency. Cable systems within a 
metropolitan area can be complementary to each other, as 
consolidation can make it possible to achieve economies of 
scale in creating a second wireline communications network that 
competes with the network of the incumbent local exchange 
company.
    To be sure, the transaction did raise some competitive 
concerns, which the staff spent 7 months investigating. The 
most important of these was that a cable operator with a 
sufficiently large share of a metropolitan area might enter 
into an exclusive contract with a regional sports network, or 
RSN, that would make the RSN unavailable over competing media. 
Using economic analysis, the staff concluded that the 
transaction did not create an incentive to enter into such an 
exclusive agreement.
    Of course, economics is an inherently imprecise discipline, 
so one must consider the possibility that developments could 
run counter to the staff's prediction. If that were to happen, 
however--that is, if Comcast or Time Warner Cable do enter into 
exclusive agreements with RSNs--those agreements would 
themselves be subject to antitrust review.
    Exclusive agreements are not per se violations of the 
antitrust laws. Even if we knew with certainty that exclusives 
would be a likely result of the merger, the Commission would 
have to evaluate whether they are harmful to competition. Such 
a finding would require a showing of net harm to consumers, not 
just harm to competitors. That is a very hard determination to 
make without knowing the details of the agreement to be 
considered. In my opinion, the opportunity to revisit the issue 
if it does, in fact, arise was an important consideration in 
the Commission's decision.
    Thank you for your attention. I would be pleased to respond 
to any questions.
    [The prepared statement of Mr. Salinger appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Salinger.
    We have a vote, which was just started a few minutes ago, 
and I am going to recess the hearing for a short time to go 
vote and come back, and we will then begin the questions and 
answers.
    Thank you. We stand in recess.
    [Recess 10:35 a.m. to 11:05 a.m.]
    Chairman Specter. The hearing will resume.
    Mr. Baller, you say that the antitrust laws are worthless 
as remedies. Would you amplify your view on that a bit?
    Mr. Baller. Yes, I would be glad to, Chairman Specter. For 
a small company encountering anticompetitive activity, the cost 
involved--hiring expert testimony, engaging in time-consuming 
and expensive discovery, the burden involved, the--
    Chairman Specter. You are talking now about private right 
of action and private litigation--
    Mr. Baller. That is correct.
    Chairman Specter. Seeking treble damages or injunctive 
relief?
    Mr. Baller. That is correct. If--
    Chairman Specter. But how about if Mr. Salinger and the FTC 
comes swooping in and provides these fancy economists with 
their extraordinary pedigrees and high- priced lawyers to bring 
justice to clients.
    Mr. Baller. We would love for that to occur.
    Chairman Specter. Then the antitrust laws would be 
effective, wouldn't they?
    Mr. Baller. Yes, they would. They would be more effective 
but not entirely effective because, as Mr. Salinger said, the 
demonstration--
    Chairman Specter. Why not entirely effective? They get 
equitable relief. They get court orders prohibiting the 
inappropriate conduct. They bring you lots of money in treble 
damages. What more do you want?
    Mr. Baller. The showing of harm to competition as 
distinguished to competitors makes the antitrust showings very 
difficult and very complex and time-consuming, even if a 
major--
    Chairman Specter. To prove the case.
    Mr. Baller. Correct.
    Chairman Specter. But the cases can be proved.
    Mr. Baller. But over what period of time? Assuming that a 
small competitor--
    Chairman Specter. What would you suggest as a preferable 
remedy?
    Mr. Baller. Well, I suggest, No. 1, strengthening the 
antitrust laws. I am not suggesting that that alternative not 
occur.
    Chairman Specter. Move to No. 2. You have already told us 
all the reasons the antitrust laws are not sufficient.
    Mr. Baller. I believe that, in addition to strengthening 
the antitrust laws, we should also have specific standards that 
are easy to understand. For example, closing the terrestrial 
loophole is very easy to understand. That can be effectuated. 
We can remove exceptions that make it difficult to apply and 
make the criteria more absolute, clear, give the Federal Trade 
Commission, the Department of Justice, or the Federal 
Communications Commission clear mandate and a sense of the 
Congress that it seeks to protect the interests of small 
competitors as well as the very large competitors.
    Chairman Specter. Mr. Salinger, the 1992 legislation 
enacted by Congress dealt only with satellite transmission and 
not with cable, and the proposal was made earlier this year, 
taken up by the Commerce Committee, which would have primary 
jurisdiction on that issue, they did not pursue that, or at 
least not at the present time.
    What reason would there be for not including cable 
terrestrial transmission under the prohibitions of the 1992 
Cable Act?
    Mr. Salinger. Senator, you are referring to a provision 
that relates primarily to FCC regulations, so in general, we 
would defer to our sister agency for their opinion on that. But 
the specific answer to your question I do not know.
    Chairman Specter. Well, the FTC has considerable expertise. 
You have blue-ribbon credentials: a Ph.D. in economics from 
MIT, magna cum laude from Yale. This is an antitrust issue. It 
involves a provision that Congress prohibited vertically 
integrated cable companies from refusing to make their contact 
available to competitors. And it applied only to satellite 
transmission and not to cable or terrestrial transmission.
    What is the rational basis for that distinction?
    Mr. Salinger. As a matter of economics, it is hard to 
understand why there is any rational basis for distinguishing 
between terrestrial distribution and satellite distribution.
    Chairman Specter. Well, would you recommend that Congress 
change it to include cable and terrestrial distribution?
    Mr. Salinger. Well, I think they should be treated 
consistently. As to whether the prohibition on exclusivity is 
appropriate raises more general antitrust issues, which are not 
so clear-cut.
    Chairman Specter. So you are raising a question about 
whether the prohibition really ought to be continued. But if 
you did continue the prohibition, you say there is no 
distinction as far as your economics training would say between 
satellite and terrestrial.
    Mr. Salinger. Yes, that is right.
    Chairman Specter. Mr. Cohen, I notice you having some body 
language in opposition.
    [Laughter.]
    Chairman Specter. You can expand on that.
    Mr. Cohen. I was even going to volunteer to comment on 
that, although I--
    Chairman Specter. I was coming to you in any event.
    Mr. Cohen. I figured I was not going to escape here 
unscathed.
    Chairman Specter. Because you already said there is good 
reason for it, so tell us the reason.
    Mr. Cohen. First of all, I would say this: I want to second 
at least the implication of Mr. Salinger's comment that if we 
are going to look at this, I actually think the fresh look 
should be whether there should be any prohibition of satellite 
or terrestrial delivery. I believe that a rigorous economic 
analysis of the competitive situation today would lead to the 
conclusion that the prohibition on exclusive arrangements with 
respect to satellite-delivered programs should disappear, in 
which case you would have your uniform treatment between the 
two.
    I do not want to compare my economics credentials to Mr. 
Salinger's. I only majored in economics at Swarthmore College.
    Chairman Specter. Wait, I do not understand that. You were 
summa. He was only magna.
    [Laughter.]
    Mr. Cohen. He actually has a degree in economics. I do not.
    Chairman Specter. I thought ``summa'' covered everything.
    Mr. Cohen. Well, I will not say that. And, of course, he 
has Yale on his resume, and I am missing that on mine, as you 
have frequently observed in the past.
    Chairman Specter. Having frequented both Yale and Penn, you 
do not have to take second place in any respect.
    Mr. Cohen. Well, I appreciate that, and so will Andy 
Gutman. But there was a rational justification for the 
distinction between satellite-delivered programming and 
terrestrially delivered programming in 1992, and that is that 
terrestrially delivered programming was viewed by the Congress 
as being a more limited mode of distribution, a mode of 
distribution that would be primarily used for local 
programming. And there was a considerable legislative record on 
this distinction and a considerable record, by the way, 
supported by economists at the time that there would be a risk 
of anticompetitive, anticonsumer, I guess I should say, 
activity if you were to discourage investments in high-quality 
local programming. And it, therefore, is a very conscious 
decision to say we recognize that we are going to come in as 
the Government and interfere with the market here. And so, in 
interfering with the market, let's interfere with the market at 
the level where we have the greatest concern, which is the 
creation of national cable programming that needs to be 
available to this fledgling industry that we are trying to 
stimulate and we are trying to develop and we are trying to 
encourage the development of. But let's not get in the way of 
investments that cable companies might be prepared to make in 
locally delivered content, which would presumably be delivered 
over a terrestrial network.
    I would say that Congress's judgment here proved not to be 
terribly mistaken. This is not an exemption--
    Chairman Specter. Congress's judgment was not terribly 
mistaken?
    Mr. Cohen. That is right.
    [Laughter.]
    Mr. Cohen. Well, I might quibble with the need to have had 
the--
    Chairman Specter. Do you know that that is the nicest thing 
that has been said about Congress all week?
    [Laughter.]
    Chairman Specter. Go ahead.
    Mr. Cohen. In fact, if we were sitting here today and there 
were 67 terrestrially delivered networks that were being 
provided exclusively on cable, and all around the country 
satellite or wireline overbuilders were having difficulty 
gaining access to all of this content, then I think there would 
be a legitimate question about this. But the examples of where 
terrestrially delivered programming is not available to 
competitors are so few and so far between that it is hard for 
me to accept that a credible, independent economist could make 
the case that there is any significant impairment to 
competition that is taking place as a result of the terrestrial 
exemption today.
    Chairman Specter. Mr. Cooper, I will come to you in just a 
minute because I know you want to comment. But I want to follow 
up in a couple of regards with Mr. Cohen before moving on.
    Comcast has made available to Verizon Philadelphia 
SportsNet, correct?
    Mr. Cohen. That is correct.
    Chairman Specter. Why did you do that on a voluntary basis?
    Mr. Cohen. I think it is a question of looking at our 
business and looking at the business model, and we have 
consistently said in testimony before this Congress--
    Chairman Specter. I commend you for doing it. I think it is 
very good because it helps the consumers. They do not have to 
make a choice based on Philadelphia SportsNet. But there is a 
competitive disadvantage to you to give that to Verizon, a 
competitor.
    Mr. Cohen. That is correct.
    Chairman Specter. And that obviously prompts the question 
as to why you did it.
    Mr. Cohen. We made an assessment based on the overall 
balance of the expected size and scope of that competitor for 
reasons that we can discuss in another hearing. We do not 
believe Verizon is, for example, going to be providing service 
in the city of Philadelphia anytime in the near future because 
their business model is not to roll out their service in the 
city.
    Chairman Specter. Do you think there are really not going 
to be real competitors to Comcast?
    Mr. Cohen. No, they are going to be a competitor in the 
Philadelphia suburbs and in South Jersey and in wealthier 
communities surrounding the city of Philadelphia, but not in 
the city of Philadelphia per se. But, more importantly, we--
    Chairman Specter. But Comcast relies upon the areas beyond 
the city of Philadelphia very heavily.
    Mr. Cohen. That is correct. We have a number of ways in 
which we competitively differentiate ourselves from our 
competitors. Comcast SportsNet in Philadelphia is one of those 
methods. It is not the exclusive method. The bottom line here 
is that we have consistently represented in Congress and in 
front of the FCC that it is not our intention to abuse the 
terrestrial exemption--by the way, it is an exemption, not a 
loophole, that we would make the content available to wireline, 
facilities-based competitors, and that we do so in all of our 
markets. And giving access to Comcast SportsNet to Verizon was 
consistent with that position that we have taken.
    What we say is that we have not made it available to our 
satellite competitors because they aggressively distinguish 
themselves competitively from us with their exclusive content. 
And what is sauce for the goose is sauce for the gander. If 
exclusive content on DirecTV, and in particular, the NFL Sunday 
Ticket, which is the single most valuable piece of exclusive 
sports content in the United States of America today--and if 
that is permissible, if that is acceptable, if that is not a 
problem for the United States Congress, for the Federal 
Communications Commission, with all due respect for everyone on 
this panel, then it should also be acceptable that in one 
market in this country we have the right to competitively 
differentiate ourselves with a network that we invested over 
$450 million in building in reliance on an exemption created by 
this Congress. And I would ask: What is the investment that 
DirecTV has made in sports programming around the country? What 
is the investment that DirecTV or EchoStar has made in any kind 
of programming around this country? What is the investment that 
they have made in jobs in Philadelphia? What is the investment 
that they have made in the community in Philadelphia? The 
investments that Comcast has made in programming, in jobs, in 
community development, are the pro-competitive, pro-consumer 
benefits that you get from the terrestrial exemption and from 
the structure of the program access rules under the status quo.
    Chairman Specter. Do you feel strongly about that?
    [Laughter.]
    Mr. Cohen. I feel passionately about it.
    Chairman Specter. That is a big subject, and I intend to 
come back to it because that involves the first hearing we had 
on NFL, and I want to move through the subject of integration 
and cable, but that is very much on the agenda for today. But 
it comes in Phase 2.
    As to Comcast making your sports programming available to 
other cable companies, do you do that?
    Mr. Cohen. We do.
    Chairman Specter. No exceptions?
    Mr. Cohen. There are no exceptions other than Comcast 
SportsNet Philadelphia and there are no exceptions for 
wireline, facilities-based competitors anywhere in the country. 
There are no exceptions for satellite anywhere else in the 
country other than Comcast SportsNet Philadelphia.
    Chairman Specter. Okay. Dr. Cooper, you had a comment?
    Mr. Cooper. Well, with respect to the terrestrial loophole 
and what Congress did in 1991, let us be clear that in 1992 
regional clusters were a very small part of this industry. They 
have increased many times over since then.
    Second of all, the capacity to distribute content through 
high broadband networks has increased dramatically, so what you 
now have today on a regional basis is exactly the condition 
that was perceived to be the problem for the Nation in terms of 
satellite-delivered programming. So that these clusters have 
grown to such an extent--we have gone from maybe 20 percent to 
well over 50 percent, 60 percent of systems being clustered, 
and those are clustered in major metropolitan areas--each of 
which, by the way, has a monopoly sports franchise in each of 
the major leagues.
    So the problem that is identified here, in fact, has grown 
to be a regional problem, and so if Congress were to revisit 
this issue today, they might well look at that situation and 
conclude that it is exactly the difficulty of distributing 
content in an integrated network that they addressed with 
satellite for the Nation, they now need to address with 
terrestrial distribution for these massive regional clusters 
that have grown in the past 15 years.
    Chairman Specter. Mr. Goodman, at your request we will put 
into the record, without objection, the documents which you 
have presented captioned, ``Coalition for Competitive Access to 
Content: Vertical Integration relevant to Program Access 
Legislation Draft 1990-1994-2006 Comparison.'' That will be 
made part of the record.
    Mr. Goodman, the Court of Appeals for the Seventh Circuit 
in MCI Communications v. AT&T dealt with the doctrine of 
essential facilities and developed a four-part test to 
determine whether there would be a violation of Section 2 of 
the antitrust laws. And it would require first the control of 
the essential facility by the monopolist; second, the 
competitor's inability practically or reasonably to duplicate 
the essential facility; third, the denial of the use of the 
facility to a competitor; and, fourth, the feasibility of 
providing the facility.
    Is that essential facilities--and the Supreme Court of the 
United States in Turner Broadcasting v. FCC implicitly endorsed 
the application of that standard, and in a concurrence, Justice 
Stevens makes a specific reference to it. The question with 
that introduction so that there is an understanding of what it 
is: Does the vertical integration sports programming arguably 
run afoul of that doctrine?
    Mr. Goodman. That is not a question I am prepared to answer 
in the context of that. I am not an attorney per se. The 
vertical integration in sports is clearly a condition that can 
be used as leverage to deny access, and sports programming has 
been declared by most of the consumers that are trying to make 
a decision about when to buy a service that it can be 
essential.
    Chairman Specter. Mr. Baller, what is your legal judgment 
on that? Is the integration we are talking about here today, 
the vertically integrated sports programming arguably a 
violation of the essential facilities doctrine?
    Mr. Baller. I would argue it is arguably a violation, but 
the essential facilities doctrine is not recognized by all 
circuits, and as you say, the Supreme Court has not explicitly 
adopted it as well.
    Chairman Specter. So you do not think that this integration 
runs afoul of that doctrine?
    Mr. Baller. I would personally say I believe it is, but 
that does not mean that the courts necessarily have recognized 
the doctrine at all.
    Chairman Specter. Well, okay. But you are a lawyer in this 
field. You are a specialist in antitrust laws.
    Mr. Baller. I have had experience, but I would not call 
myself an expert in antitrust law.
    Chairman Specter. What is your view of it, Dr. Cooper?
    Mr. Cooper. If you look at the four tests, it clearly 
qualifies in the sense that they control it, they have an 
exclusive, it is irreplaceable. There is, you know, only one 
baseball team in Philadelphia. And we looked--actually in my 
testimony, I look around and you will discover that if you look 
across all the major leagues, certainly in the top 25 markets 
in which Comcast and Time Warner are now highly concentrated 
and clustered, there are very few exceptions where you have 
more than one team in each of those sports. So it does have 
those characteristics that you mentioned: they control it on an 
exclusive basis, it is irreplaceable, there is only one team 
there, and if they deny the access to it, then, in fact, it 
meets those four tests.
    Chairman Specter. Mr. Salinger, what is your view? I am 
coming to you, Mr. Cohen. I know you have a view on this.
    Mr. Salinger. I am no doubt going to get in trouble with 
the lawyers at the Commission for opining on the essential 
facilities doctrine, but--
    Chairman Specter. Well, there is one lawyer here you will 
not get in trouble with.
    Mr. Salinger. Thank you, Senator.
    I do not think it applies to all sports programming.
    It might apply to some sports programming.
    Chairman Specter. What is your view--Mr. Cohen, you have 
given a pretty good exculpatory statement already in addressing 
this because you are making it available to your competitors, 
except for DirecTV, for which you have a very strong economic 
reason, strong factual basis. And I am sorry that we do not 
have a broader panel to take a look at the other integrated 
operations, the Padres, et cetera, the Braves. But would this 
doctrine apply anywhere on the integrated line?
    Mr. Cohen. I have two comments.
    First of all, let's remember that under the essential 
facilities doctrine, you ultimately have to have an umbrella of 
competitive harm--harm to competition. It is not a per se 
violation. And I think that for anyone to--I think you have to 
look, and I was nodding when Mr. Salinger was talking--I think 
it depends on the sport and the market to be able to answer 
your question in an appropriate way because of the required and 
appropriate analysis of the impact on competition.
    No. 2, I think sports is a very interesting case, and this 
will get me in a little bit of trouble in Philadelphia, but not 
anywhere else, which is that the true integration here is not 
the integration between the control of the network and the 
distribution mechanism. The true integration here would be an 
integration that runs from the control of the rights to the 
network and the distribution mechanism.
    So Dr. Cooper, for example, makes reference to one baseball 
team being in Philadelphia. We do not own the baseball team in 
Philadelphia. We do not own the baseball rights in 
Philadelphia. And the Philadelphia Phillies, who are completely 
separately owned, have their own rights and their own ability 
to make their own programming deal. And, in fact, to require, 
as teams like the Chicago Cubs in the Chicago sports market--in 
making the deal require that that distribution be made 
available to all competitors, all multi-channel video 
competitors in the marketplace. So in the absence of what I 
would call full integration from ownership of the rights down 
to the distribution mechanism, I actually think that you 
probably do not qualify under the Seventh Circuit's test as an 
essential facility.
    Chairman Specter. Your response, then, suggests that before 
you can make an evaluation of, say, Cablevision with the Knicks 
and the Rangers or Cox with the Padres, Time Warner with the 
Braves, and Charter with the Seattle Seahawks and the Portland 
Trail Blazers, you would have to have a market analysis, but 
the essential facilities doctrine might apply in those areas?
    Mr. Cohen. I think it could apply, depending on the market, 
but it is interesting. You have ticked off a bunch of markets 
with a bunch of different characteristics. Take the New York 
market and Cablevision and its control of the MSG regional 
sports network. MSG used to have rights to televise the Knicks, 
the Mets, the Yankees, the Devils and the Rangers--had the 
rights to control all of those teams. It goes to my point that 
to have full vertical integration, you actually have to own the 
teams, too, because what is happening in the New York market is 
that the owners of the Yankees, the Mets, the Devils, and the 
Rangers have all taken their sports rights elsewhere. They no 
longer have carriage agreements with MSG. Each of them--the 
Yankees, Mets, and Devils have a deal with YES, which is a non-
vertically integrated regional sports network, and the Mets 
created their own regional sports network, which is partially 
owned by Time Warner, Comcast, et cetera. So that would be a 
vertically integrated regional sports network.
    So Cablevision, which used to own the rights for all of 
these teams, or used to control the rights for all of these 
teams through contract, has now lost the rights for all the 
teams other than the Knicks and the Rangers, who remain on MSG.
    So it is a perfect example of the fact that the controller 
of the rights ultimately has the ability to dictate the 
distribution.
    Chairman Specter. Dr. Cooper, in your written statement, 
you indicate that during the dispute between Cablevision and 
the Yankees Entertainment Sports, known as YES Network, which 
owns the television rights to the Yankees, Cablevision demanded 
an equity stake in the Yankees Network. Could you elaborate 
upon what happened there?
    Mr. Cooper. Well, it is interesting that he raises the 
point of YES because, in fact, that was a fairly ugly--
    Chairman Specter. I am not raising the point of YES. You 
raised the point of YES.
    Mr. Cooper. I mean Mr. Cohen did. As I understand it- -and 
that is just a recounting of the allegations in the lawsuit 
that was filed, and ultimately it went to arbitration. It was a 
lawsuit over carriage on a cable operator who has substantial 
market power in that market. And so as I understand it, I am 
not entirely--you know, those were the allegations that that 
had been demanded as part of the negotiation for carriage. And 
in the end, I believe YES was substantially vindicated in its 
court case and got carriage under terms that were favorable to 
it.
    The suggestion here is that maybe the Congress needs to 
look at the exclusivity of the rights, which is something we 
would encourage. In either event, Comcast would lose its power 
to pick and choose which competitors through its distribution 
network would have access to the programming it controls. He 
has argued that, well, I do not own the team and, therefore, I 
have made a deal with the team to carry its programming; they 
did not require me to do it on a non- exclusive basis; 
therefore, I cannot impose exclusivity. And then he will pick 
and choose which competitors have access to this vital marquee 
programming.
    If you want to solve the problem by banning exclusive 
rights in sports programming, that would do the job, too, 
because then he could not make that anticompetitive choice. He 
would be required by law to make that programming available to 
the competing systems.
    Chairman Specter. Well, would it be desirable as a matter 
of public policy to prohibit exclusivity of rights?
    Mr. Cooper. Where you have an underlying monopoly, it may 
well be, absolutely.
    Chairman Specter. What do you think, Mr. Cohen?
    Mr. Cohen. I think that is the right question, and not 
whether the terrestrial exemption should be continued or 
eliminated.
    Chairman Specter. Well, I am glad we got to the right 
question.
    Mr. Cohen. I think we have to be careful in answering the 
question because there are clearly pro-competitive benefits to 
exclusive arrangements. They do enable competitors to 
differentiate themselves from each other. And I think that is 
the balance of giving up the pro-competitive benefits of 
competitor differentiation in the market as opposed to the 
clear consumer benefits from an open access to what I think--if 
there is anything that is an essential facility, by the way, I 
would think that it would be the rights themselves, not the 
carriage of those rights. And to open those rights up to all 
competitors, I think, has a procompetitive benefit. And it is 
the balance between those two elements that makes the policy 
judgment difficult.
    Chairman Specter. Mr. Cooper, coming back to your written 
testimony, where you raise the issue of Cablevision demanding 
an equity stake in the Yankees Network, can you amplify the 
circumstances? What are the underlying factors of the 
relationship and market power and distribution, et cetera, 
which would enable a cable transmitter to make that kind of a 
demand?
    Mr. Cooper. Well, the general proposition I can address. It 
was the details of what was asked, and you ought to get the 
people from YES. But it is the experience in the video industry 
that distributors, both on the cable side, which is why we had 
the 1992 Act, and on the broadcast side, distributors control a 
vital vertical lever here. And one of the things that 
distinguishes this particular industry, and the 
telecommunications industry as well, is that that lever is a 
live-or-die situation for a local team to reach its local 
market. Where you have a substantial market penetration of that 
distribution mechanism, denial of access to the public gives 
you tremendous market power over the team. If the Yankees 
cannot get to the households that subscribe to cable, they have 
a severe problem.
    So the market power inherent in that bottleneck facility is 
extremely strong, and it gives the owner of that facility--and 
it has occurred in programming both broadcast and cable, to 
demand unacceptable terms and conditions.
    Chairman Specter. Okay. If Cablevision had the power to 
make that demand on a realistic or reasonable basis, then you 
are saying that the Yankees had no place else to go to have 
their team shown?
    Mr. Cooper. Well, that was one of the four tests. Cable is 
the dominant medium for distributing video content in America 
today.
    Chairman Specter. Well, factually, did the Yankees have 
nowhere else to go but Cablevision?
    Mr. Cooper. In some of the market segments, they had that 
problem. You know, the cable companies are franchises. At the 
time there was no overbuilder. You have heard the proposition 
here that one of the economic bases on which Comcast gave 
Verizon the right to distribute their programming in certain 
suburbs was the assumption that there would not be a competitor 
in Philadelphia. That was the statement you heard today. It is 
a wonderful statement. I am going to quote it and get the 
record frequently, right? Because that has been our complaint. 
So that was a business judgment, is that they gave them the 
rights because they do not expect them to be a competing multi-
channel video delivery system in Philadelphia.
    Chairman Specter. But Verizon could be a competitor in 
Philadelphia if it chose to do so.
    Mr. Cohen. Absolutely.
    Chairman Specter. Do you want to adopt Mr. Cohen's answer, 
Dr. Cooper?
    Mr. Cooper. Frankly, we have been making this point. 
Actually, in the other Committee that deals with this, we call 
it redlining, you see? So, in fact, it is an interesting 
observation. Our complaint--and, of course, Comcast was 
required to build out throughout its service territory as an 
obligation of its franchise. And Verizon has been trying to get 
out of that. I was the expert witness in Montgomery County 
where they recently agreed to very favorable terms from my 
point--
    Chairman Specter. You referred to a lawsuit. Would you 
amplify that?
    Mr. Cooper. The lawsuit in--
    Chairman Specter. You just said you were going to utilize 
what--
    Mr. Cooper. Verizon sued Montgomery County claiming that 
its cable ordinance violated the First Amendment, and the judge 
ordered them--
    Chairman Specter. Well, how are you going to use Mr. 
Cohen's statement in your lawsuit?
    Mr. Cooper. One of the conditions that was being argued 
over was the build-out provision. Who are they going to serve? 
And the local franchising authority--and Mr. Cohen has been 
subject to this in his franchise agreements. The local 
franchising authority requires the complete build- out across 
the entire area of that franchise as part of his agreement. 
Verizon is taking the position that they do not want to have to 
serve everybody in the local franchising area. In the 
settlement, we got almost 100 percent of that build-out 
requirement, which is very important in the Commerce Committee.
    Chairman Specter. I am advised that more than 3 million 
subscribers had Cablevision as their only choice for cable 
service, and in those areas, Cablevision had a 90- percent 
market share. I am sorry that Cablevision did not send a 
witness here. They were given a lot of notice, and they had no 
understandable explanation as to why they did not, and we may 
have to continue this hearing with a subpoena for Cablevision 
so that we can find out what is going on here.
    But the ramifications and tentacles of the market share and 
the dominance so that Cablevision, the cable company, can make 
a demand for an equity share in the Yankees to get a preferred 
position as an ownership interest is surprising, to say the 
least.
    Mr. Cohen, you have your hand up.
    Mr. Cohen. If I can, Mr. Chairman, I do not want to attempt 
to speak for Cablevision, but I know a little bit about the 
subject in general, so it might be a little helpful to make 
some comments.
    Chairman Specter. Please do.
    Mr. Cohen. First of all, I do not believe that even the 
allegation was that Cablevision was making a demand for equity 
in the Yankees. I think what may have been under discussion was 
whether Cablevision should get an equity interest in the 
network itself on the theory that it was Cablevision's 
distribution that was going to be bringing the value to the 
network--not the team itself, but to the network.
    I would note that recent press reports suggest that the 
owners of Yankees Entertainment Sports, which are the Yankees, 
the Nets, and principally Goldman Sachs and private equity 
investors, are thinking about putting the network on the 
market, and the asking price is on the order of $3 billion. 
That is billion with a B. That would make the network worth 
approximately three times what the Yankees are worth as a 
franchise. And with all due respect, the value of that network, 
although it comes in part from the value of the Yankees as a 
franchise and the Yankees as something that people want to 
watch, it also comes from the distribution that was required to 
the YES Network from Cablevision, from Time Warner, from 
Comcast, from DirecTV--and I forget whether EchoStar 
distributes the YES Network or not. So there is some 
justification from the distribution side of saying that it is 
the distribution that is giving value to these networks in 
addition to the franchises themselves.
    Number two--and this is particularly important--if you look 
at the whole YES Network area, when you have a statistic like 
Cablevision had 3 million customers, I think Yankees 
Entertainment Sports is in a metropolitan area with something 
like 8 or 9 million customers. You have Cablevision, Comcast, 
Time Warner all in that territory. So when you look at 3 
million customers, you are looking at a sub-segment of the YES 
Network's market, not the entire market.
    With all due respect to that statistic, in virtually every 
place where Cablevision was providing service, there were at 
least two other competitors that were available for carriage of 
the YES Network--DirecTV and YES. And I know that DirecTV--I do 
not know about--
    Chairman Specter. Carrying the YES Network, too?
    Mr. Cohen. They were.
    Chairman Specter. DirecTV and who?
    Mr. Cohen. Well, EchoStar, the Dish network. I don't know 
whether Dish was carrying YES. I know DirecTV was.
    Chairman Specter. The consumers are going to have to go 
to--
    Mr. Cohen. They would go to a satellite.
    Chairman Specter. To a satellite.
    Mr. Cohen. Correct.
    Chairman Specter. They would have to buy a whole new 
system.
    Mr. Cohen. Well, they did not have to buy a whole new 
system because the YES Network and DirecTV ran a massive and 
major promotion during the course of this dispute where they 
offered a free dish and free multi-television set-top boxes for 
any Cablevision customer who would switch to DirecTV; in 
addition, offering discounted service for an entire year for 
that switch. And--
    Chairman Specter. Do you ever have any concerns about the 
free offers and the discounted service for a time as to how it 
is going to be made up later? Is there such a thing as--
    Mr. Cohen. I think it--
    Chairman Specter. Wait a minute. Is there such a thing as a 
free lunch here?
    Mr. Cohen. There probably--
    Chairman Specter. Don't they have a plan to collect later?
    Mr. Cohen. In the long run, that would definitely be the 
case, but in DirecTV's case, in cable's case, there is 
something called subscriber--it is called SAC charges. They are 
the charges, the marketing costs you expend to get new 
subscribers. All I can tell you is that YES publicly said that 
they had switched somewhere between 25,000 and 30,000 
Cablevision customers to become DirecTV customers, and that YES 
has said that the ultimate resolution of this dispute, which by 
the way, was not through the litigation because there was never 
a decision in this litigation, was because of the pressure that 
was put on Cablevision through the market, that is, customers 
leaving and threatening to leave the DirecTV if Cablevision did 
not pick up the YES Network.
    So I believe that the bottom line here is the market worked 
in the YES situation. That is why YES now has ubiquitous 
distribution. That is why YES is now worth $3 billion.
    Chairman Specter. Ubiquitous distribution?
    Mr. Cohen. That is correct.
    Chairman Specter. What is ubiquitous distribution?
    Mr. Cohen. They are available on Cablevision, Time Warner, 
Comcast, and at least DirecTV. They also have a deal with 
Verizon, and, by the way, Verizon is an active competitor of 
Cablevision's, and Cablevision's territory as well. So you have 
now got at least five and maybe six multi-channel video 
distributors that are carrying the YES Network.
    Chairman Specter. Well, wait a minute. The question in my 
mind is: Where does all this leave the consumer? Where does 
this leave the consumer now? And where does this leave the 
consumer down the road? These are only partial steps in what is 
being undertaken. We are going to come to that in just a minute 
going to the NFL issue. But I am trying to understand what is 
happening here. A chart has been provided which shows at the 
top George Steinbrenner, principal owner, and minority 
partners, and that leads down into the Yankee Global 
Enterprises. And that branches off into two lines. One is the 
New York Yankees, and the other is the YES Network.
    Now, it has been public knowledge for a long time that the 
YES Network was more valuable than the New York Yankees, and 
you say, Mr. Cohen, that they are going to rearrange with the 
conglomerate, it is going to be worth $3 billion, which is 
three times the value of the Yankees.
    This is an extraordinarily complex structuring which I am 
concerned places the consumer at considerable risk.
    You had a comment, Dr. Cooper. Then I want to move on.
    Mr. Cooper. Of the six entities that Mr. Cohen mentioned, 
at least three of them do not compete with each other because 
the cable operators have chosen never to overbuild and compete. 
And so you are left with the satellite, which involves 
significant switching costs, short-term promotion, as he 
pointed out, as part of this commercial dispute. And, of 
course, those are the competitors who he denies his programming 
to. And he knows that the other major cable operators are not 
going to overbuild him. So that list of places, what YES did 
was they secured distribution throughout the region because 
that region is splintered between a number of cable systems. 
Many of Comcast's regions are not. They are the dominant 
provider throughout the region, and, again, he has chosen not 
to allow that key marquee programming to be available to the 
one entity that actually could compete throughout the service 
territory.
    Chairman Specter. Mr. Cohen, you testified earlier with 
considerable fervor about the Sunday Ticket. Do you believe 
that that arrangement between the NFL and DirecTV is a 
violation of the antitrust laws?
    Mr. Cohen. Building on Mr. Salinger's comment about the 
need to look at particular sports programming in particular 
markets, I think if there is any sports programming about which 
you could make a case that it is an essential facility, it 
would be NFL programming. And so I am not prepared to say that 
I think the NFL Sunday Ticket is an antitrust violation. You 
are aware of the Shaw litigation in the Third Circuit, which, 
again, the litigation never reached the ultimate question 
whether the NFL Sunday Ticket was an antitrust violation, the 
Third Circuit only finding that the Sunday Ticket was not 
entitled to the antitrust immunity that was provided under the 
Sports Broadcasting Act. I would note, though, that before that 
case went to trial, it was settled. So there was at least some 
risk perceived by the NFL and presumably DirecTV that the 
Sunday Ticket could be found to be an antitrust violation.
    Chairman Specter. Well, I know that it has not been 
resolved, but I was asking one astute lawyer's opinion as to 
whether he thought it was an antitrust violation. But I will 
accept your answer.
    The activities of the NFL are very extensive and definitely 
ongoing in what they are undertaking to do. And a big question 
is posed by what they have done as to whether it is a violation 
of the antitrust laws and what is coming next. We now have the 
NFL Channel, and we have this year, last month, the expansion 
to the Thursday-Saturday Ticket, and we can expect more.
    We have had the change from Monday Night Football from ABC-
TV to ESPN, which is an interesting transaction, raises a lot 
of questions, especially since ESPN is owned by ABC- TV. And on 
inquiry, we find that ESPN can pay the NFL more money because 
ESPN has two revenue streams: one, the advertising, which is 
somewhat less--how much less I do not know, but I am advised 
not appreciably less--than over-the- air transmission by ABC; 
but ESPN also has the revenue stream from subscriptions from 
the subscribers. I am advised that it is $500 million more a 
year, and what it appears to be is that the NFL makes an 
evaluation as to how much they can extract, how much can they 
extract from ESPN, a subsidiary of ABC, to carry the Monday 
night games on ESPN. And ABC-TV on Monday night games, an 
enormous demand. You would think if anybody could survive and 
afford the programming, ABC-TV could. But they could not when 
the NFL decided to raise the prices.
    Now, the NFL enjoys all of this maneuvering room because 
they have the antitrust exemption. The teams are not guilty of 
conspiracy and restraint of trade because they got the 
antitrust exemption. But if they did not have the antitrust 
exemption, then the San Diego Chargers could negotiate, and if 
you could not get them, you could get the Seattle Seahawks, or 
you might get some other team. But the variety of distribution 
chains are not free to negotiate because the NFL has it all.
    What good reason, Mr. Salinger, is there for leaving that 
antitrust exemption in place?
    Mr. Salinger. Senator, as a general principle, I think that 
special antitrust laws for particular industries are a mistake, 
that we should use the same antitrust principles across 
different industries.
    As to whether it should be illegal for the NFL to negotiate 
television rights, as a single entity--
    Chairman Specter. Well, wouldn't the consumer be better off 
if the sports teams were negotiating on their own so that there 
would be competition as to what football team would be shown on 
what network and what channel as opposed to having all the 
bargaining rights in the NFL, which they can have because they 
have an exemption under the antitrust laws? There is no doubt 
that it is collusion if it is an agreement of two or more 
parties, which has the impact of restraining trade. What is the 
justification for that in this day and age with what the NFL is 
doing?
    Mr. Salinger. Well, it is two or more parties that are 
engaged in a joint venture, and so that complicates the 
analysis substantially.
    Chairman Specter. Well, it is a joint venture.
    Mr. Salinger. I don't know whether legally the NFL is a 
joint venture, but the product that they are providing requires 
the existence of the league. One team cannot provide that 
product.
    Chairman Specter. Well, they cannot provide the entire 
product, but one team can provide rights to televise their 
games.
    Mr. Salinger. That is correct. But the league needs to make 
joint decisions and joint investments, and that--
    Chairman Specter. I know, and that stops individual cable 
companies or individual distributors from negotiating with 
teams.
    Mr. Goodman, any reason to keep that antitrust exemption in 
place?
    Mr. Goodman. I am going to defer to the lawyers.
    Chairman Specter. Why are you doing that? You represent the 
consumers. I am not going to put you on the next panel, Mr. 
Goodman. You represent the consumers.
    Mr. Goodman. The NFL and the process of those negotiations 
gets to prices that a lot of consumers do not want to bear, and 
I think that is more the consumer issue than the antitrust 
issue. You have in the current carriage deals today a 
structure--
    Chairman Specter. Is your microphone on?
    Mr. Goodman. I am sorry. You have in the current structure 
today bundling and carriage deals that cause professional 
sports, NFL, et cetera, to be packaged in with what is called 
the Expanded Basic. In that Expanded Basic, you have someplace 
between 40 to 60 percent of the customers paying for that that 
do not want that particular content, they do not particularly 
want to pay for it. You have--
    Chairman Specter. That is the whole basis of the 
controversy that Comcast is having now with the NFL.
    Mr. Goodman. Correct.
    Chairman Specter. NFL wants it on the basic line. Comcast 
wants to put it on the sports line for the people who want it 
who can see it.
    Mr. Goodman. Correct.
    Chairman Specter. And this is the NFL exerting its power 
right down to the last nub, right down to the last nickel. Go 
ahead.
    Mr. Goodman. Correct. I mean, it is interesting that they 
are taking that position on that particular set of content when 
they are involved in all sorts of other bundling arrangements.
    One of the things I would encourage everybody to look at 
long term is what happens to these kinds of contracts and 
structures as we move to digital carriage. When we move to 
digital carriage, then a lot of the technical and business 
issues that have led to the bundling and packaging that we have 
got today are not going to be as relevant. And hopefully we 
will get to a different structure.
    Chairman Specter. Dr. Cooper, I noticed you would like 
recognition. On what issue?
    Mr. Cooper. On this issue.
    Chairman Specter. Good. Proceed.
    Mr. Cooper. I mean, two of my four recommendations address 
this fundamental problem. Disney maximizes the extraction of 
rent because of two practices we think are anticompetitive and 
anticonsumer in this case--that is, ABC ties its programming 
together in big bundles, demanding carriage for a set of 
programs, not negotiating individually for each, and then the 
cable operators bundle those together and do not give the 
consumer the choice.
    If you break those two links, the study we saw is that 75 
percent of the people would not pay the $2 a month or plus that 
ESPN gets to be put into the Expanded Basic bundle. That is why 
we believe breaking these ties would, in fact, begin to exert 
consumer demand genuinely at the point of sale.
    Chairman Specter. Breaking what ties?
    Mr. Cooper. The ability of ABC to insist that their bundle 
of programs be carried using the leverage of their must-carry 
and retransmission rights. Remember, Congress gave them rights 
to carriage. And, two, that cable operators be required to 
offer consumers a choice to buy the individual programs that 
they also offer in the bundle.
    Imagine if consumers could choose not to pay for ESPN, just 
as Comcast is saying maybe they should be allowed to choose not 
to pay for MASN, right? The consumer would then be sovereign, 
which is the objective here. In this current environment, 
consumer elasticity of demand has been dulled dramatically by 
these massive bundles--
    Chairman Specter. How about the antitrust exemption? Should 
that remain?
    Mr. Cooper. The antitrust exemption would be one way to 
diminish the market power of the league.
    Chairman Specter. Should we eliminate the antitrust 
exemption?
    Mr. Cooper. I believe CFA has supported the elimination of 
those antitrust exemptions across the major league sports.
    Chairman Specter. Mr. Baller, should we eliminate the- -
revise the 1961 antitrust exemption for the NFL?
    Mr. Baller. For all major sports. We have had problems with 
Major League Baseball as well, and I think that it would be in 
the consumers' interest to eliminate the exemption across the 
board, if possible.
    Chairman Specter. Well, is baseball engaging in the same 
kinds of practices that the NFL is?
    Mr. Baller. I cannot say for sure. My experience is limited 
to a town named Bristol, Virginia, on the border of Tennessee, 
not--
    Chairman Specter. Is hockey doing what the NFL is doing?
    Mr. Baller. I don't--
    Chairman Specter. Is the NBA doing what the NFL is doing?
    Mr. Baller. I have no experience.
    Chairman Specter. Well, I would be reluctant to use too 
broad a swath here unless we see what they are doing, unless we 
see that they are anticonsumer. But what we are getting with 
the NFL, the raising of pay television through the add-ons and 
extracting--not allowing the sports channel to carry it where 
they could get a substantial amount of money.
    Mr. Cohen, should we legislatively change the antitrust 
exemption that the NFL has?
    Mr. Cohen. I noticed you changed the form of the question 
for me, which I appreciate, because I think the answer to that 
question is yes. I think the answer to the question you asked 
everyone else, which is should we eliminate the antitrust 
exemption for--it is in the Sports Broadcasting Act of 1961 for 
the NFL. I think that answer is no, and I think it goes in 
part, again, to what Mr. Salinger said.
    I do think that there is a proconsumer justification for 
leagues negotiating certain television rights on behalf of all 
of the teams. I think, however, in granting that type of an 
exemption from antitrust scrutiny, it would be appropriate for 
Congress in the NFL's case, which, unlike all the other sports, 
negotiates 100 percent of the television rights in the league 
on behalf of all of the teams. In all the other sports, there 
are national rights, but there is a substantial chunk of rights 
that are retained by the individual teams to be able to market 
and negotiate over. So the NFL is a distinct case because, No. 
1, it controls all of the rights of its teams, and, No. 2, 
because of the market power that I believe the NFL has in 
television rights, sports television rights, as compared to the 
rest of the teams. And I believe it would be appropriate for 
this Committee and this Congress to look at appropriate 
conditions to be put on a continuing exemption--on a continuing 
immunity from the antitrust laws as opposed to the blanket 
immunity that exists in the current legislation
    Chairman Specter. Well, Mr. Cohen, this Committee and this 
Senator has considered conditioning the antitrust exemption on 
a variety of factors. It is very difficult for the Congress to 
anticipate and understand all the potential ramifications as to 
when we start to deal with part of it and not all of it. If we 
take away the antitrust exemption for the NFL to deal jointly, 
then the market comes in. And there are very powerful reasons 
to allow the market to govern, which we do not anticipate. 
Nobody since Adam Smith has been as smart as the market. So if 
we take away the antitrust exemption, you have the market 
coming in.
    I introduced legislation in the 1980's to condition the 
antitrust exemption of the NFL on limitations of franchise 
moves. When they wanted to move the Philadelphia Eagles to 
Phoenix, I introduced that legislation. We had a very spirited 
debate at that table in about 1982 between Pete Rozelle, the 
Commissioner of Football, and Al Davis when they moved the 
Oakland Raiders to Los Angeles, and they had antitrust 
litigation that Mr. Davis won. And then the NFL has permitted 
franchise moves with the Colts, in the middle of the night 
Irsay going to Indianapolis, the Browns coming from Cleveland, 
disrupting fan loyalties in a major way.
    Of course, baseball is not immune either, taking the 
Dodgers from Brooklyn in 1958 because Walter O'Malley got a lot 
of prime real estate in Los Angeles, and the Giants joined. The 
fans be damned. And now it is the consumers be damned with what 
is happening.
    But as I look at what the NFL is doing today, with the NFL 
Channel, with the DirecTV, which you spoke about passionately 
and eloquently, in terms of limiting--a lot of people, 
including myself, would like to be able to have that ticket. 
But I have got to have a dual system. I have got to go to 
satellite. And what is coming next?
    When you look at ESPN taking over Monday Night Football, 
the NFL decides how much they can extract. And then the 
structure is reworked between ABC-TV and ESPN.
    I am going to introduce legislation in the next session to 
take away the antitrust exemption from the NFL, and I think 
that they are building a very, very strong case--the NFL is 
building a very, very strong case to have Congress take away 
the exemption that was granted in the 1961 legislation. If 
someone is wise enough to tell us how to condition it, we would 
certainly be interested in considering that. But the market 
is--you do not have to be very smart to be smarter than the 
Congress. But the market has demonstrated its wisdom, and that 
is where my inclination is.
    But as I take a look at what is happening here, I like the 
competition that is coming in with Verizon and the competition 
that is coming in, and satellite competition is good. But I am 
not sure we do not have to make some changes legislatively on 
integration, but before we do, we have to understand it. We are 
a good ways away from that. I know there are a lot of charts a 
lot more complicated than this one in the offing.
    I will give each of you a chance to make a closing 
statement. Mr. Baller, you have your hand up. You are first.
    Mr. Baller. Okay. Thank you very much. As I heard you say 
that you are considering introducing legislation, I had--
    Chairman Specter. I am not considering it. I am going to do 
it.
    Mr. Baller. All right. I had a flashback to the hearing 
that I mentioned at the outset of my testimony that occurred in 
this room in February of 2004. At that hearing Senators Kohl 
and DeWine announced that they were going to introduce 
legislation to eliminate the terrestrial loophole. And after 
that hearing, Comcast announced that it was going to fix this 
problem everywhere. It was only then that some of our clients, 
including the Borough of Kutztown, Pennsylvania, were able to 
get Comcast programming--sports programs in that case.
    Now, Kutztown could not have brought an antitrust action. 
It has a population of only 5,000. That kind of litigation 
would have been impractical. And it seems to me that having 
rights of that kind cannot be left to coming to the Senate and 
having a Senator or two Senators say they are going to 
introduce legislation. If it is a good idea--and I believe it 
is--it ought to be put into a statute so that everyone 
understands it and everyone can live by it. And I think that it 
is solutions of that kind that we need and not solely reliance 
on antitrust remedies. That may work for Verizon, but it does 
not work for the small to medium-sized competitors who we want 
to succeed.
    Chairman Specter. Mr. Salinger, do you have a closing 
statement you would like to make?
    Mr. Salinger. Senator, no, I do not.
    Chairman Specter. Dr. Cooper?
    Mr. Cooper. I think you have heard a number of reasons why 
consumers continue to be very upset about their cable bills. 
There are sources of market power in this industry in both 
distribution, in carriage rights, and I honestly believe that 
the NFL would not be able to extract those rents if this 
structure were not set up the way it is.
    You have identified the antitrust exemption underlying the 
franchises and the leagues. We also have a terrible problem of 
market power in the distribution and the rules that were set up 
about the bargaining power that programmers and cable operators 
have, all of which is being used and has been used for a couple 
decades to the detriment of the consumer. And the competition 
we see is not sufficient to alleviate the problem.
    Chairman Specter. Mr. Goodman, a concluding statement?
    No, Mr. Goodman, I am the Chairman. Mr. Goodman, a 
concluding statement? Senator Kennedy made that mistake.
    Mr. Goodman. I think that Mr. Cohen has put the context of 
what is going on, on the table. Their specific goal is to get 
the current laws repealed. The goal of the group that I 
represent is to highlight the fact that the current vertical 
integration, as we submitted, is actually more powerful and has 
the ability to affect the market as much today as it did in 
1992.
    The access that we have has only come through very constant 
confrontation, and as Jim Baller mentioned, we can give you a 
list of specific moments in time related to mergers and 
acquisitions or hearings here or other activities that resulted 
in our finally getting access to content. It has not come 
because of just willing give it to us.
    When we look forward and we look at the new structure and 
we look at the level of vertical integration, we believe that 
you just are going to have to maintain these rules of access to 
content with some expansion and clarification, or you are not 
going to have the competition you want.
    Chairman Specter. Mr. Cohen?
    Mr. Cohen. Thank you very much, Mr. Chairman. Three quick 
points.
    Number one, the market is working. The video distribution 
market is vigorously competitive. I controlled myself until the 
very end, but I hold up today's Wall Street Journal with the 
headline, ``Cable rate increases are smallest in years,'' and 
making the case that consumers have more choice today than they 
have had at any time in the--
    Chairman Specter. Is 3.2 percent that I saw in the 
Philadelphia headlines for Comcast the smallest in recent 
years?
    Mr. Cohen. It is the smallest in that market. But in many 
of our markets, the increases are even lower. And, in fairness, 
Mr. Chairman, you have to look at our entire package of 
services. For the fifth consecutive year, we are not raising 
the price on our high-speed data service. We are all around the 
country offering a triple-play bundle of telephone, high-speed 
data, and digital cable service for $99 a month. This market is 
vigorously competitive and working.
    Number two, the current program access regulations are 
based on a 1992 model of the world. That model has changed. 
Notwithstanding any general statements that can be made here 
today, the indisputable statistical evidence is that vertical 
integration in our space is dramatically reduced today--57 
percent in 1992 to less than 20 percent in the world today.
    And, No. 3, trust the antitrust laws. There is no reason 
why this particular industry needs special regulation. Any 
abuses that could arise can be handled through the antitrust 
laws, and if they cannot be handled by individual plaintiffs, 
the FTC and the Department of Justice and this Committee and 
the House Judiciary Committee have plenty of capacity to be 
able to influence behavior in the market where it is necessary 
to do so.
    Chairman Specter. So let the market govern without the 
antitrust exemption.
    Mr. Cohen. There is no antitrust exemption that applies to 
us, so I think I gave my view on the antitrust exemption.
    Chairman Specter. Mr. Cohen, staff has just handed me a 
listing from Bernstein Research dated November 30, 2006, which 
has a listing of Comcast in about a dozen markets, showing an 
average of 5.4 percent. I would like you to take a look at that 
and see if that is accurate.
    Mr. Cohen. I have seen the Bernstein report, but I will 
note that that report references our basic cable rate 
increases. It does not reference what happens with our digital 
packages, with our premium services, with our set-top boxes, 
with our high-speed data, or with our Comcast Digital Voice 
product.
    The overall rate of increase that an average Comcast 
customer will pay this year will be approximately 3 percent.
    Chairman Specter. Gentlemen, thank you very much. It has 
been a very illuminating hearing.
    That concludes our hearing.
    [Whereupon, at 12:15 p.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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